INTERNATIONAL AIRCRAFT INVESTORS, S-1, 1997-01-16

INTERNATIONAL AIRCRAFT INVESTORS
S-1, 1997-01-16

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 16, 1997

REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

INTERNATIONAL AIRCRAFT INVESTORS
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
CALIFORNIA 7359 95-4176107
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER ID NO.)
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NO.)
</TABLE>

3655 TORRANCE BOULEVARD, SUITE 410
TORRANCE, CALIFORNIA 90503
(310) 316-3080
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

WILLIAM E. LINDSEY
INTERNATIONAL AIRCRAFT INVESTORS
3655 TORRANCE BOULEVARD, SUITE 410
TORRANCE, CALIFORNIA 90503
(310) 316-3080
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:

<TABLE>
<S> <C>
RICHARD A. BOEHMER, ESQ. PAUL H. IRVING, ESQ.
STUART Y. KIM, ESQ. SUZANNE K. LIST, ESQ.
O'MELVENY & MYERS LLP MANATT, PHELPS & PHILLIPS, LLP
400 SOUTH HOPE STREET 11355 W. OLYMPIC BOULEVARD
LOS ANGELES, CALIFORNIA 90071 LOS ANGELES, CALIFORNIA 90064
(213) 669-6000 (310) 312-4000
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

CALCULATION OF REGISTRATION FEE

<TABLE>
<S> <C> <C>
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TITLE OF EACH CLASS OF SECURITIES PROPOSED MAXIMUM AGGREGATE AMOUNT OF REGISTRATION
TO BE REGISTERED OFFERING PRICE FEE
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Common Stock $23,000,000 $6,970
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</TABLE>

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE.
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<PAGE> 2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED JANUARY 16, 1997
PRELIMINARY PROSPECTUS

[ ] SHARES

[LOGO] INTERNATIONAL AIRCRAFT INVESTORS

COMMON STOCK
------------------------

Of the [ ] share of Common Stock offered hereby, shares are
being sold by International Aircraft Investors (the "Company") and
shares are being sold by certain shareholders of the Company (the "Selling
Shareholders"). The Company will not receive any of the proceeds from the sale
of shares by the Selling Shareholders. See "Principal and Selling Shareholders."
Prior to this offering, there has been no public market for the Common Stock of
the Company. It is currently estimated that the initial public offering price
will be between $10.00 and $12.00 per share. See "Underwriting" for information
relating to the determination of the initial public offering price.

The Company is applying to have the Common Stock approved for quotation on
the National Association of Securities Dealers Automated Quotation National
Market ("Nasdaq-NM") under the trading symbol "IAIC."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 8.
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
===============================================================================
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDERS
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<S> <C> <C> <C> <C>
Per Share......... $ $ $ $
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Total(3).......... $ $ $ $
===============================================================================
</TABLE>

(1) Excludes the value of warrants to purchase up to shares of Common
Stock at an exercise price per share equal to 120% of the initial public
offering price per share issuable upon exercise of warrants to be issued to
Sutro & Co. Incorporated upon the closing of this offering. The Company has
agreed to indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."

(2) Before deducting expenses payable by the Company estimated to be $550,000.

(3) The Company has granted the Underwriters an option, exercisable for 45 days
from the date of this Prospectus, to purchase a maximum of [ ]
additional shares of Common Stock from the Company solely to cover
overallotments, if any. If such option is exercised in full, the total Price
to Public, Underwriting Discount, Proceeds to Company and Proceeds to
Selling Shareholders will be $ , $ and $ ,
respectively. See "Underwriting."
------------------------

The shares of Common Stock are offered by the several Underwriters subject
to receipt and acceptance by them and subject to their right to reject any order
in whole or in part and to withdraw, cancel or modify this offering without
notice. It is expected that delivery of the certificates for the shares will be
made on or about , 1997.

SUTRO & CO. INCORPORATED FRIEDMAN, BILLINGS, RAMSEY & CO., INC.

THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE> 3

[ARTWORK TO COME]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

2
<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus, including the information
appearing under "Risk Factors." Unless otherwise indicated, all financial
information and share and per share data in this Prospectus, other than the
Consolidated Financial Statements, (i) reflect a 1-for- reverse split of Common
Stock prior to the closing of the offering, (ii) assume no exercise of the
Underwriters' over-allotment option, (iii) assume the conversion of outstanding
Preferred Stock into shares of Common Stock upon the closing of this
offering, (iv) assume the exercise of options to purchase shares of Common
Stock, (v) assume the conversion of the 5% Subordinated Convertible Note due
August 13, 1998 in the principal amount of $700,000 (the "Convertible Note")
into 140,000 shares of Common Stock, and (vi) exclude up to shares of
Common Stock issuable upon exercise of warrants to be issued to Sutro & Co.
Incorporated (the "Representative's Warrants") upon the closing of this
offering. See "Management -- Stock Option Plan," "Description of Capital Stock"
and "Underwriting." References in this Prospectus to the Company or IAI shall be
deemed to include International Aircraft Investors and its subsidiaries unless
otherwise stated.

THE COMPANY

International Aircraft Investors (the "Company" or "IAI") is primarily
engaged in the acquisition of used, single-aisle jet aircraft and engines for
lease and sale to domestic and foreign airlines and other customers. As of
September 30, 1996, the Company's portfolio, appraised at approximately $91.53
million, had seven aircraft on lease to seven customers. The Company leases its
aircraft under "triple net" operating leases where the lessee is responsible for
all operating costs (i.e., crew, fuel, insurance, taxes, licenses, landing fees,
navigation charges, maintenance, repairs and associated expenses) and the
Company retains the potential benefit and assumes the risk of the residual value
of the aircraft, as distinct from finance leases where the full cost of the
aircraft is recovered over the term of the lease at usually lower monthly rates.

The profits of the global airline industry are on the rise and load factors
are expected to increase through 2015, according to the 1996 Current Market
Outlook published by the Boeing Commercial Airplane Group in March 1996 (the
"Boeing Report"). While Boeing projects that traffic will increase 5.1% annually
through 2015 and that 15,900 new commercial jet aircraft will be delivered over
the next approximately 20 years, it also states that airlines will confront an
increasingly competitive environment with long-term profitability dependent on
successful cost reductions. Such reductions will include improvements in fleet
planning designed to more closely match aircraft capacity with passenger demand.

An important element of fleet planning for many airlines is the use of
operating leases which tend to maximize fleet flexibility due to their
short-term nature and relatively small capital outlay, while minimizing
financial risks. While most operating leases are made for new aircraft, emphasis
on cost containment has been increasing the attractiveness of leasing used
commercial jet aircraft.

The Boeing Report estimates that 15,900 new commercial jet aircraft will be
delivered over the next approximately 20 years, resulting in a projected
worldwide fleet of approximately 23,000 commercial jet aircraft in 2015, net of
3,900 retired aircraft. Single-aisle jet aircraft with seating capacity of 121
to 170 are projected by the Boeing Report to account for approximately 31.5% of
new commercial jet aircraft deliveries over the next approximately 20 years.

Due to the increasing cost of commercial jet aircraft, the anticipated
modernization of the worldwide aircraft fleet, and the emergence of new
niche-focused airlines which generally use leasing for capital asset
acquisitions, the Company believes that airlines will increasingly turn to
operating leases as an alternative method to finance their fleets. Although the
Boeing Report estimates that the fleets of operating lessors have grown from
over 200 aircraft in 1986 to over 1,000 in 1995, commercial jet aircraft under
operating lease represented only approximately 10% of total commercial jet
aircraft in service at year-end 1995. The larger operating lessors appear to be
focused on the lease of new, rather than used, commercial jet aircraft. The
Company believes that the market for the operating lease of used commercial jet
aircraft, including for single-

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aisle jet aircraft with seating capacity of 121 to 170, should grow due to the
factors discussed above as well as the emphasis on airline cost reduction, the
desire of airlines for fleet flexibility and the growth in air travel.

The Company's strategy is to focus on operating leases of used,
single-aisle jet aircraft to a diversified base of customers worldwide, while
employing strict risk management criteria. Key elements of the Company's
business strategy include the following:

Focus on Operating Leases. The Company believes that airlines are becoming
increasingly aware of the benefits of financing their fleet equipment on an
operating lease basis, including preservation of cash flow and flexibility
regarding fleet size and composition. The Company believes the operating lease
of jet aircraft, especially used jet aircraft, offers the potential for a higher
rate of return to the Company than other methods of aircraft financing, such as
finance leases.

Focus on Used Commercial Jet Aircraft with a Broad Market Acceptance. The
Company leases used, single-aisle jet aircraft, particularly aircraft between
six and 15 years old at the time the aircraft is acquired by the Company. The
Company is currently focusing on the acquisition and lease of single-aisle jet
aircraft, primarily aircraft with a seating capacity of 121 to 170 passengers,
which, according to the Boeing Report, account for approximately 30.4% of the
world fleet. The Boeing Report estimates that the commercial replacement cycle
for this type of aircraft is 25 to 28 years from manufacture date. This category
of jet aircraft includes aircraft such as the Boeing 737-200/-300/-400, the
Airbus A320 and the McDonald Douglas MD80 series. The Company will also consider
acquiring and leasing Boeing 757 aircraft, which have a seating capacity of 171
to 240 passengers. The Company will continue to purchase aircraft which enjoy
significant manufacturer's support and fit the Company's criteria.

Optimize Relationship with ILFC. The Company has had a long and continuous
relationship with International Lease Finance Corporation, a wholly owned
subsidiary of American International Group, Inc. ("ILFC"). ILFC was an initial
investor in the Company and prior to the offering owned approximately [2.9%] of
the Company's equity. ILFC is a major owner-lessor of commercial jet aircraft
having contacts with most airlines worldwide, the aircraft and engines
manufacturers and most of the significant participants in the aircraft industry
worldwide. The Company intends to use its relationship with ILFC to seek to gain
access, where appropriate, to various airlines and other participants in the
market to facilitate the purchase, lease, re-lease and sale of aircraft. ILFC's
primary focus is the acquisition and leasing of new commercial jet aircraft.
Thus, the Company's business compliments rather than competes with ILFC. See
"Business -- Relationship With ILFC."

Leverage Management Experience. The successful purchase and leasing of used
commercial jet aircraft requires skilled management in order to evaluate the
condition and price of the aircraft to be purchased and the current and
anticipated market demand for that aircraft. The management of the Company and
the Board of Directors of the Company, have significant global experience in the
aviation industry, with an average of 28 years of experience, especially in the
purchase, sale and financing of commercial jet aircraft, and have extensive
contacts with airlines worldwide. See "Management -- Directors and Executive
Officers."

Access a Diversified Global Customer Base. The Company's objective is to
diversify its customer base to avoid dependence on any one lessee, geographic
area or economic trend.

Employ Strict Risk Management Criteria. The Company will only purchase
aircraft that are currently under lease or are subject to a contractual
commitment for lease or purchase, will not purchase aircraft on speculation, and
will seek financing using a non-recourse loan structure. The Company evaluates
carefully the credit risk associated with each of its lessees and the lessee's
ability to operate and properly maintain the aircraft. The Company also
evaluates the return conditions in each lease since the condition of an aircraft
at the end of a lease can significantly impact the amount the Company will
receive on the re-lease or sale of an aircraft.

The Company was incorporated in California in 1988, its principal executive
offices are located at 3655 Torrance Boulevard, Suite 410, Torrance, California
90503, and its telephone and facsimile numbers are (310) 316-3080 and (310)
316-8145, respectively.

4
<PAGE> 6

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company.. shares
Common Stock to be outstanding after
the offering....................... shares(1)
Use of proceeds...................... To finance the acquisition of aircraft, and for
working capital and other general corporate purposes
Proposed Nasdaq-NM symbol............ IAIC
</TABLE>

- ---------------

(1) Excludes (i) shares of Common Stock issuable upon exercise of options
which will be granted under the Company's 1996 Employee Stock Option and
Award Plan (the "1996 Option Plan"), and (ii) additional shares of
Common Stock reserved for issuance under the 1996 Option Plan.

5
<PAGE> 7

SUMMARY CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------- --------------------
1991(1) 1992(1) 1993 1994 1995 1995 1996
------- ------- ------ ------ ------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues:
Rental of flight equipment....................... $ 6,288 $ 6,166 $6,098 $8,108 $7,765 $5,776 $9,502
Consulting fees.................................. 28 68 742 213 491 113 235
Gain on sale of aircraft equipment............... 111 841 -- -- -- -- --
Interest income.................................. 50 35 7 68 118 62 121
------- ------- ------ ------ ------ ------ ------
Total revenues............................... 6,477 7,111 6,847 8,389 8,374 5,951 9,858
Expenses:
Interest......................................... 4,191 3,182 2,293 3,548 3,776 2,838 4,788
Depreciation..................................... 3,086 2,970 2,014 3,165 3,354 2,511 4,160
General and administrative....................... 757 690 447 548 526 369 421
Loss on sale of aircraft......................... -- 3,645(2) -- -- -- -- --
Other............................................ 483 185 -- -- -- -- --
------- ------- ------ ------ ------ ------ ------
Total expenses............................... 8,517 10,672 4,754 7,261 7,656 5,718 9,369
Equity in earnings of affiliates................... -- -- -- -- 184 56 --
Income (loss) before income taxes and extraordinary
items............................................ (2,040) (3,562) 2,093 1,128 901 288 488
Income tax expense................................. 116 2 45 59 30 24 33
Income (loss) before extraordinary items........... (2,156) (3,564) 2,048 1,069 871 264 455
Extraordinary items -- gain from debt
forgiveness...................................... -- 4,326 -- -- -- -- --
------- ------- ------ ------ ------ ------ ------
Net income (loss).................................. $(2,156) $ 762 $2,048 $1,069 $ 871 $ 264 $ 455
======= ======= ====== ====== ====== ====== ======
Net income (loss) per common and common equivalent
share(3):
Income (loss) before extraordinary items......... $(10.03) $ (0.60) $ 0.24 $ 0.13 $ 0.11 $ 0.03 $ 0.06
Extraordinary items.............................. -- 0.73 -- -- -- -- --
------- ------- ------ ------ ------ ------ ------
Net income (loss).............................. $(10.03) $ 0.13 $ 0.24 $ 0.13 $ 0.11 $ 0.03 $ 0.06
======= ======= ====== ====== ====== ====== ======
Weighted average number of common and common
equivalent shares outstanding(3)................. 215 5,959 9,857 7,985 7,985 7,985 8,038
Pro forma net income per common and common
equivalent share(4)..............................
Pro forma weighted average number of common and
common equivalent shares outstanding(4)..........
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-----------------------
AS
ACTUAL ADJUSTED(5)
------- -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA
Flight equipment under operating lease................................................... $91,488 $
Total assets............................................................................. 93,426
Debt financing(6)........................................................................ 84,163
Shareholders' equity..................................................................... 4,503
</TABLE>

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------- ---------------
1991 1992 1993 1994 1995 1995 1996
------ ------- ------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA
EBITDA(7).................................................. $5,237 $10,561 $6,400 $7,841 $8,031 $5,637 $9,436
Return on average assets(8)................................ (4.6)% 1.8% 5.8% 1.9% 1.5% 0.6% 0.7%
Return on contributed capital(9)........................... (44.7)% 15.8% 40.0% 20.9% 17.0% 6.9% 11.6%
Aircraft equipment owned at period end..................... 9 4 5 5 8 5 8
</TABLE>

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<PAGE> 8

$2,553,000, $(1,003,000) and $(4.67), respectively. During 1992, revenues,
expenses, gain on disposal, net loss and net loss per share related to this
subsidiary were $712,000, $1,144,000, $3,552,000, $(432,000) and $(0.07),
respectively.

(2) See "Business Aircraft Leasing."

(3) The treasury stock method was used to calculate net income (loss) per common
and common equivalent share information and weighted average number of
common and common equivalent shares outstanding. See Note 1 to Consolidated
Financial Statements. Does not give effect to the 1-for- reverse stock split
of Common Stock, the assumed conversion of outstanding shares of
Preferred Stock and the Convertible Note into Common Stock, or the assumed
exercise of options to acquire shares of Common Stock.

(4) Pro forma information was calculated as if the 1-for- reverse stock split,
the conversion of outstanding shares of Preferred Stock and the Convertible
Note into Common Stock and the exercise of options to acquire shares of
Common Stock had occurred at the beginning of the periods indicated, with
the proceeds from the exercise of the options used to reduce long-term debt
and related interest costs. See Note 10 to Consolidated Financial
Statements.

(5) As adjusted to give effect to (i) the conversion of outstanding Preferred
Stock and the Convertible Note into shares of Common Stock; (ii)
exercise of options to purchase shares of Common Stock; (iii) the
sale of the shares of Common Stock offered by the Company hereby
at an assumed offering price to the public of $11.00 per share, after
deducting underwriting discounts and commissions and estimated expenses of
the offering; and (iv) the application of the estimated net proceeds
therefrom. See "Use of Proceeds."

(6) Includes current portion of long-term debt of $42.9 million.

(7) EBITDA, defined as income before interest expense, income taxes,
depreciation, loss on sale of aircraft and extraordinary items, is not
intended to represent an alternative to net income (as determined in
accordance with generally accepted accounting principles) as a measure of
performance and is also not intended to represent an alternative to cash
flow from operating activities as a measure of liquidity. Rather, it is
included herein because management believes that it provides an important
additional perspective on the Company's operating results and the Company's
ability to fund its continuing operations.

(8) Calculations are based on the average monthly balances. Interim period
results are annualized.

(9) Contributed capital is total shareholders' equity excluding accumulated
deficit.

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<PAGE> 9

RISK FACTORS

An investment in the shares of Common Stock being offered hereby involves a
high degree of risk. In addition to other information in this Prospectus, the
following risk factors should be considered carefully by potential purchasers in
evaluating an investment in the Common Stock offered hereby. This Prospectus
contains forward-looking statements that involve risks and uncertainties, such
as statements of the Company's plans, objectives, expectations and intentions.
The cautionary statements made in this Prospectus should be read as being
applicable to all related forward-looking statements wherever they appear in
this Prospectus. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include those discussed below, as well as those discussed elsewhere herein.

OWNERSHIP RISKS

The Company leases its portfolio of aircraft under operating leases rather
than finance leases. Under an operating lease, the Company retains title to the
aircraft and assumes the risk of not recovering its entire investment in the
aircraft through the re-leasing and remarketing process. Operating leases
require the Company to re-lease or sell aircraft in its portfolio in a timely
manner upon termination of the lease in order to minimize off-lease time and
recover its original investment in the aircraft. Numerous factors, many of which
are beyond the control of the Company, may have an impact on the Company's
ability to re-lease or sell an aircraft on a timely basis or to re-lease at a
satisfactory lease rate. Among the factors are the demand for various types of
aircraft, general market and economic conditions, regulatory changes
(particularly those imposing environmental, maintenance and other requirements
on the operation of aircraft), changes in the supply or cost of aircraft and
technological developments. In addition, the success of an operating lease
depends in significant part upon having the aircraft returned by the lessee in
marketable condition as required by the lease. Consequently, there can be no
assurance that the Company's estimated residual value for aircraft will be
realized. If the Company is unable to re-lease or resell aircraft on favorable
terms, its business, financial condition and results of operations could be
adversely affected.

INDUSTRY RISKS

The Company is in the business of providing leases of commercial jet
aircraft to international and domestic airlines. Consequently, the Company is
affected by downturns in the air transportation industry in general. Substantial
increases in fuel costs or interest rates, increasing fare competition, slower
growth in air traffic, or any significant downturn in the general economy could
adversely affect the air transportation industry and may therefore negatively
impact the Company's business, financial condition and results of operations. In
recent months, there has been an increase in spot jet fuel prices. In addition,
in recent years, a number of commercial airlines have experienced financial
difficulties, in some cases resulting in bankruptcy proceedings. While the
Company believes that its lease terms protect its aircraft and the Company's
investment in such aircraft, there can be no assurance that the financial
difficulties experienced by a number of airlines will not have an adverse effect
on the Company's business, financial condition and results of operations.

LIMITED NUMBER OF AIRCRAFT AND LESSEES

The Company currently owns and leases seven aircraft to seven lessees. The
loss of any one aircraft or the financial difficulty of or lease default by any
one lessee could have a material adverse effect on the Company's business,
financial condition and results of operations.

RELIANCE UPON ILFC

To date, five of the Company's current seven aircraft and leases were
acquired from ILFC. See "Business -- Relationship With ILFC". In connection with
all of the Company's aircraft, ILFC has provided guarantees or other financial
support which have allowed the Company to finance the aircraft at more favorable
leverage than the Company could have obtained without the guarantees and
financial support of ILFC. In addition, ILFC has provided a portion of the
consulting fees reported by the Company. See

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<PAGE> 10

"Management's Discussion and Analysis of Financial Condition and Results of
Operations." There can be no assurance that the Company will be able to continue
to acquire from ILFC or from other entities aircraft and leases of the type and
on terms as favorable as or better than the aircraft and leases acquired from
ILFC. If aircraft and leases are acquired from ILFC or others, there can be no
assurance that guarantees or financial support will be given by the seller or
whether the Company will be able to receive as favorable leverage and interest
rates from its lenders. If the Company is unable to acquire aircraft and leases
and to finance the acquired aircraft at competitive rates, the Company's
business, financial condition and results of operations could be adversely
affected. See "Business -- Relationship With ILFC," "Certain Transactions" and
Note 6 to Consolidated Financial Statements.

CUSTOMER CREDIT RISKS

Certain of the Company's existing and prospective customers are smaller
domestic and foreign passenger airlines which, together with major passenger
airlines, may suffer from the factors which have historically affected the
airline industry. See "Industry Risks" above. A lessee may default in
performance of its lease obligations and the Company may be unable to enforce
its remedies under a lease. A number of airlines have experienced financial
difficulties, and 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 the United States Bankruptcy Code (the
"Bankruptcy Code"), creditors are stayed automatically from enforcing their
rights. In the case of United States certificated airlines, Section 1110 of the
Bankruptcy Code provides certain relief to lessors of aircraft. Specifically,
the airline has 60 days from the date the lessor makes its claim to agree to
perform its obligations and to cure any defaults before the lessor may repossess
the aircraft. The scope of Section 1110 has been the subject of significant
litigation and there can be no assurance that the provisions of Section 1110
will protect the Company's investment in an aircraft in the event of a lessee's
bankruptcy. In addition, Section 1110 does not apply to lessees located outside
of the United States and applicable foreign laws may not provide comparable
protection.

During the years ended December 31, 1993, 1994 and 1995, revenues generated
from foreign customers accounted for approximately 65%, 80% and 69%,
respectively, of total revenues. For the nine months ended September 30, 1996,
revenues generated from foreign customers accounted for approximately 43% of
total revenues. See "International Risks" below. The following customers
accounted for more than 10% of the Company's total revenues in one or more of
the three years ended December 31, 1995: Delta Air Lines, Inc. (24%, 12%, 11%
and 7% for the years ended December 31, 1993, 1994 and 1995 and the nine months
ended September 30, 1996, respectively), British Midland Airways Limited (2%,
36%, 36% and 23% for the years ended December 31, 1993, 1994 and 1995 and the
nine months ended September 30, 1996, respectively), ILFC (9%, 6%, 16% and 10%
for the years ended December 31, 1993, 1994 and 1995 and the nine months ended
September 30, 1996, respectively) and New Zealand International Airlines Limited
(54%, 42%, 26% and 11% for the years ended December 31, 1993, 1994 and 1995 and
the nine months ended September 30, 1996, respectively).

In 1991, the Company had a DC-9 aircraft on lease to Midway Airlines
("Midway"). The aircraft was not acquired from ILFC and was financed under a
recourse loan to the Company. Due in part to expansion by Midway and an economic
downturn, Midway filed for protection under the Bankruptcy Code in March 1991.
At the time of the bankruptcy filing, the Company's DC-9 aircraft was undergoing
a scheduled major overhaul, which caused the aircraft to be in a condition that
it could not be flown.

After the filing under the Bankruptcy Code, the Company negotiated with
Midway and the Company's lender regarding the continued lease or other
disposition of the aircraft. Market conditions for the leasing of used
commercial jet aircraft deteriorated while these negotiations were underway.
Ultimately, the Company concluded that the aircraft should not remain on lease
to Midway. Management concluded that, because of the Company's then limited
capital resources and the significant capital investment required to return the
aircraft to a condition where it could be re-leased, the aircraft should be sold
and the Company's loan with respect to the aircraft should be renegotiated.

9
<PAGE> 11

The aircraft, minus one engine which was at an overhaul shop, was then
recovered. The aircraft was sold, resulting in proceeds of $1.5 million. The
purchaser was required to complete the major overhaul work on the aircraft and
add an engine before the aircraft could be operated. In satisfaction of the
outstanding recourse loan of approximately $6.7 million (including accrued
interest), the lender agreed to accept $4.0 million, a $750,000 Note due August
1998 and the Convertible Note. The $4.0 million was obtained from ILFC. The
Company paid to ILFC the net proceeds from the sale of the aircraft, sold other
assets to ILFC and issued to ILFC a $1.7 million Note due in installments
through August 1999.

These transactions resulted in a net loss to the Company in 1992 of $2.9
million. The Company's inability to collect receivables under a lease or to
repossess aircraft in the event of a default by a lessee could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Aircraft Leasing."

INTERNATIONAL RISKS

During 1995 and the nine months ended September 30, 1996, approximately 69%
and 43%, respectively, of the Company's lease revenue was generated by leases to
foreign customers. Such leases may present greater risks to the Company because
certain foreign laws, regulations and judicial procedures may not be as
protective of lessor rights as those which apply in the United States. In
addition, many foreign countries have currency and exchange laws regulating the
international transfer of currencies. The Company attempts to minimize its
currency and exchange risks by negotiating all of its aircraft lease
transactions in U.S. Dollars. See "Business -- Aircraft Leasing." 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. Political
instability abroad and changes in international policy also present risks
associated with expropriation of the Company's leased aircraft. Although the
Company has experienced no problems to date with its foreign lessees, there can
be no assurance that the Company will not experience problems in collecting
accounts due under leases to foreign customers or reacquiring aircraft from such
customers in the future. International collection problems and problems in
recovering aircraft could have a material adverse effect on the Company's
business, financial condition and results of operations.

Many foreign countries have currency and exchange laws regulating the
international transfer of currencies. The Company attempts to minimize its
currency and exchange risks by negotiating all of its aircraft leasing in U.S.
dollars. The Company requires, as a condition to any foreign transaction, that
the lessee in a foreign country first obtain, if required, written approval of
the appropriate government agency, finance ministry or central bank for the
remittance of all funds contractually owed to the Company in U.S. dollars.
Although the Company has attempted to minimize the foreign currency risk, to the
extent that significant currency fluctuations result in materially higher rental
costs to a foreign lessee, the foreign lessee may be unable or unwilling to make
the required lease payments.

The Company's revenues and income may be affected by, among other matters,
political instability abroad, changes in national policy, competitive pressures
on certain air carriers, fuel shortages, labor stoppages, recessions and other
political or economic events adversely affecting world or regional trading
markets or impacting a particular customer.

The Company's aircraft can be subject to certain foreign taxes and airport
fees. Unexpected liens on an aircraft could be imposed in favor of a foreign
entity, such as Eurocontrol or the airports of the United Kingdom.

DEPENDENCE UPON AVAILABILITY OF FINANCING

The operating lease business is a capital intensive business. The Company's
typical operating lease transaction requires a cash investment by the Company of
approximately 5% to 15% of the aircraft purchase price, commonly known as an
"equity investment." The Company's equity investments have historically been
financed from internally generated funds and other cash and seller financing
(primarily from ILFC), and in the future will include a substantial portion of
the net proceeds of the offering. The balance of the purchase price of an
aircraft is typically financed with the proceeds of non-recourse, secured
borrowings from banks or

10
<PAGE> 12

other financial institutions (to date with the support of ILFC as the seller of
the flight equipment). Accordingly, the Company's ability to successfully
execute its business strategy and to sustain its operations is dependent, in
part, on the availability of debt and equity capital. In addition, the terms of
the Company's loans generally end at the end of the noncancelable portion of the
lease of the related aircraft. If the lease grants the lessee the option to
renew the lease, the Company will be required to renegotiate the loan with its
lender or obtain other financing. At September 30, 1996, approximately $42.9
million of the Company's debt financing was classified as current liabilities,
primarily as a result of balloon payments due at the end of the noncancellable
portion of leases occurring in 1997. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources." There can be no assurance that the necessary amount of such capital
will continue to be available to the Company on favorable terms, or at all. If
the Company were unable to continue to obtain any portion of required financing
on favorable terms, the Company's ability to add new leases to its lease
portfolio, renew leases, re-lease an aircraft, repair or recondition an aircraft
if required or retain ownership of an aircraft on which financing has expired
would be limited, which would have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
Company's financing arrangements to date have been dependent in part upon ILFC.
See "Reliance Upon ILFC" above and "Business -- Relationship With ILFC,"
"Certain Transactions" and Note 6 to Consolidated Financial Statements.

INTEREST RATE RISKS

The Company's leases are generally structured at fixed rental rates for
specified terms. As of September 30, 1996, borrowings subject to interest rate
risk, after taking into account guarantees and interest rate swaps in place,
totaled $2.5 million or 3% of the Company's total borrowings. In addition, at
September 30, 1996, approximately $42.9 million of the Company's debt financing
matures or comes due within one year from such date, including approximately
$37.9 million of debt relating to four leases which expire between January and
August, 1997. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources." There can be no
assurance that the Company will be able to finance or refinance its borrowings
at fixed rates which result in acceptable interest rate spreads to the
applicable leases, or at fixed rates at all. 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 loans. There can be no assurance that the Company's
business, financial condition and operating results will not be adversely
affected during any period of increases in interest rates.

COMPETITION

The aircraft leasing industry is highly competitive, depending in part upon
the type of leased aircraft and prospective lessees. The Company believes that
only a few comparably sized companies on a worldwide basis focus primarily on
the same segment of the aircraft leasing market as the Company. In addition, a
number of aircraft manufacturers, airlines and other operators, distributors,
equipment managers, leasing companies (including ILFC), financial institutions
and other parties engaged in leasing, managing, marketing or remarketing
aircraft compete with the Company, although their primary focus is not on the
market segment on which the Company focuses. Many of these periodic competitors
have significantly greater financial resources than the Company. The Company's
competitors may lease aircraft at lower rates than the Company and provide
benefits, such as direct maintenance, crews, support services and trade-in
privileges, which the Company does not intend to provide. There can be no
assurance that the Company will continue to compete effectively against present
and future competitors or that competitive pressures will not have a material
adverse effect on the Company's business, financial condition and results of
operations.

STOCK OWNERSHIP AFFECTING AIRCRAFT REGISTRATION

The Company intends to maintain United States registration of some of the
aircraft which it owns. Aircraft may not be registered in the United States
unless the registered owner is a citizen of the United States or other
permissible persons under the Federal Aviation Act. If a corporation is the
registered owner of an aircraft, the corporation must be organized under the
laws of the United States or any State, and the president

11
<PAGE> 13

and two-thirds or more of the board of directors and at least 75% of the voting
interest of the corporation must be controlled by persons who are citizens of
the United States. Non-U.S. citizens may hold stock in a U.S. corporation
through an appropriate voting trust. Any successful challenge to registration of
an aircraft by the Federal Aviation Administration (the "FAA") may result in
substantial penalties, including the forced sale of the aircraft, the potential
for uninsured casualties to the aircraft, the loss of the benefits of the
central recording system under federal law (thereby leaving the aircraft exposed
to liens or other interests not of record with the FAA), and a breach by the
Company of any leases or financing agreements with respect to the aircraft. See
"Principal and Selling Shareholders."

AIRCRAFT NOISE COMPLIANCE

The Airport Noise and Capacity Act of 1990 ("ANCA") requires the phaseout
of Stage 2 aircraft (defined as aircraft that comply with the Stage 2 noise
levels prescribed in Part 36 of the Federal Aviation Regulations) by December
31, 1999, subject to certain exceptions. The FAA regulations which implement the
ANCA require carriers to modify or reduce the number of Stage 2 aircraft
operated by 50% by the end of 1996, 75% by the end of 1998 and 100% by the end
of 1999. Alternatively, a carrier could satisfy these compliance requirements by
phasing in aircraft meeting the stricter Stage 3 requirements (set forth in Part
36 of the Federal Aviation Regulations) so that it has at least 65% Stage 3
aircraft by the end of 1996, 75% Stage 3 aircraft by the end of 1998 and 100% of
Stage 3 aircraft by the end of 1999.

Similar rules exist in other countries, including the countries in Western
Europe, Australia, New Zealand and Japan, which either require compliance with
regulations substantially identical to Stage 3 or which forbid the operation of
additional non Stage 3 aircraft by carriers based in such jurisdictions, which
has the effect of limiting the Company's ability to place aircraft on lease in
such jurisdictions unless they have been modified to meet Stage 3 requirements.

Four of the Company's aircraft currently meet Stage 3 requirements. Two of
the Company's remaining three aircraft are not currently leased in an area
imposing Stage 3 requirements. The Company may be required to modify one or more
of its aircraft to meet Stage 3 requirements, which currently could cost in the
range of $1.7 million to $2.5 million per aircraft. See "Business -- Government
Regulation." The Company has no assurance that it will be able to obtain
financing for any such modifications. See "Dependance Upon Availability of
Financing" above.

The ANCA also recognizes the right of airport operators with special noise
problems to implement local noise abatement procedures as long as such
procedures do not interfere unreasonably with the interstate and foreign
commerce of the national air transportation system. ANCA generally requires FAA
approval of local noise restrictions on Stage 3 aircraft and establishes a
regulatory notice and review process for local restrictions on Stage 2 aircraft
first proposed after October 1990. As the result of litigation and pressure from
airport area residents, airport operators have taken local actions over the
years to reduce aircraft noise. These actions have included regulations
requiring aircraft to meet prescribed decibel limits by designated dates,
curfews during night time hours, restrictions on frequency of aircraft
operations and various operational procedures for noise abatement.

The imposition of and the cost of compliance by the Company with statutory
and regulatory requirements concerning noise restriction and abatement could
have a material adverse effect on the Company's business, financial condition
and results of operations.

UNCERTAINTY REGARDING LIMITS ON LIABILITY OF LESSORS

Section 44112 of Title 49 of the United States Code provides that a lessor
of aircraft generally will not be liable for any personal injury or death, or
damage to or loss of property, provided that such lessor is not in actual
possession or control of the aircraft at the time of such injury, death or
damage. Under certain circumstances, however, courts have interpreted Section
44112 narrowly, limiting its protection to certain aircraft lessors and have
held that state common law remedies may apply, notwithstanding the limitations
on liability under Section 44112. Under common law, the owner of an aircraft may
be held liable for injuries or damage to passengers or property, and such damage
awards can be substantial. Because there is little case law

12
<PAGE> 14

interpreting Section 44112, there can be no assurance that the provisions of
Section 44112 would fully protect the Company from all liabilities in connection
with any injury, death, damage or loss that may be caused by any aircraft it
owns. For example, Section 44112 may not preempt state law with respect to
liability for third party injuries arising from a lessor's or owner's own
negligence. It is anticipated that each lessee under the terms of each lease to
be entered into by the Company will be obligated to indemnify the Company for,
or insure the Company against, virtually all claims by third parties; however,
in the event that Section 44112 were not applicable, no assurance can be given
that the lessees could fulfill their indemnity obligations under any such leases
or that any insurance obtained will be sufficient.

REGULATION OF MAINTENANCE AND OPERATIONS

The maintenance and operation of aircraft are strictly regulated by the FAA
and foreign aviation authorities which oversee such matters as aircraft
certification, inspection, maintenance, certification of personnel, and
record-keeping. The cost of complying with such requirements are significant.
The Company will seek to lease its aircraft to lessees that agree to bear all or
a significant portion of the costs of complying with governmental regulations.
All of the Company's current leases require the lessee to bear all of the costs
of complying with governmental regulations. However, in the event a lessee fails
to maintain aircraft in accordance with the terms of a lease or a lease
terminates shortly before a major required overhaul, the Company may be required
to spend substantial sums to repair or recondition the aircraft and may be
required to borrow funds for the purpose. See "Customer Credit Risks" above. The
FAA issued several Airworthiness Directives ("ADs") in 1990 mandating changes to
the maintenance program for older aircraft. These ADs were issued to ensure that
the oldest portion of the nation's transport aircraft fleet remains airworthy.
The FAA is requiring that these aircraft undergo extensive structural
modifications. These modifications are required upon accumulation of 20 years'
time in service or prior to the accumulation of a designated number of
flight-cycles, whichever occurs later. Future regulatory changes may also
increase the cost of operating or maintaining the aircraft and may adversely
affect the residual value of the aircraft. The failure of a lessee to comply
with lease maintenance and operation obligations or the imposition of
governmental requirements involving substantial compliance costs could have a
material adverse effect on the Company's business, financial condition and
results of operations.

RISK OF CHANGES IN TAX LAWS OR ACCOUNTING PRINCIPLES

The Company's leasing activities generate significant depreciation
allowances that provide the Company with substantial tax benefits on an ongoing
basis. In addition, the Company's lessees currently enjoy favorable accounting
and tax treatment by entering into operating leases. Any change to current tax
laws or accounting principles that make operating lease financing less
attractive would adversely affect the Company's business, financial condition
and results of operations.

DEPENDENCE ON KEY MANAGEMENT

The Company's business operations are dependent in part upon the expertise
of certain key employees. Loss of the services of such employees, particularly
William E. Lindsey and Michael P. Grella, would have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company will maintain key man life insurance of $3.0 million on each of Mr.
Lindsey and Mr. Grella. See "Management."

QUARTERLY FLUCTUATIONS IN OPERATING RESULTS

The Company has experienced fluctuations in its quarterly operating results
and anticipates that these fluctuations may continue. Such fluctuations may be
due to a number of factors, including the timing of purchases or sales of
aircraft, the timing and extent of consulting and remarketing fees,
unanticipated early lease terminations, termination of a lease and the
subsequent re-lease at a different lease rate or a default by a lessee. Given
the possibility of such fluctuations, the Company believes that comparisons of
the results of its operations for preceding quarters are not necessarily
meaningful and that results for any one quarter should not be relied upon as an
indication of future performance. In the event the Company's revenues or
earnings for any

13
<PAGE> 15

quarter are less than the level expected by securities analysts or the market in
general, such shortfall could have an immediate and significant adverse impact
on the market price of the Company's Common Stock.

ABSENCE OF PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE

Prior to the offering, there has been no public market for the Common Stock
and there can be no assurance that an active trading market for the Common Stock
will develop or continue after the offering. The initial public offering price
of the Common Stock will be determined through negotiations between the Company
and the Representatives of the Underwriters, and may not be indicative of the
market price. Additionally, the market price of the Common Stock could be
subject to significant fluctuations in response to operating results of the
Company, changes in general conditions in the economy, the financial markets,
the airline industry, changes in accounting principles or tax laws applicable to
the Company or its lessees, or other developments affecting the Company, its
customers or its competitors, some of which may be unrelated to the Company's
performance, and changes in earnings estimates or recommendations by securities
analysts. See "Underwriting."

SHARES ELIGIBLE FOR FUTURE SALE

After completion of the Offering, the Company will have shares of
Common Stock outstanding. Of those shares, the shares of Common Stock
offered hereby ( if the Underwriters' over-allotment option is
exercised in full) will be freely tradeable without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"), unless purchased by "affiliates" of the Company, as that term is defined
in Rule 144 under the Securities Act ("Rule 144"). The remaining
shares were issued by the Company in private transactions prior to this offering
and are "restricted securities" as that term is defined in Rule 144 and are
tradeable subject to compliance with Rule 144.

The Company, its officers and directors, and certain of the shareholders of
the Company, who upon completion of this offering will own an aggregate of
shares of Common Stock, have agreed not to offer, sell or otherwise
dispose of any shares of Common Stock or any equity securities or securities
convertible into or exchangeable for equity securities or any options, rights or
warrants with respect to any equity securities, subject to certain exceptions,
for a period of 180 days from the date of this Prospectus, without the prior
written consent of the Representatives.

Because there has been no public market for shares of Common Stock of the
Company, the Company is unable to predict the effect, if any, that future sales
of shares, or the availability of shares for future sale, will have on the
market price for the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock, or the perception that such sales could
occur, could adversely affect market prices for the Common Stock and could
impair the Company's future ability to obtain capital through an offering of
equity securities. See "Shares Eligible for Future Sale."

ANTI-TAKEOVER PROVISIONS

Certain provisions of law and the Company's Amended and Restated Articles
of Incorporation and Bylaws (as they will be amended prior to the offering)
could make more difficult the acquisition of the Company by means of a tender
offer, a proxy contest or otherwise, and the removal of incumbent officers and
directors. These provisions include authorization of the issuance of up to
15,000,000 shares of Preferred Stock, with such characteristics that may render
it more difficult or tend to discourage a merger, tender offer or proxy contest.
The Company's Amended and Restated Articles of Incorporation also provides that
shareholder action can be taken only at an annual or special meeting of
shareholders and may not be taken by written consent. The Company's Bylaws also
limit the ability of shareholders to raise matters at a meeting of shareholders
without giving advance notice. In addition, upon qualification of the Company as
a "listed corporation" as defined in Section 301.5(d) of the California
Corporations Code, cumulative voting will be eliminated. These provisions are
expected to discourage certain types of coercive takeover practices and
inadequate takeover bids, and to encourage persons seeking to acquire control of
the Company to negotiate first with the Company. See "Description of Capital
Stock -- Certain Anti-Takeover Provisions."

14
<PAGE> 16

IMMEDIATE AND SUBSTANTIAL DILUTION

Purchasers of Common Stock in the offering will experience immediate and
substantial dilution of approximately $ per share in the net tangible
book value per share of Common Stock from the assumed initial public offering
price of $ per share. See "Dilution."

USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of
Common Stock offered by the Company hereby are estimated to be approximately
$18.1 million (or $20.8 million if the Underwriters' over-allotment option is
exercised in full), after deducting underwriting discounts and commissions and
estimated expenses of the offering, and assuming an initial public offering
price of $11.00 per share. The Company intends to use the net proceeds, together
with debt financing, to acquire additional aircraft for lease and for working
capital and other general purposes. Pending such uses, the Company will invest
the net proceeds in short-term, investment grade, interest-bearing securities.
The Company will not receive any of the proceeds from the sale of shares of
Common Stock by the Selling Shareholders.

DIVIDEND POLICY

The Company has not paid any cash dividends on its capital stock. The
payment of cash dividends in the future will be made at the discretion of the
Board of Directors of the Company and will depend on a number of factors,
including future earnings, capital requirements, financial condition and future
prospects of the Company and such other factors as the Board of Directors may
deem relevant. Following consummation of the offering, the Company intends to
retain all available funds for use in its business. Accordingly, the Company
does not anticipate declaring or paying any dividends on the Common Stock in the
foreseeable future.

15
<PAGE> 17

CAPITALIZATION

The following table sets forth the capitalization of the Company at
September 30, 1996 on an actual basis, which gives effect to a 1-for-
reverse stock split, and as adjusted to give effect to (i) the conversion of
outstanding shares of Preferred Stock and the Convertible Note into
shares of Common Stock; (ii) the exercise of options to acquire shares
of Common Stock; (iii) the sale of the shares of Common Stock offered
by the Company hereby at an assumed offering price to the public of $11.00 per
share, after deducting underwriting discounts and commissions and estimated
expenses of the offering; and (iv) the application of the estimated net proceeds
therefrom. See "Use of Proceeds."

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Debt financing(1)...................................................... $84,163 $
------- -----
Shareholders' equity:
Convertible preferred stock, $.01 par value per share; 15,000,000
shares authorized; 4,941,000 shares issued and outstanding,
actual; issued, as adjusted............................. 49
Common stock, $.01 par value per share; 20,000,000 shares authorized;
shares outstanding, actual; and shares
outstanding, as adjusted(2)....................................... 3
Additional paid-in capital............................................. 5,170
Accumulated deficit.................................................... (719) (719)
------- -----
Total shareholders' equity 4,503
------- -----
Total capitalization......................................... $88,666 $
======= =====
</TABLE>

(1) Includes current portion of long-term debt of $42.9 million.

(2) Excludes (i) shares of Common Stock issuable upon exercise of the
Representative's Warrants; (ii) shares of Common Stock issuable
upon exercise of options which will be granted under the 1996 Option Plan at
the closing of the offering with an exercise price equal to the initial
public offering price in the offering, and (iii) additional shares
of Common Stock reserved for issuance under the 1996 Option Plan. See
"Management -- Stock Option Plan" and "Underwriting."

16
<PAGE> 18

DILUTION

At September 30, 1996, the net tangible book value of the Company was $4.5
million or $ per share of Common Stock. Net tangible book value per
share represents the Company's total tangible assets, less total liabilities,
divided by the number of shares of Common Stock outstanding after giving effect
to a 1-for- reverse stock split. After giving effect to (i) the conversion
of outstanding shares of Preferred Stock and the Convertible Note into
shares of Common Stock; and (ii) the exercise of options to acquire
shares of Common Stock, the net tangible book value of the Company at
September 30, 1996 would have been $ million, or $ per share of
common stock. After giving effect to these conversions, the sale by the Company
of the shares of Common Stock offered by the Company hereby at an
assumed initial public offering price to the public of $11.00 per share, and
after deducting underwriting discounts and commissions and estimated offering
expenses, the as adjusted net tangible book value of the Company at September
30, 1996 would have been $ million, or $ per share. This represents
an immediate increase in net tangible book value of $ per share to the
existing shareholders and an immediate dilution in net tangible book value to
new investors of $ per share. The following table illustrates the per
share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price...................... $11.00
------ ------
Net tangible book value per share at September 30,
1996.................................................. $
Decrease attributable to conversion of Preferred Stock
and Convertible Note and exercise of stock options.... ()
Adjusted net tangible book value per share before the
offering..............................................
Increase attributable to new investors in the offering...
------
As adjusted, net tangible book value per common share after
the offering............................................. .
------
Dilution per common share to new investors................. $
======
</TABLE>

The following table summarizes, as of September 30, 1996, after giving
effect to a 1-for- reverse stock split, the conversion of outstanding shares
of Preferred Stock and the Convertible Note into shares of Common Stock
and the exercise of options to acquire shares of Common Stock, the difference
between the current shareholders and new investors with respect to the number of
shares of Common Stock purchased from the Company, the total consideration paid
and the average price per share paid, assuming an initial public offering price
to the public of $11.00 per share.

<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION AVERAGE
------------------- --------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders..................... % $ % $
New investors............................. 11.00
------- ----- --------- -----
Total........................... 100.0% $ %
======= ===== ========= =====
</TABLE>

- ---------------

(1) Sales by Selling Shareholders in the offering will cause the number of
shares of Common Stock held by existing shareholders to be reduced to
, or % of the total number of shares to be outstanding after
the offering ( shares, or %, if the Underwriters'
over-allotment option is exercised in full), and will increase the number of
shares of Common Stock held by new investors to , or % of the
total number of shares to be outstanding after the offering (
shares, or %, if the Underwriters' overallotment option is exercised in
full). See "Principal and Selling Shareholders."

The foregoing excludes (i) shares of Common Stock issuable upon
exercise of the Representative's Warrants; (ii) shares of Common Stock
issuable upon exercise of options which will be granted under the 1996 Option
Plan at the closing of the offering with an exercise price equal to the initial
public offering price in the offering, and (iii) additional shares of
Common Stock reserved for issuance under the 1996 Option Plan. See
"Management -- Stock Option Plan" and "Underwriting."

17
<PAGE> 19

SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)

The following selected consolidated financial and operating data should be
read in conjunction with the accompanying Consolidated Financial Statements and
the related notes thereto included elsewhere in this Prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The consolidated financial data set forth below as of and for the
fiscal years ended December 31, 1993, 1994 and 1995 have been derived from the
consolidated financial statements of the Company audited by KPMG Peat Marwick
LLP, independent certified public accountants. The consolidated financial data
set forth below as of and for the fiscal years ended December 31, 1991 and 1992
have been derived from the unaudited consolidated financial statements of the
Company. The consolidated financial data as of and for the nine months ended
September 30, 1995 and 1996 are unaudited, but have been prepared on the same
basis as the audited financial statements and, in the opinion of management,
reflect all adjustments, which consist only of normal recurring adjustments,
necessary for the fair presentation of the financial position and results of
operations for these periods. Consolidated operating results for the nine months
ended September 30, 1996 are not necessarily indicative of the results that may
be expected for the entire year.

<TABLE>
<CAPTION>
AT AND FOR THE NINE
MONTHS ENDED
AT AND FOR THE YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------------------- -----------------------
1991(1) 1992(1) 1993 1994 1995 1995 1996
---------- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Revenues:
Rental of flight equipment........ $ 6,288 $ 6,166 $ 6,098 $ 8,108 $ 7,765 $ 5,776 $ 9,502
Consulting fees................... 28 68 742 213 491 113 235
Gain on sale of aircraft
equipment....................... 111 841 -- -- -- -- --
Interest income................... 50 35 7 68 118 62 121
---------- ----------- ---------- ---------- ---------- ---------- ----------
Total revenues................ 6,477 7,111 6,847 8,389 8,374 5,951 9,858
Expenses:
Interest.......................... 4,191 3,182 2,293 3,548 3,776 2,838 4,788
Depreciation...................... 3,086 2,970 2,014 3,165 3,354 2,511 4,160
General and administrative........ 757 690 447 548 526 369 421
Loss on sale of aircraft.......... -- 3,645(2) -- -- -- -- --
Other............................. 483 185 -- -- -- -- --
---------- ----------- ---------- ---------- ---------- ---------- ----------
Total expenses................ 8,517 10,672 4,754 7,261 7,656 5,718 9,369
Equity in earnings of affiliates.... -- -- -- -- 184 56 --
Income (loss) before income taxes
and extraordinary items........... (2,040) (3,562) 2,093 1,128 901 288 488
Income tax expense.................. 116 2 45 59 30 24 33
Income (loss) before extraordinary
items............................. (2,156) (3,564) 2,048 1,069 871 264 455
Extraordinary items -- gain from
debt forgiveness.................. -- 4,326 -- -- -- -- --
---------- ----------- ---------- ---------- ---------- ---------- ----------
Net income (loss)................... $ (2,156) $ 762 $ 2,048 $ 1,069 $ 871 $ 264 $ 455
========== =========== ========== ========== ========== ========== ==========
Net income (loss) per common and
common equivalent share(3):
Income (loss) before extraordinary
items........................... $ (10.03) $ (0.60) $ 0.24 $ 0.13 $ 0.11 $ 0.03 $ 0.06
Extraordinary items............... -- 0.73 -- -- -- -- --
---------- ----------- ---------- ---------- ---------- ---------- ----------
Net income (loss)............. $ (10.03) $ 0.13 $ 0.24 $ 0.13 $ 0.11 $ 0.03 $ 0.06
========== =========== ========== ========== ========== ========== ==========
Weighted average number of common
and common equivalent shares
outstanding(3).................... 215 5,959 9,857 7,985 7,985 7,985 8,038
Pro forma net income per common and
common equivalent share(4)........
Pro forma weighted average number of
common and common equivalent
shares outstanding(4).............
BALANCE SHEET DATA
Flight equipment under operating
lease............................. $ 44,007 $ 29,694 $ 56,346 $ 56,162 $ 95,450 $ 53,619 $ 91,488
Total assets........................ 51,320 30,180 57,036 57,131 95,779 56,369 93,426
Debt financing(5)................... 49,055 28,895 52,873 51,688 87,795 49,426 84,163
Shareholders' equity................ (1,102) (340) 2,008 3,078 4,048 3,340 4,503
</TABLE>

18
<PAGE> 20

<TABLE>
<CAPTION>
AT AND FOR THE NINE
MONTHS ENDED
AT AND FOR THE YEAR ENDED DECEMBER 31, SEPTEMBER 30,
1991(1) 1992(1) 1993 1994 1995 1995 1996
---------- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA
EBITDA(6)........................... $5,237,000 $10,561,000 $6,400,000 $7,841,000 $8,031,000 $5,637,000 $9,436,000
Return on average assets (7)........ (4.6)% 1.8% 5.8% 1.9% 1.5% 0.6% 0.7%
Return on contributed capital(8).... (44.7)% 15.8% 40.0% 20.9% 17.0% 6.9% 11.6%
Aircraft equipment owned at period
end............................... 9 4 5 5 8 5 8
</TABLE>

- ---------------

(1) Included in the 1991 and 1992 income statement data is the consolidation of
a wholly owned subsidiary which the Company disposed of during 1992. The
subsidiary had net liabilities of $3,552,000 and was sold to ILFC for no
consideration as ILFC guaranteed the debt of the subsidiary. Accordingly,
the Company recognized an extraordinary gain from the disposal of the
subsidiary for relief of the net liabilities. During 1991, revenues,
expenses, net loss and net loss per share related to this subsidiary were
$1,550,000, $2,553,000, $(1,003,000) and $(4.67), respectively. During 1992,
revenues, expenses, gain on disposal, net loss and net loss per share
related to this subsidiary were $712,000, $1,144,000, $3,552,000, $(432,000)
and $(0.07), respectively.

(2) See "Business -- Aircraft Leasing."

(3) The treasury stock method was used to calculate net income (loss) per common
and common equivalent share information and weighted average number of
common and common equivalent shares outstanding. See Note 1 to Consolidated
Financial Statements. Does not give effect to the 1-for- reverse stock
split of Common Stock, the assumed conversion of outstanding shares of
Preferred Stock and the Convertible Note into Common Stock, or the assumed
exercise of options to acquire shares of Common Stock.

(4) Pro forma information was calculated as if the 1-for- reverse stock split,
the conversion of outstanding shares of Preferred Stock and the
Convertible Note into shares of Common Stock and the exercise of
options to acquire shares of Common Stock had occurred at the
beginning of the periods indicated, with the proceeds from the exercise of
the options used to reduce long-term debt and related interest costs.

(5) Includes current portion of long-term debt.

(6) EBITDA, defined as income before interest expense, income taxes,
depreciation, loss on sale of aircraft and extraordinary items, is not
intended to represent an alternative to net income (as determined in
accordance with generally accepted accounting principles) as a measure of
performance and is also not intended to represent an alternative to cash
flow from operating activities as a measure of liquidity. Rather, it is
included herein because management believes that it provides an important
additional perspective on the Company's operating results and the Company's
ability to fund its continuing operations.

(7) Calculations are based on the average monthly balances. Interim period
results are annualized.

(8) Contributed capital is total stockholders' equity excluding accumulated
deficit.

19
<PAGE> 21

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(dollars in thousands)

The following discussion of financial condition and results of operations
of the Company should be read in conjunction with the Consolidated Financial
Statements and the related Notes thereto included elsewhere in this Prospectus.
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ from the results
discussed in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in "Risk Factors."

The Company is primarily engaged in the acquisition of used, single-aisle
jet aircraft and engines for lease and sale to domestic and foreign airlines and
other customers. The Company leases aircraft under short- to medium-term
operating leases where the lessee is responsible for all operating costs and the
Company retains the potential benefit or risk of the residual value of the
aircraft, as distinct from finance leases where the full cost of the aircraft is
generally recovered over the term of the lease.

Rental amounts are accrued evenly over the lease term and are recognized as
revenue from the rental of flight equipment. The Company's cost of the leased
equipment is recorded on the balance sheet and is depreciated on a straight-line
basis over the estimated useful life to the Company's estimated salvage value.
Revenue, depreciation expense and resultant profit for operating leases are
recorded evenly over the life of the lease. Initial direct costs related to the
origination of leases are capitalized and amortized over ten years.

RESULTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996

Revenues from rental of flight equipment increased 65% from $5,776 for the
nine months ended September 30, 1995 to $9,502 for the same period in 1996,
principally as a result of the acquisition in December 1995 of two aircraft and
their related leases.

In addition to its leasing operations, the Company provides consulting
services. For the nine months ended September 30, 1995, revenues from consulting
services aggregated $113, including $108 paid by Great Lakes Holding, a company
owned 80% by the Chief Executive Officer and President of the Company ("Great
Lakes"), and $5 paid by ILFC. For the nine months ended September 30, 1996,
revenues from consulting services aggregated $235, consisting of $108 paid by
Great Lakes, $49 paid by an unrelated airline and $77 paid by ILFC. Great Lakes
is obligated to pay consulting fees aggregating $144 for 1996. No consulting
fees are expected to be paid by Great Lakes after 1996.

Interest income increased from $62 for the first nine months of 1995 to
$121 for the first nine months of 1996, principally as a result of interest
income from ILFC relating to an aircraft purchased from ILFC in December 1995.
See Note 6 to Consolidated Financial Statements.

Expenses as a percentage of total revenues were 96.1% for the nine months
ended September 30, 1995 and 95.0% for the same period in 1996. Interest expense
increased from $2,838 for the nine months ended September 30, 1995 to $4,788 for
the corresponding period in 1996 principally as a result of an additional
$39,800 of debt incurred to acquire two aircraft in December 1995. Depreciation
expense increased from $2,511 for the nine months ended September 30, 1995 to
$4,160 for the corresponding period in 1996, principally as a result of the
acquisition of two aircraft in December 1995. General and administrative
expenses increased from $369 for the nine months ended September 30, 1995 to
$421 for the same period in 1996 as a result of increased travel, tax and
auditing expense. The Company anticipates that general and administrative
expenses will increase after the offering as a result of the addition of a
corporate controller and additional requirements imposed on a public company.

Equity in earnings of affiliates constitutes the Company's share of income
of International Engine Investors ("IEI"), a company formed exclusively for the
acquisition of one aircraft engine, and the gain on sale of an aircraft engine
owned by IEI. See Note 4 to Consolidated Financial Statements. IEI was
liquidated in November 1995.

20
<PAGE> 22

Substantially all of the Company's federal and state income tax liability
is deferred as a result of the net operating losses generated by the Company for
tax purposes. At September 30, 1996, the Company had net operating loss
carry-forwards for Federal income tax purposes of approximately $23,000 expiring
through 2011. For state tax purposes, at September 30, 1996, the Company had net
operating loss carryforwards of approximately $4,500 that will begin to expire
with the tax year ending December 31, 1996.

The Company recognized income tax expense of $24 and $33 representing
effective income tax rates of 8% and 7% during the nine month periods ending
September 30, 1995 and 1996, respectively. The difference between the effective
rates and the federal statutory rate was primarily due to the recognition of
deferred tax assets. See Note 5 to Consolidated Financial Statements.

Net income increased from $264 for the nine months ended September 30, 1995
to $455 for the same period in 1996 due to factors described above.

YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995

Revenues from rental of flight equipment increased by 33% from $6,098 in
1993 to $8,108 in 1994 principally as a result of the addition of one aircraft
that was leased in May 1993 and one aircraft that was leased in December 1993,
offset in part by rental reductions on two aircraft that were re-leased at lower
monthly lease rates in January and April 1994. Prevailing lease rates were lower
in 1994 than they were when the aircraft were initially leased. Revenues from
rental of flight equipment decreased by 4.2% from $8,108 in 1994 to $7,765 in
1995 principally as a result of the re-lease of one aircraft in June 1995 which
resulted in lower monthly lease rates.

In 1993, revenues from consulting services aggregated $742, including $144
paid by Great Lakes and $597 paid by ILFC. In 1994, revenues from consulting
services aggregated $213, consisting of $144 paid by Great Lakes and $69 paid by
ILFC. In 1995, revenues from consulting and remarketing services was $491,
consisting of $144 paid by Great Lakes and $347 paid by ILFC.

Interest income increased from $7 in 1993 to $68 in 1994 and $118 in 1995
principally as a result of interest earned on maintenance reserves from certain
aircraft.

Expenses as a percentage of total revenues were 69.4% in 1993, 86.5% in
1994 and 91.4% in 1995. Interest expense increased from $2,293 in 1993 to $3,548
in 1994 and $3,776 in 1995. The increase in interest expense from 1993 to 1994
was principally the result of an additional $5,470 of debt incurred to purchase
an aircraft in May 1993 and $23,382 of debt incurred to purchase an aircraft in
December 1993. The increase in interest expense from 1994 to 1995 was
principally the result of $2,430 of additional debt incurred during the third
quarter of 1994 to upgrade an aircraft to Stage 3.

Depreciation expense increased from $2,014 in 1993 to $3,165 in 1994 and
$3,354 in 1995 as a result of aircraft added to the Company's fleet in May and
December 1993 and December 1995. General and administrative expenses increased
from $447 in 1993 to $548 in 1994 and decreased to $526 in 1995. The increase
from 1993 to 1994 was primarily the result of increased travel and marketing
activities by management of the Company. The decrease from 1994 to 1995 was the
result of reduced travel expense.

Equity in earnings of affiliates in 1995 consisted of the Company's share
of income ($66) of IEI and the Company's share of the gain ($118) on the sale of
the aircraft engine which constituted the sole asset of IEI.

The Company recognized income tax expense of $45, $59 and $30 representing
effective income tax rates of 2%, 5% and 3% during 1993, 1994 and 1995,
respectively. The difference between the effective rates and the federal
statutory rate was primarily due to the recognition of deferred tax assets. See
Note 5 to Consolidated Financial Statements.

Net income decreased from $2,048 in 1993 to $1,069 in 1994 and $871 in 1995
due to the factors described above.

Inflation during recent years has not impacted the Company's operations or
profitability.

21
<PAGE> 23

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal external sources of funds have been term loans from
banks and seller financing secured by aircraft. As a result, a substantial
amount of the Company's revenue from rental of flight equipment is applied to
principal and interest payments on secured debt. See
"Business -- Financing/Source of Funds." The principal use of cash is for
financing the acquisition of the Company's lease portfolio.

The current portion of long term debt totalled $42,900 at September 30,
1996, of which $37,900 relate to four leases which expire between January and
August, 1997. Two of these leases have been extended to 1998 and negotiations
are underway with the lenders to extend the $10,300 of related debt. The two
remaining leases expire in April and August, 1997 and management expects to
complete extensions of both leases for one or more years and their related debt
totalling $27,600. See "Risk Factors -- Dependence Upon Availability of
Financing."

The Company's ability to successfully execute its business strategy and to
sustain its operations is dependent, in part, on its ability to obtain financing
and to raise equity capital. There can be no assurance that the necessary amount
of such capital will continue to be available to the Company on favorable terms
or at all. If the Company were unable to continue to obtain any portion of
required financing on favorable terms, the Company's ability to add new aircraft
to its lease portfolio, renew leases, re-lease an aircraft, repair or
recondition an aircraft if required or retain ownership of an aircraft on which
financing has expired would be impaired, which would have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, the Company's financing arrangements to date have been dependent in
part upon ILFC. See "Risk Factors -- Reliance Upon ILFC" and "-- Dependence Upon
Availability of Financing."

22
<PAGE> 24

BUSINESS

The Company is primarily engaged in the acquisition of used, single-aisle
jet aircraft and engines for lease and sale to domestic and foreign airlines and
other customers. As of September 30, 1996, the Company had seven aircraft on
lease to eight customers. The Company leases its aircraft under "triple net"
operating leases where the lessee is responsible for all operating costs (i.e.,
crew, fuel, insurance, taxes, licenses, landing fees, navigation charges,
maintenance, repairs and associated expenses) and the Company retains the
potential benefit and assumes the risk of the residual value of the aircraft, as
distinct from finance leases where the full cost of the aircraft is recovered
over the term of the lease at usually lower monthly rates.

COMPANY HISTORY

The Company was formed in August 1988 by Mr. William E. Lindsey, Mr.
Michael P. Grella and Mr. Richard O. Hammond to take advantage of their
significant experience in both the airline industry in general and the aircraft
marketing industry in particular, and to meet the growing demand of customers in
a segment of the aircraft leasing market, specifically those customers
interested in the operating lease of used, single-aisle jet aircraft. See
"Management -- Directors and Executive Officers." Messrs. Lindsey, Grella and
Hammond believe that leasing of used commercial jet aircraft using operating
leases represents an opportunity to have an investment that is secured by a
moveable asset which is required to be maintained to FAA standards and which
should maintain a substantial residual value for a number of years. They also
believe that a well developed risk management criteria can minimize risk by
prudent selection of aircraft, an appropriate mix of lease termination dates, a
worldwide customer base and strict monitoring of technical and regulatory
changes. The initial investors in the Company included ILFC, a major
owner-lessor of commercial jet aircraft, Christer and Sven Salen, who have
significant investments in airline operations in Sweden, and Gunnar Bjorg, a
private aircraft investor with over 35 years of experience in the commercial jet
aircraft industry. See "Relationship with ILFC" below, "Management -- Directors
and Executive Officers" and "Principal and Selling Shareholders." The initial
equity investment in the Company was $2.8 million, which allowed the Company to
purchase from ILFC a Boeing 727-200 Advanced aircraft under lease to Delta Air
Lines.

INDUSTRY BACKGROUND

The profits of the global airline industry are on the rise and load factors
are expected to increase through 2015, according to the Boeing Report. While
Boeing projects that traffic will increase 5.1% annually through 2015 and that
15,900 new commercial jet aircraft will be delivered over the next approximately
20 years, it also states that airlines will confront an increasingly competitive
environment with long-term profitability dependent on successful cost
reductions. Such reductions will include improvements in fleet planning designed
to more closely match aircraft capacity with passenger demand.

23
<PAGE> 25

Company believes that the market for the operating lease of used commercial jet
aircraft, including for single-aisle jet aircraft with seating capacity of 121
to 170, should grow due to the factors discussed above as well as the emphasis
on airline cost reduction, the desire of airlines for fleet flexibility and the
growth in air travel.

STRATEGY

Focus on Used Commercial Jet Aircraft with a Broad Market Acceptance. The
Company leases used, single-aisle jet aircraft, particularly aircraft between
six and 15 years old at the time the aircraft is acquired by the Company. The
Company is currently focusing on the acquisition and lease of single-aisle jet
aircraft, primarily aircraft with a seating capacity of 121 to 170 passengers,
which, according to the Boeing Report, account for approximately 30.4% of the
world fleet. The Boeing Report estimates that the commercial replacement cycle
for this type of aircraft is 25 to 28 years from manufacturer date. This
category of jet aircraft includes aircraft such as the Boeing 737-200/-300/-400,
the Airbus A320 and the McDonald Douglas MD80 series. The Company will also
consider acquiring and leasing Boeing 757 aircraft, which have a seating
capacity of 171 to 240 passengers. The Company will continue to purchase
aircraft which enjoy significant manufacturer's support and fit the Company's
criteria.

Optimize Relationship with ILFC. The Company has had a long and continuous
relationship with ILFC. ILFC was an initial investor in the Company and prior to
the offering owned approximately [2.9%] of the Company's equity. ILFC is a major
owner-lessor of commercial jet aircraft having contacts with most airlines
worldwide, the aircraft and engines manufacturers and most of the significant
participants in the aircraft industry worldwide. The Company intends to use its
relationship with ILFC to seek to gain access, where appropriate, to various
airlines and other participants in the market to facilitate the purchase, lease,
re-lease and sale of aircraft. ILFC's primary focus is the acquisition and
leasing of new commercial jet aircraft. Thus, the Company's business compliments
rather than competes with ILFC. See "Relationship With ILFC" below.

Leverage Management Experience. The successful purchase and leasing of used
commercial jet aircraft requires skilled management in order to evaluate the
condition and price of the aircraft to be purchased and the current and
anticipated market demand for that aircraft. The management of the Company and
the Board of Directors of the Company, have significant experience in the
aviation industry, with an average of 28 years of experience, especially in the
purchase, sale and financing of commercial jet aircraft, and have extensive
contacts with airlines worldwide. See "Management -- Directors and Executive
Officers."

Access a Diversified Global Customer Base. The Company's objective is to
diversify its customer base to avoid dependence on any one lessee, geographic
area or economic trend.

24
<PAGE> 26

AIRCRAFT LEASING

All of the Company's current leases are operating leases rather than
finance leases. Under an operating lease, the Company retains title to the
aircraft thereby retaining the potential benefits and assuming the risk of the
residual value of the aircraft. Operating leases allow airlines greater fleet
and financial flexibility due to their shorter-term nature, the relatively small
initial capital outlay necessary to obtain use of the aircraft and off-balance
sheet treatment. Operating lease rates are generally priced higher than finance
lease rates, in part because of the risks to the lessor associated with the
residual value. See "Risk Factors -- Ownership Risks."

Before committing to purchase specific aircraft, the Company takes into
consideration factors such as the condition and maintenance history of the
aircraft, the rental rate and other lease terms, the breadth of the customer
base for the aircraft, trends in global supply and demand for the aircraft type,
the technology included in the aircraft, the stage of the production cycle and
manufacturer's support for the aircraft, estimates of future values, remarketing
potential and anticipated obsolescence. Certain types and vintages of aircraft
do not fit the profile for inclusion in the Company's portfolio of aircraft.

The Company targets the medium-term operating lease market, which generally
consists of leases with three to eight year initial noncancelable terms. The
Company's leases are "triple net leases" whereby the lessee is responsible for
all operating costs, i.e. crew, fuel, insurance, taxes, licenses, landing fees,
navigation charges, maintenance, repairs and associated expenses. In addition,
the leases contain extensive provisions regarding the remedies and rights of the
Company in the event of a default thereunder by the lessee. The leases have
payment clauses whereby the lessee is required to continue to make the lease
payments regardless of circumstances, including whether or not the aircraft is
in service. Certain of the Company's leases limit the lessee's obligation to
make lease payments if the Company violates the covenant of quiet enjoyment
regarding the aircraft or if the Company enters bankruptcy and does not assume
the lease. During the term of the lease, the Company is required to be named as
an additional insured on the lessee's aviation liability insurance policies.
Also, the leases contain very specific criteria for the maintenance and
regulatory status of the asset as well as the return conditions for the
airframe, engines, landing gears, auxiliary power unit and associated
components.

Generally, the lessee provides the Company with an initial security deposit
that is returnable at the expiration of the lease if all lease return conditions
are met by the lessee and there is no default under the lease. Depending on the
creditworthiness of a lessee, in some instances the lessee will also pay into a
maintenance reserve account a certain amount monthly for each hour the aircraft
and/or engine has flown. These maintenance reserves may be drawn upon by the
lessee to be applied towards the cost of periodic scheduled overhaul and
maintenance checks. At the termination of the lease, the lessee is required to
return the asset to the Company in the same condition as it was received, normal
wear and tear excepted, so the asset is in a proper condition for re-lease or
sale. Normally, any remaining maintenance reserves are retained by the Company.
See "Risk Factors -- Ownership Risks."

The Company makes an analysis of the credit risk associated with each lease
before entering into a lease. The Company's credit analysis consists of
evaluating the prospective lessee's available financial statements and trade and
banking references, and working with the Company's lender to evaluate country
and political risk, insurance coverage, liability and expropriation risk. The
process for credit approval is a joint undertaking between the Company and the
senior lender providing the debt financing for the lease. The Company obtains
extensive financial information regarding the lessee. See "Risk
Factors -- Customer Credit Risks."

Upon termination of a lease, the objective of the Company is to re-lease or
sell the aircraft. The Company's leases generally require that the lessee notify
the Company at least six to nine months prior to the termination of the lease as
to whether the lessee intends to exercise any option to extend the lease. This
allows the Company to commence its remarketing efforts well in advance of the
termination of a lease. Over the past two years, three of the Company's aircraft
came off lease and were re-leased to new customers. One Boeing 737-200 ADVANCED
went from Britannia Airways (United Kingdom) to New Zealand International
Airlines Limited, a subsidiary of Air New Zealand Limited; one Boeing 737-200
ADVANCED went from New Zealand International Airlines Limited to TACA
International Airlines (El Salvador) and subsequently to its sister company,
Compania Panamena De Aviacion, S.A. ("COPA") (Panama); and one Boeing 737-

25
<PAGE> 27

200 ADVANCED went from Air New Zealand Limited to COPA. The Company has entered
into an agreement with ILFC pursuant to which ILFC has agreed to assist the
Company, if requested by the Company, in the remarketing of its aircraft for a
fee to be negotiated for each transaction. See "Relationship With ILFC" below.
If the Company is unable to re-lease or sell an aircraft on favorable terms, its
business, financial condition and results of operations may be adversely
affected. See "Risk Factors -- Ownership Risks" and "-- Customer Credit Risks."

During the years ended December 31, 1993, 1994 and 1995, revenues generated
from foreign customers accounted for approximately 65%, 80% and 69%,
respectively, of total revenues. For the nine months ended September 30, 1996,
revenues generated from foreign customers accounted for approximately 43% of
total revenues. See "Risk Factors -- International Risks." The following
customers accounted for more than 10% of the Company's total revenues in one or
more of the three years ended December 31, 1995: Delta Air Lines, Inc. (24%,
12%, 11% and 7% for the years ended December 31, 1993, 1994 and 1995 and the
nine months ended September 30, 1996, respectively), British Midland Airways
Limited (2%, 36%, 36% and 23% for the years ended December 31, 1993, 1994 and
1995 and the nine months ended September 30, 1996, respectively), ILFC (9%, 6%,
16% and 10% for the years ended December 31, 1993, 1994 and 1995 and the nine
months ended September 30, 1996, respectively) and New Zealand International
Airlines Limited (54%, 42%, 26% and 11% for the years ended December 31, 1993,
1994 and 1995 and the nine months ended September 30, 1996, respectively).

LEASE PORTFOLIO

The following table sets forth certain information concerning the status of
flight equipment leased by the Company to others as of January 15, 1997:

<TABLE>
<CAPTION>
MANUFACTURE NONCANCELABLE LEASE EXTENSION
AIRCRAFT YEAR LESSEE LEASE PERIOD OPTIONS
- ---------------------- ----------- ----------------------- -------------- -----------------------
<S> <C> <C> <C> <C>
B-727-200 ADVANCED(1) 1979 Delta Air Lines, Inc. April 1998 None
B-737-200 1978 ILFC/COPA (Panama) August 1997 Two one year options
ADVANCED(1)(2)
B-737-200 ADVANCED(1) 1980 COPA (Panama) June 1998 Two one year options
B-737-200 ADVANCED(3) 1980 New Zealand March 1998 Two six month options
International Airlines
Limited
B-737-300(3)(4) 1989 British Midland Airways April 1997 Seven one year options
Limited
B-737-300(3) 1985 Southwest Airlines Co. December 2002 Four one year options
MD-82(3) 1989 Alaska Airlines, Inc. October 1998 One one year option
</TABLE>

- ---------------

(1) Stage 2 aircraft. See "Government Regulation" below.

(2) This aircraft is leased to ILFC and subleased to COPA.

26
<PAGE> 28

(3) Stage 3 aircraft. See "Government Regulation" below.

(4) British Midland Airways Limited has notified the Company that it will not
renew its lease.

APPRAISAL OF LEASE PORTFOLIO

Simat, Helliesen & Eichner, Inc. ("SH&E"), a recognized appraiser of
aircraft, has performed an appraisal of the aircraft and has determined that the
aggregate "Current Market Value" of this equipment as of September 30, 1996 was
$91.53 million, which compares favorably to the aggregate net book value of the
Company's aircraft at September 30, 1996 of $91.27 million. "Current Market
Value" is defined as SH&E's opinion of the most likely trading price that may be
generated for an aircraft under the market circumstances that are perceived to
exist at the time in question. Current Market Value assumes that the aircraft is
valued for its highest, best use, that the parties to the hypothetical sale
transaction are willing, able, prudent and knowledgeable, and under no unusual
pressure for a prompt sale, and that the transaction would be negotiated in an
open and unrestricted market on an arm's-length basis, for cash or equivalent
consideration, and given an adequate amount of time for effective exposure to
prospective buyers. See the appraisal report of SH&E appearing at page A-1 of
this Prospectus for a discussion of the assumptions utilized and various factors
considered by SH&E in performing its appraisal.

Since appraisals are only estimates of resale values, there can be no
assurance that such appraised values will not materially change due to factors
beyond the Company's control including, but not limited to, obsolescence and/or
changing market conditions, or that upon expiration of the leases, due to the
absence of purchasers or re-lease demand for the Company's aircraft, the Company
will realize either the then book or appraised value through either sale or
re-leasing of the aircraft.

SH&E was paid $17,000, plus out-of-pocket expenses, for its services in
connection with its appraisal.

FINANCING/SOURCE OF FUNDS

The Company purchases used aircraft and aircraft engines on lease to
airlines directly from other leasing companies or from airlines for leasing back
to the airline. The typical purchase requires both secured debt and an equity
investment by the Company. The Company generally makes an equity investment of
approximately 5% to 15% of the purchase price of aircraft and engines from
internally generated and other cash and seller financing (primarily from ILFC).
The balance of the purchase price is typically financed with the proceeds of
secured borrowings from banks or other financial institutions (to date with the
support of ILFC as the seller of the flight equipment). The Company maintains
banking relationships with four commercial banks providing long-term secured
equipment financing to the Company at September 30, 1996 in an aggregate amount
of $70.1 million. ILFC has provided certain guarantees and other financial
support with respect to the Company's borrowings which have allowed the Company
to finance its aircraft at more favorable leverage rates than the Company could
have obtained without ILFC's support. See Notes 2 and 6 to Consolidated
Financial Statements and "Risk Factors -- Reliance Upon ILFC."

At September 30, 1996, $70.3 million (or 83%) of the Company's borrowings
to finance aircraft purchases are on a non-recourse basis. Non-recourse loans
are structured as loans to special purpose subsidiaries of the Company which
only own the assets which secure the loan. The Company, other than the relevant
special purpose subsidiary, is not liable for the repayment of the non-recourse
loan unless the Company breaches certain limited representations and warranties
under the applicable pledge agreement. The lender assumes the credit risk of
each lease, and its only recourse upon a default under the lease is against the
lessee, the leased equipment and the special purpose subsidiary of the Company.
Interest rates under this type of financing are negotiated on a
transaction-by-transaction basis and reflect the financial condition of the
lessee, the terms of the lease, any guarantees and the amount of the loan. The
remaining $13.9 million of the Company's borrowings are on a recourse basis.
ILFC has agreed to indemnify the Company for any payments under this recourse
loan not funded by lease or sale payments.

The term of all of the Company's current borrowings ends within 30 to 60
days after the minimum noncancelable period under the related lease. Thus, the
Company will be required to renegotiate the loan or

27
<PAGE> 29

obtain other financing if the lessee has and exercises an option to extend the
term of the lease. See "Risk Factors -- Dependence Upon Availability of
Financing."

At September 30, 1996, the Company's borrowings had interest rates ranging
from 5.4% to 7.8% per annum, with a weighted average interest rate of 7.2% per
annum. At September 30, 1996, approximately 20% of the Company's borrowings
accrued interest on a floating rate basis. See "Risk Factors -- Reliance Upon
ILFC."

The Company has previously provided for all of its financing needs through
internally generated funds and borrowings. There is no assurance that such
sources will provide the Company with additional capital resources. The
Company's future growth is dependent upon raising additional capital. See "Risk
Factors -- Dependence Upon Availability of Financing."

RELATIONSHIP WITH ILFC

ILFC was an initial investor in the Company, and prior to the offering
owned approximately [2.9]% of the Company's Common Stock. See "Company History"
above. Five of the Company's seven present aircraft were acquired from ILFC and
ILFC has provided certain guarantees and other financial support with respect to
the Company's borrowings. See "Financing/Source of Funds" above. ILFC has also
paid various fees to the Company for consulting and remarketing services. The
Company has entered into an agreement with ILFC pursuant to which ILFC has
agreed to assist the Company in the remarketing of its aircraft if requested by
the Company. See "Aircraft Leasing" above, "Risk Factors -- Reliance Upon ILFC,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations," "Certain Transactions" and Note 6 to
Consolidated Financial Statements.

ILFC is a wholly owned subsidiary of American International Group, Inc. and
a major owner-lessor of commercial jet aircraft. At September 30, 1996, ILFC had
301 aircraft subject to operating leases with an aggregate book value of
approximately $11.8 billion. For the year ended December 31, 1995, ILFC had
total revenues of $1.4 billion and net income of $196 million.

COMPETITION

The aircraft leasing industry is highly competitive, depending in part upon
the type of leased aircraft and prospective lessees. Competition is primarily
based upon the availability of the aircraft required by the customer and the
lease rate. The Company believes that only a few comparably sized companies
focus primarily on the same segment of the aircraft leasing market as the
Company. In addition, a number of aircraft manufacturers, airlines and other
operators, distributors, equipment managers, leasing companies (including ILFC),
financial institutions and other parties engaged in leasing, managing, marketing
or remarketing aircraft compete with the Company, although their primary focus
is not on the same market segment on which the Company focuses. Many of these
periodic competitors have significantly greater financial resources than the
Company. The Company's competitors may lease aircraft at lower rates than the
Company and provide benefits, such as direct maintenance, crews, support
services and trade-in privileges, which the Company does not intend to provide.
The Company believes that it is able to compete in the leasing of used jet
aircraft due to its experience in the industry and its reputation and expertise
in acquiring and leasing aircraft. See "Risk Factors -- Competition."

GOVERNMENT REGULATION

The FAA, the Department of Transportation and the Department of State
exercise regulatory authority over the air transportation industry in the United
States. Most other countries have similar regulatory agencies. The FAA has
regulatory jurisdiction over registration and flight operations of aircraft
operating in the United States, including equipment use, ground facilities,
maintenance, communications and other matters.

The FAA regulates the repair and operation of all aircraft operated in the
United States. Its regulations are designed to insure that all aircraft and
aviation equipment are continuously maintained in proper condition

28
<PAGE> 30

to ensure safe operation of the aircraft. Similar rules apply in most other
countries. All aircraft must be maintained under a continuous condition
monitoring program and must periodically undergo thorough inspection and
maintenance. The inspection, maintenance and repair procedures for the various
types of aircraft equipment are prescribed by regulatory authorities and can be
performed only by certified repair facilities utilizing certified technicians.
The FAA can suspend or revoke the authority of air carriers or their licensed
personnel for failure to comply with its regulations and can ground aircraft if
their airworthiness is in question.

The Department of State and the Department of Transportation, in general,
have jurisdiction over economic regulation of air transportation, but since the
Company does not operate its aircraft for public transportation of passengers
and property, it is not directly subject to their regulatory jurisdiction.

To export aircraft from the U.S. to a foreign destination, the Company is
required to obtain an export license from the United States Department of
Commerce. To date, the Company has not experienced any difficulty in obtaining
required certificates, licenses and approvals either from the FAA, the
Department of Commerce or any other regulatory agency or their foreign
counterparts.

Member countries of the United Nations are signatories to the International
Civil Aviation Organization (the "ICAO"). Each signatory has agreed to comply
with airworthiness directives of the country of manufacture of the aircraft. The
Company will not lease its aircraft to any carrier domiciled in a country which
is not a member of ICAO. The Company also requires its lessees to comply with
the most restrictive standards of either the FAA or its foreign equivalent. In
some instances, the Company may have to share in the cost of complying with
regulatory airworthiness directives. For older aircraft, a special group of
airworthiness directives require extensive inspections and repairs to bring such
aircraft into compliance, which are required to be paid by the lessee.

The FAA and the civil aviation authorities of most countries and
international entities issue regulations limiting permitted noise and other
emissions from aircraft. In most instances, older non-complying aircraft may be
brought into compliance by modifying the engines. One of the Company's aircraft
had noise compliance work performed at a cost of $2.45 million (all of which was
paid by the Company and the lease rate on the aircraft was increased) and three
of the Company's aircraft will require this work to be performed over the next
three years unless the aircraft is leased to a lessee in an area that does not
require the modifications. Currently, these modifications range in cost from
$1.7 million to $2.5 million per aircraft. In some instances, it is necessary to
perform noise compliance work to lease the aircraft into a new jurisdiction. For
example, Western Europe and the United States have non-addition rules which
state that an aircraft which does not meet specified noise compliance
regulations cannot be operated by an airline licensed by one of these
governments. A non-complying aircraft can only be leased or sold into a market
that does not require compliance with the stricter standards. See "Risk
Factors -- Aircraft Noise Compliance."

INSURANCE

The Company requires its lessees to carry those types of insurance which
are customary in the air transportation industry, including comprehensive
liability insurance and aircraft hull insurance. The Company is named as an
additional insured on liability policies carried by the lessees. All policies
contain a breach of warranty endorsement so that the interests of the Company
are not prejudiced by any act or omission of the operator-lessee.

Insurance premiums are prepaid by the lessee on a periodic basis, with
payment acknowledged to the Company through an independent insurance broker. The
territorial coverage is, in each case, suitable for its lessee's area of
operations and the policies contain, among other provisions, a "no co-insurance"
clause and a provision prohibiting cancellation or material change without at
least 30 days advance written notice to the Company. Furthermore, the insurance
is primary and not contributory and all insurance carriers are required to waive
rights of subrogation against the Company.

The stipulated loss value schedule under aircraft hull insurance policies
is on an agreed value basis acceptable to the Company, which usually exceeds the
book value of the aircraft. Aircraft hull policies contain

29
<PAGE> 31

standard clauses covering aircraft engines with deductibles required to be paid
by the lessee. Furthermore, the aircraft hull policies contain full war risk
endorsements, including, but not limited to, confiscation, seizure, hijacking
and similar forms of retention or terrorist acts, subject to certain specified
exclusions. All losses under such policies are payable in U.S. Dollars.

The comprehensive liability insurance policies include provisions for
bodily injury, property damage, passenger liability, cargo liability and such
other provisions reasonably necessary in commercial passenger and cargo airline
operations with minimal deductibles. Such policies generally have combined
comprehensive single liability limits of not less than $200 million and require
all losses to be paid in U.S. Dollars.

Insurance policies are generally placed or reinsured in the Lloyds of
London or U.S. markets. The insurance carrier under the insurance policies must
be approved by the Company.

EMPLOYEES

As of September 30, 1996, the Company had four employees. None of the
Company's employees is covered by a collective bargaining agreement and the
Company believes its employee relations are good. The Company intends to add an
additional employee as corporate controller.

FACILITIES

The Company's principal offices are located at 3655 Torrance Boulevard,
Suite 410, Torrance, California. The Company occupies space in Torrance under a
lease that covers approximately 1,364 square feet of office space and expires on
February 1, 1999. The Company believes that its current facilities are adequate
for its needs and does not anticipate any difficulty replacing such facilities
or locating additional facilities, if needed. See Note 8 to Consolidated
Financial Statements.

LEGAL PROCEEDINGS

The Company is not currently involved in any litigation.

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<PAGE> 32

MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS

The Directors and executive officers of the Company are as follows:

<TABLE>
<CAPTION>
SERVED AS
DIRECTOR
NAME POSITION WITH THE COMPANY AGE(1) SINCE
- -------------------------- --------------------------------------- -------------------------------------- ---------
<S> <C> <C> <C>
William E. Lindsey Chairman of the Board, Chief Executive 58 1988
Officer and Director
Michael P. Grella President and Director 40 1988
Richard O. Hammond Vice President -- Finance and Treasurer 67
Christopher W. Vorderkunz Vice President -- Technical 47
Stuart M. Warren Secretary and Director 53 1988
Aaron Mendelsohn Director 45 1988
Christer Salen Director 55 1989
Kenneth Taylor Director 65 1994
</TABLE>

- ---------------

(1) As of September 30, 1996.

All members of the Board of Directors hold office until the next annual
meeting of shareholders or until their successors are duly elected and
qualified. Executive officers serve at the discretion of the Board of Directors.

MR. LINDSEY has served as Chairman of the Board of Directors, Chief
Executive Officer and a Director of the Company since 1988. He has over 30 years
of aviation experience as an aeronautical and astronautical engineer, attorney,
aircraft salesman, fleet and financial planner, and airline manufacturing
executive. Prior to joining the Company, he was Chairman of the Board of
Directors of Aircraft Finance Corporation, a privately held company engaged in
the acquisition, disposition and leasing of used commercial aircraft, for
approximately three years. Previously, Mr. Lindsey was employed by Western
Airlines for approximately 15 years as the Manager of Operations, as an attorney
in the corporate law department, and as the Director of Fleet Planning with
responsibility for the evaluation, negotiation and acquisition of aircraft. From
1967 to 1972, in addition to his duties for Western Airlines, Mr. Lindsey was
qualified as a Designated Engineering Representative (DER) for the FAA, which
allowed him to approve all of Western Airlines' aircraft operational parameters
on behalf of the FAA. He holds a B.S. in aeronautical engineering from Northrop
University and a J.D. from Loyola University School of Law, Los Angeles.

MR. GRELLA has served as President of the Company since 1988. Prior to
joining the Company, he was President of Aircraft Finance Corporation for
approximately three years. Previously, Mr. Grella served for seven years as
Director of Marketing for Aircraft Investment Corporation. In that capacity, he
was responsible for the marketing, negotiation and sale of commercial jet
aircraft on several continents, as well as for research, evaluation, pricing and
contract administration. Mr. Grella's experience also includes the evaluation,
inspection, selection and acquisition of aircraft on an international basis; and
the negotiation and management of a multiple aircraft modification program for a
major U.S. manufacturer. Mr. Grella holds a B.S. in business from Brockport
University.

MR. HAMMOND has served as the Vice President -- Finance and Treasurer of
the Company since 1988. Prior to joining the Company, he was the Chief Financial
Officer of Aircraft Finance Corporation for three years. For the past
approximately 35 years, Mr. Hammond has been actively engaged in the airline
industry and in aircraft financing, including Vice President and Treasurer of
Western Airlines from 1969 to 1982. His experience includes negotiating aircraft
leases and equipment trusts, raising corporate debt and equity capital,
negotiating domestic and foreign bank lines of credit, and arranging aircraft
hull and liability insurance. Mr. Hammond also has experience in insurance
brokerage, specializing in aviation insurance. He holds a B.S. with Honors in
Accounting from the University of California at Los Angeles.

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<PAGE> 33

MR. VORDERKUNZ has served as Vice President -- Technical since December
1996. For the four years prior to December 1996, Mr. Vorderkunz was the Vice
President of Airclaims, Inc., an aviation loss adjustment company, responsible
for investigating and adjusting hull, liability, cargo, product and premises
claims primarily for insurance underwriters. Prior to his employment with
Airclaims, Inc., Mr. Vorderkunz was the Vice President-Technical for the Company
for three years. Mr. Vorderkunz has been an FAA licensed airframe and powerplant
technician since 1972.

MR. WARREN has served as Secretary and a Director of the Company since
1988. Mr. Warren is currently a principal in Warren & Sklar, a law corporation.
He has been a practicing attorney for the past 26 years, during the last 24 of
which he has been actively engaged in representing clients in the aviation
industry. Mr. Warren was engaged as an attorney for The Flying Tiger Line Inc.
for approximately 14 years and thereafter represented ILFC as well as other
leasing companies and airlines in connection with the purchase, finance and
lease of aircraft. He received his A.B. from Princeton University and his LL.B.
from the Harvard Law School and is a member of the State Bars of California and
New York.

MR. MENDELSOHN is an Associate Director of Bear, Stearns & Co. Inc. and has
been employed with that firm since 1988. Mr. Mendelsohn has over fifteen years
experience in corporate finance.

MR. TAYLOR retired from ILFC in early 1994 where he served as Vice
President-Technical. Prior to joining ILFC in 1983, Mr. Taylor was an officer,
director and principal shareholder of Century International, Ltd., which was
engaged in the business of aircraft sales, leasing and financing from 1978 to
1983. Prior to 1978, Mr. Taylor was an executive of TigerAir, Inc. and he was
active in the airline industry with Douglas Aircraft Company, Fairchild Aircraft
Marketing Company and DeHavilland Aircraft of Canada.

MR. SALEN has been engaged in the shipping and aviation sectors of the
transport industry for his entire working life. He is Chairman and Chief
Executive Officer of EXXTOR Group, Ltd., a London-based holding company for
ventures principally engaged in surface transportation and airline operations
out of the United Kingdom. Mr. Salen was the founding partner of Cargolux
Airlines International, S.A. and currently is also Chairman of European Aircraft
Investors (an aviation holding company), Caledonian Steamship Company (a
shipping holding company) and SCS Management Limited (a management company).

DIRECTOR COMPENSATION

No director currently receives any compensation or other remuneration for
their services as members of the Board of Directors. The Company intends to pay
outside directors an annual fee and a fee for each board meeting and for each
committee meeting which they attend. These fees will be determined by the Board
of Directors. All directors will be reimbursed for their reasonable
out-of-pocket expenses incurred to attend Board of Directors or committee
meetings.

INDEMNIFICATION AND LIMITATION OF LIABILITY

The Amended and Restated Articles of Incorporation will contain provisions
or that eliminate the personal liability of its directors for monetary damages
arising from a breach of their fiduciary duties in certain circumstances to the
fullest extent permitted by law. Such limitation of liability does not affect
the availability of equitable remedies such as injunctive relief or rescission.

Prior to the consummation of the offering, the Company will enter into
indemnity agreements with its officers and directors containing provisions which
are in some respects broader than the specific indemnification provisions
contained in the California Corporations Code. The indemnity agreements may
require the Company, among other things, to indemnify such officers and
directors against certain liabilities that may arise by reason of their status
or service as directors or officers, to advance their expenses incurred as a
result of any proceeding against them as to which they could be indemnified, and
to obtain directors' and officers' insurance if available on reasonable terms.

At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding that may result in a claim for such indemnification.

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<PAGE> 34

AUDIT COMMITTEE

After the offering, an Audit Committee will be formed and consist of at
least three directors, a majority of whom will not be present or former
employees or officers of the Company. The Audit Committee's duties will include
reviewing internal financial information, monitoring cash flow, budget variances
and credit arrangements, reviewing the audit program of the Company, reviewing
with the Company's independent auditors the results of all audits upon their
completion, annually selecting and recommending independent accountants,
overseeing the quarterly unaudited reporting process and taking such other
action as may be necessary to assure the adequacy and integrity of all financial
information distributed by the Company.

COMPENSATION COMMITTEE

After the offering, a Compensation Committee will be formed and consist of
at least three directors, a majority of whom will not be present or former
employees or officers of the Company. The Compensation Committee will recommend
compensation levels of senior management and work with senior management on
benefit and compensation programs for Company employees. In addition, the
Compensation Committee will administer the Company's 1996 Option Plan.

EXECUTIVE COMPENSATION

The following table provides certain summary information concerning the
compensation earned, for services rendered in all capacities to the Company, by
the Company's Chief Executive Officer for the year ended December 31, 1996. No
other executive officer of the Company had total salary and bonus in excess of
$100,000 for the year ended December 31, 1996. Certain columns have been omitted
from this Summary Compensation Table because they are not applicable.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
-----------------
NAME AND PRINCIPAL POSITION SALARY BONUS
----------------------------------------------------------- -------- ------
<S> <C> <C>
William E. Lindsey
Chairman of the Board and Chief Executive Officer........ $120,000 $ --
</TABLE>

STOCK OPTION PLAN

Prior to the closing of the offering, the Company and its shareholders will
adopt the Company's 1996 Option Plan. The 1996 Option Plan provides a means to
attract, motivate, retain and reward key employees of the Company and its
subsidiaries and other selected persons and promote the success of the Company.
A maximum of 405,000 shares of Common Stock (subject to certain anti-dilutive
adjustments) may be issued pursuant to grants and awards under the 1996 Option
Plan. The maximum number of shares that may be subject to all qualifying
share-based awards, either individually or in the aggregate, that during any
calendar year are granted under the 1996 Option Plan to any one participant will
not exceed 101,000 (subject to certain anti-dilutive adjustments).

Administration and Eligibility. The 1996 Option Plan will be administered
by the Board of Directors or a committee appointed by the Board of Directors
(the "Administrator"). The 1996 Option Plan empowers the Administrator among
other things, to interpret the 1996 Option Plan, to make all determinations
deemed necessary or advisable for the administration of the 1996 Option Plan and
to award to officers and other key employees of Company and its subsidiaries and
certain other eligible persons ("Eligible Employees"), as selected by the
Administrator, options, including incentive stock options ("ISOs") as defined in
the Internal Revenue Code (the "Code"), stock appreciation rights ("SARs"),
shares of restricted stock, performance shares and other awards valued by
reference to Common Stock, based on the performance of the participant, the
performance of the Company or its Common Stock and/or such other factors as the
Administrator deems appropriate. The various types of awards under the 1996
Option Plan are collectively referred to as "Awards."

33
<PAGE> 35

It is expected that after the consummation of the offering there will be
approximately five officers and other employees eligible to participate in the
1996 Option Plan.

Transferability. Generally speaking, Awards under the 1996 Option Plan are
not transferable other than by will or the laws of descent and distribution, are
exercisable only by the participant, and may be paid only to the participant or
the participant's beneficiary or representatives. However, the Administrator may
establish conditions and procedures under which exercise by and transfers and
payments to certain third parties are permitted, to the extent permitted by law.

Options. An option is the right to purchase shares of Common Stock at a
future date at a specified price. The option price is generally the closing
price for a share of Common Stock as reported on the Nasdaq-NM ("fair market
value") on the date of grant, but may be a lesser amount if authorized by the
Administrator. The 1996 Option Plan authorizes the Administrator to award
options to purchase Common Stock at an exercise price which may be less than
100% of the fair market value of such stock at the time the option is granted,
except in the case of ISOs.

An option may be granted as an incentive stock option, as defined in the
Code, or a nonqualified stock option. An ISO may not be granted to a person who,
at the time the ISO is granted, owns more than 10% of the total combined voting
power of all classes of stock of the Company and its subsidiaries unless the
exercise price is at least 110% of the fair market value of shares of Common
Stock subject to the option and such option by its terms is not exercisable
after the expiration of five years from the date such option is granted. The
aggregate fair market value of shares of Common Stock (determined at the time
the option is granted) for which ISOs may be first exercisable by an option
holder during any calendar year under the 1996 Option Plan or any other plan of
the Company or its subsidiaries may not exceed $100,000. A nonqualified stock
option is not subject to any of these limitations.

The 1996 Option Plan permits optionees, with certain exceptions, to pay the
exercise price of options in cash, Common Stock (valued at its fair market value
on the date of exercise), a promissory note, a combination thereof or, if an
option award so provides, by delivering irrevocable instructions to a
stockbroker to promptly deliver the exercise price to the Company upon exercise
(i.e., a so-called "cashless exercise"). Cash received by the Company upon
exercise will constitute general funds of the Company and shares of Common Stock
received by the Company upon exercise will return to the status of authorized
but unissued shares.

Consideration for Awards. Typically, the only consideration received by the
Company for the grant of an Award under the 1996 Option Plan will be the future
services by the optionee (as contemplated by the vesting schedule or required by
agreement), past services, or a combination thereof.

SARs. The 1996 Option Plan authorizes the Administrator to grant SARs
independent of any other Award or concurrently (and in tandem) with the grant of
options. An SAR granted in tandem with an option is only exercisable when and to
the extent that the related option is exercisable. An SAR entitles the holder to
receive upon exercise the excess of the fair market value of a specified number
of shares of Common Stock at the time of exercise over the option price. This
amount may be paid in Common Stock (valued at its fair market value on the date
of exercise), cash or a combination thereof, as the Administrator may determine.
Unless the Award agreement provides otherwise, the option granted concurrently
with the SAR must be cancelled to the extent that the appreciation right is
exercised and the SAR must be cancelled to the extent the option is exercised.
SARs limited to certain periods of time around a major event, such as a
reorganization or change in control, may also be granted under the 1996 Option
Plan.

Restricted Stock. The 1996 Option Plan authorizes the Administrator to
grant restricted stock to Eligible Employees on such conditions and with such
restricted periods as the Administrator may designate. During the restricted
period, stock certificates evidencing the restricted shares will be held by the
Company or a third party designated by the Administrator and the restricted
shares may not be sold, assigned, transferred, pledged or otherwise encumbered.

Performance Share Awards. The Administrator may, in its discretion, grant
Performance Share Awards to Eligible Employees based upon such factors as the
Administrator deems relevant in light of the specific type

34
<PAGE> 36

and terms of the Award. The amount of cash or shares or other property that may
be deliverable pursuant to these Awards will be based upon the degree of
attainment over a specified period of not more than ten years (a "performance
cycle") as may be established by the Administrator of such measures of the
performance of the Company (or any part thereof) or the participant as may be
established by the Administrator. The Administrator may provide for full or
partial credit, prior to completion of a performance cycle or the attainment of
the performance achievement specified in the Award, in the event of the
participant's death, retirement, or disability, a Change in Control Event (as
defined in the 1996 Option Plan) or in such other circumstances as the
Administrator may determine.

Special Performance-Based Share Awards. In addition to awards granted under
other provisions of the 1996 Option Plan, performance-based awards within the
meaning of Section 162(m) of the Code and based on revenues, net earnings, cash
flow, return on equity or on assets, or other business criteria ("Other
Performance-Based Awards") relative to preestablished performance goals, may be
granted under the 1996 Option Plan. The specific performance goals relative to
these business criteria must be approved by the Administrator in advance of
applicable deadlines under the Code and while the performance relating to the
goals remains substantially uncertain. The applicable performance measurement
period may not be less than one nor more than ten years. Performance goals may
be adjusted to mitigate the unbudgeted impact of material, unusual or
nonrecurring gains and losses, accounting changes or other extraordinary events
not foreseen at the time the goals were set.

The eligible class of persons for Other Performance-Based Awards is
executive officers of the Company. In no event may grants of this type of Award
in any fiscal year to any participant relate to more than 75,000 shares or $1.5
million if payable only in cash. Before any Other Performance-Based Award is
paid, the Administrator must certify that the material terms of the Other
Performance-Based Award were satisfied. The Administrator will have discretion
to determine the restrictions or other limitations of the individual Awards.

Stock Bonuses. The Administrator may grant a stock bonus to any Eligible
Employee to reward exceptional or special services, contributions or
achievements in the manner and on such terms and conditions (including any
restrictions on such shares) as determined from time to time by the
Administrator. The number of shares so awarded shall be determined by the
Administrator and may be granted independently or in lieu of a cash bonus.

Cash Awards. If Awards payable only in cash are not considered derivative
securities and are not intended to constitute a performance-based award under
the Code, such Awards will not reduce the number of shares available under the
1996 Option Plan. Some cash only awards, however, such as SARs, will reduce the
numbers of shares available under the 1996 Option Plan. Subject to the
provisions of the 1996 Option Plan, the Administrator has the sole and complete
authority to determine the employees to whom and the time or times at which such
awards will be made, the number of shares awarded and other conditions of the
awards.

Term and Exercise Period of Awards. The 1996 Option Plan provides that
awards may be granted for such terms as the Administrator may determine but not
greater than ten years after the date of the Award. The 1996 Option Plan does
not impose any minimum vesting period, post-termination exercise period or
pricing requirement, although in the ordinary course, customary restrictions
will likely be imposed. Options and SARs will generally be exercisable during
the holder's employment by the Company or by a related company and unearned
restricted stock and other Awards will generally be forfeited upon the
termination of the holder's employment prior to the end of the restricted or
performance period. Generally speaking, options which have become exercisable
prior to termination of employment will remain exercisable for three months
thereafter (12 months in the case of retirement, disability or death). Such
periods, however, cannot exceed the expiration dates of the Options. SARs have
the same post-termination provisions as the Options to which they relate. The
Administrator has the authority to accelerate the exercisability of Awards or
(within the maximum ten-year term) extend the exercisability periods.

Termination, Amendment and Adjustment. The Plan may be terminated by the
Board of Directors at any time. In addition, the Board may amend the 1996 Option
Plan from time to time, without the authorization or approval of the Company's
shareholders, unless the amendment (i) materially increases the

35
<PAGE> 37

benefits accruing to participants under the 1996 Option Plan, (ii) materially
increases the aggregate number of securities that may be issued under the 1996
Option Plan or (iii) materially modifies the requirements as to eligibility for
participation in the 1996 Option Plan, but in each case only to the extent then
required by the Code or applicable law, or deemed necessary or advisable by the
Board of Directors. No Award may be granted under the 1996 Option Plan after
January , 2007, although Awards previously granted may thereafter be amended
consistent with the terms of the 1996 Option Plan.

Upon the occurrence of a Change in Control Event (as defined in the 1996
Option Plan), there will be an acceleration of vesting unless the Administrator
determines otherwise prior to the Change in Control Event. In addition, upon the
occurrence of an extraordinary dividend or distribution or any extraordinary
corporate transaction, an appropriate adjustment to the number and type of
shares or other securities or property subject to an Award and the price thereof
may be made in order to prevent dilution or enlargement of rights under Awards.

Individual awards may be amended by the Administrator in any manner
consistent with the 1996 Option Plan. Amendments that adversely affect the
holder of an Award, however, are subject to his or her consent.

The Plan is not exclusive and does not limit the authority of the Board of
Directors or the Administrator to grant other awards, in stock or cash, or to
authorize other compensation, under any other plan or authority.

Initial Grants of Options. The Company will grant certain options under the
1996 Option Plan at the consummation of the offering.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Company did not have a compensation committee for the fiscal year ended
December 31, 1995. For the year ended December 31, 1995, all decisions regarding
executive compensation were made by the Board of Directors of the Company.
William E. Lindsey and Michael P. Grella, directors and executive officers of
the Company, did not participate in deliberations by the Board of Directors of
the Company regarding executive compensation. None of the executive officers of
the Company currently serves on the compensation committee of another entity or
any other committee of the board of directors of another entity performing
similar functions.

CERTAIN TRANSACTIONS

During 1993 and 1995, the Company purchased aircraft from ILFC aggregating
$30.2 million and $41.5 million, respectively. None were purchased during 1994.
At September 30, 1996, 76% of the Company's gross fleet cost was comprised of
aircraft acquired from ILFC. The Company financed these acquisitions through
bank loans, partially guaranteed by ILFC, as well as loans from ILFC. ILFC
provides these guarantees to lenders through an asset value guarantee (AVG)
which generally covers financing in excess of the asset value, as defined.
ILFC's financial support has allowed the Company to finance aircraft purchases
at more favorable leverage than the Company could otherwise obtain. The
Company's typical operating lease transaction with an AVG requires a cash
investment by the Company of approximately 5% to 15% of the aircraft purchase
price while the industry standard ranges from 20% to 30%. At September 30, 1996,
$34.8 million of long-term debt was covered by AVG and $10.3 million was due to
ILFC. During 1993, the Company sold an aircraft to an unrelated party and
received proceeds of $1.5 million, of which $800,000 was from ILFC. ILFC had
assured the Company that it would recover at least $1.5 million from the sale of
this aircraft.

At September 30, 1996, the Company had one aircraft on lease to ILFC which
is subleased to COPA. See "Business -- Lease Portfolio." The lease originated in
August 1994 and provides for monthly rents of $80,000 through August 1997. The
Company recognized rental income of $400,000 and $960,000 during the years ended
1994 and 1995, respectively, and 720,000 during each of the nine month periods
ended September 30, 1995 and 1996, respectively, from this lease.

36
<PAGE> 38

The Company has an agreement with ILFC relating to the December 1995
purchase of an aircraft which provides for recovery of an operating loss,as
defined, in the acquired lease. The Company estimates this loss will be incurred
through 1999. Accordingly, the Company reduced the purchase price of the related
aircraft and recognized a receivable for the present value of the estimated
recovery aggregating $579,000. The amount due from ILFC at September 30, 1996
was $644,000, which includes accrued interest of $65,000. The loss stems from a
stated lease rate which is less than the market lease rate at the date of
acquisition. Accordingly, the Company allocated additional cost to the purchase
price and recognized deferred rent aggregating $1.7 million for the present
value of the difference between the market and stated rent. Deferred rent will
be amortized on the straight line method over the remaining lease term.

The Company realized consulting fee revenues of $597,000, $69,000 and
$347,000 during the years 1993, 1994 and 1995, respectively, for services to
ILFC. The Company recognized consulting fee revenues of $5,000 and $77,000
during the nine month periods ended September 30, 1995 and 1996, respectively.

The Company's Chief Executive Officer and President collectively own 80% of
Great Lakes, an affiliated company. From time to time, these officers provide
consulting services to Great Lakes. In consideration of these services, Great
Lakes paid the Company $144,000 for each of the years 1993, 1994 and 1995. Great
Lakes paid the Company $108,000 for the nine months ended September 30, 1996.

During 1994, ILFC incurred $179,628 for certain improvements to an aircraft
which it leased from the Company. The Company accrued for such costs at December
31, 1994 and reimbursed ILFC in 1995. During 1995, ILFC advanced the Company
$696,000 to assist with the financing of an aircraft purchase which the Company
repaid during 1996. At December 31, 1994 and 1995, the Company had amounts due
to ILFC of $179,628 and $696,000, respectively. No amounts were due at September
30, 1996.

37
<PAGE> 39

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of the date of this Prospectus as
adjusted to reflect to 1-for- reverse stock split, the conversion of
outstanding shares of Preferred Stock and the Convertible Note into
shares of Common Stock, the exercise of options to acquire shares of
Common Stock and the sale of the shares of Common Stock offered hereby for (i)
each person known by the Company to be the beneficial owner of more than five
percent of the outstanding shares of the Company's Common Stock, (ii) each
director of the Company, (iii) the Chief Executive Officer and (iv) all
executive officers and directors of the Company as a group.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
--------------------- NUMBER OF ---------------------
NUMBER OF SHARES NUMBER OF
NAME(1) SHARES PERCENT BEING OFFERED SHARES PERCENT
- --------------------------------------- --------- ------- ------------- --------- -------
<S> <C> <C> <C> <C> <C>
Christer Salen(2)......................
Sven Salen(3)..........................
Gunnar Bjorg(4)........................
William E. Lindsey(5)..................
Michael P. Grella(6)...................
Aaron Mendelsohn(7)....................
Kenneth Taylor(8)......................
Stuart M. Warren.......................
All directors and executive officers as
a group (8 persons)..................
------- ----- --------- ------- -----
</TABLE>

- ---------------

* Less than one percent

(1) The address for each of named individuals is 3655 Torrance Boulevard, Suite
410, Torrance, California 90503

(2) Shares are held by George Alexander, as Voting Trustee under a Voting Trust,
for European Aircraft Investors. The address of Mr. Alexander is East 4511
Mockingbird Lane, Paradise Valley, Arizona 85253. European Aircraft
Investors is beneficially owned by Christer Salen, Salenia AB, Strymansgatan
2, S-104 40 Stockholm, Sweden, and various trusts for members of his family
for which he is one of the trustees but over which he disclaims beneficial
ownership. Includes 11,531 shares subject to options which will be exercised
prior to the consummation of the offering. Christer Salen is the brother of
Sven Salen and disclaims beneficial ownership of the shares beneficially
owned by Sven Salen.

(3) Shares are held by Salenia AB, Strymansgatan 2, S-104 40, Stockholm, Sweden.
Salenia AB is beneficially owned by Sven Salen. Includes 11,531 shares
subject to options which will be exercised prior to the consummation of the
offering. Sven Salen is the brother of Christer Salen and disclaims
beneficial ownership of the shares beneficially owned by Christer Salen.

(4) Shares are held by Menzane International Corp., P.O. Box 184, Lettstrasse
37, FC-9490 Vaduz, Liechtenstein. Gunnar Bjorg is the beneficial owner of
Manzane International Corp. Includes 6,937 shares subject to options which
will be exercised prior to the consummation of the offering.

(5) Includes shares subject to options which will be exercised prior
to the consummation of the offering. Mr. Lindsey's address is 3655 Torrance
Boulevard, Suite 410, Torrance, California 90503.

(6) Includes shares subject to options which will be exercised prior
to the consummation of the offering. Mr. Grella's address is 3655 Torrance
Boulevard, Suite 410, Torrance, California 90503.

(7) Shares are owned by G-G Associates, a general partnership. Mr. Mendelsohn
shares voting and dispositive power.

38
<PAGE> 40

DESCRIPTION OF CAPITAL STOCK

Upon consummation of the offering, the authorized capital stock of the
Company will consist of 20,000,000 shares of Common Stock, $.01 par value, and
15,000,000 shares of Preferred Stock, $.01 par value. After giving effect to the
offering, there will be shares of Common Stock outstanding, assuming
the conversion of all outstanding Preferred Stock and the Convertible Note and
the exercise of options to purchase shares of Common Stock. No shares
of the Company's Preferred Stock will be outstanding upon consummation of the
offering.

COMMON STOCK

Subject to the rights of the holders of any Preferred Stock which may be
outstanding, each holder of Common Stock on the applicable record date is
entitled to receive such dividends as may be declared by the Board of Directors
out of funds legally available therefor, and, in the event of liquidation, to
share pro rata in any distribution of the Company's assets after payment or
providing for the payment of liabilities and the liquidation preference of any
outstanding Preferred Stock. Each holder of Common Stock is entitled to one vote
for each share held of record on the applicable record date on all matters
presented to a vote of shareholders. Holders of Common Stock have no preemptive
rights to purchase or subscribe for any stock or other securities and there are
no conversion rights or redemption or sinking fund provisions with respect to
such Common Stock. All outstanding shares of Common Stock are, and the shares of
Common Stock offered hereby will be when issued, fully paid and nonassessable.

PREFERRED STOCK

As of September 30, 1996, the Company had outstanding 4,941,000 shares of
Convertible Preferred Stock with a liquidation preference of $1.00 per share.
Each share of Convertible Preferred Stock is currently convertible into one
fifth of a share of Common Stock subject to adjustment upon the occurrence of
certain events, including the issuance of Common Stock or rights, options or
securities convertible into or exchangeable for Common Stock at a price per
share of Common Stock less than the then effective conversion price of the
Convertible Preferred Stock. The holders of the Convertible Preferred Stock are
entitled to receive dividends pro rata with the holders of the Common Stock and
vote together with the holders of the Common Stock, voting as one class, on all
matters except for certain amendments to the terms of the Convertible Preferred
Stock which require the approval of the holders of 67% (and in some cases 90%)
of the shares of Convertible Preferred Stock, voting as a separate class. Upon
consummation of the offering, shares of the Convertible Preferred
Stock will be converted to Common Stock.

The Company is authorized to issue 15,000,000 shares of Preferred Stock in
one or more series, and to designate the rights, preferences, limitations,
restrictions of and upon shares of each series, including voting, redemption and
conversion rights. The Board of Directors may also designate dividend rights and
preferences in liquidation. It is not possible to state the effect of the
authorization and issuance of any series of Preferred Stock upon the rights of
holders of Common Stock until the Board of Directors determines the specific
terms, rights and preferences of such a series of Preferred Stock. However, such
effects might include, among other things, restricting dividends on the Common
Stock, diluting the voting power of the Common Stock or impairing the
liquidation rights of such shares without further action by holders of Common
Stock. In addition, under certain circumstances, the issuance of Preferred Stock
may render more difficult or tend to discourage a merger, tender offer or proxy
contest, the assumption of control by a holder of a large block of the Company's
securities or the removal of incumbent management, which could thereby depress
the market price of the Company's Common Stock. At present, the Company has no
plans to issue any additional shares of Preferred Stock.

CERTAIN ANTI-TAKEOVER PROVISIONS

Certain provisions of the Company's Amended and Restated Articles of
Incorporation and Bylaws (as they will be amended prior to the offering)
summarized in the following paragraphs may be deemed to have anti-takeover
effects and may delay, defer or prevent a tender offer or takeover attempt that
a shareholder

39
<PAGE> 41

might consider to be in such shareholder's best interest, including those
attempts that might result in a premium over the market price for the shares
held by shareholders.

The Company's Amended and Restated Articles of Incorporation will include
authorization of the issuance of up to 15,000,000 shares of Preferred Stock,
with such characteristics that may tend to discourage a merger, tender offer or
proxy contest, as described in "Preferred Stock" above. The Company's Amended
and Restated Articles of Incorporation will also provide that shareholder action
can be taken only at an annual or special meeting of shareholders and may not be
taken by written consent. The Company's Bylaws also will limit the ability of
shareholders to raise matters at a meeting of shareholders without giving
advance notice. In addition, upon qualification of the Company as a "listed
corporation" as defined in Section 301.5(d) of the California Corporations Code,
cumulative voting will be eliminated.

The Amended and Restated Articles of Incorporation and the Bylaws will
provide that the affirmative vote of the holders of at least 66 2/3% of the
outstanding shares of the Company then entitled to vote on the matter is
required to amend the Bylaws and certain provisions of the Amended and Restated
Articles of Incorporation, including those provisions relating to the number of
directors, the filling of vacancies on the Board of Directors, the prohibition
on shareholders action without a meeting, indemnification of directors, officers
and others, the limitation on liability of directors and the supermajority
voting requirements in the Amended and Restated Articles of Incorporation and
Bylaws. These voting requirements will have the effect of making more difficult
any amendment by stockholders, even if a majority of the Company's stockholders
believes that such amendment would be in its best interests.

The Company will also include in its Amended and Restated Articles of
Incorporation provisions to eliminate the personal liability of its directors
for monetary damages resulting from breaches of their fiduciary duty to the
extent permitted by the California General Corporation Law. See "Risk
Factors -- Anti-Takeover Provisions."

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar of the Common Stock is American Stock
Transfer & Trust Company.

REPORTS TO SHAREHOLDERS

The Company will furnish its shareholders with annual reports containing
financial statements audited by independent accountants and quarterly reports
for the first three quarters of each year containing unaudited financial
statements.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the offering, the Company will have outstanding
shares of Common Stock. Of these shares, the shares sold in
the offering plus any additional shares sold upon exercise of the Underwriters'
over-allotment option will be freely tradeable without restriction or further
registration under the Securities Act except for any of such shares held by
"affiliates" of the Company.

The remaining shares of Common Stock held by the existing
shareholders are "restricted securities" as that term is defined in Rule 144 of
the Securities Act. of these restricted securities are subject to
lock-up agreements with the Underwriters. Pursuant to these agreements, the
Company's shareholder has agreed not to offer, sell or otherwise dispose of any
shares of Common Stock or any equity securities or securities convertible into
or exchangeable for equity securities or any options, rights or warrants with
respect to any equity securities, subject to certain exceptions, for a period of
180 days from the date of this Prospectus, without the prior written consent of
the Representatives. All of such restricted shares will be eligible for sale in
the public market in accordance with Rule 144 under the Securities Act upon
expiration of such agreements.

40
<PAGE> 42

In general, under Rule 144 as currently in effect, beginning 90 days after
the consummation of the offering, a person (or persons whose shares are
aggregated) who has beneficially owned restricted shares for at least two years,
as well as persons who may be deemed "affiliates" of the Company, will be
entitled to sell in any three-month period a number of shares that does not
exceed the greater of (i) 1% of the then outstanding shares of Common Stock or
(ii) the average weekly trading volume of the Common Stock during the four
calendar weeks immediately preceding the date on which notice of the sale is
filed with the Securities and Exchange Commission. Sales pursuant to Rule 144
are also subject to certain other requirements relating to manner of sale,
notice and availability of current public information about the Company. A
person (or persons whose shares are aggregated) who is not deemed to have been
an affiliate of the Company at any time during the three months immediately
preceding the sale is entitled to sell restricted shares pursuant to Rule 144(k)
without regard to the limitations described above, provided that three years
have expired since the later of the date on which such restricted shares were
first acquired from the Company or from an affiliate of the Company.

shares of Common Stock of the Company have been reserved for
issuance pursuant to the 1996 Option Plan, of which options to purchase
approximately shares of Common Stock will be granted on or prior to
the consummation of the offering. Following the offering, the Company intends to
file a registration statement under the Securities Act to register the 405,000
shares of Common Stock reserved for issuance upon the exercise of stock options
granted under the 1996 Option Plan. Shares granted or issued upon the exercise
of stock options after the effective date of such registration statement
generally will be available for sale in the open market as long as they are not
held by affiliates.

Because there has been no public market for shares of Common Stock of the
Company, the Company is unable to predict the effect that sales made under Rule
144, pursuant to future registration statements or otherwise may have on any
then prevailing market price of shares of the Common Stock. Nevertheless, sales
of a substantial amount of Common Stock in the public market, or the perception
that such sales could occur, could adversely affect market prices.

The Securities and Exchange Commission has recently proposed to reduce the
two and three year holding periods under Rule 144 to one and two years,
respectively. If enacted, such modification will have a material effect on the
timing of when certain shares of Common Stock become eligible for resale.

41
<PAGE> 43

UNDERWRITING

The Underwriters named below, acting through their representatives, Sutro &
Co. Incorporated and Friedman, Billings, Ramsey & Co., Inc. (the
"Representatives"), have severally agreed, subject to the terms and conditions
of the Underwriting Agreement with the Company and the Selling Shareholders, to
purchase from the Company and the Selling Shareholders the number of shares of
Common Stock set forth opposite their respective names. The Underwriters are
committed to purchase and pay for all such shares if any are purchased.

<TABLE>
<CAPTION>
NUMBER OF
SHARES
---------
<S> <C>
Sutro & Co. Incorporated..........................................
Friedman, Billings, Ramsey & Co., Inc. ...........................
-------
Total...................................................
=======
</TABLE>

The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock to the public on the terms set
forth on the cover page of this Prospectus. The Underwriters may allow selected
dealers a concession of not more than $ per share, and the Underwriters
may allow, and such dealers may reallow, a concession of not more than
$ per share to certain other dealers. After the initial public
offering, the price and concessions and reallowances to dealers may be changed
by the Representatives. The Common Stock is offered subject to receipt and
acceptance by the Underwriters and to certain other conditions, including the
right to reject orders in whole or part.

The Company has granted the Underwriters an option exercisable for 45 days
after the date of the Underwriting Agreement to purchase up to a maximum of
additional shares of Common Stock to cover over-allotments, if any. If the
Underwriters exercise such option, the Underwriters have severally agreed,
subject to certain conditions, to purchase such additional shares in
approximately the same proportion as set forth in the foregoing table.

The Underwriting Agreement provides that the Company will indemnify the
several Underwriters against certain liabilities, including civil liabilities
under the Securities Act, or will contribute to payments the Underwriters may be
required to make in respect thereof.

The Company, its directors, officers and certain shareholders have agreed
not to offer, sell or otherwise dispose of any shares of Common Stock or any
equity securities or securities convertible into or exchangeable for equity
securities or any options, rights or warrants with respect to any equity
securities for a period of 180 days after the date of this Prospectus without
the prior written consent of the Representatives except for: (i) the sale of the
shares hereunder, (ii) the issuance by the Company of Common Stock pursuant to
the exercise of options under the Company's stock plans disclosed in the
Prospectus; or (iii) the granting by the Company of stock options after the date
of this Prospectus under the 1996 Option Plan.

The Company has agreed to sell to Sutro & Co. Incorporated, for $.01 per
warrant, the Representative's Warrants to purchase from the Company up to
shares of Common Stock at an exercise price per share equal to 120% of
the initial public offering price per share. The Representative's Warrants are
not transferable other than to officers and partners of Sutro & Co. Incorporated
and are exercisable for a period of three years beginning one year from the date
of this Prospectus. In addition, the Company has granted certain demand and
piggyback registration rights to the holders of the Representative's Warrants
which enable them to register the Common Stock underlying the Representative's
Warrants under the Securities Act. Under the terms of the Representative's
Warrants, Sutro & Co. Incorporated will be the underwriter of any demand
registration requested to be in the form of an underwritten offering.

Prior to this offering, there has been no public market for the Common
Stock. Accordingly, the initial public offering price for the Common Stock was
determined by negotiations between the Company and the Representatives. Among
the factors considered in such negotiations were the history of, and the
prospects for, the Company and the industry in which it competes, an assessment
of the Company's management, its past and present operations, its past and
present earnings and the trend of such earnings, the prospects for future

42
<PAGE> 44

earnings, the present state of the Company's development, the general conditions
of the securities market at the time of the offering, and the market prices of
publicly traded common stocks of comparable companies in recent periods. The
Representatives have informed the Company that the Underwriters do not intend to
confirm sales to any accounts over which they exercise discretionary authority.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by O'Melveny & Myers LLP, Los Angeles, California. Certain
legal matters will be passed upon for the Underwriters by Manatt, Phelps &
Phillips, LLP, Los Angeles, California.

EXPERTS

The Consolidated Financial Statements of the Company as of December 31,
1994 and December 31, 1995 and for each of the years in the three year period
ended December 31, 1995 included in this Prospectus have been so included in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, given on the authority of said firm as experts in accounting and
auditing.

The report of Simat, Helliesen & Eichner, Inc. is included herein in
reliance upon the authority of such firm as an expert with respect to the
matters contained in such report.

ADDITIONAL INFORMATION

A Registration Statement on Form S-1, including amendments thereto,
relating to the Common Stock offered hereby has been filed by the Company with
the Securities and Exchange Commission, Washington, D.C. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedules thereto. Statements contained in this Prospectus as
to the contents of any contract or other document referred to are not
necessarily complete and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to such Registration Statement, exhibits and
schedules. Copies of the Registration Statement may be obtained from the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549, upon the payment of certain fees
prescribed by the Commission or may be examined without charge at the offices of
the Commission, or accessed through the Commission's Internet address at
http://www.sec.gov.

43
<PAGE> 45

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets as of December 31, 1994, December 31, 1995 and September
30, 1996 (unaudited)................................................................ F-3
Consolidated Statements of Income for the years ended December 31, 1993, December 31,
1994 and December 31, 1995, and for the nine months ended September 30, 1995
(unaudited) and September 30, 1996 (unaudited)...................................... F-4
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1993,
December 31, 1994 and December 31, 1995, for the nine months ended September 30,
1996 (unaudited).................................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1993, December
31, 1994 and December 31, 1995, and for the nine months ended September 30, 1995
(unaudited) and September 30, 1996 (unaudited)...................................... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>

F-1
<PAGE> 46

INDEPENDENT AUDITORS' REPORT

The Board of Directors
International Aircraft Investors:

We have audited the accompanying consolidated balance sheets of
International Aircraft Investors and subsidiaries as of December 31, 1994 and
1995 and the related consolidated statements of income, shareholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
International Aircraft Investors and subsidiaries as of December 31, 1994 and
1995 and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1995 in conformity with
generally accepted accounting principles.

KPMG PEAT MARWICK LLP

Los Angeles, California
February 16, 1996, except
the second paragraph of note 2,
which is as of November 4, 1996.

F-2
<PAGE> 47

INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1994 1995 1996
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................. $ 307,545 $ 33,898 $ 710,018
Accounts receivable from ILFC (note 6)................ 25,570 54,000 25,650
Due from ILFC (note 6)................................ -- 293,000 206,000
Other assets.......................................... 70,613 145,755 132,082
----------- ----------- -----------
Total current assets.......................... 403,728 526,653 1,073,750
Flight equipment, at cost, net (notes 2,3 and 6)........ 56,162,405 95,449,700 91,488,274
Due from ILFC, less current portion (note 6)............ -- 286,000 438,000
Investment in joint venture (note 4).................... 323,250 -- --
Deferred fees........................................... 241,786 366,515 275,784
Cash, restricted (note 1)............................... -- 150,000 150,000
----------- ----------- -----------
$57,131,169 $96,778,868 $ 93,425,808
=========== =========== ===========
LIABILITY AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (note 2)....... $ 3,273,652 $ 5,272,554 $ 42,896,697
Accounts payable and accrued expenses................. 12,925 37,762 150
Accrued interest...................................... 205,387 205,800 716,375
Lease deposits........................................ 360,000 835,000 835,000
Maintenance reserves.................................. -- 181,426 450,007
Advanced rentals...................................... 899,246 795,850 799,000
Deferred rent (note 6)................................ -- 250,000 250,000
Due to lessee (note 3)................................ 363,122 -- --
Payable to affiliate (note 4)......................... -- 36,750 --
Payable to ILFC (note 6).............................. 179,628 696,695 --
----------- ----------- -----------
Total current liabilities..................... 5,293,960 8,311,837 45,947,229
Deferred rent, less current portion (note 6)............ -- 1,497,000 1,309,000
Deferred tax liability (note 5)......................... 345,622 369,017 399,758
Long-term debt, less current installments (note 2)...... 48,414,017 82,552,733 41,266,532
----------- ----------- -----------
54,053,599 92,730,587 88,922,519
----------- ----------- -----------
Commitments and contingencies (note 8) Shareholders'
equity (notes 9 and 10):
Convertible preferred stock, $.01 par value.
Authorized 15,000,000 shares; issued and
outstanding 4,941,000 shares; liquidation value of
$1 per share....................................... 49,410 49,410 49,410
Common Stock,$.01 par value. Authorized 20,000,000
shares; issued and outstanding 215,000 shares in
1994, 315,000 shares in 1995 and 1996.............. 2,150 3,150 3,150
Additional paid-in capital............................ 5,071,098 5,170,098 5,170,098
Accumulated deficit................................... (2,045,088) (1,174,377) (719,369)
----------- ----------- -----------
Net shareholders; equity...................... 3,077,570 4,048,281 4,503,289
----------- ----------- -----------
$57,131,169 $96,778,868 $ 93,425,808
=========== =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements

F-3
<PAGE> 48

INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ -----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues (note 6)
Rental of flight equipment......... $6,097,821 $8,107,751 $7,764,763 $5,776,328 $9,501,857
Consulting fees.................... 741,819 213,500 491,045 112,600 234,750
Interest income (note 1)........... 7,028 67,997 117,961 61,873 120,973
---------- ---------- ---------- ---------- ----------
Total revenues............. 6,846,668 8,389,248 8,373,769 5,950,801 9,857,580
Expenses:
Interest........................... 2,293,451 3,547,600 3,776,165 2,837,930 4,787,855
Depreciation....................... 2,013,800 3,164,800 3,354,400 2,510,900 4,160,400
General and administrative......... 446,513 548,494 526,021 369,428 421,317
---------- ---------- ---------- ---------- ----------
Total expenses............. 4,753,764 7,260,894 7,656,586 5,718,258 9,369,572
---------- ---------- ---------- ---------- ----------
Operating income......... 2,092,904 1,128,354 717,183 232,543 488,008
---------- ---------- ---------- ---------- ----------
Equity in earnings of affiliate (note
4):
Earnings from operations........... -- -- 66,028 55,775 --
Gain on sale of aircraft engine.... -- -- 117,500 -- --
---------- ---------- ---------- ---------- ----------
Total equity in earnings... -- -- 183,528 55,775 --
---------- ---------- ---------- ---------- ----------
Income before income taxes........... 2,092,904 1,128,354 900,711 288,318 488,008
---------- ---------- ---------- ---------- ----------
Income tax expense (note 5).......... 45,000 59,000 30,000 24,000 33,000
---------- ---------- ---------- ---------- ----------
Net income................. $2,047,904 $1,069,354 $ 870,711 $ 264,318 $ 455,008
========== ========== ========== ========== ==========
Net income per common and common
equivalent shares.................. $ 0.24 $ 0.13 $ 0.11 $ 0.03 $ 0.06
========== ========== ========== ========== ==========
Weighted average common and common
equivalent shares outstanding (note
1)................................. 9,857,133 7,985,560 7,985,560 7,985,560 8,038,060
========== ========== ========== ========== ==========
</TABLE>

See accompanying notes to consolidated financial statements

F-4
<PAGE> 49

INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- -------------------------
1993 1994 1995 1995 1996
------------ ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flow from operating activities:
Net income.............................. $ 2,047,904 $ 1,069,354 $ 870,711 $ 264,318 $ 455,008
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation of flight equipment...... 2,013,800 3,164,800 3,354,400 2,510,900 4,160,400
Amortization of deferred transaction
fees................................ 242,687 171,348 101,082 81,662 113,870
Equity in earnings of affiliate....... -- -- (183,528) (55,775) --
(Increase) decrease in assets:
Accounts receivable from ILFC....... (5,000) (20,570) (28,430) 14,520 28,350
Due from ILFC....................... -- -- -- -- (65,000)
Deferred fees....................... (271,753) (66,836) (225,811) (44,311) (23,139)
Other assets........................ (59,012) 117,593 (225,142) (318,557) 13,673
Increase (decrease) in liabilities:
Accounts payable and accrued
expenses.......................... (113,926) (54,033) 61,587 150,347 (74,362)
Accrued interest.................... 44,408 39,023 413 (20,287) 510,575
Lease deposits...................... 360,000 (500,000) 475,000 150,000 --
Maintenance reserves................ -- -- 181,426 67,180 268,581
Advance rentals..................... 204,724 123,356 (103,396) (452,246) 3,150
Deferred rent....................... -- -- -- -- (188,000)
Deferred taxes...................... 35,000 58,622 23,395 16,673 30,741
-- 363,122 (363,122) (363,122) --
------------ ----------- ------------ ----------- -----------
Net cash provided by operating
activities........................ 4,498,832 4,465,779 3,938,585 2,001,302 5,233,847
------------ ----------- ------------ ----------- -----------
Cash flows from investing activities:
Purchase of flight equipment.......... (30,165,000) (2,981,305) (41,472,695) -- (198,974)
Proceeds from sale of aircraft........ 1,500,000
Investment in (dividends and sale of
IEI)................................ -- (322,250) 505,778 26,210 --
------------ ----------- ------------ ----------- -----------
Net cash provided by (used in)
investing activities.............. (28,665,000) (3,303,555) (40,966,917) 26,210 (198,974)
------------ ----------- ------------ ----------- -----------
Cash flows from financing activities:
Repayment of notes payable............ (3,256,936) (1,884,003) (2,749,082) (2,134,812) (3,888,734)
Repayment of notes payable to ILFC.... (1,750,696) (1,731,567) (400,800) (298,680) (459,798)
Proceeds from notes payable........... 27,131,123 2,430,000 29,725,000 171,760 198,974
Proceeds from notes payable to ILFC... 1,855,000 -- 7,950,000 -- --
Proceeds from notes payable to GLH.... -- -- 1,612,500 -- 487,500
Issuance of common stock.............. 300,000 -- 100,000 -- --
Payable to ILFC....................... -- 179,628 517,067 -- (696,695)
------------ ----------- ------------ ----------- -----------
Net cash provided by (used in)
financing activities.............. 24,278,491 (1,005,942) 36,754,685 (2,261,732) (4,358,753)
------------ ----------- ------------ ----------- -----------
Net increase (decrease) in cash and
cash equivalents.................. 112,323 156,282 (273,647) (234,220) 676,120
Cash and cash equivalents at beginning
of year............................... 38,940 151,263 307,545 307,545 33,898
------------ ----------- ------------ ----------- -----------
Cash and cash equivalents at end of
year.................................. $ 151,263 $ 307,545 $ 33,898 $ 73,325 $ 710,018
============ =========== ============ =========== ===========
Supplemental disclosure of cash flow
information -- cash paid for
interest.............................. $ 2,003,934 $ 3,304,781 $ 3,468,054 $ 2,589,537 $ 4,106,423
============ =========== ============ =========== ===========
</TABLE>

Supplemental disclosure of noncash investing and financing activities:

During 1995, the Company earned $311,000 of consulting fees from ILFC which
were applied to amounts owed ILFC.

See accompanying notes to consolidated financial statements

F-5
<PAGE> 50

INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
CONVERTIBLE COMMON STOCK ADDITIONAL
PREFERRED ---------------- PAID-IN ACCUMULATED
STOCK SHARES AMOUNT CAPITAL DEFICIT NET
----------- -------- ------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992.... $46,410 215,000 $2,150 $4,774,098 $(5,162,346) $ (339,688)
Issuance of 300,000 shares of
preferred stock............... 3,000 -- -- 297,000 -- 300,000
Net income...................... -- -- -- -- 2,047,904 2,047,904
------- ------- ------ ---------- ----------- ----------
Balance at December 31, 1993.... 49,410 215,000 2,150 5,071,098 (3,114,442) 2,008,216
Net income...................... -- -- -- -- 1,069,354 1,069,354
------- ------- ------ ---------- ----------- ----------
Balance at December 31, 1994.... 49,410 215,000 2,150 5,071,098 (2,045,088) 3,077,570
Issuance of common stock from
exercise of stock options..... -- 100,000 1,000 99,000 -- 100,000
Net income...................... -- -- -- -- 870,711 870,711
------- ------- ------ ---------- ----------- ----------
Balance at December 31, 1995.... 49,410 315,000 3,150 5,170,098 (1,174,377) 4,048,281
Net income (unaudited).......... -- -- -- -- 455,008 455,008
------- ------- ------ ---------- ----------- ----------
Balance at September 30, 1996
(unaudited)................... $49,410 315,000 $3,150 $5,170,098 $ (719,369) $4,503,289
======= ======= ====== ========== =========== ==========
</TABLE>

See accompanying notes to consolidated financial statements

F-6
<PAGE> 51

INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996 (UNAUDITED)

(1) THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

International Aircraft Investors (the Company) is primarily engaged in the
acquisition of used, singleaisle jet aircraft and engines for lease and sale to
domestic and foreign airlines and other customers. The Company leases aircraft
under short- to medium-term operating leases where the lessee is responsible for
all operating costs and the Company retains the potential benefit or risk of the
residual value of the aircraft, as distinct from finance leases where the cost
of the aircraft is generally recovered over the term of the lease.

Five of the Company's seven aircraft at September 30, 1996 were acquired
from International Lease Finance Corporation (ILFC), a 6% stockholder of the
Company. In connection with certain of these aircraft acquisitions, ILFC has
provided loan guarantees or other financial support which have provided more
favorable borrowing arrangements than the Company could otherwise have obtained.
Additionally, the Company has derived certain consulting fees from ILFC for
providing remarketing and other services.

The accompanying consolidated financial statements include the accounts of
the Company and wholly owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.

Cash and Cash Equivalents

Cash and cash equivalents includes cash and highly liquid investments
purchased with an original maturity of less than 90 days. Cash and short-term
investments restricted for the repayment of a security deposit pursuant to a
certain lease agreement was $150,000 at September 30, 1996. Such security
deposit matures June 15, 1998.

Deferred Transaction Fees

The direct costs related to purchase and lease agreements are capitalized
and amortized to expense using the straight-line method over the term of the
related lease.

The costs related to asset value guarantees (AVG - note 6) are capitalized
and amortized to expense using the straight-line method over the term of the
AVG, generally ten years. At September 30, 1996, deferred transaction fees
related to AVG were $213,875.

Rentals

The Company leases flight equipment under operating leases. Accordingly,
income is recognized over the life of noncancelable lease terms under the
straight-line method.

Flight Equipment and Depreciation

Flight equipment is stated at cost.

F-7
<PAGE> 52

INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Depreciation of flight equipment is generally computed on a straight-line
method over the estimated remaining useful lives (25 year original life less
years in service at the date of acquisition) of the related assets. The Company
changed to this depreciation policy during 1996 to better estimate the assets'
utilization and conform with industry practice and has retroactively applied
this policy for all periods presented. At September 30, 1996, the Company's
fleet, related useful lives and estimated salvage values were as follows:

<TABLE>
<CAPTION>
USEFUL LIFE AT
ACQUISITION
DESCRIPTION OF ASSET DATE SALVAGE VALUE
----------------------------------------------------- -------------- -------------
<S> <C> <C>
1979 Boeing 727-200.................................. 16 years $ 2,500,000
1978 Boeing 737-219.................................. 13 2,500,000
1980 Boeing 737-219.................................. 14 2,500,000
1989 Boeing 737-300.................................. 21 3,000,000
1980 Boeing 737-204.................................. 12 3,000,000
1985 Boeing 737-300.................................. 15 3,000,000
1989 McDonnell MD-82................................. 19 3,000,000
==========
</TABLE>

Maintenance Reserves and Interest Income

Normal maintenance and repairs of flight equipment on lease are provided by
and paid for by the lessee. Maintenance reserves received under certain leases
amounted to $181,426 and $268,581 during the year ended December 31, 1995 and
the nine months ended September 30, 1996, respectively. Additionally, one of the
Company's lessees holds a related maintenance reserve with ILFC in accordance
with an agreed-upon arrangement. The Company receives interest earned on this
reserve held with ILFC which amounted to $48,885, $95,116 and $35,917 during
1994, 1995 and the nine months ended September 30, 1996, respectively. None were
received during 1993. The related lease expires in April 1997 at which time this
arrangement will cease.

Impairment of Long-Lived Assets

Statement of Financial Accounting Standards No. 121 (SFAS No. 121),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," issued in March 1995 and effective for fiscal years beginning
after December 15, 1995, establishes accounting standards for the recognition
and measurement of impairment of long-lived assets, certain identifiable
intangibles and goodwill either to be held or disposed of. The Company adopted
SFAS No. 121 during 1996. The adoption of SFAS No. 121 did not have a material
impact on the Company's financial position or results of operations.

The Company evaluates the carrying value of its flight equipment on an
ongoing basis and will make any adjustments necessary in accordance with SFAS
No. 121.

Income Taxes

The Company accounts for income taxes under the asset and liability method
whereby deferred tax assets and liabilities are recognized for the future tax
consequences for differences between the financial statement carrying amounts of
assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years when such temporary differences are expected to be recovered
or settled. The effect of a change in tax rates on deferred tax assets and
liabilities is recognized in income at the enactment date.

F-8
<PAGE> 53

INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Earnings per Share

Net earnings per share has been computed using the weighted average number
of common and common equivalent shares outstanding for each of the periods
presented adjusted for the stock split (note 10). Common stock equivalents
represent the number of shares which would be issued assuming the exercise of
common stock options, conversion of preferred stock and conversion of a note
payable reduced by the number of shares which could be purchased with the
proceeds from such conversions using the treasury stock method. The treasury
stock method was modified as the number of common stock equivalents exceeded 20%
of the number of common shares outstanding at the end of each of the periods
presented in the accompanying consolidated financial statements. Accordingly,
the number of shares which could be repurchased with the proceeds from such
conversions was limited to 20% of the number of common shares and the remaining
balance was applied to reduce long-term debt. The modified treasury stock method
was applied only to 1993 as the effect on 1994, 1995 and 1996 was anti-dilutive.

Fully diluted net income per common and common equivalent share is not
presented since the amounts do not differ significantly from the primary net
income per share presented.

Stock Compensation

Statement of Financial Accounting Standards No. 123 (SFAS No. 123),
"Accounting for Stock-Based Compensation," issued in October 1995 and effective
for fiscal years beginning after December 15, 1995, encourages, but does not
require, a fair-value-based method of accounting for employee stock options or
similar equity instruments. SFAS No. 123 allows an entity to elect to continue
to measure compensation cost under Accounting Principles Board Opinion No. 25
(APBO No. 25), "Accounting for Stock Issued to Employees," but requires pro
forma disclosures of net earnings and earnings per share as if the fair-value-
based method of accounting had been applied. The Company elected to continue to
measure compensation cost under APBO No. 25. During the nine month period ended
September 30, 1996, no stock options were granted by the Company, accordingly,
no pro forma disclosures are presented.

Interest Rate Swap Agreements

The net differential to be paid or received on interest rate swap
agreements to reduce the impact of changes in interest rates is recognized over
the lives of the agreements, and such differential is classified as interest
income or interest expense in the income statement. All outstanding swap
agreements are hedges and, therefore, are not marked to market.

Fair Values of Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses and payable to ILFC approximate fair market
value because of the short maturity of these items.

The fair values of the Company's interest rate swaps approximates
unamortized costs as the remaining amortization periods are short-term. The fair
value of the amount due from ILFC approximates the carrying value as it was
determined using the present value method with the Company's internal rate of
return. The fair values of the Company's debt instruments approximate the
carrying values because 1) the rates currently offered to the Company are
similar to the rates for these items, or 2) the yields to maturity approximate
the rates for these items.

Management Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions. These affect the reported amounts of assets,

F-9
<PAGE> 54

INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

liabilities, revenues and expenses and the amount of any contingent assets or
liabilities disclosed in the financial statements. Actual results could differ
from the estimates made.

The Company leases aircraft to various commercial airline fleets, on short-
to medium-term operating leases, generally three to five years. The related
aircraft are generally financed by borrowings that becomes due at or near the
end of the lease term through a balloon payment. As a result, the Company's
operating results depend on management's ability to roll over debt facilities,
renegotiate favorable leases and realize estimated salvage values.

Significant Customers

The following customers individually accounted for 10% or more of revenues:

<TABLE>
<CAPTION>
NUMBER OF
SIGNIFICANT PERCENTAGE OF REVENUES BY
CUSTOMERS SIGNIFICANT CUSTOMERS
--------- ---------------------------
<S> <C> <C>
Year ended December 31:
1993............................... 2 24% and 54%
1994............................... 3 12%, 42% and 36%
1995............................... 4 11%, 16%, 26% and 36%
Nine months ended
September 30, 1996................. 5 10%, 11%, 23%, 21% and 16%
</TABLE>

(2) LONG-TERM DEBT

Long-term debt as of December 31, 1994 and 1995 and September 30, 1996
is summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Notes payable to bank bearing interest at 7.50% on
$7,000,000 and LIBOR plus 1.125% (6.6% at September
30, 1996) on $729,733, secured by flight equipment,
33 1/3% guaranteed by ILFC, payable in monthly
installments of $75,000 including interest, balloon
payment of $7,500,000, due August 1997................ $ 8,266,979 $ 7,960,343 $ 7,729,733
Note payable to bank bearing interest at 7.3125% on
$3,500,000 and LIBOR plus 1.125% (6.6% at September
30, 1996) on $1,808,944, secured by flight equipment,
33 1/3% guaranteed by ILFC, payable in monthly
installments of $87,000 including interest, balloon
payment of $4,000,000, due June 1998.................. 5,882,958 5,595,152 5,308,944
Notes payable to bank bearing interest at 7.545%
(Floating plus Swap), secured by flight equipment, 50%
guaranteed by ILFC up to $2,400,000, balloon payment
of $4,300,028, due February 1997...................... 5,375,028 4,943,028 4,551,028
Notes payable to bank bearing interest at 7.60%
(Floating plus Swap), secured by flight equipment, 50%
guaranteed by ILFC, balloon payment of $3,180,000, due
March 1997............................................ 4,202,000 3,796,000 3,433,000
Note payable to bank bearing interest at 7.10% (Floating
plus Swap), secured by flight equipment, 50%
guaranteed by ILFC, balloon payment of $1,814,979, due
March 1997............................................ 2,270,100 2,045,600 1,864,900
Note payable to bank bearing interest at 7.73% (Floating
plus Swap), secured by flight equipment, 50%
guaranteed by ILFC, balloon payment of $18,085,371,
due July 1997......................................... 20,813,189 19,734,963 18,879,957
</TABLE>

F-10
<PAGE> 55

INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER
------------------------- 30,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Note payable to bank, refinanced November 4, 1996,
bearing interest at LIBOR plus 1.2 (6.7% at September
30, 1996), secured by flight equipment, 100%
guaranteed by ILFC, payable in quarterly installments
of $445,000 including interest, due January 2003...... $ -- $14,500,000 $13,900,000
Note payable to bank, refinanced May 17, 1996, bearing
interest at 7.75%, secured by flight equipment,
guaranteed up to $2,175,000 by ILFC, payable in
quarterly installments of $510,000 including interest,
due May 2001.......................................... -- 15,225,000 14,430,151
Note payable to bank with interest accrued at 6%,
payment is based on profit sharing agreements on
certain flight equipment, as defined: 727, 737, 737,
principal due August 1998............................. 967,465 909,551 888,164
Convertible note payable to bank with interest accrued
at 5.0%, payable quarterly, principal due August
1998.................................................. 827,000 792,000 766,000
Note payable to ILFC bearing interest at 5.9%, payable
in quarterly installments including interest, balloon
payment of $3,513,000, due October 1998............... -- 3,600,000 3,578,000
Note payable to ILFC bearing interest at 5.5%, secured
by flight equipment, balloon payment of $441,000, due
March 1997............................................ 446,400 444,000 442,200
Note payable to ILFC bearing interest at 5.5%, secured
by flight equipment, balloon payment of $889,585, due
July 1997 ............................................ 1,299,705 1,160,305 1,029,733
Note payable to ILFC bearing interest at 6.0%, balloon
payment of $511,845, due August 1999.................. 1,336,845 1,156,845 1,021,845
Note payable to ILFC bearing interest at 7.8%, payable
in quarterly installments of $110,000 including
interest, balloon payment of $3,718,293 due December
2000.................................................. -- 4,350,000 4,239,574
Notes payable to Great Lakes Holdings (affiliated
company), refinanced in 1996, bearing interest at
5.4%, due June 1997................................... -- 612,500 700,000
Notes payable to Great Lakes Holdings (affiliated
company),............................................. -- 1,000,000 1,400,000
----------- ----------- -----------
Total......................................... 51,687,669 87,825,287 84,163,229
----------- ----------- -----------
Less current installments............................... 3,273,652 5,272,554 42,896,697
----------- ----------- -----------
$48,414,017 $82,552,733 $41,266,532
========== ========== ==========
</TABLE>

As indicated above, certain borrowings aggregating $31,337,500 at December
31, 1995 were refinanced during 1996. Accordingly, the amounts due under these
notes payable have been classified in the accompanying December 31, 1995
consolidated balance sheet based on the refinanced terms.

At September 30, 1996, $34,786,000 of the Company's long-term debt was
guaranteed by ILFC and $10,311,000 of the Company's long-term debt was due to
ILFC (unaudited).

The convertible note payable is convertible into 140,000 shares of
preferred stock at the creditor's option.

F-11
<PAGE> 56

INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Scheduled future repayments of long-term debt subsequent to September 30,
1996:

<TABLE>
<S> <C>
12-month period ending
September 30:
1997....................................... $42,896,697
1998....................................... 8,488,248
1999....................................... 2,908,034
2000....................................... 2,409,741
2001....................................... 15,147,219
Thereafter................................. 12,313,290
-----------
$84,163,229
===========
</TABLE>

Certain notes payable contain various financial covenants including
tangible net worth and delivery of audited financial statements. The Company was
not in compliance with these covenants, however, it received waivers for such
noncompliance.

(3) FLIGHT EQUIPMENT

The Company's investment in flight equipment (primarily purchased from
ILFC) as of December 31, 1994 and 1995 and September 30, 1996 is as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- SEPTEMBER 30,
1994 1995 1996
----------- ------------ -------------
<S> <C> <C> <C>
Flight equipment.................. $66,146,305 $108,788,000 $ 108,986,974
Accumulated depreciation.......... (9,983,900) (13,338,300) (17,498,700)
----------- ------------ ------------
Flight equipment, net............. $56,162,405 $ 95,449,700 $ 91,488,274
=========== ============ ============
</TABLE>

During 1994 and 1996, lessees incurred $363,122 and $198,974, respectively,
to upgrade Company aircraft. The Company reimbursed the lessees and capitalized
such costs.

(4) INVESTMENT IN JOINT VENTURE

During 1994, the Company purchased a 50% non-controlling interest in
International Engine Investors (IEI) for $322,250. IEI was formed in December
1994 between the Company and Partimande Holding Anstalt (wholly owned by a
shareholder of the Company) for the purpose of acquiring an aircraft engine. The
Company used the equity method to account for its investment. The Company's
share of IEI's income for 1995 was $66,028. On November 11, 1995, the engine was
sold by IEI, and IEI was liquidated. The Company's share of the gain on sale was
$117,500. At December 31, 1995, the Company had a payable to Partimande Holding
Anstalt of $36,750 related to the sale of the engine.

F-12
<PAGE> 57

INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(5) INCOME TAXES

Provision for taxes on income consisted of the following:

<TABLE>
<CAPTION>
TOTAL CURRENT DEFERRED
------- ------- --------
<S> <C> <C> <C>
Year ended December 31:
1993:
Federal.................................. $ -- $ -- $ --
State.................................... 45,000 10,000 35,000
------- ------- -------
$45,000 $10,000 $ 35,000
======= ======= =======
1994:
Federal.................................. $ -- -- $ --
State.................................... 59,000 -- 59,000
------- ------- -------
$59,000 -- $ 59,000
======= ======= =======
1995:
Federal.................................. $ -- $ -- $ --
State.................................... 30,000 7,000 23,000
------- ------- -------
$30,000 $ 7,000 $ 23,000
======= ======= =======
</TABLE>

As of December 31, 1995, the Company had net operating loss carryforwards
for Federal income tax purposes of approximately $20,900,000 expiring through
2010. For state tax purposes, the Company has a total of $4,100,000 of net
operating losses that will begin to expire with the tax year ending December 31,
1996.

Temporary differences which give rise to deferred tax liabilities result
primarily from timing differences for depreciation and net operating losses. The
deferred tax liabilities of $345,622 and $369,017 at December 31, 1994 and 1995
are comprised of the following:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Net operating loss carryforward................... $ 6,809,250 $ 7,098,058
Flight equipment, principally due to differences
in depreciation................................. (6,520,028) (7,754,765)
Deferred and advanced rent........................ 366,961 1,048,186
Other............................................. (73,932) (116,641)
----------- -----------
582,251 274,838
Valuation allowance............................... (927,873) (643,855)
----------- -----------
$ (345,622) $ (369,017)
=========== ===========
</TABLE>

Management believes it is more likely than not that the results of future
operations will generate sufficient taxable income to realize deferred tax
assets net of the valuation allowance.

F-13
<PAGE> 58

INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A reconciliation of total income tax expense with the expected amount
computed by applying the Federal and state statutory tax rates to earnings
before income taxes follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Computed "expected" Federal tax expense......... $ 712,000 $ 384,000 $ 306,000
State taxes, net of Federal income tax
benefit....................................... 40,000 21,000 17,000
Change in valuation allowance................... (724,000) (308,000) (284,000)
Other........................................... 17,000 (38,000) (9,000)
--------- --------- ---------
$ 45,000 $ 59,000 $ 30,000
========= ========= =========
</TABLE>

(6) RELATED PARTY TRANSACTIONS

During 1993 and 1995, the Company purchased aircraft from ILFC aggregating
$30,165,000 and $41,473,000, respectively. None were purchased during 1994. At
September 30, 1996, 76% of the Company's gross fleet cost was comprised of
aircraft acquired from ILFC. The Company financed these acquisitions through
bank loans, partially guaranteed by ILFC, as well as loans from ILFC (note 2).
ILFC provides these guarantees to lenders through an asset value guarantee (AVG)
which generally covers financing in excess of the asset value, as defined.
ILFC's financial support has allowed the Company to finance aircraft purchases
at more favorable leverage than the Company could otherwise obtain. The
Company's typical operating lease transaction with an AVG requires a cash
investment by the Company of approximately 5% to 15% of the aircraft purchase
price while the industry standard ranges from 20% to 30%. At September 30, 1996,
$34,786,000 of long-term debt was covered by AVG and $10,311,000 was due to
ILFC.

During 1993, the Company sold an aircraft to an unrelated party and
received proceeds of $1,500,000 of which $800,000 was from ILFC. ILFC had
assured the Company that it would recover at least $1,500,000 from the sale of
this aircraft.

The Company has one aircraft leased to ILFC at September 30, 1996. The
lease originated in August 1994 and provides for monthly rents of $80,000
through August 1997. The Company recognized rental income of $400,000 and
$960,000 during the years ended 1994 and 1995, respectively, and 720,000 during
each of the nine month periods ended September 30, 1995 and 1996, respectively,
from this lease.

The Company has an agreement with ILFC related to the December 1995
purchase of an aircraft which provides for recovery of an operating loss, as
defined, in the acquired lease. The Company estimates this loss will be incurred
through 1999. Accordingly, the Company reduced the purchase price of the related
aircraft and recognized a receivable for the present value of the estimated
recovery aggregating $579,000. The amount due from ILFC at September 30, 1996
was $644,000, which includes accrued interest of $65,000. The loss stems from a
stated lease rate which is less than the market lease rate at the date of
acquisition. Accordingly, the Company allocated additional cost to the purchase
price and recognized deferred rent aggregating $1,747,000 for the present value
of the difference between the market and stated rent. Deferred rent will be
amortized on the straight line method over the remaining lease term.

The Company realized consulting fee revenues of $597,000, 69,000 and
$347,000 during the years 1993, 1994 and 1995, respectively, for services to
ILFC. The Company recognized consulting fee revenues of $5,000 and $77,000
during the nine month periods ended September 30, 1995 and 1996, respectively.
Additionally, the Company earned consulting fees of $49,000 during the nine
months ended September 30, 1996 from an unrelated party.

The Company's Chairman and President collectively own 80% of Great Lakes
Holdings (GLH), an affiliated company while ILFC owns 20%. From time to time,
these officers provide consulting services to GLH. GLH paid the Company $144,000
for each of the years 1993, 1994 and 1995 for these services. GLH

F-14
<PAGE> 59

INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

paid the Company $108,000 for each of the nine month periods ended September 30,
1995 and 1996, respectively.

During 1994, ILFC incurred $179,628 for certain improvements to an aircraft
which it leased from the Company. The Company accrued for such costs at December
31, 1994 and reimbursed ILFC in 1995. During 1995, ILFC advanced the Company
$696,000 to assist the financing of an aircraft purchase. The advance was repaid
during 1996. At December 31, 1994 and 1995, 179,628 and $696,695, respectively,
was due to ILFC. No amounts were due at September 30, 1996.

(7) RENTAL INCOME

Minimum future rental income on noncancelable operating leases of flight
equipment at September 30, 1996 is as follows:

<TABLE>
<S> <C>
12 months ended September 30:
1997.......................................... $ 5,958,000
1998.......................................... 5,960,000
1999.......................................... 2,476,000
2000.......................................... 2,356,000
2001.......................................... 2,356,000
Thereafter.................................... 2,931,000
-----------
$22,037,000
===========
</TABLE>

Four of the aircraft leases expire in 1997, two expire in 1998 and one
expires in 2002.

(8) COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases offices from a third party under a noncancelable
operating lease. Future minimum lease payments are:

<TABLE>
<S> <C>
12 months ended September 30:
1997............................................. $22,000
1998............................................. 22,000
1999............................................. 7,000
-------
$51,000
=======
</TABLE>

Total rent expense under operating leases for the years ended December 31,
1993, 1994 and 1995 was $19,800, $24,600 and $20,665, respectively. Total rent
expense under operating leases for each of the nine month periods ended
September 30, 1995 and 1996 was $15,345.

Government Regulations

The maintenance and operation of aircraft are regulated by the Federal
Aviation Administration (FAA) and foreign aviation authorities which oversee
such matters as aircraft certification, inspection, maintenance, certification
of personnel, and record-keeping. All current leases require the lessee to bear
the costs of complying with governmental regulations. However, in the event a
lessee fails to maintain aircraft in accordance with the terms of a lease, the
Company could be required to repair or recondition the aircraft. Failure of a
lessee to fulfill lease maintenance and operation obligations could have a
material adverse effect on the Company's financial condition and results of
operations.

F-15
<PAGE> 60

INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The FAA and civil aviation authorities of most countries and international
entities issue regulations limiting permitted noise and other emissions from
aircraft. These older non-complying aircraft can be brought into compliance by
modifying the engines. One of the Company's aircraft had noise compliance work
performed at a cost of approximately $2.4 million during 1994 (all of which was
paid by the Company) and three aircraft will require this work to be performed
over the next three years unless the aircraft is leased and operated in an area
that does not require the modification.

(9) STOCKHOLDERS' EQUITY

The holders of convertible preferred stock are entitled to convert each
share to one share of common stock. In the event of liquidation, holders of
preferred stock are entitled to receive $1 per share plus accrued and unpaid
dividends, if any, before distributions to holders of common stock. The
preferred stock do not bear dividends and contains certain defined antidilution
provisions.

During March 1993, the Company granted options to purchase 2,913,735 shares
of common stock at management's estimate of fair value, $1 per share; 100,000
options were exercised during December 1995. During March 1993, the Company also
granted options to purchase 1,569,550 shares of preferred stock at management's
estimate of fair value, primarily $1.15 per share. These options are exercisable
no later than the earlier of December 31, 1998 or a sale of the Company's shares
under the Securities Act of 1933. At September 30, 1996, 4,383,285 options were
outstanding and all were exercisable.

(10) PROPOSED INITIAL PUBLIC OFFERING AND REVERSE STOCK SPLIT

The Company is currently contemplating an initial public offering (IPO) of
its common stock. In connection with the IPO, the Company plans to effect a
reverse stock split of common stock.

Concurrent with the IPO, the Company anticipates the partial conversion of
issued and outstanding preferred stock to common stock, the partial exercise of
stock options and the conversion of a note payable to common stock (notes 2 and
9).

F-16
<PAGE> 61

APPENDIX 1

[SIMAT, HELLIESEN & EICHNER, INC. APPRAISAL]

[SH&E LETTERHEAD]

, 1997

International Aircraft Investors
3655 Torrance Boulevard, Suite 410
Torrance, California 90503

Gentlemen:

Simat, Helliesen & Eichner, Inc. ("SH&E") has been retained to determine
the aggregate Current Market Value ("CMV") for one (1) Boeing 727-200ADV, three
(3) 737-200ADV and two (2) 737-300 aircraft and one (1) McDonnell Douglas MD-82
aircraft (the "Subject Aircraft"), all owned by International Aircraft Investors
("IAI"). The Subject Aircraft and APU are collectively referred to herein as
(the "Collateral").

SH&E has determined the aggregate Current Market Value of the Collateral as
of September 30, 1996 to be $91.53 million.

VALUATION DETERMINATION

SH&E has studied many aircraft transactions over the past 30 years. This
list includes a wide variety of pure jet, fan-powered and turboprop powered two,
three and four-engined transports. Models studied have covered many types,
including Boeing 707, 727, 737, 757, 767 and 747 aircraft; Douglas DC-8, DC-9,
DC-10, MD80 and MD-11 models; Airbus A300, A310, A320, A330 and A340 models;
Lockheed L-1011; BAC 1-11; and various turboprop models, including most major
commuter aircraft.

The SH&E valuation approach starts by determining a half-life value. The
term "half-life" represents an aircraft whose major components (e.g. airframe,
engines, landing gear and APU) have used 50 percent of the time between
scheduled or expected overhauls. This initial appraisal can then be adjusted
(positive or negative) for each individual unit to reflect the airframe's
maintenance status relative to next overhaul. In most cases, the Base Value (as
defined below) of an aircraft assumes its physical condition is average for an
aircraft of its type and age, and its maintenance time status is at mid-life (or
benefitting from an above-average maintenance status if it is new or nearly new,
as the case may be).

In the case of new aircraft, the above half-life values are automatically
adjusted upwards to reflect the fact that the aircraft has the full span of
maintenance overhaul intervals available. Consequently, SH&E's initial
depreciation of new aircraft is considerably greater than for a used aircraft,
thereby accounting for both the change in its maintenance status and its
intrinsic depreciation.

SH&E half-life values are determined on a semi-annual basis by reviewing
recent past sales, aircraft availability trends, technological aspects,
environmental constraints and maintenance requirements.

The Base Value is the appraiser's opinion of the underlying economic value
of an aircraft in an open, unrestricted and stable market environment with a
reasonable balance of supply and demand, and also assumes full considerations of
its "highest and best use". An aircraft's Base Value is founded in the
historical trend of values and in the projection of value trends and presumes an
arm's-length, cash transaction between willing, able and knowledgeable parties,
acting prudently, with an absence of duress and with a reasonable period of time
available for marketing.

A-1
<PAGE> 62

Since Base Value pertains to a somewhat idealized aircraft and market
combination it may not necessarily reflect the actual value of the aircraft in
question, but is a nominal starting value to which adjustments may be applied to
determine an actual value.

The Base Value of each aircraft is derived from SH&E's aircraft valuation
models. The SH&E Base Value models provide trend lines derived from known
transactions, econometric factors affecting aircraft values, and aircraft
economic life estimates. Because it is related to long-term market trends, the
Base Value definition is normally applied to analyses of historical values and
projections of residual values.

The Current Market Value (CMV) is SH&E's opinion of the most likely trading
price that may be generated for an aircraft under the market circumstances that
are perceived to exist at the time in question. CMV assumes that the aircraft is
valued for its highest, best use, that the parties to the hypothetical sale
transaction are willing, able, prudent and knowledgeable, and under no unusual
pressure for a prompt sale, and that the transaction would be negotiated in an
open and unrestricted market on an arm's-length basis, for cash or equivalent
consideration, and given an adequate amount of time for effective exposure to
prospective buyers.

The CMV of a specific aircraft is derived from, and will tend to be
somewhat consistent with its Base Value in a stable market environment, but
where a reasonable equilibrium between supply and demand does not exist, trading
prices, and therefore CMVs, are likely to be at variance with the Base Value of
that aircraft. CMV may be based upon either the actual (or specified) physical
condition and maintenance time status of the aircraft, or alternatively upon an
assumed average physical condition and mid-life, mid-time maintenance time
status, depending on the nature of the appraisal assignment.

QUALIFICATIONS

SH&E has provided consulting services to the aviation industry since its
founding 30 years ago. The staff consists of more than 75 professionals with
many years of experience of air transportation management, planning, operations,
and economic research. SH&E has performed numerous world-wide assignments for
clients which include airlines, manufacturers, government agencies and financial
institutions.

An appraiser from SH&E is certified by the International Society of
Transport Aircraft Trading (ISTAT).

LIMITATIONS

SH&E used information supplied by IAI together with in-house data
accumulated through other recent studies of aircraft transactions.

SH&E's opinions are based upon historical relationships and expectations
that it believes are reasonable. Some of the underlying assumptions, including
those described above, may not materialize because of unanticipated events and
circumstances. SH&E's opinions could, and would, vary materially, should any of
the above assumptions prove to be inaccurate.

The opinions expressed herein are not given for, or as an inducement or
endorsement of, any financial transaction.

This report reflects SH&E's expert opinion and best judgment based upon the
information available to it at the time of its preparation. SH&E does not have,
and does not expect to have, any financial interest in the appraised property.

For SH&E:

_________________________
Clive G. Medland
Vice President
Certified Appraiser
International Society of
Transport Aircraft Trading

A-2
<PAGE> 63

[ARTWORK TO COME]
<PAGE> 64

- ------------------------------------------------------
- ------------------------------------------------------

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE HEREBY. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE COMMON STOCK
TO WHICH IT RELATES OR AN OFFER IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 8
Use of Proceeds....................... 15
Dividend Policy....................... 15
Capitalization........................ 16
Dilution.............................. 17
Selected Consolidated Financial and
Operating Data...................... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 20
Business.............................. 23
Management............................ 31
Certain Transactions.................. 36
Principal and Selling Shareholders.... 38
Description of Capital Stock.......... 39
Shares Eligible for Future Sale....... 40
Underwriting.......................... 42
Legal Matters......................... 43
Experts............................... 43
Additional Information................ 43
Index to Consolidated Financial
Statements.......................... F-1
Simat, Helliesen & Eichner, Inc.
Appraisal........................... A-1
</TABLE>

------------------------

UNTIL , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
[ ] SHARES

[LOGO]

INTERNATIONAL AIRCRAFT INVESTORS

COMMON STOCK

--------------------

PROSPECTUS

--------------------

SUTRO & CO. INCORPORATED

FRIEDMAN, BILLINGS, RAMSEY
& CO., INC.

, 1997

- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 65

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee and the NASD fee.

<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
---------
<S> <C>
SEC registration fee.............................................. $ 6,970
NASD fee.......................................................... 3,030
Nasdaq-NMS listing fee............................................ 25,340
Printing and engraving expenses................................... 100,000
Legal fees and expenses........................................... 200,000
Accounting fees and expenses...................................... 120,000
Blue Sky qualification fees and expenses.......................... 10,000
Transfer Agent and Registrar fees................................. 5,000
Miscellaneous fees and expenses................................... 79,660
--------
Total................................................... $ 550,000
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Amended and Restated Articles of Incorporation of the Company will
contain a provision eliminating the personal liability of the directors to the
Company or its shareholders to the fullest extent permitted under the California
General Corporations Law. The Bylaws of the Company provide for indemnification
of directors, officers, employees and agents of the Company consistent with the
provisions of the California General Corporation Law. Reference is also made to
Section 10 of the Underwriting Agreement, contained in Exhibit 1 hereto,
indemnifying officers and directors of the Company against certain liabilities.
See also the form of Indemnity Agreement, included herein as Exhibit 10.3, to be
entered into with the directors and officers of the Company.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

None.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS

<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------- -------------------------------------------------------------------------
<S> <C>
1* Form of Underwriting Agreement
3.1 Articles of Incorporation of the Company
3.2 Certificate of Amendment of Articles of Incorporation of the Company,
dated November 15, 1988
3.3 Certificate of Amendment of Articles of Incorporation of the Company,
dated April 1, 1992
3.4 Certificate of Determination with respect to Convertible Preferred Stock
3.5 Bylaws of the Company
3.6 Form of Amended and Restated Articles of Incorporation of the Company to
be effective upon consummation of the Offering
</TABLE>

II-1
<PAGE> 66

<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------- -------------------------------------------------------------------------
<S> <C>
3.7 Form of Bylaws of the Company to be effective upon consummation of the
Offering
4.1* Specimen of Common Stock certificate
4.2 Amended and Restated Aircraft Loan Agreement dated as of November 4, 1996
between SWA I Corporation and Wells Fargo Bank, N.A.
4.3 Secured Promissory Note in the original principal amount of $13,700,000
made November 4, 1996 by SWA I Corporation in favor of Wells Fargo Bank,
N.A.
4.4 Amended and Restated Guaranty Agreement dated as of November 4, 1996 made
by International Aircraft Investors in favor of Wells Fargo Bank, N.A.
4.5 Senior Term Loan Agreement dated as of May 17, 1996 between IAI Alaska I
Corporation and City National Bank
4.6 Aircraft Secured Promissory Note in the original principal amount of
$14,650,000 made May 17, 1996 by IAI Alaska I Corporation in favor of
City National Bank
4.7 Secured Credit Agreement dated as of December 21, 1993 between IAI II,
Inc. and Continental Bank, N.A.
4.8 Note in the original principal amount of $21,976,677 made by IAI II, Inc.
in favor of Continental Bank, N.A.
4.9 The Company hereby agrees to furnish to the Commission upon request a
copy of any instrument with respect to long-term debt where the total
amount of securities authorized thereunder does not exceed 10% of the
consolidated assets of the Company
5* Opinion of O'Melveny & Myers LLP regarding the legality of the securities
to be registered
10.1 Form of 1996 Employee Stock Option and Award Plan
10.2* Lease of principal offices
10.3 Form of indemnity agreement
10.4 Letter agreement, dated November 6, 1996, between the Company and ILFC.
10.5 Letter agreement, dated January 14, 1997, between the Company and ILFC.
11 Statement regarding computation of earnings per share
21 The Company's subsidiaries are as follows: IAI Atlantic Leasing, Inc.,
IAI-I, Inc., IAI-II, Inc., IAI Pacific Leasing, Inc., IAI Alaska I
Corporation and SWA I Corporation.
23.1 Consent of KPMG Peat Marwick LLP, independent certified public
accountants
23.2* Consent of O'Melveny & Myers LLP (included in Exhibit 5)
23.3* Consent of Simat Helliesen & Eichner, Inc.
24 Power of Attorney (appears on page II-4)
27.1 Financial Data Schedule for the year ended December 31, 1995.
27.2 Financial Data Schedule for the nine months ended September 30, 1996.
</TABLE>

- ---------------

* To be filed by amendment.

(b) FINANCIAL STATEMENT SCHEDULES

All schedules for which provision is made in the applicable accounting
regulations of the Commission are provided in the Notes to the Consolidated
Financial Statements included elsewhere in this Registration Statement or are
not required under the applicable instructions or are inapplicable and therefore
have been omitted.

II-2
<PAGE> 67

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions described in
Item 14 or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel, the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
Rule 497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of Prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

II-3
<PAGE> 68

SIGNATURE

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Los Angeles, State of
California, on this 15th day of January, 1997.

INTERNATIONAL AIRCRAFT INVESTORS

By: /s/ WILLIAM E. LINDSEY
----------------------------------
William E. Lindsey
Chairman of the Board and
Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints, jointly and severally, William E.
Lindsey, Michael P. Grella and Stuart M. Warren, and each one of them, his true
and lawful attorneys-in-fact and agents, each with full power of substitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to sign any registration statement for the same offering covered
by this Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) promulgated under the Securities Act of 1933, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming that
each of said attorneys-in-fact and agents or any of them, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ---------------------------- -----------------

<S> <C> <C>
/s/ WILLIAM E. LINDSEY Chairman of the Board, Chief January 15, 1997
- -------------------------------------------- Executive Officer and
William E. Lindsey Director

/s/ MICHAEL P. GRELLA President and Director January 15, 1997
- --------------------------------------------
Michael P. Grella

/s/ RICHARD O. HAMMOND Vice President -- Finance January 15, 1997
- -------------------------------------------- and Treasurer (Chief
Richard O. Hammond Financial and Accounting
Officer)

/s/ STUART M. WARREN Director January 15, 1997
- --------------------------------------------
Stuart M. Warren

/s/ AARON MENDELSOHN Director January 15, 1997
- --------------------------------------------
Aaron Mendelsohn

/s/ CHRISTER SALEN Director January 15, 1997
- --------------------------------------------
Christer Salen

/s/ KENNETH TAYLOR Director January 15, 1997
- --------------------------------------------
Kenneth Taylor
</TABLE>

II-4
<PAGE> 69

EXHIBIT INDEX

<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE
------- -------------------------------------------------------------------------------
<S> <C> <C>
1* Form of Underwriting Agreement....................................
3.1 Articles of Incorporation of the Company..........................
3.2 Certificate of Amendment of Articles of Incorporation of the
Company, dated November 15, 1988..................................
3.3 Certificate of Amendment of Articles of Incorporation of the
Company, dated April 1, 1992......................................
3.4 Certificate of Determination with respect to Convertible Preferred
Stock.............................................................
3.5 Bylaws of the Company.............................................
3.6 Form of Amended and Restated Articles of Incorporation of the
Company to be effective upon consummation of the Offering.........
3.7 Form of Bylaws of the Company to be effective upon consummation of
the Offering......................................................
4.1* Specimen of Common Stock certificate..............................
4.2 Amended and Restated Aircraft Loan Agreement dated as of November
4, 1996 between SWA I Corporation and Wells Fargo Bank, N.A.......
4.3 Secured Promissory Note in the original principal amount of
$13,700,000 made November 4, 1996 by SWA I Corporation in favor of
Wells Fargo Bank, N.A.............................................
4.4 Amended and Restated Guaranty Agreement dated as of November 4,
1996 made by International Aircraft Investors in favor of Wells
Fargo Bank, N.A...................................................
4.5 Senior Term Loan Agreement dated as of May 17, 1996 between IAI
Alaska I Corporation and City National Bank.......................
4.6 Aircraft Secured Promissory Note in the original principal amount
of $14,650,000 made May 17, 1996 by IAI Alaska I Corporation in
favor of City National Bank.......................................
4.7 Secured Credit Agreement dated as of December 21, 1993 between IAI
II, Inc. and Continental Bank, N.A................................
4.8 Note in the original principal amount of $21,976,677 made by IAI
II, Inc. in favor of Continental Bank, N.A........................
4.9 The Company hereby agrees to furnish to the Commission upon
request a copy of any instrument with respect to long-term debt
where the total amount of securities authorized thereunder does
not exceed 10% of the consolidated assets of the Company..........
5* Opinion of O'Melveny & Myers LLP regarding the legality of the
securities to be registered.......................................
10.1 Form of 1996 Employee Stock Option and Award Plan.................
10.2* Lease of principal offices........................................
10.3 Form of indemnity agreement.......................................
10.4 Letter agreement, dated November 6, 1996, between the Company and
ILFC..............................................................
10.5 Letter agreement, dated January , 1997, between the Company and
ILFC..............................................................
11 Statement regarding computation of earnings per share.............
21 The Company's subsidiaries are as follows: IAI Atlantic Leasing,
Inc., IAI-I, Inc., IAI-II, Inc., IAI Pacific Leasing, Inc., IAI
Alaska I Corporation and SWA I Corporation........................
</TABLE>
<PAGE> 70

<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE
------- -------------------------------------------------------------------------------
<S> <C> <C>
23.1 Consent of KPMG Peat Marwick LLP, independent certified public
accountants.......................................................
23.2* Consent of O'Melveny & Myers LLP (included in Exhibit 5)..........
23.3* Consent of Simat Helliesen & Eichner, Inc.........................
24 Power of Attorney (appears on page II-4)..........................
27.1 Financial Data Schedule for the year ended December 31, 1995......
27.2 Financial Data Schedule for the nine months ended September 30,
1996..............................................................
</TABLE>

- ---------------

* To be filed by amendment.

(b) FINANCIAL STATEMENT SCHEDULES

<PAGE> 1

EXHIBIT 3.1

ARTICLES OF INCORPORATION

INTERNATIONAL AIRCRAFT INVESTORS

The name of this corporation is International Aircraft
Investors.

The purpose of this corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the trust
company business or the practice of a profession permitted to be incorporated
by the California Corporations Code.

III

The name and address in the Sate of California of this
corporation's initial agent for service of process is: Stuart Warren, Esq.,
1901 Avenue of the Stars, Suite 800, Los Angeles, California 90067.

This corporation is authorized to issue two classes of shares,
designated respectively "Common Stock" and "Preferred Stock." 7,000,000 shares
of Common Stock may be issued. 5,000,000 shares of Preferred Stock may be
issued.

The board of directors may divide the Preferred Stock into any
number of series. The board shall fix the designation and number of shares of
each such series. The board may determine and alter the rights, preferences,
privileges, and restrictions granted to and imposed upon any wholly unissued
series of the Preferred Stock. The board of directors (within the limits and
restrictions of any resolution adopted by it, originally fixing the number of
shares of any series) may increase or decrease the number of shares of any such
series after the issue of shares of that series, but not below the number of
then outstanding shares of such series.
<PAGE> 2
V

The liability of the directors of the corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law.

Dated: August 24, 1988

/s/ SHERYL KAVANAGH
-----------------------------
Sheryl Kavanagh
Incorporator

<PAGE> 1
EXHIBIT 3.2

CERTIFICATE OF AMENDMENT

ARTICLES OF INCORPORATION

Stuart M. Warren and Lawrence H. Heller certify that:

1. They are the President and the Secretary,
respectively, of INTERNATIONAL AIRCRAFT INVESTORS, a California corporation.

2. Article IV of the Articles of Incorporation of this
corporation is amended to read as follows:

"This corporation is authorized to issue two classes
of shares, designated respectively "Common Stock" and "Preferred
Stock." 7,000,000 shares of Common Stock may be issued with a par
value of $0.01 (one cent) per share. 5,000,000 shares of Preferred
Stock may be issued with a par value of $0.01 (one cent) per share.

The board of directors may divide the Preferred Stock
into any number of series. The board shall fix the designation and
number of shares of each such series. The board may determine and
alter the rights, preferences, privileges, and restrictions granted to
and imposed upon any wholly unissued series of the Preferred Stock.
The board of directors (within the limits and restrictions of any
resolution adopted by it, originally fixing the number of shares of
any series) may increase or decrease the number of shares of any such
series after the issue of shares of that series, but not below the
number of then outstanding shares of such series."

3. The foregoing amendment of articles of incorporation
has been duly approved by the board of directors.

4. The foregoing amendment of articles of incorporation
has been duly approved by the required vote of shareholders in accordance with
Section 902 of the Corporations Code. The total number of outstanding shares
of the corporation is 25,000. The number of shares voting in favor of the
amendment equaled or exceed the vote required. The percentage vote required
was more than 50%.
<PAGE> 2
We further declare under penalty of perjury under the laws of
the State of California that the matters set forth in this certificate are true
and correct of our own knowledge.

Dated: November 15, 1988

/s/ STUART M. WARREN
-----------------------------
Stuart M. Warren, President

/s/ LAWRENCE M. HELLER
-----------------------------
Lawrence M. Heller, Secretary

<PAGE> 1
EXHIBIT 3.3

CERTIFICATE OF AMENDMENT

ARTICLES OF INCORPORATION

MICHAEL P. GRELLA and STUART M. WARREN certify that:

1. They are the President and Secretary respectively of
INTERNATIONAL AIRCRAFT INVESTORS.

2. Article IV of the Articles of Incorporation of this
corporation is amended to read as follows:

This corporation is authorized to issue two classes
of shares designated, respectively, "Common Stock" and "Preferred
Shares," and referred to herein either as Common Stock or Common
Shares and Preferred Stock or Preferred Shares, respectively. The
number of shares of Common Stock is 20,000,000, $0.01 par value; and
the number of shares of Preferred Stock is 15,000,000, $0.01 par
value.

The Preferred Shares may be issued from time to time
in one or more series. The Board of Directors is authorized to fix
the number of shares of any series of Preferred Shares and to
determine or alter the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued series of
Preferred Shares, and within the limits and restrictions stated in any
resolution or resolutions of the Board of Directors originally fixing
the number of shares constituting any series, to increase or decrease
(but not below the number of shares of such series then outstanding)
the number of shares of any such series subsequent to the issue of
shares of that series.
<PAGE> 2
3. The foregoing Amendment of Articles of Incorporation
has been duly approved by the Board of Directors.

4. The foregoing Amendment of Articles of Incorporation
has been duly approved by the required vote of shareholders in accordance with
Section 902 of the Corporations Code. The total number of outstanding shares
of the corporation is 4,856,000. The number of shares voting in favor of the
Amendment equaled or exceeded the vote required. The percentage vote required
was more than 50%.

We further declare under penalty of perjury under the laws of
the State of California that the matters set forth in this Certificate are true
and correct of our own knowledge.

Dated: April 1, 1992

/s/ MICHAEL P. GRELLA
-----------------------------
MICHAEL P. GRELLA, President

/s/ STUART M. WARREN
-----------------------------
STUART M. WARREN, Secretary

<PAGE> 1
EXHIBIT 3.4

CERTIFICATE OF DETERMINATION
OF
PREFERENCES OF PREFERRED STOCK
OF
INTERNATIONAL AIRCRAFT INVESTORS

MICHAEL P. GRELLA and STUART M. WARREN certify that:

1. They are the duly elected and acting President and Secretary,
respectively, of International Aircraft Investors, a California corporation
(the "Company").

2. Pursuant to authority given by the Company's Articles of
Incorporation, as amended, the Board of Directors of the Company has duly
adopted the following recitals and resolutions:

WHEREAS, the Articles of Incorporation of the Company provide for a
class of shares known as Preferred Stock, issuable from time to time in one or
more series; and

WHEREAS, the Board of Directors of the Company is authorized to
determine or alter the rights, preferences, privileges and restrictions granted
to or imposed upon any wholly unissued series of Preferred Stock, to fix the
number of shares constituting any such series, and to determine the designation
thereof, or any of them; and

WHEREAS, the Company desires, pursuant to its authority as aforesaid,
to determine and fix the rights, preferences, privileges and restrictions
relating to a series of said Preferred Stock and the number of shares
constituting and the designation of said series;

NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby
fixes and determines the designation of, the number of shares constituting, and
the rights, preferences, privileges and restrictions relating to, said series
of Preferred Stock as follows:

A. Five Million (5,000,000) shares of the Corporation's Preferred Stock
shall be designated as "Convertible Preferred Stock" (the "Convertible
Preferred Stock"). Certain other capitalized terms used in this Certificate
are defined in paragraph B6 hereof. Each share of Convertible Preferred Stock
is hereinafter referred to as a "Share."

1. Liquidation.

Upon any liquidation, dissolution or winding up of the Company, the
holders of the Convertible Preferred Stock will be entitled to be paid, before
any distribution or payment is made upon any other equity securities of the
Company, an amount in cash equal to the sum of

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<PAGE> 2
the aggregate Liquidation Value of all shares of Convertible Preferred Stock
outstanding, and thereafter participate with holders of the Common Stock in the
distribution of the remaining assets of the Company to the same effect as if
their shares had been converted to Common Stock. If upon any such liquidation,
dissolution or winding up, the assets of the Company are insufficient to permit
payment to such holders of the Convertible Preferred Stock of the aggregate
amount which such holders are entitled to be paid, then the entire assets to be
distributed will be distributed ratably among such holders based upon the
aggregate Liquidation Value of the Convertible Preferred Stock held by such
holder. The Company will mail written notice of such liquidation, dissolution
or winding up, not less than 30 days prior to the payment date stated therein,
to each record holder of Convertible Preferred Stock. Neither the
consolidation or merger of the Company into or with any other corporation or
corporations, nor the sale or transfer by the Company of all or any part of its
assets, nor the reduction of the capital stock of the Company, will be deemed
to be a liquidation, dissolution or winding up of the Company within the
meaning of this paragraph B1.

2. Conversion.

2(a). Conversion Procedure.

(i) Any holder of Convertible Preferred Stock may at any
time convert all or any of the Shares held by such holder into shares of Common
Stock. The number of shares of Common Stock to be received upon the conversion
of Shares by such holder will be computed by multiplying the number of Shares to
be converted by $1.00 and dividing the result by the Conversion Price then in
effect.

(ii) Each conversion of Shares of Convertible Preferred
Stock into Common Stock will be deemed to have been effected as of the close of
business on the date on which the certificate or certificates representing the
Shares to be converted have been surrendered at the principal office of the
Company. At such time as such conversion has been effected, the rights of the
holder of such surrendered Shares as such holder will cease and the Person or
Persons in whose name or names any certificate or certificates for appropriate
shares of Common Stock are to be issued upon such conversion will be deemed to
have become the holder or holders of record of the Shares of Common Stock
represented thereby.

(iii) As soon as possible after a conversion has been
effected, the Company will deliver to the converting holder:

(x) a certificate or certificates representing the number
of shares of Common Stock issuable by reason of such conversion in
such name or names and such denomination or denominations as the
converting holder has specified; and

(y) a certificate representing any Shares which were
represented by the certificate or certificates delivered to the
Company in connection with such conversion but which were not
converted.

(iv) The issuance of certificates for shares of Common
Stock upon conversion of Convertible Preferred Stock will be made without
charge to the holders of such Convertible

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<PAGE> 3
Preferred Stock or for any issuance tax in respect thereof or other cost
incurred by the Company in connection with such conversion and the related
issuance of shares of Common Stock.

(v) The Company will not close its books against the
transfer of Convertible Preferred Stock in any manner which interferes with the
timely conversion of Convertible Preferred Stock.

(vi) If any fractional share of Common Stock would, except
for the provisions of this subparagraph (vi) , be deliverable upon any
conversion of the Convertible Preferred Stock, the Company, in lieu of
delivering the fractional share thereof, will pay an amount to the holder
thereof equal to the Market Price of such fractional share as of the date of
conversion.

2(b). Conversion Price for Conversion of Convertible Preferred Stock
into Common Stock.

(i) The initial Conversion Price for conversion of
Convertible Preferred Stock into Common Stock will be $1.00. In order to
prevent dilution of the conversion rights granted under this paragraph, the
Conversion Price will be subject to adjustment from time to time pursuant to
this paragraph B2.

(ii) If and whenever on or after the original date of
issuance of the Convertible Preferred Stock, the Company issues or sells, or in
accordance with paragraph B2(c) is deemed to have issued or sold, any shares of
Common Stock for a consideration per share less than the Conversion Price in
effect immediately prior to the time of such issue or sale, then forthwith upon
such issue or sale, the Conversion Price will be reduced to the amount of such
consideration paid per Share.

2(c). Effect on Conversion Price of Certain Events. For purposes of
determining the adjusted Conversion Price under paragraph B2(b), the following
will be applicable:

(i) Issuance of Rights or Options. If the Company in any
manner grants any rights or options to subscribe for or to purchase Common
Stock or any stock or other securities convertible into or exchangeable for
Common Stock (such rights or options being herein called "Options" and such
convertible or exchangeable stock or securities being herein called
"Convertible Securities") and the price per share for which Common Stock is
issuable upon the exercise of such Options or upon conversion or exchange of
such Convertible Securities is less than the Conversion Price in effect
immediately prior to the time of the granting of such Options, then the total
maximum number of shares of Common Stock issuable upon the exercise of such
Options or upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Options will be
deemed to be outstanding and to have been issued and sold by the Company for
such price per share. For purposes of this paragraph, the "price per share for
which Common Stock is issuable" will be determined by dividing (x) the total
amount, if any, received or receivable by the Company as consideration for the
granting of such Options plus the minimum aggregate amount of additional
consideration payable to the Company upon exercise of all such Options, plus in
the case of such Options which relate to Convertible Securities, the minimum
aggregate amount of additional

3
<PAGE> 4
consideration, if any, payable to the Company upon the issuance or sale of such
Convertible Securities and the conversion or exchange thereof, by (y) the total
maximum number of shares of Common Stock issuable upon the exercise of such
Options or upon the conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options. Because the appropriate adjustments
will have been made at the time the Options were issued, no further adjustment
of the Conversion Price will be made when Convertible Securities are actually
issued upon the exercise of such Options or when Common Stock is actually issued
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.

(ii) Issuance of Convertible Securities. If the Company
in any manner issues or sells any Convertible Securities and the price per
share for which Common Stock is issuable upon such conversion or exchange is
less than the Conversion Price in effect immediately prior to the time of such
issue or sale, then the maximum number of shares of Common Stock issuable upon
conversion or exchange of all such Convertible Securities will be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For the purposes of this paragraph, the "price per share for which
Common Stock is issuable" will be determined by dividing (x) the total amount
received or receivable by the Company as consideration for the issue or sale of
such Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or exchange
thereof, by (y) the total maximum number of shares of Common Stock issuable
upon the conversion or exchange of all such Convertible Securities. Because
the appropriate adjustments will have been made at the time the Convertible
Securities were issued, no further adjustment of the Conversion Price will be
made when Common Stock is actually issued upon the conversion or exchange of
such Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustments of the
Conversion Price had been or are to be made pursuant to other provisions of
this paragraph B2, no further adjustment of the Conversion Price will be made
by reason of such issue or sale.

(iii) Change in Option Price or Conversion Rate. If the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the conversion or exchange of any Convertible Securities, or
the rate at which any Convertible Securities are convertible into or
exchangeable for Common Stock change at any time (other than under or by reason
of provisions designed to protect dilution of the type set forth in this
paragraph B2 and which have no more favorable effect on the holders of such
Options or Convertible Securities than this paragraph B2 would have if this
paragraph B2 were included in such Options or Convertible Securities) , the
Conversion Price in effect at the time of such change will be readjusted to the
Conversion Price which would have been in effect at such time had such Options
or Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold; provided that such adjustment of
the Conversion Price will be made only if as a result thereof the Conversion
Price then in effect would be reduced. If the purchase price provided for in
any Option, the additional consideration (if any) payable upon the conversion
or exchange of any Convertible Securities, or the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock, is reduced at
any time under or by reason of provisions with respect thereto designed to
protect against dilution of the type set forth herein and which have no more
favorable effect on the holders of such Options or Convertible

4
<PAGE> 5
Securities than the provisions hereof would have if the provisions hereof were
included in such Options or Convertible Securities, then in the case of the
delivery of Common Stock upon the exercise of any such Option or other
conversion or exchange of any such Convertible Security, the Conversion Price
then in effect hereunder will forthwith be adjusted to such respective amount
as would have been obtained had such Option or Convertible Security never been
issued as to such Common Stock and had adjustments been made upon the issuance
of the Shares of Common Stock delivered.

(iv) Treatment of Expired Options and Convertible
Securities. Upon the expiration of any Option or the termination of any right
to convert or exchange any Convertible Securities without the exercise of such
Option or right, the Conversion Price then in effect hereunder will be adjusted
to the Conversion Price which would have been in effect at the time of such
expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued.

(v) Calculation of Consideration Received. If any Common
Stock, Options or Convertible Security is issued or sold or deemed to have been
issued or sold for cash, the aggregate consideration received therefor (i.e.,
the total amount paid by the purchasers of such securities less any commissions
paid to brokers) will be deemed to be the net amount received by the Company
therefor. In case any Common Stock, Options or Convertible Securities are
issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Company will be the fair value of
such consideration, except where such consideration consists of securities, in
which case the amount of consideration received by the Company will be the
Market Price thereof as of the date of receipt. In computing the Market Price
for the purpose of a note or other obligation which is not listed on a
securities exchange or quoted in the NASDAQ System or reported by the National
Quotation Bureau, Incorporated, the total consideration received by the Company
(including interest) will be discounted at the prime rate of interest at Bank
of America in effect at the time the note or obligation is deemed to have been
issued. In case any Common Stock, Options or Convertible Security is issued in
connection with any merger in which the Company is the surviving company, the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving corporation as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair value of any consideration other than cash and
securities will be determined jointly by the Company and the holders of a
majority of the outstanding Convertible Preferred Stock. If such parties are
unable to reach agreement within a reasonable period of time, the fair value of
such consideration will be determined by an appraiser jointly selected by the
Company and the holders of a majority of the outstanding Convertible Preferred
Stock.

(vi) Integrated Transactions. In case any Option is
issued in connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Option by the parties thereto, the Option
will be deemed to have been issued without consideration.

(vii) Reacquired Shares. The number of shares of Common
Stock outstanding at any given time does not include any shares owned or held
by or for the account of the

5
<PAGE> 6
Company or any subsidiary, and the disposition of any such shares so owned or
held will be considered an issue or sale of Common Stock.

(viii) Record Date. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them (x) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (y) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date will be deemed to be
the date of the issue or sale of the Shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or upon the making of such
other distribution or the date of the granting of such right of subscription or
purchase, as the case may be.

2(d). Subdivision or Combination of Common Stock. If the Company at
any time subdivides (by any stock split, stock dividend or otherwise) one or
more classes of its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
will be proportionately reduced, and if the Company at any time combines (by
reverse stock split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of shares, the Conversion Price in effect
immediately prior to such combination will be proportionately increased.

2(e). Reorganization, Reclassification Consolidation, Merger or
Sale. Any capital reorganization, consolidation, merger or any sale of all the
Company's assets to another Person which is effected in such a way that holders
of Common Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange for
Common Stock, is referred to herein as an "Organic Change." Prior to the
consummation of any Organic Change, the Company will make appropriate provision
(in form and substance satisfactory to the holders of a majority of the
Convertible Preferred Stock than outstanding) to insure that each of the
holders of Convertible Preferred Stock or Common Stock will thereafter have the
right to acquire and receive in lieu of or in addition to the Shares of Common
Stock immediately theretofore acquirable and receivable upon the conversion of
such holder's Convertible Preferred Stock, such shares of stock, securities or
assets as such holder would have received in connection with such Organic
Change if such holder had converted his Convertible Preferred Stock immediately
prior to such Organic Change. In any such case appropriate provisions (in form
and substance satisfactory to the holders of a majority of the Convertible
Preferred Stock then outstanding) will be made to insure that the provisions of
this paragraph B2 and paragraphs B3 and B4 hereof will thereafter be applicable
to the Convertible Preferred Stock and Common Stock (including, in the case of
any such consolidation, merger or sale in which the successor corporation or
purchasing corporation is other than the Company, an immediate adjustment of
the Conversion Price to the value for the Common Stock reflected by the terms
of such consolidation, merger or sale, and a corresponding immediate adjustment
in the number of shares of Common Stock acquirable and receivable upon
conversion of Convertible Preferred Stock, if the value so reflected is less
than the Conversion Price in effect immediately prior to such consolidation,
merger or sale). The Company will not effect any such consolidation, merger or
sale, unless prior to the consummation thereof, the successor corporation (if
other than the Company) resulting from such consolidation or merger or the
corporation purchasing such assets assumes by written instrument (in form
reasonably satisfactory to the holders of a majority of the Convertible
Preferred Stock then outstanding),

6
<PAGE> 7
the obligation to deliver to each such holder such shares of stock, securities
or assets as, in accordance with the foregoing provisions, such holder may be
entitled to acquire.

2(f). Certain Events. If any event occurs of the type contemplated
by the provisions of this paragraph B2 but not expressly provided for herein,
then the board of directors of the Company will make an appropriate adjustment
in the Conversion Price so as to protect the rights of the holders of
Convertible Preferred Stock.

2(g). Notices.

(i) Immediately upon any adjustment of the Conversion
Price, the Company will send written notice thereof to all holders of
Convertible Preferred Stock.

(ii) The Company will send written notice to all holders
of Convertible Preferred Stock at least 30 days prior to the date on which the
Company closes it books or takes a record (x) with respect to any dividend or
distribution upon Common Stock, (y) with respect to any pro rata subscription
offer to holders of Common Stock or (z) for determining rights to vote with
respect to any organic Change, dissolution or liquidation.

(iii) The Company will also give to the holders of
Convertible Preferred Stock at least 30 days prior written notice of the date
on which any Organic Change, dissolution or liquidation will take place.

3. Voting Rights.

Holders of Shares will to the extent permitted by law be entitled to
vote on matters submitted to a vote of stockholders of the Company as if the
Shares were converted into shares of Common Stock pursuant to the other
provisions hereof on the record date for determining who is so entitled to
receive notice of and vote upon any such matter, or, if no record was taken,
the date as of which holders of Common Stock entitled to vote was determined.

4. Dividends.

(a) If the Company declares or pays a dividend upon the Common
Stock payable other than in cash out of earnings or earned surplus (determined
in accordance with generally accepted accounting principles, consistently
applied) except a stock dividend payable in shares of Common Stock (a
"Liquidating Dividend"), then the Company will pay to the holders of the
Convertible Preferred Stock at the time of payment of a Liquidating Dividend
the Liquidating Dividends which would have been paid on the Common Stock which
they would have been entitled to receive had the Convertible Preferred Stock
been converted immediately prior to the date on which a record is taken, or, if
no record is taken, the date as of which the record holders of Common Stock
entitled to such dividends are to be determined.

(b) If the Company declares or pays a dividend upon the Common
Stock in cash or property, except a stock dividend payable in shares of Common
Stock (a "Cash Dividend"), then the Company will pay to the holders of the
Convertible Preferred Stock at the time of payment

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<PAGE> 8
of the Cash Dividend the Cash Dividends they would have been entitled to
receive had the Convertible Preferred Stock been converted immediately prior to
the date on which a record is taken or if no record is taken, the date as of
which the record holders of Common Stock entitled to such dividends are to be
determined.

5. Purchase Rights.

If at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of Common Stock (the "Purchase
Rights"), then each holder of Convertible Preferred Stock will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder could have acquired if such holder had held
the number of shares of Common Stock acquirable upon conversion of such
holder's Convertible Preferred Stock immediately before the date on which a
record is taken for the grant, issuance or sale of such Purchase Rights, or, if
no such record is taken, the date as of which the record holders of Common
Stock are to be determined for the grant, issue or sale of such Purchase
Rights.

6. Definitions.

"Common Stock" means, collectively, the Company's Common Stock, $.01
par value, and any capital stock of any class of the Company hereafter
authorized which is not limited to a fixed sum or percentage of par value,
stated value or liquidation value in respect to the rights of the holders
thereof to participate in dividends or in the distribution of assets upon any
liquidation, dissolution or winding up of the Company; provided that if there
is a change such that the securities issuable upon conversion of the
Convertible Preferred Stock are issued by an entity other than the Company or
there is a change in the class of securities so issuable then the term "Common
Stock" will mean shares of the security issuable upon conversion of the
Convertible Preferred Stock if such security is issuable in shares, or will
mean the smallest units in which such security is issuable if such security is
not issuable in shares.

"Common Stock Deemed Outstanding" means, at any given time, the number
of shares of Common Stock actually outstanding at such time, plus the number of
shares of Common Stock deemed to be outstanding pursuant to paragraph B2 above.

"Liquidation Value" of any Share of Convertible Preferred Stock as of
any particular date will be equal to the sum of $1.00 plus any unpaid dividends
on such Share added to the Liquidation value of such Share.

"Market Price" of any security means the average of the closing prices
of such security's sales on the primary securities exchange on which such
security may at the time be listed, or, if there has been no sales on such
exchange on any day, the average of the highest bid and lowest asked prices on
such exchange at the end of such day, or, if on the day such security is not so
listed, the average of the representative bid and asked prices quoted in the
NASDAQ System as of 4:00 P.M., New York time, or, if on any day such security
is not quoted in the NASDAQ System, the average of the high and low bid and
asked prices on such day in the domestic over-the-counter market as reported by
the National Quotation Bureau, Incorporated,

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<PAGE> 9
or any similar successor organization, in each such case averaged over a period
of five days consisting of the day as of which "Market Price" is being
determined and the four consecutive business days prior to such day. If at any
time such security is not listed on any securities exchange or quoted in the
NASDAQ System or the over-the-counter market, the "Market Price" will be the
fair value thereof determined jointly by the Company and the holders of a
majority of the Convertible Preferred Stock. If such parties are unable to
reach agreement, such fair value will be determined by appraisers jointly
selected by the Company and the holders of a majority of the Convertible
Preferred Stock.

"Officer's Certificate" means a certificate signed by the Company's
president or its chief financial officer, stating that (x) the Person signing
such certificate has made or has caused to be made such investigations as are
necessary in order to permit him to verify the accuracy of the information set
forth in such certificate and (y) to the best of such Person's knowledge, such
certificate does not misstate any material fact and does not omit to state any
fact necessary to make the certificate not misleading.

"Person" means an individual, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization or a government or any
department or agency thereof.

"Subsidiary" means any corporation of which shares of stock having at
least a majority of the ordinary voting power in electing the board of
directors are, at the time as of which any determination is being made, owned
by the Company either directly or indirectly through one or more Subsidiaries.

"Underlying Common Stock" means (x) the Common Stock issued or
issuable (contingently or otherwise) upon conversion of the Convertible
Preferred Stock and (y) any Common Stock issued or issuable with respect to the
securities referred to in clause (x) above by way of stock dividend or stock
split or in connection with a combination or shares, recapitalization, merger,
consolidation or other reorganization. Any Person that holds Convertible
Preferred Stock will be deemed to be the holder of the Underlying Common Stock
obtainable upon conversion of such Convertible Preferred Stock.

7. Miscellaneous.

7(a). Registration of Transfer. The Company will keep at its
principal office a register for the registration of Convertible Preferred
Stock. Upon the surrender of any certificate representing Convertible
Preferred Stock at such place, the Company will, at the request of the record
holder of such certificate, execute and deliver (at the Company's expense) a
new certificate or certificates in exchange therefor representing in the
aggregate the number of Shares represented by the surrendered certificate.
Each such new certificate will be registered by the holder of the surrendered
certificate and will be substantially identical in form to the surrendered
certificate, and dividends will accrue on the Convertible Preferred Stock
represented by such new certificate from the date of which dividends have been
fully paid on such Convertible Preferred Stock represented by the surrendered
certificate.

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<PAGE> 10
7(b). Replacement. Upon receipt of evidence and an agreement to
indemnify reasonably satisfactory to the Company (an affidavit of the
registered holder, without bond, will be satisfactory) of the ownership and the
loss, theft, destruction or mutilation of any certificate evidencing one or
more Shares, the Company will (at its expense) execute and deliver in lieu of
such certificate a new certificate representing the number of Shares
represented by such lost, stolen, destroyed or mutilated certificate, and
dividends will accrue on the Convertible Preferred Stock represented by such
new certificate from the date to which dividends have been fully paid on such
lost, stolen, destroyed or mutilated certificate.

7(c). Amendment and Waiver. No amendment, modification or waiver of
any of the terms hereof will be binding or effective unless the prior written
consent of holders of at least 67% of the Convertible Preferred Stock
outstanding at the time such action is taken is obtained, provided that no such
action will change (x) the rate at which or the manner in which dividends on
the Convertible Preferred Stock accrue or the time at which such dividends
become payable, unless the prior written consent of the holders of at least 90%
of the Convertible Preferred Stock then outstanding is obtained, (y) the
Conversion Price of the Convertible Preferred Stock or the number of shares or
class of stock into which the Convertible Preferred Stock is convertible,
unless the prior written consent of the holders of at least 90% of the
Convertible Preferred Stock then outstanding is obtained or (z) the percentage
required to approve any change described in clauses (x) and (y) above, unless
the prior written consent of the holders of at least 90% of the Convertible
Preferred Stock then outstanding is obtained; and provided further that no such
change in the terms hereof may be accomplished by merger or consolidation of
the Company with another corporation unless the Company has obtained the prior
written consent of the holders of the applicable percentage of the Convertible
Preferred Stock.

7(d). Notices. All notices referred to herein, except as otherwise
expressly provided, will be hand delivered or made by registered or certified
mail, return receipt requested, postage prepaid, and will be deemed to have
been given when so hand delivered or mailed."

RESOLVED FURTHER, that the Chairman of the Board, the President or any
Vice President, and the Secretary, the Chief Financial Officer or any Assistant
Secretary or Assistant Treasurer of this Company are each authorized to
execute, verify, and file a certificate of determination of preferences in
accordance with California law.

3. The authorized number of shares of Preferred Stock of the
Company is 15,000,000, and the number of shares constituting Convertible
Preferred Stock, none of which has been issued, is 5,000,000.

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<PAGE> 11
IN WITNESS WHEREOF, the undersigned have executed this certificate on
December 1, 1996.

/s/ Michael G. Grella
-----------------------------
MICHAEL G. GRELLA, President

/s/ Stuart M. Warren
-----------------------------
STUART M. WARREN, Secretary

We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this Certificate are true and correct
of our own knowledge.

Executed at Los Angeles, California on December 1, 1996.

/s/ Michael G. Grella
-----------------------------
MICHAEL G. GRELLA, President

/s/ Stuart M. Warren
-----------------------------
STUART M. WARREN, Secretary

<PAGE> 1
EXHIBIT 3.5
BYLAWS

INTERNATIONAL AIRCRAFT INVESTORS

ARTICLE I: OFFICES

1. PRINCIPAL OFFICE. The location of the corporation's principal
executive office shall be as designated at the end of this paragraph. The
Board of Directors may change the location of the principal executive office to
any place within or outside of California. If the principal executive office
is located outside of California and the corporation has one or more business
offices in California, the Board of Directors shall fix and designate a
principal business office in California.

The principal executive office is located at:

1901 Avenue of the Stars, Suite 1600
Los Angeles, California 90067

2. OTHER OFFICES. Branch or subordinate offices may be
established at any time and at any place by the Board of Directors.

ARTICLE II: SHAREHOLDERS

1. PLACE OF MEETINGS. Meetings of shareholders shall be held at
any place within or outside of California designated by the Board of Directors
and stated in the notice of the meeting. If no place is so specified,
shareholders' meetings shall be held at the corporation's principal executive
office.

2. ANNUAL MEETING. Annual meetings of the shareholders shall be
held on the date and time specified below. However, if this date falls on a
legal holiday, then the meeting shall be held at the same time and place on the
next succeeding full business day. At this meeting, Directors shall be elected
and any other proper business within the power of the shareholders may be
transacted.

Date: 10:00 a.m.
Time: December 15, 1988

3. SPECIAL MEETINGS; HOW CALLED. A special meeting of the
shareholders may be called at any time by any of the following: The Board of
Directors, the Chairman of the Board, the President, any Vice President, or one
or more shareholders holding shares that in the aggregate are entitled to cast
no less than 10 percent of the votes at that meeting. For special meetings
called by anyone other than the Board of Directors, the person or persons
calling
<PAGE> 2
the meeting shall make a request in writing to the Chairman of the Board, the
President, Vice President, or Secretary, specifying a time and date for the
proposed meeting (which is not less than 35 nor more than 60 days after receipt
of the request) and the general nature of the business to be transacted.
Within 20 days after receipt, the officer receiving the request shall cause
notice to be given to the shareholders entitled to vote at the meeting. The
notice shall state that a meeting will be held at the time requested by the
person(s) calling the meeting, and shall state the general nature of the
business proposed to be transacted. If notice is not given within 20 days
after receipt of the request, the person or persons requesting the meeting may
give the notice. Nothing in this paragraph shall limit, fix, or affect the
time or notice requirements for shareholder meetings called by the Board of
Directors.

4. NOTICE OF MEETINGS; TIME AND CONTENTS. Notice of meetings of
shareholders shall be sent or otherwise given not less than 10 nor more than 60
days before the meeting date. The notice shall specify the place, date, and
hour of the meeting. It shall also state (a) for special meetings, the general
nature of the proposed business, or (b) for annual meetings, those matters
which the Board of Directors at the time of giving the notice intends to
present for action by the shareholders. If Directors are to be elected, the
notice shall include the names of all nominees and persons whom the Board
intends to present for election, as of the date of the notice. The notice
shall also state the general nature of any proposed action at the meeting to
approve:

(a) A transaction in which a Director has a financial
interest, within the meaning of Section 310 of the California Corporations
Code;

(b) An amendment of the Articles of Incorporation under
Section 902 of that Code;

(d) A voluntary dissolution of the corporation under
Section 1900 of that Code; or

(e) A distribution in dissolution that requires approval
of the outstanding shares under Section 2007 of that Code.

The manner of giving notice and the determination of
shareholders entitled to receive notice shall be in accordance with these
bylaws.

5. MANNER OF GIVING NOTICE, AFFIDAVIT OF NOTICE. Notice of any
shareholders' meeting shall be given either (a) personally, or (b) by
first-class mail or by telegraphic or other written communication, charges
prepaid, addressed to the shareholder at the address appearing on the
corporation's books or supplied by the

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<PAGE> 3
shareholder for purposes of notice. If the corporation has no such address for
a shareholder, notice shall be either (a) sent by first-class mail addressed to
the shareholder at the corporation's principal executive office, or (b)
published at least once in a newspaper of general circulation in the county
where the corporation's principal executive office is located. Notice is
deemed to have been given at the time it was delivered personally, deposited in
the mail, or sent by other means of written communication.

If any notice or report mailed to a shareholder at the
shareholder's address (as specified in the preceding paragraph) is returned
marked "unable to deliver" at that address, subsequent notices or reports shall
be deemed to have been duly given without further mailing if the corporation
holds the document available for the shareholder on written demand at its
principal executive office for one year from the date on which the notice or
report was sent to the other shareholders.

An affidavit, certificate, or declaration of mailing (or other
authorized means of delivery) of any notice of shareholders' meeting, report,
or other document sent to shareholders shall be executed by the corporate
Secretary, assistant Secretary, or transfer agent, and filed in the
corporation's minute book.

6. ADJOURNED MEETINGS; NOTICE. Shareholders' meetings (either
annual or special) may be adjourned from time to time by a vote of the majority
of the shareholders represented at that meeting in person or by proxy, whether
or not a quorum is present; however, in the absence of a quorum, no other
business may be transacted, except as specifically authorized in these bylaws.

If a meeting is adjourned to another time or place, new notice
is not required if the new time and place were announced at the original
meeting, unless (a) the Board sets a new record date for this purpose, or (b)
the adjournment is for more than 45 days from the original meeting date, in
which case the Board must set a new record date. If a new record date is set,
new notice shall be given to the shareholders of record as of that date, in the
same manner as other notices of meetings. At an adjourned meeting, the
corporation may transact any business that would be proper at the original
meeting.

7. WAIVER OF NOTICE OR CONSENT BY ABSENTEES. The transactions of
any shareholders' meeting, either annual or special, however called and noticed
and wherever held, shall be as valid as though they were had at a meeting duly
held after regular call and notice, if a quorum is present either in person or
by proxy, and if each person entitled to vote but not present at the meeting
signs a written waiver of notice, a consent to holding the meeting, or an
approval of the minutes. Shareholders' signatures may be obtained either
before or after the meeting. The waiver of notice or consent need not specify
either the intended business or the purpose of the meeting, except that if
action is taken or

3
<PAGE> 4
proposed to be taken regarding any of the matters specified in Section 601(f)
of the California Corporations Code (and listed above in the paragraph on
contents of notices of shareholder meetings), the general nature of the action
or proposed action must be stated in the waiver of notice or consent. All
written waivers, consents, and approvals shall be filed with the corporate
records or made a part of the minutes of the meeting.

Notice is also waived by a shareholder's attendance at the
meeting, unless the shareholder at the beginning of the meeting objects to the
transaction of any business on the ground that the meeting was not lawfully
called or convened. Attendance and failure to object to the validity of the
meeting, however, does not constitute a waiver of any right to object
expressly, at a meeting, to consideration of matters required by law to be
included in the notice of the meeting which were not so included.

8. ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action that
could be taken at an annual or special meeting of shareholders, except for the
election of Directors (see following paragraph), may be taken without a meeting
and without prior notice, if a consent in writing, setting forth the action so
taken, is signed by the holders of outstanding shares having at least the
minimum number of votes necessary to authorize or take that action at a meeting
at which all shares entitled to vote on that action were present and voting.

Directors may be elected without a meeting only by the
unanimous written consent of all shares entitled to vote for the election of
Directors, except that vacancies the Board is entitled to fill (vacancies other
than those caused by removal of a Director) may be filled by the written
consent of a majority of the outstanding shares entitled to vote.

All written consents shall be filed with the Secretary of the
corporation and maintained in the corporate records. Anyone who has given a
written consent may revoke it by a writing received by the Secretary of the
corporation before written consents of the number of shares required to
authorize the proposed action have been filed with the Secretary.

Unless the consents of all shareholders entitled to vote have
been solicited in writing, the Secretary shall give prompt notice of any
corporate action approved by the shareholders without a meeting by less than
unanimous consent, to those shareholders entitled to vote who have not
consented in writing. As to approvals required by California Corporations Code
Section 310 (transactions in which a Director has a financial interest),
Section 317 (indemnification of corporate agents), Section 1201 (corporate
reorganization), or Section 2007 (certain distributions on dissolution), notice
of the approval shall be given at least ten days before the consummation of any
action authorized by the

4
<PAGE> 5
approval. Notice shall be given in the manner specified in these bylaws for
notice of shareholders' meetings.

9. RECORD DATE FOR SHAREHOLDER NOTICE AND VOTING.

(a) For purposes of determining the shareholders entitled
to receive notice of and vote at a shareholders' meeting or give written
consent to corporate action without a meeting, the Board may fix in advance a
record date that is not more than 60 days nor less than 10 days before the date
of any such meeting, or not more than 60 days before any such action without a
meeting.

(b) If no record date has been fixed:

(i) The record date for determining shareholders entitled
to receive notice of and vote at a shareholders' meeting shall be the business
day next preceding the day on which notice is given, or if notice is waived as
provided in these bylaws, the business day next preceding the day on which the
meeting is held;

(ii) The record date for determining shareholders entitled
to give written consent to corporate action without a meeting shall be the day
on which the action to be approved was taken by the Board, or, if the Board has
not yet acted, the day on which the first written consent is given; and

(iii) The record date for any other purpose shall be as set
forth in the section of these bylaws regarding record date for purposes other
than notice and voting.

(c) A determination of shareholders of record entitled to
receive notice of and vote at a shareholders' meeting shall apply to any
adjournment of the meeting unless the Board fixes a new record date for the
adjourned meeting. However, the Board shall fix a new record date if the
adjournment is to a date more than 45 days after the date set for the original
meeting.

(d) Except as otherwise required by law, only
shareholders of record on the corporation's books at the close of business on
the record date shall be entitled to any of the notice and voting rights listed
in subsection (a) of this section, notwithstanding any transfer of shares on
the corporation's books after the record date.

10. QUORUM. The presence in person or by proxy of the holders of
a majority of the shares entitled to vote at any meeting of shareholders shall
constitute a quorum for the transaction of business. The shareholders present
at a duly called or held meeting at which a quorum was initially present may
continue to do business until adjournment, notwithstanding the withdrawal of
enough shareholders to leave less than a quorum; however, any action taken
(other than adjournment) must be approved by at least a majority of the shares
required to constitute a quorum.

5
<PAGE> 6
11. VOTING. The corporation shall determine the shareholders
entitled to vote at any shareholders' meeting in accordance with bylaw
provisions for record date, subject to Sections 702 through 704 of the
California Corporations Code (concerning the voting of shares held by a
fiduciary, a corporation, or joint owners). Except as otherwise provided by
law or as otherwise provided in the Articles of Incorporation, each outstanding
share shall be entitled to one vote on each matter submitted to a vote of the
shareholders.

The shareholders may vote by voice vote or by ballot, except
that if any shareholder so demands before the voting begins, any election for
Directors must be by ballot. On any matter other than the election of
Directors, a shareholder may vote part of his or her shares in favor of the
proposal and refrain from voting the remaining shares or vote them against the
proposal. If a shareholder does not specify the number of shares being voted,
it will be conclusively presumed that the shareholder's vote covers all shares
which that shareholder is entitled to vote.

If a quorum is present (or if a quorum had been present
earlier at the meeting but some shareholders have withdrawn), the affirmative
vote of a majority of the shares represented and voting, provided such
affirmative vote also constitutes a majority of the number of shares required
for a quorum, shall be the act of the shareholders unless the vote of a greater
number or voting by classes is required by statute or by the Articles of
Incorporation.

12. CUMULATIVE VOTING. Cumulative voting for the election of
Directors is permitted if one or more shareholders present at the meeting give
notice, before the voting begins, of their intention to cumulate votes (i.e.,
cast for any candidate a number of votes greater than the number of votes which
that shareholder would normally be entitled to cast). If any shareholder has
given such notice, and if the candidates' names have been placed in nomination,
then all shareholders entitled to vote may cumulate their votes, giving any
nominated candidate a number of votes equal to the number of Directors to be
elected multiplied by the number of votes to which that shareholder's shares
are normally entitled, or distributing the cumulative number of votes among any
or all of the candidates. The elected Directors shall be those candidates (up
to the number of Directorships open for election) receiving the most votes.

13. PROXIES. Every person entitled to vote for Directors or on
any other matter shall have the right to do so either in person or by one or
more agents authorized by a written proxy signed by the person and filed with
the Secretary of the corporation. A proxy shall be deemed signed if the
shareholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission, or otherwise) by the shareholder or the
shareholder's attorney in fact.

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<PAGE> 7
A validly executed proxy that does not state that it is
irrevocable shall continue in full force and effect unless (e) it is revoked by
the person who executed the proxy, either by a writing delivered to the
corporation before the proxy has been voted, or by attendance at the meeting;
or (f) the corporation receives written notice of the shareholder's death or
incapacity before the vote pursuant to that proxy has been counted; provided,
however, that no proxy shall be valid after the expiration of 11 months from
the date of the proxy unless the proxy itself provides otherwise.

Proxies stating on their face that they are irrevocable shall
be governed by Sections 705(e) and 705(f) of the California Corporations Code.

14. VOTING TRUSTS. If any shareholders file a voting trust
agreement with the corporation, the corporation shall take notice of its terms
and trustee limitations.

15. ELECTION INSPECTORS. Before any shareholders' meeting, the
Board of Directors may appoint any persons other than nominees for office to
act as election inspectors. If no election inspectors have been so appointed,
the Chairman of the meeting may, and on the request of any shareholder or
shareholder's proxy shall, appoint election inspectors at the meeting. The
number of inspectors shall be either 1 or 3. If inspectors are appointed at
the meeting on the request of one or more shareholders or their proxies, the
holders of a majority of shares or their proxies present at the meeting shall
determine whether 1 or 3 inspectors are to be appointed. If any inspector
fails to appear or fails or refuses to act, the Chairman of the meeting may,
and on the request of any shareholder or shareholder's proxy shall, appoint a
person to fill that vacancy. These inspectors shall (g) determine the number
of shares outstanding and the voting power of each, the shares represented at
the meeting, the existence of a quorum, and the authenticity, validity, and
effect of proxies; (h) receive votes, ballots, or consents; (i) hear and
determine all challenges and questions in any way arising in connection with
the right to vote; (j) count and tabulate all votes or consents; (k) determine
when the polls shall close; (l) determine the result; and (m) do any other acts
that may be proper to conduct the election or vote with fairness to all
shareholders.

ARTICLE III: DIRECTORS

1. POWERS. Subject to the provisions of the California General
Corporation Law and any limitations in the Articles of Incorporation and these
bylaws relating to actions requiring approval by the shareholders or by the
outstanding shares, the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under the direction
of the Board of Directors.

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<PAGE> 8
Without prejudice to these general powers, and subject to the
same limitations, the Board of Directors shall have the power to:

(a) Select and remove all officers, agents, and employees of the
corporation; prescribe any powers and duties for them that are consistent with
law, with the Articles of Incorporation, and with these bylaws; fix their
compensation; and require from them security for faithful service;

(b) Change the principal executive office or the principal
business office in the State of California from one location to another;
qualify the corporation to do business in any other state, territory,
dependency, or country; conduct business within or outside the State of
California; and designate any place within or outside the State of California
for the holding of any shareholders' meeting;

(c) Adopt, make and use a corporate seal; prescribe the forms of
certificates of stock; and alter the form of the seal and certificates;

(d) Authorize the issuance of shares of corporate stock on any
lawful terms, in consideration of money paid, labor done, services actually
rendered, debts or securities cancelled, or tangible or intangible property
actually received; and

(e) Borrow money and incur indebtedness on behalf of the
corporation, and cause to be executed and delivered for the corporation's
purposes, in the corporate name, promissory notes, bonds, debentures, deeds of
trust, mortgages, pledges, hypothecations, and other evidences of debt and
securities.

2. NUMBER OF DIRECTORS. The authorized number of Directors shall
be as set forth below. This number can be changed by an amendment to the
Articles of Incorporation or an amendment to this bylaw adopted by the vote or
written consent of a majority of the outstanding shares entitled to vote.
However, if the number of Directors is five or more, an amendment that would
reduce the number of Directors to a number less than five cannot be adopted if
the votes cast against its adoption at a meeting or the shares not consenting
to an action by written consent are equal to more than one sixth (16 2/3
percent) of the outstanding shares entitled to vote.

Number of Directors: 7

3. ELECTION AND TERM OF DIRECTORS. Directors shall be elected at
each annual shareholders' meeting, to hold office until the next annual
meeting. Election of Directors by written consent without a meeting requires
the unanimous written consent of the outstanding shares entitled to vote. Each
Director, including a Director elected to fill a vacancy, shall hold office
until the

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<PAGE> 9
expiration of the term for which elected and until a successor has been elected
and qualified.

No reduction of the authorized number of Directors shall have
the effect of removing any Director before his or her term of office expires.

4. VACANCIES. A vacancy in the Board of Directors shall be
deemed to exist (a) if a Director dies, resigns, or is removed by the
shareholders or an appropriate court, as provided in Section 303 or Section 304
of the California Corporations Code; (b) if the Board of Directors declares
vacant the office of a Director who has been convicted of a felony or declared
of unsound mind by an order of court; (c) if the authorized number of Directors
is increased; or (d) if at a shareholders' meeting the shareholders fail to
elect the full authorized number of Directors. Vacancies (except for those
caused by a Director's removal) may be filled by a majority of the remaining
Directors, whether or not they constitute a quorum, or by a sole remaining
Director.

Vacancies on the Board caused by the removal of a Director
(except for vacancies created when the Board declares the office of a Director
vacant as provided in clause (b) of the first paragraph of this section) may be
filled only by the shareholders, either by majority vote of the shares
represented and voting at a meeting at which a quorum is present, or by the
unanimous written consent of all shares entitled to vote.

Any Director may resign effective on giving written notice to
the Chairman of the Board, the President, the Secretary, or the Board of
Directors, unless the notice specifies a later effective date. If the
resignation is effective at a future time, the Board of Directors may elect a
successor to take office when the resignation becomes effective.

The shareholders may elect a Director at any time to fill a
vacancy not filled by the Board of Directors.

The term of office of a Director elected to fill a vacancy
shall run until the next annual shareholders' meeting, and the Director shall
hold office until a successor is elected and qualified.

5. PLACE OF MEETINGS. Regular meetings of the Board of Directors
may be held at any place within or outside the State of California as
designated from time to time by the Board. In the absence of a designation,
regular meetings shall be held at the principal executive office of the
corporation. Special meetings of the Board may be held at any place within or
outside the State of California designated in the notice of the meeting, or if
the notice does not state a place, at the principal executive office of the
corporation. Any meeting, regular or special, may be held by

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<PAGE> 10
conference telephone or similar communication equipment, provided that all
Directors participating can hear one another.

6. ANNUAL DIRECTORS' MEETING. Immediately after each annual
shareholders' meeting, the Board of Directors shall hold a regular meeting at
the same place or at any other place designated by the Board, to elect officers
and transact other necessary business as desired. Notice of this meeting shall
not be required unless some place other than the place of the annual
shareholders' meeting has been designated.

7. OTHER REGULAR MEETINGS. Other regular meetings of the Board
of Directors shall be held without call at times to be fixed by the Board of
Directors from time to time. Such regular meetings may be held without notice.

8. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called for any purpose or purposes at any time by the Chairman of the
Board, the President, any Vice President, the Secretary, or any two Directors.

Special meetings shall be held on 4 days' notice by mail or 48
hours' notice delivered personally or by telephone or telegraph. Oral notice
given personally or by telephone may be transmitted either to the Director or
to a person at the Director's office who can reasonably be expected to
communicate it promptly to the Director. Written notice, if used, shall be
addressed to each Director at his or her address shown on the corporate
records. The notice need not specify the purpose of the meeting, nor need it
specify the place if the meeting is to be held at the principal executive
office of the corporation.

9. WAIVER OF NOTICE. Notice of a meeting, if otherwise required,
need not be given to any Director who (a) either before or after the meeting
signs a waiver of notice or a consent to holding the meeting without being
given notice, (b) signs an approval of the minutes of the meeting, or (c)
attends the meeting without protesting the lack of notice before or at the
beginning of the meeting. Waivers of notice or consents need not specify the
purpose of the meeting. All such waivers, consents, and approvals of the
minutes, if written, shall be filed with the corporate records or made a part
of the minutes of the meeting.

10. QUORUM. A majority of the authorized number of Directors
shall constitute a quorum for the transaction of business, except for
adjournment.

Except as otherwise required by California Corporations Code
Section 310 (approval of contracts or transactions in which a Director has a
material financial interest), Section 311 (appointment of committees), and
Section 317(e) (indemnification of Directors), every act done or decision made
by a majority of the Directors present at a meeting duly held at which a quorum
is

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<PAGE> 11
present shall be deemed the act of the Board of Directors, unless a different
requirement is imposed by the Articles of Incorporation.

A meeting at which a quorum was initially present may continue
to transact business despite the withdrawal of Directors, if the action taken
is approved by at least a majority of the quorum required for that meeting.

11. ADJOURNMENT TO ANOTHER TIME OR PLACE. Whether or not a quorum
is present, a majority of the Directors present may adjourn any meeting to
another time and place.

12. NOTICE OF ADJOURNED MEETING. Notice of the time and place of
resuming an adjourned meeting need not be given if the adjournment is for 24
hours or less. If the adjournment is for more than 24 hours, notice of the new
time and place shall be given, before the time set for resuming the meeting, to
any Directors who were not present at the time of adjournment, but need not be
given to Directors who were present at the time of adjournment.

13. ACTION WITHOUT A MEETING BY WRITTEN CONSENT. Any action
required or permitted to be taken by the Board of Directors may be taken
without a meeting, if all members of the Board individually or collectively
consent in writing to that action. Any action by written consent shall have
the same effect as a unanimous vote of the Board of Directors. All such
written consents shall be filed with the minutes of the proceedings of the
Board of Directors.

14. COMPENSATION OF DIRECTORS. Directors and members of
committees of the Board may be compensated for their services, and shall be
reimbursed for expenses, as fixed or determined by resolution of the Board of
Directors. This section shall not preclude any Director from serving the
corporation as an officer, agent, employee, or in any other capacity, and
receiving compensation for those services.

15. REIMBURSEMENT OF NONDEDUCTIBLE COMPENSATION. If all or part of
the compensation, including expenses, paid by the corporation to a Director,
officer, employee, or agent is finally determined not to be allowable to the
corporation as a federal or state income tax deduction, the Director, officer,
employee, or agent to whom the payment was made shall repay to the corporation
the amount disallowed. The Board of Directors shall enforce repayment of each
such amount disallowed by the taxing authorities.

ARTICLE IV: COMMITTEES

1. EXECUTIVE AND OTHER COMMITTEES OF THE BOARD. The Board of
Directors, by resolution adopted by a majority of the authorized number of
Directors, may create one or more committees with the authority of the Board
("Board committees" or "committees of the

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Board"), including an executive committee. Each Board committee shall consist
of two or more Directors, and may have one or more alternate members, also
Directors. Appointment of members and alternate members requires the
affirmative vote of a majority of the authorized number of Directors.
Committees of the Board, to the extent provided in the Board resolution
establishing the committee, may be granted any or all of the powers and
authority of the Board except for the following:

(a) Approving any action for which the California Corporations
Code also requires the approval of the shareholders or of the outstanding
shares;

(b) Filling vacancies on the Board of Directors or any committee
of the Board;

(d) Adopting, amending, or repealing bylaws;

(e) Amending or repealing any resolution of the Board of Directors
which by its express terms is not so amendable or repealable;

(f) Making distributions to shareholders, except at a rate or in a
periodic amount or within a price range determined by the Board of Directors;
or

(g) Appointing other committees of the Board or their members.

2. MEETINGS AND ACTIONS OF BOARD COMMITTEES. Meetings and
actions of committees of the Board shall be governed by the bylaw provisions
applicable to meetings and actions of the Board of Directors as to place of
meetings, regular meetings, special meetings, waiver of notice, quorum,
adjournment, notice of adjournment, and action by written consent without a
meeting, with such changes in the context of those bylaws as are necessary to
substitute the committee and its members for the Board of Directors and its
members, except that (a) the time of regular committee meetings may be
determined either by resolution of the Board of Directors or by resolution of
the committee; (b) special committee meetings may also be called by resolution
of the Board of Directors; (c) notice of special committee meetings shall also
be given to all alternate members; and (d) alternate members shall have the
right to attend all meetings of the committee. The Board may adopt rules, not
inconsistent with the bylaws, for the governance of committees of the Board.

3. NON-BOARD COMMITTEES. One or more committees without the
power and authority of the Board ("non-Board" committees) may be created by
Board resolution, for investigative and other

12
<PAGE> 13
appropriate purposes. Membership on non-Board committees is not limited to
Directors. To bind the corporation, actions of non-Board committees must be
ratified by the Board of Directors.

ARTICLE V: OFFICERS

1. OFFICERS; ELECTION. The corporation shall have a chief
executive officer, a Secretary, and a chief financial officer. There may also
be other officers as specified in the bylaws or designated by the Board. Any
number of offices may be held by the same person. The officers of the
corporation (except for subordinate officers appointed in accordance with the
provisions below) shall be elected annually by the Board of Directors. All
officers shall serve at the pleasure of the Board.

2. CHIEF EXECUTIVE OFFICER. Except to the extent that the bylaws
or the Board of Directors assign specific powers and duties to the Chairman of
the Board, the President shall serve as general manager and chief executive
officer of the corporation and shall have general supervision, direction, and
control over the corporation's business and its officers, with all the general
powers and duties of management usually vested in a corporation's chief
executive officer.

The President shall preside at all shareholders' meetings, and
shall exercise and perform such other powers and duties as prescribed by the
bylaws or by the Board of Directors. The President shall also preside at Board
meetings if there is no Chairman of the Board or if the Chairman is absent.

3. SECRETARY. The Secretary shall have the following duties:

(a) MINUTES. The Secretary shall be present at and take the
minutes of all meetings of the shareholders, the Board of Directors, and
committees of the Board. If the Secretary is unable to be present, the
Secretary or the presiding officer of the meeting shall designate another
person to take the minutes of the meeting. The Secretary shall keep, or cause
to be kept, at the principal executive office or such other place as designated
by the Board of Directors, a book of minutes of all meetings and actions of the
shareholders, the Board of Directors, and committees of the Board. The minutes
of each meeting shall state the following: The time and place of the meeting;
whether it was regular or special; if special, how it was called or authorized;
the notice given or waivers or consents obtained; the names of Directors
present at Board or committee meetings; the number of shares present or
represented at shareholders' meetings, and an accurate account of the
proceedings.

(b) RECORD OF SHAREHOLDERS. The Secretary shall keep or cause to
be kept, at the principal executive office or at the office of the transfer
agent or registrar, a record or duplicate

13
<PAGE> 14
record of shareholders. This record shall show the names of all shareholders
and their addresses, the number and classes of shares held by each, the number
and date of share certificates issued to each shareholder, and the number and
date of cancellation of any certificates surrendered for cancellation.

(c) NOTICE OF MEETINGS. The Secretary shall give notice, or cause
notice to be given, of all shareholders' meetings, Board meetings, and
committee meetings for which notice is required by statute or by the bylaws.
If the Secretary or other person authorized by the Secretary to give notice
fails to act, notice of any meeting may be given by any other officer of the
corporation. The Secretary shall maintain records of the mailing or other
delivery of notices and documents to shareholders or Directors, as prescribed
by the bylaws or by the Board of Directors.

(d) OTHER DUTIES. The Secretary shall keep the seal of the
corporation, if any, in safe custody. The Secretary shall have such other
powers and perform such other duties as prescribed by the bylaws or by the
Board of Directors.

4. CHIEF FINANCIAL OFFICER. The chief financial officer, who may
also be referred to as the treasurer, shall keep or cause to be kept adequate
and correct books and records of accounts of the properties and business
transactions of the corporation, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, capital, retained earnings, and shares.
The books of account shall at all reasonable times be open to inspection by any
Director.

The chief financial officer shall (a) deposit corporate funds
and other valuables in the corporation's name and to its credit with
depositories designated by the Board; (b) disburse corporate funds as
authorized by the Board; (c) whenever requested by the Board or the chief
executive officer, render a statement of the corporation's financial condition
and an account of all transactions he or she has conducted as chief financial
officer; and (d) exercise such other powers and perform such other duties as
prescribed by the bylaws or by the Board of Directors.

The chief financial officer shall be deemed the treasurer for
any purpose requiring action by the corporation's treasurer.

5. VICE PRESIDENTS. There may be one or more Vice Presidents, as
determined by the Board. In the absence or disability of the President, the
President's duties and responsibilities shall be carried out by the
highest-ranking available Vice President, or if there are two or more unranked
Vice Presidents, by a Vice President designated by the Board of Directors.
When so acting, a Vice President shall have all the powers of and be subject to
all the restrictions on the President. Vice Presidents shall have such other
powers and perform such other

14
<PAGE> 15
duties as prescribed by the bylaws or assigned from time to time by the Board
of Directors or the chief executive officer.

6. SUBORDINATE OFFICERS. The Board of Directors may appoint, and
may empower the chief executive officer to appoint, subordinate officers as
required by the corporation's business, whose duties shall be as provided in
the bylaws or as determined from time to time by the Board of Directors or the
chief executive officer.

7. REMOVAL AND RESIGNATION OF OFFICERS. Any officer chosen by
the Board of Directors may be removed by the Board at any time, with or without
cause or notice. Subordinate officers appointed by persons other than the
Board may be removed at any time, with or without cause or notice, by the Board
or by the person by whom appointed. A removed officer shall have no claim
against the corporation or individual officers or Board members arising from
such removal (other than any rights he or she may have to monetary compensation
or damages under an employment contract).

Any officer may resign at any time by giving the corporation
written notice. Unless otherwise specified in the notice, resignations shall
take effect on the date the notice is received, and acceptance of the
resignation is not necessary to make it effective. An officer's resignation or
its acceptance by the corporation shall not prejudice any rights the
corporation may have to monetary damages under an employment contract.

8. VACANCIES IN OFFICES. Vacancies in offices resulting from an
officer's death, resignation, removal, disqualification, or any other cause
shall be filled by the Board or by the person, if any, authorized by the bylaws
or the Board to make an appointment to that office.

9. COMPENSATION. Salaries of officers and other shareholders
employed by the corporation shall be fixed from time to time by the Board of
Directors or established under employment agreements approved by the Board of
Directors. No officer shall be prevented from receiving this salary because he
or she is also a Director of the corporation.

10. REIMBURSEMENT OF NONDEDUCTIBLE COMPENSATION. If all or part
of the compensation, including expenses, paid by the corporation to a Director,
officer, employee, or agent is finally determined not to be allowable to the
corporation as a federal or state income tax deduction, the Director, officer,
employee, or agent to whom the payment was made shall repay to the corporation
the amount disallowed. The Board of Directors shall enforce repayment of each
such amount disallowed by the taxing authorities.

15
<PAGE> 16
ARTICLE VI: INDEMNIFICATION

1. INDEMNIFICATION OF AGENTS. The corporation, to the maximum
extent permitted by the California General Corporation Law, shall have power to
indemnify any of its agents against expenses, judgments, fines, settlements,
and other amounts actually and reasonably incurred in connection with any
proceeding or potential proceeding arising out of the relationship, and to the
maximum extent permitted by law, the corporation shall have power to advance
the agent's reasonable defense expenses in any such proceeding. For the
purposes of this section, "agent" means any person who is or was a Director,
officer, employee, or other agent of this corporation or its predecessor, and
any person who is or was serving as a Director, officer, employee, or agent of
another corporation, partnership, joint venture, trust or other enterprise, at
the request of this corporation or its predecessor; "proceeding" means any
threatened, pending, or completed action or proceeding, whether civil,
criminal, administrative, or investigative; and "expenses" include but are not
limited to attorneys' fees and any expenses of establishing a right to
indemnification under this section.

ARTICLE VII: RECORDS AND REPORTS

1. SHAREHOLDER LISTS; INSPECTION BY SHAREHOLDERS. The
corporation shall keep at its principal executive office or at the office of
its transfer agent or registrar, as the Board shall determine, a record of the
names and addresses of all shareholders and the number and class of shares held
by each.

A shareholder or group of shareholders holding 5 percent or
more of the outstanding voting shares of the corporation may (a) inspect and
copy the record of shareholders' names and addresses and shareholdings during
usual business hours, on 5 days' prior written demand on the corporation;
and/or (b) obtain from the corporation's transfer agent, on written demand and
tender of the transfer agent's usual charges for this service, a list of the
names and addresses of shareholders entitled to vote for the election of
Directors and their shareholdings, as of the most recent date for which a
record has been compiled or as of a specified date which is later than the date
of demand. This list shall be made available within 5 days after demand or
within 5 days after the specified later date as of which the list is to be
compiled.

The record of shareholders shall also be open to inspection
during usual business hours, on the written demand of any shareholder or holder
of a voting trust certificate, for a purpose reasonably related to the holder's
interest in the corporation. Any inspection or copying under this section may
be made in person or by the holder's agent or attorney.

2. MAINTENANCE OF BYLAWS. The corporation shall keep at its
principal executive office, or if its principal executive office is

16
<PAGE> 17
not in California, at its principal business office in this state, the original
or a copy of the bylaws as amended to date, which shall be open to inspection
by the shareholders at all reasonable times during office hours. If the
principal executive office of the corporation is outside of California and the
corporation has no principal business office in this state, the Secretary
shall, upon a shareholder's written request, furnish to that shareholder a copy
of the bylaws as amended to date.

3. MINUTES AND ACCOUNTING RECORDS. The minutes of proceedings of
the shareholders, Board of Directors, and committees of the Board, and the
accounting books and records shall be kept at the principal executive office of
the corporation, or at such other place or places as designated by the Board of
Directors. The minutes shall be kept in written form, and the accounting books
and records shall be kept either in written form or in a form capable of being
converted into written form. The minutes and accounting books and records
shall be open to inspection during usual business hours on the written demand
of any shareholder or holder of a voting trust certificate, for a purpose
reasonably related to the holder's interests in the corporation. The
inspection may be made in person or by an agent or attorney, and includes the
right to copy and make extracts. These rights of inspection shall extend to
the records of each subsidiary of the corporation.

4. INSPECTION BY DIRECTORS. Every Director shall have the
absolute right at any reasonable time to inspect all books, records, and
documents of every kind and the physical properties of the corporation and each
of its subsidiary corporations. This inspection may be made by the Director in
person or by an agent or attorney, and the right of inspection includes the
right to copy and make extracts of documents.

5. ANNUAL REPORT TO SHAREHOLDERS. The Board of Directors shall
cause an annual report to be sent to the shareholders not later than 120 days
after the close of the fiscal year adopted by the corporation. This report
shall be sent at least 15 days (if third-class mail is used, 35 days) before
the next annual meeting of shareholders, in the manner specified in these
bylaws for giving notice to shareholders. The annual report shall contain a
balance sheet as of the end of the fiscal year and an income statement and a
statement of changes in financial position for the fiscal year, prepared in
accordance with generally accepted accounting principles applied on a
consistent basis and accompanied by any report of independent accountants, or,
if there is none, by the certificate of an authorized officer of the
corporation that the statements were prepared without audit from the
corporation's books and records.

6. FINANCIAL STATEMENTS. The corporation shall keep a copy of
any annual financial statement, quarterly or other periodic income statement,
and accompanying balance sheets on file in its principal executive office for
12 months; these documents shall be

17
<PAGE> 18
exhibited (or copies provided) to shareholders at all reasonable times. If no
annual report for the last fiscal year has been sent to shareholders, on
written request of any shareholder made more than 120 days after the close of
the fiscal year, the corporation shall deliver or mail to the shareholder,
within 30 days after receipt of the request, a balance sheet as of the end of
that fiscal year and an income statement and statement of changes in financial
position for that fiscal year.

A shareholder or shareholders holding 5 percent or more of the
outstanding shares of any class of stock of the corporation may request in
writing an income statement for the most recent three-month, six-month, or
nine-month period (ending more than 30 days before the date of the request) of
the current fiscal year, and a balance sheet as of the end of that period. If
such documents are not already prepared, the chief financial officer shall
cause them to be prepared and shall deliver them personally or by mail to the
requesting shareholders within 30 days after the receipt of the request. A
balance sheet, income statement, and statement of changes in financial position
for the last fiscal year shall also be included, unless the corporation has
sent the shareholders an annual report for the last fiscal year.

Quarterly income statements and balance sheets referred to in
this section shall be accompanied by the report, if any, of independent
accountants engaged by the corporation, or a certificate by the authorized
corporate officer stating that the financial statements were prepared without
audit from the corporation's books and records.

7. ANNUAL INFORMATION STATEMENT.

(a) Every year, during the calendar month in which the
original Articles of Incorporation were filed with the California Secretary of
State or during the preceding five calendar months, the corporation shall file
a statement with the Secretary of State on the prescribed form, setting forth
the authorized number of Directors; the names and complete business or
residence addresses of the chief executive officer, the Secretary, and the
chief financial officer; the street address of the corporation's principal
executive office or principal business office in this state; a statement of the
general type of business constituting the principal business activity of the
corporation, and a designation of the corporation's agent for service of
process, all in compliance with Section 1502 of the Corporations Code of
California.

(b) Notwithstanding the provisions of paragraph (a) of
this section, if there has been no change in the information contained in the
corporation's last annual statement on file in the Secretary of State's office,
the corporation may, in lieu of filing the annual statement, advise the
Secretary of State, on the

18
<PAGE> 19
appropriate form, that no changes in the required information have occurred
during the applicable period.

ARTICLE VIII: GENERAL CORPORATE MATTERS

1. RECORD DATE FOR DIVIDENDS AND DISTRIBUTIONS. For purposes of
determining the shareholders entitled to receive payment of dividends or other
distributions or allotment of rights, or entitled to exercise any rights in
respect of any other lawful action (other than voting at and receiving notice
of shareholders' meetings and giving written consent of the shareholders
without a meeting), the Board of Directors may fix in advance a record date not
more than 60 nor less than 10 days before the date of the dividend payment,
distribution, allotment, or other action. If a record date is so fixed, only
shareholders of record at the close of business on that date shall be entitled
to receive the dividend, distribution, or allotment of rights, or to exercise
the other rights, as the case may be, notwithstanding any transfer of any
shares on the corporate books after the record date, except as otherwise
provided by statute.

If the Board of Directors does not so fix a record date in
advance, the record date for these purposes shall be at the close of business
on the later of (a) the day on which the Board of Directors adopts the
applicable resolution or (b) the 60th day before the date of the dividend
payment, distribution, allotment of rights, or other action.

2. AUTHORIZED SIGNATORIES FOR CHECKS. All checks, drafts, or
other orders for payment of money, notes, and other evidences of indebtedness
issued in the name of or payable to the corporation shall be signed or endorsed
in the manner and by the persons authorized by the Board of Directors.

3. EXECUTING CONTRACTS AND INSTRUMENTS. The Board of Directors
may authorize any of its officers or agents to enter into any contract or
execute any instrument in the name of and on behalf of the corporation. This
authority may be general or it may be confined to one or more specific matters.
No officer, agent, employee, or other person purporting to act on behalf of the
corporation shall have any power or authority to bind the corporation in any
way, pledge its credit, or render it liable for any purpose in any amount,
unless that person was acting with authority duly granted by the Board of
Directors as provided in these bylaws, or unless an unauthorized act was later
ratified by the corporation.

4. SHARE CERTIFICATES. One or more certificates for shares of
the capital stock of the corporation shall be issued to each shareholder when
any of the shareholder's shares are fully paid.

All certificates shall certify the number of shares and the
class or series of shares represented by the certificate. All

19
<PAGE> 20
certificates shall be signed in the name of the corporation by (a) one of the
following: the Chairman or vice Chairman of the Board of Directors, the
President, or any Vice President; and (b) one of the following: the chief
financial officer, any assistant treasurer, the Secretary, or any assistant
Secretary. Any of the signatures on the certificate may be facsimile. If a
party who has signed share certificates ceases to be an officer or other agent
before the certificate is issued, the corporation may issue the certificate
with the same effect as if that person were an officer, transfer agent, or
registrar at the date of issue.

The share certificates shall state, by way of appropriate
legend, any restrictions on share ownership or transfer, and any other
statements required by applicable federal or state securities regulations.

5. LOST CERTIFICATES. Except as provided in this section, no new
certificates for shares shall be issued to replace old certificates unless the
old certificates are surrendered to the corporation for cancellation at the
same time. If share certificates or certificates for any other security have
been lost, stolen, or destroyed, the Board of Directors may authorize the
issuance of replacement certificates on terms and conditions as the Board may
require, which may include a requirement that the owner give the corporation a
bond or other adequate security sufficient to protect the corporation against
any claim that may be made against it (including any expenses or liability) on
account of the alleged loss, theft, or destruction of the old certificate or
the issuance of the replacement certificate.

6. SHARES OF OTHER CORPORATIONS; HOW VOTED. Shares of other
corporations standing in the name of this corporation shall be voted by the
chief executive officer or a person designated by the chief executive officer.
If neither of them is able to act, the shares may be voted by a person
designated by the Board of Directors. The authority to vote shares includes
the authority to execute a proxy in the corporation's name for purposes of
voting the shares.

7. REIMBURSEMENT OF NONDEDUCTIBLE COMPENSATION. If all or part
of the compensation, including expenses, paid by the corporation to a Director,
officer, employee, or agent is finally determined not to be allowable to the
corporation as a federal or state income tax deduction, the Director, officer,
employee, or agent to whom the payment was made shall repay to the corporation
the amount disallowed. The Board of Directors shall enforce repayment of each
such amount disallowed by the taxing authorities.

8. CONSTRUCTION AND DEFINITIONS. Unless the context requires
otherwise, the general provisions, rules of construction, and definitions in
Sections 100 through 195 of the California Corporations Code shall govern the
construction of these bylaws. Without limiting the generality of this
provision, the singular

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<PAGE> 21
number includes the plural, the plural number includes the singular, and the
term "person" includes a corporation and a natural person.

9. TRANSFER RESTRICTIONS; RIGHT OF FIRST REFUSAL. Any
shareholder wishing to sell or transfer shares of the corporation
("transferring shareholder") shall, under procedures adopted by the Board of
Directors, disclose to the Board the number of shares submitted for sale or
transfer, the price per share, the terms and conditions of sale, and the name
of any proposed transferee, and shall make those shares available to the
corporation and other shareholders under the same terms. If, within a
reasonable time or before a reasonable date specified by the transferring
shareholder, neither the corporation nor the other shareholders offer to
purchase that number of shares under the same terms, the Board of Directors
shall grant the transferring shareholder permission to sell or transfer those
shares as specified, but not at terms more favorable to the transferee than
those under which the shares were submitted to the corporation and
shareholders.

ARTICLE IX: AMENDMENTS

1. AMENDMENT OF ARTICLES OF INCORPORATION. Unless otherwise
provided under California Corporations Code Sections 900 through 911,
amendments to the Articles of Incorporation may be adopted if approved by the
Board and approved by a majority of the outstanding shares entitled to vote,
either before or after approval by the Board. An amendment to the Articles of
Incorporation shall be effective as of the date that the appropriate
certificate of amendment is filed with the Secretary of State.

2. AMENDMENT OF BYLAWS. Except as otherwise required by law or
by the Articles of Incorporation, these bylaws may be amended or repealed, and
new bylaws may be adopted, by the Board of Directors or by a majority of the
outstanding shares entitled to vote.

<PAGE> 1

EXHIBIT 3.6

FORM OF

AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
INTERNATIONAL AIRCRAFT INVESTORS

ARTICLE I

The name of this corporation is International Aircraft
Investors.

ARTICLE II

ARTICLE III

This corporation is authorized to issue two classes of shares
designated, respectively, "Common Stock" and "Preferred Stock," and referred to
herein either as Common Stock or Common Shares and Preferred Stock or Preferred
Shares, respectively. The number of shares of Common Stock is 20,000,000,
$0.01 par value, and the number of shares of Preferred Stock is 15,000,000,
$0.01 par value.

The Preferred Shares may be issued from time to time, in one or
more series. The Board of Directors is authorized to fix the number of shares
of any series of Preferred Shares and to determine or alter the rights,
preferences, privileges and restrictions granted to or imposed upon any wholly
unissued series of Preferred Shares, and within the limits and restrictions
stated in any resolution or resolutions of the Board of Directors originally
fixing the number of shares constituting any series, to increase or decease (but
not below the number of shares of such series then outstanding) the number of
shares of any such series subsequent to the issue of shares of that series. Upon
filing of this mended and Restated Articles of Incorporation, all outstanding
shares of Common Stock shall be subject to a reverse 1-for [ ] stock split. No
fractional shares of Common Stock are to
<PAGE> 2
be issued in connection with the reverse stock split, but instead cash shall be
distributed to each shareholder who would otherwise have been entitled to
receive a fractional share, and the amount of cash to be distributed shall be
based upon a price of $______ per share.

ARTICLE IV

The liability of the directors of the corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law.

ARTICLE V

Any action required or permitted to be taken by the
shareholders of the corporation must be effected at an annual or special
meeting of shareholders of the corporation and may not be effected by any
consent in writing of such shareholders.

ARTICLE VI

The corporation is authorized to indemnify its agents to the
fullest extent permissible under California law. For purposes of this
provision, the term "agent" has the meaning set forth from time to time in
Section 317 of the California Corporations Code.

ARTICLE VII

Advance notice of shareholder nominations for the election of
directors and of business to be brought by shareholders before any meeting of
the shareholders of the corporation shall be given in the manner provided in
the bylaws of the corporation.

ARTICLE VIII

The election of directors by the shareholders shall not be by
cumulative voting. At each election of directors, each shareholder entitled to
vote may vote all the shares held by that shareholder for each of the several
nominees for director up to the number of directors to be elected. The
shareholder may not cast more votes for any single nominee than the number of
shares held by that shareholder. This Article VIII shall become effective only
when the corporation becomes a "listed corporation" within the meaning of the
California Corporations Code Section 301.5(d).

2
<PAGE> 3
ARTICLE IX

(A) The corporation reserves the right to repeal, alter,
amend or rescind any provision contained in the articles of incorporation, in
the manner now or hereafter prescribed by statute, except as provided in
paragraph (B) of this Article IX, and all rights conferred on shareholders
herein are granted subject to this reservation.

(B) Notwithstanding any other provision of the articles
of incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of securities required by law, the articles of
incorporation or any Preferred Stock Designation, the affirmative vote of the
holders entitled to exercise at least 66-2/3% of the voting power of the
corporation, voting together as a single class, shall be required to alter,
amend or repeal Articles IV, V, VI, VII, VIII and IX hereof.

<PAGE> 1
EXHIBIT 3.7

FORM OF
AMENDED AND RESTATED BYLAWS

INTERNATIONAL AIRCRAFT INVESTORS

(a California corporation)
<PAGE> 2
TABLE OF CONTENTS

Page

ARTICLE I. OFFICES . . . . . . . . . . . . 1

SECTION 1. PRINCIPAL EXECUTIVE OFFICE . . . . . . . . . . . . . . . 1

SECTION 2. OTHER OFFICES . . . . . . . . . . . . . . . . . . . . . 1

ARTICLE II. SHAREHOLDERS . . . . . . . . . . 1

SECTION 1. PLACE OF MEETINGS . . . . . . . . . . . . . . . . . . . 1

SECTION 2. ANNUAL MEETINGS . . . . . . . . . . . . . . . . . . . . 1

SECTION 3. SPECIAL MEETINGS . . . . . . . . . . . . . . . . . . . . 1

SECTION 4. NOTICE OF ANNUAL OR SPECIAL MEETINGS . . . . . . . . . . 2

SECTION 5. QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . 3

SECTION 6. ADJOURNED MEETINGS AND NOTICE THEREOF . . . . . . . . . 3

SECTION 7. VOTING . . . . . . . . . . . . . . . . . . . . . . . . . 4

SECTION 8. RECORD DATE . . . . . . . . . . . . . . . . . . . . . . 6

SECTION 9. CONSENT OF ABSENTEES . . . . . . . . . . . . . . . . . . 6

SECTION 10. ACTION WITHOUT MEETING . . . . . . . . . . . . . . . . . 7

SECTION 11. PROXIES . . . . . . . . . . . . . . . . . . . . . . . . 7

SECTION 12. INSPECTORS OF ELECTION . . . . . . . . . . . . . . . . . 7

SECTION 13. CONDUCT OF MEETING . . . . . . . . . . . . . . . . . . . 8

SECTION 14. NOMINATION OF DIRECTORS . . . . . . . . . . . . . . . . 8

ARTICLE III. DIRECTORS . . . . . . . . . . . 9

SECTION 1. POWERS . . . . . . . . . . . . . . . . . . . . . . . . . 9

SECTION 2. NUMBER OF DIRECTORS . . . . . . . . . . . . . . . . . . 10

SECTION 3. ELECTION AND TERM OF OFFICE . . . . . . . . . . . . . . 10

SECTION 4. VACANCIES . . . . . . . . . . . . . . . . . . . . . . . 10

i
<PAGE> 3
SECTION 5. PLACE OF MEETING . . . . . . . . . . . . . . . . . . . . 11

SECTION 6. REGULAR MEETINGS . . . . . . . . . . . . . . . . . . . . 11

SECTION 7. SPECIAL MEETINGS . . . . . . . . . . . . . . . . . . . . 11

SECTION 8. QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . 12

SECTION 9. PARTICIPATION IN MEETINGS BY CONFERENCE
TELEPHONE . . . . . . . . . . . . . . . . . . . . . . . 12

SECTION 10. WAIVER OF NOTICE . . . . . . . . . . . . . . . . . . . . 12

SECTION 11. ADJOURNMENT . . . . . . . . . . . . . . . . . . . . . . 12

SECTION 12. FEES AND COMPENSATION . . . . . . . . . . . . . . . . . 13

SECTION 13. ACTION WITHOUT MEETING . . . . . . . . . . . . . . . . . 13

SECTION 14. RIGHTS OF INSPECTION . . . . . . . . . . . . . . . . . . 13

SECTION 15. COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . 13

ARTICLE IV. OFFICERS . . . . . . . . . . . 14

SECTION 1. OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . 14

SECTION 2. ELECTION . . . . . . . . . . . . . . . . . . . . . . . . 14

SECTION 3. SUBORDINATE OFFICERS . . . . . . . . . . . . . . . . . . 14

SECTION 4. REMOVAL AND RESIGNATION . . . . . . . . . . . . . . . . 14

SECTION 5. VACANCIES . . . . . . . . . . . . . . . . . . . . . . . 15

SECTION 6. CHAIRMAN OF THE BOARD . . . . . . . . . . . . . . . . . 15

SECTION 7. PRESIDENT . . . . . . . . . . . . . . . . . . . . . . . 15

SECTION 8. VICE PRESIDENTS . . . . . . . . . . . . . . . . . . . . 15

SECTION 9. SECRETARY . . . . . . . . . . . . . . . . . . . . . . . 15

SECTION 10. CHIEF FINANCIAL OFFICER . . . . . . . . . . . . . . . . 16

SECTION 11. COMPENSATION . . . . . . . . . . . . . . . . . . . . . . 16

ARTICLE V. OTHER PROVISIONS . . . . . . . . . 16

SECTION 1. INSPECTION OF CORPORATE RECORDS . . . . . . . . . . . . 16

SECTION 2. INSPECTION OF BYLAWS . . . . . . . . . . . . . . . . . . 17

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SECTION 3. ENDORSEMENT OF DOCUMENTS; CONTRACTS . . . . . . . . . . 17

SECTION 4. CERTIFICATES OF STOCK . . . . . . . . . . . . . . . . . 18

SECTION 5. REPRESENTATION OF SHARES OF OTHER
CORPORATIONS . . . . . . . . . . . . . . . . . . . . . . 19

SECTION 6. STOCK PURCHASE PLANS . . . . . . . . . . . . . . . . . . 19

SECTION 7. CONSTRUCTION AND DEFINITIONS . . . . . . . . . . . . . . 19

SECTION 8. AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . 19

SECTION 9. ANNUAL REPORT TO SHAREHOLDERS . . . . . . . . . . . . . 20

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AMENDED AND RESTATED BYLAWS

for the regulation, except
as otherwise provided by statute or
its Articles of Incorporation,

INTERNATIONAL AIRCRAFT INVESTORS
(a California corporation)

The Bylaws of International Aircraft Investors are hereby amended and restated
in their entirety to read as follows:

ARTICLE I. OFFICES

SECTION 1. PRINCIPAL EXECUTIVE OFFICE. The corporation's
principal executive office shall be fixed and located at such place as the
Board of Directors (herein called the "Board") shall determine. The Board is
granted full power and authority to change said principal executive office from
one location to another.

SECTION 2. OTHER OFFICES. Branch or subordinate offices
may be established at any time by the Board at any place or places.

ARTICLE II. SHAREHOLDERS

SECTION 1. PLACE OF MEETINGS. Meetings of shareholders
shall be held either at the principal executive office of the corporation or at
any other place within or without the State of California which may be
designated either by the Board or by the written consent of all persons
entitled to vote thereat, given either before or after the meeting and filed
with the Secretary.

SECTION 2. ANNUAL MEETINGS. The annual meetings of
shareholders shall be held on such date and at such time as may be fixed by the
Board. At such meetings, directors shall be elected and any other proper
business may be transacted.

SECTION 3. SPECIAL MEETINGS. Special meetings of the
shareholders may be called at any time by the Board, the Chairman of the Board,
the President, or by the holders of shares entitled to cast not less than ten
percent of the votes at such meeting. Upon request in writing to the Chairman
of the Board, the President, any Vice President or the Secretary by any person
(other than the Board) entitled to call a special meeting of shareholders, the
officer forthwith shall cause notice to be given to the shareholders entitled
to vote that a meeting will be

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held at a time requested by the person or persons calling the meeting, not less
than thirty-five nor more than sixty days after the receipt of the request. If
the notice is not given within twenty days after receipt of the request, the
persons entitled to call the meeting may give the notice.

SECTION 4. NOTICE OF ANNUAL OR SPECIAL MEETINGS. Written
notice of each annual or special meeting of shareholders shall be given not
less than ten nor more than sixty days before the date of the meeting to each
shareholder entitled to vote thereat. Such notice shall state the place, date
and hour of the meeting and (i) in the case of a special meeting, the general
nature of the business to be transacted, and no other businesses may be
transacted, or (ii) in the case of the annual meeting, those matters which the
Board, at the time of the mailing of the notice, intends to present for action
by the shareholders, but, subject to the provisions of applicable law, any
proper matter may be presented at the meeting for such action. To be properly
brought before an annual meeting, business must be (a) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the
Board, (b) otherwise properly brought before the meeting by or at the direction
of the Board, or (c) otherwise properly brought before the meeting by a
shareholder. For business to be properly brought before an annual meeting by a
shareholder, the shareholder must have given timely notice thereof in writing
to the Secretary of the corporation. To be timely, a shareholder's notice must
be delivered to or mailed and received at the principal executive offices of
the corporation, not less than 60 days nor more than 90 days prior to the
meeting; provided, however, that in the event that less than 70 days' notice or
prior public disclosure of the date of the meeting is given or made to
shareholders, notice by the shareholder to be timely must be so received not
later than the close of business on the 10th day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure was made. A shareholder's notice to the Secretary shall set forth
as to each matter the shareholder proposes to bring before the annual meeting
(a) a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (b)
the name and address, as they appear on the corporation's books, of the
shareholder proposing such business, (c) the class and number of shares of the
corporation which are beneficially owned by the shareholder, and (d) any
material interest of the shareholder in such business. Notwithstanding
anything in the Bylaws to the contrary, no business shall be conducted at any
annual meeting except in accordance with the procedures set forth in this
Section 4. The Chairman of the annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting and in accordance with the provisions of this Section 4, and
if he should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.

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The notice of any meeting at which directors are to be elected
shall include the names of nominees intended at the time of the notice to be
presented by management for election.

Notice of a shareholders' meeting shall be given either
personally or by first-class mail or, if the corporation has outstanding shares
held of record by 500 or more persons on the record date for the meeting,
notice may be given by third-class mail, or by other means of written
communication, addressed to the shareholder at the address of such shareholder
appearing on the books of the corporation or given by the shareholder to the
corporation for the purpose of notice, or, if no such address appears or is
given, at the place where the principal executive office of the corporation is
located or by publication at least once in a newspaper of general circulation
in the county in which the principal executive office is located. Notice by
mail shall be deemed to have been given at the time a written notice is
deposited in the United States mails, postage prepaid. Any other written
notice shall be deemed to have been given at the time it is personally
delivered to the recipient or is delivered to a common carrier for
transmission, or actually transmitted by the person giving the notice by
electronic means, to the recipient.

SECTION 5. QUORUM. A majority of the shares entitled to
vote, represented in person or by proxy, shall constitute a quorum at any
meeting of shareholders. If a quorum is present, the affirmative vote of a
majority of the shares represented and voting at the meeting (which shares
voting affirmatively also constitute at least a majority of the required
quorum) shall be the act of the shareholders, unless the vote of a greater
number or voting by classes is required by law or by the Articles, except as
provided in the following sentence. The shareholders present may continue to
do business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.

SECTION 6. ADJOURNED MEETINGS AND NOTICE THEREOF. Any
shareholders' meeting, whether or not a quorum is present, may be adjourned
from time to time by the vote of a majority of the shares represented either in
person or by proxy, but in the absence of a quorum (except as provided in
Section 5 of this Article) no other business may be transacted at such meeting.

It shall not be necessary to give any notice of the time and
place of the adjourned meeting or of the business to be transacted thereat,
other than by announcement at the meeting at which such adjournment is taken;
provided, however, when any shareholders' meeting is adjourned for more than 45
days or, if after adjournment a new record date is fixed for the adjourned
meeting, notice of the adjourned meeting shall be given as in the case of an
original meeting.

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SECTION 7. VOTING. The shareholders entitled to notice of
any meeting or to vote at any such meeting shall be only persons in whose name
shares stand on the stock records of the corporation on the record date
determined in accordance with Section 8 of this Article.

The election of directors by the shareholders shall not be by
cumulative voting. At each election of directors, each shareholder entitled to
vote may vote all the shares held by that shareholder for each of the several
nominees for director up to the number of directors to be elected. The
shareholder may not cast more votes for any single nominee than the number of
shares held by that shareholder. This paragraph shall become effective only
when the corporation becomes a "listed corporation" within the meaning of
Section 301.5(d) of the California General Corporation Law.

Elections need not be by ballot; provided, however, that all
elections for directors must be by ballot upon demand made by a shareholder at
the meeting and before the voting begins.

In any election of directors, the candidates receiving the
highest number of votes of the shares entitled to be voted for them up to the
number of directors to be elected by such shares are elected.

Voting shall in all cases be subject to the provisions of Chapter
7 of the California General Corporation Law, and to the following provisions:

(a) Subject to clause (g), shares held by an administrator,
executor, guardian, conservator or custodian may be voted by such holder either
in person or by proxy, without a transfer of such shares into the holder's
name; and shares standing in the name of a trustee may be voted by the trustee,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by such trustee without a transfer of such shares into the trustee's name.

(b) Shares standing in the name of a receiver may be voted by
such receiver, and shares held by or under the control of a receiver may be
voted by such receiver without the transfer thereof into the receiver's name if
authority to do so is contained in the order of the court by which such
receiver was appointed.

(c) Subject to the provisions of Section 705 of the
California General Corporation Law and except where otherwise agreed in writing
between the parties, a shareholder whose shares are pledged shall be entitled
to vote such shares until the shares have been transferred into the name of the
pledgee, and thereafter the pledgee shall be entitled to vote the shares so
transferred.

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<PAGE> 9
(d) Shares standing in the name of a minor may be voted and
the corporation may treat all rights incident thereto as exercisable by the
minor, in person or by proxy, whether or not the corporation has notice, actual
or constructive, of the nonage, unless a guardian of the minor's property has
been appointed and written notice of such appointment given to the corporation.

(e) Shares standing in the name of another corporation,
domestic or foreign, may be voted by such officer, agent or proxyholder as the
bylaws of such other corporation may prescribe or, in the absence of such
provision, as the Board of Directors of such other corporation may determine
or, in the absence of such determination, by the chairman of the board,
president or any vice president of such other corporation, or by any other
person authorized to do so by the chairman of the board, president or any vice
president of such other corporation. Shares which are purported to be voted or
any proxy purported to be executed in the name of a corporation (whether or not
any title of the person signing is indicated) shall be presumed to be voted or
the proxy executed in accordance with the provisions of this clause, unless the
contrary is shown.

(f) Shares of the corporation owned by its subsidiary shall
not be entitled to vote on any matter.

(g) Shares held by the corporation in a fiduciary capacity,
and shares of the issuing corporation held in a fiduciary capacity by any
subsidiary, shall not be entitled to vote on any matter, except to the extent
that the settlor or beneficial owner possesses and exercises a right to vote or
to give the corporation binding instructions as to how to vote such shares.

(h) If shares stand of record in the names of two or more
persons, whether fiduciaries, members of a partnership, joint tenants, tenants
in common, husband and wife as community property, tenants by the entirety,
voting trustees, persons entitled to vote under a shareholder voting agreement
or otherwise, or if two or more persons (including proxyholders) have the same
fiduciary relationship respecting the same shares, unless the secretary of the
corporation is given written notice to the contrary and is furnished with a
copy of the instrument or order appointing them or creating the relationship
wherein it is so provided, their acts with respect to voting shall have the
following effect:

(i) If only one votes, such act binds all;

(ii) If more than one vote, the act of the majority so voting
binds all;

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(iii) If more than one vote, but the vote is evenly split on
any particular matter, each faction may vote the securities in question
proportionately.

If the instrument so filed or the registration of the shares shows that any
such tenancy is held in unequal interests, a majority or even split for the
purpose of this section shall be a majority or even split in interest.

SECTION 8. RECORD DATE. The Board may fix, in advance, a
record date for the determination of the shareholders entitled to notice of any
meeting or to vote or entitled to receive payment of any dividend or other
distribution, or any allotment of rights, or to exercise rights in respect of
any other lawful action. The record date so fixed shall be not more than 60
days nor less than 10 days prior to the date of the meeting nor more than 60
days prior to any other action. When a record date is so fixed, only
shareholders of record on that date are entitled to notice of and to vote at
the meeting or to receive the dividend, distribution, or allotment or rights,
or to exercise of the rights, as the case may be, notwithstanding any transfer
of shares on the books of the corporation after the record date. A
determination of shareholders of record entitled to notice of or to vote at a
meeting of shareholders shall apply to any adjournment of the meeting unless
the Board fixes a new record date for the adjourned meeting. The Board shall
fix a new record date if the meeting is adjourned for more than forty-five
days.

If no record date is fixed by the Board, the record date for
determining shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the business day next
preceding the day on which notice is given or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held. The record date for determining shareholders for any purpose
other than set forth in this Section 8 or Section 10 of this Article shall be
at the close of business on the day on which the Board adopts the resolution
relating thereto, or the sixtieth day prior to the date of such other action,
whichever is later.

SECTION 9. CONSENT OF ABSENTEES. The transactions of any
meeting of shareholders, however called and noticed, and wherever held, are as
valid as though had at a meeting duly held after regular call and notice, if a
quorom is present either in person or by proxy, and if, either before or after
the meeting, each of the persons entitled to vote, not present in person or by
proxy, signs a written waiver of notice, or a consent to the holding of the
meeting or an approval of the minutes thereof. All such waivers, consents or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting. Attendance of a person at a meeting shall constitute a
waiver of notice of and presence at such meeting, except when the person
objects, at the beginning of the meeting, to the transaction of

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any business because the meeting is not lawfully called or convened and except
that attendance at a meeting is not a waiver of any right to object to the
consideration of matters required by the California General Corporation Law to
be included in the notice but not so included, if such objection is expressly
made at the meeting. Neither the business to be transacted at nor the purpose
of any regular or special meeting of shareholders need be specified in any
written waiver of notice, consent to the holding of the meeting or approval of
the minutes thereof, except as provided in Section 601(f) of the California
General Corporation Law.

SECTION 10. ACTION WITHOUT MEETING. Any action required or
permitted to be taken by the shareholders of the corporation must be effected
at an annual or special meeting of shareholders of the corporation and may not
be effected by any consent in writing of such shareholders.

SECTION 11. PROXIES. Every person entitled to vote shares
has the right to do so either in person or by one or more persons authorized by
a written proxy executed by such shareholder and filed with the Secretary with
respect to such shares. Any proxy duly executed is not revoked and continues
in full force and effect until revoked by the person executing it prior to the
vote pursuant thereto. Such revocation may be effected either, (i) by a
writing delivered to the Secretary of the Corporation stating that the proxy is
revoked, (ii) or by a subsequent proxy executed by the person executing the
prior proxy and presented to the meeting, or (iii) by attendance at the meeting
and voting in person by the person executing the proxy; provided, however, that
no proxy shall be valid after the expiration of eleven months from the date of
its execution unless otherwise provided in the proxy.

SECTION 12. INSPECTORS OF ELECTION. In advance of any
meeting of shareholders, the Board may appoint inspectors of election to act at
such meeting and any adjournment thereof. If inspectors of election be not so
appointed, or if any persons so appointed fail to appear or refuse to act, the
chairman of any such meeting may, and on the request of any shareholder or
shareholder's proxy shall, make such appointment at the meeting. The number of
inspectors shall be either one or three. If appointed at a meeting on the
request of one or more shareholders or proxies, the majority of shares present
shall determine whether one or three inspectors are to be appointed.

The duties of such inspectors shall be as prescribed by Section
707(b) of the California General Corporation Law and shall include:
determining the number of shares outstanding and the voting power of each;
determining the shares represented at the meeting; determining the existence of
a quorum; determining the authenticity, validity and effect of proxies;
receiving votes, ballots or consents; hearing and determining all challenges
and questions in any way arising in connection with

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the right to vote; counting and tabulating all votes or consents; determining
when the polls shall close; determining the result; and doing such acts as may
be proper to conduct the election or vote with fairness to all shareholders.
If there are three inspectors of election, the decision, act or certificate of
a majority is effective in all respects as the decision, act or certificate of
all.

SECTION 13. CONDUCT OF MEETING. The President shall preside
as chairman at all meetings of the shareholders. The chairman shall conduct
each such meeting in a businesslike and fair manner, but shall not be obligated
to follow any technical, formal or parliamentary rules or principles of
procedure. The chairman's rulings on procedural matters shall be conclusive
and binding on all shareholders, unless at the time of a ruling a request for a
vote is made to the shareholders holding shares entitled to vote and which are
represented in person or by proxy at the meeting, in which case the decision of
a majority of such shares shall be conclusive and binding on all shareholders.
Without limiting the generality of the foregoing, the chairman shall have all
of the powers usually vested in the chairman of a meeting of shareholders.

SECTION 14. NOMINATION OF DIRECTORS. Only persons who are
nominated in accordance with the procedures set forth in this Section 14 shall
be eligible for election as directors. Nominations of persons for election to
the Board of the corporation may be made at a meeting of shareholders by or at
the direction of the Board or by any shareholder of the corporation entitled to
vote for the election of directors at the meeting who complies with the notice
procedures set forth in this Section 14. Such nominations, other than those
made by or at the direction of the Board, shall be made pursuant to timely
notice in writing to the Secretary of the corporation. To be timely, a
shareholder's notice shall be delivered to or mailed and received at the
principal executive offices of the corporation not less than 60 days nor more
than 90 days prior to the meeting; provided, however, that in the event that
less than 70 days' notice or prior public disclosure of the date of the meeting
is given or made to shareholders, notice by the shareholder to be timely must
be so received not later than the close of business on the 10th day following
the day on which such notice of the date of the meeting was mailed or such
public disclosure was made. Such shareholder's notice shall set forth (a) as
to each person whom the shareholder proposes to nominate for election or
re-election as a director, (i) the name, age, business address and residence
address of such person, (ii) the principal occupation or employment of such
person, (iii) the class and number of shares of the corporation which are
beneficially owned by such person and (iv) any other information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
without limitation such persons' written

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consent to being named in the proxy statement as a nominee and to serving as a
director if elected); and (b) as to the shareholder giving the notice (i) the
name and address, as they appear on the corporation's books, of such
shareholder and (ii) the class and number of shares of the corporation which
are beneficially owned by such shareholder. At the request of the Board any
person nominated by the Board for election as a director shall furnish to the
Secretary of the corporation that information required to be set forth in a
shareholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the corporation unless
nominated in accordance with the procedures set forth in this Section 14. The
Chairman of the meeting shall, if the facts warrant, determine and declare to
the meeting that a nomination was not made in accordance with the procedures
prescribed by the Bylaws, and if he should so determine, he shall so declare to
the meeting and the defective nomination shall be disregarded.

ARTICLE III. DIRECTORS

SECTION 1. POWERS. Subject to limitations of the Articles,
of these Bylaws and of the California General Corporation Law relating to
action required to be approved by the shareholders or by the outstanding
shares, the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the Board.
The Board may delegate the management of the day-to-day operation of the
business of the corporation to a management company or other person provided
that the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised under the ultimate direction of the Board.
Without prejudice to such general powers, but subject to the same limitations,
it is hereby expressly declared that the Board shall have the following powers
in addition to the other powers enumerated in these Bylaws:

(a) To select and remove all the other officers, agents and
employees of the corporation, prescribe the powers and duties for them as may
not be inconsistent with law, the Articles or these Bylaws, fix their
compensation and require from them security for faithful service.

(b) To conduct, manage and control the affairs and business
of the corporation and to make such rules and regulations therefor not
inconsistent with law, the Articles or these Bylaws, as they may deem best.

(c) To adopt, make and use a corporate seal, and to prescribe
the forms of certificates of stock, and to alter the form of such seal and of
such certificates from time to time as they may deem best.

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(d) To authorize the issuance of shares of stock of the
corporation from time to time, upon such terms and for such consideration as
may be lawful.

(e) To borrow money and incur indebtedness for the purposes
of the corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecations or other evidences of debt and securities therefor.

SECTION 2. NUMBER OF DIRECTORS. The authorized number of
directors shall not be less than five nor more than nine until changed by
amendment of the Articles or by a Bylaw duly adopted by the shareholders
amending this Section 2. The exact number of directors shall be fixed, within
the limits specified by amendment to the next sentence duly adopted either by
the Board or the shareholders. The exact number of directors shall be seven
until changed as provided in this Section 2.

SECTION 3. ELECTION AND TERM OF OFFICE. The directors
shall be elected at each annual meeting of the shareholders, but if any such
annual meeting is not held or the directors are not elected thereat, the
directors may be elected at any special meeting of shareholders held for that
purpose. Each director shall hold office until the next annual meeting and
until a successor has been elected and qualified.

SECTION 4. VACANCIES. Any director may resign effective
upon giving written notice to the Chairman of the Board, the President, the
Secretary or the Board, unless the notice specifies a later time for the
effectiveness of such resignation. If the resignation is effective at a future
time, a successor may be elected to take office when the resignation becomes
effective.

Vacancies in the Board, except those existing as a result of a
removal of a director, may be filled by a majority of the remaining directors,
though less than a quorum, or by a sole remaining director, and each director
so elected shall hold office until the next annual meeting and until such
director's successor has been elected and qualified.

A vacancy or vacancies in the Board shall be deemed to exist in
case of the death, resignation or removal of any director, or if the authorized
number of directors be increased, or if the shareholders fail, at any annual or
special meeting of shareholders at which any director or directors are elected,
to elect the full authorized number of directors to be voted for at that
meeting.

The Board may declare vacant the office of a director who has
been declared of unsound mind by an order of court or convicted of a felony.

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The shareholders may elect a director or directors at any time to
fill any vacancy or vacancies not filled by the directors.

No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of the director's term
of office.

SECTION 5. PLACE OF MEETING. Regular or special meetings
of the Board shall be held at any place within or without the State of
California which has been designated from time to time by the Board. In the
absence of such designation, regular meetings shall be held at the principal
executive office of the corporation.

SECTION 6. REGULAR MEETINGS. Immediately following each
annual meeting of shareholders the Board shall hold a regular meeting for the
purpose of organization, election of officers and the transaction of other
business.

Other regular meetings of the Board shall be held without call on
such dates and at such times as may be fixed by the Board. Call and notice of
all regular meetings of the Board are hereby dispensed with.

SECTION 7. SPECIAL MEETINGS. Special meetings of the Board
for any purpose or purposes may be called at any time by the Chairman of the
Board, the President, any Vice President, the Secretary or by any two
directors.

Special meetings of the Board shall be held upon four days'
written notice or forty-eight hours' notice given personally or by telephone,
including voice messaging system or other system or technology designed to
record and communicate messages, telegraph, facsimile, electronic mail or other
electronic means. Any such notice shall be addressed or delivered to each
director at such director's address as it is shown upon the records of the
corporation or as may have been given to the corporation by the director for
purposes of notice or, if such address is not shown on such records or is not
readily ascertainable, at the place in which the meetings of the directors are
regularly held.

Notice by mail shall be deemed to have been given at the time a
written notice is deposited in the United States mails, postage prepaid. Any
other written notice shall be deemed to have been given at the time it is
personally delivered to the recipient or is delivered to a common carrier for
transmission, or actually transmitted by the person giving the notice by
electronic means, to the recipient. Oral notice shall be deemed to have been
given at the time it is communicated, in person or by telephone or wireless, to
the recipient or to a person at the office of the recipient who the person
giving the notice has reason to believe will promptly communicate it to the
recipient.

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SECTION 8. QUORUM. A majority of the authorized number of
directors constitutes a quorum of the Board for the transaction of business,
except to adjourn as provided in Section 11 of this Article. Every act or
decision done or made by a majority of the directors present at a meeting duly
held at which a quorum is present shall be regarded as the act of the Board,
unless a greater number be required by law or by the Articles. A meeting at
which a quorum is initially present may continue to transact business
notwithstanding the withdrawal of directors, if any action taken is approved by
at least a majority of the required quorum for such meeting.

SECTION 9. PARTICIPATION IN MEETINGS BY CONFERENCE
TELEPHONE. Members of the Board may participate in a meeting through use of
conference telephone, electronic video screen communication or other
communications equipment. Participation in a meeting pursuant to this Section
9 constitutes presence in person at that meeting if all of the following apply:

(A) Each member participating in the meeting can communicate
with all of the other members concurrently;

(B) Each member is provided the means of participating in all
matters before the Board, including the capacity to propose, or to
interpose an objection, to a specific action to be taken by the
corporation;

(i) A person communicating by telephone, electronic
video screen, or other communications equipment is a director
entitled to participate in the Board meeting; and

(ii) All statements, questions, actions, or votes
were made by that director and not by another person not
permitted to participate as a director.

SECTION 10. WAIVER OF NOTICE. Notice of a meeting need not
be given to any director who signs a waiver of notice or a consent to holding
the meeting or an approval of the minutes thereof, whether before or after the
meeting, or who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to such director. All such waivers, consents
and approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.

SECTION 11. ADJOURNMENT. A majority of the directors
present, whether or not a quorum is present, may adjourn any directors' meeting
to another time and place. Notice of the time and place of holding an
adjourned meeting need not be given to absent directors if the time and place
be fixed at the meeting adjourned, except as provided in the next sentence. If
the

12
<PAGE> 17
meeting is adjourned for more than 24 hours, notice of any adjournment to
another time or place shall be given prior to the time of the adjourned meeting
to the directors who were not present at the time of the adjournment.

SECTION 12. FEES AND COMPENSATION. Directors and member of
committees may receive such compensation, if any, for their services, and such
reimbursement for expenses, as may be fixed or determined by the Board. This
section shall not preclude any director from serving the corporation as an
officer, agent, employee, or in any other capacity, and receiving compensation
for those services.

SECTION 13. ACTION WITHOUT MEETING. Any action required or
permitted to be taken by the Board may be taken without a meeting if all
members of the Board shall individually or collectively consent in writing to
such action. Such consent or consents shall have the same effect as a unanimous
vote of the Board and shall be filed with the minutes of the proceedings of the
Board.

SECTION 14. RIGHTS OF INSPECTION. Every director shall have
the absolute right at any reasonable time to inspect and copy all books,
records and documents of every kind and to inspect the physical properties of
the corporation and also of its subsidiary corporations, domestic or foreign.
Such inspection by a director may be made in person or by agent or attorney and
includes the right to copy and obtain extracts.

SECTION 15. COMMITTEES. The Board may appoint one or more
committees, each consisting of two or more directors, and delegate to such
committees any of the authority of the Board except with respect to:

(a) The approval of any action for which the General
Corporation Law also requires shareholders' approval or approval of the
outstanding shares;

(b) The filling of vacancies in the Board or on any
committee;

(d) The amendment or repeal of bylaws or the adoption of new
bylaws;

(e) The amendment or repeal of any resolution of the Board
which by its express terms is not so amendable or repealable;

(f) A distribution to the shareholders of the corporation
except at a rate or in a periodic amount or within a price range
determined by the Board; or

13
<PAGE> 18
(g) The appointment of other committees of the Board or the
members thereof.

Any such committee must be designated, and the members or
alternate members thereof appointed, by resolution adopted by a majority of the
authorized number of directors and any such committee may be designated an
Executive Committee or by such other name as the Board shall specify.
Alternate members of a committee may replace any absent member at any meeting
of the committee. The Board shall have the power to prescribe the manner in
which proceedings of any such committee shall be conducted. In the absence of
any such prescription, such committee shall have the power to prescribe the
manner in which its proceedings shall be conducted. Unless the Board or such
committee shall otherwise provide, the regular and special meetings and other
actions of any such committee shall be governed by the provisions of this
Article applicable to meetings and actions of the Board. Minutes shall be
kept of each of meeting of each committee.

ARTICLE IV. OFFICERS

SECTION 1. OFFICERS. The officers of the corporation shall
be a President, a Secretary and a Chief Financial Officer. The corporation may
also have, at the discretion of the Board, a Chairman of the Board, one or more
Vice-Presidents, one or more Assistant Secretaries, one or more Assistant Chief
Financial Officers, and such other officers as may be elected or appointed in
accordance with the provisions of Section 3 of this Article.

SECTION 2. ELECTION. The officers of the corporation,
except such officer as may be elected or appointed in accordance with the
provisions of Section 3 or Section 5 of this Article, shall be chosen annually
by, and shall serve at the pleasure of, the Board, and shall hold their
respective offices until their resignation, removal, or other disqualification
from service, or until their respective successors shall be elected.

SECTION 3. SUBORDINATE OFFICERS. The Board may elect, and
may empower the President to appoint, such other officers as the business of
the corporation may require, each of whom shall hold office for such period,
have such authority and perform such duties as are provided in these Bylaws or
as the Board may from time to time determine.

SECTION 4. REMOVAL AND RESIGNATION. Any officer may be
removed, either with or without cause, by the Board at any time or, except in
the case of an officer chosen by the Board, by any officer upon whom such power
of removal may be conferred by the Board. Any such removal shall be without
prejudice to the rights, if any, of the officer under any contract of
employment of the officer.

14
<PAGE> 19
Any officer may resign at any time by giving written notice to
the corporation, but without prejudice to the rights, if any, of the
corporation under any contract to which the officer is a party. Any such
resignation shall take effect at the date of the receipt of such notice or at
any later time specified therein and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.

SECTION 5. VACANCIES. A vacancy in any office because of
death, resignation, removal, disqualification or any other cause shall be
filled in the manner prescribed in these Bylaws for regular election or
appointment to such office.

SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the
Board, if there shall be such an officer, shall, if present, preside at all
meetings of the Board and exercise and perform such other powers and duties as
may be from time to time assigned by the Board.

SECTION 7. PRESIDENT. Subject to such powers, if any, as
may be given by the Board to the Chairman of the Board, if there be such an
officer, the President is the general manager and chief executive officer of
the corporation and has, subject to the control of the Board, general
supervision, direction and control of the business and officers of the
corporation. The President shall preside at all meetings of the shareholders
and, in the absence of the Chairman of the Board, or if there be none, at all
meetings of the Board. The President has the general powers and duties of
management usually vested in the office of president and general manager of a
corporation and such other powers and duties as may be prescribed by the Board.

SECTION 8. VICE PRESIDENTS. In the absence or disability
of the President, the Vice Presidents in order of their rank as fixed by the
Board or, if not ranked, the Vice President designated by the Board, shall
perform all the duties of the President and, when so acting, shall have all the
powers of, and be subject to all the restrictions upon, the President. The
Vice Presidents shall have such other powers and perform such other duties as
from time to time may be prescribed for them respectively by the Board.

SECTION 9. SECRETARY. The Secretary shall keep or cause to
be kept, at the principal executive office and such other place as the Board
may order, a book of minutes of all meetings of shareholders, the Board and its
committees, with the time and place of holding, whether regular or special, and
if special, how authorized, the notice thereof given, the names of those
present at Board and committee meetings, the number of shares present or
represented at shareholders' meetings, and the proceedings thereof. The
Secretary shall keep, or cause to be kept, a copy of the Bylaws of the
corporation at the principal

15
<PAGE> 20
executive office or business office in accordance with Section 213 of the
California General Corporation Law.

The Secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent or
registrar, if one be appointed, a share register, or a duplicate share
register, showing the names of the shareholders and their addresses, the number
and classes of shares held by each, the number and date of certificates issued
for the same, and the number and date of cancellation of every certificate
surrendered for cancellation.

The Secretary shall give, or cause to be given, notice of all
meetings of the shareholders and of the Board and any committees thereof
required by these Bylaws or by law to be given, shall keep the seal of the
corporation in safe custody, and shall have such other powers and perform such
other duties as may be prescribed by the Board.

SECTION 10. CHIEF FINANCIAL OFFICER. The Chief Financial
Officer, who may also be referred to as the Treasurer, is the chief financial
officer of the corporation and shall keep and maintain, or cause to be kept and
maintained, adequate and correct accounts of the properties and business
transactions of the corporation, and shall send or cause to be sent to the
shareholders of the corporation such financial statements and reports as are by
law or these Bylaws required to be sent to them. The books of account shall at
all times be open to inspection by any director.

The Treasurer shall deposit all moneys and other valuables in the
name and to the credit of the corporation with such depositaries as may be
designated by the Board. The Treasurer shall disburse the funds of the
corporation as may be ordered by the Board, shall render to the President and
the directors, whenever they request it, an account of all transactions as
Treasurer and of the financial condition of the corporation, and shall have
such other powers and perform such other duties as may be prescribed by the
Board.

SECTION 11. COMPENSATION. Salaries of officers and other
shareholders employed by the corporation shall be fixed from time to time by
the Board or established under employment agreements approved by the Board. No
officer shall be prevented from receiving this salary because he or she is also
a director of the corporation.

ARTICLE V. OTHER PROVISIONS

SECTION 1. INSPECTION OF CORPORATE RECORDS.

(a) A shareholder or shareholders holding at least five
percent in the aggregate of the outstanding voting shares of the

16
<PAGE> 21
corporation or who hold at least one percent of those voting shares and have
filed a Schedule 14A with the United States Securities and Exchange Commission
relating to the election of directors of the corporation shall have an absolute
right to do either or both of the following:

(i) Inspect and copy the record of shareholders' names and
addresses and shareholdings during usual business hours upon five business
days' prior written demand upon the corporation; or

(ii) Obtain from the transfer agent, if any, for the
corporation, upon five business days' prior written demand and upon the
tender of its usual charges for such a list (the amount of which charges
shall be stated to the shareholder by the transfer agent upon request), a
list of the shareholders' names and addresses who are entitled to vote for
the election of directors and their shareholdings, as of the most recent
record date for which it has been compiled or as of a date specified by
the shareholder subsequent to the date of demand.

(b) The record of shareholders shall also be open to
inspection and copying by any shareholder or holder of a voting trust
certificate at any time during usual business hours upon written demand on the
corporation, for a purpose reasonably related to such holder's interest as a
shareholder or holder of a voting trust certificate.

(c) The accounting books and records and minutes of
proceedings of the shareholders and the Board and committees of the Board shall
be open to inspection upon written demand on the corporation of any shareholder
or holder of a voting trust certificate at any reasonable time during usual
business hours, for a purpose reasonably related to such holder's interests as
a shareholder or as a holder of such voting trust certificate.

(d) Any inspection and copying under this Article may be
made in person or by agent or attorney.

SECTION 2. INSPECTION OF BYLAWS. The corporation shall
keep in its principal executive office in the State of California, or if its
principal executive office is not in such State at its principal business
office in such State, the original or a copy of these Bylaws as amended to
date, which shall be open to inspection by shareholders at all reasonable times
during office hours. If the principal executive office of the corporation is
located outside the State of California and the corporation has no principal
business office in such state, it shall upon the written request of any
shareholder furnish to such shareholder a copy of these Bylaws as amended to
date.

SECTION 3. ENDORSEMENT OF DOCUMENTS; CONTRACTS. Subject to
the provisions of applicable law, any note, mortgage, evidence of indebtedness,
contract, share certificate, conveyance

17
<PAGE> 22
or other instrument in writing and any assignment or endorsements thereof
executed or entered into between the corporation and any other person, when
signed by the Chairman of the Board, the President or any Vice President and
the Secretary, any Assistant Secretary, the Treasurer or Chief Financial
Officer or any Assistant Treasurer or Assistant Chief Financial Officer of the
corporation is not invalidated as to the corporation by any lack of authority
of the signing officers in the absence of actual knowledge on the part of the
other person that the signing officers had no authority to execute the same.
Any such instruments may be signed by any other person or persons and in such
manner as from time to time shall be determined by the Board, and, unless so
authorized by the Board, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or amount.

SECTION 4. CERTIFICATES OF STOCK. Every holder of shares
of the corporation shall be entitled to have a certificate signed in the name
of the corporation by the Chairman of the Board, the President or a
Vice-President and by the Treasurer or Chief Financial Officer or an Assistant
Treasurer or Assistant Chief Financial Officer or the Secretary or an Assistant
Secretary, certifying the number of shares and the class or series or shares
owned by the shareholder. Any or all of the signatures on the certificate may
be facsimile. If any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if such
person were an officer, transfer agent or registrar at the date of issue.

Certificates for shares may be issued prior to full payment under
such restrictions and for such purposes as the Board may provide; provided,
however, that on any certificate issued to represent any partly paid shares,
the total amount of the consideration to be paid therefor and the amount paid
thereon shall be stated.

Except as provided in this section, no new certificate for shares
shall be issued in lieu of an old one unless the latter is surrendered and
cancelled at the same time. The Board may, however, if any certificate for
shares is alleged to have been lost, stolen or destroyed, authorize the
issuance of a new certificate in lieu thereof, and the corporation may require
that the corporation be given a bond or other adequate security sufficient to
indemnify it against any claim that may be made against it (including expense
or liability) on account of the alleged loss, theft or destruction of such
certificate or the issuance of such new certificate.

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<PAGE> 23
SECTION 5. REPRESENTATION OF SHARES OF OTHER CORPORATIONS.
The President or any other officer or officers authorized by the Board or the
President are each authorized to vote, represent and exercise on behalf of the
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of the corporation. The authority herein
granted may be exercised either by any such officer in person or by any other
person authorized so to do by proxy or power of attorney duly executed by said
officer.

SECTION 6. STOCK PURCHASE PLANS. The corporation may adopt
and carry out a stock purchase plan or agreement or stock option plan or
agreement providing for the issue and sale for such consideration as may be
fixed of its unissued shares, or of issued shares acquired or to be acquired,
to one or more of the employees or directors of the corporation or of a
subsidiary or to a trustee on their behalf and for the payment for such shares
in installments or at one time, and may provide for aiding any such persons in
paying for such shares by compensation for services rendered, promissory notes
or otherwise.

Any such stock purchase plan or agreement or stock option plan or
agreement may include, among other features, the fixing of eligibility for
participation therein, the class and price of shares to be issued or sold under
the plan or agreement, the number of shares which may be subscribed for, the
method of payment therefor, the reservation of title until full payment
therefor, the effect of the termination of employment, an option or obligation
on the part of the corporation to repurchase the shares upon termination of
employment, restrictions upon transfer of the shares, the time limits of and
termination of the plan, and any other matters, not in violation of applicable
law, as may be included in the plan as approved or authorized by the Board or
any committee of the Board.

SECTION 7. CONSTRUCTION AND DEFINITIONS. Unless the
context otherwise requires, the general provisions, rules of construction and
definitions contained in the General Provisions of the California Corporations
Code and in the California General Corporation Law shall govern the
construction of these Bylaws.

SECTION 8. AMENDMENTS. These Bylaws may be amended or
repealed either by the approval of the Board; or by the affirmative vote of the
holders entitled to exercise at least 66-2/3% of the voting power of the
corporation, voting together as a single class; provided, however, that after
the issuance of shares, a bylaw specifying or changing a fixed number of
directors or the maximum or minimum number or changing from a fixed to a
variable number of directors or vice versa may only be adopted by the
affirmative vote of the holders entitled to exercise at least 66-2/3% of the
voting power of the corporation, voting together as a single class, and a bylaw
reducing the fixed number or the minimum number of directors to a number less
than

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<PAGE> 24
five shall be subject to the provisions of Section 212(a) of the California
General Corporation Law.

SECTION 9. ANNUAL REPORT TO SHAREHOLDERS. The annual
report to shareholders referred to in Section 1501 of the California General
Corporation Law is expressly waived, but nothing herein shall be interpreted as
prohibiting the Board from issuing annual or other periodic reports to
shareholders.

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<PAGE> 25
CERTIFICATE OF SECRETARY
OF
INTERNATIONAL AIRCRAFT INVESTORS
(a California corporation)

I hereby certify that I am the duly elected and acting Secretary
of said corporation and that the foregoing Bylaws, comprising __ pages,
constitute the Bylaws of said corporation as duly adopted at a meeting of the
Board of Directors thereof held on

--------------------------------
Secretary

<PAGE> 1
EXHIBIT 4.2

AMENDED AND RESTATED AIRCRAFT LOAN AGREEMENT

THIS AMENDED AND RESTATED AIRCRAFT LOAN AGREEMENT ("Agreement"),
dated as of November 4, 1996, is entered into by and between SWA I Corporation,
a Nevada corporation ("Debtor"), and Wells Fargo Bank, N.A. ("Bank"), successor
by merger to First Interstate Bank of California ("FICAL") with reference to
the following facts:

This Agreement amends and restates, in its entirety, that
certain Aircraft Loan Agreement dated as of December 22, 1995 by and between
Debtors and FICAL, as amended by a Maturity Date Extension Agreement, dated as
of July 3, 1996 and a Continued Extension Maturity Date Agreement, dated as of
August 5, 1996 (collectively, the "Original Agreement"). It is the intention
of the parties hereto to effect certain amendments to the Original Agreement as
of the Closing Date as expressly reflected herein. The Original Agreement
otherwise continues in full force and effect from the date thereof to the
Closing Date, and at all times on and after the Closing Date as restated
hereby. Any reference to the Original Agreement in any document executed in
connection with the Original Agreement is hereby deemed to be a reference to
this Agreement.

NOW, THEREFORE, it is hereby agreed by and between the
parties hereto, as follows:

SECTION 1. DEFINITIONS

1.1 Defined Terms. As used in this Agreement the following
terms shall have the following defined meanings, unless the context otherwise
requires (such terms to be equally applicable to both singular and plural forms
of the terms defined):

"Agreement", "hereof", "hereto", "hereunder" and words of similar
import shall mean this Amended and Restated Aircraft Loan Agreement, as the
same may from time to time be amended, modified or supplemented.

"Aircraft" shall mean that certain (1) Boeing 737-300 aircraft,
Emanufacturer's serial number 23254, United States Nationality and Registration
Number N688SW, together with two (2) engines, manufacturer's serial numbers
721137 and 721178 respectively, together with all avionics and all other
accessories, and all additions, modifications and attachments to, and all
replacements and substitutions for any of the foregoing.

"Assignment of Rents" shall mean that certain Assignment of Rents and
Interest in Lease dated as of December 22, 1995 made by Borrower in favor of
FICAL, as amended.
<PAGE> 2
"Bank" shall mean Wells Fargo Bank, N.A., successor by merger to First
Interstate Bank of California.

"Business Day" shall mean a day other than a Saturday, Sunday or legal
holiday under the laws of the State of California and the State of Texas.

"Closing Date" shall mean the date on which the Loan is made pursuant
hereto.

"Code" shall mean the Uniform Commercial Code as from time to time in
effect in any applicable jurisdiction.

"Collateral" shall mean the Aircraft, the Lease and the Proceeds
thereof.

"Commitment" shall mean the obligation of Bank to make the Loan in the
aggregate principal amount specified in Section 2.1 of this Agreement.

"Consolidated Tangible Net Worth" shall mean, as of the date of any
determination, the total of shareholders' equity (including capital stock,
additional paid-in capital and retained earnings after deducting treasury
stock), less the sum of the total amount of goodwill, organization expenses,
unamortized debt issue costs (determined on an after tax basis), deferred
assets other than prepaid insurance and prepaid taxes, the excess of cost of
shares acquired over book value of related assets, surplus resulting from any
revaluation write-up of assets subsequent to December 31, 1994, if applicable,
and such other assets as are properly classified as intangible assets, all
determined in accordance with generally accepted accounting principles in the
United States consolidating the Guarantor or Debtor, as applicable, and its
Subsidiaries.

"Cost" shall mean, with respect to the Aircraft (and all parts
thereof), the purchase price therefor paid by Debtor in connection with the
sale of the Aircraft by ILFC to Debtor, which amount shall be set forth in the
Supplement.

"Debtor" as defined in the introductory paragraph to this Agreement.

"Default" shall mean any event which with notice, lapse of time,
and/or any further condition, event or act would constitute an Event of
Default.

"Event of Default" as defined in Section 7 of this Agreement.

"Event of Loss" shall mean, with respect to the Aircraft, the actual
or constructive loss thereof or the use thereof, due to theft, destruction,
damage beyond repair or damage from any reason whatsoever, to an extent which
makes repair uneconomical, or rendition thereof unfit for normal use, or the
condemnation, confiscation or seizure of, or requisition of title to or use of,
the Aircraft by any governmental authority or any other person, whether or not
acting under color of governmental authority.
<PAGE> 3
"FAA" shall mean the Federal Aviation Administration

"Guarantor" shall mean International Aircraft Investors, a California
corporation.

"Guaranty Agreement" shall mean a legally enforceable agreement
guaranteeing the payment and performance of any and all Obligations and
liabilities of Debtor to Bank arising from this Agreement and the Note, in form
and substance acceptable to Bank.

"Indebtedness" shall mean and includes all obligations of such Person
which in accordance with generally accepted accounting principles in the United
States shall be classified upon a balance sheet of such Person as liabilities
of such Person, and in any event shall include all:

(a) obligations of such Person for borrowed money or which have
been incurred in connection with the acquisition of property or assets
(other than security and other deposits on flight equipment);

(b) obligations secured by any Lien or other charge upon
property or assets owned by such Person even though such Person has not
assumed or become liable for the payment of such obligations;

(c) obligations created or arising under any conditional sale,
or other title retention agreement with respect to property acquired by
such Person, notwithstanding the fact that the rights and remedies of
the seller, lender or lessor under such agreement in the event of
default are limited to repossession or sale of property;

(d) capitalized rentals of such Person under any capitalized
lease;

(e) obligations evidenced by bonds, debentures, notes or other
similar instruments; and

(f) guaranties by such Person to the extent required pursuant
to the definition thereof.

"ILFC" shall mean International Lease Finance Corporation, the seller
of the Aircraft and Lease to Debtor.

"Installment Payment Date" shall mean, with respect to the Note, each
date on which a regular installment of principal and interest is due on the
Note.

"Junior Loan" shall mean a loan in the original principal amount of
$3,600,000 made by ILFC to Debtor on or about December 22, 1995 which is
secured by a junior security interest in the Aircraft and the Lease.
<PAGE> 4
"Late Charge Rate" shall mean a rate per annum equal to five percent
(5%) over the interest rate provided in the Note.

"Lease" shall mean that certain Amended and Restated Aircraft Lease
Agreement dated as of March 1, 1994, as amended, originally between ILFC as
lessor and Morris Air Corporation as lessee, which Lease shall be sold,
transferred and assigned to Debtor with the Aircraft on or before the Closing
Date.

"Liens" shall mean liens, mortgages, security interests, pledges,
title retentions, charges, financing statements or other encumbrances of any
kind whatsoever.

"Loan" shall mean the loan made by Bank pursuant to this Agreement.

"Loan Documents" shall mean the Agreement, the Note, the Mortgage, the
Guaranty Agreement and any other security agreements, financing statements,
subordination agreements, documents or agreements executed by or on behalf of
Debtor or any other Person or delivered to Bank with respect to this
Agreement.

"Mortgage" shall mean that certain Mortgage, Security Agreement and
Assignment of Rents dated as of December 22, 1995, and executed by Debtor in
favor of FICAL, as amended, which grants Bank a lien on the Aircraft as more
particularly provided therein.

"Note" shall mean the promissory note of Debtor evidencing the Loan,
as described in Section 2.2 of this Agreement.

"Obligations" shall mean (i) the aggregate unpaid principal amount of,
and accrued interest on, the Note; (ii) all other obligations and liabilities
of Debtor, now existing or hereafter incurred, under, arising out of or in
connection with this Agreement, the Mortgage or the Note.

"Person" an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
governmental authority or other entity of whatever nature.

"Prepaid Principal Amount" as defined in Section 2.3(a) of this
Agreement.

"Proceeds" shall have the meaning assigned to it in the Code, and in
any event, shall include, but not be limited to, (i) any and all proceeds of
any insurance, indemnity, warranty or guaranty payable to Debtor from time to
time with respect to the Aircraft; (ii) any and all payments (in any form
whatsoever) made or due and payable to Debtor from time to time in connection
with any requisition, confiscation, condemnation, seizure or forfeiture of the
Aircraft by any governmental body, authority, bureau or agency or any other
Person (whether or not acting under color of governmental authority); and (iii)
any and all other rents or profits or other amounts from time to time paid or
payable under the Lease or otherwise in connection with the Aircraft.
<PAGE> 5
"Subsidiary" shall mean, as of any date of determination thereof and
with respect to any Person, any corporation, partnership or joint venture,
whether now existing or hereafter organized or acquired: (a) in the case of a
corporation, of which a majority of the securities having ordinary voting power
for the election of directors or other governing body (other than securities
having such power only by reason of the happening of a contingency) are at the
time owned by such Person and/or one or more Subsidiaries of such Person, or
(b) in the case of a partnership or joint venture, of which such Person or a
Subsidiary of such Person is a general partner or joint venturer or of which a
majority of the partnership or other ownership interest are at the time owned
by such Person and/or one or more of its Subsidiaries.

1.2 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles.

SECTION 2. AMOUNT AND TERMS OF LOAN.

2.1 Commitment. Subject to the terms and conditions of this
Agreement, Bank agrees to make a Loan to Debtor in a principal amount not to
exceed $13,700,000.

2.2 The Note. The Loan shall be evidenced by a promissory note
of Debtor in form and amount acceptable to Bank. The Note shall (i) be dated
the date on which the Loan evidenced hereby is made; (ii) be for the term
specified in the Note; (iii) be stated to mature on January 3, 2003 which
installments will be payable on the dates and in the amounts set forth in the
Note; and (iv) bear interest on the unpaid principal amount thereof from the
date thereof through November 4, 1996 at the rate of 6.0% per annum, and
thereafter at the LIBOR Rate (as defined in the Note) plus 1.20% per annum (in
each event based upon a 360 day year and actual days elapsed) until such amount
shall become due and payable (whether at the stated maturity thereof, by
acceleration or otherwise). Any amount not paid when due under the Note shall
bear late charges thereon, calculated at the Late Charge Rate, from the due
date thereof until such amount shall be paid in full.

2.3 Prepayment in Event of Loss. In the event that the
Aircraft shall suffer an Event of Loss, Debtor shall pay, within 30 days after
the occurrence of such Event of Loss, an amount determined by adding the
following: (i) the unpaid principal amount of the Note (such amount shall be
herein referred to as the "Prepaid Principal Amount"), and (ii) by adding
interest accrued, with respect to the Prepaid Principal Amount, to the date of
such prepayment.

2.4 Increased Bank Costs.

(a) If (i) Regulation D of the Board of Governors of the
Federal Reserve System or (ii) after the date hereof, the adoption of
any applicable law, rule or regulation, or any change therein, or any
change in the interpretation or administration thereof by any
governmental authority, central bank or comparable
<PAGE> 6
agency charged with the interpretation or administration thereof, or
compliance by Bank with any request or directive (whether or not having
the force of law) of any such authority, central bank or comparable
agency,

(A) shall subject Bank to any tax, duty or other
charge with respect to the Note, or shall change the basis of
taxation of payments to Bank or any other amounts due under this
Agreement (except for changes in the rate of tax on the overall
net income of Bank imposed by any governmental authority of the
country in which Bank is incorporated);

(B) shall impose, modify or deem applicable any
reserve (including, without limitation, any reserve imposed by
the Board of Governors of the Federal Reserve System, special
deposit, assessment (including any assessment for insurance of
deposits) or similar requirement against assets of, deposits
with or for the account of, or credit extended by, Bank; or

and the result of any of the foregoing is to increase the cost to (or
to impose an additional cost on) Bank or to reduce the amount of any
sum received or receivable by Bank under this Agreement or under the
Note with respect thereto, then within 10 days after demand by Bank
(which demand shall be accompanied by a statement setting forth the
basis of such demand), the Debtor shall pay directly to Bank such
additional amount or amounts as will compensate Bank for such increased
cost or such reduction.

(b) If, after the date hereof, Bank shall determine that
the adoption, effectiveness or phase-in of any applicable law, rule,
guideline or regulation regarding capital adequacy, or any change
therein, or any change in the interpretation or administration thereof
by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or
compliance by Bank with any request or directive regarding capital
adequacy (whether or not having the force of law of any such authority,
central bank or comparable agency, has or would have the effect of
reducing the rate of return on the capital of Bank or any Person
controlling Bank as a consequence of its obligations hereunder to a
level below that which Bank or such controlling Person could have
achieved but for such adoption, change or compliance (taking into
consideration Bank's or such controlling Person's policies with respect
to capital adequacy), then from time to time, within 10 days after
demand by Bank (which demand shall be accompanied by a statement
setting forth the basis of such demand), the Debtor shall pay directly
to Bank such additional amount or amounts as with compensate Bank or
such controlling Person for such reduction.
<PAGE> 7
(c) Bank shall promptly notify Debtor of any event of
which it has knowledge, occurring after the date hereof, which will
entitle Bank to compensation pursuant to this Section 2.4.

2.5 Prepayment Losses. Debtor hereby agrees that upon demand
by Bank (which demand shall be accompanied by a statement setting forth the
basis for the calculations of the amount being claimed) Debtor will indemnify
Bank against any net loss or expense which Bank may sustain or incur
(including, without limitation, any net loss or expense incurred by reason of
the liquidation or reemployment of deposits or other funds acquired by such
Bank to fund or maintain the Loan, and any LIBOR breakage fees, as more
specifically set forth in the Note), as reasonably determined by Bank, as a
result of any payment, mandatory prepayment, or voluntary prepayment
(including, without limitation, any payment pursuant to Section 2.3 or any
payment resulting from acceleration) of the Loan.

2.6 Use of Proceeds. The proceeds of the Loan will be used by
Debtor solely to refinance its obligations to Bank under the Original
Agreement.

SECTION 3. CONDITIONS OF BORROWING.

3.1 Conditions of the Loan. Bank shall not be required to make
the Loan hereunder unless on the Closing Date of such Loan the following are
executed and/or delivered to Bank in form and substance satisfactory to Bank:

(a) Certificate of Incumbency of Debtor. Bank shall have
received a certificate of incumbency of Debtor signed by the Secretary
or Assistant Secretary of Debtor, which certificate shall certify the
names of the officers of Debtor authorized to execute any documents
hereunder or under any other related documents on behalf of Debtor,
together with specimen signatures of such officers, and Bank may
conclusively rely on such certificate until receipt of a further
certificate of the Secretary or Assistant Secretary of Debtor
cancelling or amending the prior certificate and submitting the
signatures of the officers named in such further certificate.

(b) Resolutions. Bank shall have received a certified
copy of all corporate proceedings of Debtor evidencing that all action
required to be taken in connection with the authorization, execution,
delivery and performance of this Agreement, the Mortgage and the Note
and the transactions contemplated hereby has been duly taken.

(c) Opinion of Debtor's Counsel. Bank shall have received
the written opinion addressed to it of counsel for Debtor satisfactory
to Bank as to matters contained in Section 4, Subsection 4.1 through
4.10, inclusive, and Subsection 4.13, and as to such other matters
incident to the transactions contemplated by this Agreement as Bank may
reasonably request.
<PAGE> 8
(d) Guaranty Agreement. Bank shall have received the
Guaranty Agreement duly executed and delivered by Guarantor, which
Guaranty Agreement shall be valid, binding and enforceable.

(e) Pledge Agreement. Bank shall have received a
Reaffirmation of Pledge Agreement executed by Guarantor in favor of
Bank and delivery of all of the issued and outstanding stock of Debtor.

(f) Secretary's Certificate of Guarantor. Bank shall have
received a certificate signed by the Secretary or Assistant Secretary
of Guarantor, certifying the corporate proceedings of Guarantor
authorizing the execution, delivery and performance by Guarantor of the
Guaranty Agreement and the pledge agreement and the transactions
contemplated thereby and certifying the name of the officers of
Guarantor authorized to execute the Guaranty Agreement and any related
documents together with their specimen signatures. Bank may
conclusively rely on such certificate until receipt of a further
certificate of the Secretary or Assistant Secretary of Guarantor
cancelling or amending a prior certificate and submitting the
signatures of the officers named in such further certificate.

(g) Opinion of Guarantor's Counsel. Bank shall have
received the written opinion addressed to it of counsel for Guarantor
satisfactory to Bank as to matters contained in Section 4 (a) - (f),
and (h) of the Guaranty Agreement and the pledge of all of Debtor's
issued and outstanding stock to Bank.

(h) Opinion of Special FAA Counsel. Bank shall have
received the written opinion addressed to it of Bank's special FAA
counsel, in form and substance satisfactory to Bank and its legal
counsel stating that on the Closing Date Bank shall have a legal, valid
and continuing first priority mortgage on and security interest in the
Aircraft, prior and superior to all other mortgages, liens and security
interests of any nature, and that all filings, recordings and other
actions necessary or desirable in order to establish, protect and
perfect such mortgage and security interest in favor of Bank as a
perfected first priority mortgage on and security interest in the
Aircraft shall have been duly effected.

(i) Note. The Note evidencing the Loan shall have been
duly executed and delivered to Bank.

(j) Put Agreement/Subordination Agreements. Bank shall
have received a put agreement and acknowledgements of subordination
executed by ILFC with respect to the Mortgage and the Assignment of
Rents in favor of Bank and in form and substance acceptable to Bank.

(k) Amendments to each of the Mortgage and the Assignment
of Lease shall have been executed by Borrower and delivered to Bank.
<PAGE> 9
(l) Insurance. Bank shall have received evidence
satisfactory to it that the Aircraft is insured in accordance with the
provisions of this Agreement and the Mortgage.

(m) Security Interest. All filings, recordings and other
actions deemed necessary or desirable by Bank in order to establish,
protect, preserve and perfect its mortgage on and security interest in
the Aircraft as a valid first perfected mortgage and security interest
shall have been duly effected, including, without limitation, the
filing of this Agreement with the FAA, and the filing of financing
statements with respect to the avionics, parts, the Lease and other
personal property Collateral, all in form and substance satisfactory to
Bank and all fees, taxes and other charges relating to such filings and
recordings shall have been paid by Debtor.

(n) Representations. (i) The representations and
warranties contained in this Agreement and any other Loan Documents
shall be true and correct in all respects on and as of the date of the
making of the Loan with the same effect as if made on and as of such
date; (ii) no Default or Event of Default shall be in existence on the
date of the making of the Loan or shall occur as a result of the Loan;
and (iii) the acceptance by Debtor of the Loan shall constitute a
representation by Debtor that the statements contained in clauses (i)
and (ii) above are true and correct on the date of the Loan.

(o) No Material Adverse Change. In the sole judgment of
Bank there shall have been no material adverse change in the financial
condition, business or operations of Debtor, Guarantor or ILFC from
June 30, 1996.

(p) Other Documents and Information. Bank shall have
received from Debtor, in form and substance satisfactory to Bank, such
other documents and information as Bank shall reasonably request.

(q) Legal Matters. All legal matters with respect to and
all legal documents executed in connection with the transactions
contemplated by this Agreement shall be satisfactory to counsel for
Bank.

SECTION 4. REPRESENTATIONS AND WARRANTIES.

In order to induce Bank to enter into this Agreement and to make the
Loan herein provided for, Debtor represents and warrants to Bank that:

4.1 Organization. Debtor is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada,
has the necessary authority and power to own the Aircraft and its other assets
and to transact the business in which it is engaged, and is duly qualified to
do business in each jurisdiction in which the conduct of its business or the
ownership of its assets requires such qualification.
<PAGE> 10
4.2 Citizenship. Debtor is a citizen of the United States
within the meaning of Section 101(b) of the Federal Aviation Act of 1958, as
amended.

4.3 Power and Authority. Debtor has full power, authority and
legal right to execute and deliver this Agreement and the Note, to perform its
obligations hereunder and thereunder, to borrow hereunder and to grant the
security interest created by the mortgage.

4.4 Consents and Permits. No consent of any other party
(including any stockholders, trustees or holders of indebtedness), and no
consent, license, approval or authorization of, exemption by, or registration
or declaration with, any governmental body, authority, bureau or agency is
required in connection with the execution, delivery or performance by Debtor of
this Agreement or the Note, or the validity or enforceability of this Agreement
or the Note, except recordation of this Agreement with the FAA, which shall
have been duly effected as of the Closing Date.

4.5 No Legal Bar. The execution, delivery and performance by
Debtor of this Agreement and the Note do not and will not violate any provision
of any applicable law or regulation or of any judgment, award, order, writ or
decree of any court or governmental instrumentality, will not violate any
provision of the charter or by-laws of Debtor and will not violate any
provision of or cause a default under any mortgage, indenture, contract,
agreement or other undertaking to which Debtor is a party or which purports to
be binding upon Debtor or upon any of its assets, and will not result in the
creation or imposition of any Lien on any of the assets of Debtor other than
the security interest intended to be created hereby.

4.6 No Defaults. Debtor is not in default, and no event or
condition exists which after the giving of notice or lapse of time or both
would constitute an event of default, under any mortgage, indenture, contract,
agreement, judgment or other undertaking to which Debtor is a party or which
purports to be binding upon Debtor or upon any of its assets, except for any
such default, event or condition which, individually or in the aggregate, would
not affect Debtor's ability to perform its obligations under the Agreement or
any such mortgage, indenture, contract, agreement, judgment or other
undertaking.

4.7 Enforceability. This Agreement and Mortgage have been duly
authorized, executed and delivered by Debtor and constitute legal, valid and
binding obligations of Debtor enforceable in accordance with their terms. When
executed and delivered, the Note shall have been duly authorized, executed and
delivered by Debtor and shall constitute a legal, valid and binding obligation
of Debtor enforceable in accordance with its terms.

4.8 No Litigation. There is no action, suit, investigation or
proceeding (whether or not purportedly on behalf of Debtor) pending or
threatened against or affecting Debtor or any of its assets (a) which involves
the Aircraft, the Lease or any of
<PAGE> 11
the transactions contemplated by this Agreement; or (b) which, if adversely
determined, could have an adverse effect upon the transactions contemplated by
this Agreement or a material adverse effect on the business, operations or
financial condition of Debtor.

4.9 Title to Aircraft. On the Closing Date Debtor shall have
good and marketable title to the Aircraft, subject to no Liens except the
security interest created by the mortgage in favor of Bank and a junior lien in
favor of ILFC.

4.10 Bank's Security Interest. On the Closing Date Bank shall
have a legal, valid and continuing first priority security interest in the
Aircraft and the Lease, prior and superior to all other Liens, desirable in
order to establish, protect and perfect such security interest in favor of Bank
as a perfected first priority security interest in the Aircraft and the Lease
will have been duly effected, and all filings, recordings or other actions
necessary or and all taxes, fees and other charges in connection therewith
shall have been duly paid.

4.11 Financial Condition of Debtor. The consolidated proforma
financial statements of Debtor dated as of the Closing Date heretofore
delivered to Bank are complete and correct, have been prepared in accordance
with generally accepted accounting principles consistently applied, and present
fairly the financial position of Debtor as at said date and the results of its
operations for the period ended on said date, and there has been no material
adverse change in the financial condition, business or operations of Debtor
since said date.

4.12 Taxes. Debtor has filed all Federal, state and local
income tax returns that are required to be filed, and has paid all taxes as
shown on said returns and all assessments received by it to the extent that
such taxes and assessments have become due, and Debtor does not have any
knowledge of any actual or proposed deficiency or additional assessment in
connection therewith. The charges, accruals and reserves on the books of
Debtor in respect of Federal, state and local taxes for all open years, and for
the current fiscal year, make adequate provision for all unpaid tax liabilities
for such periods.

4.13 Name Change. Within the previous six (6) years Debtor
has not changed its name, done business under any other names, changed its
chief place of business from its present location or merged or been the
surviving corporation of any merger.

4.14 Lease. The Lease is in full force and effect pursuant to
the terms thereof.

SECTION 5. COVENANTS.

Debtor covenants and agrees that from and after the date hereof and so
long as the Commitment or the Note is outstanding:
<PAGE> 12
5.1 Notices. Debtor will promptly give written notice to Bank
of (i) the occurrence of any Default or Event of Default; (ii) the occurrence
of any Event of Loss; (iii) the commencement or threat of any material
litigation or proceedings affecting Debtor or the Aircraft; and (iv) any
dispute between Debtor and any governmental regulatory body or other party that
involves the Aircraft or that might materially interfere with the normal
business operations of Debtor.

5.2 Laws; Obligations; Operations. Debtor will (i) duly
observe and conform to all requirements of any governmental authorities
relating to the conduct of its business, the Aircraft, and to its properties or
assets; (ii) maintain its existence as a legal entity and obtain and keep in
full force and effect all rights, franchises, licenses and permits which are
necessary to the proper conduct of its business; (iii) remain a citizen of the
United States within the meaning of Section 101(16) of the Federal Aviation Act
of 1958, as amended; (iv) obtain or cause to be obtained as promptly as
possible any governmental, administrative or agency approval and make any
filing or registration therewith which at the time shall be required with
respect to the performance of its obligations under this Agreement or the
operation of the Aircraft and its business; (v) cause the Aircraft to remain
duly registered, in its name, under the Federal Aviation Act of 1958, as
amended; (vi) maintain or cause to be maintained all records, logs and other
materials required by the FAA (or required by any other governmental authority
having jurisdiction with respect thereto) to be maintained in respect of the
Aircraft; and (vii) pay and perform all of its obligations and liabilities when
due, including, without limitation, all fees, taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits or
upon any of the Equipment or any other property belonging to it.

5.3 Inspection. Bank or its authorized representative may at
any reasonable time or times inspect the Aircraft and, following the occurrence
and during the continuation of an Event of Default, may at any reasonable time
or times inspect the books and records of Debtor.

5.4 Books. Debtor will keep proper books of record and account
in which full, true and correct entries in accordance with generally accepted
accounting principles will be made of all dealings or transactions in relation
to its business and activities.

5.5 Financial Information. Debtor will furnish or cause to be
furnished to Bank (a) as soon as available, but in any event not later than 120
days after the end of each fiscal year of Debtor, a consolidated and
consolidating balance sheet of Debtor as at the end of such fiscal year, and
consolidated statements of income and cash flows of Debtor for such fiscal
year, together with equivalent information for the prior fiscal year, all in
reasonable detail, prepared in accordance with generally accepted accounting
principles applied on a basis consistently maintained throughout the period
involved and audited by certified public accountants acceptable to Bank; (b) as
soon as available, but in any event not later than 45 days after the end of
each of the first three quarterly periods of each fiscal year of Debtor, a
consolidated and consolidating balance sheet of
<PAGE> 13
Debtor as at the end of such quarterly period and consolidated statements of
income and cash flows of Debtor for such quarterly period and for the portion
of the fiscal year then ended, together with equivalent information for the
prior comparable quarterly period, all in reasonable detail, prepared in
accordance with generally accepted accounting principles applied on a basis
consistently maintained throughout the period involved and certified by the
chief financial officer of Debtor; (c) (i) as soon as available, but in any
event not later than 120 days after the end of each fiscal year of Guarantor, a
consolidated and consolidating balance sheet of Guarantor as at the end of such
fiscal year, and consolidated statements of income and cash flows of Guarantor
for such fiscal year, all in reasonable detail, prepared in accordance with
generally accepted accounting principles applied on a basis consistently
maintained throughout the period involved and audited by certified public
accountants acceptable to Bank; and (ii) if applicable, Guarantor's Annual
Report under Section 13 or 15(d) of the Securities Exchange Act of 1934; (d)(i)
as soon as available, but in any event not later than 45 days after the end of
each of the first three quarterly periods of each fiscal year of Guarantor, a
consolidated balance sheet of Guarantor as at the end of such quarterly period
and consolidated statements of income and cash flows of Guarantor for such
quarterly period and for the portion of the fiscal year then ended, together
with equivalent information for the prior comparable quarterly period, all in
reasonable detail, prepared in accordance with generally accepted accounting
principles applied on a basis consistently maintained throughout the period
involved and certified by the chief financial officer of Guarantor, and (ii) if
applicable, Guarantor's Quarterly Report under Section 13 or 15(d) of the
Securities Exchange Act of 1934; (e) as soon as available, but in any event no
later than January 31 of each year a report showing all aircraft owned by
Guarantor, including type of aircraft, manufacture date, related leases and
lease maturity dates; (f) to be delivered with the reports required in
subsections a, b, (c)(i) and (d)(i), a certificate of Guarantor's treasurer,
(A) setting forth the calculations to determine Debtor's and Guarantor's actual
performance with respect to the financial covenants in Section 5.13, and (B)
certifying that no event of default or potential event of default has occurred
and is continuing with respect to Debtor's and Guarantor's obligations
hereunder, or if such an event has occurred or is continuing, describing the
default and the steps, if any, being taken to cure it; and (g) promptly, such
additional financial and other information as Bank may from time to time
reasonably request.

5.6 Further Assurances. Debtor will promptly, at any time and
from time to time, at its sole expense, execute and deliver to Bank such
further instruments and documents, and take such further action, as Bank may
from time to time reasonably request in order to further carry out the intent
and purpose of this Agreement and to establish and protect the rights,
interests and remedies created, or intended to be created, in favor of Bank
hereby, including, without limitation, the execution, delivery, recordation and
filing of financing statements and continuation statements. Debtor hereby
authorizes Bank, in such jurisdictions where such action is authorized by law,
to effect any such recordation or filing of financing statements without the
signature of Debtor thereto. Debtor will pay, or reimburse Bank for, any and
all fees, costs and expenses of whatever kind or nature incurred in connection
with the creation,
<PAGE> 14
preservation and protection of Bank's security interest in the Aircraft and the
Lease, including, without limitation, all fees and taxes in connection with the
recording or filing of instruments and documents in public offices, payments or
discharge of any taxes or Liens upon or in respect of the Aircraft, premiums
for insurance with respect to the Aircraft and all other fees, costs and
expenses in connection with protecting, maintaining or preserving the Aircraft
and Bank's interests therein, whether through judicial proceedings or
otherwise, or in connection with defending or prosecuting any actions, suits or
proceedings arising out of or related to the Aircraft or the Lease; and all
such amounts that are paid by Bank shall, until reimbursed by Debtor,
constitute Obligations of Debtor secured by the Collateral.

5.7 No Disposition of Collateral. Debtor will not sell,
convey, transfer, exchange, lease or otherwise relinquish possession or dispose
of any of the Collateral or attempt or offer to do any of the foregoing, unless
the proceeds of such sale or transfer are paid to Bank and are sufficient to
satisfy the Obligations in full.

5.8 No Liens. Debtor will not create, assume or suffer to
exist any Lien of any kind upon the Collateral except for the security interest
created by the Mortgages in favor of Bank and ILFC.

5.9 Debtor's Title; Bank's Security Interest. Debtor will
warrant and defend its good and marketable title to the Aircraft, and Bank's
first perfected priority security interest in the Collateral, against all
claims and demands whatsoever. If at any time any Person shall claim any
right or interest in the Aircraft, Debtor shall, at its expense, cause such
claim to be waived in writing or otherwise eliminated to Bank's satisfaction
within 30 days after such claim shall have first become known to Debtor.

5.10 No Changes in Debtor. Debtor will not and will cause
Guarantor not to (a) liquidate or dissolve; or (b) sell or otherwise dispose of
all or any substantial portion of its assets; or (c) change its name or the
form of organization of its business; or (d) without thirty (30) days prior
written notice to Lender change its chief executive office.

5.11 No Changes in Lease. There shall be no amendments or
changes to the Lease without prior written consent of the Bank, such consent
not to be unreasonably withheld.

5.12 Use of Aircraft; Maintenance; Identification. In the
event the Aircraft is no longer subject to the Lease:

(a) Debtor will not change its principal base from that
specified on the Supplement without the prior written consent of Bank.
Debtor hereby further agrees not to operate the Aircraft in any area
excluded from coverage by any insurance required by the terms of
Subsection 5.12 hereof.
<PAGE> 15
(b) Debtor will operate the Aircraft in a careful and
proper manner, will comply with and conform to all governmental laws,
rules and regulations relating thereto, and will cause the Aircraft and
all related equipment to be operated in compliance with the
requirements of the insurance policies required by Subsection 5.12
hereof, and in accordance with the manufacturer's or supplier's
instructions or manuals and only by competent and duly qualified
personnel.

(c) Debtor will, at its own expense, maintain, service,
repair, overhaul and test the Aircraft, and furnish all parts,
replacements, mechanisms, devices and servicing required therefor so
that the value, condition and operating efficiency thereof will at all
times be maintained and preserved, at a level which is the higher of,
(x) its value, condition and operating efficiency when delivered to
Debtor by the vendor, fair wear and tear excepted, or (y), the level
required by any governmental authority having jurisdiction with respect
thereto, and, in any case, the level necessary to enable the
airworthiness certification of the Aircraft to be maintained in good
standing at al times under the Federal Aviation Act of 1958, as
amended, or as shall be required by any and all applicable Federal
Aviation Administration Airworthiness Directives, Operators Letters and
Service Bulletins. All such repairs, parts, mechanisms, devices and
replacements shall immediately, without further act, become part of the
Aircraft and subject to the security interest created by this
Agreement. Debtor will not make or authorize any improvement, change,
addition or alteration to the Aircraft if such improvement, change,
addition or alteration will impair the originally intended function or
use of the Aircraft, impair the value of the Aircraft as it existed
immediately prior to such improvement, change, addition or alteration,
or violate any applicable governmental rule, regulation or standard.
Any part added to the Aircraft in connection with any improvement,
change, addition or alteration shall immediately, without further act
become part of the Aircraft and subject to the security interest
created by this Agreement.

(d) Debtor shall, at its expense, cause to be attached to
the Aircraft a notice satisfactory to Bank disclosing Bank's security
interest in the Aircraft.

5.13 Insurance.

(a) Third Party Comprehensive Aircraft and General
Liability Insurance and Insurance Against Loss or Damage to the
Aircraft. Debtor shall maintain or cause to be maintained at all times
on the Aircraft, at its sole expense, all-risk aircraft hull physical
damage (including, without limitation, ground, flight and taxiing
exposures, and engines while removed from the Aircraft) insurance and
third-party bodily injury (including death) and property damage
comprehensive aircraft liability (including, without limitation
products liability, passenger and cargo liability and contractual
liability) insurance in such
<PAGE> 16
amounts, against such risks, in such form and with such insurers as
shall be satisfactory to Bank; provided, that such insurance shall
include, without limitation, the following; (i) all-risk physical
damage insurance covering the Aircraft in an amount which shall not on
any date be less than the greater of the full replacement value of the
Aircraft or the outstanding principal balance of the Note, and which
shall name Bank as loss payee with losses adjusted on an agreed value
basis; (ii) comprehensive aircraft liability insurance in an amount
which shall not on any date be less than $20,000,000.00 and which shall
name Bank as an additional insured; (iii) war risk (including seizure,
nationalization confiscation and expropriation) insurance when
operating outside the continental United States and Canada; and (iv)
hijacking and acts of terrorism (including political and non- political
hijacking) insurance at all times. Any policies of insurance carried
in accordance with this Subsection 5.12(a) and any policies taken out
in substitution or replacement for any such policies shall (A) be
amended to name Bank as loss payee and as additional insured, (B)
provide that if such insurance is cancelled for any reason whatever, or
any substantial change is made in the coverage which adversely affects
the interest of Bank, or if such insurance is allowed to lapse for
nonpayment of premium, such cancellation, change or lapse shall not be
effective as to Bank until thirty days after receipt by Bank of written
notice from such insurers of such cancellation, change or lapse, (C)
provide that such insurers shall provide written notice to Bank at
least thirty days prior to the expiration or termination date of any
insurance carried and maintained pursuant to this Section 5.12(a), (D)
provide that in respect of the interest of Bank in such policies the
insurance shall not be invalidated by any action or inaction of Debtor
or any other Person, and shall insure Bank's interest regardless of any
breach or violation by Debtor or any other Person of any warranties,
declarations or conditions contained in such policies, (E) provide that
the insurers shall waive any rights of subrogation against Bank, (F) be
primary without right of contribution from any other insurance which
may be carried by Bank with respect to its interest in the Aircraft and
(G) provide that Bank shall have no obligation or liability for
premiums, commissions, assessments, warranties, representations or
calls in connection with such insurance. If Debtor shall fail to
maintain insurance as herein provided, Bank may at its option provide
such insurance and, in such event, Debtor shall, upon demand, reimburse
Bank for the cost thereof, together with interest on such amount at the
Late Charge Rate. The insurance as required under the Lease is
acceptable with respect to the above requirements.

(b) Certificate of Insurance. Prior to the Closing Date,
and on or prior to each policy renewal or replacement date, Debtor
shall furnish to Bank a certificate or other formal evidence
satisfactory to Bank that the insurance coverage required in this
Subsection 5.12 is in effect; provided, however, that nothing in this
Subsection 5.12 shall be deemed to obligate Bank to verify the
existence or adequacy of any insurance.
<PAGE> 17
5.14 Financial Covenants. (a) Debtor shall at all times
hereafter maintain a minimum Consolidated Tangible Net Worth of not less than
$10,000.00, and (b) Guarantor shall at all times hereafter maintain a minimum
Consolidated Tangible Net Worth of not less than $5,000,000 plus 50% of
cumulative net income (but without deduction for losses).

5.15 Indebtedness for Borrowed Money. Debtor shall not incur or
permit to exist any Indebtedness for borrowed money other than the Obligation,
subordinated debt in favor of ILFC which is the subject to the Subordination
Agreement referred to in Section 3.1(r) hereof and Indebtedness incurred in the
ordinary course of business not to exceed $200,000 under the Lease for the
Aircraft and as otherwise disclosed to Bank in writing prior to the Closing
Date.

SECTION 6. SECURITY INTEREST.

6.1 Grant of Security Interest. As collateral security for the
prompt and complete payment and performance when due of all the Obligations and
in order to induce Bank to enter into this Agreement and make the Loan in
accordance with the terms hereof and to extend other credit from time to time
to Debtor, whether under this Agreement or otherwise, Debtor hereby assigns,
conveys, mortgages, pledges, hypothecates and transfers to Bank, and hereby
grants to Bank a first priority security interest in, all Debtor's right, title
and interest in, to and under the Collateral.

6.2 Bank Appointed as Attorney-in-Fact.

(a) Debtor hereby irrevocably constitutes and appoints
Bank and any officer or agent thereof, with full power of substitution,
as its true and lawful attorney-in-fact with full irrevocable power and
authority in the place and stead of Debtor and in the name of Debtor or
in its own name, from time to time in Bank's discretion, for the
purpose of carrying out the terms of this Agreement or any other Loan
Document, to take any and all appropriate action and to execute any and
all documents and instruments which may be necessary or desirable to
accomplish the purposes of this Agreement. Debtor hereby ratifies all
that said attorney shall lawfully do or cause to be done by virtue
hereof. This power of attorney is a power coupled with an interest and
shall be irrevocable.

(b) The powers conferred on Bank hereunder are solely to
protect its interest in the Collateral and shall not impose any duty
upon it to exercise any such powers. Bank shall be accountable only
for amounts that it actually receives as a result of the exercise of
such powers and neither it nor any of its officers, directors,
employees or agents shall be responsible to Debtor for any act or
failure to act.
<PAGE> 18
SECTION 7. EVENTS OF DEFAULT.

The following events shall each constitute an event of default (herein
called "Event of Default") under this Agreement:

(a) Debtor shall fail to pay any Obligation within 3 days
after the same becomes due (whether at the stated maturity, by
acceleration or otherwise); or

(b) Any representation or warranty made by Debtor in this
Agreement, the Mortgage or in connection with the Loan, or by either
Debtor or Guarantor in any document, certificate or financial or other
statement now or hereafter furnished in connection with this Agreement,
the Mortgage or the Guaranty Agreement shall at any time prove to be
untrue or misleading in any material respect as of the time when made;
or

(c) Debtor shall fail to observe any covenant, condition
or agreement contained in Sections 2.3, 2.4, 4.1, 5.2, 5.8, 5.10, 5.11,
5.12(a) or 5.13 hereof; or

(d) Debtor shall fail to observe or perform any other
covenant, condition or agreement contained in this Agreement, and such
failure shall continue unremedied for a period of 15 days after the
earlier of (i) the date on which Debtor obtains, or should have
obtained, knowledge of such failure; or (ii) the date on which notice
thereof shall be given by Bank to Debtor; or

(e) Either Debtor or Guarantor shall (i) default in the
payment of any obligation to Bank or to any of its subsidiaries or
affiliates, whether such obligation is for borrowed money, under any
capitalized lease, or for the deferred purchase price of property
including interest thereon, beyond the period of grace, if any,
provided with respect thereto, or (ii) default in the performance or
observance of any other term, condition or agreement contained in any
such obligation or in any agreement relating thereto, if the effect of
such default is to cause, or permit the holder or holders of such
obligation (or a trustee on behalf of such holder or holders) to cause
such obligation to become due prior to its stated maturity or to
realize upon any collateral given as security therefor; or

(f) The institution by Debtor, Guarantor or ILFC of
proceedings to be adjudicated a bankrupt or insolvent, or the consent
by either of them to the institution of bankruptcy or insolvency
proceedings against it, or the commencement by either of them of a
voluntary proceeding or case under the federal bankruptcy laws, as now
or hereafter constituted, or any other applicable federal or state
bankruptcy, insolvency or other similar law, or the consent by either
of them to the filing of any such petition or to the appointment of or
taking possession by a receiver, liquidator, assignee, trustee,
custodian or sequestrator (or
<PAGE> 19
similar official) of either of them or of any substantial part of their
property, or the making by either of them of any assignment for the
benefit of creditors or the admission by either of them of their
inability to pay their debts generally as they become due or their
willingness to be adjudicated a bankrupt or the failure of either of
them generally to pay their debts as they become due or the taking of
corporate action by either of them in furtherance of any of the
foregoing; or

(g) The entry of a decree or order for relief by a court
having jurisdiction in respect of either Debtor, Guarantor or ILFC
adjudging either Debtor, Guarantor or ILFC a bankrupt or insolvent, or
approving as properly filed a petition seeking a reorganization,
arrangement, adjustment or composition of or in respect of Debtor,
Guarantor or ILFC in an involuntary proceeding or case under the
federal bankruptcy laws, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency or other similar
law, or appointing a receiver, liquidator, or assignee, custodian,
trustee or sequestrator (or similar official) of Debtor, Guarantor or
ILFC or of any substantial part of their property, or ordering the
winding-up or liquidation of their affairs, and the continuance of any
such decree or order unstayed and in effect for a period of 30 days; or

(h) Guarantor shall default upon or breach any covenant in
its Guaranty Agreement, or if its Guaranty Agreement shall cease to be
in full force and effect or shall be declared to be null and void, or
the validity or enforceability thereof shall be contested by Guarantor
or Guarantor shall deny that it has any further liability with respect
thereto; or

(i) ILFC shall default in the payment of any obligation in
excess of $10,000,000 owed to any party, or IAI shall default in the
payment of any obligation in excess of $500,000 owed to any party, in
each event whether such obligation is for borrowed money, under any
capitalized lease or for the deferred purchase price of property
including interest thereon, beyond the period of grace, if any,
provided with respect thereto; or

(j) Guarantor shall dissolve; or

(k) ILFC shall default under its purchase agreement or
subordination agreement with Bank; or

(l) ILFC shall dissolve; or

(m) An Event of Default shall occur under the Lease.
<PAGE> 20
SECTION 8. REMEDIES.

8.1 If an Event of Default specified in Subsections 7(f) or (g)
above shall occur, then, and in any such event, the principal amount of the
Note, together with accrued interest thereon and all other amounts owing under
or with respect to this Agreement shall become immediately due and payable
without any notice or other action by Bank and if any other Event of Default
shall occur and be continuing, then, and in any such event, Bank may, by notice
of default given to Debtor, declare the Note and all other amounts owing under
or with respect to this Agreement to be forthwith due and payable, whereupon
the principal amount of the Note, together with accrued interest thereon and
all other amounts owing under or with respect to this Agreement shall become
immediately due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived. During the
continuance of any Event of Default hereunder, Bank shall have the right to
pursue and enforce any of its rights and remedies hereunder.

8.2 If an Event of Default shall occur and be continuing, Bank
may exercise in addition to all other rights and remedies granted to it in this
Agreement and in any other instrument or agreement securing, evidencing or
relating to the Obligations, all rights and remedies of secured parties under
the Code or under any other applicable law. Without limiting the generality of
the foregoing, Debtor agrees that in any such event, Bank without demand of
performance or other demand, advertisement or notice of any kind (except the
notice specified below of time and place of public or private sale) to or upon
Debtor or any other Person (all and each of which demands, advertisements
and/or notices are hereby expressly waived), may forthwith collect, receive,
appropriate and realize upon the Collateral, or any part thereof, and/or may
forthwith sell, lease, assign, give option or options to purchase or otherwise
dispose of and deliver the Collateral (or contract to do so), or any part
thereof, in one or more parcels at public or private sale or sales, at any
exchange or broker's board or at any of Bank's offices or elsewhere at such
prices as it may deem best, for cash or on credit or for future delivery
without assumption of any credit risk. Bank shall have the right upon any such
public sale or sales, and, to the extent permitted by law, upon any such
private sale or sales, to purchase the whole or any part of the Collateral so
sold, free of any right or equity of redemption in Debtor, which right or
equity is hereby expressly released. Debtor further agrees, at Bank's request,
to assemble the Collateral, make it available to Bank at places which Bank
shall reasonably select, whether at Debtor's premises or elsewhere. Bank shall
apply the net proceeds of any such collection, recovery, receipt,
appropriation, realization or sale (after deducting all reasonable costs and
expenses of every kind incurred therein or incidental to the care, safekeeping
or otherwise of any or all of the Collateral or in any way relating to the
rights of Bank hereunder, including attorneys' fees and legal expenses) to the
payment in whole or in part of the Obligations, in such order as Bank may elect
and only after so applying such net proceeds and after the payment by Bank of
any other amount required by any provision of law (including Section
9-504(1)(c) of the Code), need Bank account for the surplus, if any, to
Debtor. To the extent permitted by applicable law, Debtor waives all
<PAGE> 21
claims, damages, and demands against Bank arising out of the repossession,
retention or sale of the Collateral. Debtor agrees that Bank need not give
more than 10 days' notice (which notification shall be deemed given when
mailed, postage prepaid, addressed to Debtor at its address set forth in
Section 9.2 hereof) of the time and place of any public sale or of the time
after which a private sale may take place and that such notice is reasonable
notification of such matters. Debtor shall be liable for any deficiency if the
proceeds of any sale or disposition of the Collateral are insufficient to pay
all amounts to which Bank is entitled.

8.3 Debtor agrees to pay all costs of Bank, including
attorneys' fees, incurred with respect to the collection of any of the
Obligations and the enforcement of any of its respective rights hereunder or
under any other Loan Document.

8.4 Debtor hereby waives presentment, demand, protest or any
notice (to the extent permitted by applicable law) of any kind in connection
with this Agreement or any Collateral.

SECTION 9. MISCELLANEOUS.

9.1 No Waiver; Cumulative Remedies. No failure or delay on the
part of Bank in exercising any right, remedy, power or privilege hereunder or
under the Note shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder or
thereunder preclude any other or further exercise thereof or the exercise of
any other right, remedy, power or privilege. No right or remedy in this
Agreement is intended to be exclusive but each shall be cumulative and in
addition to any other remedy referred to herein or otherwise available to Bank
at law or in equity; and the exercise by Bank of any one or more of such
remedies shall not preclude the simultaneous or later exercise by Bank of any
or all such other remedies. To the extent permitted by law, Debtor waives any
rights now or hereafter conferred by statute or otherwise which limit or modify
any of Bank's rights or remedies under this Agreement.

9.2 Notices. Any notice required or permissible under this
Agreement will be in writing. Notices will be delivered in person or sent by
fax, letter (mailed first class, postage prepaid), or by expedited delivery
addressed to the parties as set forth hereinbelow. In the case of a fax,
notice will be deemed received upon actual receipt (in the case of a fax
notice, the date of actual receipt will be deemed to be the date set forth on
the confirmation of receipt produced by the sender's fax machine immediately
after the fax is sent). In the case of a mailed letter, notice will be deemed
received on the 3rd day after mailing. In the case of a notice sent by
expedited delivery, notice will be deemed received on the date of delivery set
forth in the records of the Person which accomplished the delivery. If any
notice is sent by more than one of the above listed methods, notice will be
deemed received on the earliest possible date in accordance with the above
provisions. Notices will be sent to the parties at the following addresses:
<PAGE> 22
Bank: Wells Fargo Bank, N.A.
707 Wilshire Boulevard, 2818-164
Los Angeles, California 90017
Attention: Anthony Xinis

Telefacsimile Number: (213) 614-2569
Telephone Number: (213) 614-4745

Debtor: SWA I Corporation
1210 South Valley View, Suite 202
Las Vegas, Nevada 89102

Telefacsimile Number: (702) 880-3440
Telephone Number: (702) 880-1000

or to such other places and numbers as either party directs in writing.

9.3 Payment of Expenses and Taxes; Indemnity; Performance by
Bank of Debtor's Obligations.

(a) Debtor agrees, whether or not the transactions
contemplated by this Agreement shall be consummated, to pay (i) up to
the amount of $15,000, all costs and expenses of Bank in connection
with the negotiation, preparation, execution and delivery of this
Agreement, and the other documents relating hereto, including, without
limitation, the reasonable fees and disbursements of counsel to Bank;
(ii) all fees and taxes in connection with the recording of this
Agreement or any other document or instrument required hereby; and
(iii) all costs and expenses of Bank in connection with the enforcement
of this Agreement and the Note, including all legal fees and
disbursements arising in connection therewith. Debtor also agrees to
pay, and to indemnify and save Bank harmless from any delay in paying,
all taxes, including without limitation, sales, use, stamp and personal
property taxes (other than any corporate income, capital, franchise or
similar taxes payable by Bank with respect to the payments made to Bank
hereunder or thereunder) and all license, filing, and registration fees
and assessments and other charges, if any, which may be payable or
determined to be payable in connection with the execution, delivery and
performance of this Agreement or the Note or any modification thereof.

(b) Debtor hereby further agrees, whether or not the
transactions contemplated by this Agreement shall be consummated to
pay, indemnify, and hold Bank harmless from and against any and all
other liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, out-of-pocket costs, expenses or disbursements of any
kind or nature whatsoever arising with respect to or in connection with
the execution, delivery, enforcement, performance or
<PAGE> 23
administration of this Agreement and the Note (the foregoing being
referred to as the "indemnified liabilities"), provided, that Debtor
shall have no obligation hereunder with respect to indemnified
liabilities arising from the gross negligence or willful misconduct of
Bank.

(c) If Debtor fails to perform or comply with any of its
agreements contained herein and Bank shall itself perform or comply, or
otherwise cause performance or compliance, with such agreement, the
expenses of Bank incurred in connection with such performance or
compliance, together with interest thereon at the rate provided for in
the Note shall be payable by Debtor to Bank on demand and until such
payment shall constitute Obligations secured hereby.

9.4 Survival of Representations and Warranties. All
representations and warranties made in this Agreement and any certificates
delivered pursuant hereto or thereto shall survive the execution and deliver of
this Agreement and the making of the Loan hereunder, and the agreements
contained in Section 9.3 hereof shall survive payment of the Note.

9.5 Amendments; Waivers. No provision of this Agreement, the
Note, or any related agreements, may be amended or modified in any way, nor may
noncompliance therewith be waived, except pursuant to a written instrument
executed by Bank and Debtor. In the case of any waiver, Bank and Debtor shall
be restored to their former position and rights hereunder, under the
outstanding Note, and under any related agreements, and any Default or Event of
Default waived shall be deemed to be cured and not continuing, but no such
waiver shall in any way be, or be construed to be, a waiver of any other or
subsequent Default or Event of Default, or impair any right consequent thereon.

9.6 Counterparts. This Agreement may be executed by the
parties hereto on any number of separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute but one and the same instrument.

9.7 Headings. The headings of the Sections and paragraphs are
for convenience only, are not part of this Agreement and shall not be deemed to
effect the meaning or construction of any of the provisions hereof.

9.8 Successors or Assigns. This Agreement shall be binding
upon and inure to the benefit of Debtor and Bank and their respective
successors and assigns, except that Debtor may not assign or transfer its
rights hereunder or any interest herein without the prior written consent of
Bank.
<PAGE> 24
9.9 Merger Clause. This Agreement contains the full, final and
exclusive statement of the agreement between Bank and Debtor relating to the
transactions hereby contemplated.

9.10 Construction. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability shall not invalidate or render unenforceable such provision in
any other jurisdiction. To the extent permitted by law, Debtor hereby waives
any provision of law which renders any provision hereof prohibited or
unenforceable in any respect. This Agreement and the Note shall be governed
by, and construed and interpreted in accordance with, the laws of the State of
California.

9.11 ARBITRATION. Each party hereto acknowledges and agrees to
the arbitration provisions attached hereto as Exhibit "A", the terms of which
are incorporated herein.

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first above written.

SWA I CORPORATION

By: /s/ Richard O. Hammond
--------------------------------

Title: CFO
-----------------------------

WELLS FARGO BANK, N.A.

By: /s/ Anthony Xinis
--------------------------------

Title: Senior Vice President
-----------------------------
<PAGE> 25
Acknowledged and agreed:

INTERNATIONAL AIRCRAFT INVESTORS

By: /s/ Michael P. Grella
--------------------------------

Title: President
-----------------------------

<PAGE> 26
ARBITRATION:

(a) Arbitration. Upon the demand of any party, any Dispute shall be
resolved by binding arbitration (except as set forth in (e) below) in
accordance with the terms of this Agreement. A "Dispute" shall mean any
action, dispute, claim or controversy of any kind, whether in contract or tort,
statutory or common law, legal or equitable, now existing or hereafter arising
under or in connection with, or in any way pertaining to, this Agreement and
each other document, contract and instrument required hereby or now or
hereafter delivered to Bank in connection herewith (collectively, the
"Documents"), or any past, present or future extensions of credit and other
activities, transactions or obligations of any kind related directly or
indirectly to any of the Documents, including without limitation, any of the
foregoing arising in connection with the exercise of any self-help, ancillary
or other remedies pursuant to any of the Documents. Any party may by summary
proceedings bring any action in court to compel arbitration of a Dispute. Any
party who fails or refuses to submit to arbitration following a lawful demand
by any other party shall bear all costs and expenses incurred by such other
party in compelling arbitration of any Dispute.

(b) Governing Rules. Arbitration proceedings shall be administered
by the American Arbitration Association ("AAA") or such other administrator as
the parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States
Code), notwithstanding any conflicting choice of law provision in any of the
Documents. The arbitration shall be conducted at a location in California
selected by the AAA or other administrator. If there is any inconsistency
between the terms hereof and any such rules, the terms and procedures set forth
herein shall control. All statutes of limitation applicable to any Dispute
shall apply to any arbitration proceeding. All discovery activities shall be
expressly limited to matters directly relevant to the Dispute being arbitrated.
Judgment upon any award rendered in an arbitration may be entered in any court
having jurisdiction; provided however, that nothing contained herein shall be
deemed to be a waiver by any party that is a bank of the protections afforded
to it under 12 U.S.C. Section 91 or any similar applicable state law.

(c) No Waiver; Provisional Remedies, Self-Help and Foreclosure. No
provision hereof shall limit the right of any party to exercise self- help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary
remedies, including without limitation injunctive relief, sequestration,
attachment, garnishment or the appointment of a receiver, from a court of
competent jurisdiction before, after or during the pendency of any arbitration
or other proceeding. The exercise of any such remedy shall not waive the right
of any party to compel arbitration hereunder.
<PAGE> 27
(d) Arbitration Qualifications and Powers; Awards. Arbitrators must
be active members of the California State Bar or retired judges of the state or
federal judiciary of California, with expertise in the substantive law
applicable to the subject matter of the Dispute. Arbitrators are empowered to
resolve Disputes by summary rulings in response to motions filed prior to the
final arbitration hearing. Arbitrators (i) shall resolve all Disputes in
accordance with the substantive law of the state of California, (ii) may grant
any remedy or relief that a court of the state of California could order or
grant within the scope hereof and such ancillary relief as is necessary to make
effective any award, and (ii) shall have the power to award recovery of all
costs and fees, to impose sanctions and to take such other actions as they deem
necessary to the same extent a judge could pursuant to the Federal Rules of
Civil Procedure, the California Rules of Civil Procedure or other applicable
law. Any dispute in which the amount in controversy is $5,000,000 or less
shall be decided by a single arbitrator who shall not render an award of
greater than $5,000,000 (including damages, costs, fees and expenses). By
submission to a single arbitrator, each party expressly waives any right or
claim to recover more than $5,000,000. Any Dispute in which the amount in
controversy exceeds $5,000,000 shall be decided by majority vote of a panel of
three arbitrators; provided however that all three arbitrators must actively
participate in all hearings and deliberations.

(e) Judicial Review. Notwithstanding anything herein to the
contrary, in any arbitration in which the amount in controversy exceeds
$10,000,000, the arbitrators shall be required to make specific, written
findings of fact and conclusions of law. In such arbitrations (i) the
arbitrators shall not have the power to make any award which is not supported
by substantial evidence or which is based on legal error, (ii) an award shall
not be binding upon the parties unless the findings of fact are supported by
substantial evidence and the conclusions of law are not erroneous under the
substantive law of the state of California, and (iii) the parties shall have in
addition to the grounds referred to in the Federal Arbitration Act for
vacating, modifying or correcting an award the right to judicial review of (A)
whether the findings of fact rendered by the arbitrators are supported by
substantial evidence, and (B) whether the conclusions of law are erroneous
under the substantive law of the state of California. Judgment confirming an
award in such a proceeding may be entered only if a court determines the award
is supported by substantial evidence and not based on legal error under the
substantive law of the state of California.

(f) Miscellaneous. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose
the existence, content or results thereof, except for disclosures of
information by a party required in the ordinary course of its business, by
applicable law or regulation, or to the extent necessary to exercise any
judicial review rights set forth herein. If more than one agreement for
arbitration by or between the parties potentially applies to a Dispute, the
arbitration provision most directly related to the Documents or the subject
matter
<PAGE> 28
of the Dispute shall control. This Agreement may be amended or modified only
in writing signed by Bank and Borrower. If any provision of this Agreement
shall be held to be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or any
remaining provisions of this Agreement. This arbitration provision shall
survive termination, amendment or expiration of any of the Documents or any
relationship between the parties.

IN WITNESS WHEREOF, this Addendum has been executed as of the same date
as the Agreement.

SWA I CORPORATION

By /s/ Richard O. Hammond
--------------------------------

Its CFO
-------------------------------

<PAGE> 1

EXHIBIT 4.3

SECURED PROMISSORY NOTE

U.S. $13,700,000 Los Angeles, California, U.S.A.
November 4, 1996

1. Borrower's Promise to Pay. FOR VALUE RECEIVED, the
undersigned, SWA I CORPORATION, a Nevada corporation ("Borrower"), promises to
pay to the order of WELLS FARGO BANK, N.A. ("Lender") at 707 Wilshire
Boulevard, Los Angeles, California 90017, or such other place as Lender from
time to time may designate, the principal sum of Thirteen Million Seven Hundred
Thousand Dollars ($13,700,000) together with interest on unpaid principal from
the Closing Date at the Contract Rate, with principal and interest payable as
provided below in lawful money of the United States.

2. Definitions. Capitalized terms in this secured
Promissory Note ("Note") that are not defined when first used have the meanings
set forth below:

(a) Closing Date. The Closing Date is November
4, 1996.

(b) Contract Rate. The Contract Rate 6.0% is
until November 4, 1996, on which date it shall change to the LIBOR Rate plus
1.20% per annum. Default Rate. The Default Rate is a rate of interest equal
to five percent (5.00%) per annum to be added to the Contract Rate in
accordance with the provisions of Section 8 of this Note.

(d) Late Charge. The Late Charge is an amount
equal to five percent (5%) of any delinquent Payment.

(e) Libor Rate. The LIBOR Rate shall be the
three-month rate of interest per annum at which Lender is offered Dollar
deposits in the Interbank Eurodollar market at about 11:00 a.m. San Francisco
time, three days prior to the Initial Payment Date and then each Quarterly
Payment Date thereafter, for delivery of funds on such Initial Payment Date or
Quarterly Payment Date in an amount approximately equal to the outstanding
amount of the Loan.

(f) Loan. The Loan is the loan from Lender to
Borrower evidenced by this Note.

(g) Loan Agreement. That certain Amended and
Restated Aircraft Loan Agreement dated as of even date herewith between
Borrower and Bank.
<PAGE> 2
(h) Maturity Date. The Maturity Date is January
3, 2003.

(i) Mortgage. The Mortgage is that certain
Mortgage, Security Agreement and Assignment of Rents dated as of December 22,
1995, as amended, encumbering that certain Boeing 737-300 aircraft bearing
manufacturer's serial number 23254.

(j) Quarterly Payment. Each Quarterly Payment of
principal and interest is in an amount equal to $445,000, subject to Section
3.1 below.

(k) Quarterly Payment Date. The Quarterly
Payment Dates are each January 3, April 3, July 3 and October 3.

(l) Quarterly Period. Each Quarterly Period
shall commence on a Quarterly Payment Date and end on the day immediately
proceeding the next Quarterly Payment Date.

3. Payment of Principal and Interest. Principal and
interest shall be payable in accordance with the following provisions:

3.1 Installments of Principal and
Interest. Commencing on the Initial Payment Date and then on
each Quarterly Payment Date thereafter, Borrower shall pay to
Lender a combined installment of principal and interest in the
amount of the Quarterly Payment which shall be applied first
to accrued and unpaid interest and then to principal;
provided, however, the amount of each Quarterly Payment to be
applied to principal shall be not less than $200,000, and
Borrower shall be required to pay the shortfall, if any, on
the applicable Quarterly Payment Date.

3.2 Payment at Maturity. The entire
unpaid principal balance of this Note and all accrued but
unpaid interest under this Note shall be due and payable on
the Maturity Date.

4. Calculation of Interest; Application of Payments.
Interest shall be calculated on the basis of a 360-day year and actual days
elapsed. All payments under this Note shall be credited first to costs and
expenses, then to accrued interest then due and thereafter to unpaid principal.

5. Prepayment. This Note may be prepaid in whole or in
part at any time, subject to the payment of any amounts which may be owing
pursuant to Section 2.5 of the Loan Agreement and this Section. Borrower
agrees to indemnify and hold Bank free from any loss or reasonable expense
(including, without limitation, any loss or reasonable expense incurred by
reason of the liquidation or redeployment of deposits or other funds acquired
by Bank to fund or maintain the Loan) which Bank may incur as a result of (a) a
default by Borrower in payment when due of the principal amount or
<PAGE> 3
interest in the Loan, or (b) any prepayment (whether mandatory, upon demand by
Bank or otherwise) prior to the end of any Quarterly Period. At the election
of Bank such losses shall be conclusively deemed to consist of any amount equal
to the sum of:

i) The interest that would have been received from
Borrower on the amounts to be redeployed during the Quarterly
Period (or remaining portion thereof) in question had Borrower
not failed to repay or prepaid such funds, less

ii) the return which Bank could have obtained at a place
such funds are on deposit in the interbank dollar market
selected by Bank in its sole discretion on the date of such
failure to repay or prepayment or and such funds had remained
on deposit until the end of the relevant Quarterly Period.

Borrower acknowledges that prepayment of such amount will result in Bank
incurring additional costs, expenses and/or liabilities, and that it is
difficult to ascertain the full extent of such costs, expenses and/or
liabilities. Borrower, therefore, agrees to pay the above-described prepayment
fee and agrees that said amount represents a reasonable estimate of the
prepayment costs, expenses and/or liabilities of Bank. Concurrently with any
prepayment of principal, Borrower shall notify Lender in writing that Borrower
is making a prepayment in an amount specified in such written notice.

6. Acceleration Upon Certain Transfers. The Mortgage
and the Loan Agreement contains provisions allowing Lender to accelerate the
maturity of this Note, among other circumstances, upon sale, transfer or
further encumbrance of the aircraft described in the Mortgage.

7. Default. If any payment under this Note (whether of
principal or interest or both) is not paid within three (3) days after the date
on which the payment is due (irrespective of whether Borrower has received any
notice of such nonpayment) or if Borrower fails to perform fully and when due
any other covenant or obligation of Borrower under this Note, or if an "Event
of Default" shall have occurred under the Mortgage or the Loan Agreement,
Borrower shall be in default hereunder and Lender may elect, without any
further notice or demand to Borrower, to declare all principal and accrued but
unpaid interest under this Note immediately due and payable. Any failure of
Lender to make such election following a default or defaults shall not
constitute a waiver of Lender's rights to make the election in the event of any
subsequent default. Notwithstanding any provisions in this Note to the
contrary, any principal, accrued interest, late payment charges and other
amounts which are payable under this Note, the Mortgage, the Loan Agreement or
any other instrument, agreement or document executed by Borrower in connection
with the Loan and which remain unpaid on the Maturity Date or any acceleration
of this Note shall thereafter bear interest, at the Default Rate. Borrower
expressly acknowledges and agrees that the accrual of interest at the Default
Rate is reasonable under the circumstances existing on the date of this

3
<PAGE> 4
Note, that it would be extremely difficult and impractical to fix Lender's
actual damages arising out of any failure to pay the outstanding indebtedness
of this Note upon the Maturity Date or upon any acceleration of this Note and
that interest accrued at the Default Rate shall be presumed to be the actual
amount of such damages incurred by Lender. Upon Borrower's default under this
Note, Lender, at its option, shall have the right to apply all payments made by
Borrower in connection with the Loan to principal, accrued interest, late
payment charges and other amounts which are payable under this Note, the
Mortgage, the Loan Agreement, or any other instrument, agreement or document
executed by Borrower in connection with the Loan in such order and amounts as
Lender may determine in its sole and absolute discretion.

8. Late Payment Charge. If any payment under this Note
(whether of principal or interest or both and including the payment due on the
Maturity Date or upon any acceleration of this Note) is not paid within three
(3) days after the date on which the payment is due, Borrower shall pay to
Lender, in addition to the delinquent payment and without any requirement of
notice or demand by Lender, a late payment charge equal to the Late Charge.
Borrower expressly acknowledges and agrees that the foregoing late payment
charge provision is reasonable under the circumstances existing on the date of
this Note, that it would be extremely difficult and impractical to fix Lender's
actual damages arising out of any late payment and that the foregoing late
payment charge shall be presumed to be the actual amount of such damages
incurred by Lender. No provision in this Note (including, without limitation,
the provisions for a late payment charge) shall be construed as in any way
excusing Borrower from its obligation to make each payment under this Note
promptly when due.

9. Costs of Collection. Borrower and all endorsers
jointly and severally promise to pay (a) all costs and expenses of collection,
including, without limitation, attorneys' fees, in the event this Note or any
portion of this Note is placed in the hands of attorneys for collection and
such collection is effected without suit; (b) attorneys' fees, as determined
by the court or by arbitration, and all other costs, expenses and fees incurred
by Lender in the event suit or arbitration is instituted to collect this Note
or any portion of this Note; and (c) all costs and expenses, including, without
limitation, attorneys' fees incurred by Lender in connection with any
bankruptcy, insolvency or reorganization proceeding or receivership involving
Borrower or any affiliate of Borrower, including, without limitation,
attorneys' fees incurred in making any appearances in any such proceeding or in
seeking relief from any stay or injunction issued in or arising out of any such
proceeding.

10. Arbitration. Borrower acknowledges and agrees to the
arbitration provisions attached to the Loan Agreement as Exhibit "A", the terms
of which are incorporated herein.

11. Offsets. No indebtedness evidenced by this Note
shall be deemed to have been offset or shall be offset or compensated by all or
part of any claim, cause of action, counterclaim or cross-claim, whether
liquidated or unliquidated, which

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<PAGE> 5
Borrower now or hereafter may have or claim to have against Lender.
Furthermore, in respect to the present indebtedness of, or any future
indebtedness incurred by, Borrower to Lender, Borrower waives, to the fullest
extent permitted by law, the benefits of any applicable law, regulation or
procedure which substantially provides that, where cross-demands for money have
existed between persons at any point in time when neither demand was barred by
the applicable statute of limitations, and an action is thereafter commenced by
one such person, the other may assert in his answer the defense of payment in
that the two demands are compensated so far as they equal each other,
notwithstanding that an independent action asserting the claim would at the
time of filing the answer be barred by the applicable statute of limitations.

12. Certain Waivers. Borrower and endorsers jointly and
severally waive diligence, grace, demand, presentment for payment, exhibitions
of this Note, protest, notice of protest, notice of dishonor, notice of demand,
notice of nonpayment and any and all exemption rights against the indebtedness
evidenced by his Note; and agree to any and all extensions or renewals from
time to time without notice and to any partial payments of this Note made
before or after maturity and that no such extension, renewal or partial payment
shall release any one or all of them from the obligations of payment of this
Note or any installment of this Note; and consent to offsets of any sums owned
to any one or all of them by Lender at any time.

13. Loss, Theft, Destruction or Mutilation of Note. In
the event of the loss, theft or destruction of this Note, upon Borrower's
receipt of a reasonably satisfactory indemnification agreement executed in
favor of Borrower by the party who held this Note immediately prior to its
loss, theft or destruction, or in the event of the mutilation of this Note,
upon Lender's surrender to Borrower of the mutilated Note, Borrower shall
execute and deliver to such party or Lender, as the case may be, a new
promissory note in form and content identical to this Note in lieu of the lost,
stolen, destroyed or mutilated Note.

14. Notices. The provisions of the Mortgage and the Loan
Agreement concerning the giving and receipt of notices shall apply to any
notice or other communications given under this Note.

15. Obligations Joint and Several. If Borrower consists
of more than one person or entity, each shall be jointly and severally liable
for the performance of each of the obligations of Borrower to Lender hereunder.

16. Construction of Note. Captions in this Note are
included solely for convenience and are not to be referred to in construing or
interpreting this Note. Each reference in this Note to a particular paragraph
is a reference to a paragraph of this Note unless otherwise expressly
indicated. The terms "include", "includes" and "including" are not used in any
limiting sense, but rather by way of example or illustration. If any portion
of this Note is declared invalid, illegal or unenforceable by any court of
competent jurisdiction, such portion shall be deemed severed from this Note and
the

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<PAGE> 6
remaining portions shall continue in full force and effect. Time is strictly
of the essence of each and every provision of this Note. This Note shall be
governed by and interpreted and enforced according to the laws of the State of
California.

IN WITNESS WHEREOF, Borrower does execute this Note as of the
date first written above.

SWA I CORPORATION,
a Nevada corporation

By: /s/ Richard O. Hammond
-----------------------------------

Name: R.O. Hammond
---------------------------------

Its: CFO
---------------------------------

<PAGE> 1
EXHIBIT 4.4

AMENDED AND RESTATED
GUARANTY AGREEMENT

THIS AMENDED AND RESTATED GUARANTY AGREEMENT ("Guaranty"),
dated as of the 4th day of November, 1996, is made by International Aircraft
Investors, a California corporation ("Guarantor"), in favor of Wells Fargo
Bank, N.A. ("Bank") successor by merger to First Interstate Bank of California
("FICAL").

A. SWA I corporation, a Nevada corporation ("Debtor")
and FICAL have previously made and entered that certain Aircraft Loan Agreement
dated as of December 22, 1995 (the "Original Agreement"), pursuant to which
FICAL made a loan to Debtor in the original principal amount of $14,500,000.
Debtor's obligations under the Original Agreement were guarantied by Guarantor
pursuant to a Guaranty Agreement dated as of December 22, 1995 (the "Original
Guaranty").

B. Pursuant to an Amended and Restated Aircraft Loan
Agreement dated as of even date herewith (herein, as the same may from time to
time be amended, modified or supplemented, called the "Agreement") between
Debtor and Bank, Debtor and Bank have amended and restated the Original
Agreement, Bank has agreed to continue to provide a loan to Debtor in an
aggregate principal amount not to exceed $13,700,000, such loan to be evidenced
by a promissory note of Debtor (the "Note");

C. Debtor and Guarantor will derive substantial economic
benefit from the extensions of credit to Debtor for which the Agreement
provides; and

D. Bank is willing to make the loan for which the
Agreement provides upon the condition, among other things, that Guarantor
execute and deliver to Bank this Guaranty. It is the intention of Guarantor to
effect certain amendments to the Original Guaranty, as expressly reflected
herein. The Original Guaranty otherwise continues in full force and effect
from the date thereof to the Closing Date, and at all times after the Closing
Date as restated hereby. As of the Closing Date, any reference to the Original
Guaranty in any document executed in connection with the Original Agreement is
hereby deemed to be a reference to this Guaranty.

In consideration of the foregoing facts and in order to induce
Bank to enter into the Agreement and to make the loans contemplated thereunder,
Guarantor hereby agrees as follows:

1. Definitions. For all purposes of this Guaranty,
unless otherwise defined herein or unless the context otherwise requires, all
terms used herein which are defined in the Agreement or the Note shall have the
respective meanings given them in the Agreement or the Note, as the case may
be.
<PAGE> 2
2. Guaranty.

2.1 Guarantor hereby unconditionally and
irrevocably guarantees to Bank and its successors, indorsees, transferees and
assigns, (a) the prompt and complete payment when due (whether at the stated
maturity, by acceleration or otherwise) of the aggregate unpaid principal
amount of, and accrued interest on, the Note and all other obligations and
liabilities of Debtor to Bank now existing or hereafter incurred arising out of
or in connection with the Agreement or the Note (all such indebtedness,
obligations and liabilities being hereinafter called the "Obligations"), and
(b) the due and punctual performance and observance, strictly in accordance
with the terms of the Agreement, of each of the terms, conditions, covenants,
agreements and indemnities of Debtor under the Agreement and any related loan
documents, and if for any reason whatsoever Debtor shall fail to do so,
Guarantor shall promptly perform and observe the same. Guarantor further
agrees to pay any and all expenses, including reasonable attorneys' fees, which
may be paid or incurred by Bank in collecting from Guarantor any or all of the
Obligations and/or in enforcing any rights hereunder.

2.2 The obligations of Guarantor under this Guaranty
shall be continuing, absolute and unconditional under any and all circumstances
and shall be paid by Guarantor regardless of (a) the validity, regularity,
legality or enforceability of the Agreement, the Note, any of the Obligations
or any collateral security or other guaranty therefor at any time or from time
to time held by Bank; (b) any defense, offset or counterclaim which may at any
time be available to or be asserted by Debtor or Guarantor against Bank; or (c)
any other event or circumstance whatsoever which may constitute, or might be
construed to constitute, an equitable or legal discharge of a surety or a
guarantor, it being the purpose and intent of the Guarantor that this Guaranty
and the Guarantor's obligations hereunder shall remain in full force and effect
and be binding upon Guarantor and its successors until the Obligations and the
obligations of Guarantor under this Guaranty shall have been satisfied by
payment in full.

2.3 Guarantor hereby consents that, without the necessity
of any reservation of rights against Guarantor and without notice to or assent
by Guarantor, any demand for payment of any of the Obligations made by Bank may
be rescinded by Bank and any of the Obligations continued, and/or the
Obligations, or the liability of any party upon or for any part thereof, or any
collateral security or guaranty therefor, may, from time to time, in whole or
in part, be renewed, extended, amended, modified, accelerated, settled,
compromised, subordinated, waived, surrendered or released by Bank, and/or the
Agreement, the Note, any collateral security documents or other guaranties or
documents in connection therewith may be amended, modified, supplemented or
terminated, in whole or in part, as Bank may deem advisable from time to time,
and/or any collateral security at any time securing the payment of the
Obligations may be sold, exchanged, waived, surrendered or released, Guarantor
remaining bound hereunder notwithstanding the occurrence of any of the
foregoing. Bank shall not have any duty to protect, secure, perfect or insure
any collateral security at any time securing the payment of the Obligations.
This is a guaranty of performance and payment and not merely of

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<PAGE> 3
collection. Guarantor waives any requirement that Bank make any demand,
commence suit or exercise any other right or remedy under the Agreement prior
to enforcing its rights against Guarantor hereunder. Guarantor waives
diligence, presentment, protest, demand for payment and/or notice of default or
non-payment to or upon Debtor or Guarantor with respect to the Obligations.
Guarantor waives any right to require Bank to marshall assets in favor of
Debtor, Guarantor or any other person or entity. When making any demand
hereunder against Guarantor, Bank may, but shall be under no obligation to make
a similar demand on any other guarantor, and any failure by Bank to make any
such demand or to collect any payments from any such other guarantor or any
release of such other guarantor shall not relieve Guarantor of its obligations
and liabilities hereunder, and shall not impair or affect the rights and
remedies, express or implied, or as a matter of law, of Bank against Guarantor.
For the purposes hereof "demand" shall include the commencement and continuance
of any legal or arbitration proceedings.

2.4 Guarantor waives any and all notice of the creation,
renewal, extension or accrual of any of the Obligations and notice of or proof
of reliance by Bank upon this Guaranty or acceptance of this Guaranty. The
Obligations, and any of them, shall conclusively be deemed to have been
created, contracted or incurred in reliance upon this Guaranty, and all
dealings between Debtor or Guarantor and Bank shall likewise be conclusively
presumed to have been had or consummated in reliance upon this Guaranty.
Guarantor acknowledges receipt of a copy of the Agreement and the form of the
Note.

2.5 Guarantor hereby waives any duty on the part of Bank
(should any such duty exist) to disclose to Guarantor any matter, fact or thing
related to the business, operations or condition (financial or otherwise) of
Debtor or its affiliates or properties, whether now known or hereafter known by
Bank.

2.6 This Guaranty shall continue to be effective, or be
reinstated, as the case may be, if at any time, payment, or any part thereof,
of any of the Obligations is rescinded or must otherwise be restored or
returned by Bank upon the insolvency, bankruptcy or reorganization of Debtor,
or otherwise, all as though such payment had not been made.

3. No Subrogation. Guarantor expressly waives any and
all rights of subrogation, reimbursement, indemnity, exoneration, contribution
and any other claim which it may now or hereafter have against Debtor or any
other person directly or contingently liable for the Obligations guarantied
hereunder, or against or with respect to Debtor's property (including, without
limitation, property collateralizing its Obligations to Bank), arising from the
existence or performance of this Guaranty.

4. Representations and Warranties. Guarantor hereby
represents and warrants that (a) Guarantor is a corporation duly organized,
validly existing and in good standing under the laws of the State of California
(b) Guarantor has full power, authority

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<PAGE> 4
and legal right to execute, deliver and perform this Guaranty and the Guarantor
has taken all necessary corporate action to authorize such execution, delivery
and performance; (c) this Guaranty has been duly authorized, executed and
delivered by Guarantor and constitutes a legal, valid and binding obligation of
Guarantor enforceable in accordance with its terms; (d) no consent of any
person (including stockholders or any trustee or holder of any obligations of
Guarantor), and no consent, license, approval or authorization of, or
registration or filing with, any governmental authority, bureau or agency is
required in connection with the execution, delivery and performance of, and
payment under, this Guaranty; (e) the execution, delivery, performance and
payment of this Guaranty does not and will not contravene any applicable law,
regulation, order or decree, the certificate of incorporation or by-laws of
Guarantor or any provision of any indenture, mortgage, contract or other
agreement to which Guarantor, or any person controlled by, controlling, or
under common control with Guarantor, is a party or by which any of the same or
any of their respective assets may be bound; (f) there is no action, suit,
investigation or proceeding by or before any court, arbitrator, administrative
agency or other governmental authority pending or threatened against or
affecting Guarantor (A) which involves the transactions contemplated by this
Guaranty, or (B) which if adversely determined, could have a material adverse
effect on the financial condition, business or operations of Guarantor; (g) all
financial statements of Guarantor heretofore furnished Bank are complete and
correct and fairly present the financial condition of Guarantor and the results
of its operations for the respective periods covered thereby, and there are no
known contingent liabilities or liabilities for taxes of Guarantor which are
not reflected in said financial statements and since the date of the most
recent financial statements of Guarantor furnished to Bank, there has been no
material adverse change in the financial condition, business or operations of
Guarantor; and (h) Guarantor is not in default under any indenture, mortgage,
contract or other agreement to which it is a party or by which Guarantor or any
of its assets may be bound.

5. No Changes in Guarantor. Guarantor covenants and
agrees that from and after the date hereof and so long as any of the
Obligations remain outstanding, it will not (a) enter into any transaction of
merger or consolidation unless it is the surviving corporation and after giving
effect to such merger or consolidation its tangible net worth equals or exceeds
that which existed prior to such merger or consolidation; or (b) liquidate or
dissolve; or (c) sell or otherwise dispose of all or any substantial part of
its assets; or (d) without limiting the generality of clause (c), sell,
transfer or otherwise dispose of any stock of Debtor owned by it as of the date
hereof; or (e) without thirty (30) days prior written notice to Bank change its
name or chief place of business.

6. Additional Covenants of Guarantor. Guarantor
covenants and agrees that from and after the date hereof and so long as any of
the Obligations remain outstanding, it will: (1) promptly give written notice
to Bank of (i) the occurrence of any Default or Event of Default of which it is
or should be aware; (ii) the commencement or threat of any material litigation
or proceedings affecting it; and (iii) any dispute between it and any
governmental regulatory body or other party that might materially interfere

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<PAGE> 5
with its normal business operations; (2)(i) duly observe and conform to all
requirements of any governmental authorities relating to the conduct of its
business or to its properties or assets; (ii) maintain its existence as a legal
entity and obtain and keep in full force and effect all rights, franchises,
licenses and permits which are necessary to the proper conduct of its business;
and (iii) obtain or cause to be obtained as promptly as possible any
governmental, administrative or agency approval and make any filing or
registration therewith which at the time shall be required with respect to the
performance of its obligations under this Guaranty or the operation of its
business; (3) permit Bank or its authorized representative at any reasonable
time or times following the occurrence and during the continuation of an Event
of Default to inspect its books and records; (4) keep proper books of record
and account in which full, true and correct entries in accordance with
generally accepted accounting principles will be made of all dealings or
transactions in relation to its business and activities; (5) to comply with the
financial covenants set forth in Section 5.13 of the Agreement and (6) furnish
to Bank the following financial statements, all in reasonable detail, prepared
in accordance with generally accepted accounting principles applied on a basis
consistently maintained throughout the period involved, (a) as soon as
available, but not later than 120 days after each fiscal year end, its
consolidated balance sheet as at the end of such fiscal year, and its
consolidated statements of income and changes in cash flows for such fiscal
year, audited by certified public accountants acceptable to Bank; (b) as soon
as available, but no later than 90 days after the end of each of the first
three quarterly periods of each fiscal year, its consolidated balance sheet as
at the end of such quarterly period and its consolidated statement of income
for such quarterly period and for the portion of the fiscal year then ended,
certified by its chief financial officer; and (c) promptly, such additional
financial and other information as Bank may from time to time reasonably
request.

7. Notices. All notices, requests and demands to or
upon Guarantor, and all notices or requests to Bank, shall be deemed duly given
or made, if given by telecopier, when sent, if given by personal delivery or
overnight commercial carrier, when delivered or if mailed, the third calendar
day after deposit in the United States mail, first class postage prepaid,
addressed to such party at its address (or telecopier number) set forth below
or to such other address or telecopier number as may be hereafter designated in
writing by either of them to the other:

if to Guarantor: INTERNATIONAL AIRCRAFT INVESTORS
3655 Torrance Boulevard, Suite 410
Torrance, California 90503
Attention: President
Telecopier No. (310) 316-8145
Telephone No. (310) 316-3080

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<PAGE> 6
if to Bank: WELLS FARGO BANK, N.A.
707 Wilshire Boulevard, 2818-164
Los Angeles, California 90017
Attention: Anthony Xinis
Telecopier No. (213) 614-2569
Telephone No. (213) 614-4745

8. No Waiver; Cumulative Remedies. A waiver by Bank of
any right or remedy hereunder on any one occasion shall not be construed as a
bar to any right or remedy which Bank would otherwise have had on any future
occasion. No failure to exercise nor any delay in exercising on the part of
Bank any right, power or privilege hereunder, shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
herein provided are cumulative and may be exercised singly or concurrently, and
are not exclusive of any rights and remedies provided by law.

9. Miscellaneous.

9.1 None of the terms or provisions of this Guaranty may
be amended, waived, altered, modified, or terminated except by an instrument in
writing signed by the party against which enforcement of such amendment,
waiver, alteration, modification or termination is sought. This writing
contains the complete, final and exclusive statement of the terms of the
agreement between Guarantor and Bank relating to this guaranty. This Guaranty
and all obligations of Guarantor hereunder shall be binding upon the successors
and assigns of Guarantor, and shall,together with the rights and remedies of
Bank hereunder, inure to the benefit of Bank and its successors and assigns.
The invalidity, illegality or unenforceability of any provision of this
Guaranty shall not affect the validity, legality or enforceability of any other
provision of this Guaranty.

9.2 This Guaranty shall be governed by, and be construed
and interpreted in accordance with, the laws of the State of California.

9.3 Guarantor acknowledges and agrees to the arbitration
provisions attached hereto as Exhibit "A", the terms of which are incorporated
herein.

9.4 Bank and Guarantor waive trial by jury in any
litigation relating to, or in connection with, this Guaranty in which they
shall be adverse parties.

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<PAGE> 7
IN WITNESS WHEREOF, the undersigned has caused this Guaranty
to be duly executed and delivered by its duly authorized officer as of the day
and year first above written.

INTERNATIONAL AIRCRAFT INVESTORS

By: /s/ Michael P. Grella
-----------------------------------

Title: President
---------------------------------

7
<PAGE> 8
ARBITRATION:

(a) Arbitration. Upon the demand of any party, any
Dispute shall be resolved by binding arbitration (except as set forth in (e)
below) in accordance with the terms of this Agreement. A "Dispute" shall mean
any action, dispute, claim or controversy of any kind, whether in contract or
tort, statutory or common law, legal or equitable, now existing or hereafter
arising under or in connection with, or in any way pertaining to, this
Agreement and each other document, contract and instrument required hereby or
now or hereafter delivered to Bank in connection herewith (collectively, the
"Documents"), or any past, present or future extensions of credit and other
activities, transactions or obligations of any kind related directly or
indirectly to any of the Documents, including without limitation, any of the
foregoing arising in connection with the exercise of any self-help, ancillary
or other remedies pursuant to any of the Documents. Any party may by summary
proceedings bring any action in court to compel arbitration of a Dispute. Any
party who fails or refuses to submit to arbitration following a lawful demand
by any other party shall bear all costs and expenses incurred by such other
party in compelling arbitration of any Dispute.

(b) Governing Rules. Arbitration proceedings shall be
administered by the American Arbitration Association ("AAA") or such other
administrator as the parties shall mutually agree upon in accordance with the
AAA Commercial Arbitration Rules. All Disputes submitted to arbitration shall
be resolved in accordance with the Federal Arbitration Act (Title 9 of the
United States Code), notwithstanding any conflicting choice of law provision in
any of the Documents. The arbitration shall be conducted at a location in
California selected by the AAA or other administrator. If there is any
inconsistency between the terms hereof and any such rules, the terms and
procedures set forth herein shall control. All statutes of limitation
applicable to any Dispute shall apply to any arbitration proceeding. All
discovery activities shall be expressly limited to matters directly relevant to
the Dispute being arbitrated. Judgment upon any award rendered in an
arbitration may be entered in any court having jurisdiction; provided however,
that nothing contained herein shall be deemed to be a waiver by any party that
is a bank of the protections afforded to it under 12 U.S.C. Section 91 or any
similar applicable state law.

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<PAGE> 9
(d) Arbitration Qualifications and Powers; Awards.
Arbitrators must be active members of the California State Bar or retired
judges of the state or federal judiciary of California, with expertise in the
substantive law applicable to the subject matter of the Dispute. Arbitrators
are empowered to resolve Disputes by summary rulings in response to motions
filed prior to the final arbitration hearing. Arbitrators (i) shall resolve
all Disputes in accordance with the substantive law of the state of California,
(ii) may grant any remedy or relief that a court of the state of California
could order or grant within the scope hereof and such ancillary relief as is
necessary to make effective any award, and (ii) shall have the power to award
recovery of all costs and fees, to impose sanctions and to take such other
actions as they deem necessary to the same extent a judge could pursuant to the
Federal Rules of Civil Procedure, the California Rules of Civil Procedure or
other applicable law. Any dispute in which the amount in controversy is
$5,000,000 or less shall be decided by a single arbitrator who shall not render
an award of greater than $5,000,000 (including damages, costs, fees and
expenses). By submission to a single arbitrator, each party expressly waives
any right or claim to recover more than $5,000,000. Any Dispute in which the
amount in controversy exceeds $5,000,000 shall be decided by majority vote of a
panel of three arbitrators; provided however that all three arbitrators must
actively participate in all hearings and deliberations.

(e) Judicial Review. Notwithstanding anything herein to
the contrary, in any arbitration in which the amount in controversy exceeds
$10,000,000, the arbitrators shall be required to make specific, written
findings of fact and conclusions of law. In such arbitrations (i) the
arbitrators shall not have the power to make any award which is not supported
by substantial evidence or which is based on legal error, (ii) an award shall
not be binding upon the parties unless the findings of fact are supported by
substantial evidence and the conclusions of law are not erroneous under the
substantive law of the state of California, and (iii) the parties shall have in
addition to the grounds referred to in the Federal Arbitration Act for
vacating, modifying or correcting an award the right to judicial review of (A)
whether the findings of fact rendered by the arbitrators are supported by
substantial evidence, and (B) whether the conclusions of law are erroneous
under the substantive law of the state of California. Judgment confirming an
award in such a proceeding may be entered only if a court determines the award
is supported by substantial evidence and not based on legal error under the
substantive law of the state of California.

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<PAGE> 10
This Agreement may be amended or modified only in writing signed by Bank and
Borrower. If any provision of this Agreement shall be held to be prohibited by
or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or any remaining provisions of this Agreement.
This arbitration provision shall survive termination, amendment or expiration
of any of the Documents or any relationship between the parties.

<PAGE> 1
EXHIBIT 4.5

SENIOR TERM LOAN AGREEMENT

THIS SENIOR TERM LOAN AGREEMENT, dated as of May 17, 1996, is entered
into between IAI ALASKA I CORPORATION, a Nevada Corporation ("Borrower"), and
CITY NATIONAL BANK, A NATIONAL BANKING ASSOCIATION ("Lender"), in light of the
following facts:

WHEREAS, Borrower and International Lease Finance Corporation, a
California corporation ("ILFC"), have previously entered into that certain
Aircraft Purchase and Sale Agreement, dated as of December 21, 1995 (the
"Aircraft Sale Agreement"), pursuant to which Borrower purchased from ILFC one
(1) McDonnell Douglas MD-82 aircraft bearing manufacturer's serial number 49925
and United States Federal Aviation Administration ("FAA") registration number
N941AS with two (2) Pratt & Whitney JT8D-219 engines bearing manufacturer's
serial numbers P725407DCN and P725430DCN (or any replacement engines for either
of the foregoing engines) (the "Aircraft") which is currently being leased to
ALASKA AIRLINES, INC., an Alaskan corporation ("Lessee");

WHEREAS, Borrower has requested that Lender provide Borrower with a
senior loan of Fourteen Million Six Hundred Fifty Thousand U.S. Dollars (US$
14,650,000) to refinance a portion of the purchase price in connection with
Borrower's purchase of the Aircraft from ILFC; and

WHEREAS, on the terms and conditions contained herein, Lender has
agreed to provide Borrower with a senior loan of Fourteen Million Six Hundred
Fifty Thousand U.S. Dollars (US$ 14,650,000) to refinance a portion of the
purchase price of the Aircraft.

NOW THEREFORE, in consideration of the foregoing, mutual covenants and
conditions contained herein and other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the parties hereto agree
as follows:

1. DEFINITIONS; CONSTRUCTION

1.1 Definitions. For purposes of this Agreement, the
following capitalized terms shall have the following
meanings:

"Agreement" shall mean this Senior Term Loan Agreement between
Borrower and Lender, together with all of the exhibits and schedules hereto.

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<PAGE> 2
"Aircraft" shall have the meaning ascribed to such term in the
recitals to this Agreement.

"Aircraft Sale Agreement" shall have the meaning ascribed to
such term in the recitals to this Agreement.

"Aircraft Loan Date" means the date of the Borrowing of the
Loan for the purchase of the Aircraft.

"Aircraft Original Sale Price" shall mean Twenty-One Million
Seven Hundred Fifty Thousand U.S. Dollars (US$ 21,750,000).

"Aircraft Sale Agreement" shall have the meaning ascribed to
such term in the recitals to this Agreement.

"Aircraft Secured Promissory Note" shall have the meaning
ascribed to such term in Section 2.3 hereof.

"Asset" shall mean any interest of a Person in any kind of
property or asset, whether real, personal, or mixed real and personal, or
whether tangible or intangible.

"Borrower" shall have the meaning set forth in the
introduction to this Agreement.

"Borrowing" shall mean the borrowing under the Loan made by
Lender to Borrower for the purchase of the Aircraft.

"Business Day" shall mean a day (other than a Saturday or
Sunday) upon which banks are open for the transaction of business of the kind
contemplated by this Agreement in Los Angeles, California.

"Contractual Obligation" shall mean, as applied to any Person,
any provision of any security agreement entered into by that Person or of any
material indenture, mortgage, deed of trust, contract, undertaking, agreement,
or other material instrument to which that Person is a party or by which it or
any of its owned Assets is bound or to which it or any of its owned Assets is
subject.

"Debt" shall mean, with respect to any Person, the aggregate
amount of, without duplication: (a) all obligations of such Person for borrowed
money; (b) all obligations of such Person evidenced by bonds, debentures,
letters of credit,

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<PAGE> 3
notes, or other similar instruments and all reimbursement or other obligations
of such Person in respect of letters of credit, bankers acceptances, interest
rate swaps, or other financial products; (c) all capitalized lease obligations
of such Person; (d) all obligations or liabilities of others secured by a Lien
on any Asset owned by such Person whether or not such obligation or liability
is assumed; (e) all obligations guarantied by such Person or in respect of
which such Person acts as surety; and (f) all obligations of such Person to pay
the deferred purchase price of Assets or services, exclusive of trade payables
which are incurred in the ordinary course of such Person's business consistent
with past practices.

"Event of Default" shall have the meaning ascribed to such
term in Section 11.1 hereof.

"FAA" shall mean the Federal Aviation Administration of the
Department of Transportation or any successor thereto under the Laws of the
U.S.

"First Quarterly Payment Date" shall have the meaning ascribed
to such term in Section 4.1 hereof.

"Highest Lawful Rate" shall mean, the maximum non-usurious
interest rate, as in effect from time to time, which may be charged, contracted
for, reserved, received, or collected by Lender in connection with this
Agreement, the Aircraft Secured Promissory Note, or any other document executed
in connection herewith or therewith.

"Indemnified Liabilities" shall have the meaning ascribed to
such term in Section 12.2 hereof.

"Indemnitee" shall have the meaning ascribed to such term in
Section 12.2 hereof.

"Interest Rate" shall have the meaning ascribed to such term
in Section 3.1 hereof.

"Investment" shall mean, as applied to any Person, any direct
or indirect purchase or other acquisition by that Person of, or beneficial
interest in, stock, instruments, bonds, debentures or other securities of any
other Person, or any direct or indirect loan, advance (other than advances to
employees for expenditures in the ordinary course of such Person's business),
or capital contribution by such Person to any other Person, including all
indebtedness and accounts receivable from that other Person which did not arise
from sales or the

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<PAGE> 4
rendition of services to that other Person in the ordinary and usual course of
such Person's business, and deposit accounts (including certificates of
deposit).

"Junior Lender" shall mean INTERNATIONAL LEASE FINANCE
CORPORATION, a California corporation.

"Junior Loan Agreement" shall mean that certain Junior Loan
Agreement, dated as of December 21, 1995, entered into between Borrower and
Junior Lender.

"Junior Loan" shall mean the junior loan of Four Million three
Hundred fifty Thousand U.S. Dollars (US$ 4,350,000) provided by Junior Lender
to Borrower pursuant to the Junior Loan Agreement.

"Lien" shall mean any lien, mortgage, assignment (including
any assignment of rights to receive payments of money), pledge security
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof, and any
agreement to give any security interest).

"Loan" shall have the meaning ascribed to such term in Section
2.1(a) hereof.

"Loan Date" shall mean the date on which the Borrowing of the
Loan is advanced by Lender to Borrower.

"Material Adverse Effect" shall mean a material and adverse
effect on the business, operations, Assets, or condition (financial or
otherwise) of a Person.

"Maturity Date" shall mean May 17, 2001.

"Mortgage" means that certain Senior Mortgage, Security
Agreement and Assignment of Rents of even date herewith entered into between
Lender and Borrower, pursuant to which Borrower granted Lender a first priority
security interest in the Aircraft.

"Overdue Rate" shall have the meaning ascribed to such term in
Section 3.2 hereof.

"Parent" means International Aircraft Investors, a California
corporation.

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<PAGE> 5
"Parts" means all appliances, parts, components, modules,
instruments, appurtenances, accessories, furnishings and other equipment of
whatever nature (other than complete engines) whether now owned or hereafter
acquired which may from time to time be incorporated in the Aircraft or any
engine on any Aircraft (and "Part" means any of the foregoing) and, after
removal therefrom, so long as such Part is considered a Part associated with
the Aircraft or an engine on such Aircraft.

"Permitted Liens" shall mean any of the following Liens:

(a) Liens in favor of Lender arising by reason of
this Agreement;

(b) Liens in favor of Junior Lender arising by
reason of the Junior Loan Agreement;

(c) Liens for taxes, assessments or other
governmental charges or levies not at the time delinquent or
thereafter payable without penalty or being contested in good faith;

(d) Liens of carriers, warehousemen, mechanics,
materialmen and landlords incurred in the ordinary course of business
for sums not overdue or being contested in good faith;

(e) Liens incurred in the ordinary course of
business in connection with workmen's compensation, unemployment
insurance or other forms of governmental insurance or benefits, or to
secure performance of tenders and statutory obligations entered into
in the ordinary course of business or to secure obligations on surety
or appeal bonds;

(f) judgment Liens in existence less than thirty
(30) days after the entry thereof or with respect to which execution
has been stayed or the payment of which is covered in full by
insurance;

(g) liens on the Aircraft in favor of the lessee
of such Aircraft which result from the leases on such Aircraft; and

(h) Liens on the Aircraft which are "Permitted
Liens" under the existing lease and any other leases for the Aircraft;
provided, however, that such other leases are approved by Lender.

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<PAGE> 6
"Person" shall mean natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, vehicle
trusts, business trusts or other organizations irrespective of whether they are
legal entities, and governments and agencies and political subdivisions
thereof.

"Quarterly Payment Date" shall have the meaning ascribed to
such term in Section 4.1 hereof.

"Related Documents" shall mean the Aircraft Sale Agreement,
the Pledge Agreement, the Mortgage, and all other agreements, documents, or
instruments other than this Agreement and the Aircraft Secured Promissory Note,
delivered from time to time in connection with the transactions contemplated by
this Agreement.

"Subsidiary" shall mean any company or corporation a majority
of whose securities having ordinary voting power for the election of directors
(other than securities having such power only by reason of the happening of a
contingency) is, as of the date any determination thereof is to be made, owned
by a Person or one or more of such Person's Subsidiaries.

"Taxes" shall mean any taxes, charges, fees, levies or other
assessments based upon or measured by net or gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, withholding, payroll, employment,
excise, occupation, premium, property or conduct of business, together with any
interest and penalties, additions to tax and additional amounts imposed by any
federal, state, local or foreign taxing authority.

"Transaction Documents" shall mean this Agreement, the
Aircraft Secured Promissory Note, the Related Documents, and all other
agreements or instruments executed and delivered or to be executed and
delivered pursuant hereto or thereto or in connection herewith or therewith, or
in connection with any of the transactions contemplated hereby or thereby.

"Unmatured Event of Default" shall mean an event, act, or
occurrence which, with the giving of notice or the lapse of time (or both),
would become an Event of Default.

1.2 Construction. Unless the context of this Agreement
clearly requires otherwise, references to the plural include the singular and
to the singular include the plural, the part includes the whole, the terms
"include" and "including"

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<PAGE> 7
are not limiting, and the term "or" has, except where otherwise indicated, the
inclusive meaning represented by the phrase "and/or". The words "hereof,"
"herein," "hereby," "hereunder" and similar terms in this Agreement refer to
this Agreement as a whole and not to any particular provision of this
Agreement. Article, section, subsection, clause, exhibit and schedule
references are to this Agreement unless otherwise specified. Any reference
herein to this Agreement, the Aircraft Secured Promissory Note, or any of the
Related Documents includes any and all alterations, amendments, changes,
extensions, modifications, renewals, or supplements thereto or thereof, as
applicable.

1.3 Exhibits. All of the exhibits or schedules attached
hereto shall be deemed incorporated herein by reference.

2. AMOUNT OF LOAN

2.1 Loan

(a) Loan. Subject to the terms and conditions
contained herein, Lender agrees to make a loan to Borrower in one Borrowing and
in the principal amount equal to Fourteen Million Six Hundred Fifty Thousand
U.S. Dollars (US$ 14,650,000) (the "Loan"). The Loan Amount will be advanced
to Borrower on a date agreed upon by Borrower and Lender. Any amount repaid on
the Loan may not be reborrowed by Borrower.

(b) Advancement of Loan. Unless agreed to
otherwise, Borrower will provide Lender with notice of the date on which
Borrower wants the Loan extended to it on the Business Day prior to the date
set forth in such notice. The Loan will be extended to Borrower on the date
set forth in such notice,

2.2 Purpose of Loan. The proceeds of the Loan will be
used by Borrower solely to refinance debt presently owed to AIG Capital Corp.
with respect to the purchase the Aircraft from ILFC.

2.3 Aircraft Secured Promissory Note. The Loan will be
evidenced by a secured promissory note (the "Aircraft Secured Promissory
Note"). The form of such Aircraft Secured Promissory Note is attached hereto
as Exhibit A. The Aircraft Secured Promissory Note shall evidence the
aggregate outstanding principal balance of the Loan together with any and all
accrued and unpaid interest thereon.

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<PAGE> 8
3. INTEREST AND FEES

3.1 Interest Rate. The Loan shall accrue interest at a
rate equal to 7 and 3/4 percent (7.75%) per annum, (the "Interest Rate").
Interest on any overdue portion of the balance due hereunder will accrue
interest according to the provisions for late payment hereunder.

3.2 Overdue Rate. Any payments of principal, interest
(to the extent permitted by law both before and after judgment) with respect to
the Loan, fees, expenses, or other amounts payable to Borrower which are not
paid when due hereunder or declared due, whether at maturity, by acceleration,
by lapse of time or otherwise, shall bear interest thereafter, at a per annum
interest rate (the "Overdue Rate") which is equal to the Interest Rate plus
three percent (3.0%).

3.3 Computation of Interest. All computations of
interest with respect to the Loan and all computations of interest due under
Section 3.2 hereof for any period shall be calculated on the basis of a year of
three hundred sixty (360) days with ninety (90) day quarter. Interest shall
accrue from the Loan Date (or the date on which interest or other payments are
due, if applicable), to the date of repayment of the Loan (or the date of the
payment of interest or fees or other payments, if applicable) in accordance
with the provisions hereof.

4. TERMS OF LOAN

4.1 Payment of Principal and Interest on the Loan.
Principal and interest due with respect to the Loan shall be due and payable
quarterly in arrears, commencing on August 17, 1996, (the "First Quarterly
Payment Date") and continuing on the same day of each third month thereafter
(each a "Quarterly Payment Date") until and including the Maturity Date on
which date the entire outstanding principal balance and all accrued and unpaid
interest shall be due and payable. The amount of the payments of principal and
interest on the loan shall be Five Hundred Ten Thousand U.S. Dollars (US$
510,000).

4.2 Voluntary Prepayments. At any time, Borrower may,
upon at least one (1) Business Day prior written notice, prepay the Loan in
whole or in part without penalty or premium.

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<PAGE> 9
5. MANDATORY PREPAYMENTS FROM THE PROCEEDS FROM THE SALE OR TOTAL
LOSS OF AN AIRCRAFT

5.1 Payment of Proceeds of Sale or Total Loss. Upon the
sale or total loss (as defined in the Lease) of the Aircraft, Borrower will
repay in full the outstanding principal balance of the Loan and any and all
accrued and unpaid interest thereon.

6. PLACE AND MANNER OF BORROWING AND PAYMENT

6.1 Manner and Time of Payment. All payments of
principal and interest in respect of the Loan payable to Lender shall be made
without condition or reservation of right in United States Dollars and in
immediately available funds to Lender at:

City National Bank,
Westside Commercial Banking Center
400 No. Roxbury Drive, Suite 300
Beverly Hills, CA 90210

Until the loan is paid in full, Borrower shall instruct any Lessee of
the Aircraft to make lease payments directly to CNB. Upon receipt of such
lease payments, CNB shall apply the payment first to accrued but unpaid
interest and then to any principal payment then due. Any lease amounts prepaid
over one month in advance shall be applied to principal payments due in their
order of maturity.

6.2 Payments on Non-Business Days. Whenever any payment
to be made by Borrower hereunder shall be stated to be due on a day which is
not a Business Day, then such payment shall be due and payable on the
immediately preceding Business Day.

6.3 No Deductions or Withholdings. All payments by
Borrower hereunder or under the Aircraft Secured Promissory Note, including,
without limitation, principal and interest, will be made in full without any
deduction or withholding whether in respect of set-off, counterclaim, duties,
or taxes imposed in the United States of America or any jurisdiction from which
such payments are made unless Borrower is prohibited by law from doing so, in
which event Borrower will gross up the payment amount such that the net payment
received by Lender after any deduction or withholding equals the amounts called
for hereunder or under the Aircraft Secured Promissory Note. Borrower will
also do all of the following:

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<PAGE> 10
(a) Ensure that the deduction or withholding does
not exceed the minimum amount legally required.

(b) Pay to the relevant government entities
within the period for payment permitted by applicable law the full
amount of the deduction or withholding (including the full amount of
any deduction or withholding from any additional amount paid pursuant
hereto).

(c) Furnish to Lender within thirty (30) days
after each payment an official receipt of the relevant government
entities involved for all amounts so deducted or withheld.

6.4 Value Added Taxes. The principal, interest and fees
payable by Borrower hereunder or under the Aircraft Secured Promissory Note are
exclusive of any value added tax, turnover tax or similar tax or duty. If a
value added tax or any similar tax or duty is payable in any jurisdiction in
respect of any principal, interest, fee or other amounts as aforesaid, Borrower
will pay all such tax or duty and indemnify Lender against any claims for the
same and any related claims, losses or liabilities.

7. CONDITIONS TO THE LOAN

7.1 Conditions Precedent to the Loan. The obligation of
Lender to make the Loan specified in Section 2.1 hereof is subject to the
fulfillment and satisfaction of the each of the following conditions precedent
on or before the Loan Date:

(a) The Loan Date shall occur on or before May
31, 1996;

(b) Lender shall have received the Aircraft
Secured Promissory Note duly executed by Borrower to the order of
Lender;

(d) Lender shall have received the Articles of
Incorporation (and any amendments thereto) of the Borrower;

(e) Lender shall have received a certificate from
the Secretary of the Borrower attesting to the resolutions of the
Borrower's board of directors, authorizing the execution, delivery,
and performance of this

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<PAGE> 11
Agreement, the Related Documents, and the other documents contemplated
herein or therein, and the issuance of the Secured Promissory Note,
and authorizing specific officers of the Borrower to execute same;

(f) Lender shall have received a signature and
incumbency certificate for the officers of the Borrower who will
execute this Agreement, the Aircraft Secured Promissory Note, the
Related Documents, and the other documents contemplated herein or
therein to which Borrower is a party, which certificate has been
certified by the secretary of the Borrower;

(g) Lender shall have received the written
opinion of the Legal Counsel for Borrower, in form and substance
satisfactory to Lender and its counsel, covering the matters set forth
in the form of opinion contained in Exhibit B attached hereto;

(h) No Event of Default or Unmatured Event of
Default shall have occurred and be continuing on the date of the
Borrowing of the Loan nor shall either result from the making of the
Borrowing of the Loan;

(i) There is no litigation or proceeding pending
or threatened against or affecting Borrower, the result of which might
materially affect the financial condition, business or operations of
Borrower, and there has been no materially adverse change in the
financial condition of Borrower since the date of execution of this
Agreement; and

(j) The representations and warranties contained
in Section 8 of this Agreement are true and correct as of the date of
the Borrowing of the Loan; provided, however, that the representations
and warranties contained herein with respect to the accuracy of
financial statements shall be deemed to be made with respect to the
financial statements most recently delivered to the Lender.

8. REPRESENTATIONS AND WARRANTIES OF BORROWER

In order to induce Lender to enter into this Agreement,
Borrower makes the following representations and warranties which shall be true
and correct in all material respects as of the Loan Date and such
representations and warranties shall survive the execution and delivery of this
Agreement and the Aircraft Secured Promissory Note and the making of the Loan:

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<PAGE> 12
8.1 Organization. Borrower (1) is a Corporation duly
organized, validly existing and in good standing under the laws of Nevada and
(2) has all requisite power and authority to own, operate, and encumber its
Assets and to conduct its business as presently conducted and as proposed to be
conducted in connection with the consummation of the transactions contemplated
by this Agreement and the Related Documents.

8.2 Authority.

(a) Borrower has the requisite power and
authority to execute, deliver, and perform each of the Transaction
Documents executed by it, or to be executed by it.

(b) The execution, delivery, and performance of
each of the Transaction Documents to which Borrower is a party and the
consummation of the transactions contemplated thereby, has been duly
approved by the board of directors of Borrower and no other
proceedings on the part of Borrower is necessary to consummate such
transactions.

(c) Each of the Transaction Documents to which
Borrower is a party has been duly executed and delivered by Borrower
constitutes its legal, valid and binding obligation, enforceable
against it in accordance with its terms, and is in full force and
effect except as the enforceability hereof or thereof may be affected
by: (a) bankruptcy, insolvency, moratorium, or other similar laws
affecting the enforcement of creditors' rights generally; (b) the
limitation of certain remedies by certain equitable principles of
general applicability; and (c) the fact that the rights to
indemnification thereunder or hereunder may be limited by securities
laws.

8.3 No Conflict. The execution, delivery, and
performance of each of the Transaction Documents to which Borrower is a party
and each of the transactions contemplated thereby do not and will not (a)
conflict with or violate Borrower's Articles of Incorporation, or (b) conflict
with, result in a breach of, constitute (with or without notice or lapse of
time) a default under, or require termination of, any of the Transaction
Documents, any material indenture, mortgage or other agreement or instrument to
which Borrower is a party or by which any of its properties may be bound, or
(c) result in or require the creation or imposition of any lien upon any of the
Assets of Borrower (other than liens in favor of Lender or Junior Lender
arising pursuant to the Transaction Documents), or (d) require any approval of
stockholders, or any approval or consent of any Person under any other

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<PAGE> 13
Contractual Obligations to which Borrower is a party which approval or consent,
as the case may be has not already been obtained prior to the date hereof.

8.4 Government Consent. The execution, delivery, and
performance of each Transaction Document to which Borrower is a party and the
transactions contemplated thereby do not and will not require any registration
with, consent or approval of, or notice to, or other action to, with or by any
regulatory body or authority in the United States of America, Nevada or
California.

8.5 Payment of Taxes. All tax returns and reports of
Borrower required to be filed, have been timely filed (inclusive of any
permitted extensions), and all taxes, assessments, fees, and other governmental
charges thereupon and upon its assets, income, and franchises which are shown
on such returns or reports as being due and payable, have been paid when due
and payable, except such taxes, if any, that are reserved against in accordance
with generally accepted accounting principals in the United States of America
and are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted. Borrower has no knowledge of any proposed
tax assessment against it which is not either going to be paid prior to it
becoming delinquent or being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted by such Person with appropriate
reserves made for such assessment in accordance with generally accepted
accounting principals.

8.6 Litigation; Adverse Facts. Except as previously
disclosed to Lender in writing: (a) there is no action, suit, proceeding, or
arbitration (whether purportedly on behalf of Borrower) at law or in equity or
before or by any federal, state, municipal, or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
pending or, to the knowledge of Borrower, threatened against or directly
affecting Borrower which is reasonably likely to result in a Material Adverse
Effect on Borrower or may reasonably be expected to materially adversely affect
Borrower's ability to perform its obligations hereunder or under the Aircraft
Secured Promissory Note; or (b) Borrower is not subject to or in default with
respect to any final judgment, writ, injunction, decree, rule, or regulation of
any court or federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, in a
manner which would have a Material Adverse Effect on Borrower; and (c) (i) as
of the date hereof or on the Loan Date, there is no action, suit, proceeding
or, to the best of Borrower's knowledge or belief, investigation pending or, to
the best of Borrower's knowledge or belief, threatened against or directly
affecting Borrower, which questions the validity or the enforceability of this
Agreement, the Related Documents, or the Aircraft Secured Promissory Note; and
(ii) after the

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<PAGE> 14
Loan Date, there is no action, suit or proceeding pending against or affecting
Borrower, pursuant to which, on the date of the making of any Loan hereunder,
there is in effect a binding injunction materially and adversely affecting the
validity or the enforceability of the sale of the Aircraft, this Agreement, the
Related Documents, or the Aircraft Secured Promissory Note.

8.7 Consents. Other than such as may have previously
been obtained, no consent, license, permit, approval or authorization of,
exemption by, notice to, report to, or registration, filing or declaration
with, any governmental authority or agency is required in connection with the
execution, delivery, and performance by Borrower of this Agreement, the Related
Documents, or the Aircraft Secured Promissory Note.

8.8 Title to Properties; Liens. Except for Permitted
Liens, all of the Assets of Borrower are free from all Liens of any nature
whatsoever. Borrower has good and sufficient title to all of the material
Assets reflected in its books and records as being owned by it.

8.9 Licenses, Patents, Trademarks, and Intellectual
Property. Borrower has all necessary patents, patent rights, license
agreements, trademarks, trademark rights, trade names, trade name rights,
copyrights, and franchise agreements in order for it to conduct its businesses
and to operate its Assets substantially as now operated, as the case may be,
without known conflict, other than as previously disclosed in writing, with the
rights of third Persons, except where the failure to obtain same could not
reasonably be expected to have a Material Adverse Effect on Borrower and all of
same are valid and subsisting, except where such lack of validity or
subsistence could not reasonably be expected to have a Material Adverse Effect
on Borrower. The consummation of the transactions contemplated by this
Agreement will not alter or impair any of such rights of Borrower. Except as
previously disclosed in writing, Borrower has not been charged or, to
Borrower's knowledge, is threatened to be charged with any infringement of, nor
has it infringed on any unexpired registered domestic trademark, trademark
registration, trade name, patent, copyright, copyright registration, or other
proprietary right of any Person, which charge or threat could reasonably be
expected to have a Material Adverse Effect on Borrower.

8.10 Burdensome Agreements. Except as previously
disclosed in writing, Borrower is not a party to any unusual or unduly
burdensome agreement or undertaking which could reasonably be expected to have
a Material Adverse Effect on Borrower. Borrower is not subject to any unusual
or unduly burdensome court order, writ, injunction, or decree of any court or
government instrumentality,

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<PAGE> 15
domestic or foreign, which could reasonably be expected to have a Material
Adverse Effect on Borrower.

8.11 Existing Defaults. Except as previously disclosed in
writing, Borrower is not in default under any Contractual Obligation, the
effect of which would be a Material Adverse Effect on Borrower. Except as
previously disclosed in writing, Borrower is not in violation of any law,
ordinance, rule or regulation to which it or any of its Assets is subject, the
failure to comply with which would have a Material Adverse Effect on Borrower.

8.12 Foreign National. Borrower is not a "national" of a
"designated foreign country" (or a person defined as a "designated national" or
a "specially designated national") within the definitions in the Foreign or the
Cuban Assets Control Regulations of the United States Treasury Department, 31
CFR, Subtitle B, Chapter V, as amended, or any regulation or ruling issued
thereunder.

9. AFFIRMATIVE COVENANTS

Borrower and Lender covenant and agree, so long as the Loan
hereunder shall be outstanding and until the full and final payment of the Loan
and the performance of all obligations of Borrower, as follows:

9.1 Payment of Principal and Interest. Borrower will
duly and punctually pay all principal and interest due hereunder at the time
and place and in the manner specified herein.

9.2 Accounting Records and Inspection. Borrower shall
maintain adequate financial and accounting books and records in accordance with
sound business practices and generally accepted accounting principles
consistently applied, and permit any representative of Lender, upon reasonable
written notice to Borrower, at any time during usual business hours, to
inspect, audit, and examine such books and records and to make copies and take
extracts therefrom, and discuss its affairs, financing, and accounts with its
officers and independent public accountants. Borrower shall furnish Lender
with any information reasonably requested regarding Borrower's business or
finances promptly upon such entity's request. Borrower shall permit those
Persons designated by Lender to visit and inspect, during Borrower's normal
business hours, any of the Assets of Borrower upon reasonable notice and as
often as may be reasonably requested.

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<PAGE> 16
9.3 Financial Statements. Borrower shall furnish Lender:

(a) as soon as practicable after the end of each
fiscal year, but in no event later than one hundred and twenty (120)
days after the end of such fiscal year, balance sheets of Borrower as
of the end of such year, profit and loss statements and statements of
cash flow (which cash flow statement need not be certified) of
Borrower for such year, setting forth in each case in comparative
form, figures for the previous fiscal year, all in reasonable detail
and certified by the Chief Financial Officer of Borrower.

(b) as soon as possible and, in any event, within
five (5) days after Borrower has knowledge, notice of: (1) the
occurrence of any Event of Default or event which with the giving of
notice or lapse of time, or both, would result in an Event of Default;
or (2) any default or event of default as defined in any evidence of
Debt of Borrower or under any agreement, indenture, or other
instrument under which such Debt has been issued, irrespective of
whether such Debt is accelerated or such default is waived.

(c) with prompt written notice of: (1) a material
adverse effect on Borrower's consolidated condition (financial or
otherwise) or operations; (2) a material breach of or noncompliance
with any term, condition or covenant contained in this Agreement, the
Aircraft Secured Promissory Note, or the other Transaction Documents;
or (3) a material breach of or noncompliance with any material term,
condition, or covenant of any material contract to which Borrower is a
party or by which any of its Assets may be bound;

(d) with prompt written notice of any claims,
proceedings, or disputes against, or to the knowledge or belief of
Borrower, threatened or directly affecting Borrower, which involve
monetary amounts of Five Hundred Thousand U.S. Dollars (US$ 500,000)
or more or which are reasonably likely to have a Material Adverse
Effect on Borrower or any material labor controversy resulting in or
threatening to result in a strike against Borrower which could have a
Material Adverse Effect on Borrower or any proposal by any public
authority of which Borrower has knowledge to acquire any of the
material Assets or businesses of Borrower.

(e) promptly upon becoming aware of the filing
against Borrower of an involuntary case under any applicable
bankruptcy, insolvency, or other similar law now or hereafter in
effect, a written notice

16
<PAGE> 17
thereof specifying what action Borrower is taking or proposes to take
with respect thereto;

(f) prompt notice of: (1) all legal or arbitral
proceedings, and all proceedings by or before any governmental
regulatory authority or agency, directly affecting Borrower which
involve monetary amounts of Five Hundred Thousand U.S. Dollars (US$
500,000) or more, or which are reasonably likely to have a Material
Adverse Effect on Borrower, or on the timely payment of the principal
of or interest on the Loan, or the enforceability of this Agreement,
the Related Documents, or the Aircraft Secured Promissory Note, or the
rights and remedies of Lender hereunder or thereunder, as applicable;
(2) any information coming to the attention of Borrower relating to
any action taken or proposed to be taken by any Person which is
reasonably likely to have a material adverse effect on the ability of
Borrower to perform its obligations under this Agreement, the Related
Documents, or the Aircraft Secured Promissory Note, as applicable; and

(g) upon demand, furnish Lender with such
information as it may reasonably request with respect to the financial
condition and affairs of Borrower.

9.4 Other Debt. Borrower will promptly pay and discharge
any and all indebtedness whether for borrowed money or otherwise, liens,
charges or obligations when due, including all taxes and assessments, except
such as may in good faith be contested or disputed or for which arrangements
for deferred payment have been made, provided provision is made to the
satisfaction of Lender for the eventual payment thereof in the event it is
found that such indebtedness, obligation or tax is an indebtedness, obligation
or tax payable by Borrower and when such dispute or contest is settled and
determined, will promptly pay the full amount then due; provided, however, that
Borrower shall not be in breach of this covenant unless: (a) Borrower fails to
pay when due or declared due installments on debt which installments in the
aggregate are equal to or greater than One Hundred Thousand U.S. Dollars (US
$100,000); or (b) Borrower fails to pay when due two (2) or more payments to
more than one (1) lender on Debt.

9.5 Conduct of Business. Borrower will maintain and
preserve its existence, conduct its business in an orderly, efficient manner,
without voluntary interruption; keep its properties useful or necessary in its
business in good working order and condition, and from time to time make all
needed repairs, renewals and replacements thereto, so that the efficiency of
its properties shall be fully preserved; will comply with all applicable laws
and regulations of governmental agencies; and

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<PAGE> 18
will duly qualify to do business and maintain such qualification in each
jurisdiction where its ownership of property or conduct of business requires
such qualification.

9.6 Insurance. Borrower shall, at no cost to Lender,
maintain or cause to be maintained with insurers and through recognized
brokers, in full force and effect during the term of the loan until two (2)
years after the date of full repayment, full liability insurance in respect of
the Aircraft with Lender as an additional insured, and otherwise subject to all
the terms and conditions set out below.

If the Aircraft is sold, transferred, leased or operated by a third party
during such two (2) year period, Borrower and/or the lessee of the Aircraft
(the "Insured") will cause such subsequent owner, lessee or operator to obtain
the insurance referred to below so that Lender is fully protected by such
insurance for the entire two (2) year period. Such insurance shall include the
following provisions:

(a) The Insurers agree that the Lender shall not be liable for,
nor have any obligation to pay, any premium due hereunder, and
the Insurers further agree that they shall not offset or
counter-claim any unpaid premium against the interest of the
Lender.

(b) The Insurers agree to waive all of their rights of subrogation
against the Lender.

(c) The policy shall contain a cross liability clause to the
effect that this insurance, except for the limits of
liability, shall operate to give the Lender and Insureds the
same protection as if there was a separate policy issued to
each of them.

(d) The Insurers agree that this insurance shall be primary
insurance without any right of contribution from any other
insurance which is carried by the Lender or by the Insured and
the Insurer's liability shall not be affected by any other
insurance of which any of Lender or Insured have the benefit
so as to reduce the amount payable to the Lender under the
policy.

(e) The Insurers agree that as respects the interest of the Lender
this insurance shall in accordance with Lloyds Aviation 28
Breach of Warranty Endorsement not be invalidated by any
action or inaction of the Insured and shall insure the Lender
and its directors, officers, agents, and employees regardless
of any breach or violation of any

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<PAGE> 19
warranty, declaration or condition contained in the policy by
the Insured or by the omission or neglect, or by the
performance of any act in violation or any terms or conditions
of the policy or because of the subjection of the property to
any conditions, uses or operations not permitted by the policy
or because of a use or operation of the property which is, by
the terms of the policy, specifically excluded from coverage
or because of any false statement concerning this policy or
the subject thereof, by the Insured or the Insured's
employees, agents or representatives, whether occurring before
or after attachment of this Agreement, or whether before or
after the loss.

(f) The Insurers shall promptly notify the Lender in the event of
cancellation or of any change whatsoever of a restrictive
nature affecting the insurance certified hereunder or in the
event that any premium or installment of premium shall not be
paid when due. The Insurance shall continue unaltered for the
benefit of the Lender and its officers, agents, and employees
for at least thirty (30) days after written notice by
registered mail of such cancellation change or non-payment of
premium or installment thereof shall have been received by
Lender except in the case of war risk for which seven (7) days
notice will be given.

(g) Irrespective of any war, Hi-Jacking, Confiscation and other
related perils exclusion clause(s) (e.g. London endorsement
form AVN 48B or wording of similar intent) the Insurers agree
that coverage afforded shall apply for the benefit of the
Lender to the same extent as would have applied had such
exclusion clause(s) not been made a part of any such policy.

9.7 Compliance with Laws. Borrower shall exercise all
due diligence in order to comply with the requirements of all applicable laws,
rules, regulations and orders of any governmental authority, noncompliance with
which would have a Material Adverse Effect on Borrower.

9.8 Subsequent Leases. Borrower will obtain Lender's
prior written approval, not to be unreasonably withheld, with respect to the
lease of the Aircraft to any new lessee. Borrower will provide a copy of the
proposed lease agreement with such new lessee. Lender will have the right to
approve the form and substance thereof with respect to those terms and
provisions relevant to Lender's interest such as amount of rent payable,
insurance, registration, maintenance and return condition. With respect to
other terms and provisions of the lease, Borrower will

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<PAGE> 20
use its best efforts to negotiate with the new lessee such terms and conditions
as Lender reasonably may request. In order to secure, among other things, its
obligations hereunder, Borrower will assign all of its rights under such lease
to Lender pursuant to a written assignment agreement acceptable to Lender, and
obtain such Lessee's acknowledgment that Lease payments are to be paid directly
to CNB.

9.9 Preservation of Existence. Borrower will maintain
its existence and all of its material rights, privileges, and franchises in
every jurisdiction in which the character of the property owned or the nature
of the business transacted by its or its obligations and duties arising under
or pursuant to any of the Transaction Documents requires such qualification.

9.10 Further Assurances. At any time or from time to time
upon the reasonable request of Lender, Borrower shall and shall cause the
appropriate person to execute, acknowledge, deliver, and cause to be recorded
or registered (if so requested) all such additional instruments, and documents
and further assurances of title and shall do or cause to be done all such
further acts and things as may reasonably be necessary to effectuate fully the
intent and purposes of this Agreement, the Aircraft Secured Promissory Note,
the Related Documents, and any other agreement entered into in connection with
Lender's extension of the Loan to Borrower and to provide for payment of the
Loan made hereunder with interest thereon in accordance with the terms of this
Agreement and the Aircraft Secured Promissory Note.

10. NEGATIVE COVENANTS

Borrower covenants and agrees that from the date
hereof, and so long as the Loan hereunder shall be outstanding and until the
full and final payment of the Loan and the performance of all obligations of
Borrower hereunder, without the prior written consent of Lender first having
been obtained, to perform each and all of the covenants applicable to it:

10.1 Debt. Borrower shall not create, incur, assume,
permit, guarantee, or otherwise become, or remain, directly or indirectly,
liable with respect to any Debt, except:

(a) Borrower may become and remain liable with
respect to the Debt evidenced by the Aircraft Secured Promissory Note
and this Agreement;

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<PAGE> 21
(b) Borrower may become and remain liable with
respect to the Debt evidenced by the Junior Loan Agreement;

(c) Borrower may remain liable with respect to
Debt disclosed to Lender in writing prior to the date of execution of
this Agreement, and any refundings, refinancings, or extensions
thereof;

(d) Borrower may become and remain liable with
respect to Debt secured by Permitted Liens;

(e) Borrower may become and remain liable with
respect to Debt which is used at the time of its incurrence to repay
in full the outstanding principal balance on all of the Loan or the
Junior Loan and any and all accrued and unpaid interest thereon;

(f) Borrower may become and remain liable with
respect to Debt incurred in connection with any liability under the
lease for the Aircraft which liability was the responsibility of the
"lessor" of the Aircraft pursuant to an agreement between Lender and
such lessee prior to the date of the Borrowing of the Loan for the
Aircraft;

(g) Borrower may become liable with respect to
Debt incurred in the ordinary and usual course of business in an
amount outstanding not to exceed, in the aggregate, Two Hundred
Thousand U.S. Dollars (US$ 200,000).

10.2 Restriction on Fundamental Changes. Borrower shall
not change its name, materially change the nature of its business, enter into
any merger, consolidation, reorganization or recapitalization or reclassify its
interests or liquidate, wind up or dissolve itself (or suffer any liquidation
or dissolution), or convey, sell, assign, lease, transfer, or otherwise dispose
of, in one transaction or a series of transactions, all or substantially all of
its businesses or Assets, whether now owned or hereafter acquired, or acquire
by purchase or otherwise all or substantially all the businesses or Assets of,
or stock or other evidence of beneficial ownership of, any Person, except:

(a) Borrower may sell, assign, transfer, convey,
or otherwise dispose of businesses or Assets in accordance with the
provisions of Section 10.3 hereof; and

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<PAGE> 22
(b) Upon thirty (30) calendar days prior written
notice to Lender, Borrower may change its name.

10.3 Sale of Assets. Borrower shall not sell, assign,
transfer, convey, or otherwise dispose of its Assets, whether now owned or
hereafter acquired, except for the sale of the Aircraft by Borrower to any
Person; provided, however, that the proceeds from such sale are at least equal
to the outstanding principal balance of the Loan, the Junior Loan and any and
all accrued and unpaid interest on the Loan and the Junior Loan. The proceeds
of any sale of the Aircraft will be applied to the Loan and the Junior Loan and
otherwise as set forth in Article 5 hereof.

10.4 Liens. Borrower will not create, incur, assume or
suffer to exist any Lien (including any encumbrance or security interest) of
any kind upon any of its Assets, whether now owned or hereafter acquired,
except for Permitted Liens.

10.5 Investments. Borrower shall not make or own any
Investment, directly or indirectly, in any Person, except (a) cash equivalents,
(b) Borrower may maintain any Investment existing on the date hereof or in any
Person previously disclosed to Lender in writing, and (c) Borrower may maintain
any Investment which Lender has approved of in writing prior to Borrower making
or committing to make such Investment.

10.6 Restrictions on Distributions and Dividends.
Borrower shall not directly or indirectly, make or declare, any dividend (in
cash, return of capital, or any other form of Assets) on, or make any other
payment or distribution on account of, or set aside Assets for a sinking or
other similar fund for the purchase, redemption, retirement of, or redeem,
purchase, retire, or otherwise acquire any shares or interests of any of
Borrower's partnership interests, whether now or hereafter outstanding directly
or indirectly, whether in cash or property or in obligations, except:

(a) Borrower may pay dividends or make payment
distributions, so long as no Event of Default or Unmatured Event of Default has
occurred and is continuing; and

(b) Borrower may pay dividends or make payment
distributions with the amounts received by Borrower pursuant to the terms and
conditions of Section 5.1, so long as no Event of Default or Unmatured Event of
Default has occurred and is continuing.

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<PAGE> 23
10.7 Preservation of Lender's Security Interest and Title
to the Aircraft. Borrower shall not, without the prior written consent of
Lender, knowingly do or take or omit to take any acts or things which might
prejudice the rights and remedies of Lender's valid security interest or title
in the Aircraft, or in the Lease, irrespective of whether such is in effect
from time to time.

10.8 Capital Expenditures. Other than the acquisition of
the Aircraft or the acquisition of any parts, components, accessories, or
equipment necessary for the operation or lease of the Aircraft, Borrower shall
not make any capital expenditure during any fiscal year during the term of this
Agreement, if, any after giving effect thereto, the aggregate amount of all
capital expenditures incurred by Borrower during such fiscal year would exceed
Two Hundred Thousand U.S. Dollars (US$ 200,000); provided, however, that (a)
the acquisition of the Aircraft and the acquisition of any Parts, necessary for
the operation or lease of the Aircraft is not considered a capital expenditure
for purposes of this Section 10.8, and (b) the acquisition of any Parts in
order to comply with an airworthiness directive of the FAA or the aviation
authority where the Aircraft is registered is not considered a capital
expenditure for purposes of this Section 10.8.

10.9 Conduct of Business. Except as may be permitted by
the other provisions of this Section 10, Borrower shall not engage in any
business other than the businesses which Borrower is engaged in as of the date
hereof, or any business activities related thereto (such business activities
include the leasing of the Aircraft to various Persons).

11. EVENTS OF DEFAULT

11.1 Events of Default. The occurrence of any one or more
of the following described events (each, an "Event of Default") shall
constitute a default hereunder:

(a) Failure to Make Payments When due. Borrower
shall fail to pay when due, any amount owing hereunder or under the
Aircraft Secured Promissory Note with respect to the principal and
interest on the Loan when such amount is due, whether at stated
maturity, as a result of a mandatory repayment requirement, by
acceleration, by notice of prepayment, or otherwise and such failure
is not cured within three (3) Business Days after written notice from
Lender of the occurrence thereof; or

(b) Default in Other Agreements. (i) Borrower
shall default (as principal or guarantor or other surety) in the
payment when due (subject

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<PAGE> 24
to any applicable notice or grace period), whether at stated maturity
or otherwise, of any monetary obligation with respect to (howsoever
designated) any Debt, (including the Junior Loan) whether such Debt
now exists or shall hereafter be created; or (ii) An event of default,
as defined in any mortgage, indenture, interest rate swap agreement,
or instrument under which there may be issued, or by which there may
be secured or evidenced, any Debt of, or Debt guaranteed by, Borrower
whether such Debt now exists or shall hereafter be created, shall
occur and Borrower shall permit such Debt to become due and payable
prior to its stated maturity or due date;

(c) Breach of Certain Covenants. (i) Borrower
shall fail to perform or comply fully with any covenant, term, or
condition contained in Article 10 hereof; or (ii) Borrower shall
default in the performance of or compliance with any term contained in
this Agreement other than those referred to in Sections 11.1(a),
11.1(c)(i), and 11.1 (d) and such default shall not have been remedied
or waived within ten (10) calendar days after receipt of notice from
Lender of such default (if Borrower is using diligent and best efforts
to cure such default, then Borrower will have the reasonable number of
days necessary to cure such default (not to exceed thirty (30) days));

(d) Breach of Representation or Warranty. Any
financial statement, representation, warranty, or certification made
or furnished by Borrower under this Agreement shall, at any time,
prove to have been materially false, incorrect, or incomplete when
made, effective, or reaffirmed, as the case may be; or

(e) Bankruptcy; Assignment for the benefit of
Creditors. Borrower makes an assignment for the benefit of
creditors, or admits in writing its inability to pay its debts as they
become due, or files a voluntary petition in bankruptcy, or is
adjudicated a bankrupt or insolvent, or files any petition or answer
seeking for itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any
present or future statute, law or regulation, or files any answer
admitting or not contesting the material allegations of a petition
filed against Borrower in any such proceeding, or seeks or consents to
or acquiesces in the appointment of any trustee, receiver or
liquidator of Borrower or of all or any substantial part of the Assets
of Borrower or if Borrower or its limited partners, as applicable,
takes any action looking to the dissolution or liquidation of
Borrower; or

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<PAGE> 25
(f) Appointment of Receiver. Within sixty (60)
days after the commencement of an action against Borrower seeking any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law
or regulation, such action is not dismissed or all orders or
proceedings thereunder affecting the operations or the business of
Borrower stayed, or if stayed such stay order is thereafter set aside,
or if, within sixty (60) days after the appointment without the
consent of Borrower as applicable, the receiver, or the liquidator of
Borrower or all or any substantial part of the Assets of Borrower or,
such appointment is not vacated; or

(g) Judgments and Attachments.

(i) A final judgment for money, the
uninsured portion of which is in excess of Five Hundred
Thousand U.S. Dollars (US $500,000) is rendered against
Borrower and within thirty (30) days after the entry thereof,
such judgment is not discharged or execution thereof stayed
pending appeal, or within thirty (30) days after the
expiration of any such stay, such judgment is not discharged;
or

(ii) a judgment creditor shall obtain
possession of any material portion of the Assets of Borrower
by any means, including without limitation, levy, distraint,
replevin, or self-help; or

(h) Default Under Related Documents, etc. Borrower shall
fail to observe or perform any term, covenant, condition, agreement, or
obligation to be observed or performed by it under the Related Documents, and:
(i) such failure arises out of the granting by Borrower of a Lien upon any of
the Assets of Borrower in favor of any Person, except for Permitted Liens; or
(ii) such failure arises out of any other act or failure to act of Borrower
which act adversely affects the Liens granted in favor of Lender by Borrower;
or (iii) such failure arises other than under the circumstances set forth in
clauses (i) and (ii) above and continues for Fifteen (15) calendar days after
notice of such failure from Lender (if Borrower is using diligent and best
efforts to cure such default, then Borrower will have the reasonable number of
days necessary to cure such default (not to exceed thirty (30) days)); or (iv)
such failure arises other than under the circumstances set forth in clauses (i)
and (ii) above and continues for thirty (30) calendar days after Lender is
notified of such failure by Borrower.

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<PAGE> 26
(i) Insurance. Borrower fails or has failed to
cause Lessee or any subsequent lessee to obtain or maintain the insurance
required by this Agreement.

11.2 Remedies. Upon the occurrence of an Event of
Default:

(a) If such Event of Default arises under Sections
11.1(e) or 11.1(f), then the unpaid principal amount of and any
accrued interest on the Loan and any other amounts owing hereunder,
under the Aircraft Secured Promissory Note or under the other
Transaction Documents shall automatically become immediately due and
payable, without presentment, demand, protest, notice, or other
requirements of any kind, all of which are hereby expressly waived by
Borrower; and

(b) In the case of any other Event of Default,
Lender, by written notice to Borrower, shall declare all of the Loan
to be, and the same shall forthwith become, due and payable, together
with any and all accrued interest thereon, and any other amounts owing
hereunder, under the Aircraft Secured Promissory Note or under the
other Transaction Documents.

Upon acceleration, Lender, without notice to or demand upon Borrower, which are
expressly waived by Borrower, to the fullest extent permitted by law, may
proceed to protect, exercise, and enforce its rights and remedies hereunder and
under the Aircraft Secured Promissory Note, the Mortgage and the Related
Documents, and any other rights and remedies as are provided by law or equity.
Lender may determine, in its sole discretion, the order and manner in which
Lender's rights and remedies are to be exercised, and all payments received by
Lender, or any one or more of them, shall be applied as follows (regardless of
how Lender may treat the payments for the purpose of its own accounting):
first, to all out-of-pocket expenses (including reasonable attorneys' fees)
incurred by Lender in enforcing any Debt of Borrower hereunder, or in
collecting any payments due hereunder or under the Aircraft Secured Promissory
Note; second, to accrued and unpaid interest on the Loan; third, to the
outstanding principal balance of the Loan, fourth, to any other Debt of
Borrower owing to Lender; and fifth, any remainder to Borrower.

12. EXPENSES AND INDEMNITIES

12.1 Expenses. Irrespective of whether the
transactions contemplated hereby shall be consummated, Borrower hereby agrees
to pay on demand: (a) filing, recording, publication, search and title fees
paid or incurred by or on behalf of Lender in connection with the transactions
contemplated by, and the

26
<PAGE> 27
administration of this Agreement, the Aircraft Secured Promissory Note, and the
Related Documents; (b) the reasonable out-of-pocket costs and expenses
(including reasonable attorneys' fees and expenses) incurred by Lender to
correct any default or to enforce any provision of this Agreement, the Aircraft
Secured Promissory Note, any of the Related Documents, or any other document or
instrument contemplated hereby or thereby against Borrower; and (c) the
reasonable out-of-pocket costs and expenses (including reasonable attorneys'
fees and expenses) incurred by Lender in connection with any bankruptcy or
other insolvency proceeding, reorganization, workout, composition, or other
credit arrangement of Borrower.

12.2 Indemnity. In addition to the payment of
expenses pursuant to Section 12.1 hereof, and irrespective of whether the
transactions contemplated hereby shall be consummated, Borrower hereby agrees
to indemnify, exonerate, pay, and hold harmless Lender, and the officers,
directors, employees, and agents of and counsel to Lender (collectively, the
"Indemnitees" and individually, an "Indemnitee") from and against any and all
liabilities, obligations, losses, damages, penalties, actions, causes of
action, judgments, suits, claims, costs, expenses, of any kind or nature
whatsoever, including the reasonable fees and expenses of counsel to
Indemnitees, in connection with any investigative, administrative, or judicial
proceeding, irrespective of whether such Indemnitee shall be designated a party
thereto, which may be imposed on, incurred by, or asserted against such
Indemnitee, in any manner relating to or arising out of this Agreement, any
Loan hereunder, the use or intended use of the proceeds of the Loan, or the
consummation of the transactions contemplated by this Agreement (the
"Indemnified Liabilities"); provided, however, that Borrower's obligations to
indemnify shall not extend to any losses, damages, liabilities, actions, or
claims against any Indemnitee arising as a result of the gross negligence or
willful misconduct of such Indemnitee. Each Indemnitee shall promptly notify
Borrower of each event of which it has knowledge which may give rise to a claim
under the indemnification provisions of this Section 12.2. If any
investigative, judicial, or administrative proceeding arising from any of the
foregoing is brought against any Indemnitee, Borrower, to the extent directed
by such Indemnitee, will resist and defend such action, suit, or proceeding or
cause the same to be resisted and defended by counsel designated by Borrower
(which counsel shall be reasonably satisfactory to such Indemnitee); provided,
however, that Borrower's obligation to so resist or defend any such action,
suit, or proceeding shall exist if and only if Borrower is directed to do so by
the Indemnitee. Such Indemnitee will use its best efforts to cooperate in the
defense of any such action, suit, or proceeding. In the event that the
Indemnitee does not direct Borrower to resist or defend any action, suit,
proceeding or cause and Borrower desires to resist or defend such action, suit,
proceeding or cause, then

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<PAGE> 28
Borrower and such Indemnitee will discuss and establish the terms and
conditions on which Borrower may defend such action, suit, proceeding or cause.
To the extent that the undertaking to indemnify, exonerate, pay, and hold
harmless set forth in this Section 12.2 may be unenforceable because it is
violative of any law or public policy as determined by a final judgment of a
court of competent jurisdiction, Borrower shall make the maximum contribution
to the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law. The obligations of Borrower under this
Section 12.2 shall survive the termination of this Agreement and the discharge
of Borrower's other obligations hereunder.

12.3 Currency Indemnity. If under any applicable law,
whether as a result of judgment against Borrower or the liquidation of Borrower
or for any other reason, any payment hereunder is made or recovered in a
currency other than United States Dollars then, to the extent that the payment
(when converted into United States Dollars at the "rate of exchange" on the
date of payment or, in the case of a liquidation, the latest date for the
determination of liabilities permitted by the applicable law) falls short of
the amount unpaid under this Agreement, Borrower will as a separate and
independent obligation, fully indemnify Lender against the amount of the
shortfall. If the payment exceeds the amount unpaid under this Agreement,
Lender will remit such excess to Borrower. For the purposes of this paragraph
"rate of exchange" means the rate at which Lender is able on the relevant date
to purchase United States Dollars in New York or London (at Lender's option)
with such other currency.

13. MISCELLANEOUS

13.1 Setoffs. Nothing in this Agreement shall be deemed
to constitute a waiver or prohibition of the Lender's right of setoff and
Borrower hereby expressly acknowledges that the Lender has such rights.

13.2 Entire Agreement. This Agreement and the documents
and agreements referred to and incorporated herein embody the entire agreement
and understanding between the parties hereto and supersede all prior agreements
and understandings relating to the subject matter hereof and the transactions
contemplated hereby.

13.3 Successors and Assigns. This Agreement shall be
binding upon, and inure to the benefit of, the parties hereto and their
respective successors and assigns; provided, however, that Borrower and Lender
may not assign or transfer any interest or rights hereunder without the prior
written consent of the other party

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<PAGE> 29
(which consent will not be unreasonably withheld) and any such prohibited
assignment shall be absolutely void.

13.4 No Waiver. No failure to exercise, and no delay in
exercising any right, power or remedy hereunder or under any document delivered
pursuant hereto shall impair any right, power or remedy which Lender may have,
nor shall any such delay be construed to be a waiver of any such rights, powers
or remedies, or an acquiescence in any breach or default under this Agreement
or any document delivered pursuant hereto nor shall any waiver of any breach or
default of Borrower hereunder be deemed a waiver of any subsequent default or
breach. The rights and remedies of Lender specified herein are cumulative and
not exclusive of any rights or remedies which Lender would otherwise have
either at law or in equity.

13.5 Survival. All representations, warranties and
agreements contained herein on the part of Borrower shall survive the making of
the Loan hereunder and all such representations, warranties and agreements
shall be effective so long as any portion of the principal of the Loan or any
interest thereon is unpaid.

13.6 Notices. Any notice, request or information required
or permissible under this Agreement will be in writing and in English. Notices
will be delivered in person or sent by fax, letter (mailed airmail, certified
and return receipt requested), or by expedited delivery addressed to the
parties as set forth below in this Section. In the case of a fax, notice will
be deemed received upon actual receipt (in the case of a fax notice, the date
of actual receipt will be deemed to be the date set forth on the confirmation
of receipt produced by the sender's fax machine immediately after the fax is
sent). In the case of a mailed letter, notice will be deemed received on the
tenth (10th) day after mailing. In the case of a notice sent by expedited
delivery, notice will be deemed received on the date of delivery set forth in
the records of the Person which accomplished the delivery. If any notice is
sent by more than one of the above listed methods, notice will be deemed
received on the earliest possible date in accordance with the above provisions.
Notices will be addressed as follows:

Lender:

CITY NATIONAL BANK
Westside Commercial Banking Center
400 No. Roxbury Drive, 3rd Floor
Beverly Hills, CA 90210

Telecopier: 213-888-6099

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<PAGE> 30
Telephone: 213-888-6113

ATTENTION: Damien Doss, V.P.

With a copy to:

CITY NATIONAL BANK
Legal Department
400 No. Roxbury Drive, 5th Floor
Beverly Hills, CA 90210

Telecopier: 310-888-6232
Telephone: 310-888-6260

ATTENTION: Arthur G. Spence, Associate General Counsel

Borrower:

IAI ALASKA I CORPORATION
1210 S. Valley View Boulevard, Suite 202
Las Vegas, Nevada 90102

Telecopier: 702/880-3440
Telephone: 702/880-1000

ATTENTION: President

With a copy to:

INTERNATIONAL AIRCRAFT INVESTORS
3655 Torrance Boulevard, Suite 410
Torrance, California 90503

Telecopier: 310/316-8145
Telephone: 310/316-3080

ATTENTION: President

13.7 Termination. This Agreement shall terminate when all
obligations of Borrower incurred hereunder, under the Aircraft Secured
Promissory

30
<PAGE> 31
Note, any Transaction Document, or under any other agreement executed and
delivered in connection herewith have been discharged in full.

13.8 Waivers and Amendments. No amendment, modification,
restatement, supplement, termination, or waiver of or to, or consent to any
departure from, any provision of this Agreement, the Aircraft Secured
Promissory Note, or the Related Documents, shall be effective unless the same
shall be in writing and signed by Lender and Borrower.

13.9 Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties on separate
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original and all of which counterparts, taken together,
shall constitute but one and the same Agreement. This Agreement shall become
effective upon the execution of a counterpart hereof by each of the parties
hereto.

13.10 Severability of Provisions. Any provision of this
Agreement, the Aircraft Secured Promissory Note, or the Related Documents which
is illegal, invalid, prohibited, or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such illegality,
invalidity, prohibition, or unenforceability without invalidating or impairing
the remaining provisions hereof or affecting the validity or enforceability of
such provision in any other jurisdiction.

13.11 GOVERNING LAW. EXCEPT AS SPECIFICALLY SET FORTH IN
ANY OTHER TRANSACTION DOCUMENT: (A) THIS AGREEMENT, THE AIRCRAFT SECURED
PROMISSORY NOTE, AND THE OTHER TRANSACTION DOCUMENTS SHALL BE DEEMED TO HAVE
BEEN MADE IN THE STATE OF CALIFORNIA; AND (B) THE VALIDITY OF THIS AGREEMENT,
THE AIRCRAFT SECURED PROMISSORY NOTE, AND THE OTHER TRANSACTION DOCUMENTS, AND
THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE
RIGHTS OF THE PARTIES THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.

13.12 JURISDICTION AND VENUE. TO THE EXTENT PERMITTED BY
LAW, THE PARTIES HERETO AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN
CONNECTION WITH THIS AGREEMENT, THE AIRCRAFT SECURED PROMISSORY NOTE, OR THE
OTHER TRANSACTION DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND
FEDERAL COURTS LOCATED IN THE

31
<PAGE> 32
COUNTY OF LOS ANGELES, STATE OF CALIFORNIA OR, AT THE SOLE OPTION OF LENDER, IN
ANY OTHER COURT IN WHICH LENDER SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS
AND WHICH HAS SUBJECT MATTER OR JURISDICTION OVER THE MATTER IN CONTROVERSY.
LENDER AND BORROWER, TO THE EXTENT THEY MAY LEGALLY DO SO, HEREBY WAIVE ANY
RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT
TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS
SECTION 13.12 AND STIPULATE THAT THE STATE AND FEDERAL COURTS LOCATED IN THE
COUNTY OF LOS ANGELES, STATE OF CALIFORNIA SHALL HAVE IN PERSONAM JURISDICTION
AND VENUE OVER SUCH PARTY FOR THE PURPOSE OF LITIGATING ANY SUCH DISPUTE,
CONTROVERSY, OR PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE
AIRCRAFT SECURED PROMISSORY NOTE, OR THE OTHER TRANSACTION DOCUMENTS. TO THE
EXTENT PERMITTED BY LAW, SERVICE OF PROCESS SUFFICIENT FOR PERSONAL
JURISDICTION IN ANY ACTION AGAINST BORROWER OR LENDER MAY BE MADE BY REGISTERED
OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ITS ADDRESS INDICATED IN
SECTION 13.6 ATTACHED HERETO. BORROWER AGREES THAT ANY FINAL JUDGMENT RENDERED
AGAINST IT IN ANY ACTION OR PROCEEDING SHALL BE CONCLUSIVE AS TO THE SUBJECT OF
SUCH FINAL JUDGMENT AND MAY BE ENFORCED IN OTHER JURISDICTIONS IN ANY MANNER
PROVIDED BY LAW.

13.13 WAIVER OF TRIAL BY JURY. BORROWER AND LENDER, TO THE
EXTENT THEY MAY LEGALLY DO SO, HEREBY EXPRESSLY WAIVE ANY RIGHT TO TRIAL BY
JURY OF ANY CLAIM, DEMAND, ACTION, CAUSE OF ACTION, OR PROCEEDING ARISING UNDER
OR WITH RESPECT TO THIS AGREEMENT, THE AIRCRAFT SECURED PROMISSORY NOTE, OR THE
OTHER TRANSACTION DOCUMENTS, OR IN ANY WAY CONNECTED WITH, OR RELATED TO, OR
INCIDENTAL TO, THE DEALINGS OF THE PARTIES HERETO WITH RESPECT TO THIS
AGREEMENT, THE AIRCRAFT SECURED PROMISSORY NOTE, OR THE OTHER TRANSACTION
DOCUMENTS, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER
NOW EXISTING OR HEREAFTER ARISING, AND IRRESPECTIVE OF WHETHER SOUNDING IN
CONTRACT, TORT, OR OTHERWISE. TO THE EXTENT THEY MAY LEGALLY DO SO, BORROWER
AND LENDER HEREBY AGREE THAT ANY SUCH CLAIM, DEMAND, ACTION, CAUSE OF ACTION,
OR PROCEEDING SHALL BE

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<PAGE> 33
DECIDED BY A COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY HERETO MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 13.13 WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE OTHER PARTY OR PARTIES HERETO TO WAIVER OF ITS
OR THEIR RIGHT TO TRIAL BY JURY.

13.14 Headings. Article and Section headings used in this
Agreement and the table of contents preceding this Agreement are for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose or affect the construction of this Agreement.

IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed the day and year first above written.

CITY NATIONAL BANK, a National IAI ALASKA I CORPORATION,
a Banking Association a Nevada Corporation

By: /s/ Damien Doss By: /s/ Michael P. Grella
-------------------------- ---------------------------
Its: Vice-President Its: President
------------------------- --------------------------

<PAGE> 1
EXHIBIT 4.6

AIRCRAFT SECURED PROMISSORY NOTE

ORIGINAL PRINCIPAL AMOUNT: US$ 14,650,000
MAKER: IAI ALASKA I CORPORATION, a Nevada Corporation
DATED AS OF: May 17, 1996

PROMISE TO REPAY. FOR VALUE RECEIVED, IAI ALASKA I
CORPORATION, a Nevada Corporation ("Maker"), promises to pay to CITY NATIONAL
BANK, a national banking association ("Lender"), or order, the principal sum of
Fourteen Million Six Hundred Fifty Thousand U.S. Dollars (US$ 14,650,000) or
such lesser amount as shall equal the outstanding amount of the Loan made by
Lender to Maker pursuant to Section 2.1 of that certain Senior Term Loan
Agreement, dated as of May 17, 1995, (the "Aircraft Loan Agreement"), entered
into between Maker and Lender.

DEFINED TERMS. Any and all initially capitalized terms used
herein shall have the meanings ascribed thereto in the Aircraft Loan Agreement,
unless specifically defined herein. The term "or" as used in this Aircraft
Secured Promissory Note has, except where otherwise indicated, the inclusive
meaning represented by the phrase "and/or". This Aircraft Secured Promissory
Note (this "Aircraft Secured Promissory Note") is the promissory note defined
in the Aircraft Loan Agreement as the "Aircraft Secured Promissory Note" and is
subject to, and entitled to the benefits of, the terms and provisions of the
Aircraft Loan Agreement.

PAYMENTS OF PRINCIPAL AND INTEREST. Maker hereby promises to
make payments of principal and interest, with respect to the Loan, evidenced
hereby at the rates and times, and in the amounts, and in all other respects in
the manner as provided in the Aircraft Loan Agreement.

PREPAYMENTS. Maker may prepay the principal balance due under
this Aircraft Secured Promissory Note, in whole or in part, only in accordance
with the provisions of the Aircraft Loan Agreement.

APPLICATION OF PAYMENTS. All payments (including prepayments)
made hereunder shall be applied as set forth in the Aircraft Loan Agreement.

TIME AND PLACE OF PAYMENTS. All principal and interest due
hereunder is payable in immediately available United States Dollars at Lender's
office located at 400 No. Roxbury Dr. 3rd Floor, Beverly Hills, California
90210 (or at such other office designated from time to time by Lender), not
later than 1:00 p.m., Los Angeles time, on the day of payment.

1
<PAGE> 2
WAIVERS. Maker, for itself and its legal representatives,
successors, and assigns, expressly waives presentment, demand, protest, notice
(except as required by the Aircraft Loan Agreement), and all other requirements
of any kind, in connection with the enforcement or collection of this Aircraft
Secured Promissory Note.

ACCELERATION AND WAIVER. IT IS EXPRESSLY AGREED THAT, UPON
THE OCCURRENCE OF AN EVENT OF DEFAULT, THE UNPAID PRINCIPAL BALANCE OF AND ANY
ACCRUED AND UNPAID INTEREST UNDER THIS AIRCRAFT SECURED PROMISSORY NOTE MAY BE
DECLARED TO BE, OR SHALL IMMEDIATELY BECOME, DUE AND PAYABLE PURSUANT TO THE
TERMS OF THE AIRCRAFT LOAN AGREEMENT, WITHOUT PRESENTMENT, DEMAND, PROTEST,
NOTICE (EXCEPT AS REQUIRED BY THE AIRCRAFT LOAN AGREEMENT) OR OTHER
REQUIREMENTS OF ANY KIND, ALL OF WHICH ARE HEREBY EXPRESSLY WAIVED BY MAKER.

ATTORNEYS' FEES. In the event it should become necessary to
employ counsel to collect or enforce this Aircraft Secured Promissory Note,
Maker agrees to pay the reasonable attorneys' fees and costs of the holder
hereof, irrespective of whether suit is brought, to the extent and as provided
in the Aircraft Loan Agreement.

AMENDMENTS. This Aircraft Secured Promissory Note may not be
changed, modified, amended, or terminated except by a writing duly executed by
Maker and the holder hereof.

HEADINGS. Section headings used in this Aircraft Secured
Promissory Note are solely for convenience of reference, shall not constitute a
part of this Aircraft Secured Promissory Note for any over purpose, and shall
not affect the construction of this Aircraft Secured Promissory Note.

GOVERNING LAW. EXCEPT AS OTHERWISE PROVIDED IN THE AIRCRAFT
LOAN AGREEMENT: (A) THIS AIRCRAFT SECURED PROMISSORY NOTE SHALL BE DEEMED TO
HAVE BEEN MADE IN THE STATE OF CALIFORNIA; AND (B) THE VALIDITY OF THIS
AIRCRAFT SECURED PROMISSORY NOTE AND THE CONSTRUCTION, INTERPRETATION, AND
ENFORCEMENT HEREOF, AND THE RIGHTS C)F THE PARTIES HERETO SHALL BE DETERMINED
UNDER, GOVERNED BY, AND CONSTRUCTED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA.

JURISDICTION AND VENUE. TO THE EXTENT PERMITTED BY LAW, MAKER
AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AIRCRAFT
SECURED PROMISSORY NOTE SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND
FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, CALIFORNIA. MAKER, TO THE
EXTENT IT MAY LEGALLY DO SO, HEREBY WAIVES ANY RIGHT IT MAY HAVE TO ASSERT THE
DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO

2
<PAGE> 3
THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION AND
STIPULATES THAT THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS
ANGELES, STATE OF CALIFORNIA SHALL HAVE IN PERSONAM JURISDICTION AND VENUE OVER
MAKER FOR THE PURPOSE OF LITIGATING ANY SUCH DISPUTE, CONTROVERSY, OR
PROCEEDING ARISING OUT OF OR RELATED TO THIS AIRCRAFT SECURED PROMISSORY NOTE.
TO THE EXTENT PERMITTED BY LAW, SERVICE OF PROCESS SUFFICIENT FOR PERSONAL
JURISDICTION IN ANY ACTION AGAINST MAKER MAY BE MADE BY REGISTERED OR CERTIFIED
MAIL, RETURN RECEIPT REQUESTED, TO ITS ADDRESS INDICATED IN SECTION 13.6 OF THE
AIRCRAFT LOAN AGREEMENT. MAKER AGREES THAT ANY FINAL JUDGMENT RENDERED AGAINST
IT IN ANY ACTION OR PROCEEDING SHALL BE CONCLUSIVE AS TO THE SUBJECT OF SUCH
FINAL JUDGMENT AND MAY BE ENFORCED IN OTHER JURISDICTIONS IN ANY MANNER
PROVIDED BY LAW.

IAI ALASKA I CORPORATION, a Nevada
Corporation

By: /s/ Michael P. Grella
---------------------------------
Its: President
--------------------------------

<PAGE> 1
EXHIBIT 4.7

===============================================================================

SECURED CREDIT AGREEMENT

between

IAI II, INC.,

as the Borrower,

and

CONTINENTAL BANK N.A.,

as the Lender

Dated as of December 21, 1993

===============================================================================

<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2 Cross References: Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

SECTION 2. COMMITMENT OF THE LENDER; BORROWING PROCEDURES AND CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.1 Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.2 Borrowing Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.3 Conditions to the Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2.4 Extension of Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

SECTION 3. NOTE EVIDENCING LOAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 3.1 Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

SECTION 4. INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 4.1 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 4.2 Interest Payment Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 4.3 Basis of Computation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 4.4 Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 4.5 Deposits Unavailable or Interest Rate Unascertainable or
Inadequate; Impracticability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 4.6 Changes in Law Rendering Loans made at Interbank Rate
Unlawful . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 4.7 Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 4.8 Funding Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 4.9 Conclusiveness of Statements Survival of Provisions . . . . . . . . . . . . . . . . . . . . . . . 11

SECTION 5. PREPAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 5.1 Voluntary Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 5.2 Mandatory Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 5.3 Interest on Principal Prepaid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

SECTION 6. MAKING OF PAYMENTS; OFFSET; FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 6.1 Place of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 6.2 Offset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

SECTION 7. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 7.1 Organization, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 7.2 Authorization; No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 7.3 Validity and Binding Nature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 7.4 Litigation and Contingent Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>

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<TABLE>
<S> <C>
SECTION 7.5 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 7.6 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 7.7 Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 7.8 Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 7.9 Regulations G, T, U and X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 7.10 Citizenship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 7.11 Certain Related Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 7.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 7.13 Absence of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 7.14 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 7.15 Material Disruptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 7.16 Accuracy of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 7.17 Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 7.18 Intentionally deleted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 7.19 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 7.20 Title to Aircraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 7.21 Lessee Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

SECTION 8. BORROWER'S COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 8.1 Reports, Certificates and Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 8.1.1 Reports of Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 8.1.2 Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 8.1.3 British Midland Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 8.1.4 Reports to SEC and to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 8.1.5 Notice of Default and Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 8.1.6 Withdrawal Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 8.1.7 Related Documents; Aircraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 8.1.8 Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 8.2 Books, Records and Inspections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 8.3 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 8.4 Taxes and Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 8.5 Purchase or Redemption of Borrower's Securities;
Dividend Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 8.6 Mergers, Consolidations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 8.7 Unconditional Purchase Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 8.8 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 8.9 Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 8.10 Citizenship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 8.11 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 8.12 Collateral Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 8.13 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 8.14 Maintenance of Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 8.15 Transaction with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 8.16 Changes to Related Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 8.17 Performance of Obligations Under ILFC Purchase Contract
</TABLE>

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<TABLE>
<S> <C>
and Aircraft Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 8.18 Limitation on Activities of Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 8.19 Payments Under Aircraft Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 8.20 Notification of Status of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 8.21 Lessee Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 8.22 Estoppel Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

SECTION 9. CONDITIONS OF LENDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 9.1 Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 9.1.1 Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 9.1.2 Remarketing Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 9.1.3 Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 9.1.4 Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 9.1.5 Resolutions; Corporation Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 9.1.6 Good Standing Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 9.1.7 Opinion of Counsel for the Borrower and ILFC and Letter from Allen & Overy . . . . . . . 21
SECTION 9.1.8 Consents, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 9.2 Mortgage and CAA Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 9.3 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 9.4 Airworthiness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 9.5 Financing Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 9.6 Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 9.7 The Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 9.8 Legal Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 9.9 Collateral Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 9.10 Bill of Sale from Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 9.11 Intentionally deleted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 9.12 Intentionally deleted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 9.13 Lender's Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 9.14 Other Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 9.14.1 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 9.14.2 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 9.14.3 Confirmatory Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

SECTION 10. EVENT OF DEFAULT AND THEIR EFFECT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 10.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 10.1.1 Non-Payment of Loan, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 10.1.2 Default of Other Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 10.1.3 Other Material Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 10.1.4 Aircraft Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 10.1.5 Bankruptcy, Insolvency, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 10.1.6 Insurance; Citizenship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 10.1.7 Non-Compliance with this Agreement and the Related Documents . . . . . . . . . . . . . . 24
</TABLE>

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<PAGE> 5
<TABLE>
<S> <C>
SECTION 10.1.8 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 10.1.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 10.1.10 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 10.1.11 Certain Related Documents Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 10.1.12 Ownership of Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 10.2 Effect of Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 10.3 Borrower's Right to Cure Aircraft Lease Default . . . . . . . . . . . . . . . . . . . . . . . . . 26

SECTION 11. Intentionally deleted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

SECTION 12. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 12.1 Waiver; Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 12.2 Confirmations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 12.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 12.4 Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 12.5 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 12.6 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 12.7 Intentionally deleted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 12.8 Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 12.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 12.10 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 12.11 Submission to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 12.12 JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>

iv
<PAGE> 6
EXHIBITS

Exhibit A Note
Exhibit B Consent
Exhibit C Remarketing Agreement and Note Purchase Agreement
Exhibit D Mortgage and Security Agreement
Exhibit E Form of Opinion of Counsel to Borrower
Exhibit F Form of Opinion of Counsel to ILFC
Exhibit G Letter From Allen & Overy

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<PAGE> 7
EXHIBIT 4.7

SECURED CREDIT AGREEMENT

Dated as of December 21, 1993

IAI II, INC., a Nevada corporation, as borrower (the "Borrower"), and
CONTINENTAL BANK N.A., a national banking association, as lender (the "Lender")
agree as follows:

SECTION 1. DEFINITIONS.

SECTION 1.1 Defined Terms. The following terms (whether or not
underscored) when used in this Agreement, including its preamble, except where
the context otherwise requires, shall have the following meanings (such
meanings, except where the context otherwise requires, to be equally applicable
to the singular and plural forms thereof):

"Affiliate" of any Person means (i) any director (or Person
holding the equivalent position) or officer (or Person holding the equivalent
position) of such Person or of any Affiliate of such Person, and (ii) any other
Person which, directly or indirectly, controls or is controlled by or under
common control with such Person (excluding any trustee under, or any committee
with responsibility for administering, a Plan). A Person shall be deemed to be

1. "controlled by" any other Person if such other Person
possesses, directly or indirectly, power (i) to vote 10% or more of the
securities having at the time of any determination voting power for the
election of directors of such Person or (ii) to direct or cause the direction
of the management and policies of such Person whether by contract or otherwise;
or

2. "controlled by" or "under common control with" such
other Person if such other Person is a member of the immediate family of such
Person or is the executor, administrator or other personal representative of
such Person.

"Agreement" means this Secured Credit Agreement, as the same
may be amended, supplemented or otherwise modified from time to time in
accordance with the provisions hereof.

"Aircraft" means the Airframe, together with the Engines (or
any Replacement Engine substituted for any of such Engines under the Mortgage),
whether or not any such Engines or Replacement Engines may from time to time be
installed on such Airframe or may be installed on any other airframe or on any
other aircraft, and all Parts, including avionics and related equipment,
manuals and logs.

"Aircraft Lease" shall mean that certain Aircraft Lease
Agreement dated as November 8, 1991 between British Midland, as lessee, and the
Borrower as assignee of ILFC, as lessor, concerning the Aircraft, as amended by
Amendment No. 1 thereto dated February 3, 1992, Amendment No. 2 thereto dated
May 5, 1992, and as such lease may be

<PAGE> 8
amended, supplemented or otherwise modified from time to time in accordance
with Section 8.l8 hereof.

"Airframe" means (i) the Boeing 737-300 aircraft (excluding
the Engines or engines from time to time installed thereon) bearing United
Kingdom Registration Mark GOBML and manufacturer's serial number 24300, (ii)
any and all Parts so long as the same shall be incorporated in such aircraft
and (iii) any and all Parts removed from such aircraft so long as such Parts
shall remain subject to the Mortgage and the Lien thereof in accordance with
the terms of Section 3.7, 3.8 or 3.9 thereof.

"Alternative Reference Rate" means, for any day, a fluctuating
rate per annum equal to the greater of (i) the Reference Rate in effect on such
day plus .25% per annum or (ii) a rate per annum (rounded upward to the next
highest 1/8 of 1% if not already an integral multiple of 1/8 of 1%) equal to
the Federal Funds Effective Rate in effect on such day plus 1.5% per annum. If
for any reason the Lender shall have determined (which determination shall be
conclusive in the absence of manifest error) that it is unable to ascertain the
Federal Funds Effective Rate for any reason (including, without limitation, the
inability or failure of the Lender to obtain sufficient bids or publications in
accordance with the terms hereof), the Alternative Reference Rate shall be a
fluctuating rate per annum equal to the Reference Rate in effect from time to
time plus .25% per annum until the circumstances giving rise to such inability
no longer exist.

"Banking Day" means (i) any day other than a Saturday, Sunday
or legal holiday on which banks are authorized or required to be closed in
Chicago, Illinois and (ii) a day on which dealings in dollars may be carried on
by the Lender in the interbank eurodollar market.

"British Midland" means British Midland Airways Limited, a
corporation incorporated under the laws of the England.

"CAA" means the Civil Aviation Authority of the United Kingdom
or any governmental Person, agency or other authority succeeding to the
functions of the Civil Aviation Authority.

"Closing Date" means the date upon which the Loan is made.

"Collateral" shall mean all property and/or rights on or in
which a Lien or security interest is granted to the Lender (or to any agent,
trustee or other party acting on behalf of the Lender) pursuant to this
Agreement or the Mortgage or any other instruments or documents provided for
herein or therein or delivered or to be delivered hereunder or thereunder or in
connection herewith or therewith.

"Collateral Account" shall mean the cash collateral account
established pursuant to the Mortgage.

2
<PAGE> 9
"Commitment" see Section 2.l.

"Consent" shall mean the consent in substantially the form of
Exhibit B attached hereto, to be executed and delivered to the Lender by
British Midland Airways Limited.

"Dollar" or "$" means lawful money of the United States.

"Engine" means (i) each of the two CFM56-3B1 engines, each of
which has 750 or more rated takeoff horsepower or the equivalent thereof,
bearing manufacturer's serial numbers 722372 and 722384, respectively, and
whether or not from time to time thereafter installed on the Airframe or
installed on any other airframe or on any other aircraft, and (ii) any
Replacement Engine, whether or not from time to time thereafter installed on
the Airframe or any other airframe or on any other aircraft, together in each
case with any and all Parts incorporated in such Engine or Replacement Engine
and any and all Parts removed from such Engine or Replacement Engine as long as
such Parts shall remain subject to the Lien of the Mortgage in accordance with
the terms of Section 3.7, 3.8 or 3.9 thereof. At such time as a Replacement
Engine shall be substituted under the Mortgage and the Engine for which the
substitution is made shall be released from the Mortgage and the Lien thereof,
such replaced Engine shall cease to be an Engine hereunder. The term "Engines"
shall mean as of any date of determination, all Engines then subject to the
Mortgage.

"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.

"Eurocurrency Reserve Requirement" means, for any Interest
Period, a percentage equal to the daily average during such Interest Period of
the percentages in effect on each day of such Interest Period, as prescribed by
the Federal Reserve Board, for determining the aggregate maximum reserve
requirements (including all basic, supplemental, marginal and other reserves)
applicable to "Eurocurrency liabilities" pursuant to Regulation D or any other
then applicable regulation of the Federal Reserve Board which prescribes
reserve requirements applicable to "Eurocurrency liabilities" as presently
defined in Regulation D. Without limiting the effect of the foregoing, the
Eurocurrency Reserve Requirement shall reflect any other reserves required to
be maintained by any Lender against (i) any category of liabilities that
includes deposits by reference to which the Interbank Rate (Reserve Adjusted)
is to be determined, or (ii) any category of extensions of credit or other
assets that includes Eurocurrency liabilities. For purposes of this Agreement
(except if the Loan is bearing interest at the Alternative Reference Rate), the
Loan hereunder shall be deemed to be "Eurocurrency liabilities," as defined in
Regulation D, and, as such, shall be deemed to be subject to such reserve
requirements without the benefit of, or credit for, proration, exceptions or
offsets which may be available to any Lender from time to time under Regulation
D.

"Event of Default" - see Section 10.1.

3
<PAGE> 10
"Event of Loss" shall mean a Total Loss as such term is
defined under the Aircraft Lease.

"Federal Funds Effective Rate" means, for any day, an interest
rate per annum equal to the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged by
Federal funds brokers, as published for such day by the Federal Reserve Bank of
New York, or, if such rate is not so published for any day which is a Banking
Day, the average of the quotations for such day on such transactions received
by the Lender from three Federal funds brokers of recognized standing selected
by it. In the case of a day which is not a Banking Day, the Federal Funds
Effective Rate for such day shall be the Federal Funds Effective Rate for the
next preceding Banking Day. For purposes of this Agreement and the Note, each
change in the Alternative Reference Rate due to a change in the Federal Funds
Effective Rate shall take effect on the effective date of such change in the
Federal Funds Effective Rate.

"Federal Reserve Board" means the Board of Governors of the
Federal Reserve System or any successor thereto.

"IAI" means International Aircraft Investors, Inc., a
California corporation.

"ILFC" means International Lease Finance Corporation, a
California corporation.

"ILFC Purchase Contract" means the Aircraft Sale Agreement
dated December 21, 1993 between ILFC and the Borrower.

"Interbank Rate" means, with respect to each Interest Period,
the rate per annum at which Dollar deposits in immediately available funds are
offered to the Lender two Banking Days prior to the beginning of such Interest
Period by major banks in the interbank eurodollar market at or about 10:00
a.m., Chicago time, for delivery on the first day of such Interest Period, for
the number of days comprised therein and in an amount equal to the amount of
the Lender's Loan to be outstanding during such Interest Period.

"Interbank Rate (Reserve Adjusted)" means, with respect to
each Interest Period, a rate per annum (rounded upward, if necessary, to the
nearest 1/100 of 1%) determined pursuant to the following formula:

Interbank Rate Interbank Rate
(Reserve Adjusted) = 1-Eurocurrency Reserve Requirement

"Interest Period" means the period commencing on the initial
borrowing date of the Loan or the last day of the prior Interest Period for the
Loan, as the case may be, and ending on the numerically corresponding day one
month thereafter (or as otherwise agreed between the Borrower and the Lender),
except that the first Interest Period shall end on January 17, 1994, provided,
however, that:

4
<PAGE> 11
(a) any Interest Period which would otherwise end on a day
which is not a Banking Day shall end on the next succeeding Banking
Day unless such next succeeding Banking Day falls in another calendar
month, in which case such Interest Period shall end on the next
preceding Banking Day;

(b) any Interest Period which begins on the last Banking Day
of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Banking Day of the calendar month at the
end of such Interest Period; and

"Interest Rate Contracts" shall mean interest rate exchange,
collar, cap, or similar agreements providing for interest rate protection.

"Liabilities" shall have the meaning provided in the
Remarketing Agreement.

"Lien" means, when used with respect to any Person, any
interest in any real or personal property, asset or other right held, owned or
being purchased or acquired by such Person for its own use, consumption or
enjoyment in its business which secures payment or performance of any
obligation and shall include any mortgage, lien, pledge, encumbrance, charge,
retained security title of a conditional vendor or lessor, or other security
interest of any kind, whether arising under a security agreement, mortgage,
deed of trust, chattel mortgage, assignment, pledge, retention of security
title, financing or similar statement or notice or arising as a matter of law,
judicial process or otherwise.

"Loan" - see Section 2.1.

"Loan Documents" means this Agreement, the Note, the Mortgage,
the Remarketing Agreement, any Swap Agreement and each other agreement,
instrument or document executed and delivered pursuant to or in connection with
any thereof.

"Mortgage" means a mortgage and security agreement in the form
of Exhibit D attached hereto, to be executed and delivered to the Lender by the
Borrower, as the same may be amended, supplemented or otherwise modified from
time to time in accordance with the provisions hereof and thereof.

"Note" - means a promissory note of the Borrower payable to
the Lender, in the form of Exhibit A attached hereto (as such promissory note
may be amended, endorsed or otherwise modified from time to time), evidencing
the aggregate indebtedness of the Borrower to the Lender resulting from
outstanding Loan, and also means all other promissory notes accepted from time
to time in substitution therefor or renewal thereof.

"Parts" means all appliances, parts, components, instruments,
appurtenances, accessories, furnishings and other equipment of whatever nature
(other than complete

5
<PAGE> 12
Engines or engines) whether now owned or hereafter acquired which may from time
to time be incorporated in the Airframe or any Engine (and "Part" means any of
the foregoing) and, after removal therefrom, so long as such Parts remain
subject to the Lien of the Mortgage in accordance with Section 3.7, 3.8 or 3.9
thereof.

"Pension Plan" means any "employee pension benefit plan," as
such term is defined in ERISA, which is subject to Title IV of ERISA (other
than a "multiemployer plan," as defined in Section 4001 of ERISA) and to which
the Borrower or ILFC has or may have any liability, including any liability by
reason of having been a substantial employer within the meaning of section 4001
of ERISA for any time within the preceding five years or by reason of being
deemed to be a contributing sponsor under section 4069 of ERISA.

"Permitted Liens" shall have the meaning provided in the
Mortgage.

"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization
or government or any agency or political subdivision thereof.

"Plan" means any Welfare Plan, Pension Plan or similar plan to
which the Borrower may have any liability.

"Reference Rate" means, at any time, the rate of interest then
most recently announced by the Lender as its reference rate. For purposes of
this Agreement and the Note, each change in the Alternate Reference Rate due to
a change in the Reference Rate shall take effect on the effective date of the
change in the Reference Rate.

"Related Documents" means the Note, the Remarketing Agreement,
the Mortgage, the Consent, any Swap Agreement, the ILFC Purchase Contract, the
Aircraft Lease, and each other agreement, instrument or document executed and
delivered pursuant to or in connection with any thereof.

"Remarketing Agreement" means a remarketing and note purchase
agreement, in the form of Exhibit C attached hereto, to be executed and
delivered by the Borrower, ILFC and the Lender, as the same may be amended,
supplemented or otherwise modified from time to time in accordance with the
provisions thereof.

"Replacement Engine" means a CFM56-3B1 engine (or, in each
case, an improved model engine manufactured by the same manufacturer, suitable
for installation and use on the Airframe and compatible with the other Engine)
and which shall have been substituted for an Engine and be subject to the Lien
of the Mortgage pursuant to Section 4.2 thereof.

"Stipulated Loss Value" shall have the meaning provided in the
Aircraft Lease.

6
<PAGE> 13
"Subsidiary" means a corporation of which the indicated Person
and/or its other subsidiaries, individually or in the aggregate, own, directly
or indirectly, such number of outstanding shares as have at the time of any
determination hereunder more than 50% of the ordinary voting power for the
election of directors (or their equivalent under the laws of the jurisdiction
of organization of such corporation).

"Swap Agreement" means an Interest Rate Contract entered into
between the Borrower and the Lender and consented to by ILFC (which consent
shall not be unreasonably withheld) with respect to the Loan.

"Termination Date" shall mean July 19, 1997 or any subsequent
date approved by the Lender in accordance with Section 2.4.

"Unmatured Event of Default" means any event which if it
continues uncured will, with lapse of time or giving of notice or lapse of time
and giving of notice, constitute an Event of Default.

"Welfare Plan" means any "employee welfare benefit plan," as
such term is defined in ERISA.

SECTION 1.2 Cross References: Headings. The words "hereof,"
"herein," and "hereunder" and words of a similar import when used in this
Agreement or in any of the Loan Documents shall refer to this Agreement or such
Loan Document as a whole and not to any particular provision of this Agreement
or such Loan Document. Section, Schedule and Exhibit references contained in
this Agreement are references to Sections, Schedules and Exhibits in or to this
Agreement unless otherwise specified. Any reference in any Section or
definition to any clause is, unless otherwise specified, to such clause of such
Section or definition. The various headings in this Agreement and the Loan
Documents are inserted for convenience only and shall not affect the meaning or
interpretation of this Agreement or such Loan Document or any provision hereof
or thereof.

SECTION 2. COMMITMENT OF THE LENDER; BORROWING PROCEDURES AND
CONDITIONS.

SECTION 2.1 Commitment. Subject to the terms and conditions of this
Agreement, the Lender agrees to make a loan (a "Loan") to the Borrower with
respect to the Aircraft equal to the amount requested by the Borrower to be
made on the Closing Date up to $21,976,677. The commitment of the Lender
described in this Section 2.1 is herein referred to as its "Commitments." The
Commitment shall expire upon the making of the initial Loan.

SECTION 2.2 Borrowing Procedures. The Lender shall receive at least
two Banking Days' (or such lesser time as agreed to by the Lender) prior
written notice from the Borrower of the proposed borrowing. The Lender shall
make such funds available to the Borrower by wire transfer to the accounts the
Borrower shall have specified in its borrowing request.

7
<PAGE> 14
SECTION 2.3 Conditions to the Loan. Notwithstanding any other
provision of this Agreement, no Loan shall be required to be made hereunder if
the conditions precedent to the making of the Loan specified in Section 9 have
not been satisfied.

SECTION 2.4 Extension of Termination Date. The Borrower may, upon at
least 90 days' written notice to the Lender prior to the then scheduled
Termination Date, request an extension of the Termination Date for a specified
period not to exceed two years. If the Lender agrees to such extension on or
before 30 days' prior to the then scheduled Termination Date, the Lender shall
promptly notify the Borrower and if no Event of Default or Unmatured Event of
Default has occurred and is continuing on the then scheduled Termination Date,
the Termination Date shall be extended to the date agreed upon. If the Borrower
and the Lender are unable to agree on such new Termination Date, the
Termination Date shall not be extended. Failure of the Lender to respond to any
request by the Borrower to extend the Termination Date shall not create any
claim against the Lender; and provided, further, the failure of the Lender to
respond to any such request shall have the effect of denying such request.

SECTION 3. NOTE EVIDENCING LOAN.

SECTION 3.1 Note. The Loan shall be evidenced by a Note, with
appropriate insertions, dated the date such Loan is made, in the original
principal amount of the Loan and payable in the principal installments as set
forth in such Note or on a Schedule attached thereto or made a part thereof.
Subject to the instruction set forth in the definition of "Interest Period," if
any payment of principal of the Note falls due on a day which is not a Banking
Day, then such due date shall be extended to the next following Banking Day.

SECTION 4. INTEREST.

SECTION 4.1 Interest. The unpaid principal amount of the Loan from
time to time outstanding shall bear interest at the following rates per annum:
(A) with respect to each Interest Period prior to and including maturity, at a
rate per annum equal to the sum of (x) the Interbank Rate (Reserve Adjusted) in
effect for such Interest Period, plus (y) 1.25%; and (B) after maturity of any
installment of principal or interest, whether by acceleration or otherwise,
until paid, at a rate per annum equal to the Interbank Rate (Reserve Adjusted)
plus 3.00%; provided, however, that such post-maturity interest rate shall not
be less than the Interbank Rate (Reserve Adjusted) in effect on the due date of
such installment of principal or interest plus 3.00%.

SECTION 4.2 Interest Payment Dates. Accrued interest on the Loan
(whether bearing interest at the Interbank Rate (Reserve Adjusted) or the
Alternative Reference Rate) shall be payable in arrears on the last day of each
Interest Period and at maturity date. After maturity of any installment of
principal or interest, whether by acceleration or otherwise, accrued interest
shall be payable upon demand.

8
<PAGE> 15
SECTION 4.3 Basis of Computation. Interest shall be computed for the
actual number of days elapsed on the basis of a year consisting of 360 days.

SECTION 4.4 Increased Costs. If, as a result of any law, rule,
regulation, treaty or directive, or any change therein or in the interpretation
or administration thereof, or compliance by the Lender with any request or
directive (whether or not having the force of law) from any court, central
bank, governmental authority, agency or instrumentality, or comparable agency:

a. any tax, duty or other charge with respect to the
Loan, the Note or the Lender's obligation to make its Loan is
imposed, modified or deemed applicable, or the basis of
taxation of payments to the Lender of the principal of, or
interest on, its Loan (other than taxes imposed on the overall
net income of the Lender by the jurisdiction in which the
Lender has its principal office) is changed;

b. any reserve, special deposit, special assessment
or similar requirement against assets of, deposits with or for
the account of, or credit extended by, the Lender is imposed,
modified or deemed applicable; or

c. any other condition affecting this Agreement or
the Loan is imposed on the Lender or the interbank eurodollar
market;

and the Lender determines that, by reason thereof, the cost to the Lender of
making or maintaining its Loan is increased, or the amount of any sum
receivable by the Lender hereunder or under its Note in respect of the Loan is
reduced; then, the Borrower shall pay to the Lender upon demand such additional
amount or amounts as will compensate the Lender for such additional cost or
reduction (provided that the Lender has not been compensated for such
additional cost or reduction in the calculation of the Eurocurrency Reserve
Requirement or otherwise).

SECTION 4.5 Deposits Unavailable or Interest Rate Unascertainable or
Inadequate; Impracticability. If prior to any Interest Period, the Lender
shall have determined (which determination shall be conclusive and binding on
the parties hereto) that:

a. deposits of the necessary amount for the relevant
Interest Period are not available to the Lender in the
interbank eurodollar market or that, by reason of
circumstances affecting the interbank eurodollar market,
adequate and reasonable means do not exist for ascertaining
the Interbank Rate for such Interest Period; or

b. the Interbank Rate (Reserve Adjusted) will not
adequately and fairly reflect the cost to the Lender of making
or funding the Loan for such Interest Period; or

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<PAGE> 16
c. the making or funding of the Loan has become
impracticable as a result of any event occurring after the
date of this Agreement which, in the opinion of the Lender,
materially and adversely affects the Loan or the Lender's
obligation to make the Loan or the interbank eurodollar
market;

the Lender shall promptly give notice of such determination to the Borrower,
and the Borrower shall be obligated to either prepay in full the outstanding
principal balance of the Loan without any premium or penalty on the last day of
the then current Interest Period or convert the Loan to loans bearing interest
at the Alternative Reference Rate.

SECTION 4.6 Changes in Law Rendering Loans made at Interbank Rate
Unlawful. If at any time due to the adoption of any law, rule, regulation,
treaty or directive, or any change therein or in the interpretation or
administration thereof by any court, central bank, governmental authority,
agency or instrumentality, or comparable agency charged with the interpretation
or administration thereof, or for any other reason arising subsequent to the
date hereof, it shall become unlawful or impossible, or any central bank or
other governmental authority asserts that it is unlawful, for the Lender to
make or fund its Loan, the obligation of the Lender to provide the Loan shall,
upon the happening of such event, forthwith be suspended for the duration of
such illegality or impossibility. If any such event shall make it unlawful or
impossible for the Lender to continue its Loan (if already made) at the
Interbank Rate (Reserve Adjusted) the Lender shall, upon the happening of such
event, notify the Borrower thereof in writing, and the Borrower shall, on the
earlier of (i) the last day of the then current Interest Period with respect
thereto or (ii) if required by such law, rule, regulation, treaty, directive or
interpretation, on such date as shall be specified in such notice, either
convert the Loan to a loan bearing interest at the Alternative Reference Rate
or prepay in full the Loan, together with accrued interest thereon, without any
premium or penalty (except as provided in Section 4.8).

SECTION 4.7 Funding.

a. Discretion of the Lender as to Manner of Funding.
Notwithstanding any provision of this Agreement to the
contrary, the Lender shall be entitled to fund and maintain
its funding of all or any part of its Loan in any manner it
sees fit; it being understood, however, that for purposes of
this Agreement, all determinations hereunder shall be made as
if the Lender had actually funded and maintained its Loan
during the Interest Period for such Loan through the purchase
of deposits in the interbank eurodollar market having a term
corresponding to such Interest Period and bearing an interest
rate equal to the Interbank Rate for such Interest Period
(whether or not the Lender shall have granted any
participations in such Loan).

b. Funding Through the Sale of Participations.
Notwithstanding any provision of this Agreement to the
contrary, the Borrower acknowledges that the Lender may fund
all or any part of its Loan by sales of participations to
various participants, and agrees that such a Lender may, in
invoking its rights

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<PAGE> 17
under this Section 4.7 demand and receive payment for costs
and other amounts incurred by or allocable to, any such
participant, or take other action arising from circumstances
applicable to any such participant, to the same extent that
such participant could demand and receive payments, or take
other action, under Section 4.4 or under Section 4.8 if such
participant were a Lender under this Agreement. It is
understood, however, that notwithstanding any such
participation, the Borrower's relationship shall be directly
with the Lender, and the Lender shall (as between any such
participant and the Lender) retain the exclusive right to deal
with the Borrower and the Borrower shall be entitled to rely
on the Lender on behalf of the participant.

SECTION 4.8 Funding Losses. The Borrower will indemnify the Lender
upon demand against any loss or expense which the Lender may sustain or incur
(including, without limitation, any loss or expense sustained or incurred in
obtaining, liquidating or employing deposits or other funds acquired to effect,
fund or maintain its Loan) as a consequence of (i) any failure of the Borrower
to make any payment when due of any amount due hereunder or under the Note,
(ii) any failure of the Borrower to borrow or convert the Loan on a date
specified therefor in a notice thereof, or (iii) any payment (including,
without limitation, any payment pursuant to Section 4.6 or Section 10.2) or
prepayment of the Loan on a date other than the last day of the Interest Period
for such Loan. The Lender, at the time of making demand for such costs, shall
deliver to the Borrower a certificate specifying, in reasonable detail, the
basis on which such loss or expense was calculated.

SECTION 4.9 Conclusiveness of Statements Survival of Provisions. In
making the determinations contemplated by Sections 4.4 and 4.8, the Lender may
make such reasonable estimates, assumptions, allocations and the like that the
Lender in good faith determines to be appropriate; and, subject to the
foregoing clause, determinations and statements of the Lender pursuant thereto
shall be conclusive absent demonstrable error. The provisions of Sections 4.4,
4.7, 4.8 and this Section 4.9 shall survive termination of this Agreement.

SECTION 5. PREPAYMENTS.

SECTION 5.1 Voluntary Prepayments. The Borrower may from time to
time, upon at least three Banking Days' prior written or telephonic notice
received by the Lender, prepay the principal of the Loan in whole or in part;
provided, however, that any partial prepayment of principal shall be in a
minimum amount of $100,000 and in an integral multiple of $100,000, and
provided further that any prepayment of principal shall be subject to the
indemnification provisions of Section 4.8, but shall otherwise be without any
premium or penalty. The Borrower shall promptly confirm any telephonic notice
of prepayment in writing.

SECTION 5.2 Mandatory Prepayments. If an Event of Loss occurs with
respect to the Aircraft, the entire outstanding amount of the Loan shall be
paid upon the earlier of (1) the date on which the Stipulated Loss Value of the
Aircraft or the Airframe is paid by British

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<PAGE> 18
Midland's insurance underwriters or brokers, and (2) the date which falls sixty
(60) days after the Event of Loss.

SECTION 5.3 Interest on Principal Prepaid. Any prepayment of
principal of the Loan shall include accrued interest to the date of prepayment
on the principal amount being prepaid.

SECTION 6. MAKING OF PAYMENTS; OFFSET; FEES.

SECTION 6.1 Place of Payment. Unless otherwise expressly provided
(including, without limitation, as set forth in the next sentence), all
payments by the Borrower pursuant to this Agreement, the Note or any other Loan
Document shall be made by the Borrower to the Lender. To the extent that ILFC
has purchased any Liabilities pursuant to Article VII of the Remarketing
Agreement, all payments made by the Borrower shall be applied to the
Liabilities held by the Lender (other than ILFC) before being applied to the
Liabilities held by ILFC. All such payments shall be made without setoff or
counterclaim and shall be made to the Lender in immediately available funds
prior to 12:30 p.m., Chicago time, on the date due at its office at 231 South
LaSalle Street, Chicago, Illinois 60697, or at such other place or for such
other account as may be designated by the Lender to the Borrower in writing.
Any payments received after such time shall be deemed received on the next
Banking Day.

SECTION 6.2 Offset. In addition to, and not in limitation of, all
rights of offset that the Lender or other holder of the Note may have under
applicable law, the Lender or other holder of the Note shall, upon the
occurrence of any Event of Default or any Unmatured Event of Default which
might mature into an Event of Default described in Section 10.1.5, have the
right to appropriate and apply to the payment of its Note any and all balances,
credits, deposits, accounts or moneys of the Borrower then or thereafter with
the Lender or other holder.

SECTION 7. REPRESENTATIONS AND WARRANTIES.

To induce the Lender to enter into this Agreement and to make the Loan
hereunder, the Borrower represents and warrants to the Lender that:

SECTION 7.1 Organization, etc. The Borrower is a corporation duly
existing and in good standing under the laws of the State of Nevada and the
Borrower is duly qualified and in good standing as a foreign corporation
authorized to do business in each jurisdiction where, because of the nature of
its activities or properties, failure to so qualify would materially and
adversely affect the financial condition, businesses, assets, operations or
properties of the Borrower or adversely affect the Collateral or the Lender's
Lien or interest thereon.

SECTION 7.2 Authorization; No Conflict. The execution and delivery
of this Agreement and the Loan Documents to which it is a party, the borrowing
hereunder, the execution and delivery of the Note, and the performance by the
Borrower of its obligations

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<PAGE> 19
under this Agreement, the Note and other Related Documents are within the
Borrower's corporate powers, have been duly authorized by all necessary
corporate action (including approval by its shareholders), have received all
necessary governmental approval (if any shall be required), and do not and will
not contravene or conflict with any provision of law or of the charter or
by-laws of the Borrower or of any agreement binding upon the Borrower or any of
its properties or assets.

SECTION 7.3 Validity and Binding Nature. This Agreement is, and the
Note and the other Loan Documents to which it is a party when duly executed and
delivered will be, legal, valid and binding obligations of the Borrower
enforceable against the Borrower in accordance with their respective terms.

SECTION 7.4 Litigation and Contingent Liabilities. No litigation
(including, without limitation, derivative actions), arbitration proceedings or
governmental proceedings are pending or threatened against the Borrower which
would, if adversely determined, materially and adversely affect the financial
condition or continued operations of the Borrower or adversely affect the
Collateral or the Lender's Lien on or interest therein.

SECTION 7.5 Subsidiaries. The Borrower has no Subsidiaries.

SECTION 7.6 Employee Benefit Plans. (a) During the 12 consecutive
month period prior to the Closing Date, (i) no steps have been taken to
terminate any Pension Plan; and (ii) no contribution failure has occurred with
respect to any Pension Plan sufficient to give rise to a Lien under section
302(f)(1) of ERISA in connection with such Pension Plan; (b) no condition
exists or event or transaction has occurred with respect to any Pension Plan
which could result in the incurrence by the Borrower of liabilities, fines or
penalties in excess of $10,000 in the aggregate; and (c) the Borrower does not
have any contingent liability with respect to any post-retirement benefits
under a Welfare Plan, other than liability for continuation coverage described
in Part 6 of Title I of ERISA.

SECTION 7.7 Investment Company Act. The Borrower is not an
"investment company" or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended.

SECTION 7.8 Public Utility Holding Company Act. The Borrower is not
a "holding company," or a "subsidiary company" of a "holding company," or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company," within the meaning of the Public Utility Holding Company Act of 1935,
as amended.

SECTION 7.9 Regulations G, T, U and X. The Borrower is not engaged
principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulations G, T, U or X of the Board of Governors of the
Federal Reserve System).

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<PAGE> 20
SECTION 7.10 Citizenship. The Borrower is a "citizen of the United
States" within the meaning of Section 101 of the Federal Aviation Act of 1958,
as amended.

SECTION 7.11 Certain Related Documents. The ILFC Purchase Contract,
the Aircraft Lease and the Consent are all in full force and effect and neither
a default nor an event which, with the lapse of time or the giving of notice,
or both, would constitute a default, exists thereunder.

SECTION 7.12 Taxes. The Borrower has filed all tax returns that are
required to be filed by it under the laws of the United States of America or
any state or subdivision thereof and has paid all taxes which have become due.
There are no tax Liens filed against the Borrower or attaching to the
Collateral.

SECTION 7.13 Absence of Default. The Borrower is not in default
under any contract or contracts to which it is a party.

SECTION 7.14 Insurance. Without limiting the provisions of the
Mortgage, the Borrower and its businesses and properties are adequately insured
under policies issued by insurers of recognized responsibility. No notice of
any pending or threatened cancellation or premium increase has been received by
the Borrower with respect to any such policies. The Borrower is in compliance
with all conditions contained in such insurance policies.

SECTION 7.15 Material Disruptions. Neither the business nor the
properties of the Borrower is affected, or anticipated to be affected, by any
existing event of force majeure or other existing casualty which would have a
materially adverse effect on the financial condition, business, assets,
operations or prospects of the Borrower or the ability of the Borrower to
perform its obligations hereunder or under any Related Document or would have
an adverse affect on the Collateral or the Lender's Lien thereon or interest
therein.

SECTION 7.16 Accuracy of Information. All factual information
heretofore or contemporaneously herewith furnished by the Borrower to the
Lender for purposes of or in connection with this Agreement or any transaction
contemplated hereby is, and all other such factual information hereafter
furnished by or on behalf of the Borrower to the Lender will be, true and
accurate in every material respect on the date as of which such information is
dated or certified and not incomplete by omitting to state any material fact
necessary to make such information not misleading.

SECTION 7.17 Securities Laws. Neither the Borrower nor anyone acting
on behalf of the Borrower has directly or indirectly offered any interest in
the Note or any similar security for sale to, or solicited any offer to acquire
any such interest from, or has sold any such interest to any Person that would
subject the issuance or sale of the Note to registration under the Securities
Act of 1933, as amended, or under any applicable state securities or "blue sky"
law.

SECTION 7.18 Intentionally deleted.

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<PAGE> 21
SECTION 7.19 Compliance with Laws. The Borrower is not in violation
of any law, ordinance, rule, regulation, order, policy, guideline or other
requirement of any governmental authority, which violation would subject it or
any of its respective officers to criminal liability or have a material adverse
effect on it or an adverse effect on the Collateral, and no such violation has
been alleged.

SECTION 7.20 Title to Aircraft. The Borrower has good and marketable
title to the Aircraft and the Aircraft Lease free and clear of all liens,
charges and encumbrances (except for Liens arising under the Mortgage and
Permitted Liens).

SECTION 7.21 Lessee Qualification. Based on information that the
Borrower has received in connection with its dealings with British Midland: (a)
British Midland is a duly certificated air carrier engaged in scheduled air
transportation of persons, property and mail and (b) British Midland is the
holder of a valid and effective Air Transport License and an Air Operator's
Certificate each issued by the CAA. Based on information that Borrower has
received in connection with its dealings with British Midland, there are no
actions, proceedings or investigations pending or threatened (or any basis
therefor known to Borrower) to amend, modify, suspend or revoke any such
certificate in whole or in part for additional route authorizations, which
would have any material adverse effect on any such certificate or any
operations of British Midland.

SECTION 8. BORROWER'S COVENANTS.

Until the expiration or termination of the Commitment and thereafter
until all obligations of the Borrower hereunder and under the Note and Loan
Documents are paid and performed in full, the Borrower agrees that, unless at
any time the Lender shall otherwise expressly consent in writing, the Borrower
will:

SECTION 8.1 Reports, Certificates and Other Information. Furnish to
the Lender.

SECTION 8.1.1 Reports of Borrower. Within 120 days after each fiscal
year of the Borrower and within 45 days after each quarter of each fiscal year
of the Borrower, a copy of the unaudited financial statements of the Borrower
for such period prepared in conformity with generally accepted accounting
principles consistently applied, certified by the chief financial officer of
the Borrower as presenting fairly the financial condition and results of
operations of the Borrower, and consisting of at least a balance sheet as at
the close of such period and statements of income and retained earnings for
such period and for the period of time from the beginning of such fiscal year
to the close of such quarter, in the case of quarterly statements.

SECTION 8.1.2 Certificates. Contemporaneously with the furnishing of
a copy of each annual statement and each set of quarterly statements provided
for in Section 8.1.1, a compliance certificate signed by the President or the
chief financial officer of the Borrower, and to the effect that as of such date
no Event of Default or Unmatured Event of Default has

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<PAGE> 22
occurred and is continuing, or, if there is any such event, describing it and
the steps, if any, being taken to cure it.

SECTION 8.1.3 British Midland Reports. (i) Within 90 days after each
fiscal year of British Midland, a copy of the annual audited profit and loss
account and balance sheet of British Midland, and (ii) within 10 days after
receipt from British Midland, copies of each other report supplied to the
Borrower pursuant to the Aircraft Lease.

SECTION 8.1.4 Reports to SEC and to Shareholders. Promptly upon the
filing or making thereof, copies of each filing and report made by the Borrower
with or to any securities exchange or the Securities and Exchange Commission,
and of each communication from the Borrower to shareholders generally.

SECTION 8.1.5 Notice of Default and Litigation. Forthwith upon
learning of the occurrence of any of the following, written notice thereof,
describing the same and the steps being taken by the Borrower with respect
thereto: (i) the occurrence of an Event of Default or an Unmatured Event of
Default, or of a default under the ILFC Purchase Contract by ILFC, or the
Aircraft Lease by British Midland, (ii) the institution of, or any adverse
determination in, any litigation, arbitration proceeding or governmental
proceeding which could have a material adverse effect on the Borrower or an
adverse effect on the Collateral, (iii) the failure of the Borrower to make a
required contribution to any Pension Plan if such failure is sufficient to give
rise to a Lien under section 302(f)(1) of ERISA, (iv) the institution of any
steps by the Borrower to withdraw from or terminate any Pension Plan, or the
taking of any action with respect to a Pension Plan which could result in the
requirement that the Borrower furnish a bond or other security to the Pension
Benefit Guaranty Corporation or such Pension Plan, or the occurrence of any
event with respect to any Pension Plan which could result in the incurrence by
the Borrower of any liability, fine or penalty in excess of $10,000 in the
aggregate or any increase in excess of $10,000 in the aggregate in the
contingent liability of the Borrower with respect to any post-retirement
Welfare Plan benefit, (v) the commencement of any dispute which might lead to
the modification, transfer, revocation, suspension or termination of any Loan
Document, (vi) an Event of Loss, or (vii) any event which would have a material
adverse effect on the business, operations, assets, financial condition or
prospects of the Borrower or the ability of the Borrower to perform its
respective obligations under this Agreement or the Related Documents or would
have an adverse effect on the Collateral or the Lender's Lien thereon or
interest therein.

SECTION 8.1.6 Withdrawal Liability. With respect to each
"multiemployer plan," as defined in section 4001 of ERISA as to which the
Borrower may have any liability, (i) no less frequently than annually, a
written estimate (which shall be based on information received from each such
plan, it being expressly understood that the Borrower shall take all reasonable
steps to obtain such information) of the withdrawal liability that would be
incurred by the Borrower in the event that the Borrower were to completely
withdraw from that plan, and (ii) written notice thereof, as soon as it has
reason to believe (on the basis of the most recent information available to it)
that the sum of (a) the withdrawal liability that would be

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<PAGE> 23
incurred by the Borrower if the Borrower completely withdrew from all
multiemployer plans as to which the Borrower has an obligation to contribute,
and (b) the aggregate amount of the outstanding withdrawal liability (without
unaccrued interest) incurred by the Borrower to multiemployer plans, would
exceed $10,000.

SECTION 8.1.7 Related Documents; Aircraft. Immediately upon receipt
or delivery by the Borrower, copies of any notices of default from or to any
other Person which is a party to, or any other correspondence with any such
Person with respect to, the ILFC Purchase Contract, the Aircraft Lease, or the
Aircraft.

SECTION 8.1.8 Other Information. From time to time, such other
information concerning the Borrower or British Midland as the Lender may
reasonably request.

SECTION 8.2 Books. Records and Inspections. Maintain complete and
accurate books and records and (a) if no Unmatured Event of Default or Event of
Default shall have occurred and be continuing, at reasonable times and upon
reasonable notice or (b) if an Event of Default has occurred and is continuing,
at any time without prior notice, permit access by the Lender to the books and
records of the Borrower; and permit the Lender to make copies of such books and
records; and permit the Lender to inspect the properties and operations of the
Borrower.

SECTION 8.3 Insurance. Maintain such insurance as may be required by
(i) law and such other insurance, to such extent and against such hazards and
liabilities, as is customarily maintained by companies similarly situated and
(ii) the Mortgage.

SECTION 8.4 Taxes and Liabilities. Pay when due all taxes,
assessments and other liabilities, except as contested in good faith by
appropriate proceedings and for which adequate reserves have been established
and are being maintained in accordance with generally accepted accounting
principles (but only so long as such proceedings do not involve any danger of
the attachment, sale, forfeiture or loss of any item of Collateral or any
interest therein, including the Lender's Lien therein).

SECTION 8.5 Purchase or Redemption of Borrower's Securities: Dividend
Restrictions. Not purchase or redeem any shares of the capital stock of the
Borrower, declare or pay any dividends thereon (other than dividends payable on
common stock which has no rights greater than common stock outstanding on the
date of execution and delivery hereof), make any distribution to stockholders
or set aside any funds for any such purpose.

SECTION 8.6 Mergers, Consolidations. Not be a party to any merger or
consolidation, or purchase or otherwise acquire all or substantially all of the
assets or stock of any class of, or any partnership or joint venture interest
in, any other Person, or sell, transfer, convey or lease all or any substantial
part of its assets.

SECTION 8.7 Unconditional Purchase Obligations. Not enter into or be a
party to any contract for the purchase of materials, supplies or other property
or services, if such

17
<PAGE> 24
contract requires that payment be made by it regardless of whether delivery is
ever made of such materials, supplies or other property or services.

SECTION 8.8 Use of Proceeds. Not use or permit any proceeds of the
Loan to be used, either directly or indirectly, for the purpose, whether
immediate, incidental or ultimate, of "purchasing or carrying any margin stock"
within the meaning of Regulations G, T, U or X of the Board of Governors of the
Federal Reserve System, as amended from time to time.

SECTION 8.9. Other Agreements. Not enter into any agreement containing
any provision which would be violated or breached by the performance of its
obligations hereunder or under any Related Document or any other instrument or
document delivered or to be delivered by it hereunder or thereunder or in
connection herewith or therewith.

SECTION 8.10 Citizenship. Continue to be a "citizen of the United
States" within the meaning of Section 101 of the Federal Aviation Act of 1958,
as amended.

SECTION 8.11 Employee Benefit Plans. Maintain each Plan as to which it
may have any liability, in compliance in all material respects with all
applicable requirements of law.

SECTION 8.12 Collateral Documents. Cause the Mortgage to be and remain
a first, valid, prior and perfected Lien on, and security interest in the
Collateral (free of all other Liens whatsoever other than Permitted Liens).

SECTION 8.13 Compliance with Laws. Comply with all Federal, State and
local laws, rules and regulations and with any foreign laws, rules and
regulations related to its businesses and properties (including, without
limitation, all such laws, rules and regulations relating to hazardous
materials or the disposal thereof) if the failure so to comply would have a
materially adverse effect on its financial condition, businesses, assets,
operations or properties or an adverse Effect on the Collateral.

SECTION 8.14 Maintenance of Permits. Maintain all permits, licenses
and consents as may be required for the conduct of its business by any Federal,
State or local government agency or instrumentality or by any foreign
government or governmental entity (including, without limitation, any such
license, consent or permit relating to hazardous materials or the disposal
thereof) if the failure to maintain such licenses, permits and consents would
have a materially adverse effect on its financial condition, businesses,
assets, operations or properties or would have an adverse effect on the
Collateral.

SECTION 8.15 Transaction with Affiliates. Not enter into, or cause,
suffer or permit to exist:

a. any arrangement or contract with any of its Affiliates requiring
any payments to be made by the Borrower to an Affiliate with respect
to services, where compensation is due whether or not such services
shall be received by the Borrower; and

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<PAGE> 25
b. any other transaction, arrangement or contract (including, without
limitation, any employment contract or agreement as to payment of a director's
fees) with any of its Affiliates which would not be entered into by a prudent
Person in the position of the Borrower, or which is on terms which are less
favorable than those otherwise reasonably attainable on an arm's-length basis
from, any Person which is not one of its Affiliates.

SECTION 8.16 Changes to Related Documents. Not amend, supplement or
otherwise modify, or consent to the amendment, supplement or modification of,
the ILFC Purchase Contract, the Aircraft Lease, or the Consent, or waive
performance or observance by any Person of its obligations under the ILFC
Purchase Contract, Aircraft Lease, or Consent, without the prior written
consent of the Lender. If an Unmatured Event of Default or an Event of Default
has occurred and is continuing, promptly following a request from the Lender to
do so, at the Borrower's expense, the Borrower shall take all such lawful
action as the Lender may request to enforce or secure the performance by any
Person of its obligations under or in respect of the ILFC Purchase Contract,
Aircraft Lease or Consent in accordance with the respective terms thereof, and
exercise any right, power, remedy or privilege available to the Borrower
thereunder or in connection therewith to the extent and in the manner directed
by the Lender, including, without limitation, the institution of legal
proceedings to compel or enforce performance by such Person of its obligations
thereunder or otherwise, or to recover any payment due to the Borrower
thereunder or otherwise.

SECTION 8.17 Performance of Obligations Under ILFC Purchase Contract
and Aircraft Lease. Duly and punctually pay and perform each of its
obligations under the ILFC Purchase Contract, if any, and the Aircraft Lease.

SECTION 8.18 Limitation on Activities of Borrower. Not engage in any
business other than the business of acquiring and owning the Aircraft and the
Aircraft Lease. Without limiting the foregoing, the Borrower shall not (i)
create, incur, assume or suffer to exist any indebtedness other than
indebtedness in connection with this Agreement, the Mortgage or Interest Rate
Contracts entered into with respect to the Loan or (ii) be a party to any lease
other than the Aircraft Lease, (iii) assume, guarantee, or endorse, or
otherwise become directly or contingently liable in respect of, any obligation
of any Person, except by way of endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary course of
business, (iv) make any loan or advance or extend any credit to any Person, or
otherwise purchase or acquire the capital stock or obligations of, or any
investment in, any Person, (v) apply for or become liable in respect of any
letter of credit or acceptance financing, (vi) permit any Person other than IAI
to hold any beneficial interest in the Borrower during the term of this
Agreement, (vii) make any expenditures for fixed or capital assets of any kind
except as contemplated by the Related Documents, or (viii) increase the salary,
compensation or bonus of any officer, director or employee, or provide any such
Person with any pension, vacation or insurance benefit of any kind or adopt,
establish or maintain any program to provide any such benefit.

SECTION 8.19 Payments Under Aircraft Lease. Cause all other payments
required to be made by British Midland or any other obliger under or in respect
of the Aircraft Lease

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<PAGE> 26
(including, without limitation, scheduled rent) and all payments to be made by
the counterparty in connection with any Interest Rate Contract entered into
with respect to the Loan to be made directly into the Collateral Account, or
such other account as the Lender shall specify in a written notice to the
Borrower.

SECTION 8.20 Notification of Status of Lease. Notify the Lender
monthly in writing of the status of reletting the Aircraft, commencing 90 days
prior to April 19, 1997.

SECTION 8.21 Lessee Approval. Upon the termination of the Aircraft
Lease, relet and deliver the Aircraft to a new lessee only upon the written
consent of the Lender.

SECTION 8.22 Estoppel Certificates. Request that British Midland
deliver an estoppel certificate pursuant to Article 22 of the Aircraft Lease no
less than once every six months and, if requested by the Lender, at up to one
additional time during any year.

SECTION 9. CONDITIONS OF LENDING.

The obligation of the Lender to make the Loan is subject to the
following conditions precedent:

SECTION 9.1 Documents. The Lender shall have received all of the
following, each duly executed and dated as of the date of the Loan (or such
other date prior thereto as shall be satisfactory to the Lender), in form and
substance satisfactory to the Lender:

SECTION 9.1.1 Note. The Note of the Borrower payable to the order of
the Lender.

SECTION 9.1.2 Remarketing Agreement. The Remarketing Agreement duly
executed by ILFC.

SECTION 9.1.3 Mortgage. The Mortgage, duly executed by the Borrower,
covering the Aircraft.

SECTION 9.1.4 Consent. The Consent duly executed by British Midland.

SECTION 9.1.5 Resolutions: Corporation Documents. Copies, duly
certified by the Secretary or Assistant Secretary of the Borrower or ILFC, as
the case may be, of: (I) the certificate of incorporation and by-laws of the
Borrower and ILFC; (ii) resolutions of the Board of Directors of the Borrower
and ILFC authorizing the execution, delivery and performance, respectively, of
this Agreement, the Note and the other Loan Documents to which it is a party;
and (iii) the names of the officer or officers of the Borrower and ILFC
authorized to sign this Agreement, the Note and other Loan Documents to which
the Borrower or ILFC is a party, together with a sample of the true signature
of each such officer. (The Lender may conclusively rely on such certificates
until formally advised by a like certificate of any changes therein.).

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<PAGE> 27
SECTION 9.1.6 Good Standing Certificates. Certificates of good
standing for the Borrower and ILFC in each jurisdiction, where, because of the
nature of their respective activities or properties, such qualification is or
will be required and the failure so to qualify would materially and adversely
affect (i) such Person's business, assets, financial condition, operations or
prospects or (ii) the ability of such Person to perform its obligations in
connection with this Agreement or the Loan Documents to which it is a party or
would adversely affect the Collateral or the Lender's Lien thereon or interest
therein.

SECTION 9.1.7 Opinion of Counsel for the Borrower and ILFC and Letter
from Allen & Overy. The opinion of (a) Warren & Sklar, counsel for the
Borrower, addressed to the Lender in the form attached hereto as Exhibit E, and
(b) Julie I. Sackman, counsel for ILFC, addressed to the Lender in the form
attached hereto as Exhibit F, and a Letter from Allen & Overy, special United
Kingdom counsel, addressed to the Lender and ILFC in the form attached hereto
as Exhibit G.

SECTION 9.1.8 Consents. etc. Certified copies of all documents
evidencing any necessary corporate action, consents and governmental approvals
(if any) with respect to this Agreement, the Note and the other Related
Documents.

SECTION 9.2 Mortgage and CAA Filings. The Lender shall have received
evidence that the Mortgage has been duly filed with the CAA and the English
Companies Registry.

SECTION 9.3 Insurance. The Lender shall have received evidence that
the requirements of Section 5.1 of the Mortgage covering the Aircraft shall
have been met.

SECTION 9.4 Airworthiness. The Lender shall have received evidence
that: (i) the Aircraft has been duly certified by the CAA as to type and
airworthiness; and (ii) an application for registration of the Aircraft shall
have been duly filed with the CAA.

SECTION 9.5 Financing Statements. The Lender shall have received
Uniform Commercial Code financing statements covering all of the security
interests created by or pursuant to the granting clause of the Mortgage which
shall have been executed and delivered by (i) the Borrower, as debtor, and, if
required by applicable law, the Lender, and (ii) for precautionary purposes
only and not as an admission that the Aircraft Lease is other than a true
lease, British Midland, as debtor, the Borrower, as secured party, and, if
required by applicable law, the Lender, as assignee of such secured party, as
are deemed necessary or desirable by the Lender to protect the interests in the
Aircraft, and all such financing or similar statements shall have been duly
filed in all such places as, in the opinion of counsel for the Lender are
necessary or desirable to perfect said security or other interests.

SECTION 9.6 Pose. The Lender shall have received all original copies
in Borrower's possession of the Aircraft Lease (including all amendments and
modifications thereto); provided, however, one original copy of the Aircraft
Lease marked "Lessor's Copy" may be retained in Borrower's possession but
Borrower shall, at any time, deliver such Aircraft Lease immediately to Lender
upon the request therefor, and one original copy of the Aircraft

21
<PAGE> 28
Lease marked "Lessee's Copy" may be retained in British Midland's possession
and, provided further that Borrower will use its reasonable best efforts to
cause each original copy of the Aircraft Lease to be marked to give notice of
the Lender's Lien therein with a legend to read as follows: "The Lessor's
right, title and interest in, under and to this Aircraft Lease Agreement is
subject to a security interest in favor of Continental Bank N.A. as Lender.

SECTION 9.7 The Purchase Agreement. The Lender shall have received (a)
executed copies of the ILFC Purchase Contract, (b) copies of a full warranty
bill of sale and an Aircraft Bill of Sale, each from ILFC to the Borrower,
transferring good title to the Aircraft, free and clear of all liens and
encumbrances other than Permitted Liens and in form and substance satisfactory
to the Lender, and (c) copies of the assignment transferring ILFC's interest in
the Aircraft Lease to the Borrower, free and clear of all liens and
encumbrances other than Permitted Liens and in form and substance satisfactory
to the Lender.

SECTION 9.8 Legal Fees. Borrower shall have paid the Lender the legal
fees and expenses of the Lender, incurred by the Lender in connection with the
preparation, negotiation and execution of this Agreement, the Note and the Loan
Documents

SECTION 9.9 Collateral Account. The Lender shall have received
evidence that the Collateral Account shall have been established in accordance
with the Mortgage.

SECTION 9.10 Bill of Sale from Borrower. The Lender shall have
received a full warranty bill of sale, duly executed in blank by the Borrower,
together with such other documents as the Lender believes are necessary to
facilitate the transfer of the Aircraft after the occurrence of an Event of
Default.

SECTION 9.11 Intentionally deleted.

SECTION 9.12 Intentionally deleted.

SECTION 9.13 Lender's Fee. The Lender shall have received all agreed
upon fees and expenses.

SECTION 9.14 Other Requirements. The obligation of the Lender to make
the Loan is subject to the following further conditions precedent that:

SECTION 9.14.1 No Default. (a) No Event of Default, or Unmatured
Event of Default, has occurred and is continuing or will result from the making
of the Loan, (b) the representations and warranties of the Borrower contained
in Section 7 are true and correct, (c) the representations and warranties of
ILFC contained in the Remarketing Agreement are true and correct, (d) ILFC has
complied with all of its covenants contained in the Remarketing Agreement, and
(e) there has been no material adverse change in the business, financial
condition, operations or assets of either the Borrower or ILFC, or any material
change in the Collateral.

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<PAGE> 29
SECTION 9.14.2 Litigation. No litigation (including, without
limitation, derivative actions), arbitration proceedings or governmental
proceedings not disclosed in writing by the Borrower or ILFC to the Lender
prior to the date of the requested Loan hereunder is pending or known to be
threatened against the Borrower or ILFC and no material development not so
disclosed has occurred in any litigation (including, without limitation,
derivative actions), arbitration proceedings or governmental proceedings so
disclosed, which in the opinion of the Lender is likely to materially adversely
affect the financial position or business of the Borrower or ILFC or impair the
ability of the Borrower or ILFC to perform its obligations under this Agreement
or the Related Documents to which it is a party.

SECTION 9.14.3 Confirmatory Certificates. The Lender shall have
received certificates dated the date of such requested Loan and signed by the
President, the chief financial officer or the Treasurer of the Borrower and
ILFC as to the matters set out in Section 9.14.1 with respect to each, and such
other documents as the Lender may request in support thereof.

SECTION 10. EVENTS OF DEFAULT AND THEIR EFFECT.

SECTION 10.1 Events of Default. Each of the following shall
constitute an Event of Default under this Agreement:

SECTION 10.1.1 Non-Payment of Loan. etc. Default, and continuance
thereof, in the payment when due of any principal of or interest on the Loan or
any other amount due hereunder or due under any Loan Document.

SECTION 10.1.2 Default of Other Indebtedness. Default in the payment
when due (subject to any applicable grace period), whether by acceleration or
otherwise, of any indebtedness (other than indebtedness hereunder or under the
Note) of, or guaranteed by, the Borrower or ILFC; or default in the performance
or observance of any other obligation or condition with respect to any such
other indebtedness if the effect of such default is to accelerate the maturity
of any such indebtedness or to permit the holder or holders thereof, or any
trustee or agent for such holders, to cause such indebtedness to become due and
payable prior to its expressed maturity; provided, in the case of ILFC, the
aggregate principal amount of all indebtedness subject to defaults described
above shall exceed $20,000,000.

SECTION 10.1.3 Other Material Obligations. Default in the payment when
due, or in the performance or observance of, (i) any obligation or agreement of
the Borrower or ILFC to or with the Lender (other than any obligation hereunder
or under the Note, the Mortgage or the Remarketing Agreement) or (ii) any
material obligation of, or material condition agreed to by the Borrower or ILFC
with respect to any material purchase or lease of goods or services or other
material obligation if the effect of such default is to permit the other party
to such transaction to accelerate the obligations of the Borrower or ILFC
thereunder or terminate or rescind such transaction (except only to the extent
that the existence of any such default is being contested by the Borrower or
ILFC in good faith and by appropriate

23
<PAGE> 30
proceedings and for which adequate reserves shall have been established and are
being maintained in accordance with generally accepted accounting principles
(but only so long as such proceedings do not involve any danger of the sale,
forfeiture or loss of any item of Collateral or any interest therein, including
the Lender's security interest therein)).

SECTION 10.1.4 Aircraft Lease. An Event of Default as set forth in
Article 27 of the Aircraft Lease shall have occurred and be continuing.

SECTION 10.1.5 Bankruptcy, Insolvency, etc. The Borrower or ILFC
becomes insolvent or generally fails to pay, or admits in writing its inability
to pay, debts as they become due; or the Borrower or ILFC applies for, consents
to, or acquiesces in the appointment of, a trustee, receiver or other custodian
for the Borrower or ILFC or any property of either thereof, or makes a general
assignment for the benefit of creditors; or, in the absence of such
application, consent or acquiescence, a trustee, receiver or other custodian is
appointed for the Borrower or ILFC or for a substantial part of the property of
either thereof unless (i) the Borrower or ILFC institutes appropriate
proceedings to contest or discharge such appointment within 10 days and
thereafter continuously and diligently prosecutes such proceedings, (ii) such
appointment is in fact discharged within 60 days and (iii) such proceedings do
not involve any danger of forfeiture or loss of any item of Collateral or any
interest therein, including the Lender's security interest, or of any of the
rights of the Lender in any of the Loan Documents; or any bankruptcy,
reorganization, debt arrangement, or other case or proceeding under any
bankruptcy or insolvency law, or any dissolution or liquidation proceeding is
commenced in respect of the Borrower or ILFC, unless (v) such case or
proceeding is not commenced by the Borrower or ILFC, (w) such case or
proceeding is not consented to or acquiesced in by the Borrower or ILFC, (x)
the Borrower or ILFC institutes appropriate proceedings to dismiss such case or
proceedings within 10 days and thereafter continuously and diligently
prosecutes such proceeding, (y) such case or proceeding is in fact dismissed
within 60 days after the commencement thereof and (z) such proceedings do not
involve any danger of forfeiture or loss of any item of Collateral or any
interest therein, including the Lender's security interest, or of any of the
rights of the Lender in any of the Loan Documents; or the Borrower or ILFC
takes any action to authorize, or in furtherance of, any of the foregoing.

SECTION 10.1.6 Insurance; Citizenship. The Borrower fails to comply
with the provisions of Section 5.1 of the Mortgage, or the insurance required
by such Section lapses or is terminated for any reason, or Borrower fails to
comply with the provisions of either Section 8.3 or 8. 10.

SECTION 10.1.7 Non-Compliance with this Agreement and the Related
Documents. Failure by the Borrower to comply with or to perform any provision
of this Agreement or any Loan Document or any Related Document (and not
constituting an Event of Default under any of the other provisions of this
Section 10) and continuance of such failure for 30 days after the Borrower
first learns of such failure.

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<PAGE> 31
SECTION 10.1.8 Representations and Warranties. Any representation or
warranty made by or on behalf of the Borrower or ILFC herein or in the
Remarketing Agreement or any other Related Document is breached or is false or
misleading in any material respect, or any schedule, certificate, financial
statement, report, notice, or other writing at any time furnished by or on
behalf of the Borrower or ILFC to the Lender or any Lender is false or
misleading in any material respect on the date as of which the facts therein
set forth are stated or certified.

SECTION 10.1.9 Litigation. There shall be entered against the Borrower
or ILFC one or more judgments or decrees in excess of $10,000 in the aggregate
at any one time outstanding in the case of the Borrower, and in excess of
$25,000,000 in the aggregate at any one time outstanding in the case of ILFC,
excluding those judgments or decrees (i) that shall have been outstanding less
than the applicable time for filing an appeal so long as execution is not
levied thereunder (or in respect of which Borrower or ILFC, as applicable,
shall at the time in good faith be prosecuting an appeal or proceeding for
review and in respect of which a stay of execution or appropriate appeal bond
shall have been obtained pending such appeal or review) or (ii) for and to the
extent which the Borrower or ILFC, as the case may be, is insured and with
respect to which the insurer has assumed responsibility in writing or for and
to the extent which the Borrower or ILFC, as the case may be, is otherwise
indemnified if the terms of such indemnification and the Person providing such
indemnification are satisfactory to the Lender.

SECTION 10.1.10 Employee Benefit Plans. Institution of any steps by
Borrower, ILFC or any other Person to terminate a Pension Plan if as a result
of such termination the Borrower or ILFC could be required to make a
contribution to such Pension Plan, or could incur a liability or obligation to
such Pension Plan, in excess of $10,000 in the case of the Borrower or
$25,000,000 in the case of ILFC, or a contribution failure occurs with respect
to any Pension Plan sufficient to give rise to a Lien under section 302(f)(1)
of ERISA (as in effect on the Closing Date); or the Borrower or ILFC shall
withdraw from one or more "multiemployer plans," as defined in section 4001 of
ERISA, to which it has an obligation to contribute and the withdrawal liability
(without unaccrued interest) to multiemployer plans as a result of such
withdrawal or withdrawals (including any outstanding withdrawal liability on
the date of such withdrawal) equals or exceeds $10,000 in the case of the
Borrower or $25,000,000 in the case of ILFC.

SECTION 10.1.11 Certain Related Documents Defaults. Any of the Related
Documents shall fail to remain in full force and effect, except to the extent
such Related Document shall have expired or terminated as the result of the
passage of time or by its terms as the result of full compliance by British
Midland or ILFC of its obligations thereunder; failure by the Borrower to
maintain the Lien and priority of the Mortgage as against any Person; or
failure by ILFC to observe its covenants under the Remarketing Agreement, or
any action shall be taken to discontinue, or contest the validity, binding
nature or enforceability of, any Related Document.

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<PAGE> 32
SECTION 10.1.12 Ownership of Borrower. ILFC shall cease to own
directly at least 300,000 of the issued and outstanding shares of the preferred
stock of IAI.

SECTION 10.2 Effect of Event of Default. If any Event of Default
described in Section 10.1.5 shall occur, the Commitment (if it has not
theretofore terminated) shall immediately terminate and the Note and all other
amounts owing hereunder shall become immediately due and payable, all without
notice of any kind; and, in the case of any other Event of Default, the Lender
may declare the Commitment (if it has not theretofore terminated) to be
terminated and the Note and all other amounts owing hereunder to be immediately
due and payable, whereupon the Commitment (if it has not theretofore
terminated) shall immediately terminate and the Note and all other amounts
owing hereunder shall become immediately due and payable, all without notice of
any kind. The Lender shall promptly advise the Borrower of any such
declaration, but failure to do so shall not impair the effect of such
declaration.

SECTION 10.3 Borrower's Right to Cure Aircraft Lease Default.
Notwithstanding Section 10.2, if British Midland fails to make any payment of
rent under the Aircraft Lease after it becomes due, or fails to perform or
observe any other covenant under the Aircraft Lease, and the failure can be
cured by the payment of money, and if no Event of Default or Unmatured Event of
Default which is not also an Event of Default under the Aircraft Lease exists,
then at any time within 3 Banking Days after the expiration of the applicable
period allowed under the Aircraft Lease for British Midland to cure the
failure, Borrower shall have the right to (but need not) pay to Lender (in the
case of the failure of British Midland to pay rent) an amount equal to any
principal of and interest on the Note then due and payable (including interest
on any overdue amounts), or make payments (in the case of any other covenant
default) sufficient to cause the performance of such covenant. The foregoing
cure right may not be so exercised with respect to more than three consecutive
rent defaults.

SECTION 11. Intentionally deleted.

SECTION 12. GENERAL.

SECTION 12.1 Waiver; Amendments. The provisions of this Agreement and
of each other Loan Document may from time to time be amended, modified or
waived, if such amendment, modification or waiver is in writing and consented
to by the Borrower and the Lender. No failure or delay on the part of the
Lender or the holder of the Note in exercising any power or right under this
Agreement or any other Loan Document shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power or right preclude any
other or further exercise thereof or the exercise of any other power or right.
No notice to or demand on the Borrower in any case shall entitle it to any
notice or demand in similar or other circumstances. No waiver or approval by
the Lender or the holder of the Note under this Agreement or any other Loan
Document shall, except as may be otherwise stated in such waiver or approval,
be applicable to subsequent transactions. No waiver or approval hereunder shall
require any similar or dissimilar waiver or approval thereafter to be granted
hereunder.

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<PAGE> 33
SECTION 12.2 Confirmations. The Borrower and the Lender agree from
time to time, upon written request received by it from the other, to confirm to
the other in writing the aggregate unpaid principal amount of the Loan then
outstanding.

SECTION 12.3 Notices. Any notice hereunder shall be in writing and,
(i) if by telegram or telex, shall be deemed to have been given when sent, (ii)
if mailed, shall be deemed to have been given three days after the date when
sent by registered or certified mail, postage prepaid, (iii) if sent by
overnight delivery service shall be deemed to have been given one Banking Day
after the date sent and (iv) if sent by facsimile transmission, shall be deemed
to have been given when sent and confirmed, and, in each case, addressed, as
appropriate, at its address shown below its signature hereto, or at such other
address as it may, by written notice pursuant to this Section, have designated
as its address for such purpose.

SECTION 12.4 Computations. Where the character or amount of any asset
or liability or item of income or expense is required to be determined, or any
consolidation or other accounting computation is required to be made, for the
purpose of this Agreement or any Related Document, such determination or
calculation shall, to the extent applicable and except as otherwise specified
in this Agreement, be made in accordance with generally accepted accounting
principles applied on a basis consistent with those at the time in effect.

SECTION 12.5 Expenses. The Borrower agrees, whether or not any Loan is
made hereunder, to pay the Lender upon demand for all reasonable expenses,
including reasonable fees of attorneys and paralegals for the Lender (who may
be employees of the Lender), incurred by the Lender in connection with (i) the
preparation, negotiation and execution of this Agreement, the Note, the Loan
Documents and any other instrument or document provided for herein or delivered
or to be delivered hereunder or in connection herewith, (ii) the preparation,
negotiation and execution of any and all amendments to this Agreement, and the
Note or any such other instrument or documents. The Borrower further agrees to
pay, and to save the Lender harmless from all liability for, any stamp or other
taxes which may be payable in connection with the execution or delivery of this
Agreement, the borrowings hereunder, or the issuance of the Note or any other
Loan Documents. The Borrower also agrees to reimburse the Lender upon demand
for all reasonable out-of-pocket expenses (including attorneys' fees and legal
expenses) incurred by the Lender in connection with (x) the negotiation of any
restructuring or "work-out," whether or not consummated, of any obligations to
the Lender hereunder and under the other Loan Documents and (y) the enforcement
of any such obligations, including, without limitation, any costs incurred in
remarketing the Aircraft. The Borrower also agrees to indemnify and hold the
Lender harmless from any loss or expense which may arise or be created by the
acceptance of telephonic or other instructions for making the Loan or
disbursing the proceeds thereof.

SECTION 12.6 Captions. Section captions used in this Agreement are for
convenience only, and shall not affect the construction of this Agreement.

SECTION 12.7 Intentionally deleted.

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<PAGE> 34

SECTION 12.8 Participations. The Lender may at any time sell to one or
more commercial banks or other Persons (each of such commercial banks and other
Persons being herein called a "Participant") participating interests in the
Loan or other interests of the Lender hereunder; provided, however, that

(a) no participation contemplated in this Section 12.8 shall
relieve the Lender from its obligations hereunder or under any other
Loan Document;

(b) the Lender shall remain solely responsible for the performance
of its obligations hereunder and under the other Loan Documents;

(c) the Borrower and the Lender shall continue to deal solely and
directly with the Lender in connection with the Lender's rights and
obligations under this Agreement and each of the other Loan Documents;

(d) no Participant, unless such Participant is an Affiliate of the
Lender, shall be entitled to require the Lender to take or refrain
from taking any action hereunder or under any other Loan Document,
except that the Lender may agree with any Participant that the Lender
will not, without such Participant's consent, take any actions of the
type described in Section 12.1; and

(e) the Borrower shall not be required to pay any amount under
Section 4.4 that is greater than the amount which it would have been
required to pay had no participating interest been sold.

The Borrower acknowledges and agrees that each Participant, for purposes of
Sections 4.4, 4.8, and 12 5, shall be considered a Lender.

SECTION 12.9 Governing Law. THIS AGREEMENT, THE NOTE, AND EACH OTHER
LOAN DOCUMENT SHALL BE CONTRACTS MADE UNDER AND GOVERNED BY THE LAWS OF THE
STATE OF ILLINOIS WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES. ALL OBLIGATIONS
OF THE BORROWER AND RIGHTS OF THE LENDER AND ANY OTHER HOLDER OF ANY NOTE
EXPRESSED HEREIN OR IN ANY NOTE SHALL BE IN ADDITION TO AND NOT IN LIMITATION
OF THOSE PROVIDED BY APPLICABLE LAW.

SECTION 12.10 Successors and Assigns. This Agreement shall be binding
upon the Borrower and the Lender and their respective successors and assigns,
and shall inure to the benefit of the Borrower and the Lender, and their
successors and assigns; provided, however, that the Borrower may not assign its
obligations hereunder.

SECTION 12.11 Submission to Jurisdiction. THE LENDER MAY ENFORCE ANY
CLAIM ARISING OUT OF THIS AGREEMENT OR THE LOAN DOCUMENTS IN ANY STATE OR
FEDERAL COURT HAVING SUBJECT MATTER JURISDICTION AND

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<PAGE> 35
LOCATED IN CHICAGO, ILLINOIS. FOR THE PURPOSES OF ANY ACTION OR PROCEEDING
INSTITUTED WITH RESPECT TO ANY SUCH CLAIM, THE BORROWER HEREBY IRREVOCABLY
SUBMITS TO THE JURISDICTION OF SUCH COURTS. THE BORROWER IRREVOCABLY CONSENTS
TO THE SERVICE OF PROCESS OUT OF SAID COURTS BY MAILING A COPY THEREOF, BY
REGISTERED MAIL, POSTAGE PREPAID, TO THE BORROWER, AND AGREES THAT SUCH
SERVICE, TO THE FULLEST EXTENT PERMITTED BY LAW (I) SHALL BE DEEMED IN EVERY
RESPECT EFFECTIVE SERVICE OF PROCESS UPON IT IN ANY SUCH SUIT, ACTION OR
PROCEEDING AND (II) SHALL BE TAKEN AND HELD TO BE VALID PERSONAL SERVICE UPON
AND PERSONAL DELIVERY TO IT. NOTHING HEREIN CONTAINED SHALL AFFECT THE RIGHT OF
THE LENDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR PRECLUDE
THE LENDER FROM BRINGING AN ACTION OR PROCEEDING IN RESPECT HEREOF IN ANY OTHER
COUNTRY, STATE OR PLACE HAVING JURISDICTION OVER SUCH ACTION. THE BORROWER
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH IT MAY HAVE OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY
SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY COURT LOCATED IN CHICAGO,
ILLINOIS AND ANY CLAIM ThAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH
A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

SECTION 12.12 JURY TRIAL. THE BORROWER AND THE LENDER HEREBY EXPRESSLY
WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR
DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR ANY LOAN DOCUMENT TO WHICH IT IS A
PARTY, OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR
WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR
ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT OR ANY
LOAN DOCUMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED
BEFORE A COURT AND NOT BEFORE A JURY.

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Delivered at Chicago, Illinois, as of the day and year first above written.

By: /s/ Michael P. Grella
----------------------
Name Printed: Michael P. Grella
--------------------
Title: President
-------------------

Address:
3655 Torrance Boulevard
Suite 410
Torrance, California 90503
Attention: President
Telephone: (310) 316-3080
Telecopy: (310) 316-8145

CONTINENTAL BANK N.A.

By: /s/ Carolyn Grant
----------------------
Name Printed: Carolyn Grant
----------------------
Title: Vice President
---------------------

Address:
231 South LaSalle Street
Chicago, Illinois 60697
Attention: Vice President -
Leasing and Finance Company Division
Telecopy: (312) 828-1997
Telex: 25-3412
(Answerback: CONTL BK CGO)
Telephone: (312) 828-6381

<PAGE> 1
EXHIBIT 4.8

NOTE

RELATING TO ONE BOEING
737-300 AIRCRAFT BEARING CAA REGISTRATION
MARK G-OMBL

$21,976,677 Chicago, Illinois
Date: December 22, 1993
Due: July 19, 1997

The undersigned for value received, promises to pay to the order of
Continental Bank, N.A. (the "Lender") TWENTY-ONE MILLION, NINE HUNDRED
SEVENTY-SIX THOUSAND, SIX HUNDRED SEVENTY-SEVEN DOLLARS ($21,976,677) pursuant
to the Secured Credit Agreement (hereinafter defined), payable in the principal
installments as set forth on the schedule attached hereto. Such principal
installments shall be payable on the 17th day of each month, commencing January
17, 1994.

The undersigned further promises to pay interest on the unpaid
principal amount hereof from the date hereof until paid in full, payable at
such rate(s) and at such time(s) as provided in the Secured Credit Agreement.

Payments of both principal and interest are to be made in lawful money
of the United States of America in same day or immediately available funds to
the account designated by the Agent pursuant to the Secured Credit Agreement.

This Note evidences indebtedness incurred under, and is entitled to
the benefits of, a Secured Credit Agreement, dated as of December 21, 1993
(herein, as it may any time be amended, modified, restated or supplemented and
in effect, the "Secured Credit Agreement"), between the undersigned and the
Lender, to which Secured Credit Agreement reference is hereby made for a
statement of the terms and provisions under which this Note may be paid prior
to its due date or its due date accelerated. Unless otherwise specified
herein, the capitalized terms used herein have the same meanings as such terms
have under the Secured Credit Agreement.

Pursuant to the Secured Credit Agreement, this Note is secured by the
Mortgage and the Remarketing Agreement and may be secured by other Related
Documents from time to time. Reference is made thereto for a statement of
terms and provisions of such security.

In addition to and not in limitation of the foregoing and the
provisions of the Secured Credit Agreement, the undersigned further agrees,
subject only to any limitation imposed by applicable law, to pay all expenses,
including reasonable attorneys' fees and legal expenses, incurred by the Lender
in endeavoring to collect any amounts payable hereunder which are not paid when
due, whether by acceleration or otherwise.

This Note is made under and governed by the laws of the State of
Illinois without regard to conflict of law principals.

IAI II, INC.

By: /s/ Michael P. Grella
------------------------
Name Printed: Michael P. Grella
-----------------------
Title: President
---------------------

Address:

3655 Torrance Boulevard
Suite 410
Torrance, California 90503

<PAGE> 2
Schedule attached to Note dated December 21, 1993 of IAI II, Inc.,
payable to the order of CONTINENTAL BANK, N.A.

<TABLE>
<CAPTION>
DATE DAYS BofA/PAY INTEREST BofA PRIN BofA BALANCE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
12/22/93 21,976,677
1/18/94 27 189,171 74,171 115,000 21,861,677
2/17/94 30 194,704 79,704 115,000 21,746,677

3/17/94 28 194,285 79,285 115,000 21,631,677
4/18/94 32 212,536 92,536 120,000 21,511,677
5/17/94 29 206,644 86,644 120,000 21,391,677
6/17/94 31 221,454 142,391 79,063 21,312,614
7/17/94 30 221,468 137,289 84,179 21,228,435

8/17/94 31 221,458 141,305 80,153 21,148,282
9/17/94 31 221,459 140,771 80,688 21,067,594
10/17/94 30 221,472 135,710 85,762 20,981,832
11/17/94 31 221,462 139,663 81,799 20,900,033
12/17/94 30 221,475 134,631 86,844 20,813,189
1/17/95 31 221,465 138,541 82,924 20,730,265

2/17/95 31 221,466 137,989 83,477 20,646,788
3/17/95 28 221,502 124,133 97,369 20,549,419
4/17/95 31 222,969 136,785 86,184 20,463,235
5/17/95 30 222,982 131,817 91,165 20,372,070
6/17/95 31 222,972 135,604 87,368 20,284,702

7/17/95 30 222,985 130,667 92,318 20,192,384
8/17/95 31 222,975 134,408 88,567 20,103,817
9/17/95 31 222,977 133,819 89,158 20,014,659
10/17/95 30 222,990 128,928 94,062 19,920,597
11/17/95 31 222,980 132,599 90,381 19,830,216
12/17/95 30 222,993 127,740 95,253 19,734,963

1/17/96 31 222,984 131,364 91,620 19,643,343
2/17/96 31 222,985 130,754 92,231 19,551,112
3/17/96 29 223,009 121,744 101,265 19,449,847
4/17/96 31 221,488 129,466 92,022 19,357,825
5/17/96 30 221,501 124,697 96,804 19,261,021

6/17/96 31 221,492 128,209 93,283 19,167,738
7/17/96 30 221,504 123,472 98,032 19,069,706
8/17/96 31 221,494 126,935 94,559 18,975,147
9/17/96 31 221,496 126,306 95,190 18,879,957
10/17/96 30 221,508 121,618 99,890 18,780,067
11/17/96 31 221,499 125,007 96,492 18,683,575

12/17/96 30 221,511 120,353 101,158 18,582,417
1/17/97 31 221,503 123,692 97,811 18,484,606
2/17/97 31 221,505 123,041 98,464 18,386,142
3/17/97 28 221,539 110,542 110,997 18,275,145
4/17/97 31 221,508 121,646 99,862 18,175,283

5/17/97 30 221,520 117,079 104,441 18,070,842
6/17/97 31 221,512 120,287 101,225 17,969,617
7/17/97 30 18,085,371 115,754 17,969,617 0
</TABLE>

<PAGE> 1
EXHIBIT 10.1

INTERNATIONAL AIRCRAFT INVESTORS

1996 STOCK OPTION AND AWARD PLAN

<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
I. THE PLAN...................................................................................... 1
1.1 Purpose.............................................................................. 1
1.2 Administration and Authorization; Power and Procedure................................ 1
1.3 Participation........................................................................ 2
1.4 Shares Available for Awards.......................................................... 3
1.5 Grant of Awards...................................................................... 4
1.6 Award Period......................................................................... 4
1.7 Limitations on Exercise and Vesting of Awards........................................ 4
1.8 Acceptance of Notes to Finance Exercise.............................................. 5
1.9 No Transferability................................................................... 5

II. EMPLOYEE OPTIONS.............................................................................. 6
2.1 Grants............................................................................... 6
2.2 Option Price......................................................................... 7
2.3 Limitations on Grant and Terms of Incentive Stock Options............................ 7
2.4 Limits on 10% Holders................................................................ 8
2.5 Option Repricing/Cancellation and Regrant/Waiver of Restrictions..................... 8
2.6 Options and Rights in Substitution for Stock Options Granted by
Other Corporations............................................................................ 9

III. STOCK APPRECIATION RIGHTS..................................................................... 9
3.1 Grants............................................................................... 9
3.2 Exercise of SARs..................................................................... 9
3.3 Payment.............................................................................. 10
3.4 Limited SARs......................................................................... 10

IV. RESTRICTED STOCK AWARDS....................................................................... 10
4.1 Grants............................................................................... 10
4.2 Restrictions......................................................................... 11
4.3 Return to the Corporation............................................................ 11

V. PERFORMANCE SHARE AWARDS AND STOCK BONUSES.................................................... 12
5.1 Grants of Performance Share Awards................................................... 12
5.2 Grants of Stock Bonuses.............................................................. 12
5.3 Deferred Payments.................................................................... 12
5.4 Special Performance-Based Share Awards............................................... 13

VI. OTHER PROVISIONS.............................................................................. 14
6.1 Rights of Eligible Employees, Participants and Beneficiaries......................... 14
6.2 Adjustments; Acceleration............................................................ 14
</TABLE>

<PAGE> 3

6.3 Termination of Service; Termination of Subsidiary Status;
Discretionary Provisions............................................................. 16
6.4 Compliance With Laws................................................................. 17
6.5 Tax Withholding...................................................................... 17
6.6 Plan Amendment, Termination and Suspension........................................... 18
6.7 Privileges of Stock Ownership........................................................ 18
6.8 Effective Date of this Plan.......................................................... 18
6.9 Term of this Plan.................................................................... 19
6.10 Governing Law/Construction/Severability.............................................. 19
6.11 Captions............................................................................. 19
6.12 Non-Exclusivity of Plan.............................................................. 20

VII. DEFINITIONS................................................................................... 20
7.1 Definitions.......................................................................... 20
</TABLE>

<PAGE> 4
INTERNATIONAL AIRCRAFT INVESTORS

1996 STOCK OPTION AND AWARD PLAN

I. THE PLAN.

1.1 Purpose.

The purpose of this Plan is to promote the success of the
Company and the interests of its stockholders by providing an additional means
through the grant of Awards to attract, motivate, retain and reward key
employees and other selected persons by providing them long-term incentives to
improve the financial performance of the Company. "Corporation" means
International Aircraft Investors, a California corporation, and its successors,
and "Company" means the Corporation and its Subsidiaries, collectively. These
terms and other capitalized terms are defined in Article VII.

1.2 Administration and Authorization; Power and Procedure.

(a) Committee. This Plan shall be administered by, and all Awards to
Eligible Employees shall be authorized by, the Committee. Action of the
Committee with respect to the administration of this Plan shall be taken
pursuant to a majority vote or by written consent of its members.

(b) Plan Awards; Interpretation; Powers of Committee. Subject to the
express provisions of this Plan, the Committee shall have the authority:

(i) to determine from among those persons eligible the
particular Eligible Employees who will receive Awards;

(ii) to grant Awards to Eligible Employees, determine the price at
which securities will be offered or awarded and the amount of
securities to be offered or awarded to any of such persons, and
determine the other specific terms and conditions of such Awards
consistent with the express limits of this Plan, and establish the
installments (if any) in which such Awards shall become exercisable or
shall vest, or determine that no delayed exercisability or vesting is
required, and establish the events of termination or reversion of such
Awards;

(iii) to approve the forms of Award Agreements (which need not
be identical either as to type of award or among Participants);

(iv) to construe and interpret this Plan and any agreements
defining the rights and obligations of the Company and Employee
Participants under this Plan,

<PAGE> 5
further define the terms used in this Plan, and prescribe, amend and
rescind rules and regulations relating to the administration of this
Plan;

(v) to cancel, modify, or waive the Corporation's rights with
respect to, or modify, discontinue, suspend, or terminate any or all
outstanding Awards held by Eligible Employees, subject to any required
consent under Section 6.6;

(vi) to accelerate or extend the exercisability or extend the
term of any or all such outstanding Awards within the maximum ten-year
term of Awards under Section 1.6; and

(vii) to make all other determinations and take such other
action as contemplated by this Plan or as may be necessary or advisable
for the administration of this Plan and the effectuation of its
purposes.

(c) Binding Determinations. Any action taken by, or inaction of, the
Corporation, any Subsidiary, the Board or the Committee relating or pursuant to
this Plan shall be within the absolute discretion of that entity or body and
shall be conclusive and binding upon all persons. No member of the Board or
Committee, or officer of the Corporation or any Subsidiary, shall be liable for
any such action or inaction of the entity or body, of another person or, except
in circumstances involving bad faith, of himself or herself. Subject only to
compliance with the express provisions hereof, the Board and Committee may act
in their absolute discretion in matters within their authority related to this
Plan.

(d) Reliance on Experts. In making any determination or in taking or
not taking any action under this Plan, the Committee or the Board, as the case
may be, may obtain and may rely upon the advice of experts, including
professional advisors to the Corporation. No director, officer or agent of the
Company shall be liable for any such action or determination taken or made or
omitted in good faith.

(e) Delegation. The Committee may delegate ministerial,
non-discretionary functions to individuals who are officers or employees of the
Company.

1.3 Participation.

Awards may be granted by the Committee only to those persons
that the Committee determines to be Eligible Employees. An Eligible Employee who
has been granted an Award may, if otherwise eligible, be granted additional
Awards if the Committee shall so determine. Non-Employee Directors shall not be
eligible to receive any Awards.

<PAGE> 6
1.4 Shares Available for Awards.

Subject to the provisions of Section 6.2, the capital stock
that may be delivered under this Plan shall be shares of the Corporation's
authorized but unissued Common Stock. The shares may be delivered for any lawful
consideration.

(a) Number of Shares. The maximum number of shares of Common Stock
that may be delivered pursuant to Awards granted to Eligible Employees under
this Plan shall not exceed __________ shares. The maximum number of shares
subject to those options and stock appreciation rights that during any calendar
year are granted to any individual shall be limited to __________ and the
maximum number of shares in the aggregate subject to all Awards that during any
calendar year are granted to any individual under this Plan shall be __________.
Each of the three foregoing numerical limits shall be subject to adjustment as
contemplated by this Section 1.4 and Section 6.2.

(b) Calculation of Available Shares and Replenishment. Shares
subject to outstanding Awards of derivative securities (as defined in Rule
16a-1(c) under the Exchange Act) shall be reserved for issuance. If any Option
or other right to acquire shares of Common Stock under or receive cash or shares
in respect of an Award shall expire or be cancelled or terminated without having
been exercised or paid in full, or any Common Stock subject to a Restricted
Stock Award or other Award shall not vest or be delivered, the unpurchased,
unvested or undelivered shares of Common Stock subject thereto shall again be
available for the purposes of this Plan, subject only to any applicable
limitations under Section 162(m) of the Code. If the Corporation withholds
shares of Common Stock pursuant to Section 6.5, the number of shares that would
have been deliverable with respect to an Award but that are withheld pursuant to
the provisions of Section 6.5 may in effect not be issued, but the aggregate
number of shares issuable with respect to the applicable Award and under this
Plan shall be reduced by the number of shares withheld and such shares shall not
be available for additional Awards under this Plan. Subject only to the
preceding sentence, Section 1.4(c) and Section 6.10(c), (1) Awards payable
solely in cash, and Awards that do not constitute equity securities as defined
in Rule 16a-1(d), shall not reduce the number of shares available for Awards
under this Plan, (2) any imputed charges to the maximum number of shares
deliverable under this Plan (through reserves or otherwise) shall be reversed in
the case of Awards actually paid in cash, and (3), to the extent any shares were
previously reserved in respect of Awards payable in cash or shares, the number
of shares not delivered shall again be available for purposes of this Plan.

(c) Provisions for Certain Cash Awards. The number of awards
payable solely in cash or actually paid in cash ("Cash Awards") shall be
determined by reference to the number of shares by which the value or price of
the Award is measured and shall not, together with the aggregate number of
shares theretofore delivered and subject to then outstanding Awards payable in
shares (or alternatively payable in cash or shares) under this Plan, exceed the
aggregate or individual limits of Section 1.4(a), subject to adjustments under
this Section 1.4 and Section 6.2. Cash Awards that are forfeited or

<PAGE> 7
for any reason are not paid in cash under this Plan may again, subject to
Section 6.10(c), be the subject of and available for subsequent Awards under the
Plan. If an Award satisfies the requirements for an exclusion from the
definition of derivative security under Rule 16a-1(c) that does not require that
the Award be made under a Rule 16b-3 plan and is not intended to constitute a
performance-based award for purposes of Section 162(m) of the Code, such Award
need not be counted against the limits under Section 1.4(a), (b) or (c).

1.5 Grant of Awards.

Subject to the express provisions of this Plan, the Committee
has the authority to determine those individuals who are Eligible Employees,
whether any of them will receive an Award and, if so, the type of Award, the
number of shares of Common Stock subject to each Award, the price (if any) to be
paid for the shares or the Award, the other terms of the Award, and, in the case
of Performance Share Awards, in addition to the matters addressed in Section
1.2(b), the specific objectives, goals and performance criteria (such as an
increase in sales, market value, earnings or book value over a base period, the
years of service before vesting, the relevant job classification or level of
responsibility or other factors) that further define the terms of the
Performance Share Award. Each Award shall be evidenced by an Award Agreement
signed by the Corporation and, if required by the Committee, by the Participant.
The Award Agreement shall set forth the material terms and conditions of the
Award established by the Committee consistent with the specific provisions of
this Plan.

1.6 Award Period.

Each Award and all executory rights or obligations under the
related Award Agreement shall expire on such date (if any) as shall be
determined by the Committee, but in the case of Options, stock appreciation
rights ("SARs") or other rights to acquire Common Stock not later than ten (10)
years after the Award Date.

1.7 Limitations on Exercise and Vesting of Awards.

(a) Provisions for Exercise. Unless the Committee otherwise
expressly provides in the applicable Award Agreement, no Award shall be
exercisable or shall vest until at least six months after the initial Award
Date, and once exercisable an Award shall remain exercisable until the
expiration or earlier termination of the Award.

(b) Procedure. Any exercisable Award shall be deemed to be
exercised when the Corporation receives written notice of such exercise from the
Participant, together with any required payment in accordance with Sections 2.2
and 6.5.

(c) Fractional Shares/Minimum Issue. Fractional share interests
shall be disregarded, but may be accumulated. The Committee, however, may
determine in the case of Eligible Employees that cash, other securities, or
other property will be paid or

<PAGE> 8
transferred in lieu of any fractional share interests. No fewer than 100 shares
may be purchased on exercise of any Award at one time unless the number
purchased is the total number at the time available for purchase under the
Award.

1.8 Acceptance of Notes to Finance Exercise.

The Corporation may, with the Committee's approval, accept one
or more notes from any Eligible Employee in connection with the exercise or
receipt of any outstanding Award; provided that any such note shall be subject
to the following terms and conditions:

(a) The principal of the note shall not exceed the amount required
to be paid to the Corporation upon the exercise or receipt of one or more Awards
under this Plan and the note shall be delivered directly to the Corporation in
consideration of such exercise or receipt.

(b) The initial term of the note shall be determined by the
Committee; provided that the term of the note, including extensions, shall not
exceed a period of 10 years.

(c) The note shall bear interest at a rate determined by the
Committee but not less than the interest rate necessary to avoid the imputation
of interest under the Code.

(d) If the employment of the Participant terminates, the unpaid
principal balance of the note shall become due and payable on the 10th business
day after such termination; provided, however, that if a sale of such shares
would cause such Participant to incur liability under Section 16(b) of the
Exchange Act, the unpaid balance shall become due and payable on the 10th
business day after the first day on which a sale of such shares could have been
made without incurring such liability assuming for these purposes that there are
no other transactions (or deemed transactions in securities of this Corporation)
by the Participant subsequent to such termination.

(e) If required by the Committee or by applicable law, the note
shall be secured by a pledge of any shares or rights financed thereby in
compliance with applicable law.

(f) The terms, repayment provisions, and collateral release
provisions of the note and the pledge securing the note shall conform with all
applicable laws.

1.9 No Transferability.

(a) Limit On Exercise and Transfer. Unless otherwise expressly
provided in (or pursuant to) this Section 1.9, by applicable law and by the
Award Agreement, as the same may be amended, (i) all Awards are non-transferable
and shall not be subject in any manner to sale, transfer, anticipation,
alienation, assignment, pledge, encumbrance or

<PAGE> 9
charge; Awards shall be exercised only by the Participant; and (ii) amounts
payable or shares issuable pursuant to an Award shall be delivered only to (or
for the account of) the Participant.

(b) Exceptions. The Committee may permit Awards to be exercised by
and paid only to certain persons or entities related to the Participant,
including but not limited to members of the Participant's immediate family,
charitable institutions, or trusts or other entities whose beneficiaries or
beneficial owners are members of the Participant's immediate family and/or
charitable institutions, or to such other persons or entities as may be approved
by the Committee, pursuant to such conditions and procedures as the Committee
may establish. Any permitted transfer shall be subject to the condition that the
Committee receive evidence satisfactory to it that the transfer is being made
for estate and/or tax planning purposes on a gratuitous or donative basis and
without consideration (other than nominal consideration). Notwithstanding the
foregoing, Incentive Stock Options and Restricted Stock Awards shall be subject
to any and all additional transfer restrictions under the Code.

(c) Further Exceptions to Limits On Transfer. The exercise and
transfer restrictions in Section 1.9(a) shall not apply to:

(i) transfers to the Corporation,

(ii) the designation of a beneficiary to receive benefits in
the event of the Participant's death or, if the Participant has died,
transfers to or exercise by the Participant's beneficiary, or, in the
absence of a validly designated beneficiary, transfers by will or the
laws of descent and distribution,

(iii) transfers pursuant to a QDRO order if approved or
ratified by the Committee,

(iv) if the Participant has suffered a disability, permitted
transfers or exercises on behalf of the Participant by his or her
legal representative, or

(v) the authorization by the Committee of "cashless exercise"
procedures with third parties who provide financing for the purpose of
(or who otherwise facilitate) the exercise of Awards consistent with
applicable laws and the express authorization of the Committee.

<PAGE> 10
II. EMPLOYEE OPTIONS

2.1 Grants.

One or more Options may be granted under this Article to any
Eligible Employee. Each Option granted shall be designated by the Committee in
the applicable Award Agreement as either a Nonqualified Stock Option or an
Incentive Stock Option.

2.2 Option Price.

(a) Pricing Limits. The purchase price per share of the Common
Stock covered by each Option shall be determined by the Committee at the time of
the Award, but in the case of Incentive Stock Options shall not be less than
100% (110% in the case of a Participant described in Section 2.4) of the Fair
Market Value of the Common Stock on the date of grant.

(b) Payment Provisions. The purchase price of any shares purchased
on exercise of an Option granted under this Article shall be paid in full at the
time of each purchase in one or a combination of the following methods: (i) in
cash or by electronic funds transfer; (ii) by certified or cashier's check
payable to the order of the Corporation; (iii) if authorized by the Committee or
specified in the applicable Award Agreement, by a promissory note of the
Participant consistent with the requirements of Section 1.8; or (iv) by the
delivery of shares of Common Stock of the Corporation already owned by the
Participant, provided, however, that the Committee may in its absolute
discretion limit the Participant's ability to exercise an Award by delivering
such shares, and provided further that any shares delivered which were initially
acquired upon exercise of a stock option must have been owned by the Participant
at least six months as of the date of delivery. Shares of Common Stock used to
satisfy the exercise price of an Option shall be valued at their Fair Market
Value on the date of exercise. In addition to the payment methods described
above, the Committee may provide that the Option can be exercised and payment
made by delivering a properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Corporation the amount of
sale proceeds necessary to pay the exercise price and, unless otherwise allowed
by the Committee, any applicable tax withholding under Section 6.5. The
Corporation shall not be obligated to deliver certificates for the shares unless
and until it receives full payment of the exercise price therefor and any
related withholding obligations have been satisfied.

2.3 Limitations on Grant and Terms of Incentive Stock Options.

(a) $100,000 Limit. To the extent that the aggregate Fair Market
Value of stock with respect to which incentive stock options first become
exercisable by a Participant in any calendar year exceeds $100,000, taking into
account both Common Stock subject to Incentive Stock Options under this Plan and
stock subject to incentive stock options under all other plans of the Company or
any parent corporation, such

<PAGE> 11
options shall be treated as nonqualified stock options. For this purpose, the
Fair Market Value of the stock subject to options shall be determined as of the
date the options were awarded. In reducing the number of options treated as
incentive stock options to meet the $100,000 limit, the most recently granted
options shall be reduced first. To the extent a reduction of simultaneously
granted options is necessary to meet the $100,000 limit, the Committee may, in
the manner and to the extent permitted by law, designate which shares of Common
Stock are to be treated as shares acquired pursuant to the exercise of an
Incentive Stock Option.

(b) Option Period. Each Option and all rights thereunder shall
expire no later than ten years after the Award Date or at such earlier time as
provided in or pursuant to Section 6.3.

(c) Other Code Limits. There shall be imposed in any Award
Agreement relating to Incentive Stock Options such terms and conditions as from
time to time are required in order that the Option be an "incentive stock
option" as that term is defined in Section 422 of the Code.

(d) Optionee Notice Requirement. A holder of shares of Common
Stock acquired upon exercise of an Incentive Stock Option shall give written
notice to the Company of the disposition of the shares within two years of the
Award Date or one year of the date of exercise.

2.4 Limits on 10% Holders.

No Incentive Stock Option may be granted to any person who, at
the time the Option is granted, owns (or is deemed to own under Section 424(d)
of the Code) shares of outstanding Common Stock possessing more than 10% of the
total combined voting power of all classes of stock of the Corporation, unless
the exercise price of such Option is at least 110% of the Fair Market Value of
the stock subject to the Option and such Option by its terms is not exercisable
after the expiration of five years from the date such Option is granted.

2.5 Option Repricing/Cancellation and Regrant/Waiver of
Restrictions.

Subject to Section 1.4 and Section 6.6 and the specific
limitations on Awards contained in this Plan, the Committee from time to time
may authorize, generally or in specific cases only, for the benefit of any
Eligible Employee any adjustment in the exercise or purchase price, the vesting
schedule, the number of shares subject to, the restrictions upon or the term of,
an Award granted under this Article by cancellation of an outstanding Award and
a subsequent regranting of an Award, by amendment, by substitution of an
outstanding Award, by waiver or by other legally valid means. Such amendment or
other action may result, among other changes, in an exercise or purchase price
which is higher or lower than the exercise or purchase price of

<PAGE> 12
the original or prior Award, provide for a greater or lesser number of shares
subject to the Award, or provide for a longer or shorter vesting or exercise
period.

2.6 Options and Rights in Substitution for Stock Options Granted
by Other Corporations.

Options and Stock Appreciation Rights may be granted to
Eligible Employees under this Plan in substitution for employee stock options
granted by other entities to persons who are or who become employees of the
Company, in connection with a distribution, merger or reorganization by or with
the granting entity or an affiliated entity, or the acquisition by the Company,
directly or indirectly, of all or a substantial part of the stock or assets of
the employing entity.

III. STOCK APPRECIATION RIGHTS.

3.1 Grants.

In its discretion, the Committee may grant to any Eligible
Employee SARs concurrently with the grant of Options or other Awards or in
respect of an outstanding Award, in whole or in part, or independently of any
other Award, all on such terms as set forth by the Committee in the Award
Agreement. Any SAR granted in connection with an Incentive Stock Option shall
contain such terms as may be required to comply with the provisions of Section
422 of the Code and the regulations promulgated thereunder, unless the holder
otherwise agrees.

3.2 Exercise of SARs.

(a) Exercisability. An SAR granted independently of any other
Award shall be exercisable pursuant to the terms of the Award Agreement. Unless
the Award Agreement or the Committee otherwise provides, an SAR related to
another Award shall be exercisable at such time or times, and to the extent,
that the related Award shall be exercisable and only when the Fair Market Value
of the stock subject to the related Award exceeds the base price of the SAR.

(b) Effect on Available Shares. To the extent that a SAR is exercised,
the number of shares of Common Stock subject to any related Award shall be
charged against the maximum amount of Common Stock that may be delivered
pursuant to Awards under this Plan. The number of shares subject to the SAR and
the related Award of the Participant shall also be reduced by such number of
shares, unless the Award Agreement otherwise provides.

(c) Proportionate Reduction. If an SAR extends to less than all
the shares covered by the related Award and if a portion of the related Award is
thereafter exercised, the number of shares subject to the unexercised SAR shall
be reduced only if

<PAGE> 13
and to the extent that the remaining number of shares covered by such related
Award is less than the remaining number of shares subject to the SAR.

3.3 Payment.

(a) Amount. Unless the Committee otherwise provides in the
applicable Award Agreement, upon exercise of an SAR and surrender of an
exercisable portion of any related Award (to the extent required by Section
3.2), the Participant shall be entitled to receive, subject to Section 6.5,
payment of an amount determined by multiplying

(i) the difference obtained by subtracting the base price per
share of Common Stock under the SAR from the Fair Market Value of a
share of Common Stock on the date of exercise of the SAR, by

(ii) the number of shares with respect to which the SAR
shall have been exercised.

(b) Form of Payment. The Committee, in its sole discretion, shall
determine the form in which payment shall be made of the amount determined under
paragraph (a) above, either solely in cash, solely in shares of Common Stock
(valued at Fair Market Value on the date of exercise of the SAR), or partly in
such shares and partly in cash, provided that the Committee shall have
determined that such exercise and payment are consistent with applicable law. If
the Committee permits the Participant to elect to receive cash or shares (or a
combination thereof) on such exercise, any such election shall be subject to
such conditions as the Committee may impose.

3.4 Limited SARs.

The Committee may grant to any Eligible Employee SARs
exercisable only upon or in respect of a change in control or any other
specified event ("Limited SARs") and such Limited SARs may relate to or operate
in tandem or combination with or substitution for Options, other SARs or other
Awards (or any combination thereof), and may be payable in cash or shares based
on the spread between the base price of the SAR and a price based upon the Fair
Market Value of the Shares during a specified period or at a specified time
within a specified period before, after or including the date of such event.

IV. RESTRICTED STOCK AWARDS.

4.1 Grants.

The Committee may, in its discretion, grant one or more
Restricted Stock Awards to any Eligible Employee. Each Restricted Stock Award
Agreement shall specify

<PAGE> 14
the number of shares of Common Stock to be issued to the Participant, the date
of such issuance, the consideration for such shares (but not less than the
minimum lawful consideration under applicable state law) by the Participant, the
extent (if any) to which and the time (if ever) at which the Participant shall
be entitled to dividends, voting and other rights in respect of the shares prior
to vesting, and the restrictions (which may be based on performance criteria,
passage of time or other factors or any combination thereof) imposed on such
shares and the conditions of release or lapse of such restrictions. Such
restrictions shall not lapse earlier than one year after the Award Date, except
to the extent the Committee may otherwise provide in the applicable Award
Agreement. Stock certificates evidencing shares of Restricted Stock pending the
lapse of the restrictions ("Restricted Shares") shall bear a legend making the
appropriate reference to the restrictions imposed hereunder and shall be held by
the Corporation or by a third party designated by the Committee until the
restrictions on such shares shall have lapsed and the shares shall have vested
in accordance with the provisions of the Award and Section 1.7(a). Upon issuance
of the Restricted Stock Award, the Participant may be required to provide such
further assurance and documents as the Committee may require to enforce the
restrictions.

4.2 Restrictions.

(a) Pre-Vesting Restraints. Except as provided in Section 4.1 and
1.9, restricted shares comprising any Restricted Stock Award may not be sold,
assigned, transferred, pledged or otherwise disposed of or encumbered, either
voluntarily or involuntarily, until the restrictions on such shares have lapsed
and the shares become vested.

(b) Dividend and Voting Rights. Unless otherwise provided in the
applicable Award Agreement, the holder of a Restricted Stock Award shall not be
entitled to receive dividends on any of the shares of Restricted Stock until the
shares vest. Dividends so restricted shall be retained in a restricted account
until the shares have vested and shall revert to the Corporation if they fail to
vest. Holders of Restricted Stock shall be entitled to vote (or instruct voting)
prior to vesting.

(c) Cash Payments. If the Participant shall have paid or received
cash (including any dividends) or other property in connection with the
Restricted Stock Award, the Award Agreement shall specify whether and to what
extent such cash or other property shall be returned (with or without an
earnings factor) as to shares of Restricted Stock which do not vest.

4.3 Return to the Corporation.

Unless the Committee otherwise expressly provides, shares of
Restricted Stock that are subject to restrictions at the time of termination of
employment or are subject to other conditions to vesting that have not been
satisfied by the time specified in

<PAGE> 15
the applicable Award Agreement shall not vest and shall be returned to the
Corporation in such manner and on such terms as the Committee shall therein
provide.

V. PERFORMANCE SHARE AWARDS AND STOCK BONUSES.

5.1 Grants of Performance Share Awards.

The Committee may, in its discretion, grant Performance Share
Awards to Eligible Employees based upon such factors as the Committee shall deem
relevant in light of the specific type and terms of the award. An Award
Agreement shall specify the maximum number of shares of Common Stock (if any)
subject to the Performance Share Award, the consideration (but not less than the
minimum lawful consideration) to be paid for any such shares as may be issuable
to the Participant, the duration of the Award and the conditions upon which
delivery of any shares or cash to the Participant shall be based. The amount of
cash or shares or other property that may be deliverable pursuant to such Award
shall be based upon the degree of attainment over a specified period of not more
than ten years (a "performance cycle") as may be established by the Committee of
such measure(s) of the performance of the Company (or any part thereof) or the
Participant as may be established by the Committee. The Committee may provide
for full or partial credit, prior to completion of such performance cycle or the
attainment of the performance achievement specified in the Award, in the event
of the Participant's death, Retirement, or Total Disability, a Change in Control
Event or in such other circumstances as the Committee (consistent with Section
6.10(c)(2), if applicable) may determine.

5.2 Grants of Stock Bonuses.

The Committee may grant a Stock Bonus to any Eligible Employee
to reward exceptional or special services, contributions or achievements in the
manner and on such terms and conditions (including any restrictions on such
shares) as determined from time to time by the Committee. The number of shares
so awarded shall be determined by the Committee. The Award may be granted
independently or in lieu of a cash bonus.

5.3 Deferred Payments.

The Committee may authorize for the benefit of any Eligible
Employee the deferral of any payment of cash or shares that may become due or of
cash otherwise payable under this Plan, and provide for accreted benefits
thereon based upon such deferment, at the election or at the request of such
Participant, subject to the other terms of this Plan. Such deferment shall be
subject to such further conditions, restrictions or requirements as the
Committee may impose, subject to any then vested rights of Participants.

<PAGE> 16

5.4 Special Performance-Based Share Awards

Without limiting the generality of the foregoing, and in
addition to awards granted under other provisions of this Plan, other
performance-based awards within the meaning of Section 162(m) of the Code
("Performance-Based Awards"), whether in the form of restricted stock,
performance stock, phantom stock or other rights, the vesting of which depends
on the performance of the Company on a consolidated, segment, subsidiary or
division basis with reference to revenues, net earnings (before or after taxes
or before or after taxes, interest, depreciation, and/or amortization), cash
flow, return on equity or on assets or on net investment, or cost containment or
reduction, or any combination thereof (the "business criteria") relative to
preestablished performance goals, may be granted under this Plan. The applicable
business criteria and specific performance goal or goals ("targets") must be
approved by the Committee in advance of applicable deadlines under the Code and
while the performance relating to such targets remains substantially uncertain.
The applicable performance measurement period may be not less than one nor more
than ten years. Performance targets may be adjusted to mitigate the unbudgeted
impact of material, unusual or nonrecurring gains and losses, accounting changes
or other extraordinary events not foreseen at the time the targets were set.

(a) Eligible Class. The eligible class of persons for Awards
under this Section 5.4 shall be executive officers of the Company.

(b) Maximum Award. In no event shall grants made in any fiscal
year to any eligible person under this Section 5.4 relate to more than _______
shares or, if payable in cash, a cash amount of more than $__________.

(c) Committee Certification. Before any Performance-Based Award
under this Section 5.4 is paid, the Committee must certify that the material
terms of the Performance-Based Award were satisfied.

(d) Terms and Conditions of Awards. The Committee will have
discretion to determine the restrictions or other limitations of the individual
Awards under this Section 5.4, including the authority to reduce Awards, payouts
or vesting or to pay no Awards, in its sole discretion, if the Committee
preserves such authority at the time of grant by language to this effect in its
authorizing resolutions, the applicable Award Agreement or otherwise.

(e) Stock Payout Features. In lieu of cash payment of an Award,
the Committee may require or allow a portion of the Award to be paid in the form
of stock, Restricted Shares or an Option.

<PAGE> 17
VI. OTHER PROVISIONS.

6.1 Rights of Eligible Employees, Participants and Beneficiaries.

(a) Employment Status. Status as an Eligible Employee shall not
be construed as a commitment that any Award will be made under this Plan to an
Eligible Employee or to Eligible Employees generally.

(b) No Employment Contract. Nothing contained in this Plan (or
in any other documents related to this Plan or to any Award) shall confer upon
any Eligible Employee or other Participant any right to continue in the employ
or other service of the Company or constitute any contract or agreement of
employment or other service, nor shall interfere in any way with the right of
the Company to change such person's compensation or other benefits or to
terminate the employment of such person, with or without cause, but nothing
contained in this Plan or any document related hereto shall adversely affect any
independent contractual right or duty of such person without the consent of the
party to be bound.

(c) Plan Not Funded. Awards payable under this Plan shall be
payable in shares or from the general assets of the Corporation, and (except as
provided in Section 1.4(b)), no special or separate reserve, fund or deposit
shall be made to assure payment of such Awards. No Participant, Beneficiary or
other person shall have any right, title or interest in any fund or in any
specific asset (including shares of Common Stock, except as expressly otherwise
provided) of the Company by reason of any Award hereunder. Neither the
provisions of this Plan (nor of any related documents), nor the creation or
adoption of this Plan, nor any action taken pursuant to the provisions of this
Plan shall create, or be construed to create, a trust of any kind or a fiduciary
relationship between the Company and any Participant, Beneficiary or other
person. To the extent that a Participant, Beneficiary or other person acquires a
right to receive payment pursuant to any Award hereunder, such right shall be no
greater than the right of any unsecured general creditor of the Company.

6.2 Adjustments; Acceleration.

(a) Adjustments. If there shall occur any extraordinary dividend
or other extraordinary distribution in respect of the Common Stock (whether in
the form of cash, Common Stock, other securities, or other property), or any
reclassification, recapitalization, stock split (including a stock split in the
form of a stock dividend), reverse stock split, reorganization, merger,
combination, consolidation, split-up, spin-off, combination, repurchase, or
exchange of Common Stock or other securities of the Corporation, or there shall
occur any similar extraordinary corporate transaction (or event in respect of
the Common Stock) or a sale of substantially all the assets of the Corporation
as an entirety, then the Committee shall, in such manner and to such extent (if
any) as it deems appropriate and equitable (1) proportionately adjust any or all
of (a) the number and type of shares of Common Stock (or other securities) which
thereafter may be made

<PAGE> 18
the subject of Awards (including the specific maxima and numbers of shares set
forth elsewhere in this Plan), (b) the number, amount and type of shares of
Common Stock (or other securities or property) subject to any or all outstanding
Awards, (c) the grant, purchase, or exercise price of any or all outstanding
Awards, (d) the securities, cash or other property deliverable upon exercise of
any outstanding Awards, and/or (e) the performance standards appropriate to any
outstanding Awards, or (2) in the case of an extraordinary dividend or other
distribution, recapitalization, reclassification, reorganization, merger,
consolidation, combination, sale of assets, split up, exchange, or spin off,
make provision for a cash payment or for the substitution or exchange of any or
all outstanding Awards (or the cash, securities or property deliverable to the
holder of any or all outstanding Awards) based upon the distribution or
consideration payable to holders of the Common Stock of the Corporation upon or
in respect of such event; provided, however, in each case, that with respect to
Awards of Incentive Stock Options, no such adjustment shall be made which would
cause the Plan to violate Section 424(a) of the Code or any successor provisions
thereto without the written consent of holders materially adversely affected
thereby. In any of such events, the Committee may take such action sufficiently
prior to such event if necessary to permit the Participant to realize the
benefits intended to be conveyed with respect to the underlying shares in the
same manner as is available to shareholders generally.

(b) Acceleration of Awards Upon Change in Control. Unless prior to
a Change in Control Event the Committee determines that, upon its occurrence,
there shall be no acceleration of benefits under Awards or determines that only
certain or limited benefits under Awards shall be accelerated and the extent to
which they shall be accelerated, and/or establishes a different time in respect
of such Event for such acceleration, then upon the occurrence of a Change in
Control Event

(i) each Option and SAR shall become immediately
exercisable,

(ii) Restricted Stock shall immediately vest free of
restrictions, and

(iii) the number of shares, cash or other property covered by
each Performance Share Award shall be issued or paid to the
Participant;

provided, however, that in no event shall any Award be accelerated as to any
Section 16 Person to a date less than six months after the Award Date of such
Award. The Committee may override the limitations on acceleration in this
Section 6.2(b) by express provision in the Award Agreement and may accord any
Eligible Employee a right to refuse any acceleration, whether pursuant to the
Award Agreement or otherwise, in such circumstances as the Committee may
approve. Any acceleration of Awards shall comply with applicable regulatory
requirements, including without limitation, Section 422 of the Code.

(c) Possible Early Termination of Accelerated Awards. If any
Option or other right to acquire Common Stock under this Plan has been fully
accelerated as permitted

<PAGE> 19
by Section 6.2(b), the holder thereof has been accorded an opportunity to
exercise or otherwise realize the benefits thereof and the Option or other right
is not exercised prior to (i) a dissolution of the Corporation, or (ii) an event
described in Section 6.2(a) that the Corporation does not survive, or (iii) the
consummation of an event described in Section 6.2(a) that results in a Change of
Control approved by the Board, the Option or right shall thereupon terminate,
subject to any provision that has been expressly made by the Committee for the
survival, substitution, exchange or other settlement of the Option or right.

6.3 Termination of Service; Termination of Subsidiary Status;
Discretionary Provisions.

(a) Options/SAR - Resignation or Dismissal. Unless the Committee
otherwise provides in the applicable Award Agreement, if the Participant's
employment by or service to the Company terminates for any reason other than
Retirement, Total Disability or death, the Participant shall have, subject to
earlier termination pursuant to or as contemplated by Section 1.6 or 6.2, three
months from the date of termination to exercise any Option to the extent it
shall have become exercisable on the date of termination, and any Option to the
extent not exercisable on that date shall terminate.

(b) Options/SAR - Retirement, Death or Disability. Unless the
Committee otherwise provides in the applicable Award Agreement, and except for
limitations under the Code in respect of Incentive Stock Options, if the
Participant's employment by or service to the Company terminates as a result of
Retirement, Total Disability or death, the Participant, Participant's Personal
Representative or his or her Beneficiary, as the case may be, shall have,
subject to earlier termination pursuant to or as contemplated by Section 1.6, 12
months from the date of termination to exercise any Option or SAR to the extent
it shall have become exercisable by the date of termination, and any Option or
SAR to the extent not exercisable on that date shall terminate.

(c) Certain SARs. Each SAR granted concurrently or in tandem with
an Option shall have the same post-termination provisions and exercisability
periods as the Option to which it relates, unless the Committee otherwise
provides.

(d) Other Awards. The Committee shall establish in respect of each
other Award granted hereunder the Participant's rights and benefits (if any) in
the event of a termination of employment or service and in so doing may make
distinctions based upon the cause of termination and the nature of the Award.

(e) Change in Subsidiary Status/Change in Service. For purposes of
this Plan and any Award hereunder, if an entity ceases to be a Subsidiary, a
termination of employment shall be deemed to have occurred with respect to each
employee of such Subsidiary who does not continue as an employee of another
entity owned, controlled by or under common control with the Company. In the
case of Awards to or held by an

<PAGE> 20
Other Eligible Person, the Committee shall determine the applicable service
requirements and the effect of a change in the extent, status or terms of
service.

(f) Committee Discretion. Notwithstanding the foregoing provisions
of this Section 6.3, in the event of, or in anticipation of, a termination of
employment or service with the Company for any reason, other than discharge for
cause, the Committee may, in its discretion, increase the portion of the
Participant's Award available to the Participant, or Participant's Beneficiary
or Personal Representative, as the case may be, or, subject to the provisions of
Section 1.6, extend the exercisability period upon such terms as the Committee
shall determine and expressly set forth in or by amendment to the Award
Agreement.

6.4 Compliance With Laws.

This Plan, the granting and vesting of Awards under this Plan
and the offer, issuance and delivery of shares of Common Stock and/or the
payment of money under this Plan or under Awards granted hereunder are subject
to compliance with all applicable federal and state laws, rules and regulations
(including but not limited to state and federal securities law and federal
margin requirements) and to such approvals by any listing, agency or any
regulatory or governmental authority as may, in the opinion of counsel for the
Corporation, be necessary or advisable in connection therewith. Any securities
delivered under this Plan shall be subject to such restrictions, and the person
acquiring such securities shall, if requested by the Corporation, provide such
assurances and representations to the Corporation as the Corporation may deem
necessary or desirable to assure compliance with all applicable legal
requirements.

6.5 Tax Withholding.

Upon any exercise, vesting, or payment of any Award (or upon
the disposition of shares of Common Stock acquired pursuant to the exercise of
an Incentive Stock Option prior to satisfaction of the holding period
requirements of Section 422 of the Code), the Company shall have the right at
its option to (i) require the Participant (or Personal Representative or
Beneficiary, as the case may be) to pay or provide for payment of the amount of
any taxes which the Company may be required to withhold with respect to such
Award event or payment or (ii) deduct from any amount payable the amount of any
taxes which the Company may be required to withhold with respect to such cash
payment. In any case where a tax is required to be withheld in connection with
the delivery of shares of Common Stock under this Plan, the Committee may in its
sole discretion grant (either at the time of the Award or thereafter) to the
Participant the right to elect, pursuant to such rules and subject to such
conditions as the Committee may establish, to have the Corporation reduce the
number of shares to be delivered by (or otherwise reacquire) the appropriate
number of shares valued at their then Fair Market Value, to satisfy such
withholding obligation.

<PAGE> 21
6.6 Plan Amendment, Termination and Suspension.

(a) Board or Committee Authorization. The Board may, at any time,
terminate or, from time to time, amend, modify or suspend this Plan, in whole or
in part. No Awards may be granted during any suspension of this Plan or after
termination of this Plan, but the Committee shall retain jurisdiction as to
Awards then outstanding in accordance with the terms of this Plan.

(b) Shareholder Approval. Any amendment that would (i) materially
increase the benefits accruing to Participants under this Plan, (ii) materially
increase the aggregate number of securities that may be issued under this Plan,
or (iii) materially modify the requirements as to eligibility for participation
in this Plan, shall be subject to shareholder approval only to the extent then
required by Section 425 of the Code or applicable law, or deemed necessary or
advisable by the Board.

(c) Amendments to Awards. Without limiting any other express
authority of the Committee under, but subject to the express limits, of this
Plan, the Committee by agreement or resolution may waive conditions of or
limitations on Awards to Eligible Employees that the Committee in the prior
exercise of its discretion has imposed, without the consent of a Participant,
and may make other changes to the terms and conditions of Awards that do not
affect, in any manner materially adverse to the Employee Participant, his or her
rights and benefits under an Award.

(d) Limitations on Amendments to Plan and Awards. No amendment,
suspension or termination of this Plan or change of or affecting any outstanding
Award shall, without written consent of the Participant, affect in any manner
materially adverse to the Participant any rights or benefits of the Participant
or obligations of the Corporation under any Award granted under this Plan prior
to the effective date of such change. Changes contemplated by Section 6.2 shall
not be deemed to constitute changes or amendments for purposes of this Section
6.6.

6.7 Privileges of Stock Ownership.

Except as otherwise expressly authorized by the Committee or
this Plan, a Participant shall not be entitled to any privilege of stock
ownership as to any shares of Common Stock not actually delivered to and held of
record by him or her. No adjustment will be made for dividends or other rights
as a shareholders for which a record date is prior to such date of delivery.

6.8 Effective Date of this Plan.

This Plan shall be effective as of the date it is approved by
the Board, subject to approval of the shareholders of the Corporation within 12
months thereafter.

<PAGE> 22
6.9 Term of this Plan.

No Award shall be granted under this Plan after __________,
2006 (the "termination date"). Unless otherwise expressly provided in this Plan
or in an applicable Award Agreement, any Award granted prior to the termination
date may extend beyond such date, and all authority of the Committee with
respect to Awards hereunder, including the authority to amend an Award, shall
continue during any suspension of this Plan and shall continue in respect of
Awards outstanding on the termination date.

6.10 Governing Law/Construction/Severability.

(a) Choice of Law. This Plan, the Awards, all documents evidencing
Awards and all other related documents shall be governed by, and construed in
accordance with the laws of the State of California.

(b) Severability. If any provision shall be held by a court of
competent jurisdiction to be invalid and unenforceable, the remaining provisions
of this Plan shall continue in effect.

(1) Rule 16b-3. It is the intent of the Corporation that
transactions in and affecting Awards in the case of Participants who
are or may be subject to Section 16 of the Exchange Act satisfy any
then applicable requirements of Rule 16b-3 so that such persons (unless
they otherwise agree) will be entitled to the benefits of Rule 16b-3 or
other exemptive rules under Section 16 of the Exchange Act in respect
of those transactions and will not be subjected to avoidable liability
thereunder. If any provision of this Plan or of any Award would
otherwise frustrate or conflict with the intent expressed above, that
provision to the extent possible shall be interpreted as to avoid such
conflict. If the conflict remains irreconcilable, the Committee may
disregard the provision if it concludes that to do so furthers the
interest of the Corporation and is consistent with the purposes of this
Plan as to such persons in the circumstances.

(2) Section 162(m). It is the further intent of the Company
that Options or SARs with an exercise or base price not less than Fair
Market Value on the date of grant and performance awards under Section
5.4 of this Plan that are granted to or held by a Section 16 Person
shall qualify as performance-based compensation under Section 162(m) of
the Code, and this Plan shall be interpreted consistent with such
intent.

6.11 Captions.

Captions and headings are given to the sections and
subsections of this Plan solely as a convenience to facilitate reference. Such
headings shall not be deemed

<PAGE> 23
in any way material or relevant to the construction or interpretation of this
Plan or any provision thereof.

6.12 Non-Exclusivity of Plan.

Nothing in this Plan shall limit or be deemed to limit the
authority of the Board or the Committee to grant awards or authorize any other
compensation, with or without reference to the Common Stock, under any other
plan or authority.

VII. DEFINITIONS.

7.1 Definitions.

(a) "Award" shall mean an award of any Option, SAR, Restricted
Stock, Stock Bonus, Performance-Based Award or other Performance Share Award,
dividend equivalent or deferred payment right or other right or security that
would constitute a "derivative security" under Rule 16a-1(c) of the Exchange
Act, or any combination thereof, whether alternative or cumulative, authorized
by and granted under this Plan.

(b) "Award Agreement" shall mean any writing setting forth the
terms of an Award that has been authorized by the Committee.

(c) "Award Date" shall mean the date upon which the Committee took
the action granting an Award or such later date as the Committee designates as
the Award Date.

(d) "Award Period" shall mean the period beginning on an Award
Date and ending on the expiration date of such Award.

(e) "Beneficiary" shall mean the person, persons, trust or trusts
designated by a Participant or, in the absence of a designation, entitled by
will or the laws of descent and distribution, to receive the benefits specified
in the Award Agreement and under this Plan in the event of a Participant's
death, and shall mean the Participant's executor or administrator if no other
Beneficiary is designated and able to act under the circumstances.

(f) "Board" shall mean the Board of Directors of the Corporation.

(g) "Change in Control Event" shall mean any of the following:

(1) Approval by the shareholders of the Corporation of the
dissolution or liquidation of the Corporation;

<PAGE> 24
(2) Approval by the shareholders of the Corporation of an
agreement to merge or consolidate, or otherwise reorganize, with or
into one or more entities that are not Subsidiaries, as a result of
which less than 50% of the outstanding voting securities of the
surviving or resulting entity immediately after the reorganization are,
or will be, owned, directly or indirectly, by shareholders of the
Corporation immediately before such reorganization (assuming for
purposes of such determination that there is no change in the record
ownership of the Corporation's securities from the record date for such
approval until such reorganization and that such record owners hold no
securities of the other parties to such reorganization, but including
in such determination any securities of the other parties to such
reorganization held by affiliates of the Corporation);

(3) Approval by the shareholders of the Corporation of the
sale, lease, conveyance or other disposition of all or substantially
all of the Corporation's business and/or assets to a person or entity
which is not a Subsidiary;

(4) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act but excluding any person described in and
satisfying the conditions of Rule 13d-1(b)(1) thereunder), other than a
person who is the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act) of more than 20% of the outstanding Shares of Common
Stock at the time of adoption of this Plan (or an affiliate, successor,
heir, descendant or related party of or to any such person), becomes
the beneficial owner (as defined in Rule 13d-3 under the Exchange Act)
directly or indirectly, of securities of the Corporation representing
more than 25% of the combined voting power of the Corporation's then
outstanding securities entitled to then vote generally in the election
of directors of the Corporation; or

(5) A majority of the Board of Directors of the Company not
being comprised of Continuing Directors. For purposes of this clause,
"Continuing Directors" are persons who were (A) members of the Board of
Directors of the Company at the time of adoption of this Plan or (B)
nominated for election or elected to the Board of Directors of the
Company with the affirmative vote of at least a majority of the
directors who were Continuing Directors at the time of such nomination
or election.

(h) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.

(i) "Commission" shall mean the Securities and Exchange
Commission.

(j) "Committee" shall mean the Board or a committee appointed by
the Board to administer this Plan, which committee shall be comprised only of
two or more directors or such greater number of directors as may be required
under applicable law,

<PAGE> 25
each of whom, in respect of any decision at a time when the Participant affected
by the decision may be subject to Section 162(m) of the Code, shall be
Disinterested.

(k) "Common Stock" shall mean the Common Stock of the Corporation
and such other securities or property as may become the subject of Awards, or
become subject to Awards, pursuant to an adjustment made under Section 6.2 of
this Plan.

(l) "Company" shall mean, collectively, the Corporation and its
Subsidiaries.

(m) "Corporation" shall mean International Aircraft Investors, a
California corporation, and its successors.

(n) "Disinterested" shall mean a disinterested director or an
"outside director" within the meaning of any mandatory legal or regulatory
requirements, including Section 162(m) of the Code.

(o) "Eligible Employee" shall mean an officer (whether or not a
director) or key employee of the Company, or any Other Eligible Person, as
determined by the Committee in its discretion.

(p) "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.

(q) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time.

(r) "Fair Market Value" on any date shall mean (i) if the stock is
listed or admitted to trade on a national securities exchange, the closing price
of the stock on the Composite Tape, as published in the Western Edition of The
Wall Street Journal, of the principal national securities exchange on which the
stock is so listed or admitted to trade, on such date, or, if there is no
trading of the stock on such date, then the closing price of the stock as quoted
on such Composite Tape on the next preceding date on which there was trading in
such shares; (ii) if the stock is not listed or admitted to trade on a national
securities exchange, the last price for the stock on such date, as furnished by
the National Association of Securities Dealers, Inc. ("NASD") through the NASDAQ
National Market Reporting System or a similar organization if the NASD is no
longer reporting such information; (iii) if the stock is not listed or admitted
to trade on a national securities exchange and is not reported on the National
Market Reporting System, the mean between the bid and asked price for the stock
on such date, as furnished by the NASD or a similar organization; or (iv) if the
stock is not listed or admitted to trade on a national securities exchange, is
not reported on the National Market Reporting System and if bid and asked prices
for the stock are not furnished by the NASD or a similar organization, the value
as established by the Committee at such time for purposes of this Plan.

<PAGE> 26

(s) "Incentive Stock Option" shall mean an Option which is
designated and intended as an incentive stock option within the meaning of
Section 422 of the Code, the award of which contains such provisions (including
but not limited to the receipt of shareholder approval of this Plan, if the
award is made prior to such approval) and is made under such circumstances and
to such persons as may be necessary to comply with that section.

(t) "Nonqualified Stock Option" shall mean an Option that is
designated as a Nonqualified Stock Option and shall include any Option intended
as an Incentive Stock Option that fails to meet the applicable legal
requirements thereof. Any Option granted hereunder that is not designated as an
incentive stock option shall be deemed to be designated a nonqualified stock
option under this Plan and not an incentive stock option under the Code.

(u) "Non-Employee Director" shall mean a member of the Board of
Directors of the Corporation who is not an officer or employee of the Company.

(v) "Option" shall mean an option to purchase Common Stock under
this Plan. The Committee shall designate any Option granted to an Eligible
Employee as a Nonqualified Stock Option or an Incentive Stock Option.

(w) "Other Eligible Person" shall mean any individual consultant
or advisor, or (to the extent provided in the next sentence) agent, who (A)
renders or has rendered bona fide services (other than services in connection
with the offering or sale of securities of the Company in a capital raising
transaction) to the Company, and (B) is selected to participate in this Plan by
the Committee. A non-employee agent providing bona fide services to the Company
(other than as an eligible advisor or consultant) may also be selected as an
Other Eligible Person if such agent's participation in this Plan would not
adversely affect (x) the Corporation's eligibility to use Form S-8 to register
under the Securities Act the offer and sale by the Company of shares issuable
under this Plan or (y) the Corporation's compliance with any other applicable
laws.

(x) "Participant" shall mean an Eligible Employee who has been
granted an Award under this Plan.

(y) "Performance Share Award" shall mean an award of a right to
receive shares of Common Stock under Section 5.1, or to receive shares of Common
Stock or other compensation (including cash) under Section 5.4, the issuance or
payment of which is contingent upon, among other conditions, the attainment of
performance objectives specified by the Committee.

(z) "Personal Representative" shall mean the person or persons
who, upon the disability or incompetence of a Participant, shall have acquired
on behalf of the Participant, by legal proceeding or otherwise, the power to
exercise the rights or receive

<PAGE> 27
benefits under this Plan by virtue of having become the legal representative of
the Participant.

(aa) "Plan" shall mean this International Aircraft Investors 1996
Stock Option and Award Plan.

(bb) "QDRO" shall mean a qualified domestic relations order.

(cc) "Restricted Stock" shall mean shares of Common Stock awarded
to a Participant under this Plan subject to payment of such consideration, if
any, and such conditions on vesting (which may include, among others, the
passage of time, specified performance objectives or other factors) and such
transfer and other restrictions as are established in or pursuant to this Plan
and the related Award Agreement, for so long as such shares remain unvested
under the terms of the applicable Award Agreement.

(dd) "Retirement" shall mean retirement with the consent of the
Company or retirement from active service as an employee or officer of the
Company on or after attaining age 65.

(ee) "Rule 16b-3" shall mean Rule 16b-3 as promulgated by the
Commission pursuant to the Exchange Act, as amended from time to time.

(ff) "Section 16 Person" shall mean a person subject to Section
16(a) of the Exchange Act.

(gg) "Securities Act" shall mean the Securities Act of 1933, as
amended from time to time.

(hh) "Stock Appreciation Right" or "SAR" shall mean a right
authorized under this Plan to receive a number of shares of Common Stock or an
amount of cash, or a combination of shares and cash, the aggregate amount or
value of which is determined by reference to a change in the Fair Market Value
of the Common Stock.

(ii) "Stock Bonus" shall mean an Award of shares of Common Stock
for no consideration other than past services and without restriction other than
such transfer or other restrictions as the Committee may deem advisable to
assure compliance with law.

(jj) "Subsidiary" shall mean any corporation or other entity a
majority of whose outstanding voting stock or voting power is beneficially owned
directly or indirectly by the Corporation.

(kk) "Total Disability" shall mean a "permanent and total
disability" within the meaning of Section 22(e)(3) of the Code and such other
disabilities, infirmities, afflictions or conditions as the Committee by rule
may include.

<PAGE> 1
EXHIBIT 10.3

FORM OF
INDEMNITY AGREEMENT

This Indemnity Agreement ("Agreement") is made as of
______________________, 19__ by and between International Aircraft Investors, a
California corporation ("Company"), and _____________________ ("Indemnitee"), a
[director] [and] [officer] of the Company.

R E C I T A L S

A. The Indemnitee is currently serving [has agreed to serve]
as a [director] [and] [officer] of the Company and in such capacity has rendered
[will render] valuable services to the Company.

B. The Company has investigated the availability and
sufficiency of liability insurance and California statutory indemnification
provisions to provide its directors [and officers] with adequate protection
against various legal risks and potential liabilities to which such individuals
are subject due to their positions with the Company and has concluded that such
insurance and statutory provisions may provide inadequate and unacceptable
protection to certain individuals requested to serve as its directors [and
officers].

C. In order to induce and encourage highly experienced and
capable persons such as the Indemnitee [to continue] to serve as a [director]
[and] [officer] of the Company, the Board of Directors has determined, after due
consideration and investigation of the terms and provisions of this Agreement
and the various other options available to the Company and the Indemnitee in
lieu hereof, that this Agreement is not only reasonable and prudent but
necessary to promote and ensure the best interests of the Company and its
shareholders.

AGREEMENT

NOW, THEREFORE, in consideration of the [continued] services
of the Indemnitee and in order to induce the Indemnitee [to continue] to serve
as a [director] [and] [officer], the Company and the Indemnitee do hereby agree
as follows:

1. Definitions. As used in this Agreement:

(a) The term "Proceeding" shall include any threatened,
pending or completed action, suit or proceeding, formal or informal, whether
brought in the name of the Company or otherwise and whether of a civil, criminal
or administrative or investigative nature, by reason of the fact that the
Indemnitee is or was a [director] [and] [officer] of the Company, or is or was
serving at the request of the Company as a

<PAGE> 2
director, officer, employee or agent of another enterprise, whether or not he is
serving in such capacity at the time any liability or expense is incurred for
which indemnification or reimbursement is to be provided under this Agreement.

(b) The term "Expenses" includes, without limitation,
attorneys' fees, disbursements and retainers, accounting and witness fees,
travel and deposition costs, expenses of investigations, judicial or
administrative proceedings and appeals, amounts paid in settlement by or on
behalf of Indemnitee, and any expenses of establishing a right to
indemnification, pursuant to this Agreement or otherwise, including reasonable
compensation for time spent by the Indemnitee in connection with the
investigation, defense or appeal of a Proceeding or action for indemnification
for which he is not otherwise compensated by the Company or any third party. The
term "Expenses" does not include the amount of judgments, fines, penalties or
ERISA excise taxes actually levied against the Indemnitee.

2. Agreement to Serve. The Indemnitee agrees [to
continue] to serve as a [director] [and] [officer] of the Company [at the will
of the Company] [under the terms of his agreement with the Company] for so long
as he is duly elected or appointed or until such time as he tenders his
resignation in writing or is removed as a [director] [and] [officer].

3. Indemnification in Third Party Actions. The Company
shall indemnify the Indemnitee if the Indemnitee is a party to or threatened to
be made a party to or is otherwise involved in any Proceeding (other than a
Proceeding by or in the name of the Company to procure a judgment in its favor),
by reason of the fact that the Indemnitee is or was a [director] [and] [officer]
of the Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of another enterprise, against all
Expenses, judgments, fines, penalties and ERISA excise taxes actually and
reasonably incurred by the Indemnitee in connection with the defense or
settlement of such a Proceeding, to the fullest extent permitted by California
law and the Company's Amended and Restated Articles of Incorporation; provided
that any settlement of a Proceeding be approved in writing by the Company.

4. Indemnification in Proceedings By or In the Name of
the Company. The Company shall indemnify the Indemnitee if the Indemnitee is a
party to or threatened to be made a party to or is otherwise involved in any
Proceeding by or in the name of the Company to procure a judgment in its favor
by reason of the fact that the Indemnitee was or is a [director] [and] [officer]
of the Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of another enterprise, against all
Expenses, judgments, fines, penalties and ERISA excise taxes actually and
reasonably incurred by the Indemnitee in connection with the defense or
settlement of such a Proceeding, to the fullest extent permitted by California
law and the Company's Amended and Restated Articles of Incorporation.

<PAGE> 3
5. Conclusive Presumption Regarding Standards of
Conduct. The Indemnitee shall be conclusively presumed to have met the relevant
standards of conduct, if any, as defined by California law, for indemnification
pursuant to this Agreement, unless a determination is made that the Indemnitee
has not met such standards (i) by the Board of Directors by a majority vote of a
quorum thereof consisting of directors who were not parties to the Proceeding
due to which a claim is made under this Agreement, (ii) by the shareholders of
the Company by majority vote of a quorum thereof consisting of shareholders who
are not parties to the Proceeding due to which a claim is made under this
Agreement, (iii) in a written opinion by independent counsel, the selection of
whom has been approved by the Indemnitee in writing, or (iv) by a court of
competent jurisdiction.

6. Indemnification of Expenses of Successful Party.
Notwithstanding any other provision of this Agreement, to the extent that the
Indemnitee has been successful in defense of any Proceeding or in defense of any
claim, issue or matter therein, on the merits or otherwise, including the
dismissal of a Proceeding without prejudice or the settlement of a Proceeding
without an admission of liability, the Indemnitee shall be indemnified against
all Expenses incurred in connection therewith to the fullest extent permitted by
California law.

7. Advances of Expenses. The Expenses incurred by the
Indemnitee in any Proceeding shall be paid promptly by the Company in advance of
the final disposition of the Proceeding at the written request of the Indemnitee
to the fullest extent permitted by California law; provided that the Indemnitee
shall undertake in writing to repay any advances if it is ultimately determined
that the Indemnitee is not entitled to indemnification.

8. Partial Indemnification. If the Indemnitee is
entitled under any provision of this Agreement to indemnification by the Company
for a portion of the Expenses, judgments, fines, penalties or ERISA excise taxes
actually and reasonably incurred by him in the investigation, defense, appeal or
settlement of any Proceeding but not, however, for the total amount of his
Expenses, judgments, fines, penalties or ERISA excise taxes, the Company shall
nevertheless indemnify the Indemnitee for the portion of Expenses, judgments,
fines, penalties or ERISA excise taxes to which the Indemnitee is entitled.

9. Indemnification Procedure; Determination of Right to
Indemnification.

(a) Promptly after receipt by the Indemnitee of notice
of the commencement of any Proceeding, the Indemnitee shall, if a claim in
respect thereof is to be made against the Company under this Agreement, notify
the Company of the commencement thereof in writing. The omission to so notify
the Company will not relieve it from any liability which it may have to the
Indemnitee otherwise than under this Agreement.

<PAGE> 4
(b) If a claim for indemnification or advances under this
Agreement is not paid by the Company within 30 days of receipt of written
notice, the rights provided by this Agreement shall be enforceable by the
Indemnitee in any court of competent jurisdiction. The burden of proving by
clear and convincing evidence that indemnification or advances are not
appropriate shall be on the Company. Neither the failure of the directors or
shareholders of the Company or its independent legal counsel to have made a
determination prior to the commencement of such action that indemnification or
advances are proper in the circumstances because the Indemnitee has met the
applicable standard of conduct, if any, nor an actual determination by the
directors or shareholders of the Company or independent legal counsel that the
Indemnitee has not met the applicable standard of conduct, shall be a defense to
the action or create a presumption for the purpose of an action that the
Indemnitee has not met the applicable standard of conduct.

(c) The Indemnitee's Expenses incurred in connection
with any proceeding establishing or enforcing his right to indemnification or
advances in whole or in part pursuant to this Agreement shall also be
indemnified by the Company.

(d) With respect to any Proceeding for which
indemnification is requested, the Company will be entitled to participate
therein at its own expense and, except as otherwise provided below, to the
extent that it may wish, the Company may assume the defense thereof, with
counsel satisfactory to the Indemnitee. After notice from the Company to the
Indemnitee of its election to assume the defense of a Proceeding, the Company
will not be liable to the Indemnitee under this Agreement for any Expenses
subsequently incurred by the Indemnitee in connection with the defense thereof,
other than as provided below. The Company shall not settle any Proceeding in any
manner which would impose any penalty or limitation on the Indemnitee without
the Indemnitee's written consent. The Indemnitee shall have the right to employ
his own counsel in any Proceeding, but the fees and expenses of such counsel
incurred after notice from the Company of its assumption of the defense of the
Proceeding shall be at the expense of the Indemnitee, unless (i) the employment
of counsel by the Indemnitee has been authorized by the Company, (ii) the
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and the Indemnitee in the conduct of the defense of
a Proceeding, or (iii) the Company shall not in fact have employed counsel to
assume the defense of a Proceeding, in each of which cases the fees and expenses
of the Indemnitee's counsel shall be advanced by the Company. The Company shall
not be entitled to assume the defense of any Proceeding brought by or on behalf
of the Company or as to which the Indemnitee has concluded that there may be a
conflict of interest between the Company and the Indemnitee.

10. Limitations on Indemnification. No payments
pursuant to this Agreement shall be made by the Company:

(a) To indemnify or advance funds to the Indemnitee for
Expenses with respect to Proceedings initiated or brought voluntarily by the
Indemnitee and not by way

<PAGE> 5
of defense, except with respect to Proceedings brought to establish or enforce a
right to indemnification under this Agreement or any other statute or law or
otherwise as required under California law, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if the
Board of Directors finds it to be appropriate;

(b) To indemnify the Indemnitee for any Expenses,
judgments, fines, penalties or ERISA excise taxes sustained in any Proceeding
for which payment is actually made to the Indemnitee under a valid and
collectible insurance policy, except in respect of any excess beyond the amount
of payment under such insurance;

(c) To indemnify the Indemnitee for any Expenses,
judgments, fines or penalties sustained in any Proceeding for an accounting of
profits made from the purchase or sale by the Indemnitee of securities of the
Company pursuant to the provisions of Section 16(b) of the Securities Exchange
Act of 1934, the rules and regulations promulgated thereunder and amendments
thereto or similar provisions of any federal, state or local statutory law; and

(d) If a court of competent jurisdiction finally
determines that any indemnification hereunder is unlawful.

11. Maintenance of Liability Insurance.

(a) The Company hereby covenants and agrees that, as long
as the Indemnitee continues to serve as a [director] [and] [officer] of the
Company and thereafter as long as the Indemnitee may be subject to any possible
Proceeding, the Company, subject to subsection (c) below, shall promptly obtain
and maintain in full force and effect directors' and officers' liability
insurance ("D&O Insurance") in reasonable amounts from established and reputable
insurers.

(b) In all D&O Insurance policies, the Indemnitee shall be
named as an insured in such a manner as to provide the Indemnitee the same
rights and benefits as are accorded to the most favorably insured of the
Company's directors [and officers].

(c) Notwithstanding the foregoing, the Company shall have no
obligation to obtain or maintain D&O Insurance if the Company determines, in its
sole discretion, that such insurance is not reasonably available, the premium
costs for such insurance are disproportionate to the amount of coverage
provided, the coverage provided by such insurance is so limited by exclusions
that it provides an insufficient benefit, or the Indemnitee is covered by
similar insurance maintained by a subsidiary of the Company.

12. Indemnification Hereunder Not Exclusive. The
indemnification provided by this Agreement shall not be deemed exclusive of any
other rights to which the Indemnitee may be entitled under the Articles of
Incorporation, Bylaws, any

<PAGE> 6
agreement, vote of shareholders, or disinterested directors, provision of
California law, or otherwise, both as to action in his official capacity and as
to action in another capacity on behalf of the Company while holding such
office.

13. Successors and Assigns. This Agreement shall be
binding upon, and shall inure to the benefit of the Indemnitee and his heirs,
executors, administrators and assigns, whether or not Indemnitee has ceased to
be a director or officer, and the Company and its successors and assigns.

14. Separability. Each and every paragraph, sentence,
term and provision of this Agreement is separate and distinct so that if any
paragraph, sentence, term or provision hereof shall be held to be invalid or
unenforceable for any reason, such invalidity or unenforceability shall not
affect the validity or enforceability of any other paragraph, sentence, term or
provision hereof. To the extent required, any paragraph, sentence, term or
provision of this Agreement may be modified by a court of competent jurisdiction
to preserve its validity and to provide the Indemnitee with the broadest
possible indemnification permitted under California law.

15. Savings Clause. If this Agreement or any paragraph,
sentence, term or provision hereof is invalidated on any ground by any court of
competent jurisdiction, the Company shall nevertheless indemnify the Indemnitee
as to any Expenses, judgments, fines, penalties or ERISA excise taxes incurred
with respect to any Proceeding to the full extent permitted by any applicable
paragraph, sentence, term or provision of this Agreement that has not been
invalidated or by any other applicable provision of California law.

16. Interpretation: Governing Law. This Agreement shall
be construed as a whole and in accordance with its fair meaning. Headings are
for convenience only and shall not be used in construing meaning. This Agreement
shall be governed and interpreted in accordance with the laws of the State of
California.

17. Amendments. No amendment, waiver, modification,
termination or cancellation of this Agreement shall be effective unless in
writing signed by the party against whom enforcement is sought. The
indemnification rights afforded to the Indemnitee hereby are contract rights and
may not be diminished, eliminated or otherwise affected by amendments to the
Amended and Restated Articles of Incorporation, Bylaws or by other agreements,
including D&O Insurance policies.

18. Counterparts. This Agreement may be executed in one
or more counterparts, all of which shall be considered one and the same
agreements and shall become effective when one or more counterparts have been
signed by each party and delivered to the other.

19. Notices. Any notice required to be given under this
Agreement shall be directed to International Aircraft Investors, 3655 Torrance
Boulevard, Suite 410,

<PAGE> 7
Torrance, California 90503, Attention: President, and to Indemnitee at
_______________ ______________________________ or to such other address as
either shall designate in writing.

IN WITNESS WHEREOF, the parties have executed this Indemnity
Agreement as of the date first written above.

INDEMNITEE

-------------------------

INTERNATIONAL AIRCRAFT INVESTORS

By:______________________

Its:__________________

<PAGE> 1
EXHIBIT 10.4

ILFC

INTERNATIONAL LEASE FINANCE CORPORATION

November 6, 1996

Mr. Rick Hammond
Chief Financial Officer
INTERNATIONAL AIRCRAFT INVESTORS
3655 Torrance Blvd., Suite 410
Torrance, CA 90503

Re: Asset Value Guarantees

Dear Rick:

In connection with the aircraft lease transactions from International Lease
Finance Corporation ("ILFC") by International Aircraft Investors ("IAI"), ILFC
has provided Asset Value Guarantees ("AVG's") in various amounts to facilitate
financing for IAI acquisitions.

As has been our practice with IAI purchases from ILFC, each AVG remains with
the aircraft while owned by IAI, including any subsequent release or refinance
period.

This is to confirm our agreement to continue the existing AVG's for up to 10
years following IAI's purchase from ILFC.

Any continuation beyond 10 years would be subject to negotiation.

Very truly yours,

/s/ Alan H. Lund

Alan H. Lund
Executive Vice President
and Chief Financial Officer

<PAGE> 1
EXHIBIT 10.5

[ILFC LETTERHEAD]

January 14, 1997

Mr. William E. Lindsey
Chairman
INTERNATIONAL AIRCRAFT INVESTORS
3655 Torrance Boulevard, Suite 410
Torrance, California 90503

Dear Bill:

In consideration of our long and mutually beneficial relationship, this will
confirm that International Lease Finance Corporation (ILFC) will assist
International Aircraft Investors (IAI) in evaluating marketing trends and
potential aircraft lessees as well as provide, on a worldwide basis, its
aircraft and airline expertise, to assist IAI in the releasing and reselling of
its aircraft.

Sincerely,

INTERNATIONAL LEASE FINANCE CORPORATION

/s/ ALAN H. LUND
- --------------------------
Alan H. Lund
Executive Vice President
Chief Financial Officer &
Co-Chief Operating Officer

<PAGE> 1
EXHIBIT 11

INTERNATIONAL AIRCRAFT INVESTORS
COMPUTATION OF EARNINGS PER SHARE

<TABLE>
<CAPTION> Years Ended December 31,
----------------------------------------
1993 1994 1995
------------- ------------ -------------

<S> <C> <C> <C>
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,047,904 $ 1,069,354 $ 870,711
Addback interest expense from use of modified treasury stock method(1) . 302,859 -- --
------------- ------------ ------------
Net income as adjusted . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,350,763 $ 1,069,354 $ 870,711
============= ============ ============

Weighted average common shares outstanding . . . . . . . . . . . . . . . 215,000 215,000 215,000
Weighted average common stock equivalents:
Stock options determined using the treasury stock method . . . . . . -- 2,129,560 2,129,560

Stock options determined using the modified treasury stock method(1) 4,001,133 -- --
Convertible preferred stock . . . . . . . . . . . . . . . . . . . . . 4,941,000 4,941,000 4,941,000
Convertible debt . . . . . . . . . . . . . . . . . . . . . . . . . . 700,000 700,000 700,000
------------- ------------ ------------

Weighted average common and common equivalent shares outstanding . . . . 9,857,133 7,985,560 7,985,560
============= ============ ============
Net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.24 $ 0.13 $ 0.11
============= ============ ============
Detailed calculation of shares issuable from the assumed exercise of stock
options:
Calculation of proceeds upon exercise of options
Number of stock options considered to be common stock equivalents . 4,044,133 4,483,285 4,483,285
Weighted average exercise price . . . . . . . . . . . . . . . . . . 1.06 1.05 1.05
------------- ------------ ------------
$ 4,286,781 $ 4,707,449 $ 4,707,449
============= ============ ============
Proceeds upon conversion . . . . . . . . . . . . . . . . . . . .
Calculation of shares that could be repurchased upon exercise of stock
options:

Proceeds upon exercise of options . . . . . . . . . . . . . . . . . $ 4,286,781 $4,707,449 $4,707,449
Assumed fair market value . . . . . . . . . . . . . . . . . . . . . 2.00 2.00 2.00
------------- ------------ ------------
Shares that could be repurchased . . . . . . . . . . . . . . . . 2,143,390 2,353,725 2,353,725
============= ============ ============

Calculation of 20% of ending shares outstanding that could be
repurchased under the modified treasury stock method(1):
Common shares outstanding at the end of the year . . . . . . . . . 215,000
20% limitation . . . . . . . . . . . . . . . . . . . . . . . . . . 20%
-------------
Maximum share repurchase . . . . . . . . . . . . . . . . . . . 43,000
=============

Common stock equivalents for stock options using the treasury stock ------------ -----------
method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,129,560 2,129,560
============ ===========

-------------
Common stock equivalents for stock opinions using the modified 4,001,133
treasury stock method(1) . . . . . . . . . . . . . . . . . . . . . . =============

Detailed calculation of shares issuable for the assumed conversion of
convertible preferred stock
Convertible preferred stock considered to be common stock equivalents 4,941,000 4,941,000 4,941,000
Conversion ratio . . . . . . . . . . . . . . . . . . . . . . . . . . one for one one for one one for one
------------- ------------ ------------
Common stock equivalents for convertible preferred stock . . . . . . 4,941,000 4,941,000 4,941,000
============= ============ ============

Detailed calculation of shares issuable from the assumed conversion of
convertible debt:
Convertible debt considered to be common stock equivalents . . . . . $ 700,000 $ 700,000 $ 700,000
Conversion ratio . . . . . . . . . . . . . . . . . . . . . . . . . . one for one one for one one for one
------------- ------------ ------------

Common stock equivalents for convertible debt . . . . . . . . . . . . 700,000 700,000 700,000
============= ============ ============

</TABLE>

Nine Months Ended
September 30,
--------------------------
1995 1996
------------- ------------

<S> <C> <C>
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 264,318 $ 455,008
Addback interest expense from use of modified treasury stock method(1) . -- --
------------- ------------
Net income as adjusted . . . . . . . . . . . . . . . . . . . . . . . . . $ 264,318 $ 455,008
============= ============

Weighted average common shares outstanding . . . . . . . . . . . . . . . 215,000 315,000
Weighted average common stock equivalents:
Stock options determined using the treasury stock method . . . . . . 2,129,560 2,082,060

Stock options determined using the modified treasury stock method(1) -- --
Convertible preferred stock . . . . . . . . . . . . . . . . . . . . . 4,941,000 4,941,000
Convertible debt . . . . . . . . . . . . . . . . . . . . . . . . . . 700,000 700,000
------------- ------------

Weighted average common and common equivalent shares outstanding . . . . 7,985,560 8,038,060
============= ============
Net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.03 $ 0.06
============= ============
Detailed calculation of shares issuable from the assumed exercise of stock
options:
Calculation of proceeds upon exercise of options
Number of stock options considered to be common stock equivalents . 4,483,285 4,383,285
Weighted average exercise price . . . . . . . . . . . . . . . . . . 1.05 1.05
------------- ------------
$ 4,707,449 $ 4,602,449
============= ============
Proceeds upon conversion . . . . . . . . . . . . . . . . . . . .
Calculation of shares that could be repurchased upon exercise of stock
options:

Proceeds upon exercise of options . . . . . . . . . . . . . . . . . $4,707,449 $4,602,449
Assumed fair market value . . . . . . . . . . . . . . . . . . . . . 2.00 2.00
------------- ------------
Shares that could be repurchased . . . . . . . . . . . . . . . . 2,353,725 2,301,225
============= ============

Maximum share repurchase . . . . . . . . . . . . . . . . . . .

Common stock equivalents for stock options using the treasury stock ------------- ------------
method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,129,560 2,082,060
============= ============

Common stock equivalents for stock opinions using the modified
treasury stock method(1) . . . . . . . . . . . . . . . . . . . . . .
Detailed calculation of shares issuable for the assumed conversion of
convertible preferred stock
Convertible preferred stock considered to be common stock equivalents 4,941,000 4,941,000
Conversion ratio . . . . . . . . . . . . . . . . . . . . . . . . . . one for one one for one
------------- ------------
Common stock equivalents for convertible preferred stock . . . . . . 4,941,000 4,941,000
============= ============

Detailed calculation of shares issuable from the assumed conversion of
convertible debt:
Convertible debt considered to be common stock equivalents . . . . . $ 700,000 $ 700,000
Conversion ratio . . . . . . . . . . . . . . . . . . . . . . . . . . one for one one for one
------------- ------------

Common stock equivalents for convertible debt . . . . . . . . . . . . 700,000 700,000
============= ============
</TABLE>

(1) See note 1 to Consolidated Financial Statements.

<PAGE> 1

EXHIBIT 23.1

CONSENT OF KPMG PEAT-MARWICK LLP,
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We hereby consent to the use of our report included herein and
to the reference to our firm and such report under the headings "Selected
Consolidated Financial and Operating Data" and
"Experts" in the prospectus.

KPMG PEAT MARWICK LLP

Los Angeles, California
January 14, 1997

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