<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 4, 1997
REGISTRATION NO. 333-19875
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INTERNATIONAL AIRCRAFT INVESTORS
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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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:
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RICHARD A. BOEHMER, ESQ. PAUL H. IRVING, ESQ.
STUART Y. KIM, ESQ. ALLEN Z. SUSSMAN, 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
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TITLE OF EACH CLASS OF SECURITIES PROPOSED MAXIMUM AGGREGATE
TO BE REGISTERED OFFERING PRICE AMOUNT OF REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------
Common Stock $25,116,000 $7,611(1)
===================================================================================================
</TABLE>
(1) $6,970 previously paid.
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.
================================================================================
<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 MARCH 4, 1997
PRELIMINARY PROSPECTUS
1,820,000 SHARES
INTERNATIONAL AIRCRAFT INVESTORS
COMMON STOCK
------------------------
All of the shares of Common Stock offered hereby are being sold by
International Aircraft Investors (the "Company"). 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 has applied 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 "IAIS."
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.
- --------------------------------------------------------------------------------
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PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDERS
- --------------------------------------------------------------------------------------------------
Per Share..................... $ $ $ $
- --------------------------------------------------------------------------------------------------
Total(3)...................... $ $ $ $
==================================================================================================
</TABLE>
(1) Excludes the value of warrants to purchase up to 182,000 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 and Friedman, Billings, Ramsey & Co., Inc. (the
"Representatives") 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 $630,000.
(3) The Company has granted the Underwriters an option, exercisable for 45 days
from the date of this Prospectus, to purchase a maximum of 273,000
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 and Proceeds to Company 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
LOGO
<PAGE> 3
[THREE AIRCRAFT IN FLIGHT. TWO B 737S, ONE WITH THE LOGO AND NAME OF SOUTHWEST
AND ONE WITH THE LOGO AND NAME OF BRITISH MIDLAND. THE THIRD AIRCRAFT IS AN MD
82 WITH THE LOGO AND NAME OF ALASKA.]
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-6 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 801,277 shares of Common Stock upon the closing of this
offering, (iv) assume the exercise of options to purchase 358,046 shares of
Common Stock, and (v) exclude up to 182,000 shares of Common Stock issuable upon
exercise of warrants to be issued to the Representatives (the "Representatives'
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
December 31, 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-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.
3
<PAGE> 5
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 4.1% 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
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Common Stock offered by the Company.. 1,820,000 shares
Common Stock to be outstanding after
the offering....................... 3,031,823 shares(1)
Use of proceeds...................... To finance the acquisition of aircraft, and for
working capital and other general corporate purposes
Proposed Nasdaq-NM symbol............ IAIS
</TABLE>
- ---------------
(1) Excludes (i) 372,498 shares of Common Stock subject to options outstanding
on the date of this Prospectus with an exercise price of $6.00 per share;
(ii) 116,666 shares of Common Stock issuable upon conversion of a 5%
Subordinated Convertible Note due August 13, 1998 in the principal amount of
$700,000 (the "Convertible Note"); (iii) 182,000 shares of Common Stock
issuable upon exercise of the Representatives' Warrants; and (iv) 100,000
shares of Common Stock reserved for issuance under the Company's 1997
Employee Stock Option and Award Plan (the "1997 Option Plan") and the
Company's 1997 Eligible Directors Stock Option Plan (the "1997 Directors
Plan").
RISK FACTORS
See "Risk Factors" beginning on page 8 for information that should be
considered by prospective investors. Such risk factors include the risks
associated with the ownership of aircraft; the effects of downturns or adverse
effects on the air transportation industry; the limited number of aircraft and
leases of the Company; the credit risks associated with the Company's customers;
international risks to the Company as a result of leases to foreign customers;
aircraft noise compliance; the Company's reliance upon ILFC; the Company's
dependence upon the availability of financing; interest rate risks to the
Company; substantial competition in the aircraft leasing industry; limitations
on stock ownership of the Company which may affect registration of the Company's
aircraft in the United States; uncertainty regarding limits on liability of
lessors of aircraft; the requirements and costs associated with the maintenance
and operation of aircraft; risks of changes in tax laws or accounting
principles; dependence on key management; quarterly fluctuations in operating
results; the absence of a prior public market for the Company's Common Stock and
the possible volatility of the stock price of the Company's Common Stock; broad
management, discretion in the allocation of the use of the net proceeds of the
offering; the number of shares eligible for future sale; certain anti-takeover
provisions; and the immediate and substantial dilution of purchasers of the
Common Stock of the Company.
5
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
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<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1992(1) 1993 1994 1995 1996
------- ------ ------ ------ -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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INCOME STATEMENT DATA
Revenues:
Rental of flight equipment........................................... $ 6,166 $6,098 $8,108 $7,765 $12,681
Consulting fees...................................................... 68 742 213 491 461
Gain on sale of aircraft equipment................................... 841 -- -- -- 141
Interest income...................................................... 35 7 68 118 169
------ ------ ------ ------ -------
Total revenues................................................... 7,111 6,847 8,389 8,374 13,452
Expenses:
Interest............................................................. 3,182 2,293 3,548 3,776 6,277
Depreciation......................................................... 2,970 2,014 3,165 3,354 5,550
General and administrative........................................... 690 447 548 526 553
Loss on sale of aircraft............................................. 3,645(2) -- -- -- --
Other................................................................ 185 -- -- -- --
------ ------ ------ ------ -------
Total expenses................................................... 10,672 4,754 7,261 7,656 12,380
Equity in earnings of affiliates....................................... -- -- -- 184 --
Income (loss) before income taxes and extraordinary items.............. (3,562) 2,093 1,128 901 1,072
Income tax expense..................................................... 2 45 59 30 37
Income (loss) before extraordinary items............................... (3,564) 2,048 1,069 871 1,035
Extraordinary items -- gain from debt forgiveness...................... 4,326 -- -- -- --
------ ------ ------ ------ -------
Net income (loss)...................................................... $ 762 $2,048 $1,069 $ 871 $ 1,035
====== ====== ====== ====== =======
Net income (loss) per common and common equivalent share(3):
Income (loss) before extraordinary items............................. $ (0.60) $ 0.24 $ 0.14 $ 0.11 $ 0.13
Extraordinary items.................................................. 0.73 -- -- -- --
------ ------ ------ ------ -------
Net income (loss).................................................. $ 0.13 $ 0.24 $ 0.14 $ 0.11 $ 0.13
====== ====== ====== ====== =======
Weighted average number of common and common equivalent shares
outstanding(3)....................................................... 5,863 9,857 7,766 7,766 7,821
Pro forma net income per common and common equivalent share(4)......... .62 1.48 .83 .70 .80
Pro forma weighted average number of common and common equivalent
shares outstanding(4)................................................ 1,503 1,503 1,503 1,503 1,520
</TABLE>
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<CAPTION>
DECEMBER 31, 1996
-----------------------
AS
ACTUAL ADJUSTED(5)
------- -----------
(IN THOUSANDS)
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BALANCE SHEET DATA
Flight equipment under operating lease................................................... $89,885 $89,885
Total assets............................................................................. 92,620 112,981
Debt financing(6)........................................................................ 82,710 82,710
Shareholders' equity..................................................................... 5,084 25,445
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1992 1993 1994 1995 1996
------- ------ ------ ------ -------
(DOLLARS IN THOUSANDS)
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OTHER DATA
EBITDA(7)................................................................ $10,561 $6,400 $7,841 $8,031 $12,758
Return on average assets(8).............................................. 1.8% 5.8% 1.9% 1.5% 1.1%
Return on average equity(9).............................................. -- -- 39.6% 24.6% 22.9%
Aircraft equipment owned at period end(10)............................... 4 5 5 8 7
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(1) Included in the 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 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.
(footnotes continue on next page)
6
<PAGE> 8
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 1992, 1994, 1995 and 1996 was anti-dilutive. See Note 1 to
Consolidated Financial Statements. Does not give effect to the 1-for-6
reverse stock split of Common Stock, the assumed conversion of outstanding
shares of Preferred Stock 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-6 reverse stock split,
the conversion of outstanding shares of Preferred Stock into 801,277 shares
of Common Stock and the exercise of options to acquire 358,046 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 into 801,277 shares of Common Stock; (ii) exercise of options to
purchase 358,046 shares of Common Stock; (iii) the sale of the 1,820,000
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 $42.2 million.
(7) EBITDA, defined as income before interest expense, income taxes,
depreciation, gain (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.
(9) Contributed capital is total shareholders' equity excluding accumulated
deficit.
(10) Aircraft equipment owned at period end includes one auxillary power unit
which was purchased in 1995 and sold for a gain of $141,000 in December,
1996.
7
<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 would 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
8
<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, 1994, 1995 and 1996, lease revenues
from flight equipment generated from foreign customers accounted for
approximately 80%, 69% and 45%, respectively, 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, 1996: British Midland Airways Limited (36%, 36% and 23% for the years ended
December 31, 1994, 1995 and 1996, respectively), Alaska Airlines, Inc. (21% for
the year ended December 31, 1996), Southwest Airlines Co. (15% for the year
ended December 31, 1996), ILFC (6%, 16% and 10% for the years ended December 31,
1994, 1995 and 1996, respectively), New Zealand International Airlines Limited
(42%, 26% and 10% for the years ended December 31, 1994, 1995 and 1996,
respectively) and Delta Air Lines, Inc. (12%, 11% and 7% for the years ended
December 31, 1994, 1995 and 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.
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
9
<PAGE> 11
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 would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Aircraft Leasing."
INTERNATIONAL RISKS
During 1994, 1995 and 1996, approximately 80%, 69% and 45%, 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.
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.
10
<PAGE> 12
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 currently leased in areas not
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.
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 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 December 31,
1996, approximately $42.2 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.
11
<PAGE> 13
INTEREST RATE RISK
The Company's leases are generally structured at fixed rental rates for
specified terms. As of December 31, 1996, borrowings subject to interest rate
risk, after taking into account guarantees and interest rate swaps in place,
totaled $2.3 million or 3% of the Company's total borrowings. In addition, at
December 31, 1996, approximately $42.2 million of the Company's debt financing
matures or comes due within one year from such date, including approximately
$37.2 million of debt relating to four leases which expire between January and
August, 1997. All leases were recently extended. See "Business -- Lease
Portfolio" and "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.
SUBSTANTIAL 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 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
Shareholders."
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.
REQUIREMENTS AND COSTS ASSOCIATED WITH THE MAINTENANCE AND OPERATION OF AIRCRAFT
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 have employment agreements with Mr. Lindsey and Mr. Grella. The
Company will maintain key man life insurance of $2.0 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."
BROAD MANAGEMENT DISCRETION IN ALLOCATION OF NET PROCEEDS
The Company expects to use the net proceeds of the Offering to acquire
additional aircraft for lease and for working capital and other general
purposes, but has not yet entered into agreements to purchase any specific
aircraft or otherwise identified any other specific uses for such net proceeds.
The Company's management, subject to approval by the Company's Board of
Directors, will retain broad discretion as to the allocation of the proceeds of
the offering. The failure of management to apply such proceeds effectively could
have a material adverse effect on the Company's business, financial condition
and results of operations.
SHARES ELIGIBLE FOR FUTURE SALE
After completion of the offering, the Company will have 3,031,823 shares of
Common Stock outstanding. Of those shares, the 1,820,000 shares of Common Stock
offered hereby (2,093,000 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 1,211,823
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. In addition, 372,498 shares are
subject to existing options and 100,000 shares are reserved for issuance under
the Company's 1997 Option Plan and the 1997 Directors Plan. The Company plans to
register the shares issuable upon exercise of these options under the Securities
Act.
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
1,073,489 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
14
<PAGE> 16
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."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of Common Stock in the offering will experience immediate and
substantial dilution of approximately $2.61 per share in the net tangible book
value per share of Common Stock from the assumed initial public offering price
of $11.00 per share. See "Dilution."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,820,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$18.0 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. The Company has not yet entered into
agreements to purchase any specific aircraft or otherwise identified any other
specific uses of such net proceeds. See "Risk Factors -- Broad Management
Discretion in Allocation of Net Proceeds." Pending such uses, the Company will
invest the net proceeds in short-term, investment grade, interest-bearing
securities.
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
December 31, 1996 on an actual basis, which gives effect to a 1-for-6 reverse
stock split, and as adjusted to give effect to (i) the conversion of outstanding
shares of Preferred Stock into 801,277 shares of Common Stock; (ii) the exercise
of options to acquire 358,046 shares of Common Stock; (iii) the sale of the
1,820,000 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>
DECEMBER 31, 1996
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Debt financing(1)...................................................... $82,710 $ 82,710
------- -----
Shareholders' equity:
Convertible preferred stock, $.01 par value per share; 15,000,000
shares authorized; 823,500 shares issued and outstanding, actual;
22,222 issued, as adjusted........................................ 49 --
Common stock, $.01 par value per share; 20,000,000 shares authorized;
52,500 shares outstanding, actual; and 3,031,823 shares
outstanding, as adjusted(2)....................................... 3 30
Additional paid-in capital............................................. 5,170 25,510
Accumulated deficit.................................................... (139) (139)
------- -----
Total shareholders' equity 5,083 25,445
------- -----
Total capitalization......................................... $87,793 $ 108,155
======= =====
</TABLE>
(1) Includes current portion of long-term debt of $42.2 million.
(2) Excludes (i) 372,498 shares of Common Stock subject to options outstanding
on the date of this Prospectus with an exercise price of $6.00 per share;
(ii) 116,666 shares of Common Stock issuable upon conversion of the
Convertible Note; (iii) 182,000 shares of Common Stock issuable upon
exercise of the Representatives' Warrants; and (iv) 100,000 shares of Common
Stock reserved for issuance under the 1997 Option Plan and the 1997
Directors Plan. See "Management -- Director Compensation" and " -- Stock
Option Plan" and "Underwriting."
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<PAGE> 18
DILUTION
At December 31, 1996, the net tangible book value of the Company was $5.1
million or $96.83 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-6 reverse stock split. After giving effect to (i) the conversion of
outstanding shares of Preferred Stock into 801,277 shares of Common Stock; and
(ii) the exercise of options to acquire 358,046 shares of Common Stock, the net
tangible book value of the Company at December 31, 1996 would have been $7.5
million, or $6.15 per share of common stock. After giving effect to these
conversions, the sale by the Company of the 1,820,000 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 December 31, 1996 would have been $25.4 million, or
$8.39 per share. This represents an immediate increase in net tangible book
value of $2.24 per share to the existing shareholders and an immediate dilution
in net tangible book value to new investors of $2.61 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 December 31, 1996... $96.83
Decrease attributable to conversion of Preferred Stock
and exercise of stock options......................... (90.68)
------
Adjusted net tangible book value per share before the
offering.............................................. 6.15
Increase attributable to new investors in the offering... 2.24
------
As adjusted, net tangible book value per common share after
the offering............................................. 8.39
------
Dilution per common share to new investors................. $ 2.61
======
</TABLE>
The following table summarizes, as of December 31, 1996, after giving
effect to a 1-for-6 reverse stock split, the conversion of outstanding shares of
Preferred Stock into 801,277 shares of Common Stock and the exercise of options
to acquire 358,046 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 TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders.................. 1,211,823 40.0% $ 7,595,943 27.5% $ 6.27
New investors.......................... 1,820,000 60.0 20,020,000 72.5 11.00
------- ----- --------- -----
Total........................ 3,031,823 100.0% $27,615,943 100.0%
======= ===== ========= =====
</TABLE>
The foregoing excludes (i) 372,498 shares of Common Stock subject to
options outstanding on the date of this Prospectus with an exercise price of
$6.00 per share; (ii) 166,666 shares of Common Stock issuable upon conversion of
the Convertible Note; (iii) 182,000 shares of Common Stock issuable upon
exercise of the Representatives' Warrants; and (iv) 100,000 shares of Common
Stock reserved for issuance under the 1997 Option Plan and the 1997 Directors
Plan. See "Management -- Director Compensation" and " -- 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, 1995 and 1996 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 year ended December 31,
1992 have been derived from the unaudited consolidated financial statements of
the Company.
<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1992(1) 1993 1994 1995 1996
----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Revenues:
Rental of flight equipment......................... $ 6,166 $ 6,098 $ 8,108 $ 7,765 $ 12,681
Consulting fees.................................... 68 742 213 491 461
Gain on sale of aircraft equipment................. 841 -- -- -- 141
Interest income.................................... 35 7 68 118 169
---------- ----------- ---------- ---------- ----------
Total revenues................................. 7,111 6,847 8,389 8,374 13,452
Expenses:
Interest........................................... 3,182 2,293 3,548 3,776 6,277
Depreciation....................................... 2,970 2,014 3,165 3,354 5,550
General and administrative......................... 690 447 548 526 553
Loss on sale of aircraft........................... 3,645(2) -- -- -- --
Other.............................................. 185 -- -- -- --
---------- ----------- ---------- ---------- ----------
Total expenses................................. 10,672 4,754 7,261 7,656 12,380
Equity in earnings of affiliates..................... -- -- -- 184 --
Income (loss) before income taxes and extraordinary
items.............................................. (3,562) 2,093 1,128 901 1,072
Income tax expense................................... 2 45 59 30 37
Income (loss) before extraordinary items............. (3,564) 2,048 1,069 871 1,035
Extraordinary items -- gain from debt forgiveness.... 4,326 -- -- -- --
---------- ----------- ---------- ---------- ----------
Net income (loss).................................... $ 762 $ 2,048 $ 1,069 $ 871 1,035
========== =========== ========== ========== ==========
Net income (loss) per common and common equivalent
share(3):
Income (loss) before extraordinary items........... $ (0.60) $ 0.24 $ 0.14 $ 0.11 $ .13
Extraordinary items................................ 0.73 -- -- -- --
---------- ----------- ---------- ---------- ----------
Net income (loss).............................. $ 0.13 $ 0.24 $ 0.14 $ 0.11 $ .13
========== =========== ========== ========== ==========
Weighted average number of common and common
equivalent shares outstanding(3)................... 5,863 9,857 7,766 7,766 7,821
Pro forma net income per common and common equivalent
share(4)........................................... .62 1.48 .83 .70 .80
Pro forma weighted average number of common and
common equivalent shares outstanding(4)............ 1,503 1,503 1,503 1,503 1,520
BALANCE SHEET DATA
Flight equipment under operating lease............... $ 29,694 $ 56,346 $ 56,162 $ 95,450 89,885
Total assets......................................... 30,180 57,036 57,131 96,779 92,620
Debt financing(5).................................... 28,895 52,873 51,688 87,825 82,710
Shareholders' equity................................. (340) 2,008 3,078 4,048 5,084
OTHER DATA
EBITDA(6)............................................ $10,561,000 $6,400,000 $7,841,000 $8,031,000 $12,758,000
Return on average assets(7).......................... 1.8% 5.8% 1.9% 1.5% 1.1%
Return on average equity(8).......................... -- -- 39.6% 24.6% 22.9%
Aircraft equipment owned at period end(9)............ 4 5 5 8 7
</TABLE>
- ---------------
(1) Included in the 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
(footnotes continue on next page)
18
<PAGE> 20
disposal of the subsidiary for relief of the net liabilities. 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. 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
1992, 1994, 1995 and 1996 was anti-dilutive. See Note 1 to Consolidated
Financial Statements. Does not give effect to the 1-for-6 reverse stock
split of Common Stock, the assumed conversion of outstanding shares of
Preferred Stock 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-6 reverse stock split,
the conversion of outstanding shares of Preferred Stock into 801,277 shares
of Common Stock and the exercise of options to acquire 358,046 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, gain (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.
(8) Calculations are based on quarterly annual balances. Prior to 1994 results
are not considered meaningful.
(9) Aircraft owned at end of period includes one auxiliary power unit which was
purchased in 1995 and sold for a gain of $141,000 in December, 1996.
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
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
Revenues from rental of flight equipment decreased by 4% from $8,108 in
1994 to $7,765 in 1995 principally as a result of the re-lease of one aircraft
in June 1995 at a lower lease rate. The increase of 63% to $12,681 in 1996 from
$7,765 in 1995 was principally due to the acquisition in December 1995 of two
aircraft and their related leases.
In addition to leasing operations, the Company provides consulting
services. In 1994, consulting revenues totalled $213, including $144 paid by
Great Lakes Holding, a company owned 100% by the Chief Executive Officer and the
President of the Company ("Great Lakes"), and $69 paid by ILFC. In 1995,
consulting revenues totalled $491, including $144 paid by Great Lakes and $347
paid by ILFC. In 1996, consulting revenues totalled $461, including $144 paid by
Great Lakes, $78 paid by ILFC, $49 paid by an unrelated airline and $190 paid by
an unrelated leasing company. No consulting fees are expected to be paid by
Great Lakes after 1996.
In 1996, the Company realized a gain on sale of aircraft equipment of
$141,000 for the sale of an auxillary power unit previously on lease. The
Company did not realize any gains on the sale of aircraft equipment in 1994 and
1995.
Interest income increased from $68 in 1994 to $118 in 1995 principally as a
result of interest earned on increased maintenance reserves under certain
leases. The increase to $169 in 1996 resulted primarily from interest earned on
receivables from ILFC relating to an aircraft acquired from ILFC in December
1995. See Note 6 to the Consolidated Financial Statements.
Expenses as a percent of total revenues were 86.5% in 1994, 91.4% in 1995
and 92.0% in 1996. Interest expense increased from $3,548 in 1994 to $3,776 in
1995 and $6,277 in 1996. The increase 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. The increase in 1996 resulted from $39,288 of
additional debt to acquire two aircraft in December 1995.
Depreciation expense increased from $3,165 in 1994 to $3,354 in 1995 and
$5,550 in 1996, resulting from four aircraft acquisitions -- one in May 1993,
one in December 1993 and two in December 1995.
20
<PAGE> 22
General and administrative expenses were $548 in 1994, $526 in 1995 and
$553 in 1996. Variations were due mainly to travel and marketing expenses. The
number of personnel remained constant and management salary levels were
unchanged. Following the offering, the Company expects increased expenses as a
result of adding a corporate Controller and a Vice President, Technical, and
additional requirements imposed on a public company.
Equity in earnings of affiliates in 1995 consisted of the Company's share
of income of $66 of International Engine Investors ("IEI"), a company formed
exclusively for the acquisition of one engine, and the Company's share of the
gain of $118 on the sale of the aircraft engine which constituted the sole asset
of IEI. See Note 3 to Consolidated Financial Statements, IEI was liquidated in
November 1995.
The Company recognized income tax expense of $59, $30 and $37 representing
effective income tax rates of 5%, 3% and 3% during 1994, 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 4 to Consolidated Financial Statements.
Net income decreased from $1,069 in 1994 to $871 in 1995 and increased to
$1,035 in 1996 due to the factors described above.
Inflation during recent years has not impacted the Company's operations or
profitability.
The Company anticipates that it will incur non-cash compensation expense of
approximately $250,000 in each of years 1997, 1998, 1999 and 2000 due to the
vesting of stock options granted to executive officers. See
"Management -- Existing Stock Options."
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, which are financed
by loans secured by the applicable aircraft. As a result, the Company does not
currently maintain a line of credit.
Net cash provided by operating activities decreased from $4,466 in 1994 to
$3,939 in 1995 and increased to $6,796 in 1996. The decrease in 1995 was
principally the result of the re-lease of one aircraft in June 1995 at a lower
lease rate. The increase in 1996 was principally the result of the cash flow
from the acquisition in December 1995 of two aircraft and their related leases.
In 1994 and 1995, net cash used in investing activities was $3,304 and
$40,967, substantially all of which were used to purchase aircraft. In 1996,
$156 was provided by investing activities as a result of the sale of aircraft
equipment for $355, offset by flight equipment purchases of $199.
In 1994, net cash used in financing activities was $1,006, consisting of
the repayment of notes of $3,616 offset by proceeds of additional borrowings of
$2,610. In 1995, net cash provided by financing activities was $36,755,
including the proceeds of borrowings of $39,805 offset by repayments of notes of
$3,150. In 1996, net cash used in financing activities was $5,812, consisting of
repayments of notes and other payables of $6,544 offset by the proceeds of
additional borrowings of $732.
Cash and cash equivalents vary from year to year principally as a result of
the timing of the purchase and sale of aircraft.
The Company uses interest swap arrangements to reduce the potential impact
of increases in interest rates on floating rate long-term debt and does not use
them for trading purposes. Premiums paid for purchased interest rate swaps
agreements are amortized to interest expense over the terms of the swap
agreements.
The current portion of long term debt totalled $42,200 at December 31,
1996, of which $37,200 relate to four leases which expire between January and
August, 1997. Two of these leases have been extended to 1998, one has been
extended to 1999 and the fourth has been extended to 2000, and negotiations are
underway with the lenders to extend the $37,200 of related debt. See "Risk
Factors -- Dependence Upon Availability of Financing."
21
<PAGE> 23
The Company's ability to execute successfully 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 December 31, 1996, the Company 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.
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." Management believes that
leasing of used commercial jet aircraft under operating leases represents 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, and
Christer and Sven Salen, whose family interests hold significant investments in
airline operations in Sweden. See "Relationship with ILFC" below,
"Management -- Directors and Executive Officers" and "Principal 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.
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-
23
<PAGE> 25
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
The Company's strategy is to focus on entering into 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 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 4.1% 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.
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.
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."
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. See "Risk Factors -- Industry
Risks."
During the years ended December 31, 1994, 1995 and 1996, lease revenues
from flight equipment generated from foreign customers accounted for
approximately 80%, 69% and 45%, respectively, 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, 1996: British Midland Airways Limited (36%, 36% and 23% for the
years ended December 31, 1994, 1995 and 1996, respectively), Alaska Airlines,
Inc. (21% for the year ended December 31, 1996), Southwest Airlines Co. (15% for
the year ended December 31, 1996), ILFC (6%, 16% and 10% for the years ended
December 31, 1994, 1995 and 1996, respectively), New Zealand International
Airlines Limited (42%, 26% and 10% for the years ended December 31, 1994, 1995
and 1996), respectively, and Delta Air Lines, Inc. (12%, 11% and 7% for the
years ended December 31, 1994, 1995 and 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 February 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 1999 None
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) 1989 British Midland Airways April 1997(4) None
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>
26
<PAGE> 28
- ---------------
(1) Stage 2 aircraft. See "Government Regulation" below.
(2) This aircraft is leased to ILFC and subleased to COPA.
(3) Stage 3 aircraft. See "Government Regulation" below.
(4) British Midland Airways Limited has notified the Company that it will not
renew its lease. A letter of intent has been executed to lease the aircraft
to Shanghai Airlines to May 2000.
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 December 31, 1996 was
$91.53 million, which compares favorably to the aggregate net book value of the
Company's aircraft at December 31, 1996 of $89.9 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 primarily with four commercial banks providing long-term
secured equipment financing to the Company at December 31, 1996 in an aggregate
amount of $68.8 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 5 and 6 to
Consolidated Financial Statements and "Risk Factors -- Reliance Upon ILFC."
At December 31, 1996, $69.0 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 $13.7 million of the Company's
27
<PAGE> 29
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 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 December 31, 1996, the Company's borrowings had interest rates ranging
from 5.4% to 7.8% per annum, with a weighted average interest rate of 7.4% per
annum. At December 31, 1996, approximately 19% 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 4.1% 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.
("AIG") 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. AIG is a
holding company which, through its subsidiaries, is primarily engaged in a broad
range of insurance and insurance-related activities in the United States and
abroad. The Common Stock of AIG is listed on, among others, the New York Stock
Exchange.
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."
28
<PAGE> 30
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 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.
29
<PAGE> 31
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 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 December 31, 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 a
Vice President, Technical and a Controller during 1997.
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.
30
<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 59 1988
Officer and Director
Michael P. Grella President and Director 40 1988
Richard O. Hammond Vice President -- Finance and Treasurer 67
Christopher W. Vorderkunz(2) 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 December 31, 1996.
(2) Mr. Vorderkunz's employment with the Company will commence in April 1997.
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.
31
<PAGE> 33
MR. VORDERKUNZ will become a Vice President -- Technical in April 1997. 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 a director 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 proposes to pay
outside directors after the closing of the offering an annual fee of $8,000 and
a fee of $1,000 for each board meeting attended in person and $500 for each
telephonic board meeting attended and $500 for each committee meeting which they
attend. All directors will be reimbursed for their reasonable out-of-pocket
expenses incurred to attend Board of Directors or committee meetings.
Prior to the closing of the offering, the Board of Directors and
shareholders of the Company will approve the Company's 1997 Directors Plan. The
purpose of the 1997 Directors Plan is to promote the success of the Company by
providing an additional means through the grant of stock options to attract,
motivate and retain experienced and knowledgeable Eligible Directors (as defined
below). The 1997 Directors Plan provides that annually an Eligible Director will
receive an option to purchase 5,000 shares of Common Stock at an exercise price
equal to the market price of the Common Stock on the date of grant. The Board of
Directors has authorized 50,000 shares of Common Stock for issuance under the
1997 Directors Plan. Stock options granted under the 1997 Directors Plan will
expire five years after the date of grant. If a person's service as a member of
the Board of Directors terminates, any unexercisable portion of the option shall
terminate and the option will terminate six months after the date of termination
or the earlier expiration of the option by its terms. Options generally vest
over a three-year period. Upon a Change in Control Event (as defined in the 1997
Directors Plan), the options will become fully exercisable. "Eligible Director"
means a member of the Board of Directors of the Company who as of the applicable
date of grant is not (i) an officer or employee of the Company or any
subsidiary, or (ii) a person to whom equity securities of the Company or an
affiliate have been granted or awarded within the prior year under or pursuant
to any other plan of the Company or an affiliate that provides for the grant or
award of equity securities.
32
<PAGE> 34
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.
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 1997 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>
EXISTING STOCK OPTIONS
As of the date of the offering, executive officers will hold options to
acquire 372,498 shares of Common Stock, including options to acquire
220,000 shares of Common Stock granted to William E. Lindsey,
33
<PAGE> 35
the Chairman of the Board and Chief Executive Officer. These options have an
exercise price of $6.00 per share, will vest 25% at December 31, 1997 and 25% at
each anniversary thereafter and may be exercised for nine years after they
become exercisable. If the executive is terminated for whatever reason, the
options vest in full.
EMPLOYMENT AGREEMENTS
Prior to the offering, the Company will enter into employment agreements
with each of William E. Lindsey, the Chairman of the Board and Chief Executive
Officer of the Company, and Michael P. Grella, the President of the Company.
Each employment agreement will be for a term of three years and will
automatically extend annually one additional year unless notice is given by the
Company or the employee. Mr. Lindsey and Mr. Grella will be entitled to a base
salary of $160,000 and $140,000 per year, respectively, and each will be
entitled to a bonus based upon certain pretax income targets, which could amount
to bonuses of up to 125% of the employee's base salary.
Under each employment agreement, in the event of a termination of the
employee's employment without cause, his total disability (as defined in the
agreements) or the employee resigns for "good reason" (as defined in the
agreements) within one year of a "change in control" (as defined below), the
employee is entitled to receive, in addition to salary and bonuses accrued to
the date of termination, all amounts payable under the agreement as though such
termination, total disability or resignation for good reason had not occurred. A
"change in control" occurs under the agreements upon (i) approval by the
shareholders of the Company of the dissolution or liquidation of the Company;
(ii) approval by the shareholders of the Company of an agreement to merge or
consolidate, or otherwise reorganize, with or into one or more entities not a
subsidiary of the Company, 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 Company immediately before such reorganization (assuming for purposes of
such determination that there is no change in the record ownership of the
Company'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
Company); (iii) approval by the shareholders of the Company of the sale, lease,
conveyance or other disposition of all or substantially all of the Company's
business and/or assets to a person or entity which is not a wholly owned
subsidiary of the Company; (iv) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934 (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 of the Company at the time of the execution
of the employment agreements (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 Company representing more than 25% of the combined voting
power of the Company's then outstanding securities entitled to then vote
generally in the election of directors of the Company; or (v) a majority of the
Board of Directors of the Company not being comprised of Continuing Directors.
For purposes of this definition, "Continuing Directors" are persons who were (A)
members of the Board of Directors of the Company on the date of the employment
agreements 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.
STOCK OPTION PLAN
Prior to the closing of the offering, the Company and its shareholders will
adopt the Company's 1997 Option Plan. The 1997 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 50,000 shares of Common Stock (subject to certain anti-dilutive
adjustments) may be issued pursuant to grants and awards under the 1997 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
34
<PAGE> 36
year are granted under the 1997 Option Plan to any one participant will not
exceed 20,000 (subject to certain anti-dilutive adjustments).
Administration and Eligibility. The 1997 Option Plan will be administered
by the Board of Directors or a committee appointed by the Board of Directors
(the "Administrator"). The 1997 Option Plan empowers the Administrator among
other things, to interpret the 1997 Option Plan, to make all determinations
deemed necessary or advisable for the administration of the 1997 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 1997
Option Plan are collectively referred to as "Awards." It is expected that after
the consummation of the offering there will be approximately five officers and
other employees eligible to participate in the 1997 Option Plan.
Transferability. Generally speaking, Awards under the 1997 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 1997 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 1997 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 1997 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 1997 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 1997 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
35
<PAGE> 37
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 1997 Option Plan.
Restricted Stock. The 1997 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 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 1997
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 1997 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 1997 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 20,000 shares or
$600,000 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
1997 Option Plan. Some cash only awards, however, such as SARs, will reduce the
numbers of shares available under the 1997 Option Plan. Subject to the
provisions of the 1997 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 1997 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 1997 Option Plan does
not impose any minimum vesting period, post-termination exercise period or
36
<PAGE> 38
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 1997 Option
Plan from time to time, without the authorization or approval of the Company's
shareholders, unless the amendment (i) materially increases the benefits
accruing to participants under the 1997 Option Plan, (ii) materially increases
the aggregate number of securities that may be issued under the 1997 Option Plan
or (iii) materially modifies the requirements as to eligibility for
participation in the 1997 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
March 1, 2007, although Awards previously granted may thereafter be amended
consistent with the terms of the 1997 Option Plan.
Upon the occurrence of a Change in Control Event (as defined in the 1997
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 1997 Option Plan. Amendments that adversely affect the
holder of an Award, however, are subject to his or her consent.
The 1997 Option 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a compensation committee for the fiscal year ended
December 31, 1996. For the year ended December 31, 1996, 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
ILFC is a shareholder of the Company. See "Business -- Relationship With
ILFC." During 1993 and 1995, the Company purchased aircraft from ILFC
aggregating $30.2 million and $41.5 million, respectively. None were purchased
during 1994 or 1996. At December 31, 1996, 79% 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
37
<PAGE> 39
the industry standard ranges from 20% to 30%. At December 31, 1996, $34.2
million of long-term debt was covered by AVG and $10.2 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. See "Risk Factors -- Reliance Upon ILFC." The Company intends to
continue its relationship with ILFC.
At December 31, 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 1999. The
Company recognized rental income of $400,000, $960,000 and $960,000 during the
years ended 1994, 1995 and 1996, respectively, from this lease.
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 December 31, 1996 was
$441,000, which includes accrued interest of $87,000. 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 $69,000, $347,000 and
$78,000 during the years 1994, 1995 and 1996, respectively, for services to
ILFC. The consulting services provided to ILFC by the Company included assisting
in the marketing and remarketing of aircraft and related assets.
The Company's Chief Executive Officer and President own Great Lakes, an
affiliated company. From time to time, these officers provide consulting
services to Great Lakes, consisting of portfolio management and technical
services. In consideration of these services, Great Lakes paid the Company
$144,000 for each of the years 1994, 1995 and 1996.
In connection with the purchase of aircraft by the Company, the Company
borrowed from Great Lakes an aggregate of $2.1 million, due in June 1997 and
bearing interest at 5.4%. If the borrowings are not refinanced, Great Lakes will
extend the maturity date. See Note 5 of Consolidated Financial Statements.
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 December
31, 1996.
Management of the Company believes that the terms of the above described
transactions were as or more favorable to the Company than the Company could
have received from non-affiliated third parties.
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<PAGE> 40
PRINCIPAL 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-6 reverse stock split, the conversion of
outstanding shares of Preferred Stock into 801,277 shares of Common Stock, the
exercise of options to acquire 358,046 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>
PERCENT OF CLASS
-----------------------
NUMBER OF BEFORE THE AFTER THE
NAME(1) SHARES OFFERING OFFERING
- ----------------------------------------------------------------- --------- ---------- ----------
<S> <C> <C> <C>
Christer Salen(2)................................................ 214,168 17.7% 7.1%
Sven Salen(3).................................................... 167,057 13.8 5.5
Gunnar Bjorg(4).................................................. 104,402 8.6 3.4
William E. Lindsey............................................... 29,000 2.4 1.0
Michael P. Grella................................................ 19,332 1.6 .6
Aaron Mendelsohn(5).............................................. 8,333 * *
Kenneth Taylor................................................... 7,722 * *
Stuart M. Warren(6).............................................. 40,000 3.3 1.3
All directors and executive officers as a group (8 persons)...... 590,014 48.7 19.5
</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. Christer Salen is a
director of and owns 9% of the outstanding stock of European Aircraft
Investors. The remaining stock of European Aircraft Investors is indirectly
owned by discretionary trusts of which Mr. Salen is not a beneficiary but is
a trustee. Mr. Salen disclaims beneficial ownership of the shares held by
such trusts. 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 and his family. 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 and European Aircraft Investors.
(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
Menzane International Corp. Includes 6,937 shares subject to options which
will be exercised prior to the consummation of the offering.
(5) Shares are owned by G-G Associates, a general partnership. Mr. Mendelsohn
shares voting and dispositive power.
(6) Includes 40,000 shares subject to options which will be exercised prior to
the consummation of the offering. Does not include 10,000 shares held by C.
H. Cleworth Pension Plan, as to which Mr. Warren does not have voting or
dispositive power.
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<PAGE> 41
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 3,031,823 shares of Common Stock outstanding, assuming
the conversion of outstanding Preferred Stock into 801,277 shares of Common
Stock and the exercise of options to purchase 358,046 shares of Common Stock.
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 December 31, 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-sixth 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, all but 22,222 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
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<PAGE> 42
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
3,031,823 shares of Common Stock. Of these shares, the 1,820,000 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. 1,073,489 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.
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 one year,
as well as persons who may be deemed "affiliates" of the Company, will be
entitled to sell in
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<PAGE> 43
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 two 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.
Currently 372,498 authorized shares of Common Stock are subject to
outstanding options. Additionally, 100,000 shares of Common Stock of the Company
have been reserved for issuance pursuant to the 1997 Option Plan and the 1997
Directors Plan. Following the offering, the Company intends to file a
registration statement under the Securities Act to register the 100,000 shares
of Common Stock reserved for issuance upon the exercise of stock options
outstanding and to be granted under the 1997 Option Plan and the 1997 Directors
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.
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<PAGE> 44
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, to purchase from the Company 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................................................... 1,820,000
=======
</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
273,000 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 1997 Option Plan or the 1997 Directors Plan.
The Company has agreed to sell to the Representatives, for $.01 per
warrant, the Representatives' Warrants to purchase from the Company up to
182,000 shares of Common Stock at an exercise price per share equal to 120% of
the initial public offering price per share. The Representatives' 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 Representatives' Warrants
which enable them to register the Common Stock underlying the Representatives'
Warrants under the Securities Act. Under the terms of the Representatives'
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
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<PAGE> 45
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,
1995 and December 31, 1996 and for each of the years in the three year period
ended December 31, 1996 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.
44
<PAGE> 46
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996.......................... F-3
Consolidated Statements of Income for the years ended December 31, 1994, 1995 and
1996................................................................................ F-4
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1994,
1995 and 1996....................................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and
1996................................................................................ F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 47
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, 1995 and
1996 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,
1996. 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, 1995 and
1996 and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1996 in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Los Angeles, California
January 31, 1997, except
the third paragraph
of Note 9 which
is as of February 21, 1997
F-2
<PAGE> 48
INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1996
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................... $ 33,898 $ 1,174,369
Accounts receivable from ILFC (note 6).......................... 54,000 12,106
Due from ILFC (note 6).......................................... 293,000 332,000
Other assets.................................................... 118,747 627,535
----------- -----------
Total current assets.................................... 499,645 2,146,010
Flight equipment, at cost, net (notes 2, 5 and 6)................. 95,449,700 89,884,974
Due from ILFC, less current portion (note 6)...................... 286,000 109,000
Deferred fees..................................................... 366,515 268,776
Cash, restricted (note 1)......................................... 177,006 210,827
----------- -----------
$96,778,868 $92,619,587
=========== ===========
LIABILITY AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (note 5)................. $ 5,272,554 $42,176,253
Accounts payable and accrued expenses........................... 37,762 195,193
Accrued interest................................................ 205,800 632,500
Lease deposits.................................................. 835,000 835,000
Maintenance reserves............................................ 181,426 468,060
Advanced rentals................................................ 795,850 798,000
Deferred rent (note 6).......................................... 250,000 250,000
Payable to affiliate (note 3)................................... 36,750 --
Payable to ILFC (note 6)........................................ 696,695 --
----------- -----------
Total current liabilities............................... 8,311,837 45,355,006
Deferred rent, less current portion (note 6)...................... 1,497,000 1,247,000
Deferred tax liability (note 4)................................... 369,017 400,000
Long-term debt, less current installments (note 5)................ 82,552,733 40,534,040
----------- -----------
92,730,587 87,536,046
----------- -----------
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
Common Stock, $.01 par value. Authorized 20,000,000 shares;
issued and outstanding 315,000 shares in 1995 and 1996....... 3,150 3,150
Additional paid-in capital...................................... 5,170,098 5,170,098
Accumulated deficit............................................. (1,174,377) (139,117)
----------- -----------
Net shareholders; equity................................ 4,048,281 5,083,541
----------- -----------
$96,778,868 $92,619,587
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE> 49
INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
---------- ---------- -----------
<S> <C> <C> <C>
Revenues (note 6)
Rental of flight equipment.............................. $8,107,751 $7,764,763 $12,681,153
Consulting fees......................................... 213,500 491,045 460,950
Gain on sale of aircraft equipment...................... -- -- 141,000
Interest income (note 1)................................ 67,997 117,961 169,023
---------- ---------- ----------
Total revenues.................................. 8,389,248 8,373,769 13,452,126
Expenses:
Interest................................................ 3,547,600 3,776,165 6,277,388
Depreciation............................................ 3,164,800 3,354,400 5,549,700
General and administrative.............................. 548,494 526,021 552,778
---------- ---------- ----------
Total expenses.................................. 7,260,894 7,656,586 12,379,866
---------- ---------- ----------
Operating income.............................. 1,128,354 717,183 1,072,260
---------- ---------- ----------
Equity in earnings of affiliate (note 3):
Earnings from operations................................ -- 66,028 --
Gain on sale of aircraft engine......................... -- 117,500 --
---------- ---------- ----------
Total equity in earnings........................ -- 183,528 --
---------- ---------- ----------
Income before income taxes................................ 1,128,354 900,711 1,072,260
---------- ---------- ----------
Income tax expense (note 4)............................... 59,000 30,000 37,000
---------- ---------- ----------
Net income...................................... $1,069,354 $ 870,711 $ 1,035,260
========== ========== ==========
Net income per common and common equivalent shares........ $ .14 $ .11 $ .13
========== ========== ==========
Weighted average common and common equivalent shares
outstanding (note 1).................................... 7,766,452 7,766,452 7,821,096
========== ========== ==========
See accompanying notes to consolidated financial statements
=================================================================================================
Supplemental information (unaudited) (note 10):
Historical net income................................... $ 1,035,260
Adjustment for reduction of interest expense, net of
income taxes......................................... 174,674
==========
Supplemental net income................................. $ 1,209,934
==========
Supplemental net income per share....................... $ .80
==========
Weighted average common and common equivalent shares
outstanding.......................................... 1,520,030
==========
</TABLE>
F-4
<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, 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...................... -- -- -- -- 1,035,260 1,035,260
------- ------- ------ ---------- ----------- ----------
Balance at December 31, 1996.... $49,410 315,000 $3,150 $5,170,098 $ (139,117) $5,083,541
======= ======= ====== ========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 51
INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1994 1995 1996
----------- ------------ -----------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income....................................................... $ 1,069,354 $ 870,711 $ 1,035,260
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation of flight equipment............................... 3,164,800 3,354,400 5,549,700
Amortization of deferred transaction fees...................... 171,348 101,082 158,410
Gain on sale of aircraft equipment............................. -- -- (141,000)
Equity in earnings of affiliate................................ -- (183,528) --
(Increase) decrease in assets:
Accounts receivable from ILFC................................ (20,570) (28,430) 41,894
Due from ILFC................................................ -- -- 138,000
Deferred fees................................................ (66,836) (225,811) (60,671)
Other assets................................................. 117,593 (225,142) (542,607)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses........................ (54,033) 61,587 120,681
Accrued interest............................................. 39,023 413 426,700
Lease deposits............................................... (500,000) 475,000 --
Maintenance reserves......................................... -- 181,426 286,634
Advance rentals.............................................. 123,356 (103,396) 2,150
Deferred rent................................................ -- -- (250,000)
Deferred taxes............................................... 58,622 23,395 30,983
Due to lessee................................................ 363,122 (363,122) --
----------- ------------ -----------
Net cash provided by operating activities.................... 4,465,779 3,938,585 6,796,134
----------- ------------ -----------
Cash flows from investing activities:
Purchase of flight equipment................................... (2,981,305) (41,472,695) (198,974)
Proceeds from sale of aircraft................................. -- -- 355,000
Investment in (dividends and sale of IEI)...................... (322,250) 505,778 --
----------- ------------ -----------
Net cash provided by (used in) investing activities.......... (3,303,555) (40,966,917) 156,026
----------- ------------ -----------
Cash flows from financing activities:
Repayment of notes payable..................................... (1,884,003) (2,749,082) (5,322,926)
Repayment of notes payable to ILFC............................. (1,731,567) (400,800) (524,292)
Proceeds from notes payable.................................... 2,430,000 29,725,000 244,724
Proceeds from notes payable to ILFC............................ -- 7,950,000 --
Proceeds from notes payable to GLH............................. -- 1,612,500 487,500
Issuance of common stock....................................... -- 100,000 --
Payable to ILFC................................................ 179,628 517,067 (696,695)
----------- ------------ -----------
Net cash provided by (used in) financing activities.......... (1,005,942) 36,754,685 (5,811,689)
----------- ------------ -----------
Net increase (decrease) in cash and cash equivalents......... 156,282 (273,647) 1,140,471
Cash and cash equivalents at beginning of year................... 151,263 307,545 33,898
----------- ------------ -----------
Cash and cash equivalents at end of year......................... $ 307,545 $ 33,898 1,174,369
=========== ============ ===========
Supplemental disclosure of cash flow information -- cash paid for
interest....................................................... $ 3,339,156 $ 3,548,054 $ 5,722,256
=========== ============ ===========
</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-6
<PAGE> 52
INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
(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 December 31, 1996 were acquired
from International Lease Finance Corporation (ILFC), a 6% shareholder 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 $210,827 at December 31, 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 , which approximates the
effective interest method, over the term of the related lease.
The costs related to asset value guarantees (AVGs - note 6) are capitalized
and amortized to expense using the straight-line method over the term of the
AVG, generally ten years. At December 31, 1996, deferred transaction fees
related to AVGs were $207,500.
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.
F-7
<PAGE> 53
INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Flight Equipment and Depreciation
Flight equipment is stated at cost.
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. At December
31, 1996, the Company's fleet, related useful lives and estimated salvage values
were as follows:
<TABLE>
<CAPTION>
USEFUL LIFE AT
YEAR OF ACQUISITION
DESCRIPTION OF ASSET ACQUISITION DATE SALVAGE VALUE
---------------------------------------- ----------- -------------- -------------
<S> <C> <C> <C>
1979 Boeing 727-200..................... 1988 16 years $ 2,500,000
1978 Boeing 737-219..................... 1990 13 2,500,000
1980 Boeing 737-219..................... 1991 14 2,500,000
1989 Boeing 737-300..................... 1993 21 3,000,000
1980 Boeing 737-204..................... 1993 12 3,000,000
1985 Boeing 737-300..................... 1995 15 3,000,000
1989 McDonnell MD-82.................... 1995 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
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 $62,100 during 1994, 1995 and 1996, respectively. 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 when required will provide for any impairment of long-lived
assets.
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> 54
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. 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.
Supplemental earnings per share have been computed assuming the stock split
and conversions (Note 10) had occurred at the beginning of 1996.
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 year ended December 31,
1996, no stock options were granted by the Company, accordingly, no pro forma
disclosures are presented.
Interest Rate Swap Agreements
The Company uses interest rate swap arrangements to reduce the potential
impact of increases in interest rates on floating rate long-term debt and does
not use them for trading purposes. Premiums paid for purchased interest rate
swap agreements are amortized to interest expense over the terms of the swap
agreements.
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, including the related
AVGs, 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, 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.
F-9
<PAGE> 55
INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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:
1994............................... 3 12%, 42% and 36%
1995............................... 4 11%, 16%, 26% and 36%
1996............................... 5 10%, 10%, 15%, 21% and 23%
</TABLE>
(2) FLIGHT EQUIPMENT
The Company's investment in flight equipment (primarily purchased from
ILFC) as of December 31, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Flight equipment.............................. $108,788,000 $108,736,974
Accumulated depreciation...................... (13,338,300) (18,852,000)
------------ ------------
Flight equipment, net......................... $ 95,449,700 $ 89,884,974
============ ============
</TABLE>
(3) 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-10
<PAGE> 56
INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) INCOME TAXES
Provision for taxes on income consisted of the following:
<TABLE>
<CAPTION>
TOTAL CURRENT DEFERRED
------- ------- --------
<S> <C> <C> <C>
Year ended December 31:
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
======= ======= =======
1996:
Federal.................................. $ -- $ -- $ --
State.................................... 37,000 6,000 31,000
------- ------- -------
$37,000 $ 6,000 $ 31,000
======= ======= =======
</TABLE>
As of December 31, 1996, the Company had net operating loss carryforwards
("NOL") for Federal and state income tax purposes of approximately $23,082,000
and $4,472,000 expiring from 2005 through 2011 and from 1996 through 2001,
respectively, as follows:
<TABLE>
<CAPTION>
EXPIRES FEDERAL NOL STATE NOL
--------------------------------------------------- ----------- ----------
<S> <C> <C>
1997............................................... -- $3,436,000
1998............................................... -- --
1999............................................... -- --
2000............................................... -- --
2001............................................... -- 660,000
2002-2006.......................................... $17,741,000 376,000
2007-2011.......................................... 3,136,000 --
2012............................................... 2,205,000 --
----------- ----------
$23,082,000 $4,472,000
=========== ==========
</TABLE>
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 $369,017 and $400,000 at December 31, 1995 and 1996,
respectively, are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Net operating loss carryforward................... $ 7,098,058 $ 7,847,880
Flight equipment, principally due to differences
in depreciation................................. (7,754,765) (8,542,840)
Deferred and advanced rent........................ 1,048,186 691,832
Other............................................. (116,641) (113,539)
----------- -----------
274,838 (116,667)
Valuation allowance............................... (643,855) (283,333)
----------- -----------
$ (369,017) (400,000)
=========== ===========
</TABLE>
F-11
<PAGE> 57
INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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,
-------------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Computed "expected" Federal tax expense......... $ 384,000 $ 306,000 $ 364,000
State taxes, net of Federal income tax
benefit....................................... 21,000 17,000 10,000
Change in valuation allowance................... (308,000) (284,000) (361,000)
Other........................................... (38,000) (9,000) 24,000
--------- --------- ---------
$ 59,000 $ 30,000 $ 37,000
========= ========= =========
</TABLE>
(5) LONG-TERM DEBT
Long-term debt as of December 31, 1995 and 1996 is summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1996
----------- -----------
<S> <C> <C>
Notes payable to bank bearing interest at 7.50% on $7,000,000 and
LIBOR plus 1.125% (6.7% at December 31, 1996) on $649,079, 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............................ $ 7,960,343 $ 7,649,079
Note payable to bank bearing interest at 7.3125% on $3,500,000 and
LIBOR plus 1.125% (6.7% at December 31, 1996) on $1,641,000,
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.............................. 5,595,152 5,141,600
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 on demand.......... 4,943,028 4,401,028
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..................... 3,796,000 3,307,000
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............................. 2,045,600 1,804,300
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............................. 19,734,963 18,582,417
Note payable to bank, refinanced November 4, 1996, bearing interest
at LIBOR plus 1.2 (6.8% at December 31, 1996), secured by flight
equipment, 100% guaranteed by ILFC, payable in quarterly
installments of $445,000 including interest, due January 2003..... 14,500,000 13,700,000
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 14,193,403
Note payable to bank with interest accrued at 6%, payment is based
on profit sharing agreements on certain flight equipment,
principal due August 1998......................................... 909,551 887,608
Convertible note payable to bank with interest accrued at 5.0%,
payable quarterly, principal due August 1998...................... 792,000 757,000
</TABLE>
F-12
<PAGE> 58
INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
----------- -----------
<S> <C> <C>
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 3,572,000
Note payable to ILFC bearing interest at 5.5%, secured by flight
equipment, balloon payment of $441,000, due March 1997............ 444,000 441,600
Note payable to ILFC bearing interest at 5.5%, secured by flight
equipment, balloon payment of $889,585, due July 1997............. 1,160,305 982,330
Note payable to ILFC bearing interest at 6.0%, balloon payment of
$511,845, due August 1999......................................... 1,156,845 976,845
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 4,214,083
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),
refinanced in 1996, bearing interest at 5.4%, due July 1997....... 1,000,000 1,400,000
----------- -----------
Total..................................................... 87,825,287 82,710,293
----------- -----------
Less current installments........................................... 5,272,554 42,176,253
----------- -----------
$82,552,733 $40,534,040
=========== ===========
</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. The Company plans to
refinance long-term debt expiring in 1997 in connection with the re-leasing or
lease extensions of the related aircraft. At January 31, 1997, the Company has
extended leases on three of its aircraft, two for additional one-year periods
and one for an additional two-year period. Long-term debt related to these
aircraft at December 31, 1996 was approximately $17,161,000.
At December 31, 1996, $34,186,000 of the Company's long-term debt was
guaranteed by ILFC and $10,186,000 of the Company's long-term debt was due to
ILFC.
The convertible note payable was entered into in August 1992 with an
original principal balance of $700,000. The note payable, or $1,000 multiples
thereof, is convertible into shares of preferred stock at $1 per share or up to
700,000 shares at any time prior to August 13, 1998.
Scheduled future repayments of long-term debt subsequent to December 31,
1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31:
----------------------------------------
<S> <C>
1997............................... $42,176,253
1998............................... 11,847,061
1999............................... 2,870,808
2000............................... 6,140,780
2001............................... 10,976,391
Thereafter......................... 8,699,000
-----------
$82,710,293
===========
</TABLE>
Certain notes payable contain various financial covenants including
tangible net worth and delivery of audited financial statements. The Company was
in compliance with these covenants at December 31, 1996.
F-13
<PAGE> 59
INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company has entered into interest rate swaps with financial
institutions under terms that provide payment of interest on the notional amount
of the swap. In accordance with these arrangement, the Company pays interest at
a fixed rate and the financial institution pays interest at variable rates
pursuant to terms of the loans. The following table presents the Company's
interest rate swap agreements at December 31, 1995 and 1996:
DECEMBER 31, 1995
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
TYPE NOTIONAL AMOUNT INTEREST RATE (%) MATURITY
--------------------------------- --------------- ----------------- ---------
<S> <C> <C> <C>
Fixed/variable................... $30,520,000 7.64/7.13 2/97-7/97
</TABLE>
DECEMBER 31, 1996
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
TYPE NOTIONAL AMOUNT INTEREST RATE (%) MATURITY
--------------------------------- --------------- ----------------- ---------
<S> <C> <C> <C>
Fixed/variable................... $28,094,000 7.65/6.66 2/97-7/97
</TABLE>
The net effect of swaps was to record $372,000, $131,000 and $265,000 of
additional interest expense during 1994, 1995 and 1996, respectively.
(6) RELATED PARTY TRANSACTIONS
During 1996, the Company sold certain aircraft equipment in connection with
an ILFC transaction to a third party. The Company recognized a gain on sale of
this equipment of $141,000.
During 1995, the Company purchased aircraft from ILFC aggregating
$41,473,000. None were purchased during 1994 and 1996. At December 31, 1996, 79%
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 5). 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 December 31, 1996, $34,186,000 of long-term
debt was covered by AVGs and $10,186,000 was due to ILFC.
The Company has one aircraft leased to ILFC at December 31, 1996. The lease
originated in August 1994 and provides for monthly rents of $80,000 through
August 1999. The Company recognized rental income of $400,000, $960,000 and
$960,000 during the years ended 1994, 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 December 31, 1996 was
$441,000, which includes accrued interest of $87,000. The loss stems from a
stated lease rate which is less than the market lease rate at the date of
acquisition. Accordingly,
F-14
<PAGE> 60
INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 $69,000, $347,000 and
$78,000 during the years 1994, 1995 and 1996, respectively, for services to
ILFC.
The Company's Chairman and President collectively own 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 1994, 1995 and 1996 for these services. Additionally, the
Company earned consulting fees of $239,000 during 1996 from unrelated parties,
however, $190,000 of the amount was derived from a transaction in which the
Company provided services in connection with a sale by ILFC of aircraft
equipment to a third party.
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.
(7) RENTAL INCOME
Minimum future rental income on noncancelable operating leases of flight
equipment at December 31, 1996, adjusted for the lease renewals below, is as
follows:
<TABLE>
<S> <C>
Year ended December 31:
1997.......................................... $10,421,000
1998.......................................... 6,483,000
1999.......................................... 2,926,000
2000.......................................... 2,326,000
2001.......................................... 2,076,000
Thereafter.................................... 2,076,000
-----------
$26,308,000
===========
</TABLE>
During December 1996 and January 1997, the Company renewed three of its
leases extending the expiration dates to March 1998, April 1998 and August 1999,
respectively.
One of the aircraft leases expires in 1997, four expire in 1998, one
expires in 1999 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>
Year ended December 31:
1997............................................. $22,000
1998............................................. 22,000
1999............................................. 2,000
-------
$46,000
=======
</TABLE>
F-15
<PAGE> 61
INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Total rent expense under operating leases for the years ended December 31,
1994, 1995 and 1996 was $24,600, $20,665 and $20,460, respectively.
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.
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
convertible preferred stock do not bear dividends and contains certain defined
antidilution provisions.
Through 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. Through May 1991, the
Company 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 December 31, 1996,
4,383,285 options were outstanding and all were exercisable.
During February, 1997, the Company extended the expiration date on
2,235,000 stock options to February 2006. Such options will vest ratably through
December 31, 2000. Accordingly, the Company will recognize aggregate
compensation of approximately $1 million over the four-year vesting period.
(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
1-for-6 reverse stock split of common stock.
Concurrent with the IPO, the Company anticipates the conversion of 801,277
issued and outstanding shares of preferred stock to common stock, and the
exercise of stock options to acquire 358,046 shares (post reverse stock split)
(note 9). The supplemental earnings per share included in the accompanying
consolidated statements of income gives effect to the stock split and
conversions had they occurred at the beginning of 1996 with the proceeds from
such exercise used to reduce long-term debt and related interest costs.
F-16
<PAGE> 62
APPENDIX 1
[SIMAT, HELLIESEN & EICHNER, INC. APPRAISAL]
[SH&E LETTERHEAD]
March 1, 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 December 31, 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> 63
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> 64
[THREE AIRCRAFT IN FLIGHT. TWO B 737 AIRCRAFT, ONE WITH THE LOGO AND NAME OF
COPA AND ONE WITH THE LOGO AND NAME OF AIR NEW ZEALAND. THE THIRD AIRCRAFT IS A
B 727 WITH THE LOGO AND NAME OF DELTA.]
<PAGE> 65
======================================================
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.............................. 22
Management............................ 30
Certain Transactions.................. 36
Principal 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.
======================================================
======================================================
1,820,000 SHARES
LOGO
INTERNATIONAL AIRCRAFT INVESTORS
COMMON STOCK
--------------------
PROSPECTUS
--------------------
SUTRO & CO. INCORPORATED
FRIEDMAN, BILLINGS, RAMSEY
& CO., INC.
, 1997
======================================================
<PAGE> 66
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...................................... 200,000
Blue Sky qualification fees and expenses.......................... 10,000
Transfer Agent and Registrar fees................................. 5,000
Miscellaneous fees and expenses................................... 79,660
--------
Total................................................... $ 630,000
========
</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
------ --------------------------------------------------------------------------
<C> <S>
*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> 67
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
--------------------------------------------------------------------------
<C> <S>
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 1997 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.
*10.6 Form of Employment Agreement with William E. Lindsey.
*10.7 Form of Employment Agreement with Michael P. Grella.
*10.8 Form of 1997 Eligible Directors Stock Option Plan.
11 Statement regarding computation of earnings per share and supplemental
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
27.1 Financial Data Schedule for the year ended December 31, 1996.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
II-2
<PAGE> 68
(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.
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> 69
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has caused this Amendment No. 1 to 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 4th day of March, 1997.
INTERNATIONAL AIRCRAFT INVESTORS
By: /s/ WILLIAM E. LINDSEY
William E. Lindsey
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to 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 March 4, 1997
William E. Lindsey Executive Officer and
Director (Principal
Executive Officer)
/s/ MICHAEL P. GRELLA* President and Director March 4, 1997
Michael P. Grella
/s/ RICHARD O. HAMMOND* Vice President -- Finance March 4, 1997
Richard O. Hammond and Treasurer (Principal
Financial and Accounting
Officer)
/s/ STUART M. WARREN* Director March 4, 1997
Stuart M. Warren
/s/ AARON MENDELSOHN* Director March 4, 1997
Aaron Mendelsohn
/s/ CHRISTER SALEN* Director March 4, 1997
Christer Salen
/s/ KENNETH TAYLOR* Director March 4, 1997
Kenneth Taylor
* /s/ WILLIAM E. LINDSEY
William E. Lindsey
Attorney-in-fact
</TABLE>
II-4
<PAGE> 70
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
NUMBER DESCRIPTION PAGES
------ -------------------------------------------------------------------------------
<C> <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.........
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 1997 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..............................................................
*10.6 Form of Employment Agreement with William E. Lindsey..............
*10.7 Form of Employment Agreement with Michael P. Grella...............
*10.8 Form of 1997 Eligible Directors Stock Option Plan.................
</TABLE>
<PAGE> 71
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
NUMBER DESCRIPTION PAGES
------ -------------------------------------------------------------------------------
<C> <S> <C>
11 Statement regarding computation of earnings per share and
supplemental 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.................................................
27.1 Financial Data Schedule for the year ended December 31, 1996......
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
<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
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.
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-6 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.
3
<PAGE> 1
EXHIBIT 3.7
FORM OF
AMENDED AND RESTATED BYLAWS
of
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
ii
<PAGE> 4
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
iii
<PAGE> 5
AMENDED AND RESTATED BYLAWS
for the regulation, except
as otherwise provided by statute or
its Articles of Incorporation,
of
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
1
<PAGE> 6
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
anniversary date of the immediately preceding annual meeting of shareholders,
provided, however, that in the event that the annual meeting is called for a
date that is not within 30 days before or after such anniversary date, notice by
the shareholder to be timely must be so received not later than the close of
business on the 15th 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.
2
<PAGE> 7
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.
3
<PAGE> 8
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.
4
<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;
5
<PAGE> 10
(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 anniversary date of the immediately preceding annual
meeting of shareholders; provided, however, that in the event that the annual
meeting is called for a date that is not within 30 days before or after such
anniversary date, notice by the shareholder to be timely must be so received not
later than the close of business on the 15th 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;
(C) The corporation adopts and implements some means of
verifying both of the following:
(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
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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;
(c) The fixing of compensation of the directors for serving
on 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
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(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.
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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
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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
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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
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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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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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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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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
21
<PAGE> 1
EXHIBIT 10.1
INTERNATIONAL AIRCRAFT INVESTORS
1997 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>
i
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
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>
ii
<PAGE> 4
INTERNATIONAL AIRCRAFT INVESTORS
1997 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,
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<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.
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<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 50,000 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 20,000 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 20,000.
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
3
<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
4
<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
5
<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.
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<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
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<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
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<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
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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
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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
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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.
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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 20,000
shares or, if payable in cash, a cash amount of more than $600,000.
(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.
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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
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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
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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
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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.
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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.
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6.9 Term of this Plan.
No Award shall be granted under this Plan after March 1, 2007
(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.
(c) Plan Construction.
(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
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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;
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(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,
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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.
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(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
23
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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.
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EXHIBIT 10.2
STANDARD OFFICE LEASE--GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]
1. BASIC LEASE PROVISIONS ("Basic Lease Provisions")
1.1 PARTIES: This Lease, dated, for reference purposes only,
December 22, 1992, is made by and between Akira Industries, Co., Ltd.,
(herein called "Lessor") and International Aircraft Investors, doing business
under the name of N/A, (herein called "Lessee").
1.2 PREMISES: Suite Number(s) 410, floors, consisting of approximately
1,364 feet, more or less, as defined in paragraph 2 and as shown on Exhibit "A"
hereto (the "Premises").
1.3 BUILDING: Commonly described as being located at 3655 Torrance
Boulevard, in the City of Torrance, County of Los Angeles, State of California,
as more particularly described in Exhibit _______ hereto, and as defined in
paragraph 2.
1.4 USE: General administrative offices, subject to paragraph 6.
1.5 TERM: Two (2) years commencing January 1, 1993 ("Commencement Date")
and ending December 31, 1994, as defined in paragraph 3.
1.6 BASE RENT: one thousand nine hundred nine and 60/100 per month,
payable on the 1st day of each month, per paragraph 4.1 ($1,909.60).
1.7 BASE RENT INCREASE: On NONE the monthly Base Rent payable under
paragraph 1.6 above shall be adjusted as provided in paragraph 4.3 below.
1.8 RENT PAID UPON EXECUTION: NONE for________________________________.
1.9 SECURITY DEPOSIT: 1,909.60.
1.10 LESSEE'S SHARE OF OPERATING EXPENSE INCREASE: 2.05% as defined
in paragraph 4.2.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 PREMISES: The Premises are a portion of a building, herein sometimes
referred to as the "Building" identified in paragraph 1.3 of the Basic Lease
Provisions. "Building" shall include adjacent parking structures used in
connection therewith. The Premises, the Building, the Common Areas, the land
upon which the same are located, along with all other buildings and
improvements thereon or thereunder, are herein collectively referred to as the
"Office Building Project." Lessor hereby leases to Lessee and Lessee leases
from Lessor for the term, at the rental, and upon all of the conditions set
forth herein, the real property referred to in the Basic Lease Provisions,
paragraph 1.2, as the "Premises," including rights to the Common Areas as
hereinafter specified.
2.2 VEHICLE PARKING: So long as Lessee is not in default, and subject to
the rules and regulations attached hereto, and as established by Lessor from
time to time, Lessee shall be entitled to rent and use 6 parking spaces
in the Office Building Project at the monthly rate applicable from time to time
for monthly parking as set by Lessor and/or its licensee. There will be no
charge for parking during the lease term.
2.2.1 If Lessee commits, permits or allows any of the prohibited
activities described in the Lease or the rules then in effect, then Lessor
shall have the right, without notice, in addition to such other rights and
remedies that it may have, to remove or tow away the vehicle involved and
charge the cost to Lessee, which cost shall be immediately payable upon demand
by Lessor.
[2.2.2 Deleted]
2.3 COMMON AREAS--DEFINITION. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Office Building Project that are provided and designated by the Lessor
from time to time for the general non-exclusive use of Lessor, Lessee and of
other lessees of the Office Building Project and their respective employees,
suppliers, shippers, customers and invitees, including but not limited to
common entrances, lobbies, corridors, stairways and stairwells, public
restrooms, elevators, escalators, parking areas to the extent not otherwise
prohibited by this Lease, loading and unloading areas, trash areas, roadways,
sidewalks, walkways, parkways, ramps, driveways, landscaped areas and
decorative walls.
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2.4 COMMON AREAS--RULES AND REGULATIONS. Lessee agrees to abide by and
conform to the rules and regulations attached hereto as Exhibit B with respect
to the Office Building Project and Common Areas, and to cause its employees,
suppliers, shippers, customers and invitees to so abide and conform. Lessor or
such other person(s) as Lessor may appoint shall have the exclusive control and
management of the Common Areas and shall have the right, from time to time, to
modify, amend and enforce said rules and regulations. Lessor shall not be
responsible to Lessee for the noncompliance with said rules and regulations by
other lessees, their agents, employees and invitees of the Office Building
Project.
2.5 COMMON AREAS--CHANGES. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Building interior and exterior and Common
Areas, including, without limitation, changes in the location, size, shape,
number, and appearance thereof, including but not limited to the lobbies,
windows, stairways, air shafts, elevators escalators, restrooms, driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, decorative walls, landscaped areas and walkways;
provided, however, Lessor shall at all times provide the parking facilities
required by applicable law;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land and improvements outside the boundaries
of the Office Building Project to be a part of the Common Areas, provided that
such other land and improvements have a reasonable and functional relationship
to the Office Building Project;
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Office Building Project, or any
portion thereof;
(f) To do and perform such other acts and make such other changes
in, to or with respect to the Common Areas and Office Building Project as
Lessor may, in the exercise of sound business judgment deem to be appropriate.
3. TERM.
3.1 TERM. The term and Commencement Date of this Lease shall be as
specified in paragraph 1.5 of the Basic Lease Provisions.
3.2 DELAY IN POSSESSION. Notwithstanding said Commencement Date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date and subject to paragraph 3.2.2, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease or
the obligations of Lessee hereunder or extend the term hereof; but, in such
case, Lessee shall not be obligated to pay rent or perform any other obligation
of Lessee under the terms of this Lease, except as may be otherwise provided in
this Lease, until possession of the Premises is tendered to Lessee, as
hereinafter defined; provided, however, that if Lessor shall not have delivered
possession of the Premises within sixty (60) days following said Commencement
Date, as the same may be extended under the terms of a Work Letter executed by
Lessor and Lessee, Lessee may, at Lessee's option, by notice in writing to
Lessor within ten (10) days thereafter, cancel this Lease, in which event the
parties shall be discharged from all obligations hereunder; provided, however,
that, as to Lessee's obligations, Lessee first reimburses Lessor for all costs
incurred for Non-Standard Improvements and, as to Lessor's obligations, Lessor
shall return any money previously deposited by Lessee (less any offsets due
Lessor for NonStandard Improvements); and provided further, that it such
written notice by Lessee is not received by Lessor within said ten (10) day
period, Lessees right to cancel this Lease hereunder shall terminate and be of
no further force or effect.
3.2.1 POSSESSION TENDERED--DEFINED. Possession of the Premises
shall be deemed tendered to Lessee ("Tender of Possession") when (1) the
improvements to be provided by Lessor under this Lease are substantially
completed, (2) the Building utilities are ready for use in the Premises, (3)
Lessee has reasonable access to the Premises, and (4) ten (10) days shall have
expired following advance written notice to Lessee of the occurrence of the
matters described in (1), (2) and (3), above of this paragraph 3.2.1.
3.2.2 DELAYS CAUSED BY LESSEE. There shall be no abatement of
rent, and the sixty (60) day period following the Commencement Date before
which Lessee's right to cancel this Lease accrues under paragraph 3.2, shall be
deemed extended to the extent of any delays caused by acts or omissions of
Lessee, Lessee's agents, employees and contractors.
3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said
Commencement Date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not change the termination date, and Lessee shall
pay rent for such occupancy.
3.4 UNCERTAIN COMMENCEMENT. In the event commencement of the Lease term
is defined as the completion of the improvements, Lessee and Lessor shall
execute an amendment to this Lease establishing the date of Tender of
Possession (as defined in paragraph 3.2.1) or the actual taking of possession
by Lessee, whichever first occurs, as the Commencement Date.
4. RENT
4.1 BASE RENT. Subject to adjustment as hereinafter provided in
paragraph 4.3, and except as may be otherwise expressly provided in this Lease,
Lessee shall pay to Lessor the Base Rent for the Premises set forth in
paragraph 1.6 of the Basic Lease Provisions, without offset or deduction.
Lessee shall pay Lessor upon execution hereof the advance Base Rent described
in paragraph 1.8 of the Basic Lease Provisions. Rent for any period during the
term hereof which is for less than one month shall be prorated based upon the
actual number of days of the calendar month involved. Rent shall be payable in
lawful money of the United States to Lessor at the address stated herein or to
such other persons or at such other places as Lessor may designate in writing.
4.2 OPERATING EXPENSE INCREASE. Lessee shall pay to Lessor during the
term hereof, in addition to the Base Rent, Lessee's Share, as hereinafter
defined, of the amount by which all Operating Expenses, as hereinafter defined,
for each Comparison Year exceeds the amount of all Operating Expenses for the
Base Year, such excess being hereinafter referred to as the "Operating Expense
Increase," in accordance with the following provisions:
(a) "Lessee's Share" is defined, for purposes of this Lease, as the
percentage set forth in paragraph 1.10 of the Basic Lease Provisions, which
percentage has been determined by dividing the approximate square footage of
the Premises by the total approximate square footage of the rentable space
contained in the Office Building Project. It is understood and agreed that the
square footage figures set forth in the Basic Lease Provisions are
approximations which Lessor and Lessee agree are reasonable and shall not be
subject to revision except in connection with an actual change in the size of
the Premises or a change in the space available for lease in the Office
Building Project. With operating expenses based on 95% occupancy in the
Building.
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(b) "Base Year" is defined as the calendar year in which the Lease
term commences.
(c) "Comparison Year" is defined as each calendar year during the
term of this Lease subsequent to the Base Year, provided, however, Lessee shall
have no obligation to pay a share of the Operating Expense Increase applicable
to the first twelve (12) months of the Lease Term (other than such as are
mandated by a governmental authority, as to which government mandated expenses
Lessee shall pay Lessee's Share, notwithstanding they occur during the first
twelve (12) months). Lessee's Share of the Operating Expense Increase for the
first and last Comparison Years of the Lease Term shall be prorated according
to that portion of such Comparison Year as to which Lessee is responsible for a
share of such increase.
(d) "Operating Expenses" is defined, for purposes of this Lease, to
include all costs, if any, incurred by Lessor in the exercise of its reasonable
discretion, for:
(i) The operation, repair, maintenance, and replacement, in
neat, clean, safe, good order and condition, of the Office Building Project,
including but not limited to, the following:
(aa) The Common Areas, including their surfaces,
coverings, decorative items, carpets, drapes and window coverings, and
including parking areas, loading and unloading areas, trash areas, roadways,
sidewalks, walkways, stairways, parkways, driveways, landscaped areas,
striping, bumpers, irrigation systems, Common Area lighting facilities,
building exteriors and roofs, fences and gates;
(bb) All heating, air conditioning, plumbing, electrical
systems, life safety equipment, telecommunication and other equipment used in
common by, or for the benefit of, lessees or occupants of the Office Building
Project, including elevators and escalators, tenant directories, fire detection
systems including sprinkler system maintenance and repair.
(ii) Trash disposal, janitorial and security services;
(iii) Any other service to be provided by Lessor that is
elsewhere in this Lease stated to be an "Operating Expense";
(iv) The cost of the premiums for the liability and property
insurance policies to be maintained by Lessor under paragraph 8 hereof;
(v) The amount of the real property taxes to be paid by Lessor
under paragraph 10.1 hereof;
(vi) The cost of water, sewer, gas, electricity, and other
publicly mandated services to the Office Building Project;
(vii) Labor, salaries and applicable fringe benefits and costs,
materials, supplies and fools, used in maintaining and/or cleaning the Office
Building Project and accounting and a management fee attributable to the
operation of the Office Building Project;
(viii) Replacing and/or adding improvements mandated by any
governmental agency and any repairs or removals necessitated thereby amortized
over its useful life according to Federal income tax regulations or guidelines
for depreciation thereof (including interest on the unamortized balance as is
then reasonable in the judgment of Lessor's accountants);
(ix) Replacements of equipment or improvements that have a
useful life for depreciation purposes according to Federal income tax
guidelines of five (5) years or less, as amortized over such life.
(e) Operating Expenses shall not include the costs of replacements
of equipment or improvements that have a useful life for Federal income tax
purposes in excess of five (5) years unless it is of the type described in
paragraph 4.2(d)(viii), in which case their cost shall be included as above
provided.
(f) Operating Expenses shall not include any expenses paid by any
lessee directly to third parties, or as to which Lessor is otherwise reimbursed
by any third party, other tenant, or by insurance proceeds.
(g) Lessee's Share of Operating Expense Increase shall be payable by
Lessee within ten (10) days after a reasonably detailed statement of actual
expenses is presented to Lessee by Lessor. At Lessor's option, however, an
amount may be estimated by Lessor from time to time in advance of Lessee's
Share of the Operating Expense Increase for any Comparison Year, and the same
shall be payable monthly or quarterly, as Lessor shall designate, during each
Comparison Year of the Lease term, on the same day as the Base Rent is due
hereunder. In the event that Lessee pays Lessor's estimate of Lessee's Share of
Operating Expense Increase as aforesaid, Lessor shall deliver to Lessee within
sixty (60) days after the expiration of each Comparison Year a reasonably
detailed statement showing Lessee's Share of the actual Operating Expense
Increase incurred during such year. If Lessee's payments under this paragraph
4.2(g) during said Comparison Year exceed Lessee's Share as indicated on said
statement, Lessee shall be entitled to credit the amount of such overpayment
against Lessee's Share of Operating Expense Increase next falling due. If
Lessee's payments under this paragraph during said Comparison Year were less
than Lessee's Share as indicated on said statement, Lessee shall pay to Lessor
the amount of the deficiency within ten (10) days alter delivery by Lessor to
Lessee of said statement. Lessor and Lessee shall forthwith adjust between
them by cash payment any balance determined to exist with respect to that
portion of the last Comparison Year for which Lessee is responsible as to
Operating Expense Increases, notwithstanding that the Lease term may have
terminated before the end of such Comparison Year.
[4.3.1 , 4.3.2 and 4.3.3 deleted.]
4.3.4 Lessee shall continue to pay the rent at the rate
previously in effect until the increase, if any, is determined. Within five
(5) days following the date on which the increase is determined, Lessee shall
make such payment to Lessor as will bring the increased rental current,
commencing with the effective date of such increase through the date of any
rental installments then due. Thereafter the rental shall be paid at the
increased rate.
4.3.5 At such time as the amount of any change in rental required
by this Lease is known or determined, Lessor and Lessee shall execute an
amendment to this Lease setting forth such change.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the security deposit set forth in paragraph 1.9 of the Basic Lease Provisions
as security for Lessee's faithful performance of Lessee's obligations
hereunder. If Lessee fails to pay rent or other charges due hereunder or
otherwise defaults with respect to any provision of this Lease, Lessor may use,
apply or retain all or any portion of said deposit for the payment of any rent
or other charge in default for the payment of any other sum to which Lessor may
become obligated by reason of Lessee's default, or to compensate Lessor for any
loss or damage which Lessor may suffer thereby. If Lessor so uses or applies
all or any portion of said
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deposit, Lessee shall within ten (10) days after written demand therefor
deposit cash with Lessor in an amount sufficient to restore said deposit to the
full amount then required of Lessee. If the monthly Base Rent shall, from time
to time, increase during the term of this Lease, Lessee shall, at the time of
such increase, deposit with Lessor additional money as a security deposit so
that the total amount of the security deposit held by Lessor shall at all times
bear the same proportion to the then current Base Rent as the initial security
deposit bears to the initial Base Rent set forth in paragraph 1.6 of the Basic
Lease Provisions. Lessor shall not be required to keep said security deposit
separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, said deposit, or so much thereof as has not heretofore
been applied by Lessor, shall be returned, without payment of interest or other
increment for its use, to Lessee (or, at Lessor's option, to the last assignee,
if any, of Lessee's interest hereunder) at the expiration of the term hereof,
and after Lessee has vacated the Premises. No trust relationship is created
herein between Lessor and Lessee with respect to said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for the purpose
set forth in paragraph 1.4 of the Basic Lease Provisions or any other use which
is reasonably comparable to that use and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in the state
existing on the date that the Lease term commences, but without regard to
alterations or improvements made by Lessee or the use for which Lessee will
occupy the Premises, does not violate any covenants or restrictions of records
or any applicable building code, regulation or ordinance in effect on such
Lease term Commencement Date. In the event it is determined that this warranty
has been violated, then it shall be the obligation of the Lessor, after written
notice from Lessee, to promptly, at Lessor's sole cost and expense, rectify any
such violation.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at Lessee's
expense, promptly comply with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements of
any fire insurance underwriters or rating bureaus, now in effect or which may
hereafter come into effect, whether or not they reflect a change in policy from
that now existing, during the term or any part of the term hereof, relating in
any manner to the Premises and the occupation and use by Lessee of the
Premises. Lessee shall conduct its business in a lawful manner and shall not
use or permit the use of the Premises or the Common Areas in any manner that
will tend to create waste or a nuisance or shall tend to disturb other
occupants of the Office Building Project.
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee in a clean condition
on the Lease Commencement Date (unless Lessee is already in possession) and
Lessor warrants to Lessee that the plumbing, lighting, air conditioning, and
heating system in the Premises shall be in good operating condition. In the
event that it is determined that this warranty has been violated, then it shall
be the obligation of Lessor, after receipt of written notice from Lessee
setting forth with specificity the nature of the violation, to promptly, at
Lessor's sole cost, rectify such violation.
(b) Except as otherwise provided in this Lease, Lessee hereby
accepts the Premises and the Office Building Project in their condition
existing as of the Lease Commencement Date or the date that Lessee takes
possession of the Premises, whichever is earlier, subject to all applicable
zoning, municipal, county and state laws, ordinances and regulations governing
and regulating the use of the Premises, and any easements, covenants or
restrictions of record, and accepts this Lease subject thereto and to all
matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that it has satisfied itself by its own independent investigation
that the Premises are suitable for its intended use, and that neither Lessor
nor Lessor's agent or agents has made any representation or warranty as to the
present or future suitability of the Premises, Common Areas, or Office Building
Project for the conduct of Lessee's business.
7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.
7.1 LESSOR'S OBLIGATIONS. Lessor shall keep the Office Building Project,
including the Premises, interior and exterior walls, roof, and common areas,
and the equipment whether used exclusively for the Premises or in common with
other premises, in good condition and repair; provided, however, Lessor shall
not be obligated to paint, repair or replace wall coverings, or to repair or
replace any improvements that are not ordinarily a part of the Building or are
above then Building standards. Except as provided in paragraph 9.5, there
shall be no abatement of rent or liability of Lessee on account of any injury
or interference with Lessee's business with respect to any improvements,
alterations or repairs made by Lessor to the Office Budding Project or any part
thereof. Lessee expressly waives the benefits of any statute now or hereafter
in effect which would otherwise afford Lessee the right to make repairs at
Lessor's expense or to terminate this Lease because of Lessor's failure to keep
the Premises in good order, condition and repair.
7.2 LESSEE'S OBLIGATIONS.
(a) Notwithstanding Lessor's obligation to keep the Premises in good
condition and repair, Lessee shall be responsible for payment of the cost
thereof to Lessor as additional rent for that portion of the cost of any
maintenance and repair of the Premises, or any equipment (wherever located)
that serves only Lessee or the Premises, to the extent such cost is
attributable to causes beyond normal wear and tear. Lessee shall be
responsible for the cost of painting, repairing or replacing wall coverings,
and to repair or replace any Premises improvements that are not ordinarily a
part of the Building or that are above then Building standards. Lessor may, at
its option, upon reasonable notice, elect to have Lessee perform any particular
such maintenance or repairs the cost of which is otherwise Lessee's
responsibility hereunder.
(b) On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same
condition as received, ordinary wear and tear excepted, clean and free of
debris. Any damage or deterioration of the Premises shall not be deemed
ordinary wear and tear if the same could have been prevented by good
maintenance practices by Lessee. Lessee shall repair any damage to the
Premises occasioned by the installation or removal of Lessee's trade fixtures,
alterations, furnishings and equipment. Except as otherwise stated in this
Lease, Lessee shall leave the air lines, power panels, electrical distribution
systems, lighting fixtures, air conditioning, window coverings, wall coverings,
carpets, wall panelling, ceilings and plumbing on the Premises and in good
operating condition.
7.3 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent make
any alterations, improvements, additions, Utility Installations or repairs in,
on or about the Premises, or the Office Building Project. As used in this
paragraph 7.3 the term "Utility Installation" shall mean carpeting, window and
wall coverings, power panels, electrical distribution systems, lighting
fixtures, air conditioning, plumbing, and telephone and telecommunication
wiring and equipment. At the expiration of the term, Lessor may require the
removal of any or all of said alterations, improvements, additions or Utility
Installations, and the restoration of the Premises and the Office Building
Project to their prior condition, at Lessee's expense. Should Lessor permit
Lessee to make its own alterations, improvements, additions or Utility
Installations, Lessee shall use only such contractor as has been
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expressly approved by Lessor, and Lessor may require Lessee to provide Lessor,
at Lessee's sole cost and expense, a lien and completion bond in an amount
equal to one and one-half times the estimated cost of such improvements, to
insure Lessor against any liability for mechanic's and materialmen's liens and
to insure completion of the work. Should Lessee make any alterations,
improvements, additions or Utility Installations without the prior approval of
Lessor, or use a contractor not expressly approved by Lessor, Lessor may, at
any time during the term of this Lease, require that Lessee remove any part or
all of the same.
(b) Any alterations, improvements, additions or Utility
Installations in or about the Premises or the Office Building Project that
Lessee shall desire to make shall be presented to Lessor in written form, with
proposed detailed plans. If Lessor shall give its consent to Lessee's making
such alteration, Improvement, addition or Utility Installation, the consent
shall be deemed conditioned upon Lessee acquiring a permit to do so from the
applicable governmental agencies, furnishing a copy thereof to Lessor prior to
the commencement of the work, and compliance by Lessee with all conditions of
said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, the Building or the Office Building
Project, or any Interest therein.
(d) Lessee shall give Lessor not less than ten (10) days' notice
prior to the commencement of any work in the Premises by Lessee, and Lessor
shall have the right to post notices of non-responsibility in or on the
Premises or the Building as provided by law if Lessee shall, in good faith,
contest the validity of any such lien, claim or demand, then Lessee shall, at
its sole expense defend itself and Lessor against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises, the Building or the
Office Building Project, upon the condition that if Lessor shall require,
Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an
amount equal to such contested lien claim or demand indemnifying Lessor against
liability for the same and holding the Premises, the Building and the Office
Building Project free from the effect of such lien or claim. In addition,
Lessor may require Lessee to pay Lessor's reasonable attorneys' fees and costs
in participating in such action if Lessor shall decide it is to Lessor's best
interest so to do.
(e) All alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made to the Premises by Lessee, including but
not limited to, floor coverings, panelings, doors, drapes, built-ins, moldings,
sound attenuation, and lighting and telephone or communication systems,
conduit, wiring and outlets, shall be made and done in a good and workmanlike
manner and of good and sufficient quality and materials and shall be the
property of Lessor and remain upon and be surrendered with the Premises at the
expiration of the Lease term, unless Lessor requires their removal pursuant to
paragraph 7.3(a). Provided Lessee is not in default, notwithstanding the
provisions of this paragraph 7.3(e), Lessee's personal property and equipment,
other than that which is affixed to the Premises so that it cannot be removed
without material damage to the Premises or the Building, and other than Utility
Installations, shall remain the property of Lessee and may be removed by Lessee
subject to the provisions of paragraph 7.2.
(f) Lessee shall provide Lessor with as-built plans and
specifications for any alterations, improvements, additions or Utility
Installations.
7.4 UTILITY ADDITIONS. Lessor reserves the right to install new or
additional utility facilities throughout the Office Building Project for the
benefit of Lessor or Lessee, or any other lessee of the Office Building
Project, including, but not by way of limitation, such utilities as plumbing,
electrical systems, communication systems, and fire protection and detection
systems, so long as such installations do not unreasonably interfere with
Lessee's use of the Premises.
8. INSURANCE; INDEMNITY.
8.1 LIABILITY INSURANCE--LESSEE. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease a policy of
Comprehensive General Liability insurance utilizing an Insurance Services
Office standard form with Broad Form General Liability Endorsement (GL0404), or
equivalent, in an amount of not less than $1,000,000 per occurrence of bodily
injury and property damage combined or in a greater amount as reasonably
determined by Lessor and shall insure Lessee with Lessor as an additional
insured against liability arising out of the use, occupancy or maintenance of
the Premises. Compliance with the above requirement shall not, however, limit
the liability of Lessee hereunder.
8.2 LIABILITY INSURANCE--LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Broad Form Property Damage Insurance, plus coverage against such other
risks Lessor deems advisable from time to time, insuring Lessor, but not
Lessee, against liability arising out of the ownership, use, occupancy or
maintenance of the Office Building Project in an amount not less than
$5,000,000.00 per occurrence.
8.3 PROPERTY INSURANCE--LESSEE. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease for the benefit of
Lessee, replacement cost fire and extended coverage insurance, with vandalism
and malicious mischief, sprinkler leakage and earthquake sprinkler leakage
endorsements, in an amount sufficient to cover not less than 100% of the full
replacement cost, as the same may exist from time to time, of all of Lessee's
personal property, fixtures, equipment and tenant improvements.
8.4 PROPERTY INSURANCE--LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies of insurance covering loss
or damage to the Office Building Project improvements, but not Lessee's
personal property, fixtures, equipment or tenant improvements, in the amount of
the full replacement cost thereof, as the same may exist from time to time,
utilizing Insurance Services Office standard form, or equivalent, providing
protection against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, plate glass, and such other
perils as Lessor deems advisable or may be required by a lender having a lien
on the Office Building Project. In addition, Lessor shall obtain and keep in
force, during the term of this Lease, a policy of rental value insurance
covering a period of one year, with loss payable to Lessor, which insurance
shall also cover all Operating Expenses for said period. Lessee will not be
named in any such policies carried by Lessor and shall have no right to any
proceeds therefrom. The policies required by these paragraphs 8.2 and 8.4
shall contain such deductibles as Lessor or the aforesaid lender may determine.
In the event that the Premises shall suffer an insured loss as defined in
paragraph 9.1(f) hereof, the deductible amounts under the applicable insurance
policies shall be deemed an Operating Expense. Lessee shall not do or permit
to be done anything which shall invalidate the insurance policies carried by
Lessor. Lessee shall pay the entirety of any increase in the property
insurance premium for the Office Building Project over what it was immediately
prior to the commencement of the term of this Lease if the increase is
specified by Lessor's insurance carrier as being caused by the nature of
Lessee's occupancy or any act or omission of Lessee.
8.5 INSURANCE POLICIES. Lessee shall deliver to Lessor copies of
liability insurance policies required under paragraph 8.1 or certificates
evidencing the existence and amounts of such insurance within seven (7) days
after the Commencement Date of this Lease. No such policy shall be cancelable
or subject to reduction of coverage or other modification except after thirty
(30) days prior written notice to Lessor. Lessee shall, at least thirty (30)
days prior to the expiration of such policies, furnish Lessor with renewals
thereof.
8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other,
for direct or consequential loss or damage arising out of or incident to the
perils covered by property insurance carried by such party,
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whether due to the negligence of Lessor or Lessee or their agents, employees,
contractors and/or invitees. If necessary all property insurance policies
required under this Lease shall be endorsed to so provide.
8.7 INDEMNITY. Lessee shall indemnify and hold harmless Lessor and its
agents, Lessor's master or ground lessor, partners and lenders, from and
against any and all claims for damage to the person or property of anyone or
any entity arising from Lessee's use of the Office Building Project, or from
the conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and shall
further indemnity and hold harmless Lessor from and against any and all claims,
costs and expenses arising from any breach or default in the performance of any
obligation on Lessee's part to be performed under the terms of this Lease, or
arising from any act or omission of Lessee, or any of Lessee's agents,
contractors, employees, or invitees, and from and against all costs, attorney's
fees, expenses and liabilities incurred by Lessor as the result of any such
use, conduct, activity, work, things done, permitted or suffered, breach,
default or negligence, and in dealing reasonably therewith, including but not
limited to the defense or pursuit of any claim or any action or proceeding
involved therein; and in case any action or proceeding be brought against
Lessor by reason of any such matter, Lessee upon notice from Lessor shall
defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be so indemnified. Lessee, as a
material part of the consideration to Lessor, hereby assumes all risk of damage
to property of Lessee or injury to persons, in, upon or about the Office
Building Project arising from any cause and Lessee hereby waives all claims in
respect thereof against Lessor.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for loss of or damage to the goods, wares, merchandise or other
property of Lessee, Lessee's employees, invitees, customers, or any other
person in or about the Premises or the Office Building Project, nor shall
Lessor be liable for injury to the person of Lessee, Lessee's employees, agents
or contractors, whether such damage or injury is caused by or results from
theft, fire, steam, electricity, gas, water or rain, or from the breakage,
leakage obstruction or other defects of pipes, sprinklers, wires, appliances,
plumbing, air conditioning or lighting fixtures, or from any other cause,
whether said damage or injury results from conditions arising upon the Premises
or upon other portions of the Office Building Project, or from other sources or
places, or from new construction or the repair, alteration or improvement of
any part of the Office Building Project, or of the equipment, fixtures or
appurtenances applicable thereto, and regardless of whether the cause of such
damage or injury or the means of repairing the same is inaccessible, Lessor
shall not be liable for any damages arising from any act or neglect of any
other lessee, occupant or user of the Office Building Project, nor from the
failure of Lessor to enforce the provisions of any other lease of any other
lessee of the Office Building Project.
8.9 NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits or forms of coverage of insurance specified in
this paragraph 8 are adequate to cover Lessee's property or obligations under
this Lease.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Damage" shall mean if the Premises are damaged or
destroyed to any extent.
(b) "Premises Building Partial Damage" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is less than fifty percent (50%) or the then Replacement Cost of
the building.
(c) "Premises Building Total Destruction" shall mean if the Building
of which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is fifty percent (50%) or more of the then Replacement Cost of
the Building.
(d) "Office Building Project Buildings" shall mean all of the
buildings on the Office Building Project site.
(e) "Office Building Project Buildings Total Destruction" shall mean
if the Office Building Project Buildings are damaged or destroyed to the extent
that the cost of repair is fifty percent (50%) or more of the then Replacement
Cost of the Office Building Project Buildings.
(f) "Insured Loss" shall mean damage or destruction which was caused
by an event required to be covered by the insurance described in paragraph 8.
The fact that an Insured Loss has a deductible amount shall not make the loss
an uninsured loss.
(g) "Replacement Cost" shall mean the amount of money necessary to
be spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring, excluding all improvements
made by lessees, other than those installed by Lessor at Lessee's expense.
9.2 PREMISES DAMAGE; PREMISES BUILDING PARTIAL DAMAGE.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is an
Insured Loss and which falls info the classification of either Premises Damage
or Premises Building Partial Damage, then Lessor shall, as soon as reasonably
possible and to the extent the required materials and labor are readily
available through usual commercial channels, at Lessor's expense, repair such
damage (but not Lessee's fixtures, equipment or tenant improvements originally
paid for by Lessee) to its condition existing at the time of the damage, and
this Lease shall continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is not
an Insured Loss and which falls within the classification of Premises Damage or
Premises Building Partial Damage, unless caused by a negligent or willful act
of Lessee (in which event Lessee shall make the repairs at Lessee's expense),
which damage prevents Lessee from making any substantial use of the Premises,
Lessor may at Lessor's option either (i) repair such damage as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee within
thirty (30) days after the date of the occurrence of such damage of Lessor's
intention to cancel and terminate this Lease as of the date of the occurrence
of such damage, in which event this Lease shall terminate as of the date of the
occurrence of such damage.
9.3 PREMISES BUILDING TOTAL DESTRUCTION; OFFICE BUILDING PROJECT TOTAL
DESTRUCTION. Subject to the provisions of paragraphs 9.4 and 9.5, if at any
time during the term of this Lease there is damage, whether or not it is an
Insured Loss, which falls info the classifications of either (i) Premises
Building Total Destruction, or (ii) Office Building Project Total Destruction,
then Lessor may at Lessor's option either (i) repair such damage or destruction
as soon as reasonably possible at Lessor's expense (to the extent the required
materials are readily available through usual commercial channels) to its
condition existing at the time of the damage, but not Lessee's fixtures,
equipment or tenant improvements, and this Lease shall continue in full force
and effect, or (ii) give written notice to Lessee within thirty (30) days after
the date of occurrence of such damage of Lessor's intention to cancel and
terminate this Lease, in which case this lease shall terminate as of the date
of the occurrence of such damage.
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9.4 DAMAGE NEAR END OF TERM.
(a) Subject to paragraph 9.4(b), if at any time during the last
twelve (12) months of the term of this Lease there is substantial damage to the
Premises, Lessor may at Lessor's option cancel and terminate this Lease as of
the date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within 30 days after the date of occurrence of such
damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee has
an option to extend or renew this Lease, and the time within which said option
may be exercised has not yet expired, Lessee shall exercise such option, if it
is to be exercised at all, no later than twenty (20) days after the occurrence
of an Insured Loss falling within the classification of Premises Damage during
the last twelve (12) months of the term of this Lease. If Lessee duly
exercises such option during said twenty (20) day period, Lessor shall, at
Lessor's expense, repair such damage, but not Lessee's fixtures, equipment or
tenant improvements, as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option
during said twenty (20) day period, then Lessor may at Lessor's option
terminate and cancel this Lease as of the expiration of said twenty (20) day
period by giving written notice to Lessee of Lessor's election to do so within
ten (10) days after the expiration of said twenty (20) day period,
notwithstanding any term or provision in the grant of option to the contrary.
9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event Lessor repairs or restores the Building or Premises
pursuant to the provisions of this paragraph 9, and any part of the Premises
are not usable (including loss of use due to loss of access or essential
services), the rent payable hereunder (including Lessee's Share of Operating
Expense Increase) for the period during which such damage, repair or
restoration continues shall be abated, provided (1) the damage was not the
result of the negligence of Lessee, and (2) such abatement shall only be to the
extent the operation and profitability of Lessee's business as operated from
the Premises is adversely affected. Except for said abatement of rent, if any,
Lessee shall have no claim against Lessor for any damage suffered by reason of
any such damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
or the Building under the provisions of this Paragraph 9 and shall not commence
such repair or restoration within ninety (90) days after such occurrence, or if
Lessor shall not complete the restoration and repair within six (6) months
after such occurrence, Lessee may at Lessee's option cancel and terminate this
Lease by giving Lessor written notice of Lessee's election to do so at any time
prior to the commencement or completion, respectively, of such repair or
restoration. In such event this Lease shall terminate as of the date of such
notice.
(c) Lessee agrees to cooperate with Lessor in connection with any
such restoration and repair, including but not limited to the approval and/or
execution of plans and specifications required.
9.6 TERMINATION--ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall,
in addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 WAIVER. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree
that such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the real property tax, as defined
in paragraph 10.3, applicable to the Office Building Project subject to
reimbursement by Lessee of Lessee's Share of such taxes in accordance with the
provisions of paragraph 4.2, except as otherwise provided in paragraph 10.2.
10.2 ADDITIONAL IMPROVEMENTS. Lessee shall not be responsible for paying
any increase in real property tax specified in the tax assessor's records and
work sheets as being caused by additional improvements placed upon the Office
Building Project by other lessees or by Lessor for the exclusive enjoyment of
any other lessee. Lessee shall, however, pay to Lessor at the time that
Operating Expenses are payable under paragraph 4.2(c) the entirety of any
increase in real property tax if assessed solely by reason of additional
improvements placed upon the Premises by Lessee or at Lessee's request.
10.3 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Office Building Project or any portion thereof
by any authority having the direct or indirect power to tax, including any
city, county, state or federal government, or any school, agricultural,
sanitary, fire, street, drainage or other improvement district thereof, as
against any legal or equitable interest of Lessor in the Office Building
Project or in any portion thereof, as against Lessor's right to rent or other
income therefrom, and as against Lessor's business of leasing the Office
Building Project. The term "real property tax" shall also include any tax,
fee, levy, assessment or charge (i) in substitution of, partially or totally,
any tax, fee, levy, assessment or charge hereinabove included within the
definition of "real property tax" or (ii) the nature of which was hereinbefore
included within the definition of "real property tax" or (iii) which is imposed
for a service or right not charged prior to June 1, 1978, or, if previously
charged, has been increased since June 1, 1978, or (iv) which is imposed as a
result of a change in ownership, as defined by applicable local statutes for
property tax purposes, of the Office Building Project or which is added to a
tax or charge hereinbefore included within the definition of real property tax
by reason of such change of ownership, or (v) which is imposed by reason of
this transaction, any modifications or changes hereto, or any transfers hereof.
10.4 JOINT ASSESSMENT. If the improvements or property, the taxes for
which are to be paid separately by Lessee under paragraph 10.2 or 10.5 are not
separately assessed, Lessee's portion of that tax shall be equitably determined
by Lessor from the respective valuations assigned in the assessor's work sheets
or such other information (which may include the cost of construction) as may
be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.5 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay to Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting forth
the taxes applicable to Lessee's property.
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11. UTILITIES.
11.1 SERVICES PROVIDED BY LESSOR. Lessor shall provide heating,
ventilation, air conditioning, and janitorial service as reasonably required,
reasonable amounts of electricity for normal lighting and office machines,
water for reasonable and normal drinking and lavatory use, and replacement
light bulbs and/or fluorescent tubes and ballasts for standard overhead
fixtures.
11.2 SERVICES EXCLUSIVE TO LESSEE. Lessee shall pay for all water, gas,
heat, light, power, telephone and other utilities and services specially or
exclusively supplied and/or metered exclusively to the Premises or to Lessee,
together with any taxes thereon. If any such services are not separately
metered to the Premises, Lessee shall pay at Lessor's option, either Lessee's
Share or a reasonable proportion to be determined by Lessor of all charges
jointly metered with other premises in the Building.
11.3 HOURS OF SERVICE. Said services and utilities shall be provided
during generally accepted business days and hours or such other days or hours
as may hereafter be set forth. Utilities and services required at other times
shall be subject to advance request and reimbursement by Lessee to Lessor of
the cost thereof.
11.4 EXCESS USAGE BY LESSEE. Lessee shall not make connection to the
utilities except by or through existing outlets and shall not install or use
machinery or equipment in or about the Premises that uses excess water,
lighting or power, or suffer or permit any act that causes extra burden upon
the utilities or services, including but not limited to security services, over
standard office usage for the Office Building Project. Lessor shall require
Lessee to reimburse Lessor for any excess expenses or costs that may arise out
of a breach of this subparagraph by Lessee. Lessor may, in its sole
discretion, install at Lessee's expense supplemental equipment and/or separate
metering applicable to Lessee's excess usage or loading.
11.5 INTERRUPTIONS. There shall be no abatement of rent and Lessor shall
not be liable in any respect whatsoever for the inadequacy, stoppage,
interruption or discontinuance of any utility or service due to riot, strike,
labor dispute, breakdown, accident, repair or other cause beyond Lessor's
reasonable control or in cooperation with governmental request or directions.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a material
default and breach of this Lease without the need for notice to Lessee under
paragraph 13.1. "Transfer" within the meaning of this paragraph 12 shall
include the transfer or transfers aggregating: (a) if Lessee is a corporation,
more than twenty-five percent (25%) of the voting stock of such corporation, or
(b) if Lessee is a partnership, more than twenty-five percent (25%) of the
profit and loss participation in such partnership.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by
or is under common control with Lessee, or to any corporation resulting from
the merger or consolidation with Lessee, or to any person or entity which
acquires all the assets of Lessee as a going concern of the business that is
being conducted on the Premises, all of which are referred to as "Lessee
Affiliate"; provided that before such assignment shall be effective, (a) said
assignee shelf assume, in full, the obligations of Lessee under this Lease and
(b) Lessor shall be given written notice of such assignment and assumption.
Any such assignment shall not, in any way, affect or limit the liability of
Lessee under the terms of this Lease even if after such assignment or
subletting the terms of this Lease are materially changed or altered without
the consent of Lessee, the consent of whom shall not be necessary.
12.3 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, no assignment or subletting
shall release Lessee of Lessee's obligations hereunder or alter the primary
liability of Lessee to pay the rent and other sums due Lessor hereunder
including Lessee's Share of Operating Expense Increase, and to perform all
other obligations to be performed by Lessee hereunder.
(b) Lessor may accept rent from any person other than Lessee pending
approval or disapproval of such assignment.
(c) Neither a delay in the approval or disapproval of such
assignment or subletting, nor the acceptance of rent, shall constitute a waiver
or estoppel of Lessor's right to exercise its remedies for the breach of any of
the terms or conditions of this paragraph 12 or this Lease.
(d) If Lessee's obligations under this Lease have been guaranteed by
third parties, then an assignment or sublease, and Lessor's consent thereto,
shall not be effective unless said guarantors give their written consent to
such sublease and the terms thereof.
(e) The consent by Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee or
anyone else liable on the Lease or sublease and without obtaining their consent
and such action shall not relieve such persons from liability under this Lease
or said sublease; however, such persons shall not be responsible to the extent
any such amendment or modification enlarges or increases the obligations of the
Lessee or sublessee under this Lease or such sublease.
(f) In the event of any default under this Lease, Lessor may proceed
directly against Lessee, any guarantors or any one else responsible for the
performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(g) Lessor's written consent to any assignment or subletting of the
Premises by Lessee shall not constitute an acknowledgement that no default then
exists under this Lease of the obligations to be performed by Lessee nor shall
such consent be deemed a waiver of any then existing default except as may be
otherwise stated by Lessor at the time.
(h) The discovery of the fact that any financial statement relied
upon by Lessor in giving its consent to an assignment or subletting was
materially false shall, at Lessor's election, render Lessor's said consent null
and void.
12.4 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. Regardless
of Lessor's consent, the following terms and conditions shall apply to any
subletting by Lessee of all or any part of the Premises and shall be deemed
included in all subleases under this Lease whether or not expressly
incorporated therein:
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(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease heretofore or
hereafter made by Lessee, and Lessor may collect such rent and income and apply
same toward Lessee's obligations under this Lease; provided however, that until
a default shall occur in the performance of Lessee's obligations under this
Lease, Lessee may receive, collect and enjoy the rents accruing under such
sublease. Lessor shall not, by reason of this or any other assignment of such
sublease to Lessor nor by reason of the collection of the rents from a
sublessee, be deemed liable to the sublessee for any failure of Lessee to
perform and comply with any of Lessee's obligations to such sublessee under
such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a default
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents due and to become due under the sublease. Lessee agrees that
such sublessee shall have the right to rely upon any such statement and request
from Lessor, and that such sublessee shall pay such rents to Lessor without any
obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against said sublessee or Lessor for any such
rents so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective unless and
until it has been approved in writing by Lessor. In entering into any
sublease, Lessee shall use only such form of sublessee as is satisfactory to
Lessor, and once approved by Lessor such sublease shall not be changed or
modified without Lessor's prior written consent. Any sublease shall, by reason
of entering into a sublease under this Lease, be deemed, for the benefit of
Lessor, to have assumed and agreed to conform and comply with each and every
obligation herein to be performed by Lessee other than such obligations as are
contrary to or inconsistent with provisions contained in a sublease to which
Lessor has expressly consented in writing.
(c) In the event Lessee shall default in the performance of its
obligations under this Lease, Lessor at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of Lessee under such sublease from the time of
the exercise of said option to the termination of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to Lessee or for any other prior defaults of Lessee
under such sublease.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) With respect to any subletting to which Lessor has consented,
Lessor agrees to deliver a copy of any notice of default by Lessee to the
sublessee. Such sublessee shall have the right to cure a default of Lessee
within three (3) days after service of said notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset
from and against Lessee for any such defaults cured by the sublessee.
12.5 LESSOR'S EXPENSES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable costs and expenses incurred in
connection therewith, including attorneys', architects', engineers' or other
consultants' fees.
12.6 CONDITIONS TO CONSENT. Lessor reserves the right to condition any
approval to assign or sublet upon Lessor's determination that (a) the proposed
assignee or sublessee shall conduct a business on the Premises of a quality
substantially equal to that of Lessee and consistent with the general character
of the other occupants of the Office Building Project and not in violation of
any exclusives or rights then held by other tenants, and (b) the proposed
assignee or sublessee be at least as financially responsible as Lessee was
expected to be at the time of the execution of this Lease or of such assignment
or subletting, whichever is greater.
13. DEFAULT; REMEDIES.
13.1 DEFAULT. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
(a) The vacation or abandonment of the Premises by Lessee. Vacation
of the Premises shall include the failure to occupy the Premises for a
continuous period of sixty (60) days or more, whether or not the rent is paid.
(b) The breach by Lessee of any of the covenants, conditions or
provisions of paragraphs 7.3(a), (b) or (d) (alterations), 12.1 (assignment or
subletting), 13.1(a) (vacation or abandonment), 13.1(e) (insolvency), 13.1(f)
(false statement), 16(a) (estoppel certificate), 30(b) (subordination), 33
(auctions), or 41.1 (easements), all of which are hereby deemed to be material,
non-curable defaults without the necessity of any notice by Lessor to Lessee
thereof.
(c) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three (3) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
(d) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed
by Lessee other than those referenced in subparagraphs (b) and (c), above,
where such failure shall continue for a period of thirty (30) days after
written notice thereof from Lessor to Lessee; provided, however, that if the
nature of Lessee's noncompliance is such that more than thirty (30) days are
reasonably required for its cure, then Lessee shall not be deemed to be in
default if Lessee commenced such cure within said thirty (30) day period and
thereafter diligently pursues such cure to completion. To the extent permitted
by law, such thirty (30) day notice shall constitute the sole and exclusive
notice required to be given to Lessee under applicable Unlawful Detainer
statutes.
(e) (i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors; (ii) Lessee becoming a "debtor" as
defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in
the case of a petition filed against Lessee, the same is dismissed within sixty
(60) days; (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within
thirty (30) days; or (iv) the attachment, execution or other judicial seizure
of substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. In the event that any provision of this paragraph 13.1(e) is contrary to
any applicable law, such provision shall be of no force or effect.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee, or its successor in interest or by any guarantor of Lessee's
obligation hereunder, was materially false.
13.2 REMEDIES. In the event of any material default or breach of this
Lease by Lessee, Lessor may at any time thereafter, with or without notice or
demand and without limiting Lessor in the exercise of any right or remedy which
Lessor may have by reason of such default:
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(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee all damages incurred
by Lessor by reason of Lessee's default including, but not limited to, the cost
of recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys'
fees, and any real estate commission actually paid; the worth at the time of
award by the court having jurisdiction thereof of the amount by which the
unpaid rent for the balance of the term after the time of such award exceeds
the amount of such rental loss for the same period that Lessee proves could be
reasonably avoided; that portion of the leasing commission paid by Lessor
pursuant to paragraph 15 applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have vacated or abandoned
the Premises. In such event Lessor shall be entitled to enforce all of
Lessor's rights and remedies under this Lease, including the right to recover
the rent as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the stale wherein the Premises are
located. Unpaid installments of rent and other unpaid monetary obligations of
Lessee under the terms of this Lease shall bear interest from the date due al
the maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but
in no event later than thirty (30) days after written notice by Lessee to
Lessor and to the holder of any first mortgage or deed of trust covering the
Premises whose name and address shall have theretofore been furnished to Lessee
in writing, specifying wherein Lessor has failed to perform such obligation;
provided, however, that if the nature of Lessor's obligation is such that more
than thirty (30) days are required for performance then Lessor shall not be in
default if Lessor commences performance within such 30-day period and
thereafter diligently pursues the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of Base Rent, Lessee's Share of Operating Expense Increase or other
sums due hereunder will cause Lessor to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain.
Such costs include, but are not limited to, processing and accounting charges,
and late charges which may be imposed on Lessor by the terms of any mortgage or
trust deed covering the Office Building Project. Accordingly, if any
installment of Base Rent, Operating Expense Increase, or any other sum due from
Lessee shall not be received by Lessor or Lessor's designee within ten (10)
days after such amount shall be due, then, without any requirement for notice
to Lessee, Lessee shall pay to Lessor a late charge equal to 6% of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute
a waiver of Lessee's default with respect to such overdue amount, nor prevent
Lessor from exercising any of the other rights and remedies granted hereunder.
14. CONDEMNATION. If the Premises or any portion thereof or the Office
Building Project are taken under the power of eminent domain, or sold under the
threat of the exercise of said power (all of which are herein called
"condemnation"), this Lease shall terminate as to the part so taken as of the
date the condemning authority takes title or possession, whichever first
occurs; provided that if so much of the Premises or the Office Building Project
are taken by such condemnation as would substantially and adversely affect the
operation and profitability of Lessee's business conducted from the Premises,
Lessee shall have the option, to be exercised only in writing within thirty
(30) days after Lessor shall have given Lessee written notice of such taking
(or in the absence of such notice, within thirty (30) days after the condemning
authority shall have taken possession), to terminate this Lease as of the date
the condemning authority takes such possession. If Lessee does not terminate
this Lease in accordance with the foregoing, this Lease shall remain in full
force and effect as to the portion of the Premises remaining, except that the
rent and Lessee's Share of Operating Expense Increase shall be reduced in the
proportion that the floor area of the Premises taken bears to the total floor
area of the Premises. Common Areas taken shall be excluded from the Common
Areas usable by Lessee and no reduction of rent shall occur with respect
thereto or by reason thereof. Lessor shall have the option in its sole
discretion to terminate this Lease as of the taking or possession by the
condemning authority, by giving written notice to Lessee of such election
within thirty (30) days after receipt of notice of a taking by condemnation of
any part of the Premises or the Office Building Project. Any award for the
taking of all or any part of the Premises or the Office Building Project under
the power of eminent domain or any payment made under threat of the exercise of
such power shall be the property of Lessor, whether such award shall be made as
compensation for diminution in value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any separate award for loss of or damage to Lessee's trade fixtures,
removable personal property and unamortized tenant improvements that have been
paid for by Lessee. For that purpose the cost of such improvements shall be
amortized over the original term of this Lease excluding any options. In the
event that this Lease is not terminated by reason of such condemnation, Lessor
shall to the extent of severance damages received by Lessor in connection with
such condemnation, repair any damage to the Premises caused by such
condemnation except to the extent that Lessee has been reimbursed therefor by
the condemning authority. Lessee shall pay any amount in excess of such
severance damages required to complete such repair.
15. BROKER'S FEE.
(a) The brokers involved in this transaction are CB Commercial Real
Estate Group, Inc. as "listing broker" and CB Commercial Real Estate Group,
Inc. as "cooperating broker," licensed real estate broker(s). A "cooperating
broker" is defined as any broker other than the listing broker entitled to a
share of any commission arising under this Lease. Upon execution of this Lease
by both parties, Lessor shall pay to said brokers jointly, or in such separate
shares as they may mutually designate in writing, a fee as set forth in a
separate agreement between Lessor and said broker(s), or in the event there is
no separate agreement between Lessor and said broker(s), the sum of $ per
separate agreement, for brokerage services rendered by said broker(s) to Lessor
in this transaction.
(b) Lessor further agrees that (i) if Lessee exercises any Option,
as defined in paragraph 39.1 of this Lease, which is granted to Lessee under
this Lease, or any subsequently granted option which is substantially similar
to an Option granted to Lessee under this Lease, or (ii) if Lessee acquires any
rights to the Premises or other premises described in this Lease which are
substantially similar to what Lessee would have acquired had an Option herein
granted to Lessee been exercised, or (iii) if Lessee remains in possession of
the Premises after the expiration of the term of this Lease after having failed
to exercise an Option, or (iv) if said broker(s) are the procuring cause of any
other lease or sale entered into between the parties pertaining to the Premises
and/or any adjacent property in which Lessor has an interest, or (v) if the
Base Rent is increased, whether by agreement or operation of an escalation
clause contained herein, then as to any of said transactions or rent increases,
Lessor shall pay said broker(s) a fee in accordance with the schedule of said
broker(s) in effect at the time of execution of this Lease. Said fee shall be
paid at the time such increased rental is determined.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but
also on behalf of any person, corporation, association, or other entity having
an ownership Interest in said real property or any part thereof, when such fee
is due hereunder. Any transferee of Lessor's interest in this Lease whether
such transfer is by agreement or by operation of law shall be deemed to have
assumed Lessor's obligation under this paragraph 15. Each listing and
cooperating broker shall be a third party beneficiary of the provisions of this
paragraph 15 to the extent of their interest in any
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commission arising under this Lease and may enforce that right directly against
Lessor; provided, however, that all brokers having a right to any part of such
total commission shall be a necessary party to any suit with respect thereto.
(d) Lessee and Lessor each represent and warrant to the other that
neither has had any dealings with any person, firm, broker or finder (other
than the person(s), if any, whose names are set forth in paragraph 15(a),
above) in connection with the negotiation of this Lease and/or the consummation
of the transaction contemplated hereby, and no other broker or other person,
firm or entity is entitled to any commission or finder's fee in connection with
said transaction and Lessee and Lessor do each hereby indemnify and hold the
other harmless from and against any costs, expenses, attorneys' fees or
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
the indemnifying party.
16. ESTOPPEL CERTIFICATE.
(a) Each party (as "responding party") shall at any time upon not
less than ten (10) days' prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease, as so modified, is in full force and effect) and the date to
which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to the responding party's knowledge, any
uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied
upon by any prospective purchaser or encumbrancer of the Office Building
Project or of the business of Lessee.
(b) At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who is to respond, without any further notice to such party, or it shall
be conclusive upon such party that (i) this Lease is in full force and effect,
without modification except as may be represented by the requesting party, (ii)
there are no uncured defaults in the requesting party's performance and (iii)
if Lessor is the requesting party, not more than one month's rent has been paid
in advance.
(c) If Lessor desires to finance, refinance, or sell the Office
Building Project, or any part thereof, Lessee hereby agrees to deliver to any
lender or purchaser designated by Lessor such financial statements of Lessee as
may be reasonably required by such lender or purchaser. Such statements shall
include the past three (3) years' financial statements of Lessee. All such
financial statements shall be received by Lessor and such lender or purchaser
in confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Office Building Project, and except as
expressly provided in paragraph 15, in the event of any transfer or such title
or interest, Lessor herein named (and in case of any subsequent transfers then
the grantor) shall be relieved from and after the date of such transfer of all
liability as respects Lessor's obligations thereafter to be performed, provided
that any funds in the hands of Lessor or the then grantor at the time of such
transfer in which Lessee has an interest, shall be delivered to the grantee.
The obligations contained in this Lease to be performed by Lessor shall,
subject as aforesaid, be binding on Lessor's successors and assigns, only
during their respective periods of ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided,
any amount due to Lessor not paid when due shall bear interest at the maximum
rate then allowable by law or judgments from the date due. Payment of such
interest shall not excuse or cure any default by Lessee under this Lease;
provided, however, that interest shall not be payable on late charges incurred
by Lessee nor on any amounts upon which late charges are paid by Lessee.
20. TIME OF ESSENCE. Time is of the essence with respect to the obligations
to be performed under this Lease.
21. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expense Increase and any other expenses payable by Lessee hereunder shall be
deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS, AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No
prior or contemporaneous agreement or understanding pertaining to any such
matter shall be effective. This Lease may be modified in writing only, signed
by the parties in interest at the time of the modification. Except as
otherwise stated in this Lease, Lessee hereby acknowledges that neither the
real estate broker listed in paragraph 15 hereof nor any cooperating broker on
this transaction nor the Lessor or any employee or agents of any of said
persons has made any oral or written warranties or representations to Lessee
relative to the condition or use by Lessee of the Premises or the Office
Building Project and Lessee acknowledges that Lessee assumes all responsibility
regarding the Occupational Safety Health Act, the legal use and adaptability of
the Premises and the compliance thereof with all applicable laws and
regulations in effect during the term of this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall be
in writing and may be given by personal delivery or by certified or registered
mail, and shall be deemed sufficiently given if delivered or addressed to
Lessee or to Lessor at the address noted below or adjacent to the signature of
the respective parries, as the case may be. Mailed notices shall be deemed
given upon actual receipt at the address required or forty-eight hours
following deposit in the mail, postage prepaid, whichever first occurs. Either
party may by notice to the other specify a different address for notice
purposes except that upon Lessee's taking possession of the Premises, the
Premises shall constitute Lessee's address for notice purposes. A copy of all
polices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by notice to Lessee.
24. WAIVERS. No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder
by Lessor shall not be a waiver of any preceding breach by Lessee of any
provision hereof, other than the failure of Lessee to pay the particular rent
so accepted, regardless of Lessor's knowledge of such preceding breach at the
time of acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of
this Lease pertaining to the obligations of Lessee, except that the rent
payable shall be two hundred percent (200%) of the rent payable immediately
preceding the termination date of this Lease, and all Options, if any, granted
under the terms of this Lease shall be deemed terminated and be of no further
effect during said month to month tenancy.
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27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions of
paragraph 17, this Lease shall bind the parties, their personal
representatives, successors and assigns. This Lease shall be governed by the
laws at the State where the Office Building Project is located and any
litigation concerning this Lease between the parties hereto shall be initiated
in the county in which the Office Building Project is located.
30. SUBORDINATION.
(a) This Lease, and any Option or right of first refusal granted
hereby, at Lessor's option, shall be subordinate to any ground lease, mortgage,
deed of trust, or any other hypothecation or security now or hereafter placed
upon the Office Building Project and to any and all advances made on the
security thereof and to all renewals, modifications, consolidations,
replacements and extensions thereof. Notwithstanding such subordination,
Lessee's right to quiet possession of the Premises shall not be disturbed if
Lessee is not in default and so long as Lessee shall pay the rent and observe
and perform all of the provisions of this Lease, unless this Lease is otherwise
terminated pursuant to its terms if any mortgagee, trustee or ground lessor
shall elect to have this Lease and any Options granted hereby prior to the lien
of its mortgage, deed of trust or ground lease, and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
mortgage, deed of trust or ground lease, whether this Lease or such Options are
dated prior or subsequent to the date of said mortgage, deed of trust or ground
lease or the date of recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination, or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be. Lessee's failure to execute such documents within ten (10) days after
written demand shall constitute a material default by Lessee hereunder without
further notice to Lessee or, at Lessor's option, Lessor shall execute such
documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby
make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact
and in Lessee's name, place and stead, to execute such documents in accordance
with this paragraph 30(b)
31. ATTORNEYS' FEES.
31.1 If either party or the broker(s) named herein bring an action to
enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, trial or appeal thereon, shall be entitled to his reasonable
attorneys' fees to be paid by the losing party as fixed by the court in the
same or a separate suit, and whether or not such action is pursued to decision
or judgment. The provisions of this paragraph shall inure to the benefit of
the broker named herein who seeks to enforce a right hereunder.
31.2 The attorneys' fee award shall not be computed in accordance with any
court fee schedule, but shall be such as to fully reimburse all attorneys' fees
reasonably incurred in good faith.
31.3 Lessor shall be entitled to reasonable attorneys' fees and all other
costs and expenses incurred in the preparation and service of notice of default
and consultations in connection therewith, whether or not a legal transaction
is subsequently commenced in connection with such default.
32. LESSOR'S ACCESS.
32.1 Lessor and Lessor's agents shall have the right to enter the Premises
at reasonable times for the purpose of inspecting the same, performing any
services required of Lessor, showing the same to prospective purchasers,
lenders, or lessees, taking such safely measures, erecting such scaffolding or
other necessary structures, making such alterations, repairs, improvements or
additions to the Premises or to the Office Building Project as Lessor may
reasonably deem necessary or desirable and the erecting, using and maintaining
of utilities, services, pipes and conduits through the Premises and/or other
premises as long as there is no material adverse effect to Lessee's use or the
Premises. Lessor may at any time place on or about the Premises or the
Building any ordinary "For Sale" signs and Lessor may at any time during the
last 120 days of the term hereof place on or about the Premises any ordinary
"For Lease" signs
32.2 All activities of Lessor pursuant to this paragraph shall be without
abatement or rent, nor shall Lessor have any liability to Lessee for the same.
32.3 Lessor shall have the right to retain keys to the Premises and to
unlock all doors in or upon the Premises other than to files, vaults and safes
and in the case of emergency to enter the Premises by any reasonably
appropriate means, and any such entry shall not be deemed a forceable or
unlawful entry or detainer of the Premises or an eviction. Lessee waives any
charges for damages or injuries or interference with Lessee's property or
business in connection therewith.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent. The holding of any auction on the Premises or Common Areas in
violation of this paragraph shall constitute a material default of this Lease.
34. SIGNS. Lessee shall not place any sign upon the Premises or the Office
Building Project without Lessor's prior written consent. Under no
circumstances shall Lessee place a sign on any roof of the Office Building
Project.
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to
Lessor of any or all of such subtenancies.
36. CONSENTS. Except for paragraphs 33 (auctions) and 34 (signs) hereof,
wherever in this Lease the consent of one party is required to an act of the
other party such consent shall not be unreasonably withheld or delayed.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they
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are fully authorized and legally capable of executing this Lease on behalf of
Lessor and that such execution is binding upon all parties holding an ownership
interest in the Office Building Project.
39. OPTIONS.
39.1 DEFINITION. As used in this paragraph the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor (2) the option of right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of
first refusal to lease other space within the Office Building Project or other
property of Lessor or the right of first offer to lease other space within the
Office Building Project or other property of Lessor; (3) the right or option to
purchase the Premises or the Office Building Project, or the right of first
refusal to purchase the Premises or the Office Building Project or the right of
first offer to purchase the Premises or the Office Building Project, or the
right or option to purchase other property of Lessor, or the right of first
refusal to purchase other property of Lessor or the right of first offer to
purchase other property of Lessor.
39.2 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original
Lessee while occupying the Premises who does so without the intent of
thereafter assigning this Lease or subletting the Premises or any portion
thereof, and may not be exercised or be assigned, voluntarily or involuntarily,
by or to any person or entity other than Lessee; provided, however, that an
Option may be exercised by or assigned to any Lessee Affiliate as defined in
paragraph 12.2 of this Lease. The Options, if any, herein granted to Lessee
are not assignable separate and apart from this Lease, nor may any Option be
separated from this Lease in any manner, either by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple options
to extend or renew this Lease a later option cannot be exercised unless the
prior option to extend or renew this Lease has been so exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary, (i)
during the time commencing from the date Lessor gives to Lessee a notice of
default pursuant to paragraph 13.1(c) or 13.1(d) and continuing until the
noncompliance alleged in said notice of default is cured, or (ii) during the
period of time commencing on the day after a monetary obligation to Lessor is
due from Lessee and unpaid (without any necessity for notice thereof to Lessee)
and continuing until the obligation is paid, or (iii) in the event that Lessor
has given to Lessee three or more notices of default under paragraph 13.1(c),
or paragraph 13.1(d), whether or not the defaults are cured, during the 12
month period of time immediately prior to the time that Lessee attempts to
exercise the subject Option, (iv) if Lessee has committed any non-curable
breach, including without limitation those described in paragraph 13.1(b), or
is otherwise in default of any of the terms, covenants or conditions of this
Lease.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due
and timely exercise of the Option, if, after such exercise and during the term
of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of
Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessee fails to commence to cure a default specified in paragraph 13.1(d)
within thirty (30) days after the date that Lessor gives notice to Lessee of
such default and/or Lessee fails thereafter to diligently prosecute said cure
to completion, or (iii) Lessor gives to Lessee three or more notices of default
under paragraph 13.1(c), or paragraph 13.1(d), whether or not the defaults are
cured, or (iv) if Lessee has committed any non-curable breach, including
without limitation those described in paragraph 13.1(b), or is otherwise in
default of any of the terms, covenants and conditions of this Lease.
40. SECURITY MEASURES--LESSOR'S RESERVATIONS.
40.1 Lessee hereby acknowledges that Lessor shall have no obligation
whatsoever to provide guard service or other security measures for the benefit
of the Premises or the Office Building Project. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole
option, from providing security protection for the Office Building Project or
any part thereof, in which event the cost thereof shall be included within the
definition of Operating Expenses, as set forth in paragraph 4.2(b).
40.2 Lessor shall have the following rights:
(a) To change the name, address or title of the Office Building
Project or building in which the Premises are located upon not less than 90
days prior written notice;
(b) To, at Lessee's expense, provide and install Building standard
graphics on the door of the Premises and such portions of the Common Areas as
Lessor shall reasonably deem appropriate;
(c) To permit any lessee the exclusive right to conduct any business
as long as such exclusive does not conflict with any rights expressly given
herein;
(d) To place such signs, notices or displays as Lessor reasonably
deems necessary or advisable upon the roof, exterior of the buildings or the
Office Building Project or on pole signs in the Common Areas;
40.3 Lessee shall not:
(a) Use a representation (photographic or otherwise) of the Building
or the Office Building Project or their name(s) in connection with Lessee's
business;
(b) Suffer or permit anyone, except in emergency, to go upon the
roof of the Building.
(C) 1984 American Industrial Real Estate Association INITIALS:_____
_____
FULL SERVICE--GROSS
PAGE 13 OF 14 PAGES
<PAGE> 14
41. EASEMENTS.
41.1 Lessor reserves to itself the right, from time to time, to grant such
easements, rights and dedications that Lessor deems necessary or desirable, and
to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.
41.2 The obstruction of Lessee's view, air, or light by any structure
erected in the vicinity of the Building, whether by Lessor or third parties,
shall in no way affect this Lease or impose any liability upon Lessor.
42. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the
provisions hereof, the party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment, and there shall survive the right
on the part of said party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said party
to pay such sum or any part thereof, said party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
43. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, Lessee, and each individual executing this Lease on behalf of such
entity represent and warrant that such individual is duly authorized to execute
and deliver this Lease on behalf of said entity. If Lessee is a corporation,
trust or partnership, Lessee shall, within thirty (30) days after execution of
this Lease, deliver to Lessor evidence of such authority satisfactory to
Lessor.
44. CONFLICT. Any conflict between the printed provisions, Exhibits or
Addenda of this Lease and the typewritten or handwritten provisions, if any,
shall be controlled by the typewritten or handwritten provisions.
45. NO OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to Lessee to lease.
This Lease shall become binding upon Lessor and Lessee only when fully executed
by both parties.
46. LENDER MODIFICATION. Lessee agrees to make such reasonable modifications
to this Lease as may be reasonably required by an institutional lender in
connection with the obtaining of normal financing or refinancing at the Office
Building Project.
47. MULTIPLE PARTIES. If more than one person or entity is named as either
Lessor or Lessee herein, except as otherwise expressly provided herein the
obligations of the Lessor or Lessee herein shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or
Lessee, respectively.
48. WORK LETTER. This Lease is supplemented by that certain Work Letter of
even date executed by Lessor and Lessee, attached hereto as Exhibit C, and
incorporated herein by this reference.
49. ATTACHMENTS. Attached hereto are the following documents which constitute
a part of this Lease:
50. Tenant shall not be required to pay the basic rental charge of ($1,909.60)
for the initial two (2) months of lease term.
51. Landlord will install a door and lock for Tenant at Landlord's sole cost
and expense.
52. Landlord will provide Tenant two (2) one (1) year options to renew this
Lease.
53. Tenant has first right of refusal on contiguous space consisting of
approximately 500 square feet.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION
TO YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES
AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF
THIS LEASE OR THE TRANSACTION RELATING THERETO; THE PARTIES SHALL
RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE
LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
(C) 1984 American Industrial Real Estate Association INITIALS:_____
_____
FULL SERVICE--GROSS
PAGE 14 OF 14 PAGES
<PAGE> 15
<TABLE>
<S> <C>
LESSOR LESSEE
Akira Industries Co., Ltd. International Aircraft Investors
- ------------------------------------ ---------------------------------
By /s/ Timothy Manclark By /s/ Michael P. Grella
---------------------------------- -------------------------------
Timothy Manclark
Its Manager Its President
--------------------------------- ------------------------------
By By /s/ William Lindsey
---------------------------------- -------------------------------
Its Its Chairman
--------------------------------- -----------------------------
Executed at Executed at 3655 Torrance Blvd.
------------------------- Suite 410, Torrance, CA
on February 18, 1993 on 2/16/93
---------------------------------- Address 3655 Torrance Blvd., #410,
Address 160 Selandia Lane, Carson, CA Torrance, CA
------------------------------ ----------------------------------
</TABLE>
FULL SERVICE--GROSS
PAGE 15 OF 14 PAGES
For these forms write or call the American Industrial Real
Estate Association, 350 South Figueroa Street, Suite 275, Los Angeles, CA
90071, (213) 687-8777.
1984 By American Industrial Real Estate Association. All rights reserved. No
part of these words may be reproduced in any form without
permission in writing.
<PAGE> 16
RULES AND REGULATIONS FOR
STANDARD OFFICE LEASE
[Logo]
Dated: December 22, 1992
By and Between Akira Industries Co., Ltd. (LESSOR) and International
Aircraft Investors (LESSEE)
GENERAL RULES
1. Lessee shall not suffer or permit the obstruction or any Common Areas,
including driveways, walkways and stairways.
2. Lessor reserves the right to refuse access to any persons Lessor in
good faith judges to be a threat to the safety, reputation, or property of the
Office Building Project and its occupants.
3. Lessee shall not make or permit any noise or odors that annoy or
interfere with other lessees or persons having business within the Office
Building Project.
4. Lessee shall not keep animals or birds within the Office Building
Project and shall not bring bicycles, motorcycles or other vehicles into areas
not designated as authorized for same.
5. Lessee shall not make, suffer or permit litter except in appropriate
receptacles for that purpose.
6. Lessee shall not alter any lock or install new or additional locks or
bolts.
7. Lessee shall be responsible for the inappropriate use of any toilet
rooms, plumbing or other utilities. No foreign substances of any kind are to
be inserted therein.
8. Lessee shall not deface the walls, partitions or other surfaces of the
premises or Office Building Project.
9. Lessee shall not suffer or permit any thing in or around the Premises
or Building that causes excessive vibration or floor loading in any part of the
Office Building Project.
10. Furniture, significant freight and equipment shall be moved into or
out of the building only with the Lessor's knowledge and consent, and subject
to such reasonable limitations, techniques and timing, as may be designated by
Lessor. Lessee shall be responsible for any damage to the Office Building
Project arising from any such activity.
11. Lessee shall not employ any service or contractor for services or work
to be performed in the Building, except as approved by Lessor.
12. Lessor reserves the right to close and lock the Building on Saturdays,
Sundays and legal holidays, and on other days between the hours of 8 P.M.
and 7 A M. of the following day. If Lessee uses the Premises during such
periods, Lessee shall be responsible for securely locking any doors it may have
opened for entry.
13. Lessee shall return all keys at the termination of its tenancy and
shall be responsible for the cost or replacing any keys that are lost.
14. No window coverings, shades or awnings shall be installed or used by
Lessee
15. No Lessee, employee or invites shall go upon the roof of the Building.
16. Lessee shall not suffer or permit smoking or carrying of lighted
cigars or cigarettes in areas reasonably designated by Lessor or by applicable
governmental agencies as non-smoking areas.
17. Lessee shall not use any method of heating or air conditioning other
than as provided by Lessor.
18. Lessee shall not install, maintain or operate any vending machines
upon the Premises without Lessor's written consent.
19. The Premises shall not be used for lodging or manufacturing, cooking
or food preparation.
20. Lessee shall comply with all safety, fire protection and evacuation
regulations established by Lessor or any applicable governmental agency.
21. Lessor reserves the right to waive any one of these rules or
regulations, and/or as to any particular Lessee, and any such waiver shall not
constitute a waiver of any other rule or regulation or any subsequent
application thereof to such Lessee.
22. Lessee assumes all risks from theft or vandalism and agrees to keep
its Premises locked as may be required.
23. Lessor reserves the right to make such other reasonable rules and
regulations as it may from time to time deem necessary for the appropriate
operation and safety of the Office Building Project and its occupants. Lessee
agrees to abide by these and such rules and regulations.
PARKING RULES
1. Parking areas shall be used only for parking by vehicles no longer than
full size, passenger automobiles herein called "Permitted Size Vehicles"
Vehicles other than Permitted Size Vehicles are herein referred to as
"Oversized Vehicles"
2. Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers, or
invitees to be loaded, unloaded, or parked in areas other than those designated
by Lessor for such activities.
(C) 1984 American Industrial Real Estate Association INITIALS:_____
_____
FULL SERVICE--GROSS
EXHIBIT B
PAGE 1 OF 2 PAGES
<PAGE> 17
3. Parking stickers or Identification devices shall be the property of
Lessor and be returned to Lessor by the holder thereof upon termination of the
holder's parking privileges. Lessee will pay such replacement charge as is
reasonably established by Lessor for the loss of such devices.
4. Lessor reserves the right to refuse the sale of monthly identification
devices to any person or entity that willfully refuses to comply with the
applicable rules, regulations, laws and/or agreements.
5. Lessor reserves the right to relocate all or a part of parking spaces
from floor to floor, within one floor, and/or to reasonably adjacent offsite
locations, and to reasonably allocate them between compact and standard size
spaces, as long as the same complies with applicable laws, ordinances and
regulations.
6. Users of the parking area will obey all posted signs and park only in
the areas designated for vehicle parking.
7. Unless otherwise instructed, every person using the parking area is
required to park and lock his own vehicle. Lessor will not be responsible for
any damage to vehicles, injury to persons or loss of property, all of which
risks are assumed by the party using the parking area.
8. Validation, if established, will be permissible only by such method or
methods as Lessor and/or its licensee may establish at rates generally
applicable to visitor parking.
9. The maintenance, washing, waxing or cleaning of vehicles in the parking
structure or Common Areas is prohibited.
10. Lessee shall be responsible for seeing that all of its employees,
agents and invitees comply with the applicable parking rules, regulations, laws
and agreements.
11. Lessor reserves the right to modify these rules and/or adopt such
other reasonable and non-discriminatory rules and regulations as it may deem
necessary for the proper operation of the parking area.
12. Such parking use as is herein provided is intended merely as a license
only and no bailment is intended or shall be created hereby.
(C) 1984 American Industrial Real Estate Association INITIALS:_____
_____
FULL SERVICE--GROSS
EXHIBIT B
PAGE 2 OF 2 PAGES
<PAGE> 18
AMENDMENT TO LEASE
This Amendment is part of a certain Standard Office Lease-Gross Agreement dated
December 22, 1992 ("the Lease") between Akira Industries Co., Ltd. ("Lessor")
and International Aircraft Investors, (currently a Lessee in Suite 410)
("Lessee") for the office building located at 3655 Torrance Boulevard,
Torrance, California. Said Lease is hereby modified, supplemented and amended
as follows:
1. Lessor will provide Lessee a new four (4) year lease term which
commences February 1st, 1995.
2. Lessee's new base rent for the initial two (2) years of the lease is
one-thousand, seven-hundred five dollars and no cents ($1,705.00).
Lessee's base rent will increase at the beginning of the third (3rd)
year to one-thousand, eight-hundred forty-one dollars and forty cents
($1,841.40).
Except as otherwise hereinabove provided, the Lease remains in full force and
effect and unmodified.
AKIRA INDUSTRIES CO., LTD. ("LESSOR") INTERNATIONAL AIRCRAFT INVESTORS,
A CALIFORNIA CORPORATION ("LESSEE")
By: /s/ M. Nakajima By: /s/ Rick Hammond
--------------------------------- ---------------------------------
Mr. Nakajima Rick Hammond
Its: General Manager Its: CFO
--------------------------------- --------------------------------
Date: 1/20/95 Date: 1/18/95
-------------------------------- -------------------------------
<PAGE> 1
EXHIBIT 11
INTERNATIONAL AIRCRAFT INVESTORS
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION> Years Ended December 31,
----------------------------------------
1994 1995 1996
------------- ------------ -------------
<S> <C> <C> <C>
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,069,354 $ 870,711 $ 1,035,260
============= ============ ============
Weighted average common shares outstanding . . . . . . . . . . . . . . . 215,000 215,000 315,000
Weighted average common stock equivalents:
Stock options determined using the treasury stock method . . . . . . 1,910,452 1,910,452 1,865,096
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 . . . . 7,766,452 7,766,452 7,821,096
============= ============ ============
Net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.14 $ 0.11 $ 0.13
============= ============ ============
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 4,483,285 4,383,285
Weighted average exercise price . . . . . . . . . . . . . . . . . . 1.05 1.05 1.05
------------- ------------ ------------
$ 4,707,449 $ 4,707,449 4,601,399
============= ============ ============
Calculation of shares that could be repurchased upon exercise of stock
options:
Proceeds upon exercise of options . . . . . . . . . . . . . . . . . $ 4,707,449 $ 4,707,449 4,601,399
Assumed fair market value . . . . . . . . . . . . . . . . . . . . . 1.83 1.83 1.83
------------- ------------ ------------
Shares that could be repurchased . . . . . . . . . . . . . . . . 2,572,833 2,572,833 2,518,189
============= ============ ============
Common stock equivalents for stock options using the treasury stock
method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,910,452 1,910,452 1,865,096
============= ============ ============
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>
1
<PAGE> 2
EXHIBIT 11
INTERNATIONAL AIRCRAFT INVESTORS
COMPUTATION OF SUPPLEMENTAL EARNINGS PER SHARE(1)
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Net income $ 1,035,260
Addback interest expense from reduction of debt from
conversion of stock options, net of income taxes 174,674
--------------
Net income as adjusted $ 1,209,934
==============
Weighted average common shares outstanding 52,500
--------------
Weighted average common stock equivalents:
Exercise Stock options 358,047
Conversion of convertible preferred stock 801,277
Stock options determined using the treasury stock method 169,318
Convertible preferred stock 22,222
Convertible debt 116,667
--------------
Weighted average common and common equivalent
shares outstanding 1,520,030
==============
Net income per share $ 0.80
==============
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 372,498
Weighted average exercise price 6.00
--------------
Proceeds upon conversion $ 2,235,000
==============
Calculation of shares that could be repurchased upon
exercise of stock options:
Proceeds upon exercised of options $ 2,235,000
Assumed fair market value 11.00
--------------
Shares that could be repurchased 203,182
==============
Common stock equivalents for stock options using the
treasury stock method 169,318
==============
Detailed calculation of shares issuable for the assumed
conversion of convertible preferred stock:
Convertible preferred stock considered to be common
stock equivalents 22,222
--------------
Conversion ratio one for one
--------------
Common stock equivalents for convertible preferred stock 22,222
==============
Detailed calculation of shares issuable from the assumed
conversion of convertible debt:
Convertible debt considered to be common stock
equivalents $ 700,000
Conversion ratio six for one
Common stock equivalents for convertible debt 116,667
--------------
116,667
==============
</TABLE>
(1) See note 10 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
March 3, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,174,369
<SECURITIES> 0
<RECEIVABLES> 12,106
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,146,010
<PP&E> 108,736,974
<DEPRECIATION> 18,852,000
<TOTAL-ASSETS> 92,619,587
<CURRENT-LIABILITIES> 45,355,006
<BONDS> 0
0
49,410
<COMMON> 3,150
<OTHER-SE> 5,030,981
<TOTAL-LIABILITY-AND-EQUITY> 92,619,587
<SALES> 0
<TOTAL-REVENUES> 13,452,126
<CGS> 0
<TOTAL-COSTS> 6,102,478
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,277,388
<INCOME-PRETAX> 1,072,260
<INCOME-TAX> 37,000
<INCOME-CONTINUING> 1,035,260
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,035,260
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
