As filed with the Securities and Exchange Commission
on February 21, 1997
Registration No. __________
- -----------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
Under
The Securities Act of 1933
AEROCENTURY FUND IV, INC.
A California Corporation
(Exact name of registrant as specified in its charter)
1440 Chapin Avenue, Suite 310
Burlingame, California 94010
(415) 696-3900
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
Neal D. Crispin
1440 Chapin Avenue, Suite 310
Burlingame, California 94010
(415) 696-3900
(Address, including zip code, and telephone number, including
area code, of agent for service)
Copy to:
Stephen C. Ryan, Esq.
Stephen C. Ryan & Associates
115 Sansome Street, Suite 400
San Francisco, California 94104
Approximate date of commencement of proposed sale to the public:
As soon as practical after the effective date of this
Registration Statement
If any of the securities being registered on this Form
are to be offered on a delayed or continuing basis
pursuant to Rule 415
under the Securities Act of 1933 check the following box [ X ]
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
- ------------------------------------
CALCULATION OF REGISTRATION FEE
Title of each class of additional Amount being Maximum
offering Maximum Amount of
securities being registered registered price per Unit
aggregate registration
offering price fee
- -----------------------------------------------------------------
- ------------------------------------
<S> <C> <C>
<C> <C>
10% Secured Promissory Notes $10,000,000 $1,000
$10,000,000 $3030.30
</TABLE>
The registrant hereby amends this registration statement
on such date or dates as may be necessary to delay its effective
date until the registrant shall file a further amendment which
specifically states that this registration statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement
shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
PROSPECTUS
AEROCENTURY FUND IV, INC.
10% SECURED PROMISSORY NOTES
Due April 30, 2005
$10,000,000
AeroCentury Fund IV, Inc., a California corporation (the
"Company") is hereby offering up to $10,000,000 in 10% Secured
Promissory Notes ("Notes"). Each Note shall be issued at a price
of $1,000 and will mature on April 30, 2005, unless such maturity
date is extended for up to six months at the option of the
Company. The Notes will bear simple interest at an annual rate of
10% per annum (See "DESCRIPTION OF THE COMPANY'S SECURITIES--THE
NOTES").
The Company's only business will be to acquire income producing
assets ("Income Producing Assets"). The Company anticipates that
these assets will consist mainly of aircraft, aircraft engines,
aircraft parts or other aircraft equipment (collectively
"Equipment") subject to operating or full payout leases
("Leases") with third parties. (See "BUSINESS OF THE COMPANY").
The Notes will be secured by a first priority security interest
in the Income Producing Assets purchased using the Note proceeds
and any assets purchased using resale proceeds or income received
therefrom (collectively, the "Collateral").
The offering will terminate on May 1, 1999, unless sooner
terminated by the Company, in its sole discretion (See "PLAN OF
DISTRIBUTION"). However, if a minimum of $500,000 in aggregate
purchase price of the Notes has not been subscribed for within
twelve (12) months after the effective date of the offering, the
offering will be terminated and the escrowed funds, plus any
interest earned thereon, will promptly be returned to investors.
THESE ARE SPECULATIVE SECURITIES. THE SECURITIES OFFERED HEREBY
INVOLVE A HIGH DEGREE OF RISK (SEE "RISK FACTORS"). THESE
SECURITIES HAVE NOT BEEN APPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR THE
ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE NOTES OFFERED HEREBY WILL NOT BE LISTED ON ANY SECURITIES
EXCHANGE AND THERE CAN BE NO ASSURANCE THAT SUCH SECURITIES CAN
BE RESOLD OR THAT THERE WILL BE A SECONDARY MARKET FOR SUCH
SECURITIES.
Brokers' Commissions(2)
and Proceeds to
Price to Public(1) Other Offering Expenses(3)
Company
Per Note $1,000 $80
$920
Total Minimum $500,000 $40,000
$460,000
Total Maximum $10,000,000 $800,000
$9,200,000
(Footnotes on following page)
THE DATE OF THIS PROSPECTUS IS FEBRUARY 21, 1997
<PAGE>
(Footnotes from cover page)
(1) The Notes are issuable in denominations of $1,000 and
integral multiples thereof, subject to a minimum purchase by
each investor of $5,000. However, for Individual Retirement
Accounts ("IRAs") the minimum purchase shall be $2,000.
Investor funds will be held in an interest-bearing escrow
account with First Security Bank, National Association,
until a minimum of $500,000 in aggregate purchase price of
Notes are sold. On or before May 1, 1998 both (i) the
minimum amount of Notes must be subscribed, and (ii) an
initial Income Producing Asset for purchase must be
specified, or the offering will be terminated, and the
escrowed funds, plus any interest earned thereon, will be
promptly returned to the investors by the escrow agent. Upon
reaching the Minimum Offering Amount of $500,000, the
escrowed funds may be released to the Company. Any
subsequent sales proceeds from Notes will be immediately
available for use by the Company; however, the Company
anticipates that it will accept subsequent subscriptions and
release from escrow proceeds from such subscriptions at
monthly closings until the Termination Date. All
subscriptions are subject to the right of the Company to
reject any subscription in whole or in part.
(2) The Notes are being offered on a "best efforts" basis by
Crispin Koehler Securities ("CKS" or "Sales Agent") and any
other licensed broker-dealers that may be engaged by the
Company and that are members of the National Association of
Securities Dealers, Inc. A "best-efforts" offering means
that the licensed broker-dealers engaged by the Company will
act as the Company's agent to sell the Notes. There is no
obligation on behalf of these licensed broker-dealers to
purchase any of the Notes being offered for the purpose of
resale to the public. The Company has agreed to pay
soliciting broker-dealers, in consideration for their
services, a sales commission of 5.0%. The Company will also
pay to CKS an unallocated due diligence and marketing fee of
1.5% to cover certain marketing and selling expenses, a
portion of which may be reallowed by CKS to certain
participating broker-dealers. The Company has agreed to
indemnify CKS against certain liabilities, including
liabilities under the Securities Act of 1933.
(3) Consists of reimbursement of offering and other expenses
("Organization and Offering Expense Reimbursement") equal to
up to 1.5% payable by the Company to its parent, JetFleet
Management Corp. ("JMC") for miscellaneous costs and
expenses and allocated general administrative and overhead
expenses relating to the offering borne by JMC and for
reimbursement of expenses borne by JMC in connection with
the offering and organization of the Company such as costs
of registration, legal, accounting, printing, trustee fees,
marketing (including advertising and assisting participating
broker-dealers). Such Organization and Offering Expense
Reimbursement in excess of 1.5% will be paid to JMC in the
form of Common Stock of the Company, sold at a price of
$1.00 per share.
The Company has filed a Form SB-2 Registration Statement under
the Securities Act of 1933, as amended, with the Securities and
Exchange Commission (the "Commission") with respect to the Notes
offered pursuant to this Prospectus. This Prospectus, which forms
a part of the Registration Statement, does not contain all of the
information included in the Registration Statement and the
exhibits thereto. For further information, reference is made to
the Registration Statement and amendments thereof and to the
exhibits thereto, which are available for inspection without
charge, via the Internet at the Commission's website at
http://www.sec.gov, and at the office of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and copies of which
may be obtained from the Commission at prescribed rates.
ii
<PAGE>
TABLE OF CONTENTS
WHO MAY INVEST...............................................1
GENERAL--SUITABILITY STANDARDS.......................1
SUMMARY......................................................2
RISK FACTORS.................................................6
INVESTMENT RISKS....................................6
OPERATING RISKS.....................................8
BUSINESS RISKS......................................9
TAX AND ERISA RISKS................................10
TAX OPINION........................................11
CONFLICTS OF INTEREST.......................................13
ESTIMATED USE OF PROCEEDS...................................15
CAPITALIZATION..............................................16
DESCRIPTION OF THE COMPANY'S SECURITIES.....................17
THE NOTES..........................................17
EQUITY SECURITIES..................................19
THE TRUST INDENTURE.........................................20
THE COMPANY.................................................22
BUSINESS OF THE COMPANY.....................................23
ACQUISITION POLICIES...............................23
LEASES.............................................26
LESSEES............................................28
REMARKETING........................................29
REGULATORY CONCERNS................................30
MANAGEMENT..................................................32
THE MANAGEMENT COMPANY AND ITS AFFILIATES...................34
THE MANAGEMENT COMPANY.............................34
TABLE OF COMPENSATION TO MANAGEMENT COMPANY AND
ITS AFFILIATES...................................37
THE JETFLEET PROGRAMS..............................39
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT..................................................40
MANAGEMENT DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION OF THE COMPANY..........................41
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS...................43
PLAN OF DISTRIBUTION........................................49
SALES MATERIAL..............................................50
iii
<PAGE>
LIQUIDITY OF NOTES..........................................50
EXPERTS.....................................................50
LEGAL MATTERS...............................................51
AVAILABLE INFORMATION.......................................51
REPORTS TO SECURITY HOLDERS.................................51
GLOSSARY....................................................52
INDEX TO FINANCIAL STATEMENTS...............................F-1
APPENDIX A--PRIOR PERFORMANCE TABLES OF JETFLEET IIIS.......A-1
iv
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WHO MAY INVEST
GENERAL--SUITABILITY STANDARDS
Each investor must have either (i) a net worth
(exclusive of principal residence, furnishings and automobiles)
of more than $50,000 and must anticipate that for the current
year, the investor will have gross income of $50,000 or more; or
(ii) have a net worth (exclusive of principal residence,
furnishings and automobiles) of more than $100,000. Each partner
or a general partnership or owner of another type of entity
making investment must meet the financial suitability
requirements prescribed above. A qualified pension,
profit-sharing or Keogh employee plan, the fiduciary for such
plan, or the donor of any such plan who directly or indirectly
supplies the funds to make an investment must meet the minimum
financial suitability standards set forth herein.
Investors in certain states may be subject to certain
higher suitability standards described below. The Company will
rely upon investors' representations made through their
broker-dealers that the general suitability standards and any
additional standards imposed by blue-sky regulators are
satisfied. These additional suitability standards are imposed in
order to meet certain state securities law requirements.
Subscriptions will not be accepted from any investor under any
circumstances unless the selling broker-dealer represents that it
reasonably believes that the investor meets those standards. The
Company may require before accepting a subscription that the
investor provide written confirmation that the investor does
indeed meet the suitability standards described below.
Investors subscribing for Notes should give careful
consideration to certain risk factors and other special
considerations described under "Risk Factors," including, among
other things, the lack of liquidity and the resulting long-term
nature of an investment in the Notes. The only persons who should
subscribe for Notes are those who have adequate financial means,
apart from the funds invested in Notes, to assume such risks and
to provide for their current needs and personal contingencies and
who can afford to bear the full loss of, and who have no need for
liquidity with respect to, their investment. Transfer of Notes is
restricted. See "LIQUIDITY OF THE NOTES." By subscribing for the
Notes, the Subscribers will become bound by and subject to all
the terms and provisions of the Trust Indenture with respect to
the issuance of the Notes and the rights of Noteholders against
the Company and the Trustee, and all of the terms and conditions
of the Notes described in this Prospectus.
If any state establishes suitability standards or
minimum dollar amounts of investment that differ from those set
forth in the preceding paragraph, investors in those states will
be notified by supplement to this Prospectus.
The following states have required suitability
requirements for investors in those states:
California: Either (i) net worth, exclusive of home,
home furnishings and automobiles of at least $65,000 and an
annual gross income of at least $100,000, or (ii) a net worth,
exclusive of home, home furnishings and automobiles of at least
$250,000.
THE SUITABILITY STANDARDS DISCUSSED ABOVE REPRESENT MINIMUM
SUITABILITY STANDARDS FOR PROSPECTIVE INVESTORS. EACH PROSPECTIVE
INVESTOR SHOULD DETERMINE WHETHER AN INVESTMENT IN THE COMPANY IS
APPROPRIATE IN SUCH INVESTOR'S PARTICULAR CIRCUMSTANCES.
THE COMPANY HAS THE UNCONDITIONAL RIGHT TO REJECT ANY
SUBSCRIPTION, IN WHOLE OR IN PART.
1
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY MORE
DETAILED INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE
IN THIS PROSPECTUS. PROSPECTIVE PURCHASERS OF THE NOTES SHOULD
READ THE ENTIRE PROSPECTUS BEFORE MAKING A DECISION TO INVEST.
THE SECURITIES OFFERED IN THIS PROSPECTUS SHOULD BE CONSIDERED A
SPECULATIVE INVESTMENT AND PROSPECTIVE INVESTORS SHOULD CONSIDER
CAREFULLY THE RISK FACTORS SET FORTH IN THE SECTION OF THIS
PROSPECTUS ENTITLED "RISK FACTORS."
THE COMPANY
AeroCentury Fund IV, Inc., a California corporation, is a newly
organized single-purpose corporation. The Company was organized
to acquire Income Producing Assets. The Company was incorporated
under the laws of the State of California in February 1997. The
Company's principal executive offices are located at 1440 Chapin
Avenue, Suite 310, Burlingame, California 94010, and its
telephone number is (415) 696-3900 (See "THE COMPANY").
INVESTMENT OBJECTIVES
The Company will use the proceeds of the Offering of Notes to
purchase Income Producing Assets, which assets may be Equipment
or Financial Assets related to Equipment. The revenue generated
from the Income Producing Assets will be used to fund interest
payments on the Notes, reinvestment in additional Income
Producing Assets and, after April 30, 2003, deposits to a sinking
fund account established to facilitate repayment of principal of
the Notes on their maturity (or such earlier time if the Company
decides to make prepayments on the principal of the Notes). At
the Maturity Date of the Notes, the Company will pay off the
outstanding principal using proceeds of the resale of the Income
Producing Assets purchased using the Note proceeds, the funds in
the Sinking Fund Account and/or proceeds of a third-party lender
refinancing.
THE INCOME PRODUCING ASSETS
The Company's only business will be to acquire income producing
assets ("Income Producing Assets"). The Company anticipates that
these assets will consist mainly of aircraft, aircraft engines,
aircraft parts (collectively, "Equipment") subject to
operating or full payout leases ("Leases") with third parties
("Lessees"). The Company may also, however, acquire
indebtedness (for example, promissory notes) secured by
Equipment and/or leases therefor, or income streams from
Leases (collectively referred to as "Financial Assets").
The Company has not at this time identified a particular
asset for acquisition, but any asset purchased by the
Company must comply with certain acquisition guidelines set forth
in this Prospectus. The Company anticipates that it, like
JetFleet Aircraft, L.P. ("JetFleet I"), JetFleet Aircraft II,
L.P. ("JetFleet II") and JetFleet III, prior equipment
syndication programs affiliated with the Company (collectively,
the "JetFleet Programs"), will focus primarily on the acquisition
of turbo-prop aircraft, but the Company's acquisition policies
will not restrict the Company with respect to the Income
Producing Assets it may acquire (See "BUSINESS OF THE
COMPANY--ACQUISITION POLICIES").
2
<PAGE>
OFFERING AMOUNT AND ESCROW
Up to $10,000,000 in aggregate purchase price of Notes. Investor
funds will be held in an interest-bearing escrow account until
subscriptions for $500,000 of the Notes have been received (See
"PLAN OF DISTRIBUTION"). Any subsequent sales proceeds from Notes
will be immediately available for use by the Company; however,
the Company anticipates that it will accept subsequent
subscriptions and release from escrow proceeds from such
subscriptions at monthly closings until the Termination Date.
DENOMINATIONS
The Notes will be issued in fully registered form in
denominations of $1,000 and integral multiples thereof, subject
to a minimum purchase by each investor of at least $5,000, or in
the case of Individual Retirement Accounts (IRAs) a minimum
purchase of $2,000.
DESCRIPTION OF THE NOTES
General
Each Note will accrue simple interest at a simple interest rate
of 10% per annum on the principal amount. All principal and
interest due under all the Notes will be due on the same maturity
date (the "Maturity Date") which shall be April 30, 2005, unless
extended for up to six months at the sole discretion of the
Company. (See "DESCRIPTION OF THE COMPANY'S SECURITIES -- The
Notes")
Interest Payment
Interest will be calculated quarterly. Interest is due and
payable on the 1st day of each February, May, August and November
(or the next Business Day following such date, if the 1st falls
on a day other than a Business Day) for interest accrued in the
prior calendar quarter. Principal and all accrued and unpaid
interest will be due on the Maturity Date. The record date for
each payment or compounding of interest on the Notes is the close
of business on the 15th of the month prior to the calendar month
in which such payment date occurs for that payment.
Collateral Securing the Notes
The Company's obligations under the Notes will be recourse
obligations of the Company secured by a security interest in all
of the Company's right, title and interest in the Income
Producing Assets acquired by the Company using the net offering
proceeds of this Offering, and any proceeds of such Income
Producing Assets (collectively, the "Collateral").
Prepayment
The Company, in its sole discretion, may prepay all or any
portion of the outstanding principal under the Notes on a
pro-rata basis from all Noteholders beginning May 1, 2000.
3
<PAGE>
The Trust Indenture
The Notes will be issued pursuant to a Trust Indenture between
the Company and First Security Bank, National Association, as
Indenture Trustee. The Trust Indenture sets forth certain rights
of the Indenture Trustee against the Company for the benefit of
the Noteholders should the Company default on its obligations
under the Notes. In addition, the Trust Indenture requires the
establishment of a sinking fund account from which repayment of
the outstanding principal of the Notes will be partially funded.
Upon an Event of Default (as defined in the Trust Indenture) with
respect to the Notes, the Trustee has certain remedies against
the Company, including acceleration of all Note indebtedness
and/or foreclosure upon and sale of the Collateral.
The Sinking Fund Account
Beginning May 1, 2003, all net cash flow of the Company with
respect to the Collateral and all net resale proceeds of the
Collateral will be transferred to a trust account controlled by
the Trustee (the "Sinking Fund Account") and retained by the
Trustee for payment of a portion of the principal outstanding
under the Notes.
THE MANAGEMENT AGREEMENT
The Income Producing Asset portfolio and the leases for Equipment
will be managed and administered on behalf of the Company under
the terms of a Management Agreement between the Company and
JetFleet Management Corp. ("JMC"). JMC is a California
corporation formed in January 1994, and whose principal offices
are located at 1440 Chapin Avenue, Suite 310, Burlingame,
California 94010. JMC is obligated pursuant to the Management
Agreement, subject to the limitations set forth therein, to
provide its services with regard to managing the Company's Income
Producing Asset portfolio and administering the Leases for
Equipment on behalf of the Company. Under the Management
Agreement, so long as the Company remains in existence, on the
last day of each calendar quarter, JMC shall receive a quarterly
management fee equal to 0.5% of the Aggregate Gross Offering
Proceeds received by the Company up through the last day of such
calendar quarter. In addition, JMC and/or its affiliates will be
reimbursed for certain accountable expenses paid to unaffiliated
third parties by JMC in connection with the administration and
management of the Company (See "MANAGEMENT" and TABLE OF
COMPENSATION TO MANAGEMENT COMPANY AND ITS AFFILIATES").
JMC is an integrated aircraft management, marketing and financing
business. In addition to its activities in connection with the
sponsoring of investment entities such as the Company, JMC is or
will be engaged in the following activities: (i) Asset
Management--Asset management involves several activities:
remarketing owned aircraft, lease origination, and buying and
selling assets; (ii) Aircraft Marketing--JMC supports the
acquisition and remarketing of its existing base of assets
managed and leased; and provides a profitable remarketing and
sales service to unaffiliated owners, lessors, and lessees of
aircraft; and (iii) Aircraft Financing--JMC is engaged in
financing assets that are difficult to finance utilizing
conventional bank lending techniques.
TAX MATTERS
4
<PAGE>
The Notes will be treated as corporate indebtedness, and interest
paid or any accrued thereon (arising out of any original issue
discount) will be taxable to non-tax exempt Noteholders. (See
"CERTAIN FEDERAL INCOME TAX CONSIDERATIONS")
USE OF PROCEEDS
Net proceeds of approximately $9,200,000 (assuming the maximum
offering amount is received) will be used for the purchase of
Income Producing Assets (See "ESTIMATED USE OF PROCEEDS").
RISK FACTORS
An investment in the Note entails certain risks, including risks
inherent in investment in debt securities, risks related to an
investment in the Company and risks related to the aircraft
leasing industry (See "RISK FACTORS").
PLAN OF DISTRIBUTION
The Notes will be sold on a "best efforts" basis by Crispin
Koehler Securities, and by other participating broker-dealers
that are qualified to offer and sell the Notes in a particular
state as engaged by CKS and the Company and that are members of
the National Association of Securities Dealers (See "PLAN OF
DISTRIBUTION").
LIQUIDITY OF NOTES
There is no established trading market for the Notes, and the
Notes will not be listed on any securities exchange. The Sales
Agent has advised the Company that they may from time to time
purchase and sell Notes on the secondary market, as permitted by
applicable laws and regulations, and in accordance with Rule
15(c)(2)-11 under the Exchange Act. The Company anticipates that
other members of the selling group may also engage in such
activities. Neither will be obligated, however, to make any such
purchases and sales and each, in its sole discretion, may
discontinue any such purchases and sales any time without notice
to any party. There can be no assurance that there will be
secondary market for the Notes or liquidity in the secondary
market if one develops. Furthermore, resale of the Notes may be
restricted under the securities laws of certain states.
5
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE NOTES INVOLVES A HIGH DEGREE OF RISK, AND,
THEREFORE, SHOULD BE CONSIDERED EXTREMELY SPECULATIVE. NOTES
SHOULD NOT BE PURCHASED BY PERSONS WHO CANNOT AFFORD THE
POSSIBILITY OF THE LOSS OF THE ENTIRE INVESTMENT. IN CONSIDERING
A PURCHASE OF THESE SECURITIES, PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER, AMONG OTHER FACTORS, THE RISKS INVOLVED,
INCLUDING THE FOLLOWING (NOT NECESSARILY PRESENTED IN THE ORDER
OF MAGNITUDE OF RISK):
INVESTMENT RISKS
Risks arise because an investment in the Company is the
purchase of a debt security.
1. Lack of Diversification. The maximum offering
amount under this offering is $10,000,000, but the minimum
offering amount is $500,000. To the extent that the Company sells
less than all of the Notes, the number of different Income
Producing Assets in which it will invest will be reduced. This
reduction in diversification may increase the risks of an
investment in the Notes, since the payment of the Notes will be
recourse only to Income Producing Assets. If only the Minimum
Offering is achieved, the Company may acquire only a single item
of Equipment or an interest in such (See "BUSINESS OF THE
COMPANY--Acquisition Policies" and "ESTIMATED USE OF PROCEEDS").
2. Noteholders' Limited Rights. Noteholders will
have no right to take part in the management or control of the
business of the Company, and have only those rights as set forth
in the Trust Indenture. Consequently, the purchasers of Notes
must be willing to entrust all aspects of management and control
of the Company to the officers and directors of the Company and
to JMC, in its capacity as the management company (See "THE TRUST
INDENTURE" and "DESCRIPTION OF THE COMPANY'S SECURITIES").
3. Compensation to the Management Company and Its
Affiliates. The Management Company and its Affiliates will
receive fees and other compensation from the Company, much of
which will be payable regardless of the profitability of the
Company's operations. In order to enable the Company to make its
required payments under the Notes, the Company must generate
revenues from operations and sales proceeds in excess of the sum
of (a) the amount of the fees and other compensation payable to
the Management Company and its Affiliates as well as (b) the
amount of Purchase Price and other costs of the assets it
acquires (See "TABLE OF COMPENSATION TO MANAGEMENT COMPANY AND
ITS AFFILIATES" and "CONFLICTS OF INTEREST--Compensation Payable
to JMC").
4. Liquidity of Notes--No Trading Market. There is
no established trading market for the Notes, and none is likely
to develop, and the Notes will not be listed on any securities
exchange. The Sales Agent has advised the Company that it may
from time to time purchase and sell Notes in the secondary
market, as permitted by applicable laws and regulations, and in
accordance with Rule 15(c)(2)-11 under the Exchange Act. The
Company anticipates that other members of the selling group may
also engage in such activities. Neither will be obligated,
however, to make any such purchases and sales and each, in its
sole discretion, may discontinue any such purchases and sales any
time without notice to any party. Furthermore, resale of the
Notes may be restricted under the securities laws of certain
states.
5. Sole Source of Payment on the Notes. The only
source of payment on the Notes available shall be the rentals or
other income received from the leases or proceeds from the resale
of the Collateral acquired by the Company. No other entity or
person is guaranteeing the obligation of the Company to pay the
principal and interest due on the Notes. (See "MANAGEMENT
DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION OF THE
COMPANY--Liquidity and Capital Resources").
6. Sale of Assets to Cure Payment Default. The
Company and/or the Indenture Trustee have certain authority to
sell Income Producing Assets of the Company in the event that the
Company fails to make
6
<PAGE>
a required interest payment within 90 days of its due date. Under
certain circumstances, the Company is authorized under the Trust
Indenture to sell Income Producing Assets and apply those
proceeds toward the overdue interest payment (See "THE TRUST
INDENTURE--Events of Default"). Any sale of Income Producing
Assets to cure a default in payment of interest would decrease
the amount of Income Producing Assets of the Company that are
available to generate income for repayment of the Notes and are
eventually liquidated by the Company to repay the Note principal.
Thus, such early sales may make it more difficult to meet its
obligation to make future interest payments and/or pay off the
Note principal at the Maturity Date.
7. Prepayment on Note by Company. Though the Notes
have an approximate eight year term, the Company may, in its sole
discretion, prepay principal due under the Notes at any time
beginning May 1, 2000 (See "DESCRIPTION OF THE COMPANY'S
SECURITIES--THE NOTES"). Thus, investors who are seeking interest
income may need to reinvest the prepaid principal in other
investments after such prepayment. There is no assurance that
other investments with comparable yields to the Notes will be
available at the time of the Company's prepayment.
8. Collections; Return on Leases; Residual Value of
Equipment. The Company intends to meet its obligations on the
Notes by acquiring Income Producing Assets. The revenue from such
assets and the resale proceeds of the assets will be the source
for repayment of the Notes. The current monthly yield earned by
JetFleet III, the most recently sponsored affiliated program on
its portfolio of assets is 1.50% (See "THE MANAGEMENT COMPANY AND
ITS AFFILIATES").
As an example, in order to repay the Notes in full at
the Maturity, if the Company has a monthly average yield of 1.50%
on its Income Producing Assets over the term of the Notes, the
acquired Income Producing Assets would have to have a residual
value at the maturity of the Note equal to 70% of its original
purchase price. To the extent that the rental yield on Income
Producing Assets is higher, the residual value required to be
attained on the Company's assets in order for the Company to meet
its obligations under the Notes will be lower than 70% and vice
versa.
As a consequence of the foregoing, the Company will
endeavor to choose a portfolio of Assets whose net rental
payments and the resale proceeds, after deduction of Allowed
Expenses, would be sufficient to make the required payments on
the Notes. Nevertheless, the actual rental return rates for the
Company's Equipment over the term of the Notes are impossible to
predict precisely. If the initial lease rental is not collected
as expected by the Company, or the re-lease rental or resale
proceeds are not consistent with anticipated values for the
Equipment, the Company's ability to make the required payments on
the Notes would be adversely affected.
9. Sufficiency of Sinking Fund. Beginning May 1,
2003, the Company will transfer all Net Cash Flow and all Net
Resale Proceeds from the Collateral to the Sinking Fund Account.
Such proceeds will be retained by the Trustee in the Sinking Fund
Account to partially fund repayment of the principal of the Notes
at maturity on November 1, 2003. The remainder of the repayment
of the Note principal amount is expected to be from the resale
proceeds of the Equipment or Financial Assets. Consequently, it
is anticipated the Company will be unable to repay principal owed
under the Notes solely from the Sinking Fund Account at the
Maturity Date (See "DESCRIPTION OF THE COMPANY'S SECURITIES--THE
NOTES--The Sinking Fund Account").
10. Sufficiency of Collateral. If the Company
defaults on the Notes, the Trustee, on behalf of the Noteholders,
will be entitled to foreclose on the Collateral which secures the
Notes. There is no assurance that the value of the Collateral
will be sufficient to satisfy any such claims of Noteholders, or
that the Collateral will not be subject to claims of other
creditors of the Company, some of which may be senior in priority
to the Noteholders, such as holders of mechanics' or tax liens.
11. Status of Noteholders in Bankruptcy Proceeding.
The obligation of the Company to pay principal and interest under
the Notes will be secured by the Collateral, and the Company
believes that the Notes should be considered Company debt for all
purposes. There can be no assurance, however, that in a
bankruptcy proceeding the rights of Noteholders would not be
characterized as an equity interest such that other creditors of
the Company, whether secured or unsecured, would take priority
over such Noteholders' claims.
7
<PAGE>
12. Notes Unrated. The Notes are not rated by any
public or private credit rating agency. The Company has no credit
history or rating. While the Trust Indenture provides for the
creation and funding of a sinking fund, there is no assurance
that deposits to the sinking fund will be adequate, when added to
Income Producing Asset resale proceeds, to repay the principal
due under the Notes. The ability to repay the principal and
interest of the Notes will be dependent on the success of the
Company's acquisition, leasing and remarketing operations with
respect to the Income Producing Assets (See "THE BUSINESS OF THE
COMPANY").
13. Usury. Various states place a ceiling on the
amount of interest which may be earned on obligations such as the
Notes. The Company believes that the determination of the amount
of interest which may be charged by a Noteholder under the Note
will be governed primarily by the California usury law. Assuming
the Company will qualify the Notes for issuance under the
California Corporations Code, the Notes will be exempt from the
usury limitations under California law. Although the Company
intends for California law to apply to the Notes, it is not
always clear as to whether the state of residence of a
non-California investor would apply in a particular transaction
and it is possible that in such a case, the usury law of some
other state might be deemed to apply to the loan transaction. In
any event, the Company has made a covenant in the Trust Indenture
that it will not assert usury as a defense to payment in any
litigation regarding the Notes. It is unclear, however, if this
covenant would be enforceable were the Company to enter into
bankruptcy or receivership (See "THE TRUST INDENTURE--Usury
Laws").
OPERATING RISKS
Risks of investing in the Notes arise from the
organization, powers and management of the Company.
1. Limited Operating History; Total Reliance on the
Management Company. The Company was formed in February 1997 and
has a limited operating history. All decisions regarding the
selection, purchase, leasing or sale of Income Producing Assets
will be made by JMC. Noteholders will have no right or power to
take part in the management or control of the business of the
Company. Accordingly, investors should not purchase Notes unless
they are willing to entrust all aspects of the management and
control of the Company to JMC. JMC was formed in January 1994 and
JMC manages, on behalf of their respective general partners, the
aircraft assets of the JetFleet Programs, prior programs with
objectives similar to the Company's (See "THE MANAGEMENT COMPANY
AND ITS AFFILIATES").
2. Unspecified Equipment and Financial Assets. It
is not known on the date of this Prospectus what Income Producing
Assets will be acquired by the Company with the proceeds of this
Offering. JMC believes that this lack of current specificity will
provide valuable flexibility to the Company in structuring its
asset portfolio. The Company and its investors must rely upon the
judgment of JMC in selecting from any available assets the
specific Income Producing Assets in which the Company will
purchase interests (See "BUSINESS OF THE COMPANY--ACQUISITION
POLICIES").
3. Decrease in Value of Equipment; Lessee
Creditworthiness. The investors must entrust all aspects of the
management and control of the Company to JMC, including decisions
regarding the assets to be purchased. JMC will consider retention
of resale value and the creditworthiness of the lessee or
payer/obligor under a Financial Asset (a "Payer") in determining
which Income Producing Assets to acquire; however, the risk of
loss in value and default of Payer is inherent in the equipment
leasing business. In addition, there is no assurance that a Payer
that is creditworthy at the time of entering into a lease or
transaction will not experience subsequent financial difficulty
(See "BUSINESS OF THE COMPANY--Leases").
4. Risks of Borrowing. The Company may incur
indebtedness under certain circumstances for a variety of
purposes, including to finance all or a portion of the Purchase
Price of particular asset or to fund refurbishment of Equipment
already owned by the Company. Company indebtedness, if any, may
be in the form of temporary or permanent financing from banks,
institutional or other lenders. Such indebtedness, if secured,
will normally be secured by a security interest in the assets
acquired or refurbished or in all or a portion of the Income
8
<PAGE>
Producing Assets owned by the Company that will be subordinated.
The Company, however, in its sole discretion, upon notice to the
Trustee, may subordinate the Noteholders' lien if a third party
lender is providing acquisition financing to the Company. In such
a case, the Company may grant a senior security interest in the
asset being acquired to the third party lender. Typically, such
subordination of the Noteholders' lien to the third party
financing ("Senior Debt") would mean that upon any distribution
to creditors of the Company in a liquidation or dissolution of
the Company in a bankruptcy, reorganization or similar proceeding
relating to the Company or its property, the holders of the
Senior Debt would be paid first out of the proceeds of any sale
of the Income Producing Asset that is collateral for the Senior
Debt. Furthermore, the Trustee, on behalf of the Noteholders, may
be unable to effectively exercise foreclosure and sale remedies
on the Income Producing Assets that are collateral for both
Senior Debt and the Noteholders' debt, without first obtaining
the consent of the holder of the Senior Debt (See "BUSINESS OF
THE COMPANY--Leverage").
5. Risks of Joint Investments. The Company may
purchase Income Producing Assets on a co-tenancy basis with other
entities. This form of ownership poses additional investment
risks (See "BUSINESS OF THE COMPANY--ACQUISITION
POLICIES--Investments with Other Entities").
6. Conflicts of Interest. An Affiliate of JMC is
the general partner of JetFleet I and JetFleet II, previous
offerings sponsored by Management of JMC, and JMC is the sole
parent of JetFleet III. It is anticipated that, in the future,
JMC or its Affiliates will sponsor other asset leasing programs
as well and engage in other activities that may be in competition
with the operations of the Company. There may be a number of
other situations in which the Company's interests may be
inconsistent with the interests of JMC and its Affiliates (See
"CONFLICTS OF INTEREST").
BUSINESS RISKS
Risks of investing in Notes arise from the nature of the
business in which the Company is to engage.
1. Overview of Risks Associated with Leasing
Equipment. The Company will acquire Equipment subject to
Operating Leases or Full Payout Leases (See "BUSINESS OF THE
COMPANY--ACQUISITION POLICIES--Leases"). The revenues from the
Leases will be the primary source of funds to repay the required
payments due under the Notes prior to maturity and the funds to
be placed in the Sinking Fund Account. In order to achieve its
investment objectives and meet its obligations under the Notes,
the Company must be able to acquire Equipment the initial leases
for which, in combination with any subsequent leases or resale of
the Equipment, would yield a return over and above the Purchase
Prices plus the Company's initial costs and continuing operating
costs. This requires the Company to acquire Equipment subject to
leases with adequate lease payment streams, to re-lease or resell
Equipment for the anticipated release rental or residual value at
the end of the initial lease period and to avoid uncovered costs.
There is no assurance that the Company will be able to achieve
these goals. If Equipment owned by the Company is "off-lease" for
a significant period of time, this could substantially impair the
Company's ability to repay the Notes. Through December 31, 1996,
the assets of JetFleet III experienced no "off-lease" periods;
JetFleet I and JetFleet II experienced an "off-lease" period of
1% and 2%, respectively, calculated on a weighted average basis
(which takes into account the purchase price of all leased assets
and the time each such asset is off lease). There can be no
assurance, however, that the Company will have a similar
off-lease average for Equipment it acquires.
2. Adverse Economic Condition of Air Transport
Industry; Possibility of Decreased Demand for and Decrease in
Value of Equipment. The Company's successful negotiation of lease
extensions, re-leases and sales may be critical to its ability to
achieve its financial objectives, and will involve a number of
substantial risks. Demand for lease or purchase of the Income
Producing Assets depends on the economic condition of the airline
industry, which is currently depressed (See "BUSINESS OF THE
COMPANY--REMARKETING" below). Ability to re-lease or resell
Equipment at acceptable rates may depend on the demand and market
values at the time of re-lease or resale. The Company anticipates
that the bulk of the Equipment it acquires will be used aircraft
equipment. The market for used aircraft is cyclical, with the
demand for and resale value of many types of older aircraft
recently being depressed by such factors as airline financial
difficulties and increased fuel costs, the number of new aircraft
on order and the number of older aircraft coming off lease.
Depression of resale values for particular aircraft is also
increased by the adoption of expensive,
9
<PAGE>
government-mandated maintenance programs for older aircraft. The
Company's expected concentration in a limited number of aircraft
and aircraft engine types subjects the Company to increased
economic risks if those aircraft and aircraft engine types should
decline in value.
3. Unfavorable Lease Terms. The terms of the
particular leases to which the Equipment is subject will be
extremely important in ensuring an adequate lease payment stream
and in limiting uncovered costs. In order to achieve an
acceptable lease rental rate, the Company may agree in return to
accept certain undesirable features, such as relatively short
initial terms or renewal options or repurchase options at rental
rates or sales prices that may be below fair market value at the
time of renewal or sale (See "BUSINESS OF THE COMPANY--LEASES").
4. Defaults by Lessees. The Company will cease to
receive any lease payments if the lessee defaults. JMC has broad
flexibility with regard to the potential lessees that it will
accept on behalf of the Company. There can be no assurance that
the lessee's creditworthiness will not deteriorate or that the
lessee will fully perform its payment obligations under the
lease, particularly in view of the financial difficulties
experienced by a number of airlines following deregulation of the
airline industry (See "BUSINESS OF THE COMPANY--LESSEES").
5. Government Regulation. As discussed in detail
in "BUSINESS OF THE COMPANY --REGULATORY CONCERNS," there are a
number of areas in which government regulation may result in
costs to the Company. These include aircraft registration, safety
requirements, required equipment modifications, and aircraft
noise requirements. Although it is contemplated that the burden
of complying with such requirements will fall primarily upon
lessees of Equipment, there can be no assurance that the cost of
complying with such government regulations will not fall on the
Company. Furthermore, newly enacted government regulations could
cause the value of any non-complying Equipment owned by the
Company to substantially decline.
6. Competition. The aircraft leasing industry is
highly competitive. The Company will compete with aircraft
manufacturers, distributors, airlines and other operators,
equipment managers, leasing companies, equipment leasing
programs, financial institutions and other parties engaged in
leasing, managing or remarketing aircraft, many of which have
significantly greater financial resources and more experience
than the Company (See "BUSINESS OF THE COMPANY--ACQUISITION
POLICIES--General" and "MANAGEMENT DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION OF THE COMPANY--Competition").
7. Risks of Foreign Operations. The Company may
enter into leases for equipment which will be operated and/or
registered in foreign jurisdictions. Such foreign operations and
registration may result in additional risks due to different
regulation of aviation, land transportation, marine vessels,
equipment, foreign taxes, currency risks and seizure of the asset
by the foreign government (See "BUSINESS OF THE
COMPANY--LESSEES").
8. Casualties; Insurance Coverage. The Company, as
owner of transportation equipment could be held liable for
injuries or damage to property caused by its assets. Though some
protection may be provided by the United States Aviation Act with
respect to its aircraft assets, it is not clear to what extent
such statutory protection would be available to the Company.
Though the Company may carry insurance or require a lessee to
insure against a risk, some risks of loss may not be insurable.
An uninsured loss with respect to the Equipment or an insured
loss for which insurance proceeds are inadequate, would result in
a possible loss of invested capital in and any profits
anticipated from such Equipment (See "BUSINESS OF THE
COMPANY--LEASES").
9. Absence of Central Recording System for Certain
Equipment--Possibility of Adverse Liens. Aircraft equipment other
than airframes and aircraft engines attached and leased with an
airframe are not eligible for separate registration with the FAA
under the Aviation Act and therefore are not subject to the same
protection that the central recording system affords owners of
aircraft generally. However, liens against jet engines attached
to aircraft but leased separately may be recorded with the FAA.
Accordingly, the Company intends to record with the FAA a copy of
each separate lease of aircraft engines included in the Company's
Equipment portfolio. In addition, the Company intends to file
notices under the Uniform Commercial Code with respect to any
lease of Equipment.
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<PAGE>
10. Risks Relating To Financial Assets.
Generally,
an investment in Financial Assets will not entail as many risks
as a direct investment in Equipment, but if the Payer defaults
and the Company forecloses on the asset securing the Financial
Asset, the Company may assume ownership of the equipment (See
"BUSINESS OF THE COMPANY--ACQUISITION POLICIES--Financial
Assets"). In such a case, the ability of the Company to make its
anticipated return on the Financial Asset would be subject to the
risks relating to ownership, leasing, resale and remarketing of
Equipment discussed herein with respect to Equipment acquired by
the Company.
TAX AND ERISA RISKS
1. Tax Characterization of the Notes. The Notes
should be characterized as true indebtedness, as opposed to some
form of equity, joint venture or financing arrangement, for
federal income tax purposes because (1) there is a stated
interest rate and a fixed maturity date, (2) the Notes contain no
provision for sharing of profits and losses, (3) the Notes are or
will be secured by the Collateral, (4) the Company's obligation
to pay principal and interest to Noteholders is senior to any
obligation to make distributions to shareholders, and (5) it is
the intention of the parties, who are unrelated, to create a
debtor-creditor relationship. Such a characterization is a
factual matter, however, and there are certain other factors
present, such as the amount of Company equity relative to the
amount of the Notes outstanding, which would undermine the
characterization of the Notes as debt. Accordingly, there can be
no assurance that the Service will not attempt to recharacterize
the Notes, in whole or in part, as some form of equity interest
and that any such attempt will not succeed. If the Notes are
recharacterized in their entirety or in part as equity, some or
all of the interest paid on the Notes may not be deductible by
the Company and might be treated as unrelated business taxable
income to the Noteholders who are tax-exempt investors (See
"CERTAIN FEDERAL INCOME TAX CONSIDERATIONS").
2. No Share in Company Tax Benefits and Limited
Share of Revenues. Noteholders will not receive any tax
deductions from the Company's operations, and, in general, all
interest be taxable income to such Noteholders when received by
them in cash (See "DESCRIPTION OF COMPANY'S SECURITIES").
3. Investment by Tax Exempt Investors. In
considering whether an investment in the Notes of a portion of
the assets of a trust of a pension or profit-sharing plan
qualified under Section 401(a) of the Internal Revenue Code and
exempt from tax under Section 501(a) is appropriate, a fiduciary
should consider (i) whether the investment satisfies the
diversification requirements of Section 404 of the Employee
Retirement Income Security Act of 1974 ("ERISA"); (ii) whether
the investment is prudent, since there is likely to be only a
thinly traded market, if any, in which he can sell or otherwise
dispose of the Notes; and (iii) whether the Notes constitute
"Plan Assets" under ERISA. If a Tax-Exempt Investor borrows funds
to purchase the Notes, this investment may not be appropriate as
it would likely give rise to unrelated business taxable income
(See "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS--Purchase of
Notes by Exempt Plans and Other Exempt Organizations").
4. Changes in Tax Law. Changes in the tax laws
could affect any anticipated tax treatment associated with an
investment in Notes. In recent years, President Clinton has
proposed budget legislation which would have treated
certain hybrid debt instruments as equity to the borrower
while still maintaining debt status to the holders of the
instruments. While such proposals have not been acted upon,
and in their then proposed form would not have been directly
applicable to the Notes, any further extension of such
concepts in future legislation could result in all or part of
the Notes being treated as equity to the Company or, possibly,
the Noteholders.
Also, there is no assurance that adverse
changes in the interpretation of applicable tax laws will not be
made by administrators or judges. Administrative or judicial
changes may or may not be retroactive with respect to
transactions entered into prior to the date on which such changes
take effect. Periodic consultations with an investor's
professional advisor may be necessary given the possibility of
such changes.
EACH PROSPECTIVE PURCHASER OF NOTES IS URGED TO CONSULT SUCH
PROSPECTIVE PURCHASER'S TAX ADVISOR WITH SPECIFIC REFERENCE TO
SUCH PROSPECTIVE PURCHASER'S OWN TAX SITUATION AND POTENTIAL
CHANGES IN APPLICABLE LAW.
TAX OPINION
Counsel to the Company, Stephen C. Ryan & Associates, has
rendered its opinion only with respect to those tax matters
specifically identified in the section "CERTAIN FEDERAL INCOME
TAX CONSIDERATIONS" as representing the opinion of counsel, and
such opinion is based upon the facts described in this Prospectus
and upon certain representations by JMC to counsel as of the date
of this Prospectus. Any material alterations of such facts or
inaccuracy of such representations may adversely affect the
opinions rendered. Furthermore, such opinion of counsel is based
upon existing law and applicable final, Temporary and Proposed
Regulations, current published
11
<PAGE>
administrative positions of the IRS contained in Revenue Rulings
and Revenue Procedures, and judicial decisions, all of which are
subject to change either prospectively or retroactively.
In particular, a Noteholder's ability to realize the tax
treatment anticipated will depend not only on the general legal
principles discussed herein but also upon the accuracy of various
factual representations made by JMC and various determinations
which JMC will make in the future relating to the Company's
assets. Such factual representations and determinations are
subject to potential challenge by the IRS. There can be no
assurance, therefore, that some or all of the tax positions
claimed by the Noteholders with respect to the Notes may not be
successfully challenged by the IRS.
The opinion of counsel states that the section of this
Prospectus entitled "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS"
and that portion of this Prospectus set forth under the heading
"Tax Risks" in the "RISK FACTORS" section fully address the
material federal income tax laws relating to an investment in the
Company. Such aspects should not, however, be considered a
primary investment feature of the Notes.
Counsel, having considered what it believes to be all of
the material tax issues, and based upon the foregoing information
and representations and subject to the qualifications referred to
herein and therein, is of the opinion that the Notes will likely
constitute bona fide indebtedness of the Company. Such aspects
should not, however, be considered a primary investment feature
of the Notes.
COUNSEL HAS EMPHASIZED THAT AN OPINION OF COUNSEL REPRESENTS ONLY
SUCH COUNSEL'S BEST LEGAL JUDGMENT, AND HAS NO BINDING EFFECT ON
THE IRS OR OFFICIAL STATUS OF ANY KIND.
Counsel will not prepare or review the Company's income
tax information returns. Those returns will be prepared by
management and independent accountants for the Company. Such
matters are handled by the Company, often with advice of
independent accountants retained by the Company, and are usually
not reviewed with counsel.
THE MATTERS RELATING TO THE FEDERAL INCOME TAX CONSEQUENCES OF
INVESTING IN THE COMPANY ARE COMPLEX AND ARE SUBJECT TO VARYING
INTERPRETATIONS, AND THE EFFECT OF THE EXISTING TAX LAWS ON AN
INVESTOR MAY VARY WITH THE PARTICULAR CIRCUMSTANCES OF SUCH
INVESTOR. ACCORDINGLY, EACH PROSPECTIVE PURCHASER IS URGED TO
CONSULT WITH SUCH PROSPECTIVE PURCHASER'S TAX ADVISORS WITH
SPECIFIC REFERENCE TO SUCH PROSPECTIVE PURCHASER'S OWN TAX
SITUATION AND POTENTIAL CHANGES IN APPLICABLE LAW REGARDING THE
POSSIBLE TAX CONSEQUENCES OF THIS INVESTMENT IN THE INVESTOR'S
PARTICULAR CIRCUMSTANCES.
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<PAGE>
CONFLICTS OF INTEREST
The Company may be subject to various conflicts of
interest arising out of its relationships with JMC and its
Affiliates. Certain of these conflicts are summarized below.
Compensation Payable to JMC. JMC and its Affiliates are
entitled to receive compensation from the Company. Such
compensation could create certain conflicts of interest. For
example, JMC will receive compensation based on the amount of
Aggregate Gross Offering Proceeds raised regardless of the
profitability of the Company's operations. Also, the Management
Company could receive its full fees even though the Company had
not achieved its investment objectives (See "TABLE OF
COMPENSATION OF MANAGEMENT COMPANY AND ITS AFFILIATES").
Conflicts of interest may arise in the selection by JMC
of which Income Producing Assets the Company will acquire or in
arranging for others to purchase and hold Income Producing Assets
for resale to the Company, particularly if JMC is compensated
with a brokerage fee by the Company or the purchasing party for
arranging the purchase, as if JMC or an Affiliate is the seller
in the transaction. In that event, the Company believes that the
conflict of interest will be mitigated by the requirement that
the Company may not acquire any asset unless the fair market
value as determined by an independent appraiser is greater than
or equal to the Adjusted Purchase Price of the Asset (which
includes any brokerage fee paid by the Company) (See "BUSINESS OF
THE COMPANY-- ACQUISITION POLICIES--Adjusted Purchase Price").
The compensation arrangements, as well as the other
agreements and arrangements among the Company, JMC or its
Affiliates are not, and may not reflect, the result of
arm's-length negotiations. JMC believes that the compensation
payable by the Company is reasonable in light of the services JMC
will perform and the costs that JMC will incur in connection with
providing such services to the Company and that such compensation
is customary and reasonable in light of the compensation payable
to independent companies providing similar services.
Competition with Other Leasing Entities Affiliated With
JMC. JMC and its Affiliates may be, and/or may in the future be
expected to be, engaged independently or with others in other
business ventures of every nature and description, including
activities competitive with those of the Company. JMC is the
management company for the JetFleet Programs, and it and/or its
Affiliates intend to form and sponsor other leasing programs in
the future which may have investment objectives that are the same
as, or similar to, those of the Company as well as engage in such
activity directly (See "BUSINESS OF THE COMPANY--ACQUISITION
POLICIES--Joint Investments"). During this Offering and until all
the funds raised in this Offering have been substantially
committed for the purchase of Equipment, JMC will not offer, and
will not permit any Affiliates to offer, interests in any
aircraft dedicated publicly-offered investor programs, but such
offers may be made subsequent to this Offering. Accordingly, in
seeking to acquire, lease, re-lease and sell its Equipment, the
Company may be in competition with subsequent investment entities
or other entities formed by JMC or its Affiliates. If one or more
entities (either de facto or actual) affiliated with JMC is in a
position to purchase the same asset located by or offered to JMC,
then JMC will select the entity that has had available cash for
investment for the longest period of time as purchaser of the
asset. If one or more entities affiliated with JMC is in a
position to sell an asset to a purchaser located by JMC, then JMC
will cause the entity that has had the asset for sale on the
market for the longest period of time as the seller of the asset.
The Company Will Not Have Independent Management. So
long as there is no event of default under the Notes, the
Indenture Trustee will have no part in the management of the
business and affairs of the Company. As a result, management may
experience conflicts arising from allocating management time,
services or functions between the Company and other entities. The
officers and directors of JMC will devote such time (and will
direct their employees to devote such time) to the affairs of the
Company as they, in their discretion, deem necessary. Management
of the Company believes that it has or can attract sufficient
personnel to discharge its responsibilities to the Company (See
"MANAGEMENT").
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<PAGE>
Other Relationships. JMC and its Affiliates may have
relationships on an ongoing basis with manufacturers, sellers,
lessees, lessors or managers of aircraft and with lenders and
others. Such relationships could influence JMC to take actions
which an independent management company might not take or forbear
from taking.
Lack of Independent Counsel. Counsel to the Company
and JMC is the same, and it is anticipated that such
common representation will continue in the future. If a conflict
should arise, appropriate consideration will be given to the
extent to which the interests of the Company may diverge from
those of JMC and, if necessary, separate counsel will be retained
for the Company, JMC or the Sales Agent or all of them. The
Noteholders as a group have not been represented by counsel.
Co-Tenancy With Affiliates. Although not anticipated, in
the future the Company may acquire from, or own Income Producing
Assets on a co-tenancy or partnership basis with, JMC or
partnerships, corporations or other programs that are Affiliates
of JMC. With respect to such Income Producing Assets, JMC and
such Affiliates may be subject to certain conflicts of interest,
including conflicts of interest arising in connection with the
negotiation of the purchase agreement in the case of an
acquisition, or the negotiation of the co-tenancy agreement and
management decisions with respect to the Income Producing Assets
in the case of co-tenancy, JMC believes that the terms of any
such agreement between the Company and JMC or its Affiliates,
although not negotiated at arm's-length, will be fair and
reasonable to the Company. To reduce the potential conflicts, any
such investment must meet certain conditions described in
"BUSINESS OF THE COMPANY--ACQUISITION POLICIES--Investment With
Affiliates," such as the requirement that the Adjusted Purchase
Price must not be greater than the fair market value of the asset
to be purchased.
Purchase of Notes. JMC, any of its Affiliates and any
employees of JMC or their Affiliates may purchase up to 5% of the
Notes sold in this Offering (and receive a refund of Sales
Commissions), thereby acquiring rights and interests as holders
of debt and equity of the Company. Such rights include, in
certain cases, the right to exercise voting rights as Noteholders
under the Trust Indenture (See "MANAGEMENT--General"). JMC, its
Affiliates and employees can be expected to exercise their rights
as Noteholders in their own best interests, even though, as
indicated above, those interests may conflict in certain respects
with the interests of other Noteholders. Any Notes sold to JMC or
Affiliates will be counted toward the Minimum Offering Amount. If
Notes are acquired by JMC or its Affiliates and employees of JMC
or its Affiliates for the explicit purpose of meeting the Minimum
Offering Amount, such purchase will be made for investment
purposes only and not with a view towards redistribution.
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ESTIMATED USE OF PROCEEDS
The following table sets forth information concerning
the estimated uses of proceeds from the sale of Notes assuming
that the Company achieves, alternatively, the Minimum or Maximum
Offering.
As indicated in the table, approximately 92% of the
Aggregate Gross Offering Proceeds is expected to be available for
the purchase of Income Producing Assets or interests therein and
operation of the Company, after deduction of all Organizational
and Offering Expenses, and fees and other amounts payable to
third parties.
See "BUSINESS OF THE COMPANY--ACQUISITION POLICIES" for
descriptions of the types of assets to be identified for
acquisition by the Company initially that may be acquired by the
Company.
<TABLE>
<CAPTION>
Minimum Offering Maximum Offering
(500 Notes)(1) (10,000 Notes)
<S> <C> <C> <C> <C>
Gross Offering Proceeds $500,000 100.00%
$10,000,000 100.00%
Less Organization and Offering Expenses:
Sales Commissions (2) 32,500 6.50%
650,000 6.50%
Organization and Offering
Expense Reimbursement (3) 7,500 1.50%
150,000 1.50%
---------- --------
----------- -------
Net Offering Proceeds $ 460,000 92.00%
$9,200,000 92.00%
========== ========
========== ========
- ---------------------------
<FN>
(1) The amount of the Minimum Offering will not be less than
$500,000.
(2) The Company will pay soliciting broker-dealers, in
consideration for their services, a sales commission of
5.0% and pay to CKS an unallocated due diligence and
marketing fee of 1.5% to cover certain marketing and
selling expense, a portion of which may be reallowed to
certain soliciting broker-dealers, in the discretion of
CKS.
(3) The Organization and Offering Expense Reimbursement is
payable to JMC in an amount equal to 1.5% of Aggregate
Gross Offering Proceeds (See "CONFLICTS OF
INTEREST--Compensation Payable to JMC And Its
Affiliates" and "TABLE OF COMPENSATION TO MANAGEMENT
COMPANY AND ITS AFFILIATES"). To the extent JMC incurs
expenses in excess of the 1.5% limit, such excess
expenses will be repaid to JMC in the form of Common
Stock issued at a price of $1.00 per share.
</FN>
</TABLE>
15
<PAGE>
CAPITALIZATION
<TABLE>
The following table sets forth the capitalization of the Company
as of February 15, 1997, and as adjusted
<CAPTION>
Prior to Offering If Minimum If Maximum
Offering Sold Offering Sold
Number Amount Number Amount Number Amount
<S> <C> <C> <C> <C> <C> <C>
Common Stock(1) 10,000 $10,000 30,000 $30,000 410,000 $410,000
(100,000 Shares Authorized)
Secured Notes 0 $ 0 500 $500,000 10,000 $10,000,000
- -----------------------------------
<FN>
(1) To the extent JMC incurs Organizational and Offering
Expenses on behalf of the Company in excess of 1.5% of
the Aggregate Gross Offering Proceeds, such unreimbursed
expenses will be converted into Common Stock of the
Company, to be issued at the price of $1.00 per share.
JMC, the sole shareholder of the Company, will
contribute additional investment in Common Stock, at a
price of $1.00 per share, upon each Closing equal to 4%
of the subscription proceeds accepted at such Closing.
</FN>
</TABLE>
16
<PAGE>
DESCRIPTION OF THE COMPANY'S SECURITIES
THE NOTES
General. The Notes will be recourse obligations of
the Company, issued pursuant to an Indenture of Trust, dated
_______ (the "Trust Indenture"), between the Company and First
Security Bank, National Association, as trustee (the "Trustee"),
a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The following
summaries of certain provisions of the Trust Indenture and the
summaries included under "THE TRUST" do not purport to be
complete and are subject to, and qualified in their entirety by
reference to, the provisions of the Trust Indenture. Where
particular provisions of or terms used in the Trust Indenture are
referred to, the actual provisions (including definitions of
terms) are incorporated by reference as part of such summaries.
The Company has not sought and is not required by the Trust
Indenture or any other document to obtain a rating of the Notes
by a rating agency.
Issuance of Notes; Transfers. The Notes will be issued
in fully registered form in denominations of $1,000 subject to
the minimum amount of 5,000 or ($2,000 for IRAs). (Trust
Indenture, Section 3.02.) The Trustee will charge a fee of $10.00
for any transfer or exchange of a Note, and may require the
transferor to pay any governmental fees or charges in connection
with the transfer. (Trust Indenture, Section 3.05.) Each Note
will have a maturity date ("Maturity Date") of April 30, 2005;
provided that the Company, in its sole discretion upon written
notice to the Trustee, may extend such Maturity Date for up to
six months.
Payments of Principal and Interest on the Secured Notes.
The Notes will earn fixed interest on the $1,000 Note principal
amount, calculated quarterly, from the date of issuance at the
rate of 10% simple interest per annum.
Periodic Interest Payments. Interest will be calculated
quarterly. Interest is due and payable on the 1st day of each,
February, May, August and November (or the next following
Business Day if the 1st is not a Business Day) (each such date a
"Payment Date") for interest accrued in the prior calendar
quarter. Principal and all accrued and unpaid interest will be
due on the Maturity Date. The record date for each payment on the
Note ("Record Date") is the close of business on the 15th of the
calendar month prior to the month in which such Payment Date
occurs for that payment. The Company may not make any prepayments
of principal upon the Note until after April 30, 2000. Interest
shall be computed on the basis of a 360-day year comprised of
twelve 30-day months.
Payments of Principal and Interest Generally. All
payments will be made by check mailed by the Trustee to
Noteholders registered as of the close of business on the
fifteenth day of the month prior to the calendar month in which
the Payment Date occurs at their addresses appearing on the
Register, except that the payment of principal and final payment
of interest on each Note will be made only upon presentation and
surrender of such Note on or after the Stated Maturity at the
office of the Trustee. (Trust Indenture, Section 5.1.). The
Company expects to use rental and resale proceeds of the Income
Producing Assets to make the required payments under the Note. If
the Company is unable to make all or any portion of an interest
payment under the Note, the unpaid interest shall accrue and
become payable in full at the Maturity Date. Accrued but unpaid
interest shall not bear interest.
All principal and interest due under the Notes will be
due on their Maturity Date (the "Maturity Date") which shall be
April 30, 2005, unless extended to a date up to six months later
at the sole discretion of the Company.
Upon an Event of Default (as defined in the Trust
Indenture) with respect to the Notes, the Trustee has certain
remedies against the Company, including acceleration of all Note
indebtedness and/or foreclosure upon and sale of the Collateral.
Source of Payment on the Notes. The only source of
payment of principal and interest on the Notes shall be from the
income generated by the Company's Income Producing Assets and
proceeds of the resale of
17
<PAGE>
such assets. The Company will have no other assets nor is any
other entity or person guaranteeing the obligations of the
Company to pay the principal and interest due on the Notes.
Prepayment. The Company, beginning May 1, 2000, may
prepay all or a portion of the outstanding principal under the
Notes on a pro-rata basis from all Noteholders, but such
prepayment is at the Company's sole discretion.
Security for the Notes. The Collateral securing the
Notes will consist of all of the Company's right, title and
interest in Income Producing Assets acquired by the Company using
the proceeds of the Notes or the proceeds or income from such
acquired Income Producing Assets. The Company may, upon notice to
the Trustee, subordinate the lien of the Noteholders in an Income
Producing Asset acquired using third party acquisition financing
to the lien of a third party lender; provided, however, that no
Note proceeds are used in the acquisition of such Income
Producing Asset.
The Sinking Fund Account. The Company shall establish
prior to the initial authentication and delivery of the Notes, in
the name of the Trustee, a trust account at a First Security
Bank, National Association (the "Sinking Fund Account"). The
Sinking Fund Account will relate solely to the Notes. Funds in
the Sinking Fund Account will not be commingled with any other
moneys of JMC or the Company. All moneys deposited from time to
time in the Sinking Fund Account will be held by the Trustee as
part of the Trust Estate. Withdrawals of any funds from the
Sinking Fund Account will be controlled by the Trustee. All
payments of amounts due and payable with respect to the Notes
which are to be made from amounts withdrawn from the Sinking Fund
Account will be made on behalf of the Company by the Trustee, and
no amounts so withdrawn from the Sinking Fund Account will be
paid over to the Company. The funds in the Sinking Fund Account
will be employed by the Trustee to repay principal due under the
Notes on the Maturity Date or an earlier prepayment date.
All Net Resale Proceeds and all Net Cash Flow of the
Company with respect to the Collateral received beginning May 1,
2003, will no longer be available to the Company for acquisition
of additional assets and will be deposited into and held, along
with the income earned thereon, by the Trustee in the Sinking
Fund Account for repayment of the Notes. No schedule of minimum
required payments into the Sinking Fund will exist.
Allowed Expenses. Revenue from Income Producing Assets
will be applied first toward certain expenses of the Company,
then toward required payments under the Notes, then toward either
reinvestment into additional Income Producing Assets or deposits
into the Sinking Fund or other Payment Accounts. Listed below is
a summary of such expenses.
<TABLE>
<CAPTION>
Allowed Expenses Estimated
Amount
<S> <C>
Initial Trustee Fee $3,000
Annual Administration, Note Interest $8,500
Processing and Registrar Services
Annual Escrow Fee $10,000
Management Fee .50% of
the Company's Aggregate
Gross Offering Proceeds
(payable quarterly ins
arrears for as long as
the Company is in
existence)
Annual Legal and Accounting, General and
Administrative Expenses and Reimbursements
Payable to Third Parties $50,000
Federal Income Taxes 15% - 39%
California Income Taxes 9.3%
</TABLE>
18
<PAGE>
EQUITY SECURITIES
The Company has authorized 100,000 shares of Common
Stock, no par value, and 100,000 shares of Preferred Stock, no
par value. No holder of any shares of Common Stock or Preferred
Stock has any preemptive rights to subscribe for any securities
of the Company. All shares of Common Stock outstanding are fully
paid and nonassessable. There are currently 10,000 shares of
Common Stock issued and outstanding, all of which are held by
JMC. No shares of Preferred Stock are currently outstanding. The
rights, preferences and privileges of the Preferred Stock are
subject to designation by the Board of Directors.
The foregoing is a summary and is qualified in its
entirety by reference to the Company's Articles of Incorporation
and its Bylaws.
Reports to Shareholders. The Company will furnish its
shareholders with annual reports containing audited financial
statements.
Transfer Agent and Registrar. The Secretary of the
Company will serve as the transfer agent and registrar for the
Company's Common Stock.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
19
<PAGE>
THE TRUST INDENTURE
The following summaries describe certain provisions of
the Trust Indenture. The summaries do not purport to be complete
and are subject to, and qualified in their entirety by reference
to, the provisions of the Trust Indenture, and where particular
provisions or terms used in the Trust Indenture are referred to,
the actual provisions (including definitions of terms) are
incorporated by reference as part of such summaries. Certain
provisions of the Trust Indenture are also described under
"DESCRIPTION OF THE COMPANY'S SECURITIES."
Modification of Trust Indenture. With the consent of the
holders of at least a majority of the aggregate principal amount
of the outstanding Notes, the Trustee and the Company may amend
or supplement the Trust Indenture or the Notes, except as
provided below. Notice of any such amendment of the Trust
Indenture or the Notes will be mailed to all of the Noteholders
by the Company promptly after the effectiveness thereof.
The Company and the Trustee may also amend or supplement
the Trust Indenture or the Notes, without obtaining the consent
of Noteholders, to cure ambiguities or make minor corrections
and, among other things, to make any change that does not
adversely affect the interests of the Noteholders (Trust
Indenture, Section 11.01).
Events of Default. An Event of Default with respect to
the Notes is defined in the Trust Indenture as being: (a) the
failure of the Company to make any interest payment on the Notes
within ninety (90) days after its due date; (b) the failure of
the Company to repay all indebtedness under the Notes within
sixty (60) days after the Maturity Date; (c) effectiveness of the
Trust Indenture or of the security interest granted thereby, the
improper amendment or the breach or default in the performance of
any covenant or agreement of the Company in the Indenture or
related security interest documents (other than those covered in
(a) and (b) above, and the continuance of any such default for a
period of thirty (30) days after notice to the Company by the
Trustee or to the Company and the Trustee by the Noteholders
representing at least a 25% Vote of the Outstanding Notes; (d)
the breach in any material respect of a representation or
warranty of the Company in the Trust Indenture and the failure to
cure such circumstances or condition within thirty (30) days of
notice thereof to the Company by the Trustee or the Noteholders
representing at least a 25% Vote of the Outstanding Notes; or (e)
certain events of bankruptcy of the Company (Trust Indenture,
Section 5.01).
Rights Upon Event of Default. In case an Event of
Default should occur and be continuing, the Trustee may, or at
the direction of the Noteholders representing at least 25% of the
outstanding principal amount of the Notes will, declare the Notes
due and payable. Upon such declaration, the Notes will
immediately become due and payable in an amount equal to their
remaining principal amount plus accrued interest at such time.
Such a declaration may be rescinded under certain circumstances
by a vote of the Noteholders (Trust Indenture, Section 5.02).
If, following an Event of Default, the Notes have been
declared due and payable, the Trustee may exercise one or more of
its remedies including, in its discretion, the right to retain
the Trust Estate and apply all amounts received with respect to
the Trust Estate, first, to payment of its fees and expenses and,
then to the payment of the principal of and interest on the Notes
(Trust Indenture, Sections 5.04, 5.08 and 6.07). Alternatively,
the Trustee may, in its discretion, sell the Trust Estate and
apply the proceeds, first, to payment of its fees and expenses
and, then, to the amounts due on the Notes (Trust Indenture,
Sections 5.04, 5.08 and 5.18).
The holders of a majority of the aggregate principal
amount of the outstanding Notes will have the right to direct the
time, method, and place of conducting any proceedings for any
remedy available to the Trustee or exercising any trust or power
conferred on the Trustee. The Trustee may refuse, however, to
follow any such direction that conflicts with law or the Trust
Indenture, that is unduly prejudicial to the rights of
Noteholders not joining in such direction or that would involve
the Trustee in personal liability (Trust Indenture, Section
5.14). The holders of a majority of the aggregate amount of the
outstanding Notes may also waive any default, except a default in
respect of a covenant or provision of the Trust Indenture which
cannot be modified without the waiver or consent of each
Noteholder affected (Trust Indenture, Section 5.15).
20
<PAGE>
No Noteholder will have the right to pursue any remedy
with respect to the Trust Indenture or the Notes, unless (a) such
holder gives to the Trustee written notice of a continuing Event
of Default, (b) the holders of at least 25% of the aggregate
principal amount of the Outstanding Notes have made a written
request to the Trustee to pursue such remedy, and have offered
the Trustee indemnity satisfactory to the Trustee against loss,
liability or expense, (c) the Trustee does not comply with the
request within sixty (60) days, and (d) the Trustee has received
no contrary direction during such 60-day period from the holders
of a majority Vote of the Outstanding Notes (Trust Indenture,
Section 5.09).
Restrictions on Business Activities. The Company has
made certain covenants in the Trust Indenture that restrict its
business activities and prohibit certain transactions by the
Company. The Company has agreed, among other things, that it will
not (i) sell or dispose of any part of the Trust Estate except as
permitted under the Trust Indenture; (ii) incur any indebtedness
secured by a security interest in the Assets constituting
Collateral for the Noteholders; or (iii) pay any dividends on its
capital stock so long as any Notes remain outstanding (Trust
Indenture, Section 9.07).
Company's Right to Subordinate Noteholder Debt. The
Company may, upon notice to the Trustee, subordinate the lien of
the Noteholders in the Collateral to the lien of a third party
lender financing the acquisition of an Income Producing Asset,
provided that no Note proceeds are used toward the purchase
(Trust Indenture, Section 9.07).
Compliance Statements and Annual Accountants' Reports.
The Company will be required to file annually with the Trustee,
officer's certificates as to fulfillment of its obligations under
the Trust Indenture (Trust Indenture, Section 7.04).
Trustee's Annual Report. The Trustee will be required to
mail each year to all Noteholders a brief report relating to its
eligibility and qualifications to continue as the Trustee under
the Trust Indenture, any amounts advanced by it under the Trust
Indenture, the amount, interest rate and maturity date of certain
indebtedness owing by the Company to the Trustee in its
individual capacity, the property and funds physically held by
the Trustee as such, the release of property subject to the lien
of the Trust Indenture, and any action taken by it which
materially affects the Notes and which has not been previously
reported (Trust Indenture, Section 7.03).
Usury Laws. Assuming the Company will qualify the Notes
for issuance under the California Corporations Code, the Notes
will be exempt from the usury limitations under California law.
Although the Company intends for California law to apply to the
Notes, it is not always clear as to whether the state of
residence of a non-California investor would apply in a
particular transaction and it is possible that in such a case,
the usury law of some other state might be deemed to apply to the
loan transaction. In any event, the Company has made a covenant
in the Trust Indenture that it will not assert usury as a defense
to payment in any litigation regarding the Notes. (Trust
Indenture, Section 3.15) It is unclear, however, if this covenant
would be enforceable were the Company to enter into bankruptcy or
receivership (See "THE TRUST INDENTURE--Usury Laws").
Satisfaction and Discharge of the Trust Indenture. The
Trust Indenture will be discharged, with certain limitations,
upon deposit with the Trustee of funds sufficient for the payment
or redemption of all of the Notes. The duties of the Company to
the Noteholders will cease upon such deposit (Trust Indenture,
Section 10.04).
The Trustee. First Security Bank National Association,
79 South Main Street, Salt Lake City, Utah 84111, will be the
Trustee under the Trust Indenture for the Notes. The Company is
obligated to pay the fees and expenses of the Trustee relating to
the Notes. To secure the Company's payment of such fees and
expenses, the Trustee has a lien prior to the Notes on the Trust
Estate except any money held in trust to pay principal and
interest on the Notes (Trust Indenture, Section 6.07).
21
<PAGE>
THE COMPANY
Formation. AeroCentury Fund IV, Inc. (the "Company"), a
California corporation, was formed in February, 1997, pursuant to
the California Corporations Code, as amended, and is the issuer
of the Notes. The Company's principal executive offices are
located at 1440 Chapin Avenue, Suite 310, Burlingame, California
94010 and its telephone number is (415) 696-3900. The Company's
fiscal year ends on December 31.
Offices and Equipment. The Company does not own any real
estate. The administrative offices of the Company are located at
1440 Chapin Avenue, Suite 310, Burlingame, California 94010. The
Company will share this space with JMC and other Affiliates. All
management of the Income Producing Assets portfolio and
administration of the leases for its Equipment shall be performed
by JMC on behalf of the Company. Therefore, the Company does not
anticipate owning any equipment or furnishings whatsoever.
Litigation. Neither the Company nor any of its
Affiliates are involved in any litigation arising out of the
conduct of their businesses.
Employees. With the exception of the officers of the
Company who shall only devote so much of their time to the
business of the Company as is necessary and who are also
employees and officers of JMC and its Affiliates, the Company
does not presently have any additional employees. All management
of the Income Producing Assets portfolio and administration of
Leases will be provided by JMC pursuant to the terms of the
Management Agreement. The Company may in the future hire such
employees as may be required.
Business Objectives. The Company will use the proceeds
of the Offering of Notes to purchase Income Producing Assets,
primarily Equipment subject to Leases with third parties. The net
proceeds from the Income Producing Assets will fund interest
payments on the Notes and deposits to a sinking fund account
established to facilitate repayment of principal of the Notes on
their maturity (or such earlier time if the Company decides to
make prepayments on the principal of the Notes). At the Maturity
Date of the Notes, the Company will pay off the outstanding
principal using proceeds of the resale of the Collateral and the
Sinking Fund Account or through third-party lender refinancing.
22
<PAGE>
BUSINESS OF THE COMPANY
ACQUISITION POLICIES
General. The Company intends to use the net proceeds
from this Offering to purchase Income Producing Assets. The
Company anticipates that these assets will be Equipment,
consisting mainly of aircraft, aircraft engines, aircraft parts
or other transportation industry equipment subject to operating
or full payout leases with third parties. The Company may also,
however, acquire certain Financial Assets, such as indebtedness
secured by Equipment and/or leases therefor, or income streams
from Equipment Leases.
JMC will select the Income Producing Assets, or
interests therein, which the Company will acquire and will
negotiate the terms of acquisition. For these services as well as
others performed under the Management Agreement, for as long as
the Company is in existence, JMC will receive a quarterly
Management Fee calculated as 0.50% of the Aggregate Gross
Offering Proceeds from this Offering received up through the end
of the calendar quarter for which the fee is earned. JMC may
engage one or more third parties, such as third-party brokers, to
assist it in identifying assets for acquisition, and their fees
will be included in the Adjusted Purchase Price to be paid by the
Company. In such a case, however, it will be the responsibility
of JMC to select from the assets identified by such a third party
those specific assets which the Company will purchase.
In seeking assets for acquisition and potential lessees,
JMC and/or its agents will utilize pre-existing business
contacts, other independent brokers, and trade publication
advertisements. JMC is a member of several industry trade groups
and may utilize its interaction with other industry participants
in seeking business opportunities.
The trade publication, Airfinance Annual 1994/95, listed
approximately 300 aircraft leasing companies and approximately
200 banks and financing companies engaged in aircraft industry
financing distributed over 40 countries. In January 1997, the
trade publication Flight International reported that the return
of confidence to the air transport industry gathered momentum
during 1996, starting with the operating lessors, and was
encouraged by signed of increasing lease rates. The Company
intends to fill a niche within the aircraft finance industry. The
Company believes that many major banks have backed away from
aircraft finance even though the aircraft industry will continue
to have substantial capital equipment financing requirements, and
that financing through The Company will be one of the few sources
for transactions in the range of $10,000,000 or less. Based on
JMC's experience with the JetFleet Programs, management believes
this market segment should provide the Company with a good
selection of desirable acquisition criteria such as strong
credits, rent guarantees, and residual value guarantees.
Certain Criteria. Among the factors JMC expects to
examine in selecting Equipment are the history of the aircraft or
aircraft engine model, the size and characteristics of the user
base, airworthiness directive and service bulletin compliance,
noise requirement compliance, and the age and maintenance history
of any particular aircraft or equipment. JMC will attempt to
obtain, where possible, from the seller of the Equipment acquired
by the Company a residual value guarantee whereunder JMC can
require the seller to repurchase, at JMC's option, the Equipment
at a repurchase price, which when added to the lease rentals
received from the lessee of the Equipment would result in a
return of capital invested in the Equipment.
Equipment. The Company may acquire aircraft, aircraft
engines and aircraft spare parts and equipment inventories as
part of its Equipment portfolio. In addition, the Company may use
subscription proceeds to purchase appliances, parts, instruments,
accessories and other equipment related to aircraft for
installation on aircraft previously purchased by the Company. The
Equipment acquired by the Company will be subject to Full Payout
Leases or Operating Leases, either as result of an acquisition
from an existing lessor, a sale-lease back transaction or a lease
commitment obtained by the Company or any third party agent
chosen by it. Because of JMC's experience and business contacts
with the JetFleet Programs, the Company may continue to focus on
de Havilland turbo-prop aircraft, although the Company will have
no such obligation to do so and will have broad discretion in
choosing assets. There are currently three different types of de
Havilland turbo-prop aircraft in operation. The DHC-6, the DHC-7
and the DHC-8. The de Havilland DHC-6 (Twin Otter) is a 20
passenger turbo-prop aircraft, with two Pratt
23
<PAGE>
& Whitney PT6A-27 engines. The Series 300 version of this type
began operating in December of 1969. The Dash-7 is a 50 passenger
aircraft, with Pratt & Whitney PT6A-50 engines. It is a "STOL"
aircraft designed for short takeoffs and landings at city
airports and airports having limited runway length or difficult
approach conditions. Some of these aircraft are equipped with a
cargo door which allows for an all-cargo or mixed passenger/cargo
configuration. The Dash-8 can carry between 37 and 56 passengers.
The Dash-8 Series 100 aircraft was introduced in 1984; the Dash-8
series 300 was introduced into scheduled traffic in 1989. The 200
Series started operating in 1995 and the Series 400 is planned to
fly scheduled service beginning September 1997. The Dash-8 is
powered by various versions of Pratt & Whitney engines.
Financial Assets. Although the Company anticipates
acquiring primarily Equipment subject to Leases, the Company may
also acquire certain income-producing assets relating to
Equipment such as participation in part or all of a loan secured
by Equipment, Equipment Lease positions or other rights to rental
income from the lease of Equipment. Generally, an investment in
Financial Assets will not entail as many risks as a direct
investment in Equipment, since the return on a Financial Asset
will usually be dependent solely upon the receipt of repayment of
indebtedness or payment of assigned lease rental streams by the
Payer under the Financial Asset, and risks inherent in ownership
of the underlying asset (e.g. a lesser than expected residual
value) will not be borne by the Company. However, the obligations
of a Payer under a Financial Asset may be secured by the
Equipment underlying the Financial Asset, and if the Payer
defaults, the Company's only remedy may be to foreclose upon, and
succeed to the ownership of, the underlying asset and lease or
remarket the asset. In such a case, the ability of the Company to
make its anticipated return on the Financial Asset would be
subject to the risks relating to ownership, leasing, resale and
remarketing of Equipment discussed herein with respect to
Equipment acquired by the Company. In addition, other creditors
of the Payer may have claims to or liens on the Equipment,
including claims of the seller of the Financial Asset to the
Company.
Before acquiring any Financial Asset, the Company will
obtain an opinion of counsel (usually seller's) as to whether
such Financial Assets would be deemed an "investment security"
under the Investment Company of 1940 (the "1940 Act"). If such
Financial Asset would be considered an "investment security"
under the 1940 Act the Company will not acquire such asset, if it
would cause over 40% of the Company assets to constitute
"investment securities" and therefore subject the Company to
regulation and registration under the 1940 Act.
Adjusted Purchase Price. The Company will not acquire an
interest in Income Producing Assets without first obtaining an
appraisal of the subject Equipment from the Appraiser. The
Adjusted Purchase Price of any Income Producing Asset purchased
by the Company will not exceed its fair market value at the time
of purchase as so appraised.
The Adjusted Purchase Price includes all Chargeable
Acquisition Expenses incurred in connection with the selection
and purchase of the aircraft, such as legal and accounting costs,
appraisal costs, travel and communication expenses and the like.
JMC or an Affiliate may receive a brokerage fee for locating
assets for the Company, provided that such fee is not more than
the customary and usual brokerage fee that would be paid to an
unaffiliated party for such a transaction; provided further that
if the brokerage fee is paid by the Company, the Aggregate
Purchase Price plus the brokerage fee shall not exceed the fair
market value of the Income Producing Asset at the time of the
purchase as Appraised by the Appraiser.
In the event the investment in Equipment consists of the
purchase of appliances, parts, instruments, accessories and other
equipment related to aircraft which are to be installed on
aircraft owned by the Company, the Adjusted Purchase Price shall
be no greater than the greater of: (i) the fair market value of
the installed equipment at the time of purchase; or (ii) the
increase in fair market value of the asset on which such
equipment is installed due to such installation, as determined by
the Appraiser.
Undivided Interests in Assets. Though the Company
anticipates that it will be the sole owner of any Income
Producing Assets it purchases, in the discretion of JMC, the
Company may participate on a co-tenancy or partnership basis with
others, through the use of a trust or otherwise. Such joint
investments may be made in order to permit the Company to
purchase an interest in an asset where it lacks sufficient funds
to purchase the entire asset or in order to achieve greater
diversity for the Company's portfolio. The co-tenants or partners
under such
24
<PAGE>
arrangements may be non-Affiliated companies. Alternatively, JMC,
its Affiliates or entities formed by them could participate in
such joint investments (See "BUSINESS OF THE COMPANY--ACQUISITION
POLICIES"). The Company may acquire Income Producing Assets
jointly with Affiliates and/or non-Affiliated parties and may
invest in a co-tenancy or partnership that owns assets similar to
its own, provided the agreement between the co-investors does not
authorize the Company to do anything as a co-investor with
respect to the Income Producing Asset owned by the Company that
the Company would not be permitted to do under the terms of the
Trust Indenture.
The investment by the Company in a joint investment
venture which owns Income Producing Assets may involve risks not
otherwise present. There is a risk that one of the Company's
co-investor(s) might become bankrupt which could result in the
court ordered sale of jointly-owned aircraft in the event that a
court refused to enforce any rights of first refusal of the
Company. If any lender obtains a security interest in the
interest of a co-venturer, the lender may assert its position as
a secured party in the event of a default by the co-venturer, in
which event the Company might not be able to prevent that
interest in the joint venture (or the jointly-owned aircraft
itself) from being subject to foreclosure and sale by such
lender. Additionally, the Company's co-owner may have economic or
business interests or goals which are inconsistent with, or take
actions which are contrary to, the business interests or goals of
the Company. Though the Company will attempt to obtain the right
to approve, as co-owner, any disposition, lease or other action
with respect to an asset which it co-owns, no assurance can be
made that the Company will control any joint venture to which it
may become a party. In the event that more than one co-owner has
veto rights, there will be a potential risk of impasse on
decisions. Any joint venture would be subject to the various tax
risks applicable to the Company, including the possible treatment
of the joint venture as an association taxable as a corporation
rather than as a partnership and the possible reallocation of the
joint venture's profits and losses if the agreed-upon allocation
is not respected for federal income tax purposes.
The Company will also attempt, wherever possible, to
obtain a right of first refusal on the sale of a joint venture's
interest. However, even though the Company may have a right of
first refusal with respect to the transfer of any interest in the
joint venture, such a right might not be applicable in certain
circumstances (such as the co-venturer's bankruptcy) or the
Company might not have sufficient financing resources to exercise
its right of first refusal. The Company may also be subject to a
similar right of first refusal in favor of its co-venturers,
which could inhibit the Company's ability to sell its interest.
The JetFleet Programs have successfully purchased a
number of assets on a tenants-in-common basis. In the event the
Company makes a joint investment, to the extent practicable, it
will attempt to insulate the Company's investment in a
jointly-held asset. For example, the Company could require that
any lender to a co-tenant be secured only by the undivided
interest owned by the co-tenant, or that foreclosure remedies by
such lender only be exercised after the Company has had the right
to cure the co-tenant's default.
Purchases from JMC or Affiliates. The Company may
purchase Income Producing Assets or interests therein from JMC or
its Affiliates. In some cases, JMC or its Affiliates may purchase
an Income Producing Asset or interests therein, and hold title to
it on a temporary or interim basis for the purpose of
facilitating the subsequent acquisition of an Income Producing
Asset by the Company or the borrowing of money or obtaining of
financing for the Company. Any purchase of Income Producing
Assets from JMC or its Affiliates will be made only if the
Company determines that (i) such arrangements are in the best
interests of the Company; (ii) the Income Producing Asset or
interest therein is purchased by the Company for a price no
greater than the Appraised Value of the Income Producing Asset;
and (iii) in the case of assumption of loans there is no
difference in interest terms of the loans secured by the Income
Producing Asset, or the interests therein, at the time acquired
by JMC or its Affiliates and the time acquired by the Company;
and (iv) no compensation is paid to JMC or its Affiliates by the
Company for such transactions to JMC or its Affiliates apart from
the compensation referred to in "THE MANAGEMENT COMPANY AND ITS
AFFILIATES--Compensation of the Management Company and Its
Affiliates."
Leverage. In the discretion of JMC, the Company may
incur indebtedness in connection with the acquisition of Income
Producing Assets or interests therein. The Company might also
incur indebtedness for such activities as the future repair,
upgrade, modification, maintenance, refurbishment, reconditioning
or reconfiguration (including compliance with Stage 3 noise
abatement standards) of the Equipment if JMC in its discretion
deems such
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activity necessary or desirable to enable the Company to re-lease
or sell the Equipment (See "REGULATORY CONCERNS" below).
Borrowing might also be used to fund the storage or handling of
Equipment after the expiration of their leases, the payment of
other costs not paid by the lessees of the Equipment, the
exercise of rights of first refusal granted to the Company under
joint venture agreements to acquire interests in Equipment, or
the performance of any obligations of the Company under the terms
of any leases or to satisfy regulatory requirements.
The Company may refinance Equipment and use the
refinancing proceeds to repay the Noteholders. If the refinancing
proceeds are not sufficient to retire all of the Notes, the
noncancelable rental payments under the lease for the refinanced
Equipment must be sufficient to pay the loan entirely.
The precise amount borrowed by the Company, if any, will
depend, in part, upon the particular Equipment and lease and the
creditworthiness of the lessee (in the case of a collateralized
loan), the availability of financing generally, the interest
rates and borrowing costs incurred by the Company and other
factors. Any borrowing will be nonrecourse to the Noteholders.
JMC anticipates that any indebtedness incurred by the
Company will bear interest at fixed rates, although such rates
may vary and be based on a "prime rate." If interest rates are
variable, an increase in interest rates will increase borrowing
costs and reduce the amount of cash available for distribution.
Though not likely or anticipated, it is possible that
the Company will acquire debt which will not provide for
amortization of the entire principal amount prior to its
maturity. The unamortized portion of such debt will be payable on
maturity, which will generally coincide with the expiration of
the lease of the Equipment securing the loan. Such debt involves
greater risks than debt amortized over the term of the loan,
since the ability of the Company to repay the outstanding
principal amount of the loan at maturity may be dependent upon
the Company's ability to obtain adequate refinancing which, in
turn, will be dependent upon economic conditions in general and
the financial condition of the Company and the value of the
underlying Equipment in particular.
Borrowing by the Company likely will be secured by the
Income Producing Asset acquired, repaired, refurbished or
upgraded with the use of the loan proceeds and by the proceeds
derived from the leasing or sale of such Equipment. Borrowing may
be on either a recourse or a nonrecourse basis to the Company.
Typically, in the case of a nonrecourse loan, the lender would be
repaid from revenue obtained from leasing or sale of the subject
Income Producing Asset. In the case of a loan not secured by any
particular assets, it is anticipated that the loan would be
recourse to all of the revenues of, and assets (including all
Equipment) owned by, the Company.
JMC does not anticipate that it or any of its Affiliates
will lend funds to the Company. If any such loans are made,
however, they would be made at a rate of interest and for such
charges or fees as would be charged by unrelated lending
institutions on comparable loans for the same purpose in the same
geographic area.
Any indebtedness of the Company incurred in connection
with the Collateral will either be unsecured or, if secured by
the Collateral, such security interest will be subordinated to
the Noteholder's lien in the same assets.
LEASES
All leases of Equipment by the Company will be Triple
Net Leases which require the lessees to pay all costs of aircraft
maintenance, insurance and taxes; however, under current market
conditions, the allocation of certain costs of complying with
regulatory directives issued by the Equipment manufacturer, or
any other governmental agency having jurisdiction over the
operation of the Equipment (such as the FAA in the case of
aircraft) may be subject to negotiation. It is the intention of
JMC to cause the Company to obtain and maintain, as an operating
cost, "excess" hull insurance on its aircraft equipment. The need
for such insurance would arise if the fair market value of an
Equipment acquired by the Company is greater than the value which
the lessee has been required to insure under such lease. It is
not anticipated that the cost of such insurance will adversely
affect the operating results of the Company significantly.
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Equipment leases may be categorized generally into two
types: Operating Leases and Full Payout Leases. Operating Leases
are leases under which the lessor receives aggregate rental
payments in an amount that is less than the purchase price of the
Equipment and related acquisition costs. Full Payout Leases are
leases under which the noncancelable rental payments due during
the initial term of the lease are at least sufficient to recover
the purchase price of the Equipment and related acquisition
costs. The Company imposes no limitations with respect to the
value or number of Equipment which must be leased under either
Operating Leases or Full Payout Leases. Therefore, there can be
no assurance as to the Company's actual mix of Operating Leases
and Full Payout Leases during the entire term of the Company.
Under Full Payout Leases, the cost of complying with
regulations (including airworthiness directives issued by the FAA
or any other government agency having jurisdiction) generally is
borne by the lessee. Although in the past, lessees under
Operating Leases typically bore such costs, under current market
conditions, the allocation of such costs (which may include
compliance with noise abatement standards) may be the subject of
negotiation. Certain of the leases of the Equipment purchased by
the Company may have specific restrictions regarding the costs
associated with compliance with regulatory requirements, such as
FAA airworthiness directives in the case of aircraft. If the
Company, as the lessor, is responsible for all or a portion of
the costs associated with compliance with regulatory directives,
no assurance can be given that the cost of such compliance will
not be significant.
It is anticipated that all leases of Equipment will
provide that the lessee thereunder will be required to (i)
maintain, inspect, service, repair, overhaul and test the
Equipment in accordance with the applicable regulations of
governing regulatory bodies, such as the Federal Aviation
Administration, so as to keep the Equipment in good standing at
all times under the rules of the regulatory authority (such as
the FAA or if the Equipment is being operated in a foreign
country the applicable regulations of the aviation authority in
that country, provided such regulations are substantially similar
to those of the FAA); and (ii) maintain all records, logs and
other materials required to be maintained in respect of such
Equipment by the regulatory authority. It is anticipated that all
leases will provide that the lessee thereunder will (i) promptly
furnish to lessor such information as may be required to enable
lessor to file any reports to be filed by lessor with any
governmental authority because of lessor's ownership of the
Equipment; and (ii) ensure that the Equipment shall not be
maintained, used or operated in violation of any law, rule,
regulation or order of any government or governmental authority
having jurisdiction (domestic or foreign), or in violation of any
airworthiness certificate, license or registration relating to
such Equipment issued by any such authority.
The Company anticipates that a lessee of Equipment will
insure the Equipment against risk of loss and the Company against
third party liability claims, although there is no assurance that
all Equipment will be so insured against all risks. There are
certain categories of risk of loss which may be or may become
either uninsurable or not economically insurable, such as war,
earthquakes and floods. The Company may permit a lessee to
self-insure against such casualties, upon determination that such
lessee has the financial ability to do so without unreasonable
risk to the Company. An uninsured loss with respect to the
Equipment or an insured loss for which insurance proceeds are
inadequate, would result in a possible loss of invested capital
in and any profits anticipated from such Equipment. With respect
to third party liability, under common law, the owner of
transportation equipment may be held liable for injuries to
passengers or damage to property, and the amount of such
liability can be substantial. However, with respect to aircraft
Equipment, the United States Aviation Act provides that a lessor
of aircraft will not be liable for any injury, death or property
damage caused by the aircraft if the lessor was not in actual
possession or control of the aircraft at the time of the
accident. Because there is little case law interpreting this
federal law, there can be no assurance that the law will fully
protect the Company from all liabilities in connection with any
injury, death, damage or loss that may be caused by the
Equipment. For example, the law may not preempt state law with
respect to liability for third-party injuries arising from a
lessor's or owner's own negligence. Additionally, those
provisions of the Aviation Act are not available to any aircraft
Equipment that is not United States registered.
In addition, under most aircraft leases, the lessee may
(i) subject the aircraft to normal interchange agreements (i.e.,
temporary borrowing of equipment or components) with other
FAA-certified air carriers; (ii) remove an engine from aircraft
and install it on an airframe owned or leased to the lessee (so
long as such aircraft is free from certain liens); (iii) enter
into a "wet lease" (i.e., with crew and services provided by the
lessee of aircraft to other air carriers in accordance with
normal industry practice); (iv) sublease the aircraft to United
States air carriers and/or a
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selected, specified group of foreign air carriers; (v) transfer
possession of the aircraft to any agency of the United States
government; or (vi) deliver possession of the aircraft to the
manufacturer for testing, service, maintenance and repair. Under
most aircraft leases, the rights of any permitted transferee are
subject and subordinate to all of the lessor's rights under, and
all of the terms of, the lease, including the lessor's right to
repossess the equipment, and the lessee remains primarily
obligated under the lease. If a permitted transferee becomes
insolvent or files for bankruptcy, the lessee would remain
primarily liable for continued rent payments to the lessor under
the lease, as well as for the due performance of all of its other
obligations under the lease. The lessor's ability to repossess
the aircraft from the permitted transferee, however, may be
restricted by applicable insolvency and bankruptcy laws, as well
as by the laws of a foreign country if the permitted transferee
is a foreign air carrier (See "BUSINESS OF THE COMPANY--LESSEES"
below).
The terms of the particular leases to which an Income
Producing Asset is subject will be extremely important in
ensuring an adequate lease payment stream and in limiting
uncovered costs. In order to achieve an acceptable lease rental
rate, the Company may agree in return to accept certain
undesirable features, such as relatively short initial terms or
renewal options or repurchase options at rental rates or sales
prices that may be below fair market value at the time of renewal
or sale. Leases with government contractors may be subject to the
government budget process, and if funding is not approved or
appropriated for such lease, the obligations of the contractor to
lease the plane from the Company may be extinguished without any
compensation for such early termination from the contractor.
It is possible that the Company will acquire Equipment
subject to a lease agreement that is conditioned upon the
lessee's acceptance of the Equipment. In such situations, there
is a risk that the Equipment will not be accepted by the lessee.
The Company will not acquire Equipment in such situations without
a right of recourse to the selling party for any losses caused by
the lessee's nonacceptance, but there may be a risk that the
selling party will not be able to meet its obligation to cover
such losses.
LESSEES
No Equipment or interests in Equipment (including
Financial Assets) will be purchased by the Company unless the
lessee under the lease for the Equipment or the obligor under the
Financial Asset (the "Payer") (or the parent of the Payer, if the
parent is responsible for the Payer's obligations under the lease
or if the Payer is a principal operating subsidiary of the
parent) is deemed to be creditworthy by JMC's credit review
committee, consisting of Neal D. Crispin, and Marc J. Anderson
(See "MANAGEMENT" below). The credit review committee will
evaluate the Payer's (or its parent's) net worth, liquidity, debt
burden, credit rating, payment history and other financial
factors. JMC will use the credit ratings assigned to the Payer by
nationally recognized credit rating agencies, to the extent such
credit ratings are available. If no rating by a nationally
recognized credit rating agency is available, JMC will rely upon
its own evaluation of the Payer's credit position, using the
financial information available as to the Payer and such credit
information as is available from banks, industry sources and
others. In some circumstances, credit enhancements may be
available such as guarantees by others of the Payer's performance
or rent deposits. In order to provide flexibility to allow JMC to
take advantage of attractive acquisition and leasing
opportunities, JMC will not be limited by specific guidelines in
approving potential Payers. The Company may even, in some cases,
acquire Income Producing Assets whose Payers may be in bankruptcy
or other reorganization proceedings, if the return is
sufficiently attractive relative to other available transactions
and JMC deems the risk of default to be reasonable in light of
the business circumstances.
JMC has broad flexibility with regard to the potential
lessees that it will accept on behalf of the Company. There can
be no assurance that the lessee's creditworthiness will not
deteriorate or that the lessee will fully perform its payment
obligations under the lease, particularly in view of the
financial difficulties experienced by a number of airlines
following deregulation of the airline industry. The risk that a
lessee will fail to perform payment obligations under its lease
may be substantially increased if the lessee is acquired or
subject to a leveraged buyout or other corporate restructuring
that substantially increases the debt burden of such lessee, as
has been common among airlines in the past.
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If a lessee enters bankruptcy, it is quite possible that
even though the lessee's lease payments cease, the Company may be
deprived of possession of the Equipment and therefore unable to
mitigate the harm by re-leasing or reselling it. Even if the
Company is able to repossess its Equipment following a lessee's
bankruptcy, the Company would then have to re-lease or sell the
Equipment at a time that might not be opportune, thus resulting
in the loss of anticipated revenues, incurring of additional
expenses and the inability to recover the Company's investment in
the Equipment. Leasing Equipment to foreign lessees may involve
additional risks. For example, use of different accounting or
financial reporting practices in foreign countries may make it
difficult to judge accurately the creditworthiness of lessees
from those countries. In addition, it may be difficult or
impossible for the Company to obtain or enforce judgments against
any foreign lessees in the event they default under the leases.
Lessees of the Equipment may operate the Equipment
outside the United States, may be foreign carriers or may
sublease the Equipment to foreign carriers. In such cases, the
Equipment may be subject to the regulations of other countries
regarding registration, maintenance, noise control, liability of
aircraft owners and lessors and other matters. Compliance with
these regulations could be costly (See "BUSINESS OF THE
COMPANY--REGULATORY CONCERNS"). Moreover, foreign jurisdictions
may confiscate or appropriate Equipment without paying adequate
compensation.
The use and operation of Equipment in a foreign
jurisdiction will be subject to the laws of that jurisdiction,
which may impose unanticipated taxes on the ownership of the
Equipment or the income derived from the Equipment. Foreign
registries may permit the recordation of liens which would cloud
title or may omit record liens or charges permitted under the
laws of such countries. There is also a risk that the records
maintained for the Equipment abroad might not be adequate to
permit transfer to title registration. The Company may also be
subject to risks associated with fluctuations in the value of
currencies if Equipment sales and leasing transactions are not
denominated for payment in United States dollars. Moreover, many
foreign countries have currency and exchange laws regulating the
transfer of currencies, and such laws may preclude a foreign
lessee from making payments to the Company in United States
dollars.
REMARKETING
General. Following the expiration of each initial lease
for Equipment purchased by the Company and any subsequent lease
entered into by the Company, the Company will seek to remarket
the Equipment; that is, the Company will seek either to extend
the existing lease (or re-lease the Equipment to the same
lessee), re-lease the Equipment to a new lessee, or to sell the
Equipment.
The Company, as lessor, consequently will bear the risks
associated with the inability to obtain renewal or new leases or
to sell the Equipment subject to such leases. The success of the
Company will depend on, among other things, the quality of the
equipment purchased, the quality and level of maintenance and
repairs by lessees, the timing of the purchases by the Company,
and the Company's ability to anticipate technological advances
and regulatory requirements concerning such Equipment. Further,
in order to ensure that Equipment is suitable for re-lease or
sale, the Company may be required to spend substantial sums to
recondition or reconfigure the Equipment and may be required to
borrow funds for that purpose.
The Company's successful negotiation of lease
extensions, re-leases and sales may be critical to its ability to
achieve its financial objectives, and will involve a number of
factors. In the first instance, ability to re-lease or resell
Equipment at acceptable rates may depend on the demand and market
values at the time of re-lease or resale. The Company anticipates
that the bulk of the Equipment it acquires will be used aircraft
equipment. The market for used aircraft is cyclical, with the
demand for and resale value of many types of older aircraft
recently being depressed by such factors as airline financial
difficulties and increased fuel costs, the number of new aircraft
on order and the number of older aircraft coming off lease.
Depression of resale values for particular aircraft is also
increased by the adoption of expensive, government-mandated
maintenance programs for older aircraft (See "BUSINESS OF THE
COMPANY--REGULATORY CONCERNS--Safety Requirements" below). The
Company's expected concentration in a limited number of aircraft
and aircraft engine types subjects the Company to increased
economic risks if those aircraft and aircraft engine types should
decline in value. Future changes in oil prices, or in
expectations concerning future oil prices, may affect
significantly the demand for and value of the Company's
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Equipment. Higher oil prices would increase the operating costs
of less fuel efficient aircraft, adversely affecting the
aircraft's market value. In the past, high oil prices have
resulted in a slowdown of passenger growth rates. The resale
value of particular aircraft could also be adversely affected by
technological changes, including developments improving fuel
consumption, aircraft speed and noise control. In addition to
general market factors, the residual value of a specific aircraft
will be affected by the past use of the aircraft, particularly
its number of cycles (take-offs and landings), and the condition
of the aircraft at the time of re-lease or sale. Because the
Company expects to acquire used Equipment, the risks involving
older aircraft may be applicable to the Company. Due to the
uncertainties involving these and other demand factors, there can
be no assurance that there will be demand for the Equipment on
commercially acceptable terms at the termination of the leases
for the Company's Equipment. The Company will attempt, wherever
possible, to obtain a residual value guarantee from the seller of
Equipment, whereunder the seller guarantees repurchase of the
Equipment at a price, when added to the lease rental revenue
received from the lessee, which results in a return of the
Purchase Price plus the Company's initial costs therefor.
Demand for lease or purchase of the Income Producing
Assets depends on the economic condition of the airline industry,
which is currently depressed. The state of the economy, uncertain
traffic levels and intense route and fare competition, among
other factors, have adversely affected economic conditions in the
airline industry. Several commercial airlines in recent years
have declared bankruptcy or have been forced to suspend, cease or
consolidate operations due to financial difficulties. Liquidation
of the fleet of any major commercial airline would have a
substantial adverse effect on the demand for and residual values
of all aircraft and aircraft engines.
Remarketing Arrangements. Under the Management
Agreement, JMC has overall responsibility for the management and
remarketing of the Company's Equipment. JMC may charge the
Company a remarketing fee, provided that such fee is not more
than the customary and usual brokerage fee that would be paid to
an unaffiliated party for such a transaction. JMC may also use
the services of third party brokers in remarketing the Equipment.
No arrangements with such brokers have been entered into with
respect to the Company's Equipment.
Sale of Assets. JMC generally will have the authority to
sell or otherwise dispose of Income Producing Assets on behalf of
the Company. The ability of the Company to dispose of its
interest in Equipment may be restricted to some extent where it
holds a partial interest in an asset in which other Persons own
interests as well (See "BUSINESS OF THE COMPANY--ACQUISITION
POLICIES--Investment With Other Entities"). In considering
whether to sell a particular Equipment, JMC will evaluate, among
other things, the current and potential earnings of the
Equipment, conditions in the market for lease and sale of the
Equipment and the future market outlook. JMC will have complete
discretion in determining the conditions of the sale of an asset,
including the sale of all or substantially all of the assets of
the Company.
JMC anticipates that most Equipment sales will be made
on an all-cash basis, although purchase-money financing might be
considered. Due to tax and other considerations, it is unlikely
any sale would be made on the installment method. Beginning May
1, 2003, all net resale proceeds with respect to the Collateral
will be placed in the Sinking Fund Account.
REGULATORY CONCERNS
The use, maintenance and ownership of certain types of
Equipment are regulated by federal, state and/or local
authorities which may impose restrictions and financial burdens
on the Company's ownership and operation of Equipment and,
accordingly, affect the profitability of the Company. Changes in
government regulations or industry standards, or deregulation,
may also affect the ownership, operation and resale of Equipment.
Equipment acquired by the Company may be registered in countries
other than the United States and will likely operate in
international and foreign territories. Accordingly, such
Equipment may be subject to the risk of adverse future economic,
political and governmental actions in the countries in which such
Equipment is registered or operated, including the risk of
foreign expropriation and the risk of loss arising from war. In
addition, certain types of Equipment (such as aircraft) are
subject to extensive safety and operating regulations by
governmental agencies and/or industry organizations. Such
agencies or organizations may require modifications or capital
improvements to items of Equipment which may result in the
removal of such Equipment from service for a period of time or
significant capital expenditures.
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Equipment Registration. Certain types of equipment are
subject to certain registration requirements. Registration with
the Federal Aviation Association ("FAA") is required for the
operation of aircraft within the United States. Failure to
register or loss of such registration regarding such Equipment
could result in substantial penalties, the premature sale of such
Equipment and the inability to operate and lease the Equipment.
All aircraft operating in the United States are required
to register with the FAA under the Aviation Act, except under
special circumstances not anticipated to be applicable to the
Company. Under the Aviation Act, except in special circumstances,
it is unlawful to operate an unregistered aircraft in the United
States. Subject to certain limited exceptions, the Aviation Act
requires that the aircraft be owned by a Citizen of the United
States or by certain other entities which meet certain other
criteria. The term "Citizen of the United States" is defined in
the Aviation Act to include a corporation of which at least 2/3
of the directors and executive officers are individuals who are
citizens of the United States and no more than 25% of the holders
of voting interests in the corporation are foreign citizens. To
protect the Company against the risks of deregistration, the
Company will not accept subscriptions from foreign investors if
it would cause the Company not to be deemed a Citizen of the
United States.
Aircraft Noise Abatement. Pursuant to the Noise Control
Act of 1972 and the Aviation Safety and Noise Abatement Act of
1979, the FAA has promulgated a series of regulations designed to
control and abate aircraft noise. The FAA regulations referred to
above address certification requirements and prescribe operating
noise limits and related requirements that apply to operation of
civil aircraft in the United States. Noise level restrictions are
classified as Stage 1, 2 and 3, with Stage 3 currently being the
most restrictive. Stage 3 restrictions currently apply only to
types of aircraft initially certified after 1975. Though the
Company anticipates purchasing Equipment that comply with Stage 3
requirements, it will not be restricted from doing otherwise.
State legislatures and other governmental bodies, as
well as some airport authorities, have adopted or considered
noise reduction measures, including restrictions on use or
operation of, and restrictions on, types of aircraft. The United
States Department of Transportation has encouraged airport
authorities to develop noise abatement plans and submit them to
the FAA for review and consideration of their uniformity,
lawfulness and nondiscriminatory nature. In the absence of such a
policy, regulations restricting the use of airports or requiring
modification of equipment or substitution of aircraft,
particularly state or local regulations which vary in uniformity,
could increase operating costs or affect the choice of aircraft
by operators, and, therefore, could adversely affect the
profitability of the operations of the Company.
Safety Requirements. In addition to registration, the
FAA imposes strict requirements governing aircraft inspection and
certification, maintenance, equipment requirements, general
operating and flight rules (including limits on arrivals and
departures), noise levels and certification of personnel and
record-keeping in connection with aircraft maintenance. FAA
regulations establish standards for repairs, periodic overhauls
and alterations and require that the owner or operator of an
aircraft establish an airworthiness inspection program to be
carried out by certified mechanics qualified to issue an
airworthiness certificate. No aircraft of the Company may be
operated without a current airworthiness certificate (See
"LEASES" for a description of the allocation of costs of
compliance with such regulations between lessees and lessors). In
addition, United States airlines have recently been subjected to
heightened surveillance by the Department of Transportation to
determine economic fitness as it relates to airline safety.
The Company, as the owner of Equipment, will bear the
ultimate responsibility for complying with federal regulations,
although the Company anticipates that lessees generally will be
responsible for compliance under the Triple Net Leases, except
that certain items (including compliance with noise abatement
standards and increased regulatory requirements, if any, such as
those referred to above) may be the subject of negotiation and,
therefore, may become the responsibility of the Company (See
"LEASES" above). Any increases in those costs, and the
uncertainty as to the amounts of future costs in a changing
regulatory environment, may decrease the value of the Equipment
and reduce the amount realized by the Company upon re-lease or
sale. Changes in government regulations such as the ones referred
to above which occur subsequent to the Company's acquisition of
Equipment may increase the cost and other burdens of complying
with such regulations, may reduce the Company's Cash Flow and may
adversely affect the re-lease or resale value of its Equipment.
The burdens of complying with these regulatory requirements may
be
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lessened in some situations in which aircraft or engines are used
in countries with less stringent regulations, although such use
may entail other economic risks (See "BUSINESS OF THE
COMPANY--LEASES").
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MANAGEMENT
Officers and Directors of the Company. The sole director
of the Company is Mr. Neal D. Crispin.
Directors are elected by the sole Common Shareholder of
the Company, JetFleet Management Corp., at each annual meeting of
the shareholders and serve until their successors are elected and
qualified at the next such meeting. Directors, advisory board
members, and officers of the Company will not receive
compensation of any kind for their services to the Company. In
calendar year 1996, Neal Crispin, Marc Anderson and Frank
Duckstein received an annual salary from JMC of $47,500, $109,650
and $51,200, respectively. JMC will pay its advisory board
members $1,000 for each meeting attended.
The officers of the Company are Mr. Neal D. Crispin,
President, Mr. Marc J. Anderson, Senior Vice President, and Mr.
Frank Duckstein, Vice President. Officers serve at the discretion
of the board of directors of the Company.
Mr. Neal D. Crispin, President and Director, age 51,
President and a director of CMA Consolidated, Inc. ("CMA"); the
Chief Executive Officer and a director of its wholly-owned
subsidiaries, Capital Management Associates founded in 1983, and
CMA Capital Management; and Chief Executive Officer, Chief
Financial Officer, Secretary and Chairman of the Board of
Directors of CMA Capital Corporation. He is also a general
partner of JetFleet I and JetFleet II. Mr. Crispin is also
President and a Director of JMC. Mr. Crispin has extensive
experience in developing asset-based financing alternatives that
provide innovative solutions to the financial and tax needs of
large corporations. In the past four years CMA has participated
in more than $1 billion of these financings. Prior to forming
CMA, Mr. Crispin was vice president-finance of an oil and gas
company. Previously, Mr. Crispin had been associated with Arthur
Young & Co., Certified Public Accountants, as a manager. Prior to
joining Arthur Young & Co., Mr. Crispin served as a management
consultant, specializing in financial consulting. Mr. Crispin is
the husband of Toni M. Perazzo, a Director and Officer of JMC. He
received a Bachelors Degree in Economics from the University of
California at Santa Barbara and a Masters Degree in Business
Administration (specializing in Finance) from the University of
California at Berkeley. Mr. Crispin, a certified public
accountant, is a member of the American Institute of Certified
Public Accountants and the California Society of Certified Public
Accountants. Mr. Crispin will devote such time to the affairs of
the Company as is necessary to carry out his duties to the
Company, which is expected to require at a minimum approximately
25% of his work hours.
Mr. Marc J. Anderson, Senior Vice President, age 60. Mr.
Anderson is in charge of portfolio management and aircraft
marketing and financing. Prior to joining the Company, Mr.
Anderson spent seven years as Senior Vice President Marketing for
PLM International, a transportation equipment leasing company
which is also the sponsor of syndicated investment programs.
While at PLM, he established the company's first aircraft
marketing group, closing in excess of 150 aircraft transactions
representing over $400 million. He was responsible for the
acquisition, modification, leasing and remarketing of all
aircraft. During his tenure, Mr. Anderson had an average aircraft
on-lease record of 96%. Previously, he was with two aircraft
manufacturers where he was responsible for customer contracting,
negotiation and documentation of sales agreements and leases and
obtaining debt and lease financing. Prior to that, Mr. Anderson
was with several airlines in various roles of increasing
responsibility. Mr. Anderson is also a Senior Vice President of
JMC. Mr. Anderson will devote such time to the affairs of the
Company as is necessary to carry out his duties to the Company,
which is expected to require at a minimum approximately 50% of
his work hours.
Frank Duckstein, Vice President, age 45. Mr. Duckstein
is in charge of market development and remarketing of aircraft
portfolios. Prior to joining the Company, Mr. Duckstein spent
five years as Director of Marketing for PLM International, a
transportation equipment leasing company. While at PLM, he was
responsible for sales and remarketing, market research and
development, both domestically and internationally, of PLM's
33
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corporate and commuter aircraft, as well as their helicopter
fleet. Previously, he was with international and regional
airlines operating within Europe and the U.S. with responsibility
for operation, market development and sales. He was involved in
the development of several turn-key, start-up operations in
Berlin, Germany and the United States. Mr. Duckstein attended the
Technical University of Berlin, majoring in Economics. He will
devote such time to the affairs of the Company as is necessary to
carry out his duties to the Company, which is expected to require
at a minimum approximately 75% of his work hours.
The Management Company. JMC, the holder of 100% of the
Common Stock of the Company, is the Management Company under the
Management Agreement. The directors and executive officers of JMC
are also the directors and executive officers of the Company. JMC
was incorporated in January 1994 (See "THE MANAGEMENT COMPANY AND
ITS AFFILIATES").
Pursuant to the Management Agreement, the Management
Company will be responsible for the management and operation of
the business of the Company. JMC is responsible for most
management decisions and will have responsibility for supervising
the Company's day-to-day operations, including compliance with
legal and regulatory requirements, and will be responsible for
cash management and communications between the Company and the
holders of Notes. The Management Agreement authorizes JMC, in its
sole discretion, to acquire, hold title to, sell, lease, re-lease
or otherwise dispose of the Income Producing Assets or any
interest therein on behalf of the Company when and upon such
terms as JMC determines to be in the best interests of the
Company.
The Sales Agent. The Sales Agent is CKS Securities,
Incorporated, an NASD broker-dealer. Pursuant to a Sales Agency
Agreement, a copy of the form of which is included as an exhibit
to the Registration Statement for this offering (See "AVAILABLE
INFORMATION"), the Sales Agent has agreed to act as the managing
underwriter of this Offering. For a description of certain terms
of that agreement and the compensation to be received by the
Sales Agent in connection with the Offering, see "PLAN OF
DISTRIBUTION."
The Trustee. First Security Bank, National Association,
will serve as Indenture Trustee for the Noteholders.
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<PAGE>
THE MANAGEMENT COMPANY AND ITS AFFILIATES
JMC is an Affiliate of the corporate general partner of
JetFleet I and JetFleet II, two publicly-offered limited
partnership programs, and is the parent corporation of JetFleet
III, a California corporation. Each of these syndicated entities
is engaged in the same business as proposed to be conducted by
the Company, and collectively they have raised approximately $63
million in aggregate syndication offering proceeds. JMC manages
the assets of those partnerships on behalf of their general
partner. Affiliates of JMC, Capital Management Associates and CMA
Management Group, Inc. (collectively "CMA"), have acted as
sponsors or administrators or in various other capacities with
respect to 40 equipment leasing programs, consisting of 28 trust
programs and 12 limited partnership programs involving in the
aggregate approximately $224 million of computer and related
equipment, virtually all of which was purchased by the programs
as used equipment (after the equipment had been placed in service
by lessors pursuant to then-existing leases). None of these
programs has involved aircraft. In the case of each of these
programs, interests in the programs were sold to investors
pursuant to private offerings. With respect to the vast majority
of these offerings, the Sales Agent has acted as the dealer
manager. In addition, CMA has arranged and participated in
separate equipment leasing transactions with corporations,
involving approximately $1 billion of equipment.
THE MANAGEMENT COMPANY
The holder of 100% of the Common Stock of the Company is
JetFleet Management Corp., a California corporation. JMC is also
the management company for the Company pursuant to the Management
Agreement between JMC and the Company.
JMC will have ultimate responsibility and authority for
the selection of Income Producing Assets to be acquired by the
Company and the leasing, re-leasing and/or subsequent sale of the
Income Producing Assets. JMC will have control over, among other
things, the negotiation and execution of lease agreements for the
Equipment, payment of operating expenses, review of compliance by
the Payers with their obligations under the leases or loan
agreements, as applicable (including performance of maintenance,
the payment of insurance and taxes and compliance with all
regulatory requirements), the recovery of possession of Income
Producing Assets in the event of a default, foreclosure on
collateral securing Financial Asset obligations of Payers and the
exercise of other appropriate remedies under the terms of the
leases or loan agreements, and all other matters relating to the
purchase, lease, use and ownership of the Income Producing
Assets. JMC will also be responsible for instituting and
prosecuting legal proceedings in the name of the Company.
JMC has the right, under the Management Agreement, to
employ such persons, including under certain circumstances
Affiliates of JMC, as it deems necessary for the efficient
operation of the Company.
In addition to sponsoring investment entities such as
the Company, JMC also engages or will be engaged in other
business activities involving Equipment. JMC intends to build a
significant volume of aircraft assets managed and leased for its
affiliates and for its own account, growing from the current base
of assets owned by the JetFleet Programs, the Company and
subsequent investment programs to over $100 million of assets
over the next two to three years. Asset management involves
several activities: remarketing owned aircraft, lease
origination, and buying and selling assets. In addition, JMC will
be developing an aircraft marketing business in two ways: first,
by supporting the acquisition and remarketing of its existing
base of assets managed and leased; and second, by providing a
profitable remarketing and sales service to unaffiliated owners,
lessors, and lessees of aircraft. Finally, JMC intends to engage
in Equipment financing, focusing on financing assets that are
difficult to finance utilizing conventional techniques.
Fiduciary Duty. Under California law, JMC will be
accountable to the Company and its shareholders as a fiduciary,
due to its status as a promoter and as sole voting shareholder of
the Company, and consequently must exercise good faith and
integrity in handling the affairs of the Company. Noteholders
that have questions concerning the duties of JMC, as a promoter
and controlling shareholder, should consult with their counsel.
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<PAGE>
In addition, the Management Agreement between JMC and
the Company requires that JMC devote such time as may be
necessary for the proper performance of its management duties and
shall use its best efforts to carry out the purposes of the
Company and shall manage the affairs of the Company to the best
of its abilities.
JMC may not be liable to the Company or the Noteholders
for errors in judgment or other acts or omissions not amounting
to willful misconduct or gross negligence since provision has
been made in the Management Agreement for the exculpation of JMC.
The Management Agreement also provides for indemnification of JMC
by the Company for liabilities incurred in dealings with third
parties on behalf of the Company. To the extent the
indemnification provisions purport to include indemnification for
liabilities arising under the Securities Act of 1933, in the
opinion of the Securities and Exchange Commission, such
indemnification is contrary to public policy and therefore,
unenforceable.
The Noteholders' interests will also be protected by the
provision of the Trust Indenture under which the Notes will be
issued, which provides the Noteholders certain rights and
contains certain covenants and prohibitions of the Company for
the benefit of the Noteholders which will be enforced by the
Indenture Trustee (See "THE TRUST INDENTURE").
JMC Compensation. For as long as the Company is in
existence, JMC is entitled under the Management Agreement to
receive a quarterly fee (the "Management Fee") of 0.50% of the
Aggregate Gross Offering Proceeds received by the Company in the
Offering through the end of the quarter in which such fee accrues
(Management Agreement, Section 6). JMC and/or its affiliates may
also receive reimbursement for accountable general administrative
expenses payable to unaffiliated third parties incurred in
connection with the administration and management of the Company.
Under the Trust Indenture, payment of the Management Fee is
subject to the prior payment of any amounts owing on the Notes or
to the Trustee. The Management Fee is intended to compensate and
reimburse JMC for management of the Company's Income Producing
Assets and administering the leases for such equipment. The
Management Fee will also compensate JMC for furnishing quarterly
and annual statements to the Company and the Trustee with respect
to rental collections and resale proceeds, and generating
information necessary for the Company to prepare all federal and
state income tax returns. In addition, JMC will receive a
Organization and Offering Expense Reimbursement to cover expenses
for registration, legal counsel, accounting services, printing,
trustee services, marketing (including advertising and assisting
participating brokers) and other miscellaneous costs and expenses
and allocated general administrative and overhead expenses
relating to the organization of the Company and the Offering
borne by JMC. JMC and/or its Affiliates may also receive a
brokerage fee in connection with acquisition of Income Producing
Assets by the Company, and/or a remarketing fee in connection
with the sale of the Company's assets. In no event will any
brokerage or remarketing fee be greater than the usual and
customary brokerage fee that would have been paid to an unrelated
third party broker (See "CONFLICTS OF INTEREST" and "TABLE OF
COMPENSATION TO MANAGEMENT COMPANY AND ITS AFFILIATES").
Officers, Directors, and Key Employees of JMC. The
directors of JMC are Neal D. Crispin and Toni M. Perazzo.
The officers of JMC are Mr. Neal D. Crispin, President,
Mr. Marc J. Anderson, Senior Vice President, Toni M. Perazzo,
Vice President - Finance, Secretary and Director, and Mr. Frank
Duckstein, Vice President. Officers serve at the discretion of
the board of directors.
Mr. Neal D. Crispin, President and Director. See
"MANAGEMENT--Officers and Directors of the Company," above.
Ms. Toni M. Perazzo, Director, Vice President - Finance &
Secretary, age 48, is CFO of CMA. Prior to joining CMA in 1990,
she was Assistant Vice President for a savings and loan,
Controller of an oil and gas syndicator and a senior auditor with
Arthur Young & Co., Certified Public Accountants. Ms. Perazzo is
also the Vice President-Finance and Secretary of JMC. Ms. Perazzo
is the wife of Neal D. Crispin, a Director and Officer of the
Company and JMC. She received her Bachelor's Degree from the
University of California at Berkeley
36
<PAGE>
and her MBA from the University of Southern California. Ms.
Perazzo, a CPA, is a member of the California Society of CPAs and
the AICPA. Ms. Perazzo will devote such time to the affairs of
the Company as is necessary to carry out her duties to the
Company, which is expected to require at a minimum approximately
50% of her work hours.
Mr. Marc J. Anderson, Senior Vice President. See
"MANAGEMENT--Officers and Directors of the Company," above.
Mr. Frank Duckstein, Vice President. See
"MANAGEMENT--Officers and Directors of the Company," above.
Advisory Board. Management of JMC has appointed an
advisory board which will consist of distinguished industry
experts. The Advisory Board will serve at the pleasure of the
Chairman of the Board. Advisory Board responsibilities will
include:
o Attending meetings of the Board of Directors and, upon
request, its committees in a non-voting, advisory
capacity. Giving advice to the Directors and officers
collectively and individually so as to enhance their
management effectiveness and the overall success of JMC
and its subsidiaries.
o Reviewing JMC's strategic plans, financial affairs, and
major projects and activities, and offering advice,
analysis and insight about them. Participation in
regular telephone, mail and fax communication with the
Directors and officers between meetings.
o Participation in the review and, upon request, the
negotiation of proposals and opportunities for mergers,
acquisitions, and major financings. Upon request of the
Board or senior management, meeting with third parties
as a representative of JMC.
o Maintaining awareness of trends and current developments
in the industry and the competitive environment.
o Considering JMC's interests in the context of his/her
other business dealings, and seeking to identify new
business opportunities and relationships which may
benefit the Company. Notifying the Board whenever a
conflict of interest arises or may arise between his/her
other business interests and the interests of JMC.
The Advisory Board will consist of Sidney F. Gage, who
has consented to the inclusion of his name in this Prospectus.
Sidney F. Gage, age 51, is a partner of Howard
Baumgarten Company, a management consulting firm specializing in
strategic business planning. Previously, he was Executive Vice
President and Director of Mission Resources, Inc., the managing
general partner of Mission Resource Partners, an oil and gas
company on the American Stock Exchange, and President of Mission
Securities, Inc., its NASD broker-dealer affiliate. Mr. Gage is
also a member of the advisory board of Bakersfield Energy
Resources, Inc., a privately held oil and gas concern. He is a
CPA with degrees from the University of Notre Dame and the
Stanford University Graduate School of Business. Mr. Gage has
served as a consultant to the CMA Group of companies since 1990.
37
<PAGE>
TABLE OF COMPENSATION TO MANAGEMENT COMPANY AND ITS AFFILIATES
This table sets forth the items of compensation payable
to the Management Company and its Affiliates and the estimated
amount of such assuming the Minimum and Maximum Offering amounts
are raised.
OFFERING AND ORGANIZATION STAGE
Estimated Amount
Assuming
Entity Receiving Minimum Maximum
Compensation Type of Compensation Offering Offering
JetFleet Management Organization and Offering Expense $7,500 $150,000
Corp. Reimbursement. Payable to JMC in
an amount up to 1.5% of Aggregate
Gross Offering Proceeds for
registration, legal accounting,
printing, trustee, marketing
(including advertising and
assisting participating broker
dealers) related to the offering
and the organization of the Company
borne by JMC. Any excess of such
costs over 1.5% will be paid to JMC
in the form of Common Stock at a
price of $1.00 per share.
ACQUISITION AND OFFERING STAGES
Estimated Amount
Assuming
Entity Receiving Minimum Maximum
Compensation Type of Compensation Offering Offering
JetFleet Management Management Fee. A quarterly fee $2,500 $50,000
Corp. payable to JMC in the amount of
0.5% of the Aggregate Gross
Offering Proceeds received by the
Company in the Offering through the
end of the quarter in which such
fee accrues.
JetFleet Management Brokerage and Remarketing Fees. To Not determinable
Corp. be paid in connection with the at this time
acquisition or sale of Income
Producing Assets by the Company, if
JMC acts as broker or remarketing
agent in such transaction. In no
event will any brokerage or
remarketing fee be greater than the
customary brokerage fee that would
have been paid to an unrelated
third party broker or remarketing
agent. Not determinable at this
time
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<PAGE>
JetFleet Management Accountable General Administrative Not determinable
Corp. Expenses. Reimbursement of certain at this time
expenses incurred by JMC payable to
unaffiliated third parties in
connection with the legal,
accounting, appraisal and similar
services rendered to the Company.
LIQUIDATION STAGE
Estimated Amount
Assuming
Entity Receiving Minimum Maximum
Compensation Type of Compensation Offering Offering
JetFleet Management As the sole holder of the Company's Not determinable
Corp. Common Stock, upon liquidation of at this time
the Company's assets after payment
of outstanding creditors and after
repayment of the Notes all
remaining proceeds and assets of
the Company, if any, are
distributed to JMC. Not
determinable at this time Not
determinable at this time
39
<PAGE>
JETFLEET(TM) PROGRAMS
JMC is an Affiliate of the corporate general partner of
JetFleet I and JetFleet II, two publicly-offered limited
partnership programs, and corporate parent of JetFleet III, each
of which is in the same business as proposed to be conducted by
the Company. JMC manages the assets of JetFleet III, and those of
JetFleet I and II on behalf of their general partner.
JetFleet(TM) I. Approximately $14.8 million was raised
from the public offering of limited partner interests in
JetFleet(TM) I from June 1989 to June 1991. JetFleet(TM) I has
paid cash distributions to its investors at an average rate of
8.09% of gross investor subscriptions per annum from inception
through January 31, 1997.
JetFleet(TM) I's portfolio consists of a 95.9% and a
24.37% undivided interest in two de Havilland Dash-7 airplanes
and a 50% undivided interest in a McDonnell Douglas DC-9.
JetFleet(TM) I's original asset, a Boeing 727-200 purchased in
1989 for approximately $6 million was written down by $3.7
million to estimated net realizable book value of $1.5 million in
1992. When the aircraft came off lease in 1994, it was sold and a
loss of approximately $235,000 was recognized. All JetFleet(TM)
I's assets are currently under lease.
JetFleet(TM) II. Approximately $34.7 million was raised
from the public offering of limited partnership interests in
JetFleet(TM) II from October 1991 through April 1994.
JetFleet(TM) II has paid cash distributions to its investors at
an average rate of 11.25% of gross investors' subscriptions per
annum from inception through January 31, 1997.
JetFleet(TM) II has purchased virtually all the
remaining interests in JetFleet(TM) I's Dash-7 and DC-9 aircraft
(referred to above), consisting of 4.00%, 75.53% and 50.00%
interests in those aircraft. In addition, JetFleet II has
purchased 100% interests in two additional Dash-7 aircraft. In
April 1995, JetFleet II rescinded a previous transaction with the
AGES Group, L.P. ("AGES") for three Pratt & Whitney JT8D-217A
engines on lease to AeroMexico because AGES had not obtained
certain consents regarding the transfer of ownership. A portion
of the rescission proceeds have been used to purchase a Fairchild
Metro III Aircraft, a Metro II, a Dash-6 aircraft and a second
DC-9 aircraft. Management is seeking investment opportunities for
the remaining proceeds.
In addition, JetFleet II owns twenty-three Pratt &
Whitney PT6 turboprop Engines, two Pratt & Whitney PT6A-50
Engines and two Allison Corp. helicopter engines.
All JetFleet(TM) II's assets are currently under lease.
JetFleet(TM) III. Approximately $ 10 million was raised
from the public offering of units of a secured bond ($850) and
Series A Preferred Stock ($150) in JetFleet(TM) III from October
1995 through January 1997. JetFleet(TM) III is current on all its
obligations under the bonds issued as part of the unit offering.
JetFleet(TM) III portfolio consists of one de Havilland
Dash 8-100 aircraft, three de Havilland DHC-6 Twin Otters
aircraft, one Shorts 3-60 aircraft, one Pratt and Whitney JT8D-9A
aircraft engine and a 50% undivided interest in a Fairchild Metro
II aircraft. All of JetFleet III's assets are currently under
lease.
Prior Performance Tables showing the performance of
JetFleet III are set forth in Appendix A to this Prospectus.
Investors desiring additional information concerning JetFleet
Programs may request from the Company the prospectus and current
periodic reports distributed to JetFleet Program investors.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as the date
of this Prospectus, relating to the beneficial ownership of the
classes of the Company's securities by any person or "group," as
that term is used in Section 13(d) (3) of the Securities and
Exchange Act of 1934 (the "Exchange Act"), known to the Company
to own beneficially 5% or more of the outstanding shares of a
class of the Company's stock, and known to the Company to be
owned by each director of the Company and by all officers and
directors of the Company as a group. Each of the persons named
below is believed by the Company to possess sole voting and
investment power with respect to the shares of the class of stock
beneficially owned by such person.
Percentage of Class
Class and No. Shares
Owned Beneficially
Before(1) After(2)
Beneficial Owners and of Record
Offering Offering
JetFleet Management Corp. (1) 10,000 100%
100%
Common
All directors and officers 10,000 100%
100%
of the Company as a group (2) Common
- --------------------------
(1) JMC will be the sole common shareholder of the Company.
(2) The sole director and President of the Company, Mr.
Crispin, does not own any shares in the Company. Shares
reported here represent shares owned by JMC, the sole
common shareholder of the Company. Mr. Crispin is each a
director, executive officer and principal shareholder of
JMC, holding 79%, respectively, of the Common Stock of
JMC. Toni M. Perazzo, spouse of Mr. Crispin, and a
director and officer of JMC, holds 12% of JMC. The
remaining 9% of the shares of JMC are held by Richard D.
Koehler, an affiliate of the Sales Agent.
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MANAGEMENT DISCUSSION AND ANALYSIS
OF THE FINANCIAL CONDITION OF THE COMPANY
General. The Company commenced its operations in
February 1997 and did not have any prior operations or results.
Due to the fact that the Company does not have operations prior
to 1997, there are no ascertainable trends in the Company's
results from operations at the present time. The Company's
business since February 1997 has been focused on capital raising
activities for the Company and identifying assets for acquisition
using the proceeds of this Offering.
Results of Operations. The Company has yet to generate a
profit due to the fact that the Company is still in the start-up
phase of its operations with its activities, through its
management company, devoted primarily to the capital formation
activities of the Company and identification of assets for
acquisition. As of February 15, 1997, the Company had authorized
100,000 shares of Common Stock and 100,000 shares of Preferred
Stock and issued 10,000 shares of Common Stock and no shares of
Preferred Stock for total capital of $10,000.
Liquidity and Capital Resources. The Company's cash and
temporary investments were approximately $10,000 as of February
15, 1997. This capital should provide sufficient capital, which
when combined with revenue from Income Producing Assets should be
sufficient to satisfy the Company's cash requirements for the
next twelve months. Due to the start-up nature of the Company's
activities, the Company had not, as of February 15, 1997,
generated significant revenues, or, therefore, a positive cash
flow from its operations, although it believes it will begin to
do so as soon as it has completed acquisition of the first Income
Producing Asset.
The Company's primary sources of funds for repayment of
the Notes will be the income and resale proceeds of the Income
Producing Assets acquired by the Company with the proceeds of
this Offering. The Company does not have, nor is it expected to
have in the future, any significant source of capital for payment
of the Notes and the expenses incurred by it other than proceeds
from Income Producing Assets. Nevertheless, management of the
Company believes that the Company will realize sufficient
proceeds from the foregoing sources to pay all installments of
interest when due on the Notes and to satisfy the principal
amount of the Notes in full at maturity.
In order to achieve its investment objectives and meet
its obligations under the Notes, the Company must be able to
acquire Equipment the initial leases for which, in combination
with any subsequent leases or resale of the Equipment, would
yield a return over and above the Purchase Prices plus the
Company's initial costs and continuing operating costs. This
requires the Company to acquire Equipment subject to leases with
adequate lease payment streams, to re-lease or resell Equipment
for the anticipated release rental or residual value at the end
of the initial lease period and to avoid uncovered costs. While
certain events such as an unexpected change in oil prices, or
major government mandated safety requirement changes could affect
the Company, the Company does not anticipate any such events
occurring in the near future. The economic condition of the
aircraft industry is currently depressed, and the bankruptcy and
liquidation of a major airline or a number of smaller airlines
occurring after the Company has purchased its asset portfolio
could have a substantial adverse effect on the demand for a
residual values of the Company's asset portfolio. Whether such an
event would have an adverse effect on the Company and its ability
to repay the Notes would depend on the timing of such event with
respect to the Company's acquisitions and remarketing efforts,
the type of aircraft held in the Company's portfolio, and the
extent to which the market has previously adjusted pricing to
reflect the anticipated liquidation of the airline's fleet. The
Company will endeavor to avoid purchasing assets that would be
directly affected by such an event, or in the alternative, ensure
that the purchase price of assets it acquires are adequately
discounted to account for reflect such contingencies.
Competition. The aircraft leasing industry is highly
competitive. The Company will compete with aircraft
manufacturers, distributors, airlines and other operators,
equipment managers, leasing companies, equipment leasing
programs, financial institutions and other parties engaged in
leasing, managing or remarketing aircraft, many of which have
significantly greater financial resources and more experience
than the Company. Such 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. Manufacturers may
provide certain ancillary services which the Company cannot
offer, such as maintenance service (including possible
substitution of
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<PAGE>
equipment), warranty services and trade-in privileges. These
factors may limit the number and types of Equipment assets which
are available to the Company, adversely affect the Company's
ability to purchase Equipment which are subject to favorable
lease terms or to leases with desirable lessees and may adversely
affect the Company's ability to sell or re-lease its Equipment.
The trade publication, Airfinance Annual 1994/95, listed
approximately 300 aircraft leasing companies and approximately
200 banks and financing companies engaged in aircraft industry
financing distributed over 40 countries. The Company intends
to fill a niche within the aircraft finance
industry. The Company believes that many major banks have backed
away from aircraft finance even though the aircraft industry will
continue to have substantial capital equipment financing
requirements, and that financing through the Company will be one
of the few sources for transactions in the range of $10,000,000
or less. Based on JMC's experience with the JetFleet Programs,
management believes that this market segment should provide the
Company with a good selection of desirable acquisition criteria
such as strong credits, rent guarantees, and residual value
guarantees.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the
anticipated federal income tax consequences of the purchase,
ownership, and disposition of the Notes. The summary is based
upon laws, regulations, rulings, and decisions now in effect, all
of which are subject to change. The discussion does not purport
to deal with the federal income tax consequences to all
categories of investors, some of which may be subject to special
rules. The discussion focuses primarily on investors who will
hold the Notes as "capital assets" (generally, property held for
investment) within the meaning of Section 1221 of the Code, but
much of the discussion is applicable to other investors as well.
Investors should note that certain provisions of the Code that
are applicable to Noteholders, particularly the provisions
dealing with original issue discount, market discount, premium
amortization, and imputed interest, have been enacted or modified
substantially by recent legislation, which, for the most part,
has been the subject of scant interpretation. Hence, definitive
guidance cannot be provided with respect to many aspects of the
tax treatment of Noteholders. Moreover, the summary is based on
current law, and there can be no assurance that the law will not
change or that the Internal Revenue Service will not take
positions that would be materially adverse to investors.
This summary provides a discussion of tax
consequences deemed material by counsel but is not, and is not
intended to be, a complete or exhaustive analysis of all possible
applicable provisions of the Code, the Regulations, and judicial
and administrative interpretations thereof. The income tax
considerations discussed below are necessarily general and will
vary with the individual circumstances of each prospective
Noteholder. Further, the summary does not purport to address the
anticipated state income tax consequences to investors of owning
and disposing of the Notes. Consequently, investors should
consult their own tax advisors in determining the federal, state,
local, and any other tax consequences to them of the purchase,
ownership, and disposition of the Notes.
No rulings have been or will be requested
from the IRS concerning any of the tax matters described herein.
Accordingly, there can be no assurance that the IRS or a court
will not disagree with the following discussion or with any of
the positions taken by the Company for federal income tax
purposes.
FOR THE FOREGOING REASONS, EACH PROSPECTIVE PURCHASER OF NOTES IS
URGED TO CONSULT HIS SUCH PROSPECTIVE PURCHASER'S TAX ADVISER
WITH SPECIFIC REFERENCE TO THE FEDERAL AND STATE CONSEQUENCES TO
SUCH PROSPECTIVE PURCHASER RESULTING FROM THE PURCHASE OF NOTES
AND FROM FUTURE CHANGES IN TAX LAWS AND REGULATIONS.
Summary of Material Tax Aspects. The following
summarizes all material tax aspects for an investment in the
Notes. Such aspects should not, however, be considered a primary
investment feature of the Notes. The very nature of an investment
in the Notes involves complex issues of taxation, and
accordingly, investors are urged to review the entire discussion
of tax matters in "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" and
"RISK FACTORS--Tax Risks" in the Prospectus. With respect to
these issues, the Company will receive an opinion of counsel as
to the material tax aspects ("CERTAIN FEDERAL INCOME TAX
CONSEQUENCES--Opinion of Counsel").
The principal tax aspect likely to be material
to an investor is the characterization of the Notes as bona fide
indebtedness of the Company rather than as some form of equity
investment in the Company. If for any reason, as such
possibilities are described in the balance of this section, the
Notes were not treated as corporate indebtedness for tax
purposes, it could result in the Noteholders being taxed on the
income received as shareholders or as partners, or as income
received in some other form of financing transaction.
The character of the Note's income may also be
material to investors. The income from the Note will generally be
characterized as portfolio income for tax purposes. Counsel is
opining that the income from the Note should be treated as a
portfolio income for tax purposes. Portfolio income is generally
income from interest, dividends, royalties or certain rentals.
Such income generally cannot be offset by passive losses
generated from other passive investments.
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Other aspects of an investment in the Notes may
be considered material to prospective investors based upon unique
circumstances applicable to individual investors. Accordingly,
investors are urged to review the balance of the discussion of
tax consequences in this section.
Opinion of Counsel. The Company will obtain an
opinion from Counsel which states that the sections of the
Prospectus which discuss the material tax risks and the section
of the Prospectus entitled "CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS" accurately describe each of the material tax
issues and reflect Counsel's opinion regarding such matters
referred to therein. The Notes are intended to serve as an
investment vehicle for investors seeking current income and tax
benefits are not a significant aspect of an investment in the
Notes. Although its conclusions are not free from doubt, Counsel
has opined herein, subject to certain conditions and based upon
certain representations, that:
1. Notes Treated as Corporate Debt. The Notes
will be treated as valid indebtedness of the Company.
2. Portfolio Income. The interest income from
the Notes will be treated as portfolio income.
3. Unrelated Business Taxable Income.
Interest income on the Notes will not be treated as Unrelated
Business Taxable Income for those tax exempt investors that do
not finance their acquisition of Notes.
Counsel's opinion is based upon the facts
described in this Prospectus and upon facts and assumptions as
they have been represented by the Company to Counsel or
determined by them as of the date of the opinion. Counsel has not
independently audited or verified the facts represented to it by
the Company. The material assumptions and representations are
summarized below:
(i) The Notes will be issued and governed in
accordance with the Trust Indenture Act of 1939, as amended.
(ii) The Notes will be governed by their
constituent documents as described in the Prospectus.
(iii) The Company will be operated as described
in the Prospectus.
(iv) The Income Producing Assets will generate
an annual yield sufficient to service interest on the Notes and
will maintain a sufficient residual value so that, together with
the excess funds generated from the yield on the Income Producing
Assets, the Company can repay the principal balance of the Notes
upon maturity.
Any alteration of the facts may adversely
affect the opinion rendered. Furthermore, the opinion of Counsel
is based upon existing law and applicable Regulations and
Proposed Regulations, current published administrative positions
of the Service contained in Revenue Rulings and Revenue
Procedures, and Judicial decisions, which are subject to change
either prospectively or retroactively.
Each Prospective Investor should note that the
opinion described herein represents only Counsel's best legal
judgment and has no binding effect or official status of any
kind. Thus, in the absence of a ruling from the Service, there
can be no assurance that the Service will not challenge the
conclusion or propriety of any of Counsel's opinions and that
such challenge would not be upheld by the courts.
General. Payments received by Noteholders
generally should be accorded the same tax treatment under the
Code as payments received on other taxable corporate bonds.
Interest paid or accrued on a Note will be treated as ordinary
income to the Noteholder and a principal payment on such Note
will be treated as a return of capital to the extent that the
Noteholder's basis in the Note is allocable to that payment.
Interest paid to Noteholders who report their income on the cash
receipts and disbursements method of accounting generally should
be taxable to them when received. For Noteholders who report
their income on the accrual method of accounting, interest will
be taxable when accrued, regardless of when it is actually paid.
The Company or the Indenture Trustee will report annually to the
Internal Revenue Service and to Noteholders of record with
respect to interest paid or accrued and original issue discount,
if any, accrued on the Notes.
Classification of Notes. Each Note is a
full recourse obligation of the Company and provides for a fixed
interest rate. The Service may, nevertheless, contend that all,
or a portion, of the Note should be recharacterized as
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equity or as a partnership interest or as some other form of
financing transaction rather than as true debt primarily because
the Company's equity base relative to the amount of the Notes is
not considerable and the only means of repayment of the Notes is
by generating a sufficient yield, and maintaining a sufficient
residual value in, the Income Producing Assets. Such contention
is similar to the rationale that underlies the 1989 Act's
treatment of hybrid corporate debt instruments as partly debt and
partly equity.
To the extent that a debt instrument is
recharacterized as equity, it is possible that the lender will be
treated as being a shareholder or as being a joint venture
partner. If the Notes are so recharacterized, such
recharacterization could have a material adverse tax impact on
the Company and the Noteholders. For example, if a Noteholder
were held to be a joint venture partner with the Company, such a
recharacterization would involve allocating the profits and
losses between the "deemed" Partners, i.e., the Noteholders and
the Company. If such recharacterization were to occur,
allocations of profit and loss would be substantially different
from the expected interest payments. The deductibility of the
substantial interest payments by the Company would be eliminated.
Moreover, distributions to Tax-Exempt Investors would no longer
be interest income but would be deemed "unrelated business
taxable income" ("UBTI").
On the other hand, if the Notes were
recharacterized as equity in the Company, it could result in
material differences in tax treatment from the Notes. Generally,
amounts received on retirement of corporate indebtedness, such as
the Notes, are treated as amounts received in exchange for the
debt instrument, with the result that the receipt is a nontaxable
return of capital to the extent of the holder's basis in the
retired instrument. In contrast, stock redemptions may be taxed
as dividends without any offset for the stockholder's basis in
the redeemed shares. With respect to losses from an investment in
the Notes, losses on corporate indebtedness are generally a
capital loss to individual investors and corporate investors.
Losses on corporate stock are generally a capital loss to
individual and corporate investors. It is possible, however, that
certain indebtedness may be treated as a bad debt loss to
individual investors. In addition, the debt-equity distinction
has material tax consequences to the Company which may, in turn,
have an impact on the Company's financial soundness. For example,
interest paid on corporate indebtedness is generally deductible
to the Company while dividends paid are not. While the underlying
business impact of the debt equity characterization is beyond the
scope of this section, investors should note that
recharacterization of the Notes as equity in the Company may also
affect the Company's federal income tax situation which may
indirectly adversely affect the return of principal to
Noteholders.
In an earlier attempt to resolve this issue,
Congress enacted Section 385 which authorized the Treasury
Department to define corporate stock and debt by regulation for
all purposes of the Code. Section 385 defined five factors that
may be considered in the regulations: (1) whether there is an
unconditional promise to pay on a specified date a fixed sum of
money in return for adequate consideration and to pay a fixed
rate of interest; (2) whether there is a subordination to, or
preference over, other debt; (3) the ratio of debt to equity; (4)
whether there is convertibility of debt into stock; and (5) the
relationship of stockholdings to the holdings of debt. The
particular precedential importance of these factors was muted by
Congress's pronouncement in enacting Section 385 that, "It is not
intended that only these factors be included in the guidelines or
that, with respect to any particular situation, any of these
factors must be included by statute must necessarily be given any
more weight than any other factors added by regulation."
The courts have looked to a number of factors
in order to resolve classifications of debt and equity in the
corporate context. In Hardman v. United States, 827 F.2d 1409
(9th Cir. 1987) [87-2 U.S.T.C. P. 9523] the court reviewed the
laundry list of factors to consider: (1) the names given the
certificates evidencing the indebtedness; (2) the presence or
absence of a fixed maturity date; (3) the source of the payments;
(4) the right to enforce payment of principal and interest; (5)
participation in management; (6) status equal to or inferior to
other corporate debtors; (7) the intent of the parties; (8) thin
capitalization; (9) identity of interest between creditors and
shareholders; (10) payment of interest only out of "dividend"
money; and (11) ability of corporation to obtain loans from
outside lending institutions.
The only factors that would tend to suggest
that the Notes may have equity attributes are the Company's
relatively thin capitalization and the source of repayment being
solely from the yield on, and residual value of, the Income
Producing Assets. Such factors, though, have recently been
discounted when the form of the transaction is structured as debt
and there is "soundly anticipated cash flow." Nestle Holdings,
Inc. v. Comm'r, 70 T.C.M. 682, T.C.M. 95, 441 (September 14,
1995).
Counsel will advise the Company that in its
opinion the Notes will be treated for federal income tax purposes
as evidence of indebtedness and not as an equity interest in the
Company. That opinion is based upon the Company's assumption as
to yield on, and residual value of, the Income Producing Assets,
and will be based on existing law, but there can be no assurance
that the law will not change or that contrary positions will not
be taken by the Internal Revenue Service. The balance of the
discussion in this section assumes the Notes are treated as valid
indebtedness of the Company.
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Market Discount. A purchaser of a Note at a
discount from its original principal amount less any prior
principal payments acquires such Note with "Market discount."
Market discount with respect to a Note will be considered to be
zero, however, if such market discount is de minimis, i.e., less
than 0.25% of the remaining principal amount of such Note, times
the weighted average maturity of the Note remaining after the
date of purchase. The purchaser of a Note with more than a de
minimis amount of market discount generally will be required to
recognize accrued market discount as ordinary income as principal
payments are received, in an amount not exceeding any such
payment. That recognition rule applies regardless of whether the
purchaser is a cash-basis or accrual-basis taxpayer.
Such purchaser may elect to accrue market
discount either (i) on the basis of a constant interest rate,
(ii) in the case of a Note not issued with original issue
discount, in the ratio of stated interest payable in the relevant
period to the total stated interest remaining to be paid from the
beginning of such period, or (ii) in the case of a Note issued
with original issue discount, in the ratio of original issue
discount accrued for the relevant period to the total remaining
original issue discount at the beginning of such period.
Regardless of which computation method is elected, the prepayment
assumptions used in pricing the Note must be used to calculate
the accrual of market discount at the beginning of such period.
Regardless of which computation method is elected, the prepayment
assumptions used in pricing the Note must be used to calculate
the accrual of market discount. A Noteholder who has acquired a
Note with market discount also generally will be required (i) to
treat a portion of any gain on a sale or exchange under one of
the foregoing methods, less any accrued market discount
previously reported as ordinary income as partial principal
payments were received and (ii) to defer interest deductions
attributable to any indebtedness incurred or continued to
purchase or carry the Note (to the extent they exceed income on
the Note). Any such deferred interest expense, in general, is
allowed as a deduction not later than the year in which the
related market discount income is recognized. As an alternative
to the inclusion of market discount in income on the foregoing
basis, the Noteholder may elect to include such market discount
in income currently as it accrues on all market discount
instruments acquired by such holder in that taxable year or
thereafter, in which case the interest deferral rule will not
apply. Treasury regulations implementing the market discount
rules have not yet been issued and uncertainty exists with
respect to various aspects of those rules. Due to the lack of
regulatory guidance with respect to the market discount rules, it
is suggested strongly that Noteholders consult their own tax
advisors regarding the application of those rules as well as the
advisability of making any elections thereunder.
Note Premium. A purchaser of a Note who
purchases the Note at a premium over its principal amount may
elect to amortize such premium under a constant yield method that
reflects compounding based on the Note's payment period.
Accordingly, it appears that the accrual of premium on a Note
will be calculated using the same prepayment assumptions made in
pricing the Note. Amortized Note premium would be treated as an
offset to interest income on a Note and not as a separate
deduction item. Acquisition premium on a Note that is subject to
redemption at the option of the Company, however, generally must
be amortized as if the optional redemption price and date were
the Note's principal amount and maturity date if doing so would
result in a smaller amount of premium amortization during the
period ending with the optional redemption date. Thus, a
Noteholder would not be able to amortize any premium on a Note
that is subject to optional redemption at a price equal to the
Noteholder's acquisition price unless and until the redemption
option expires. In cases where premium must be amortized on the
basis of the price and date of an optional redemption, the Note
will be treated as having matured on the redemption date for the
redemption price and then having been reissued on that date for
that price. Any premium remaining on the Note at the time of the
deemed reissuance will be amortized on the basis of (i) the
original principal amount and maturity date, or (ii) the price
and date of any succeeding optional redemption under the
principles described above.
Gain or Loss on Disposition. If a Note is sold,
the Noteholder will recognize gain or loss equal to the
difference between the amount realized in the sale and his
adjusted basis in the Note. The adjusted basis of a Note
generally will equal the cost of the Note to the Noteholder,
increased by any original issue discount or market discount
previously includable in the Noteholder's gross income with
respect to the Note, and reduced by the portion of the basis of
the Note allocable to payments on the Note previously received by
the Noteholder and by any amortized premium. Similarly, a
Noteholder who receives a scheduled or prepaid principal payment
with respect to a Note will recognize gain or loss equal to the
difference between the amount of the payment and his adjusted
basis in the Note or portions thereof which are satisfied by such
payment.
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Except to the extent that the market discount
rules apply and except as provided in this paragraph, any gain or
loss on the sale or other disposition of a Note will be capital
gain or loss and will be long-term if the Note is held as capital
asset for more than twelve months. A portion of any gain (equal
to the amount of original issue discount not previously included
in income) referred to in the preceding sentence will be treated
as ordinary income if the Company is determined to have had an
intention on the date of original issue of the Notes to call all
or a portion of the Notes prior to maturity. Although the
Internal Revenue Service might take a contrary position, the
Company does not believe that it will have an intention to call
all or a portion of the Notes prior to maturity.
Purchase of Notes by Exempt Plans and Other
Exempt Organizations. Generally, trusts forming part of a
pension, profit sharing, or Keogh plan meeting the requirements
of Section 401(a) of the Code (all collectively referred to as
"Exempt Plans"), and individual retirement accounts and trusts
("IRAs and IRTs"), as well as certain charitable and other
organizations described in Code Section 501(c) are exempt from
federal income tax. However, this exemption does not apply to
"unrelated business taxable income" derived by the Exempt Plan,
IRAs, IRTs and other exempt organizations from the conduct of any
trade or business which is not substantially related to the
exempt function of the entity. If Exempt Plans, IRAs, IRTs and
other exempt organizations receive unrelated business taxable
income, such entities will be subject to a tax imposed by Section
511 of the Code on the portion of their income constituting
unrelated business taxable income. An Exempt Plan, IRA, IRT or
other exempt organizations will also be subject to alternative
minimum tax on the unrelated business taxable income.
Unrelated business taxable income is defined as
the gross income derived by an Exempt Plan, IRA, IRT or other
exempt organization from any unrelated trade or business
regularly carried on by such entity, less allowed deductions
directly connected with the carrying on of such trade or
business. Certain types of income, including interest, dividends,
royalties, gains or losses from the sale or exchange of property
(other than property held as inventory or held primarily for sale
to customers in the ordinary course of trade or business) and
rental payments from real property are excluded from the
unrelated business taxable income computation. However, if an
otherwise excluded item of income constitutes "unrelated
debt-financed income" then such income is not excluded from the
computation of unrelated business taxable income.
Unrelated debt-financed income is the
percentage of gross income derived from or on account of property
("debt-financed property") with respect to which there is
"acquisition indebtedness." The applicable percentage is equal to
the ratio of the average acquisition indebtedness for the taxable
year with respect to the property to the average adjusted basis
for the taxable year of such property. For the purposes of this
calculation, "debt-financed property" includes any property held
to produce income and with respect to which there is an
acquisition indebtedness at any time during the taxable year.
Further, Section 514(c)(1) defines the term "acquisition
indebtedness" as the outstanding amount of: (1) the principal
debt incurred in acquiring or improving the debt-financed
property, (2) the principal indebtedness incurred before the
acquisition or improvement of the property if the obligation
would not have been incurred but for the acquisition or
improvement, and (3) the indebtedness incurred after the
acquisition or improvement of the property if the obligation
would not have been incurred but for the acquisition or
improvement and incurring the indebtedness was reasonably
foreseeable at the time the property was acquired or improved. In
the event that an Exempt Plan, IRA, IRT or other exempt
organization is deemed to have unrelated debt-financed income for
any taxable year, the entity will also be entitled to claim a
like percentage of the deductions that are directly connected
with the debt-financed property or the income therefrom.
Therefore, if an Exempt Plan, IRA, IRT or other
exempt organization borrows funds to acquire the Notes, the
interest received on such Notes may be reclassified as unrelated
business taxable income on which the Exempt Plan, IRA, IRT or
other exempt organization may be taxed. Correspondingly, if an
Exempt Plan, IRA, IRT, or other exempt organization does not
borrow funds to acquire the Notes, the interest received on such
Notes will not be unrelated business taxable income.
In considering an investment in the Notes of
the Company by use of a portion of the assets of an Exempt Plan,
IRA or IRT, a fiduciary should consider: (i) whether the
investment is in accordance with the documents and instruments
governing the Exempt Plan, IRA or IRT, (ii) whether the
investment satisfies the diversification requirements of Section
404(A)(1)(C) of the Employee Retirement Income Security Act of
1974 ("ERISA"), (iii) whether the investment is prudent, because
there may not be a market created in which he can sell or
otherwise
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<PAGE>
dispose of the Notes or because the Notes are not adequately
secured, (iv) whether the assets of the Company are considered to
be "plan assets" under Department of Labor Regulation
ss.2510.3-101, and (v) whether the income would be unrelated
business taxable income because of the use of acquisition
indebtedness as a source of the funds used to acquire the Notes.
EXEMPT PLANS, IRAs, IRTs AND OTHER EXEMPT ORGANIZATIONS ARE
STRONGLY URGED TO CONSULT THEIR TAX ADVISORS RELATIVE TO THE
POSSIBILITY OF UNRELATED BUSINESS TAXABLE INCOME AND ITS
CONSEQUENCES TO THEIR SPECIFIC CIRCUMSTANCES PRIOR TO AN
INVESTMENT IN THE NOTES OF THE COMPANY.
THIS SUMMARY IS OF THE TAX LAWS UNDER THE INTERNAL REVENUE CODE
AND DOES NOT INCLUDE A DISCUSSION OF ANY RULES OR REGULATIONS
ENACTED OR PROMULGATED BY THE DEPARTMENT OF LABOR UNDER ERISA.
ANY NOTEHOLDER SUBJECT TO ERISA OR DEPARTMENT OF LABOR
REGULATIONS RELATING TO EXEMPT PLANS SHOULD CONSULT ITS ADVISORS
REGARDING AN INVESTMENT IN THE NOTES.
Taxation of Certain Foreign Investors.
Interest, including original issue discount, paid on a Note to a
nonresident alien individual, foreign corporation, or other
non-United States person (foreign nonresident alien individual,
foreign corporation, or other non-United States person ("Foreign
Person")) generally is treated as "portfolio interest" and,
therefore, is not subject to any United States tax, provided that
(i) such interest is not effectively connected with a trade or
business in the United States of the Noteholder, and (ii) the
Company (or other person who would otherwise be required to
withhold tax) is provided with certification that the beneficial
owner of the Note is a Foreign Person ("Foreign Person
Certification"). If Foreign Person Certification is not provided,
interest (including original issue discount) paid on a Note may
be subject to a 30% withholding tax (See "Backup Withholding").
Backup Withholding. Under federal income tax
law, a Noteholder may be subject to "backup withholding" under
certain circumstances. Backup withholding applies to a Noteholder
who is a United States person if the Noteholder, among other
things, (i) fails to furnish his social security number or other
taxpayer identification number ("TIN") to the Company, (ii)
furnishes the Company an incorrect TIN, (iii) fails to report
properly interest and dividends, or (iv) under certain
circumstances, fails to provide the Company or the Noteholder's
securities broker with a certified statement, signed under
penalties of perjury, that the TIN provided to the Company is
correct and that the Noteholder is not subject to backup
withholding. Backup withholding applies, under certain
circumstances, to a Noteholder who is a foreign person if the
Noteholder fails to provide the Company or the Noteholder's
securities broker with a certified statement, signed under
penalties of perjury, that the Noteholder is not a United States
person. Backup withholding, however, does not apply to Note
payments made to certain exempt recipients, such as tax-exempt
organizations, and to certain foreign persons. The backup
withholding rate is 31% of "reportable payments," which include
interest payments and principal payments to the extent of accrued
original issue discount. Noteholders should consult their tax
advisors for additional information concerning the potential
application of backup withholding to Note payments received by
them.
Reporting Requirements. Reports will be made
annually to the Internal Revenue Service and to holders of record
of Notes (other than those excepted from the reporting
requirements) as may be required with respect to (i) interest
paid or accrued on the Notes, (ii) original issue discount, if
any, accrued on the Notes, and (iii) information necessary to
compute the accrual of any market discount or the amortization of
any premium on the Notes.
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PLAN OF DISTRIBUTION
The Company is offering up to $10,000,000 in
Notes. The Notes will be sold on a "best efforts" basis by CKS
Securities, Incorporated and any other participating
broker-dealers that are qualified to offer and sell the Notes in
a particular state as engaged by the Company and that are members
of the National Association of Securities Dealers, Inc. On or
before May 1, 1998, both (i) the minimum amount of Notes must be
subscribed, and (ii) an initial Income Producing Asset for
purchase must be specified, or the offering will be terminated,
and the escrowed funds, plus any interest earned thereon, will be
promptly returned to the investors by the escrow agent. Upon
reaching the Minimum Offering Amount of $500,000, the escrowed
funds may be released to the Company. Any subsequent sales
proceeds from Notes will be immediately available for use by the
Company; however, the Company anticipates that it will accept
subsequent subscriptions and release from escrow proceeds from
such subscriptions at monthly closings until the Termination
Date. All subscriptions are subject to the right of the Company
to reject any subscription in whole or in part.
The Company has agreed to pay soliciting
broker-dealers, in consideration for their services, a sales
commission of 5.0% and pay to CKS an unallocated due diligence
and marketing fee of 1.5% to cover certain marketing and selling
expenses, a portion of which fee may be reallowed by CKS to
certain soliciting broker-dealers to cover the usual selling
efforts undertaken by broker-dealers in soliciting purchasers of
the Notes and determining whether such prospective purchasers are
qualified for such investment. The Company will also pay JetFleet
Management Corp. ("JMC") the Organization and Offering Expense
Reimbursement. The Company has agreed to indemnify the
broker-dealers against certain liabilities, including liabilities
under applicable securities laws.
The offering will terminate on May 1, 1999,
unless sooner terminated by the Company upon the failure to
achieve the minimum subscription amount, upon the sale of all of
the Notes or if the Company believes that suitable assets will
not be available for acquisition by the Company or that
additional selling efforts will be unsuccessful. Although early
termination of the offering may result in the Company selling
less than $20 million in aggregate subscriptions for Notes and
may expose prior purchasers of Notes to certain risks, the
Company does not believe an early termination will have a
material adverse effect on any prior purchasers of Notes (See
"RISK FACTORS--INVESTMENT RISKS--Lack of Diversification").
Investor funds will be held in a subscription
escrow account with First Security Bank, National Association,
Salt Lake City, Utah, as escrow agent, until the minimum offering
amount of $500,000 in Note subscriptions are received or the
offering has been terminated by the Company. Subscribers' checks
must be made payable to "First Security Bank of Utah National
Association/AeroCentury Fund IV, Inc. Escrow Account."
Broker-dealers must transmit subscription checks directly to the
Escrow Agent by noon of the next business day after receipt of
such check. On or before May 1, 1998, both (i) an initial asset
for acquisition by the Company must be identified and an
agreement for its purchase executed by the Company, and (ii) the
minimum amount of Notes must be subscribed, or the offering will
be terminated and the escrowed funds will be promptly returned to
the subscribing investors by the escrow agent. Upon the
subscription of the minimum amount of Notes, the escrowed funds
will be released to the Company. Any subsequent sales proceeds
from the sale of additional Notes will be immediately available
for use by the Company and will not constitute a part of the
Trust Estate. All subscriptions are subject to the right of the
Company to reject any subscription in whole or in part.
The Escrow Agent will invest escrowed funds
only in such accounts or investments as the Company will specify,
except that investments will be limited to fully segregated and
fully insured interest-bearing accounts, short-term certificates
of deposit issued by a bank or short-term securities issued or
guaranteed by the United States government. Funds may be released
from escrow when the Minimum Offering has been sold and may
subsequently be released thereafter at Additional Closings at the
discretion of the Company, which are anticipated to be executed
on a monthly basis. At each such Closing, interest earned on
escrowed funds in excess of escrow fees will be paid to the
Company, except that the Company may direct the Escrow Agent to
return all of such interest to the investors. The Company will
pay all escrow fees and costs up to the amount of any such
interest that the Company elects to use for that purpose, and the
Management Company will pay any escrow fees and costs in excess
of the amount of such interest (such fees and costs are
includable in the Organization and Offering Expense Reimbursement
to the Management Company). To the extent that there are funds in
escrow upon the termination of the Offering which are
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insufficient to purchase an Income Producing Asset, all such
funds will be refunded to the subscribers promptly, together with
interest earned thereon. In the event that an investor's
subscription is rejected, the Escrow Agent will return the
investor's funds, with interest earned thereon, if any, promptly.
The sole role of the Escrow Agent in this
Offering is that of escrow holder. The Escrow Agent has not
reviewed this Prospectus or any other offering materials and has
not made any representations whatsoever as to the nature of this
Offering or its compliance, or lack thereof, with any applicable
federal or state laws, rules or regulations. The Escrow Agent
does not represent the interests of the Noteholders or potential
investors. The Escrow Agent's duties are limited as expressly set
forth in the Escrow Agreement. Noteholders and potential
investors may request a copy of the Escrow Agreement from the
Company. Also a copy of the Escrow Agreement is on file as an
exhibit to the Company's Registration Statement with the
Securities and Exchange Commission, and a copy may be obtained
from the Commission. See "AVAILABLE INFORMATION." The payment of
interest and the refund of funds deposited in escrow are provided
for in the Escrow Agreement and are not matters of discretion for
the Escrow Agent.
SALES MATERIAL
This Offering is made only by means of this
Prospectus. In addition to this Prospectus, the Company may use
certain sales materials in connection with the offering of the
Notes. This material may include, among other things, fact sheets
to be used internally by broker-dealers, a sales promotion
brochure, prepared speeches for the public seminars, videotaped
presentations, invitations to attend public seminars, prospecting
letters, mailing cards, "tombstone" advertisements and program
summaries. In certain jurisdictions, some or all of the sales
material may not be available. The Company has not authorized the
use of any other sales material. The information contained in any
sales material does not purport to be complete and should not be
considered as a part of this Prospectus or the Registration
Statement of which this Prospectus is a part, or as incorporated
in this Prospectus or the Registration Statement by reference, or
as forming the basis of this Offering.
LIQUIDITY OF NOTES
Though the Notes will be registered under the
Securities Act, and will be freely tradeable under federal
securities laws, there is no established trading market for the
Notes (collectively, the "Securities"), and none of the
Securities will be listed on any securities exchange.
Furthermore, resale of the Securities may be restricted under the
securities laws of certain states. The Sales Agent, CKS
Securities, Incorporated, has advised the Company that it may
from time to time purchase and sell the Notes in the secondary
market, as permitted by applicable laws and regulations, and in
accordance with Rule 15(c)(2)-11 under the Exchange Act. The
Company anticipates that other members of the selling group may
also engage in such activities. Neither will be obligated,
however, to make any such purchases and sales and each, in its
sole discretion, may discontinue any such purchases and sales any
time without notice to any party. There can be no assurance that
there will be secondary market for the Securities or liquidity in
the secondary market if one develops.
EXPERTS
The financial statements of the Company
included in this Prospectus have been audited by Vocker
Kristofferson & Company, independent certified public
accountants, to the extent set forth in their report appearing
elsewhere herein, and are included in reliance upon such report
given upon the authority of said firm as experts in auditing and
accounting.
51
<PAGE>
LEGAL MATTERS
Certain matters with respect to the validity of
the Notes have been passed upon for the Company by Steven C. Ryan
& Associates, San Francisco, California. The discussion of the
federal income tax considerations relating to the Notes has also
been passed upon by Stephen C. Ryan & Associates, San Francisco,
California.
AVAILABLE INFORMATION
The Company has filed a Form SB-2 Registration
Statement under the Securities Act of 1933, as amended, with the
Securities and Exchange Commission (the "Commission") with
respect to the Notes offered pursuant to this Prospectus. This
Prospectus, which forms a part of the Registration Statement,
does not contain all of the information included in the
Registration Statement and the exhibits thereto. For further
information, reference is made to the Registration Statement and
amendments thereof and to the exhibits thereto, which are
available for inspection without charge, via the Internet at the
Commission's web site at http://www.sec.gov, and at the office of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies of which may be obtained from the Commission at
prescribed rates.
REPORTS TO SECURITY HOLDERS
Upon a declaration of effectiveness of the
registration statement by the Commission, the Company will be
subject to the informational requirements of the Securities and
Exchange Act of 1934, as amended, and, in accordance therewith,
will be required to file reports and other information with the
Commission. Such reports and information can be inspected and
copied at the office of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such material can be obtained
from the Public Reference Section of the Commission at prescribed
rates. The Company intends to furnish the holders of Notes with
annual reports containing audited financial statements and with
additional information concerning the business and affairs of the
Company whenever deemed appropriate by the Board of Directors or
as required by law.
No person is authorized to give any information
on or to make any representations about the Company, the Notes or
any other matter referred to herein, other than the information
and representations contained in this Prospectus and any
supplements or amendments thereto. If any other information or
representation is given or made, such information or
representation may not be relied upon as having been authorized
by the Company. This Prospectus does not constitute an offer to
sell, or the solicitation of any offer to buy, the securities
offered hereby in any state in which, or to any person to whom,
such an offer would be unlawful.
The Company will provide, without charge, to
each person who receives a prospectus, upon written or oral
request of such person to the Company at the address or telephone
number listed below, a copy of any of the information
incorporated by reference. The mailing address of the Company's
principal executive offices is AeroCentury Fund IV, Inc., 1440
Chapin Avenue, Suite 310, Burlingame, California 94010 and its
telephone number is (415) 696-3900.
52
<PAGE>
GLOSSARY
Additional Closing. Closings which occur after the initial
closing of Notes, expects to occur on a monthly basis until the
Offering is terminated.
Adjusted Purchase Price. The Purchase Price of
an Income Producing Asset plus all Chargeable Acquisition
Expenses. In no event will the Adjusted Purchase Price exceed the
fair market value of the Income Producing Asset at the time of
purchase as determined by an appraisal by the Appraiser.
Affiliate. When used with reference to a
specified Person, (i) any Person directly or indirectly
controlling, controlled by or under common control with such
Person, (ii) any Person owning or controlling 10% or more of the
outstanding voting securities of such Person, (iii) any officer,
director or general partner of such Person and (iv) if such
Person is an officer, director or general partner, any company
for which such Person acts in such capacity.
Aggregate Gross Offering Proceeds. The gross
subscription proceeds of all Noteholders upon the purchase of
Notes pursuant to this Offering.
Allowed Expenses. Expenses that may be paid by
the Company out of its cash flow before application toward
required payments due under the Notes, including, without
limitation, the following expenses: indenture trustee fees,
annual administrative costs, Note interest processing charges,
bank charges, the management fee, accounting expenses, audit
expenses, tax return filings, annual compliance certificate
expenses, operating expenses, appraisal fees and federal and
state income taxes.
Appraiser. A nationally recognized independent
appraiser as may be selected by JMC in its discretion.
Aviation Act. The Federal Aviation Act of 1958,
as amended.
Business Day. Any day that is not a Saturday,
Sunday or day on which banking institutions in the City and
County of San Francisco, California are authorized or required to
close by law, executive order or regulation.
Chargeable Acquisition Expenses. Acquisition
Expenses that are incurred in connection with the selection and
acquisition of Income Producing Assets and that are to be paid by
the Company. Chargeable Acquisition Expenses include, without
limitation, legal, accounting, brokerage expenses incurred in
connection with the acquisition of Income Producing Assets,
appraisal costs, title insurance costs, acquisition consultant
expenses and any reimbursement that might be payable by the
Company to any third party for any out-of-pocket costs incurred
in rendering acquisition services for the Company and any other
direct out-of-pocket costs incurred in connection with the
selection and purchase of Income Producing Assets.
Citizen of the United States. Either (i) An
individual who is a citizen of the United States or one of its
possessions, (ii) a partnership in which each member is a citizen
of the United States or (iii) a domestic corporation of which the
president and two-thirds or more of the members of the board of
directors and other managing officers are citizens of the United
States and in which at least 75% of the equity voting interest is
owned or controlled by citizens of the United States.
Closing. The sale of Notes by the Company
pursuant to this Offering, at which time the subscription
proceeds with respect to the Notes are released from escrow and
delivered to the Company. It is anticipated that, on the Closing
Date or shortly thereafter, the Company will purchase an Income
Producing Asset or Assets with all or a portion of the
subscription proceeds.
Closing Date. The date on which a Closing
takes place.
Code. The Internal Revenue Code of 1986, as
amended.
53
<PAGE>
Collateral. The collateral securing the
Company's obligations under the Notes, namely all Income
Producing Assets acquired by the Company using net proceeds of
the Offering and any proceeds of such assets.
Commission. The Securities and Exchange
Commission.
Company. AeroCentury Fund IV, Inc., a
California corporation.
Equipment. An aircraft, or aircraft engine
separate from an aircraft, or aircraft equipment or spare parts
inventory identified or other mechanical equipment related to the
aircraft industry, or in the discretion of JMC, other
transportation industries, or any interest in any of the
preceding and all additions, improvements and accessions thereto.
ERISA. The Employee Retirement Income Security
Act of 1974, as amended.
Escrow Agent. First Security Bank of Utah
National Association, 79 South Main Street, Salt Lake City, Utah
84111.
Event of Default. A default in the Company's
obligations under the Notes which permits the Trustee pursuant to
the Indenture to enforce certain remedies against the Company.
Exchange Act. The Securities Exchange Act of
1934, as amended.
FAA. The Federal Aviation Administration.
Final Closing Date. The date on which the last
Closing takes place.
Financial Assets. Contractual rights or
assignments relating to Equipment acquired by the Company which
generate revenue for the Company, such as indebtedness secured by
Equipment, participation interests in such indebtedness,
assignments of lessor rights under leases for Equipment and
Equipment lease positions or rental streams.
Full Payout Lease. A lease under which the
noncancellable rental payments due during the initial term of
such lease are at least sufficient to recover the Purchase Price
of the Equipment.
Income Producing Assets. The Equipment and/or
Financial Assets acquired by the Company.
IRAs. Individual retirement accounts qualifying
under Section 408 of the Code.
IRS. The United States Internal Revenue
Service.
JetFleet I. JetFleet Aircraft, L.P.
JetFleet II. JetFleet Aircraft II, L.P.
JetFleet III. JetFleet III, a California
corporation.
JetFleet Programs. JetFleet I, JetFleet II and
JetFleet III, collectively.
JMC. JetFleet Management Corp., a California
corporation or its successor.
Lease. A lease for Equipment owned by the
Company.
Lessee. The lessee under a Lease for Equipment
owned by the Company.
54
<PAGE>
Management Agreement. That certain Management
Agreement by and between the Company and JMC whereunder JMC
agrees to provide asset management and other services to the
Company.
Management Fee. The quarterly fee paid by the
Company to JMC for the life of the Company for management of the
Company's Income Producing Assets, calculated as 0.50% of the
Aggregate Gross Offering Proceeds from the sale of Notes
hereunder received by the Company through the last day of the
calendar quarter in which such fee accrues.
Maturity Date. The date upon which all
outstanding principal and interest under the Notes is due and
payable in full, which shall be April 30, 2005, unless extended
to a date that is up to six months later, in the sole discretion
of the Company or accelerated to an earlier date pursuant to
provisions of the Trust Indenture.
Minimum Offering. The Minimum Offering will be
the sale of 500 Notes pursuant to the Prospectus.
NASD. The National Association of Securities
Dealers, Inc.
Net Cash Flow. Cash funds of the Company
provided from operations, without deduction for depreciation, but
after deducting cash funds used to pay all Allowed Expenses, debt
payments, and capital improvements and replacements arising in
connection with the Collateral.
Net Resale Proceeds. The proceeds realized by
the Company from the sale of an Income Producing Asset
constituting Collateral, including any insurance proceeds or
lessee indemnity payments arising from the loss or destruction of
such asset, less all Company expenses in connection with such
sale, and all liabilities of the Company with respect to such
asset.
Offering. The offering of Notes in the Company
pursuant to this Prospectus.
Operating Lease. A lease which will return to
the lessor less than the Purchase Price of the Equipment from
rentals payable during the initial term of the lease.
Organization and Offering Expenses. Expenses
incurred in connection with preparing the Company for
registration and subsequently offering and distributing Notes to
the public, including sales commissions paid to broker-dealers in
connection with the distribution of Notes, escrow fees net of
escrow interest, and all advertising expenses except advertising
expenses related to the leasing of the Company's Equipment. Such
expenses include those amounts paid to broker-dealers in
connection with the distribution of Notes (including, without
limitation, Sales Commissions and reimbursements for due
diligence costs).
Payer. The obligor under a Financial Asset
acquired by the Company or the Lessee under a Lease for Equipment
acquired by the Company.
Person. A natural person, partnership,
corporation, association or other legal entity, including a
trust.
Program. A limited or general partnership,
joint venture, unincorporated association or similar organization
other than a corporation formed and operated for the primary
purpose of investing in and the generation of or gain from an
interest in equipment.
Prospectus. This term shall have the meaning
given by Section 2(10) of the Securities Act of 1933, including
a preliminary prospectus. With respect to the Company, the term
"Prospectus" refers to the Prospectus contained in the
Registration Statement, as that Prospectus may be amended or
supplemented.
Purchase Price. The purchase price paid upon
the purchase or sale of an Income Producing Asset, including the
amount of all liens and mortgages on the Income Producing Asset,
but excluding points and interest.
55
<PAGE>
Qualified Plans. Qualified pension,
profit-sharing and stock bonus plans, Keogh plans, 401 (k) plans
and other corporate retirement plans qualifying under Section 401
(a) of the Code.
Registration Statement. The registration
statement for the Notes offered hereby, filed with the Commission
under the Securities Act of 1933, as it may be amended.
Regulations. The income tax regulations
promulgated under the Code, as such regulations may be amended
from time to time (including corresponding provisions of
succeeding regulations).
Sales Agency Agreement. The sales agency
agreement entered into among the Sales Agent, the Company and
JMC.
Sales Agent. CKS Securities, Incorporated, a
member of the NASD.
Sales Commissions. A commission for the sale of
Notes in an amount equal to 5.0% of Gross Offering Proceeds
payable to the Sales Agent or other member of the selling group
(the "Selling Group") in connection with the sale of Notes. The
Sales Agent shall also receive an unallocated due diligence and
marketing fee of 1.5% for each Note sold by the Sales Agent or
member of the Selling Group, all or a portion of which may be
reallowed to a Selling Group member.
Selling Group. The group of brokers authorized
by the Sales Agent to sell Units. Each such broker must be a
member of the NASD.
Sinking Fund Account. A trust account
established with the Trustee in which a portion of the Company's
cash flow and proceeds from resale of the Equipment and from
which a portion of the outstanding principal of the Notes will be
paid at Maturity Date, or, if applicable, an earlier prepayment
date.
Termination Date. The termination date of the
Offering, which shall be May 1, 1999, unless the Offering is
terminated earlier by the Company.
Triple Net Lease. A lease in which the lessee
assumes responsibility for, and bears the cost of, insurance,
taxes, maintenance, repair and operation of the leased asset and
where the noncancellable rental payments under the lease are
absolutely net to the lessor. In certain cases, the lessee might
not be required to pay excess hull insurance or certain of the
costs of complying with airworthiness directives issued by the
Equipment manufacturer, the FAA or any other government agency
having jurisdiction and with other regulatory requirements (See
"BUSINESS OF THE COMPANY--Leases").
Trust Indenture. The Trust Indenture, dated as
of _____________ between the Company and First Security Bank,
National Association, as Trustee.
Trustee. First Security Bank, National
Association, in its capacity as indenture trustee.
Trust Estate. The Collateral and the funds in
the Sinking Fund Account.
Noteholder. Any purchaser of one or more Notes.
Vote of the Outstanding Notes. A vote by the
holders of outstanding Notes, with each Noteholder having such
proportional voting power based on the proportion of the
outstanding principal amount of the Notes held by the Noteholder
to the total outstanding principal amount of all outstanding
Notes.
56
<PAGE>
INDEX TO FINANCIAL STATEMENTS
AEROCENTURY FUND IV, INC., A California Corporation,
Report of Independent Auditors......................... F-1
Balance Sheets At February 15, 1997.................... F-2
F-1
<PAGE>
REPORT OF VOCKER KRISTOFFERSON AND CO.,
INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
of AeroCentury Fund IV, Inc.
We have audited the accompanying balance sheet of AeroCentury
Fund IV, Inc., a development stage California corporation, as of
February 15, 1997. This balance sheet is the responsibility of
the Company's management. our responsibility is to express an
opinion on this balance sheet based on our audit.
We conducted our audit 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 financial statements referred to above
present fairly, in all material respects, the financial position
of AeroCentury Fund IV, Inc. at February 15, 1997, in conformity
with generally accepted accounting principles.
VOCKER KRISTOFFERSON AND CO.
February 18, 1997
F-2
<PAGE>
AEROCENTURY FUND IV, INC..
(A Development Stage California Corporation)
Balance Sheet
February 15, 1997
ASSETS
Cash $10,000
Total Assets $10,000
SHAREHOLDER'S EQUITY
Preferred Stock, 100,000 shares authorized,
no shares issued and outstanding 0
Common Stock, no par value, 100,000 shares
authorized, 10,000 shares issued and outstanding $10,000
-------
Total Shareholder's Equity $10,000
=======
See accompanying notes.
F-3
<PAGE>
AEROCENTURY FUND IV, INC.,
(A Development Stage California Corporation)
Notes to Balance Sheet
February 10, 1997
1. Organization and Capitalization
AeroCentury Fund IV, Inc. (the "Company") was
incorporated in the state of California on February 7, 1997. All
of the Company's outstanding stock is owned by JetFleet
Management Corp. ("JMC"), a California corporation formed in
January 1994. JMC is an integrated aircraft management, marketing
and financing business and also manages, on behalf of their
general partners and shareholders, respectively, the aircraft
assets of JetFleet Aircraft, L.P. and JetFleet Aircraft II, L.P.,
and JetFleet III.
The Company was formed solely for the purpose
of acquiring Income Producing Assets. The Company anticipates
that these assets will be Equipment, consisting mainly of
aircraft, aircraft engines, and aircraft parts subject to
operating or full payout leases with third parties.
The Company plans to offer up to $10,000,000 of
$1,000 bonds which will mature on April 30, 2005 (the "Bonds").
The Bonds will have a fixed annual interest rate of 10%. The
Company may prepay all or a portion of the outstanding principal
on the Bonds after April 30, 2000.
At February 10, 1997, the Company had not had
any significant operations.
2. Related Party Transactions
The Company's Income Producing Asset portfolio
will be managed and administered under the terms of a management
agreement with JMC. Under this agreement, on the last day of each
calendar quarter, JMC shall receive a quarterly management fee
equal to 0.50% of the Company's Aggregate Gross Proceeds received
through the last day of such quarter. In addition, JMC may
receive a brokerage fee for locating assets for the Company,
provided that such fee is not more than the customary and usual
brokerage fee that would be paid to an unaffiliated party for
such a transaction, and provided further that if the brokerage
fee is paid by the Company, the Aggregate Purchase Price plus the
brokerage fee shall not exceed the fair market value of the asset
based on appraisal.
F-4
<PAGE>
APPENDIX A
PRIOR PERFORMANCE TABLES OF JETFLEET III
A-1
<PAGE>
PRIOR PERFORMANCE
JetFleet III
Table I Experience in Raising and Investing Funds
Table II Compensation to Sponsors By JetFleet III
Table III Operating Results of JetFleet III
Table IV Operating Results of Completed Program
Table V Sales or Dispositions by JetFleet III
Table VI Acquisition of Properties by JetFleet III
A-2
<PAGE>
JETFLEET III
TABLE I: Experience in Raising and Investing Funds
Table I sets forth information through September 30, 1996
concerning the experience of the Management Company and its
Affiliates in raising and investing in JetFleet III:
Dollar Amount Offered $ 20,000,000
Dollar Amount Raised 8,321,000 100.00%
Offering Expenses
Selling Commissions Paid to
Underwriter (1) 499,260 6.00%
Investment Banking Fees
Paid to Underwriter 166,420 2.00%
Legal, Professional and Organizational 166,420 2.00%
Available for Investment 7,488,900 90.00%
Acquisition Costs:
Purchase Price 6,935,567 83.35%
Acquisition Fees paid to Management Company 543,674 6.53%
Total Proceeds Used for Acquisitions 7,479,241 89.88%
Leverage (mortgage financing
divided by acquisition costs None 0.00
Date Offering Begun Sept. 27, 1995
Length of Offering (in months) (2) 12
Months to invest 90% of amounts 12
available for investment
(Measured from beginning of offering)
- --------
(1) Approximately $325,200 was reallowed to third parties.
(2) The offering is ongoing.
TABLE II: Compensation to Management Company By Prior Public
Program
Table II sets forth information concerning payments to the
Management Company and its Affiliates by JetFleet III for the
period from the inception of JetFleet III through September 30,
1996.
Date Offering Commenced September 27, 1995
Dollar Amount Raised $ 8,321,000
Amount Paid to Underwriter from
Proceeds of Offering
Sales Commissions (1) 499,260
Investment Banking Fee 166,420
Amount Paid to Management Company
from Proceeds of Offering
Organizational and Offering
Expense Allowed (1) 166,420
Amount Paid to Management Company
from Operations
Management Fee 76,763
Reimbursements 0
Re-lease Fees 0
Dollar Amount of Aircraft Sales and
Refinancings before Deducting Payments to
Management Company 0
Amount Paid to Management Company from
Aircraft Sales and Refinancings 0
- --------
(1) Substantially all this amount was reallowed or repaid
to third parties.
(2) The investment banking fee includes due diligence costs.
A-3
TABLE III: Operating Results of Prior Public Program
8/23/94 Nine Months
(inception) Year Ended Ended
to 12/31/94 12/31/95 9/30/96
----------- -------- -------
Revenues:
Rent Income, net of
finance charges $ -- $11,286 $435,427
Interest Income 379 1,200 52,133
--- ------ -------
379 12,486 487,560
Expenses:
Interest Expense -- 9,757 381,743
Professional Fees 500 17,080 19,499
Management Fees -- 5,848 70,909
General and
Administrative 45 1,569 9,401
--- ------ -------
545 34,260 481,552
--- ------ -------
Net Income (Loss) before
Depreciation and
Amortization (166) (21,774) 6,008
---- ------- -----
Depreciation Expense -- 47,090 439,808
Amortization Expense -- 4,881 75,216
---- ------- -----
Net Loss $ (166) $ (73,745) $ (509,016)
========= =========== ==========
Net Loss per
Common Share $ 0.01 $ (0.31) $ (1.02)
========== ============ =========
TABLE IV: Operating Results of Completed Program
JetFleet III has not completed operations.
TABLE V: Sales or Dispositions of Equipment By Prior Public
Program
JetFleet III has not sold or disposed of any aircraft or interest
therein.
A-4
TABLE VI: Acquisitions of Properties By Prior Public Program
Financing Contract Total
Date at Cash Price Plus Acquisi-
of Name and Type Date of Down Acquisi- tion
Purchase of Property Purchase Payment tion Fee Cost
11/30/95 de Havilland
DHC-8-102
#13 Aircraft
(18.81% 0 855,325 855,325 855,325
12/29/95 de Havilland
DHC-8-102
#13 Aircraft
(12.10% 0 549,558 549,558 549,558
2/2/96 de Havilland
DHC-8-102
#13 Aircraft
(11.86% 0 539,117 539,117 539,117
3/4/96 de Havilland
DHC-8-102
#13 Aircraft
(15.62% 0 710,100 710,10 710,100
4/2/96 de Havilland
DHC-8-102
#13 Aircraft
(14.28%) 0 644,40 644,400 644,400
5/2/96 de Havilland
DHC-8-102
#13 Aircraft
(17.69%) 798,300 798,300 798,300
6/4/96 de Havilland
DHC-8-102
#13 Aircraft
(9.64%) 0 435,60 435,600 435,600
6/4/96 Fairchild
SA226-TC
aircraft
(50%) 0 362,105 362,105 362,105
7/2/96 de Havilland
DHC-6 #540
Aircraft 0 863,651 863,651 863,651
8/2/96 de Havilland
DHC-6 #751
Aircraft 0 842,755 842,755 842,755
9/16/96 de Havilland
DHC-6 #696
Aircraft 0 878,33 878,330 878,330
-- ---------- ---------- ----------
Total through 9/30/96) (1) $0 $7,479,241 $7,479,241 $7,479,241
_____________________________________________
* Consists of $6,935,567 for purchase prices and $534,674 for
chargeable acquisition expenses.
A-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 24. Indemnification of Directors and Officers.
(a) The directors and officers of the Registrant
may be indemnified by the Registrant for certain liabilities,
including liabilities under the Securities Exchange Act of 1933,
as amended (the "Act"), and the Securities Exchange Act of 1934
pursuant to Articles III and IV of the Articles of Incorporation
and Article VI of the Bylaws of the Registrant and Section 317 of
the California Corporations Code.
Generally, directors and officers of the
Registrant may seek indemnification from the Registrant for
liabilities, damages, costs, attorneys' fees and other charges
assessed or payable by them in connection with the discharge of
their duties as directors or officers (unless such liabilities
arise as the result of willful or deliberate misconduct) under
one or more of the governing instruments referenced above.
(b) The Sales Agent has agreed, pursuant to the
Sales Agency Agreement filed as Exhibit 10.2, to indemnify the
directors and officers of the Registrant against certain
liabilities, including liabilities under the Act.
(c) The Company has agreed, pursuant to the
Management Agreement filed as Exhibit 10.1 to indemnify JMC
against certain liabilities including liabilities under the Act.
Item 25. Other Expenses of Issuance and Distribution.
The following is a statement of the estimated
expenses to be paid in connection with the issuance and
distribution of the securities being registered.
Underwriter Fees and Expenses..... $650,000
Registration Fee.................. 3,030
NASD Fee.......................... 1,500
Printing and Engraving Costs...... 30,000
Legal Fees........................ 10,000
Accounting Fees................... 3,000
Blue Sky Fees and Expenses........ 10,000
Miscellaneous costs and expenses,
including allocated general
administrative and overhead
expenses (including mailing)...... 10,000
--------
Total ................... $717,530
1
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
On February 15, 1997 in connection with the
incorporation of the Registrant, the Registrant issued a total of
10,000 shares of Common Stock at a price of $1.00 per share to
JetFleet Management Corp., a California corporation ("JMC"), in
reliance upon an exemption from registration pursuant to Section
4(2) of the Securities Act of 1933, as amended (the "Securities
Act").
Item 27. Exhibits.
See Exhibits Index immediately following the
signature page of this Registration Statement.
Item 28. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file during any period in which offers or
sales are being made, a post-effective amendment to this
Registration Statement.
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933, as amended;
(ii) To reflect in the prospectus any facts
or events arising after the effective date of the registration
statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represents a fundamental
change in the information set forth in the registration
statement;
(iii) To include any material information
with respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any
liability under the Securities Act of 1933, as amended, each such
post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
Reference is hereby made to the information set
forth under Item 24. Insofar as indemnification for liabilities
arising under the Securities Act of 1933, as amended, may be
permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, 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 a director, officer or
controlling person of the Registrant in the successful defense of
any election, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, 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 or against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
2
<PAGE>
The undersigned Registrant hereby undertakes
that:
1. For purposes of determining any liability
under the Securities Act of 1933, as amended, 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 497(h) under the Securities Act shall be
deemed to be a part of this registration statement as of the time
it was declared effective.
2. For purposes of determining any liability
under the Securities Act of 1933, as amended, 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.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities
Act of 1933, the Registrant certifies that it has reasonable
grounds to believe that it meets all of the requirements of
filing on Form SB-2 and authorized this Registration Statement to
be signed on its behalf by the undersigned, in the City of
Burlingame, State of California on February 21, 1997.
AEROCENTURY FUND IV, INC.
A California Corporation
By:/s/ Neal D. Crispin
--------------------------
Neal D. Crispin, President
In accordance with the requirements of the Securities Act of
1933, this Registration Statement was signed by the following
persons in the capacities and on the dates stated.
Signature Title Date
/s/ Neal D. Crispin President, Secretary February 21,
1997
- ---------------------- & Director
Neal D. Crispin
/s/ Marc J. Anderson Senior Vice President February 21,
1997
- ----------------------
Marc J. Anderson
/s/ Frank Duckstein Vice President February 21,
1997
Frank Duckstein
4
<PAGE>
EXHIBIT INDEX
(PURSUANT TO ITEM 601 OF REGULATION SB)
Page
Number in
Sequential System
(Required in
Manually
Exhibit
Number Description Signed
Copy Only)
3.1 Articles of Incorporation of Registrant
3.2 Bylaws of Registrant
4.1 Form of Indenture between Registrant and
First Security Bank of Utah, National Association
4.2 Form of Secured Note
5.1 Opinion of Stephen C. Ryan & Associates regarding
legality of issue of Secured Note
8.1 Tax Opinion of Stephen C. Ryan & Associates
10.1 Form of Management Agreement between Registrant
and JetFleet Management Corp.
10.2 Form of Sales Agency Agreement between Registrant
and Crispin Koehler Securities
10.3 Form of Selected Dealer Agreement between Registrant,
Sales Agent and Selected Dealers
10.4 Form of Subscription Escrow Agreement between
Registrant
and First Security Bank, National Association
24.1 Consent of Stephen C. Ryan & Associates
24.2 Consent of Vocker Kristofferson & Company
26.1 Statement of Eligibility of Indenture Trustee on Form T-1
27 Article 5 Financial Data Schedule
EXHIBIT 3.1
Articles of Incorporation of Registrant
<PAGE>
ARTICLES OF INCORPORATION
OF
AEROCENTURY CORP.
ARTICLE I
The name of the corporation is AeroCentury Corp.
ARTICLE II
The purpose of the 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 under the California
Corporations Code.
ARTICLE III
The liability of the directors of the corporation for monetary
damages shall be eliminated to the fullest extent permissible
under California law. Unless applicable law otherwise provides,
any amendment, repeal or modification of this Article III shall
not adversely affect any right or protection of a director under
this Article III that existed at or prior to the time of such
amendment, repeal or modification.
ARTICLE IV
The Corporation is authorized to provide indemnification of
agents (as defined in Section 317 of the California Corporations
Code) through bylaw provisions, by agreements with agents, vote
of shareholders or disinterested directors or otherwise, in
excess of the indemnification otherwise permitted by Section 317
of the California Corporations Code, subject only to the
applicable limits on such excess indemnification set forth in
Section 204 of the California Corporations Code. Unless
applicable law otherwise provides, any amendment, repeal or
modification of any provision of this Article IV shall not
adversely affect any contract or other right to indemnification
of an agent of the corporation that existed at or prior to the
time of such amendment, repeal or modification.
ARTICLE V
1. This corporation is authorized to issue two classes of shares,
designated "Common Stock" and "Preferred Stock," respectively,
both of which shall have no par value. The number of shares of
Common Stock authorized to be issued is 100,000 shares. The
number of Preferred Stock authorized to be issued is 100,000
shares.
2. The Board of Directors of the corporation may designate, fix
the numbers of shares of, and determine or alter the rights,
preferences, privileges and restrictions granted to or imposed
upon any wholly unissued series of Preferred Stock. As to any
series of Preferred Stock, the number of shares of which is
authorized to be fixed by the Board, the Board may, within any
limits and restrictions stated in the resolutions of the Board
originally fixing the number of shares constituting such series,
increase or decrease (but not below the number of shares of such
series then outstanding) the number of shares of any such series
subsequent to the issue of shares of that series. Any new series
of Preferred Stock may be designated, fixed and determined as
provided
<PAGE>
herein by the Board without further approval of the holders of
Common Stock or Preferred Stock, or any series thereof.
ARTICLE VI
The name and address in the State of California of the
corporation's initial agent for service of process is:
Anne Knowles, Esq.
c/o Wilson, Ryan & Campilongo
115 Sansome Street, Suite 400
San Francisco, California 94104
Dated: February 6, 1997
__________________________________
Christopher B. Tigno, Incorporator
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
CHRISTOPHER B. TIGNO hereby certifies that:
1. I am the sole incorporator of AeroCentury Corp., a California
corporation.
2. Article First of the articles of incorporation of this
corporation is amended to read as follows:
"The name of this corporation is "AeroCentury Fund IV, Inc."
3. No directors were named in the original articles of
incorporation and none have been elected.
4. No shares have been issued.
I further declare under penalty of perjury under the laws of the
State of California that the matters set forth in this
certificate are true and correct of our own knowledge.
Date: __________________
___________________________________
Christopher B. Tigno
Incorporator
EXHIBIT 3.2
Bylaws of Registrant
<PAGE>
BYLAWS
OF
AEROCENTURY CORP.
A California Corporation
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICES
The board of directors shall fix the location of the
principal executive office of the corporation at any place within
or outside the State of California. If the principal executive
office is located outside this state, and the corporation has one
or more business offices in this state, the board of directors
shall fix and designate a principal business office in the State
of California.
Section 2. OTHER OFFICES
The board of directors may at any time establish branch
or subordinate offices at any place or places within or outside
the State of California.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE OF MEETINGS
Meetings of shareholders shall be held at any place
within or outside the State of California designated by the board
of directors. In the absence of any such designation,
shareholders' meetings shall be held at the principal executive
office of the corporation.
Section 2. ANNUAL MEETINGS
The annual meeting of shareholders shall be held on the
tenth day of the month of May of each year, or at any other time
designated by the board of directors provided that the annual
meeting in any year shall be held not longer than 15 months after
the preceding annual meeting. At each annual meeting directors
shall be elected, and any other proper business may be transacted
which it is within the power of the shareholders to conduct.
Section 3. SPECIAL MEETING
A special meeting of the shareholders may be called at
any time by the board of directors, or by the chairman of the
board, or by the president of any vice-president, or by one or
more shareholders holding shares in the aggregate entitled to
cast not less than 10% of the votes at that meeting.
If a special meeting is called by any person other than
the board of directors, the request shall be in writing,
specifying the time of such meeting and the general nature of the
business proposed to be transacted, and shall be delivered
personally or sent by registered mail or telegraphic or other
facsimile transmission to the chairman of the board, the
president, and vice-
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president, or the secretary of the corporation. The officer
receiving the request shall cause notice to be promptly given to
the shareholders entitled to vote, in accordance with the
provisions of Sections 4 and 5 of this Article II, that a meeting
will be held at the time requested by the person or persons
calling the meeting, not less than thirty-five (35) nor more than
sixty (60) days after the receipt of the request. If the notice
is not given within twenty (20) days after receipt of the
request, the person or persons requesting the meeting may give
the notice. Nothing contained in this paragraph of this Section 3
shall be construed as limiting, fixing or affecting the time when
a meeting of shareholders called by action of the board of
directors may be held.
Section 4. NOTICE OF SHAREHOLDERS' MEETINGS
All notices of meetings of shareholders shall be sent or
otherwise given in accordance with Section 5 of this Article II
not less than ten (10) nor more than sixty (60) days before the
date of the meeting. The notice shall specify 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, or (ii) in the
case of the annual meeting, those matters which the board of
directors, at the time of giving notice, intends to present for
action by the shareholders. The notice of any meeting at which
directors are to be elected shall include the name of nay nominee
or nominees whom, at the time of the notice, management intends
to present for election.
If action is proposed to be taken at any meeting for
approval of (i) a contract or transaction in which a director has
direct or indirect financial interest, pursuant to Section 310 of
the Corporation Code of California, (ii) an amendment of the
articles of incorporation, pursuant to Section 902 of that Code,
(iii) a reorganization of the corporation, pursuant to Section
1201 of that Code, (iv) a voluntary dissolution of the
corporation, pursuant to Section 1900 of that Code, or (v) a
distribution in dissolution other than in accordance with the
rights of outstanding preferred shares, pursuant to Section 2007
of that Code, the notice shall also state the general nature of
that proposal.
Section 5. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Notice of any meeting of shareholders shall be given
either personally or by first class mail or telegraphic or other
written communication, charges prepaid, addressed to the
shareholder at the address of that shareholder appearing on the
books of the corporation or given by the shareholder to the
corporation for the purpose of notice. If no such address appears
on the corporation's books or is given, notice shall be deemed to
have been given if sent to that shareholder by first class mail
or telegraphic or other written communication to the
corporation's principal executive office, or if published at
least once in a newspaper of general circulation in the county
where that office is located. Notice shall be deemed to have been
given at the time when delivered personally or deposited in the
mail or sent by telegram or other means of written communication.
If any notice addressed to a shareholder at the address
of that shareholder appearing on the books of the corporation is
returned to the corporation by the United States Postal Service
marked to indicate that the United States Postal Service is
unable to deliver the notice to the shareholder at that address,
all future notices or reports shall be deemed to have been duly
given without further mailing if these shall be available to the
shareholder on written demand of the shareholder at the principal
executive office of the corporation for a period of one year from
the date of the giving of the notice.
An affidavit of the mailing or other means of giving any
notice of any shareholders' meeting may be executed by the
secretary, assistant secretary, or any transfer agent of the
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<PAGE>
corporation giving the notice, and if so executed, shall be filed
and maintained in the minute book of the corporation.
Section 6. FORUM
Unless otherwise provided in the Articles, the presence
in person or by proxy of the holders of a majority of the shares
entitled to vote at any meeting of shareholders shall constitute
a quorum for the transaction of business. The shareholders
present at a duly called or held meeting at which a quorum is
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 7. ADJOURNED MEETING; NOTICE
Any shareholders' meeting, annual or special, whether or
not a quorum is present, may be adjourned from time to time by
the vote of the majority of the shares presented at that meeting,
either in person or by proxy, but in the absence of a quorum, no
other business may be transacted at that meeting, except as
provided in Section 6 of this Article II.
When any meeting of shareholders, either annual or
special, is adjourned to another time or place, notice need not
be
given of the adjourned meeting if the time and place are
announced at a meeting at which the adjournment is taken, unless
a new record date for the adjourned meeting is fixed, or unless
the adjournment is for more than forty-five (45) days from the
date set for the original meeting, in which case the board of
directors shall set a new record date. Notice of any such
adjourned meeting, shall be given to each shareholder of record
entitled to vote at the adjourned meeting in accordance with the
provisions of Sections 4 and 5 of this Article II. At any
adjourned meeting, the corporation may transact any business
which might have been transacted at the original meeting.
Section 8. VOTING
The shareholders entitled to vote at any meeting of
shareholders shall be determined in accordance with the
provisions of Section 11 of this Article II, subject to the
provisions of Sections 702 to 704, inclusive, of the Corporations
Code of California (relating to voting shares held by a
fiduciary, in the name of a corporation, or in joint ownership).
The shareholders' vote may be by voice vote or by ballot;
provided, however, that any election for directors must be by
ballot if demanded by any shareholder before the voting has
begun. On any matter other than election for directors, any
shareholders may vote part of the shares in favor of the proposal
and refrain from voting the remaining shares or vote them against
the proposal, but, if the shareholder is voting affirmatively, it
will be conclusively presumed that the shareholders' approving
vote is with respect to all shares that the shareholder is
entitled to vote. If a quorum is present, the affirmative vote of
the majority of the shares represented at the meeting and
entitled to vote on any matter (other than the election of
directors) shall be the act of the shareholders, unless the vote
of a greater number or voting by classes is required by
California General Corporation Law or by the articles of
incorporation.
At a shareholders' meeting at which directors are to be
elected, no shareholder shall be entitled to cumulate votes
(i.e., cast for any one candidates a number of votes greater than
the number of the shareholder's shares) unless candidates' names
have been placed in nomination prior to commencement of the
voting of the shareholder's intention to cumulate votes. If any
shareholder has given such a notice, then every shareholder
entitled to vote may cumulate votes for
3
<PAGE>
candidates in nomination and give one candidate a number of votes
equal to the number of directors to be elected multiplied by the
number of votes to which that shareholder's shares are entitled,
or distribute the shareholder's votes on the same principle among
any or all of the candidates. The candidates receiving the
highest number of votes, up to the number of directors to be
elected, shall be elected.
Section 9. WAIVER OF NOTICE OR CONSENT BY ABSENT
SHAREHOLDER
The transactions of any meeting of shareholders, either
annual or special, however called and noticed, and wherever held,
shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum be present either in person
or by proxy, and if, either before or after the meeting, each
person entitled to vote, who was not present in person or by
proxy, signs a written waiver of notice or a consent to a holding
of the meeting, or an approval of the minutes. The waiver of
notice or consent need not specify either the business to be
transacted or the purpose of any annual or special meeting of
shareholders, except that if action is taken or proposed to be
taken for approval of any of those matters specified in the
second paragraph of Section 4 of this Article II, the waiver of
notice or consent shall state the general nature of the proposal.
All such waivers, consents or approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
Attendance by a person at meeting shall also constitute a
waiver of notice of that meeting, except when the person objects,
at the beginning of the meeting, to the transaction of 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 law
to be included in the notice of the meeting but not so included
if that objection is expressly made at the meeting.
Section 10. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT
MEETING
Any action which may be taken at any annual or special
meeting of shareholders may be taken without a meeting and
without prior notice, if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding shares
having not less than the minimum number of votes that would be
necessary to authorize or take that action at a meeting at which
all shares entitled to votes that would be necessary to authorize
or take that action at a meeting at which all shares entitled to
vote on that action were present and voted. In the case of
election of directors, such a consent shall be effective only if
signed by the holders of all outstanding shares entitled to vote
for the election of directors. All such consents shall be filled
with the secretary of the corporation and shall be maintained in
the corporate records. Any shareholder giving a written consent,
or any shareholder's proxy holder, or a transferee of the shares,
or a personal representative of any shareholder or his respective
proxy holder, may revoke the consent by a writing received by the
secretary of the corporation before written consents of the
number of shares required to authorize the proposed action have
been filed with the secretary.
If the consents of all shareholders entitled to vote have
not been solicited in writing, and if the unanimous written
consents of all such shareholders have not been received, the
secretary shall give prompt notice of the corporate action
approved by the shareholder without a meeting. Such notice shall
to given in the manner specified in Section 5 of this Article II.
In the case of approval of (i) contracts or transactions in which
a director has a direct or indirect financial interest, pursuant
to Section 310 of the Corporation Code of California, or (ii)
indemnification of agents of the corporation, pursuant to Section
317 of that Code, (iii) a reorganization of the corporation,
4
<PAGE>
pursuant to Section 1201 of that Code, and (iv) a distribution in
dissolution other than in accordance with the rights of
outstanding preferred shares, pursuant to Section 2007 of that
Code, such notice shall be given at least ten (10) days before
the consummation of any action authorized by that approval.
Section 11. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING
AND GIVING CONSENTS
For purposes of determining the shareholders entitled to
notice of any meeting or to vote or to give consent to corporate
action without a meeting, the board of directors may fix, in
advance, a record date, which shall not be more than sixty (60)
days nor less than ten (10) days before any such action without a
meeting, and in this event only shareholders of record on the
date so fixed are entitled to notice and to vote or to give
consents, as the case may be, notwithstanding any transfer of
shares on the books of the corporation after the record date,
except as otherwise provided in the California General
Corporation Law.
If the board of directors does not so fix a record date:
(a) 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.
(b) The record date for determining shareholders
entitled to give consent to corporate action in writing without a
meeting, (i) when no prior action by the board has been taken,
shall be the day on which the first written consent is given, or
(ii) when prior action of the board has been taken, shall be at
the close of business on the day on which the board adopts the
resolution relating to that action, or the sixtieth (60th) day
before the date of such other action, whichever is later.
Section 12. PROXIES
Every person entitled to vote for directors or on any
other matter shall have the right to do so either in person or by
one or more agents authorized by a written proxy signed by the
person and filed with the secretary of the corporation. A proxy
shall be deemed signed if the shareholder's name is placed on the
proxy (whether by manual signature, typewriting, telegraphic
transmission, or otherwise) by the shareholder or the
shareholder's attorney in fact. A validly executed proxy which
does not state that it is irrevocable shall continue in full
force and effect unless (i) revoked by the person executing it,
before the vote pursuant to that proxy, by a writing delivered to
the corporation stating that the proxy is revoked, or by a
subsequent proxy executed by, or attendance at the meeting and
voting in person by, the person executing the proxy; or (ii)
written notice of the death or incapacity of the maker of that
proxy is received by the corporation before the vote pursuant to
that proxy is counted; provided, however, that no proxy shall be
valid after the expiration of eleven (11) months from the date of
the proxy, unless otherwise provided in the proxy. The
revocability of a proxy that states on its face that it is
irrevocable shall be governed by the provisions of Sections
705(e) and 705(f) of the Corporations Code of California.
5
<PAGE>
Section 13. INSPECTORS OF ELECTION
Before any meeting of shareholders, the board of
directors may appoint any persons other than nominees for office
to act as inspectors of election at the meeting or its
adjournment. If no inspectors of election are so appointed, the
chairman of the meeting may, and on the request of any
shareholder or shareholder's proxy shall, appoint inspectors of
election at the meeting. The number of inspectors shall be either
on(1) or three (3). If inspectors are appointed at a meeting on
the request of one or more shareholders or proxies, the holders
of a majority shall determine whether one (1) or three (3)
inspectors are to be appointed. If any person appointed as
inspector fails to appear or fails or refuses to act, the
chairman of the meeting may, and on the request of any
shareholder or a shareholder's proxy shall, appoint a person to
fill that vacancy.
Three inspectors shall:
(a) Determine the number of shares outstanding
and the voting power of each, the shares represented at the
meeting, the existence of a quorum, and the authenticity,
validity and effect of proxies;
(b) Receive votes, ballots or consents;
(c) Hear and determine all challenges and
questions in any way arising in connection with the right to
vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to
conduct the election or vote with fairness to all shareholders.
ARTICLE III
DIRECTORS
Section 1. POWER
Subject to the provisions of the California General
Corporation Law, and any limitations in the articles of
incorporation and these bylaws 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 director of
the board of directors.
Without prejudice to these general powers, and subject to
the same limitations, the directors shall have the power to:
(a) Select and remove all officers, agents and
employees of the corporation; prescribe any powers and duties for
them that are consistent with law, with the articles of
incorporation, and with these bylaws; fix their compensation; and
require from them security for faithful service.
6
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(b) Change the principal executive office of the
principal business office in the State of California from one
location to another; cause the corporation to be qualified to do
business in any other state, territory, dependency, or country
and conduct business within or without the State of California
for the holding of any shareholders' meeting, or meetings,
including annual meetings.
(c) Adopt, make and use a corporate seal;
prescribe the forms of certificates of stock; and alter the form
of the seal and certificates.
(d) Authorize the issuance of shares of stock of
the corporation on any lawful terms in consideration of money
paid, labor done, services actually rendered, debts or securities
canceled, or tangible or intangible property actually received.
(e) Borrow money and incur indebtedness on behalf
of the corporation, and cause to be executed and delivered for
the corporation's purposes, in the corporate name, promissory
notes, bonds, debentures, deeds of trust, mortgages, pledges,
hypothecation, and other evidences of debt and securities.
Section 2. NUMBER AND QUALIFICATION OF DIRECTORS
The authorized number of directors shall be three (3)
unless changed by an amendment to this bylaw adopted by the vote
or written consent of a majority of the outstanding shares
entitled to vote. However, an amendment that would reduce minimum
number to less than five cannot be adopted if the votes cast
against its adoption at a shareholders' meeting or the shares not
consenting to an action by written consent are equal to more than
one-sixth (16-2/3%) of the outstanding shares entitled to vote.
Section 3. ELECTION AND TERM OF OFFICE OF DIRECTORS
Directors shall be elected at each annual meeting of the
shareholders to hold office until the next annual meeting. Each
director, including a director elected to fill a vacancy, shall
hold office until the expiration of the term for which elected
and until a successor has been elected and qualified.
Section 4. VACANCIES
Vacancies in the board of directors may be filled by a
majority of the remaining directors, though less than a quorum,
or by a sole remaining director, except that a vacancy created by
the removal of a director by the vote or written consent of the
shareholders or by court order may be filled only by the vote of
a majority of the shares entitled to vote represented at a duly
held meeting at which a quorum is present, or by the written
consent of holders of a majority of the outstanding shares
entitled to vote. Each director so elected shall hold office
until the next annual meeting of the shareholders and until a
successor has been elected and qualified.
A vacancy or vacancies in the board of directors shall be
deemed to exist in the event of the death, resignation, or
removal of any director, or if the board of directors by
resolution declares vacant the office of a director who has been
declared of unsound mind by an order of court or convicted of a
felony, or if the authorized number of directors is increased, or
if the shareholders fail, at any meeting of shareholders at which
any director or directors is elected, to elect the number of
directors to be voted for at that meeting.
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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, but at any such election by written consent shall
require the consent of a majority of the outstanding shares
entitled to vote.
Any director may resign effective on giving written
notice to the chairman of the board, the president, the
secretary, or the board of directors, unless the notice specifies
a later time for that resignation to become effective. If the
resignation of a director is effective at a future time, the
board of directors may elect a successor to take office when the
resignation becomes effective.
No reduction of the authorized number of directors shall
have the effect of removing any director before that director's
term of office expires.
Section 5. PLACE OF MEETINGS AND MEETINGS BY
TELEPHONE
Regular meetings of the board of directors may be held at
any place within or outside the State of California that has been
designated from time to time by resolution of the board. In the
absence of such a designation, regular meetings shall be held at
the principal executive office of the corporation. Special
meetings of the board shall be held at any place within or
outside the State of California that has been designated in the
notice of the meeting or, if not stated in the notice or there is
no notice, at the principal executive office of the corporation.
Any meeting, regular or special, may be held by conference
telephone or similar communication equipment, so long as all
directors participating in the meeting can hear one another, and
all such directors shall be deemed to be present in person at the
meeting.
Section 6. ANNUAL DIRECTORS' MEETING
Immediately following each annual meeting of
shareholders, the board of directors shall hold a regular meeting
for the purpose of organization, any desired election of the
officers, and the transaction of other business. Notice of this
meeting shall not be required.
Section 7. OTHER REGULAR MEETINGS
Other regular meetings of the board of directors shall be
held without call at such time as shall from time to time be
fixed by the board of directors. Such regular meetings may be
held without notice.
Section 8. SPECIAL MEETINGS
Special meetings of the board of directors for any
purpose or purposes may be called at any time by the chairman of
the board or the president or any vice president or the secretary
or any two directors.
Notice of the time and place of special meetings shall be
delivered personally or by telephone to each director or sent by
first class mail or telegram, charges prepaid, addressed to each
director at that director's address as it is shown on the records
of the corporation. In case the notice is mailed, it shall be
deposited in the United States mail at least four (4) days before
the time of the holding of the meeting. In case the notice is
delivered personally, or by telephone or to the telegraph
company, it shall be delivered at least forty-eight (48) hours
before the time of the holding of the meeting. Any oral notice
given personally or by telephone may be communicated either to
the director or to a person at the office of the director who the
person giving the notice has reason to believe will promptly
communicate it to the director. The notice need not specify the
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purpose of the meeting or the place if the meeting is to be held
at the principal executive office of the corporation.
Section 9. QUORUM
A majority of the authorized number of directors shall
constitute a quorum for the transaction of business, except to
adjourn as provided in Section 11 of this Article III. 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 of directors, subject to the
provisions of Section 310 of the Corporations Code of California
(as to approval of contracts or transactions in which a director
has a direct or indirect material financial interest), Section
311 of that Code (as to appointment of committees), and Section
317(e) of that Code (as to indemnification of directors). 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 that meeting.
Section 10. WAIVER NOTICE
The transactions of any meeting of the board of
directors, however called and noticed or wherever held, shall be
as valid as though had at a meeting duly held after regular call
and notice if a quorum is present and if, either before or after
the meeting, each of the directors not present signs a written
waiver of notice, a consent to holding the meeting or an approval
of the minutes. The waiver of notice or consent need not specify
the purpose of the meeting. All such waivers, consents, and
approvals shall be filed with the corporate records or made a
part of the minutes of the meeting. Notice of a meeting shall
also be deemed given to any director who attends the meeting
without protesting, before or at its commencement, the lack of
notice to that director.
Section 11. ADJOURNMENT
A majority of the directors present, whether or not
constituting a quorum, may adjourn any meeting to another time
and place.
Section 12. NOTICE OF ADJOURNMENT
Notice of the time and place of holding an adjourned
meeting need not be given, unless the meeting is adjourned for
more than twenty-four hours, in which case notice of the time and
place shall be given before the time of the adjourned meeting, in
the manner specified in Section 8 of this Article III, to the
directors who were not present at the time of adjournment.
Section 13. ACTION WITHOUT MEETING
Any action required or permitted to be taken by the board
of directors may be taken without a meeting, if all member of the
board shall individually or collectively consent in writing to
that action. Such action by written consent shall have the same
force effect as a unanimous vote of the board of directors. Such
written consent or consents shall be filed with the minutes of
the proceedings of the board.
Section 14. FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such
compensation, if any, for their services, any such reimbursement
of expenses, as may be fixed or determined by resolution of the
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board of directors. This Section 14 shall not be construed to
preclude any director from serving the corporation in any other
capacity as an officer, agent employee, or otherwise, and
receiving compensation for those services.
ARTICLE IV
COMMITTEES
Section 1. COMMITTEES OF DIRECTORS
The board of directors may, by resolution adopted by
majority of the authorized number of directors, designate one or
more committees, each consisting of two or more directors, to
serve at the pleasure of the board. The board may designate one
or more directors as alternate members of any committee, who may
replace any absent member at any meeting of the committee. Any
committee, to the extent provided in the resolution of the board,
shall have all the authority of the board, except with respect
to:
(a) The approval of any action which, under
the General Corporation Law of California, also requires
shareholder's approval or approval of the outstanding shares;
(b) The filling of vacancies on the board of
directors in 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 of directors 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 of directors; or
(g) The appointment of any other committees of
the board of directors or the members of these committees.
Section 2. MEETINGS AND ACTIONS OF COMMITTEES
Meetings and action of committees shall be governed by,
and held and taken in accordance with, the provisions of Article
III of these bylaws, Section 5 (place of meetings), 7 (regular
meetings), 8 (special meetings and notice), 9 (quorum), 10
(waiver of notice), 11 (adjournment), 12 (notice of adjournment),
and 13 (action without meeting), with such changes in the context
of those bylaws as are necessary to substitute the committee and
its members for the board of directors and its members, except
that the time of regular meetings of committees may be determined
either by resolution of the board of directors or by resolution
of the committee; special meetings of committees may also be
called by resolution of the board of directors; and notice of
special meetings of committees shall also be given to all
alternate members, who shall have the right to attend all
meetings of the committee. The board of directors may adopt rules
for the government of any committee not inconsistent with the
provisions of these bylaws.
ARTICLE V
OFFICERS
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Section 1. OFFICERS
The officers of the corporation shall be a chairman of
the board, a president, a secretary and a chief financial
officer. The corporation may also have, at the discretion of the
board of directors, one or more vice presidents, one or more
assistant secretaries, one or more assistant treasurers, and such
other officers as may be appointed in accordance with the
provisions of Section 3 of this Article V. Any number of offices
may be held by the same person.
Section 2. ELECTION OF OFFICERS
The officers of the corporation, except such officers as
may be appointed in accordance with the provisions of Section 3
or Section 5 of the Article V, shall be chosen by the board of
directors, and each shall serve at the pleasure of the board,
subject to the rights, if any, of an officer under any contract
of employment.
Section 3. SUBORDINATE OFFICERS
The board of directors may appoint, 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 the bylaws or as the board of directors may from time
to time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any
contract of employment, any officer may be removed, either with
or without cause, by the board of directors, at any regular or
special meeting of the board or, except in the case of an officer
chosen by the board of directors, by any officer upon whom such
power of removal may be conferred by the board of directors.
Any officer may resign, at any time, by giving written
notice to the corporation. Any resignation shall take effect at
the date of the receipt of that notice or at any later time
specified in that notice; and unless otherwise specified in that
notice, the acceptance of the resignation shall not be necessary
to make in effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which
the officer is a party.
Section 5. VACANCIES IN OFFICES
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 appointments to
that office.
Section 6. CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer is elected,
shall, if present, preside at meetings of the board of directors
and exercise and perform such other powers and duties as may be
from time to time assigned to him by the board of directors or
prescribed by the bylaws. If there is no president, the chairman
of the board shall in addition be the chief executive officer of
the corporation and shall have the powers and duties prescribed
in Section 7 of this Article V.
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Section 7. PRESIDENT
Subject to such supervisory powers, if any, as may be
given by the board of directors to the chairman of the board, if
there be such an officer, the president shall be the chief
executive officer of the corporation and shall, subject to the
control of the board of directors, have general supervision,
direction and control of the business and the 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 of directors. The
president shall have the general powers and duties of management
unusually vested in the office of the president of a corporation,
and shall have such other power and duties as may be prescribed
by the board of directors or the bylaws.
Section 8. VICE PRESIDENT
In the absence or disability of the president, the vice
president, if any, in order of their rank as fixed by the board
of directors or, if not ranked, a vice president designated by
the board of directors, 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
president shall have such other powers and perform such other
duties as from time to time may be prescribed for them
respectively by the board of directors or bylaws, and the
president, or the chairman of the board.
Section 9. SECRETARY
The secretary shall be present at all shareholders'
meetings and all board meetings and shall take the minutes of the
meeting. If the secretary is unable to be present, the secretary
or the presiding officer of the meeting shall designate another
person to take the minutes of the meeting.
The secretary shall keep or cause to be kept, at the
principal executive office or such other place as the boar of
directors may direct, a book of minutes of all meetings and
actions of directors, committees of directors, and shareholders,
with the time and place of holding, whether regular or special,
and if special, how authorized, the notice given, the names of
those present at directors' meetings or committee meetings, the
number of shares present or represented at shareholders'
meetings, and the proceedings.
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, as determined by resolution of the
board of directors, a record of shareholders, or a duplicate
record of shareholders, showing the names of all shareholders and
their addresses, the number of classes of shares held by each,
the number of 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 of directors
required by the bylaws or by law to be given, and he shall keep
the seal of the corporation if one be adopted, in safe custody,
and shall have such other powers and perform such other duties as
may be prescribed by the board of directors and by the bylaws.
Section 10. CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or
cause to be kept and maintained, adequate and correct books and
records of accounts of the properties and business transactions
of the corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all
reasonable time be open to
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inspection by any director.
The chief financial officer shall deposit all moneys and
other valuables in the name and to the credit of the corporation
with such depositories as may be designated by the board of
directors. The chief financial officer shall disburse the funds
of the corporation as may be ordered by the board of directors,
shall render to the president and directors, whenever they
request it, an account of all his transactions as chief financial
officer and of the financial condition of the corporation, and
shall have other powers and perform such other duties as may be
prescribed by the board of directors or the bylaws.
Unless the board of directors has elected a separate
treasurer, the chief financial officer shall be deemed to be the
treasurer for purposes of giving any reports or executing any
certificates or other documents.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER AGENTS
Section 1. AGENTS, PROCEEDINGS, AND EXPENSES
For the purposes of this Article, "agent" means any
person who is or was a director, officer, employee or other agent
of this corporation, or is or was serving at request of this
corporation as a director, officer, employee, or agent of another
foreign or domestic corporation, partnership, joint venture,
trust or other enterprise, or was a director, officer, employee
or agent of a foreign or domestic corporation which was a
predecessor corporation of this corporation or of another
enterprise at the request of such predecessor corporation;
"proceeding" means any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative, or
investigative; and "expenses" include, without limitation,
attorney's fees and any expenses of establishing a right to
indemnification under Section 4 or Section 5(c) of this Article
VI.
Section 2. ACTIONS OTHER THAN BY THE CORPORATION
This corporation shall indemnify any person who was or is
party, or is threatened to be made a party, to any proceeding
(other than an action by or in the right of this corporation) by
reason of the fact that such person is or was an agent of this
corporation, against expenses, judgments, fines, settlements or
other amounts actually and reasonably incurred in connection with
such proceeding if that person acted in good faith and in a
manner that person reasonably believed to be in the best
interests of this corporation and, in the case of a criminal
proceeding, if that person had no reasonable cause to believe his
conduct was unlawful. The termination of any proceeding by
judgement, order, settlement, conviction, or plea of nolo
contendere or its equivalent shall not, of itself, create a
presumption that the person did not act in good faith and in a
manner which the person reasonably believed to be in the best
interests of this corporation or that the person had reasonable
cause to believe that his conduct was unlawful.
Section 3. ACTIONS BY THE CORPORATION
This corporation shall indemnify any person who was or is
a party, or is threatened to be made a party, to any threatened,
pending or completed action by or in the right of this
corporation to procure a judgment in its favor by reason of the
fact that person is or was an agent of this corporation, against
expenses actually and reasonably incurred by that person in
connection with the defense or settlement of that action if that
person acted in good faith, in a manner that person
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believed to be in the best interests of this corporation, and
with such care, including reasonable inquiry, as a reasonable
person would exercise under similar circumstances. No
indemnification shall be made under this Section 3:
(a) In respect of any claim, issue or matter as to
which that person shall have been adjudged to be liable to this
corporation in the performance of that person's duty to this
corporation, unless and only to the extent that the court in
which that action was brought shall determine upon application
that, in view of all the circumstances of the case, that person
is fairly and reasonably entitled to indemnity for the expenses
which the court shall determine.
(b) Of amounts paid in settling or otherwise
disposing of a threatened or pending action, without court
approval; or
(c) Of expenses incurred in defending a threatened
or pending action which is settled or otherwise disposed of
without court approval.
Section 4. SUCCESSFUL DEFENSE BY AGENT
To the extent that an agent of this corporation has been
successful on the merits in defense of any proceeding referred to
in Sections 2 or 3 of this Article, or in defense of any claim,
issue, or matter therein, the agent shall be indemnified against
expenses actually and reasonably incurred by the agent in
connection therewith.
Section 5. REQUIRED APPROVAL
Except as provided in Section 4 of this Article, any
indemnification under this Article shall be made by this
corporation only if authorized in the specific case on a
determination that indemnification of the agent is proper in the
circumstances because the agent has met the applicable standard
of conduct set forth in Section 2 or 3 of this Article, by:
(a) A majority vote of a quorum consisting of
directors who are not parties to the proceeding;
(b) Approval by the affirmative vote of a majority
of the shares of this corporation entitled to vote represented at
a duly held meeting at which a quorum is present or by the
written consent of holders of a majority of the outstanding
shares entitled to vote. For this purpose, the shares owned by
the person to be indemnified shall not be considered outstanding
or entitled to vote thereon; or
(c) The court in which the proceeding is or was
pending, on application made by this corporation or the agent of
the attorney or other person rending services in connection with
the defense, whether or not such application by the agent,
attorney, or other person is opposed by this corporation.
Section 6. ADVANCE OF EXPENSES
Expenses incurred in defending any proceeding may be
advanced by this corporation before the final disposition of the
proceeding on receipt of an undertaking by or on behalf of the
agent to repay the amount of the advance unless it shall be
determined ultimately that the agent is entitled to be
indemnified as authorized in this Article.
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Section 7. OTHER CONTRACTUAL RIGHTS
Nothing contained in this Article shall affect any right
to indemnification to which persons other than directors and
officers of this corporation or any subsidiary hereof may be
entitled by contractor other otherwise.
Section 8. LIMITATIONS
No indemnification or advance shall be made under this
Article, except as provided in Section 4 or Section 5(c), in any
circumstance where it appears:
(a) That it would be inconsistent with a provision
of the articles, a resolution of the shareholders, or an
agreement in effect at the time of the accrual of the alleged
cause of action asserted in the proceeding in which the expenses
were incurred or other amounts were paid, which prohibits or
otherwise limits indemnification; or
(b) That it would be inconsistent with any
condition expressly imposed by a court in approving a settlement.
Section 9. INSURANCE
Upon and in the event of a determination by the board of
directors of this corporation to purchase such insurance, this
corporation shall purchase and maintain insurance on behalf of
any agent of the corporation against any liability asserted
against or incurred by the agent in such capacity or arising out
of the agent's status as such whether or not this corporation
would have the power to indemnify the agent against that
liability under the provisions of this section.
Section 10. FIDUCIARIES OF CORPORATE EMPLOYEE BENEFIT PLAN
This Article does not apply to any proceeding against any
trustee, investment manager, or other fiduciary of an employee
benefit plan in that person's capacity as such even though that
person may also be an agent of the corporation as defined in
Section 1 of this Article. Nothing contained in this Article
shall limit any right to indemnification to which such a trustee,
investment manager or other fiduciary may be entitled by contract
or otherwise, which shall be enforceable to the extent permitted
by applicable law other than this Article.
ARTICLE VII
RECORDS AND REPORTS
Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER
The corporation shall keep at its principal executive
office, or at the office of its transfer agent or registrar, if
either be appointed and as determined by resolution of the board
of directors, a record of its shareholders, giving the names and
addresses of all shareholders and the number and class of shares
held by each shareholder.
A shareholder or shareholders of the corporation holding
at least five percent (5%) in the aggregate of the outstanding
voting shares of the corporation may (i) inspect and copy the
records of shareholder's names and addresses and shareholdings
during the usual business hours on five days prior written demand
on the corporation; and (ii) obtain from the transfer agent of
the corporation on written demand and on the tender of such
transfer agent's usual charges for such
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list, a list of the shareholder's 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 that
list has been compiled or as of a date specified by the
shareholder after the date of demand. This list shall be made
available to any such shareholder by the transfer agent on or
before the later of five (5) days after the demand or the date as
of which the list is to be complied. The record of shareholders
shall also be open to inspection on the written demand of any
shareholder or holder of a voting trust certificate, at any time
during usual business hours, for a purpose reasonably related to
the holder's interest as a shareholder or as the holder of a
voting trust certificate. Any inspection and copying under this
Section 1 may be made in person or by an agent or attorney of the
shareholder or holder of a voting trust certificate making the
demand.
Section 2. MAINTENANCE AND INSPECTION OF BYLAWS
The corporation shall keep at its principal executive
office, or if its principal executive office is not in the State
of California, at its principal business office in this state,
the original or a copy of the bylaws as amended to date, which
shall be open to inspection by the shareholders at all reasonable
times during office hours. If the principal business office is in
this state, the Secretary shall, upon the written request of any
shareholder, furnish to that shareholder a copy of the bylaws as
amended to date.
Section 3. MAINTENANCE AND INSPECTION OF OTHER CORPORATE
RECORDS
The accounting books and records and minutes of
proceedings of the shareholders and the board of directors and
any committee or committees of the board of directors shall be
kept at such place or places designated by the board of
directors, or, in the absence of such designation, at the
principal executive office of the corporation. The minutes shall
be kept in written form and the accounting books and records
shall be kept either in written form or in any other form capable
of being converted into written form. The minutes and accounting
books and records shall be open to inspection upon the written
demand of any shareholders or holder of a voting trust
certificate, at any reasonable time during usual business hours,
for any purpose reasonably related to the holder's interests as a
shareholder or as the holder of a voting trust certificate. The
inspection may be made in person or by an agent or attorney, and
shall include the right to copy and make extracts. These rights
of inspection shall extend to the records of each subsidiary
corporation of the corporation.
Section 4. INSPECTION BY DIRECTORS
Every director shall have the absolute right at any
reasonable time to inspect all books, records, and documents of
every kind and the physical properties of the corporation and
each of its subsidiary corporations. This inspection includes the
right to copy and make extracts of documents.
Section 5. ANNUAL REPORTS TO SHAREHOLDERS
Inasmuch as, and for so long as there are fewer than 100
shareholders, the requirement of an annual report to shareholders
referred to in Section 1501 of the California General Corporation
Law is expressly waived. However, nothing in this provision shall
be interpreted as prohibiting the board of directors from issuing
annual or other periodic to the shareholders of the corporation
as they consider appropriate.
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Section 6. FINANCIAL STATEMENTS
A copy of any annual financial statement and any income
statement of the corporation for each quarterly period of each
fiscal year, and any accompanying balance sheet of the
corporation as of the end of such period, that has been prepared
by the corporation shall be kept on file in the principal
executive office of the corporation for twelve (12) months and
each such statement shall be exhibited at all reasonable times to
any shareholder demanding an examination of any such statement or
a copy shall be mailed to any such shareholder.
If a shareholder or shareholders holding at least five
(5%) of the outstanding shares of any class of stock of the
corporation makes a written request to the corporation for an
income statement of the corporation for the three month, six
month or nine month period of the then current fiscal year ended
more than thirty (30) days before the date of the request, and a
balance sheet of the corporation as of the end of that period,
the chief financial officer shall cause that statement to be
prepared, if not already prepared, and shall deliver personally
or mail that statement or statements to the person making the
request within thirty (30) days after the receipt of the request.
If the corporation has not sent to the shareholders its annual
report for the last fiscal year, this report shall likewise be
delivered or mailed to the shareholder or shareholders within
thirty (30) days after the request.
The corporation shall also, on the written request of any
shareholder, mail to the shareholder a copy of the last annual,
semiannual, or quarterly income statement which it has prepared,
and a balance sheet as of the end of that period.
The quarterly income statements and balance sheets
referred to in this section shall be accompanied by the report,
if any, of any independent accountants engaged by the corporation
or the certificate of an authorized officer of the corporation
that the financial statements were prepared without audit from
the books and records of the corporation.
Section 7. ANNUAL STATEMENT OF GENERAL INFORMATION
Every year, during the calendar month in which the
original Articles of Incorporation were filed with California
Secretary of State, or during the preceding five calendar months,
the corporation shall file with the Secretary of State of the
State of California, on the prescribed form, a statement setting
forth the authorized number of directors, the names and complete
business or residence addresses of the other chief executive
officer, secretary, and chief financial officer, the street
address of its principal executive office or principal business
office in this state, and the general type of business
constituting the principal business activity of the corporation,
together with a designation of the agent of the corporation for
the purpose of service of process, all in compliance with Section
1502 of the Corporations Code of California.
Notwithstanding the above paragraph of this Section, if
there has been no change in the information contained in the
corporation's last annual statement on file in the Secretary of
State's office, the Corporation may, in lieu of filing the annual
statement, advise the Secretary of State that no changes in the
required information have occurred during the applicable period.
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ARTICLE VIII
GENERAL CORPORATE MATTERS
Section 1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE
AND VOTING
For purposes of determining the shareholders entitled to
receive payment of any dividend or other distribution or
allotment of any rights or entitled to exercise any rights in
respect of any other lawful action (other than action by
shareholders by written consent without a meeting), the board of
directors may fix, in advance, a record date, which shall not be
more than sixty (60) days before any such action, and in that
case only shareholders of record on the date so fixed are
entitled to receive the dividend, distribution, or allotment of
rights or to exercise the right, as the case may be,
notwithstanding any transfer of any shares on the books of the
corporation after the record date so fixed, except as otherwise
provided in the California General Corporation Law.
If the board of directors does not so fix a record date,
the record date for determining shareholders for any such purpose
shall be at the close of business on the day on which the board
adopts the applicable resolution or the sixtieth (60th) day
before the date of that action, whichever is later.
Section 2. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS
All checks, drafts or other orders for payment of notes,
or other evidences of indebtedness, issued in the name of or
payable to the corporation, shall be signed or endorsed by such
person or persons and in such manner as from time to time shall
be determined by resolution of the board of directors.
Section 3. CORPORATE CONTRACTS AND INSTRUMENTS; HOW
EXECUTED
The board of directors, except as otherwise provided in
these bylaws, may authorize any officer or officers, agent or
agents to enter into any contract or execute any instrument in
the name of and on behalf of the corporation, and this authority
may be general or confined to specific instances; and, unless so
authorized or ratified by the board of directors or within the
agency power of an officer, 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 for any amount.
Section 4. CERTIFICATES FOR SHARES
A certificate of certificates for shares of the capital
stock of the corporation shall be issued to each shareholder when
any of these shares are fully paid, and the board of directors
may authorize the issuance of certificates of shares as partly
paid provided that these certificates or shares shall state the
amount of the consideration to be paid for them and the amount
paid. All certificates shall be signed in the name of the
corporation by the chairman of the board or president and by the
chief financial officer or an assistant treasurer or the
secretary or any assistant secretary, certifying the number of
shares and the class or series of shares owned by the
shareholder. Any or all of the signatures on the certificate may
be facsimile. In case any officer, transfer agent, or registrar
who has signed or whose facsimile signature has been placed on a
certificate shall have ceased to be that officer, transfer agent,
or registrar before that certificate is issued by the corporation
with the same effect as if that person were an officer, transfer
agent or registrar at the
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date of issue.
Section 5. LOST CERTIFICATES
Except as provided in this Section 5, no new certificates
for shares shall be issued to replace an old certificate unless
the latter is surrendered to the corporation and canceled at the
same time. The board of directors may, in case any share
certificate or certificate for any other security is lost, stolen
or destroyed, authorize the issuance of a replacement certificate
on such terms and conditions as the board may require, including
provision for indemnification of the corporation secured by a
bond or other may require, including provision for
indemnification of the corporation secured by the a bond or other
adequate security sufficient to protect the corporation against
any claim that may be made against it, including any expense or
liability , on account of the alleged loss, theft or destruction
of the certificate or the issuance of the replacement
certificate.
Section 6. REPRESENTATION OF SHARES OF OTHER
CORPORATIONS
The chairman of the board, the president, or any vice
president, or any other authorized by resolution of the board of
directors or by any of the foregoing designated officers, is
authorized to vote on behalf of the corporation any and all
shares of any other corporation or corporations, foreign or
domestic, standing in the name of the corporation. The authority
granted to these officers to vote or represent on behalf of the
corporation any and all shares held by the corporation in any
other corporation or corporations may be exercised by any of
these officers in person or by any person authorized to do so by
proxy duly executed by these officers.
Section 7. CONSTRUCTION AND DEFINITIONS
Unless the context requires otherwise, the general
provisions, rules of construction, and definitions in the
California General Corporation Law shall govern the construction
of these bylaws. Without limiting the generality of this
provisions, the singular number includes the plural, the plural
number includes the singular, and the term "person" includes both
a corporation and a natural person.
Bylaws may be adopted, amended, or repealed by the vote
or written consent of the holders of a majority of the
outstanding shares entitled to vote.
ARTICLE IX
AMENDMENTS
Section 1. AMENDMENT BY SHAREHOLDERS
New bylaws may be adopted or these bylaws may be amended
or repealed by the vote or written consent of holders of a
majority of the outstanding shares entitled to vote; provided,
however, that if the articles of incorporation of the corporation
set forth the number of authorized directors of the corporation,
the authorized number of directors may be changed only by an
amendment of the articles of incorporation.
19
<PAGE>
Section 2. AMENDMENT BY DIRECTORS
Subject to the rights of the shareholders to adopt, amend
or repeal bylaws as provided in Section 1 of this Article IX,
bylaws, other than a bylaw amendment changing the authorized
number of directors, may be adopted, amended or repealed by the
board of directors.
CERTIFICATE OF ASSISTANT SECRETARY
I, the undersigned, certify that I am the presently
elected assistant secretary of AeroCentury Fund IV, Inc., a
California corporation, that I am authorized to make this
certification and that the foregoing bylaws, consisting of twenty
(20) pages, are the bylaws of this corporation as adopted on this
date by the board of directors.
Dated: February 15, 1997
Executed at: Burlingame, California
/s/ Christopher B. Tigno
______________________________________
Christopher Tigno, Assistant Secretary
20
<PAGE>
EXHIBIT 4.1
Form of Indenture between Registrant and
First Security Bank, National Association
<PAGE>
INDENTURE OF TRUST
Between
AEROCENTURY FUND IV, INC.
A California Corporation
and
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
as Trustee
Dated as of February __, 1997
10% SECURED PROMISSORY NOTES
in the Maximum Amount of $10,000,000
<PAGE>
TABLE OF CONTENTS
Page
PRELIMINARY STATEMENT........................................ 1
GRANTING CLAUSES............................................. 1
ARTICLE I
DEFINITIONS, INCORPORATION BY REFERENCE, AND OTHER PROVISIONS
OF GENERAL APPLICATION....................................... 2
Section 1.01 Definitions............................. 2
Section 1.02 Incorporation by Reference of Trust
Indenture Act........................... 9
Section 1.03 Compliance Certificate and Opinions..... 9
Section 1.04 Form of Documents Delivered to Trustee.. 9
Section 1.05 Acts of Bondholders..................... 10
Section 1.06 Notices, Etc. to Trustee and Company.... 10
Section 1.07 Notices to Bondholders; Waiver.......... 10
Section 1.08 Effect of Headings and Table of Contents 11
Section 1.09 Successors and Assigns.................. 11
Section 1.10 Separability............................ 11
Section 1.11 Benefits of Indenture................... 11
Section 1.12 Legal Holidays.......................... 11
Section 1.13 Governing Law........................... 11
Section 1.14 Counterparts............................ 11
Section 1.15 Corporate Obligation.................... 11
Section 1.16 Inspection.............................. 11
Section 1.17 Trust Indenture Act Controls............ 12
ARTICLE II
BOND FORM.................................................... 12
Section 2.01 Form Generally.......................... 12
ARTICLE III
THE BONDS AND THE ASSETS..................................... 12
Section 3.01 Amount Of Indenture..................... 12
Section 3.02 Denominations and Stated Maturity....... 12
Section 3.03 Execution, Authentication, Delivery,
and Dating.............................. 12
Section 3.04 Temporary Bonds......................... 13
Section 3.05 Registration, Registration of Transfer,
and Exchange............................ 13
Section 3.06 Mutilated, Destroyed, Lost, or
Stolen Bonds............................ 14
Section 3.07 Payments of Principal and Interest;
Principal and Interest Rights Preserved. 15
Section 3.08 Persons Deemed Owners................... 16
Section 3.09 Cancellation............................ 16
Section 3.10 Covenants as to Leases and Financial
Assets ................................. 16
Section 3.11 General Obligations..................... 17
Section 3.12 Redemption.............................. 17
Section 3.13 Notice by Company; Redemption Amount ... 17
Section 3.14 Interest Rate........................... 18
Section 3.15 Usury................................... 18
ARTICLE IV
SATISFACTION AND DISCHARGE; RELEASE OF COLLATERAL............ 18
Section 4.01 Satisfaction and Discharge of Indenture. 18
Section 4.02 Application of Trust Money.............. 19
Section 4.03 Repayment of Moneys Held by Paying Agent 19
Section 4.04 Release of Collateral................... 19
<PAGE>
ARTICLE V
DEFAULTS; REMEDIES........................................... 20
Section 5.01 Events of Default....................... 20
Section 5.02 Acceleration of Stated Maturity;
Rescission and Annulment................ 21
Section 5.03 Collection of Indebtedness and Suits
for Enforcement by Trustee.............. 22
Section 5.04 Remedies................................ 22
Section 5.05 Optional Preservation of Trust Estate... 23
Section 5.06 Trustee May File Proofs of Claim........ 23
Section 5.07 Trustee May Enforce Claims Without
Possession of Bonds..................... 24
Section 5.08 Application of Money Collected.......... 24
Section 5.09 Limitation on Suits..................... 25
Section 5.10 Nonimpairment of Bondholders' Rights.... 25
Section 5.11 Restoration of Rights and Remedies...... 25
Section 5.12 Rights and Remedies Cumulative ......... 25
Section 5.13 Delay or Omission Not Waiver............ 26
Section 5.14 Control by Bondholders.................. 26
Section 5.15 Waiver of Past Defaults................. 26
Section 5.16 Undertaking for Costs................... 26
Section 5.17 Waiver of Stay or Extension Laws........ 27
Section 5.18 Sale of Trust Estate.................... 27
Section 5.19 Action on Bonds......................... 27
Section 5.20 Additional Grace Period for Interest
Payment Default......................... 27
ARTICLE VI
THE TRUSTEE.................................................. 28
Section 6.01 Certain Duties and Responsibilities..... 28
Section 6.02 Notice of Default....................... 29
Section 6.03 Certain Rights of Trustee............... 29
Section 6.04 Not Responsible for Recitals or Issuance
of Bonds................................ 30
Section 6.05 May Hold Bonds.......................... 31
Section 6.06 Money Held in Trust..................... 31
Section 6.07 Compensation and Reimbursement to Trustee 31
Section 6.08 Eligibility; Disqualification........... 32
Section 6.09 Resignation and Removal; Appointment of
Successor............................... 32
Section 6.10 Acceptance of Appointment by Successor.. 33
Section 6.11 Merger, Conversion, Consolidation,
or Succession to Business of Trustee.... 33
Section 6.12 Co-trustees and Separate Trustee........ 33
Section 6.13 Withholding Taxes and Reports........... 34
Section 6.14 Preferential Collection of Claims Against
the Company............................. 35
ARTICLE VII
BONDHOLDERS' LIST AND REPORTS BY TRUSTEE AND COMPANY......... 35
Section 7.01 Company to Furnish Trustee Names and
Addresses of Bondholders................ 35
Section 7.02 Preservation of Information;
Communications to Bondholders........... 35
Section 7.03 Reports by Trustee...................... 35
Section 7.04 Reports by Company...................... 35
<PAGE>
ARTICLE VIII
CONSOLIDATION AND MERGER..................................... 36
Section 8.01 Company May Consolidate, Etc.,
Only on Certain Terms................... 36
Section 8.02 Successor Substituted................... 37
ARTICLE IX
COVENANTS OF THE COMPANY..................................... 38
Section 9.01 Payment of Principal and Interest....... 38
Section 9.02 Maintenance of Office or Agency......... 38
Section 9.03 Money for Bond Payments to Be Held
in Trust................................ 38
Section 9.04 Corporate Existence..................... 39
Section 9.05 Protection of Trust Estate.............. 39
Section 9.06 Annual Certification as to Trust Estate
and Contracts........................... 40
Section 9.07 Negative Covenants...................... 40
Section 9.08 Statement as to Compliance.............. 40
Section 9.09 Investment Company Act.................. 41
Section 9.10 Continuing Liability of the Company..... 41
Section 9.11 Lease or Financial Asset Defaults....... 41
ARTICLE X
ACCOUNTS .................................................... 41
Section 10.01 Collection of Money..................... 41
Section 10.02 Payment Account......................... 41
Section 10.03 Sinking Fund Account.................... 42
Section 10.04 Final Balances.......................... 42
ARTICLE XI
SUPPLEMENTAL INDENTURES...................................... 42
Section 11.01 Supplemental Indentures Without Consent
of Bondholders.......................... 42
Section 11.02 Supplemental Indentures With Consent
of Bondholders.......................... 43
Section 11.03 Execution of Supplemental Indentures.... 44
Section 11.04 Effect of Supplemental Indenture........ 44
Section 11.05 Reference in Bonds to Supplemental
Indentures.............................. 44
Section 11.06 Conformity with Trust Indenture Act.....
45
<PAGE>
INDENTURE OF TRUST
THIS INDENTURE OF TRUST, dated as of February __, 1997,
(herein as amended or supplemented from time to time as permitted
hereby, called this "Indenture"), between AeroCentury Fund IV,
Inc.,a California corporation (herein, together with its
permitted successors and assigns, called the "Company"), and
First Security Bank, National Association, a national bank
organized and existing under the laws of the United States of
America, as trustee (herein, together with its permitted
successors in the trust hereunder, called the "Trustee").
PRELIMINARY STATEMENT
The Company and Trustee desire to enter this Indenture
of Trust (the "Indenture"), regarding the issuance of certain 10%
Secured Promissory Notes (the "Bonds"). The Company duly
authorized the execution and delivery of this Indenture to
provide for the issuance of the Bonds.
All covenants and agreements made by the Company herein
are for the benefit and security of the Bondholders. The Company
is entering into this Indenture, and the Trustee is accepting the
trusts created hereby, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged.
GRANTING CLAUSES
All actions necessary to make this Indenture a valid
agreement of the Company in accordance with its terms have been
completed.
The Company hereby Grants to the Trustee, for the
exclusive benefit of the Bondholders, except as otherwise
provided herein, a security interest in the Assets and all of the
Company's right, title, and interest in and to any and all
benefits accruing to the Company (but excluding any and all of
its obligations) under (a) the Sinking Fund Account (including,
but not limited to, all Eligible Investments made with the assets
therein) and the Payment Account and (b) the proceeds thereof
(including, but not by way of limitation, all proceeds of the
conversion thereof, voluntary or involuntary, into cash or other
liquid property, all cash proceeds, accounts, accounts
receivable, notes, drafts, acceptances, chattel paper, checks,
deposit accounts, condemnation awards, rights to payment of any
and every kind, and other forms of obligations and receivables,
instruments, and other property which at any time constitute all
or part of or are included in the proceeds of any of the
foregoing).
Such Grant is made, however, in trust, to secure the
Bonds equally and ratably without prejudice, priority, or
distinction, except as expressly provided in this Indenture,
between any Bond and any other Bond by reason of difference in
time of issuance or otherwise, and to secure (a) the payment of
all amounts due on the Bonds in accordance with their terms, (b)
the payment of all other sums payable under this Indenture, and
(c) compliance with the provisions of this Indenture, all as
provided in this Indenture.
The Trustee acknowledges such Grant, accepts the trusts
hereunder in accordance with the provisions hereof, and agrees to
perform the duties herein required of it.
ARTICLE I
DEFINITIONS, INCORPORATION BY REFERENCE, AND OTHER
PROVISIONS OF GENERAL APPLICATION
Section 1.01 Definitions. Except as otherwise specified
herein or as the context may otherwise require, the following
terms have the respective meanings set forth below for all
purposes of this Indenture, and the definitions of such terms are
equally applicable to both the singular and plural forms of such
terms.
1
<PAGE>
"Accounts" means all Payment and Sinking Fund Accounts
established by the Company pursuant to the provisions hereunder.
"Act" means the Securities Act of 1933, as amended.
"Act of Bondholders" or "Act of Holders" has the meaning
specified in Section 1.05.
"Affiliate" of a specified Person means any Person
directly or indirectly through one or more intermediaries
controlling, controlled by, or under common control with the
Person specified.
"Aggregate Outstanding Amount" means the aggregate
principal amount of Bonds, as the context may require, that is
Outstanding as of the date of determination.
"Allowed Expenses" means expenses that may be paid by
the Company out of its cash flow before application toward
required payments due under the Bonds, consisting of the
following expenses: indenture trustee fees, annual administrative
costs, bond interest processing charges, bank charges, accounting
expenses, audit expenses, tax return filings, annual compliance
certificate expenses, operating expenses, appraisal fees and
federal and state income taxes.
"Assets" means the Company's rights, title, benefits,
and interest in and to the Equipment and Financial Assets now
owned or hereafter acquired by the Company, the Sinking Fund
Account and the Payment Account, any security interests granted
to the Company in connection or relating to acquisition of
Equipment or Financial Assets, any collateral assignments of the
Leases, and any Guarantees of Leases or obligation to the Company
relating to Financial Assets.
"Board of Directors" means either the Board of Directors
of the Company or any duly authorized committee of that Board.
"Board Resolution" means a copy of a resolution
certified by the Secretary or an Assistant Secretary of the
Company to have been duly adopted by the Board of Directors and
to be in full force and effect on the date of such certification,
and delivered to the Trustee.
"Bondholder" or "Holder" means the Person in whose name
a Bond is registered in the Bond Register.
"Bond Register" means the register in which the names
and addresses of the Holders of Bonds will be kept for all
purposes described herein by the Bond Registrar.
"Bond Registrar" means the Person who will have
possession of and will maintain in current condition the Bond
Register. The original Bond Registrar will be the Trustee.
"Bond" or "Bonds" means any Bond or Bonds, as the case
may be, authenticated, issued, and delivered under this
Indenture.
"Business Day" means any day other than a Saturday, a
Sunday, or a day on which banks are authorized or required by law
or executive order to be closed in either the State of California
or the State of Utah.
"Casualty" means any event which causes the Equipment in
whole or in part to become unusable by the Lessee.
"Closing" means such date or dates designated by the
Company on which subscription funds from the sale of the Bonds
shall be released from escrow and Bonds shall be executed,
authenticated and delivered.
2
<PAGE>
"Code" means the Internal Revenue Code of 1986, as
amended, and treasury regulations promulgated thereunder.
"Commission" means the United States Securities and
Exchange Commission.
"Company" means AeroCentury Fund IV, Inc., a California
corporation, until a successor Person shall have become the
Company pursuant to the applicable provisions of this Indenture,
and thereafter Company shall mean such successor Person.
"Company Order" and "Company Request" means a written
order or request signed in the name of the Company by its
President or any Vice President, and delivered to the Trustee.
"Corporate Trust Office" means the corporate trust
office of the Trustee, currently located at 79 South Main Street,
Salt Lake City, Utah 84111, or such other address as the Trustee
may designate from time to time by notice to the Company, or the
principal corporate trust office of any successor Trustee.
"Debt Service Amount" means, with respect to the next
succeeding Payment Date, Special Payment Date, Redemption Date or
Maturity for the Bonds, the amount of principal and/or interest
that will be due thereon at such date.
"Default" means any occurrence that is, or with notice
or the lapse of time or both would become, an Event of Default.
"Defaulted Lease" means any Lease for which an event of
default thereunder has occurred and is continuing.
"Defaulted Financial Asset" means any Financial Asset
for which an event of default by the Obligor to the Company
thereunder has occurred and is continuing.
"Eligible Investments" means any and all of the
following
instruments:
(a) Direct obligations of, and obligations fully
guaranteed by, the United States or any agency or instrumentality
thereof whose obligations are backed by the full faith and credit
of the United States;
(b) (i) Demand and time deposits in, certificates of
deposit of, or bankers' acceptances issued by, any depository
institution or trust company incorporated under the laws of the
United States of America or any State thereof (including the
Trustee or any agent or Affiliate of the Trustee acting in their
respective commercial capacities) and subject to supervision and
examination by federal and/or state banking authorities, so long
as the commercial paper and/or the debt obligations of such
depository institution or trust company (or, in the case of the
principal depository institution in a holding company system, the
commercial paper or debt obligations of such holding company)
have, at the time of such investment, an investment rating in one
of the four highest rating categories for similar securities by
either Standard and Poor's Corporation or Moody's Investors
Service, Inc., and (ii) any other demand or time deposit or
certificate of deposit that is fully insured by the Federal
Deposit Insurance Corporation;
(c) Repurchase agreements, fully collateralized by any
security described in clause (a), above, with an entity that has,
at the time of such investment, an investment rating in one of
the four highest rating categories for similar securities by
either Standard and Poor's Corporation or Moody's Investors
Service, Inc. for such investments;
(d) Securities bearing interest or sold at a discount
issued by any corporation incorporated under the laws of the
United States of America or any State thereof that have an
investment rating in one of the four highest rating categories
for similar securities by either Standard and Poor's Corporation
or Moody's Investors Service, Inc. at the time of such investment
or contractual commitment providing for such investment; and
3
<PAGE>
(e) Interests in any money market fund or trust the
investments of which are principally restricted to obligations of
the kinds specified in clauses (a) through (d) above.
"Equipment" means equipment acquired by the Company from
the Net Bond Proceeds from the sale of the Bonds.
"Event of Default" has the meaning specified in Section
5.01.
"Fair Market Value" means the fair market value of an
Asset, as appraised by an Independent appraiser.
"Final Closing" means the date on which the final
Closing
of Bonds occurs.
"Financial Assets" means the contractual rights or
assignments relating to equipment, which rights or assignments
are acquired by the Company to generate revenue for the Company,
such as indebtedness secured by equipment, participation
interests in such indebtedness, assignments of lessor rights
under leases for equipment lease positions or rental streams.
"Grant" means to grant, bargain, sell, warrant,
alienate, demise, release, convey, assign, transfer, mortgage,
pledge, create, and grant a security interest in and right of
set-off against, deposit, set over, and confirm. A Grant of a
security interest in, or a collateral assignment of, the rights,
title, benefits, and interest in and to the Assets or of any
other portion of the Trust Estate shall include all rights,
powers, and options (but none of the obligations) of the Granting
party thereunder, including without limitation the immediate and
continuing right to claim, collect, receive, and receipt for
payments in respect of the Assets, or any other payment due
thereunder, to give and receive other agreements, to exercise all
rights and options, to bring Proceedings in the name of the
Granting party or otherwise, and generally to do and receive
anything that the Granting party is or may be entitled to do or
receive thereunder or with respect thereto.
"Guarantee" or "Guarantees" means the personal or
corporate guarantee or guarantees of any Person received by the
Company in connection with any Lease or Financial Asset.
"Indenture" or "this Indenture" means this instrument as
originally executed and, if from time to time supplemented or
amended by one or more indentures supplemental hereto entered
into pursuant to the applicable provisions hereof, as so
supplemented or amended, or both, and shall include the forms and
terms of the Bonds established hereunder. All references in this
instrument to designated "Articles," "Sections," "subsections,"
and other subdivisions are to the designated Articles, Sections,
subsections, and other subdivisions of this instrument as
originally executed or if amended or supplemented, as so amended
and supplemented. The words "herein," "hereof," "hereunder," and
other words of similar import refer to this Indenture as a whole
and not to any particular Article, Section, subsection, or other
subdivision.
"Independent" means, when used with respect to any
specified Person, such a Person, who (a) is in fact independent
of the Company and any other obligor upon the Bonds and any other
Person with an ownership interest in the Trust Estate or in any
Affiliate of the foregoing Persons, (b) does not have any direct
financial interest or any material indirect financial interest in
the Company or in any such other obligor or any such other Person
with such an ownership interest in the Trust Estate or in any
Affiliate of any of the foregoing Persons, and (c) is not
connected with the Company or any such other obligor or any such
other Person with such an ownership interest in the Trust Estate
as an officer, employee, promoter, underwriter, trustee, partner,
director, or Person performing similar functions. Whenever it is
herein provided that any Independent Person's opinion or
certificate shall be furnished to the Trustee, such Person shall
be appointed by a Company Order and such opinion or certificate
shall state that the signer has read this definition and that the
signer is Independent within the meaning hereof.
"Initial Closing" means the first Closing with respect
to
Bonds.
4
<PAGE>
"Interest" or "interest" means an amount of interest due
on the Bonds on any Payment Date calculated at the Interest Rate.
"Interest Rate" means the annual rate at which interest
accrues on the Bonds, which rate shall be 10% simple interest.
"Lease" or "Leases" means each lease or all leases of
Equipment made to a Lessee by the Company or assigned or
purchased by the Company in connection with an acquisition by the
Company of Equipment underlying such lease.
"Lessee" means a lessee of the Equipment.
"Management Agreement" means that certain Management
Agreement between JetFleet Management Corp. ("JMC") and the
Company whereunder JMC agrees to provide asset management and
other services to the Company.
"Maturity" or "Maturity Date" means, with respect to any
Bond, the date on which the unpaid principal of such Bond becomes
due and payable as therein or herein provided, whether at Stated
Maturity, by declaration of acceleration or otherwise.
"Net Bond Proceeds" means, with respect to Bonds issued
and sold at any Closing, the net proceeds received by the Company
from the sale of such Bonds, after payment of selling
commissions, fees, and other offering expenses. In any case where
it shall be necessary to determine the amount of Net Bond
Proceeds, the determination shall be made by the Company and, to
the extent necessary, the Company may utilize estimates of the
Company, its attorneys or accountants, or others with respect to
the amount of fees and other offering expenses allocable to the
sale of such Bonds.
"Net Book Value" means, with respect to Assets, the net
book value of such Assets as determined by the Company using
generally accepted accounting principles.
"Net Cash Flow" means cash funds of the Company provided
from operations, without deduction for depreciation and other
non-cash items, but after deducting cash funds used to pay all
Allowed Expenses, debt payments, and capital improvements and
replacements.
"Net Resale Proceeds" means the proceeds realized by the
Company from the sale of an Asset, including any insurance
proceeds or lessee indemnity payments arising from the loss or
destruction of such Asset, less all Company expenses in
connection with such sale, and all liabilities of the Company
with respect to such Asset.
"Obligor" means the party obligated to make payment to
the Company under a Financial Asset owned by the Company.
"Officer's Certificate" means a certificate signed by
the Chairman, the President, any Vice President, the Treasurer,
or the Secretary of the Company or other Person delivering such
certificate, and delivered to the Trustee. Unless otherwise
specified, any reference in this Indenture to an Officer's
Certificate shall be to an Officer's Certificate of the Company.
"Opinion of Counsel" means a written opinion of counsel
who may, except as otherwise expressly provided in this
Indenture, be counsel for the Company.
"Outstanding" means as of the date of determination, all
Bonds theretofore authenticated and delivered under this
Indenture except:
(a) Bonds theretofore canceled by the Trustee or
delivered
to the Trustee for cancellation;
5
<PAGE>
(b) Bonds or the portion thereof for whose payment or
redemption money in the necessary amount has been theretofore
deposited with the Trustee or any Paying Agent (other than the
Company) in trust or set aside and segregated in trust by the
Company (if the Company shall act as its own Paying Agent) for
the Bondholders; provided, that, if such Bonds are to be
redeemed, notice of such redemption has been duly given pursuant
to this Indenture or provision therefor satisfactory to the
Trustee has been made;
(c) Bonds in exchange for which other Bonds have been
authenticated and delivered pursuant to this
Indenture; and
(d) Bonds alleged to have been destroyed, lost, or
stolen for which replacement Bonds have been issued as provided
for in Section 3.06, unless proof satisfactory to the Trustee is
presented that any such Bonds are held by a Bondholder in due
course in whose hands such Bonds are valid obligations of the
Company;
provided, that for purposes of determining whether the Holders of
the requisite Aggregate Outstanding Amount have given any
request, demand, authorization, direction, notice, consent, or
waiver hereunder, Bonds owned by the Company or any other obligor
upon the Bonds, any other Person with an ownership interest in
the Trust Estate for such Bonds (other than an ownership interest
arising solely from one's status as a Bondholder), or any
Affiliate of any of the foregoing Persons, shall be disregarded
and deemed not to be Outstanding, except that, in determining
whether the Trustee shall be protected in relying upon any such
request, demand, authorization, direction, notice, consent, or
waiver, only Bonds that the Trustee actually knows to be so owned
shall be so disregarded. Bonds so owned which have been pledged
in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's
right so to act with respect to such Bonds and that the pledgee
is not the Company or any other obligor upon the Bonds, any other
Person with an ownership interest in the Trust Estate for such
Bonds (other than an ownership interest arising solely from one's
status as a Bondholder), or any Affiliate of any of the foregoing
Persons.
"Overdue Bond" means any Bond relative to which a
payment of principal or Interest has not been paid or provided
for when due and payable, as provided herein.
"Paying Agent" means the Trustee or any other Person
(including the Company) that is authorized by the Company to pay
the principal of, or Interest on, any Bonds on behalf of the
Company; provided that such other Person (if other than the
Company) meets the eligibility standards for the Trustee
specified herein.
"Payment Account" means the account or accounts created
and established pursuant to Section 10.02 hereof.
"Payment Dates" means, so long as any Bonds are
Outstanding, February 1, May 1, August 1, and November 1 of each
year, or if such a date is not a Business Day, then the next
immediately following Business Day, as set forth in Section 1.12.
"Person" means any individual, corporation, partnership,
limited liability company, joint venture, association, joint
stock company, trust (including any beneficiary thereof),
unincorporated organization, government, or any agency or
political subdivision thereof.
"Predecessor Bond" means, with respect to any particular
Bond, every previous Bond evidencing all or a portion of the same
debt as that evidenced by such Bond and, for the purpose of this
definition, any Bond authenticated and delivered under Section
3.06 hereof in lieu of a lost, destroyed, or stolen Bond shall be
deemed to evidence the same debt as the lost, destroyed, or
stolen Bond.
"Proceedings" means any suit in equity, action at law,
or other judicial or administrative proceeding.
"Purchase Price" means the purchase price paid upon the
purchase of an Asset, including the amount of all liens and
mortgages on the Income Producing Asset, but excluding points and
interest.
6
<PAGE>
"Redeem" has the meaning specified in Section 3.12; and
the term "redemption" has a meaning correlative thereto.
"Redemption Amount" means the amount of outstanding
principal the Company will prepay on a Bond on a Redemption Date.
"Redemption Date" means the date upon which the Company
shall redeem principal under the Bonds as set forth in Sections
3.12 and 3.13.
"Redemption Record Date" means, with respect to any
particular redemption of Bonds, that date which is established by
Board Resolution for the determination of those Holders to whom
the redemption price is to be paid.
"Regular Record Date" means, with respect to a Payment
Date, so long as any Bonds are Outstanding, the 15th day of the
calendar month prior to the calendar month in which such Payment
Date falls.
"Responsible Officer" means, with respect to the
Trustee, any officer of the Trustee assigned by it to administer
corporate trust matters.
"Sale" has the meaning specified in Section 5.18.
"Security Documents" means any security agreement,
pledge, collateral assignment, financing document, or other
agreement or instrument to create or perfect a security interest
for the benefit of the Trustee in the Equipment, the Financial
Assets, and any other Assets of the Company.
"Senior Acquisition Lien" means liens in all or a
portion of an Asset acquired using only third party financing and
the Company's own funds (excluding Bond proceeds), which lien
secures the indebtedness of the Company to the third-party
lender.
"Sinking Fund Account" means the account or accounts
created and established pursuant to Section 10.03 hereof.
"Sinking Fund Trigger Date" means April 30, 2003.
"Special Payment Date" means, with respect to any
Overdue Bond, the day on which payments due on any Overdue Bond
shall be paid pursuant to Section 3.07.
"Special Record Date" means with respect to any Special
Payment Date, the date as of which the Bondholders entitled to
receive a payment on the Overdue Bonds are to be determined, as
provided in Section 3.07 hereof.
"Stated Maturity Date" or "Stated Maturity" means, with
respect to any Bond, the date upon which all outstanding
principal and interest due under the Bond is due and payable in
full, which date shall be April 30, 2005, unless such date is
extended by up to six months at the discretion of the Company as
set forth in Section 3.02.
"TIA" means the Trust Indenture Act of 1939, as in
effect on the date of this Indenture.
"Trust Estate" means the rights and interests Granted to
the Trustee set forth in the Granting Clause of this Indenture,
and all money (including, but not limited to, moneys collected or
received by the Company in respect of obligations under the
Leases and the Financial Assets which are for the benefit of the
Bondholders), instruments, and other property that are subject to
or intended to be subject to the lien of this Indenture for the
benefit of the Bondholders at any particular time.
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"Trustee" means First Security Bank of Utah, National
Association, a national bank organized and existing under the
laws of the United States of America, in its capacity to serve as
trustee, unless a successor Person shall have become the Trustee
pursuant to the applicable provisions of this Indenture, and
thereafter "Trustee" shall mean such successor Person.
"Uniform Commercial Code" means the Uniform Commercial
Code enacted by the State or States in which the Trust Estate or
portions thereof are located, respectively.
Section 1.02 Incorporation by Reference of Trust
Indenture Act. Whenever this Indenture refers to a provision of
the TIA, the provision is incorporated by reference in and made a
part of this Indenture. The following TIA terms used in this
Indenture have the following meanings:
"Indenture Securities" means the Bonds.
"Indenture Security Holder" means a Holder or a
Bondholder.
"Indenture to be Qualified" means this Indenture of
Trust.
"Indenture Trustee" or "Institutional Trustee" means the
Trustee.
Section 1.03 Compliance Certificate and Opinions. Upon
any application or request by the Company to the Trustee to take
any action under any provisions of this Indenture, the Company
shall furnish to the Trustee an Officer's Certificate stating
that all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with
and, except as herein otherwise expressly provided, an Opinion of
Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which
the furnishing of such documents or any of them is specifically
required by any provision of this Indenture relating to such
particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance
with a condition or covenant provided for in this Indenture shall
include:
(i) A statement that each individual signing such
certificate or opinion has read such covenant or condition and
the definitions herein relating thereto;
(ii) A brief statement as to the nature and scope of the
examination or investigation upon which the statements or
opinions contained in such certificate or opinion are based;
(iii) A statement that, in the opinion of each such
individual, he has made such examination or investigation as is
necessary to enable him to express an informed opinion as to
whether or not such covenant or condition has been complied with;
and
(iv) A statement as to whether, in the opinion of each
such individual, such condition or covenant has been complied
with.
Section 1.04 Form of Documents Delivered to Trustee. In
any case where several matters are required to be certified by,
or covered by an opinion of, any specified Person, it is not
necessary that all such matters be certified by, or covered by
the opinion of, only one such Person, or that they be so
certified or covered by only one document, but one such Person
may certify or give an opinion with respect to some matters and
one or more other such Persons as to other matters, and any such
Person may certify or give an opinion as to such matters in one
or several documents.
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Any certificate or opinion of an officer of the Company
may be based, insofar as it relates to legal matters, upon a
certificate or opinion of, or representations by, counsel, unless
such officer knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with
respect to the matters upon which his certificate or opinion is
based are erroneous. Any such certificate or Opinion of Counsel
may be based, insofar as it relates to factual matters, upon a
certificate or opinion of, or representations by, an officer or
officers of the Company, stating that the information with
respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or
representations with respect to such matters are erroneous.
Where any Person is required to make, give, or execute
two or more applications, requests, consents, certificates,
statements, opinions, or other instruments under this Indenture,
they may, but need not, be consolidated and form one instrument.
Section 1.05 Acts of Bondholders.
(a) Any request, demand, authorization, direction,
notice, consent, waiver, or other action provided by this
Indenture to be given or taken by Bondholders may be embodied in
and evidenced by one or more instruments of substantially similar
tenor signed by Bondholders in person or by an agent duly
appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument
or instruments are delivered to the Trustee, and, where hereby
expressly required, to the Company. Such instrument or
instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the
Bondholders signing such instrument or instruments. Proof of any
such instrument or of a writing appointing any such agent shall
be sufficient for any purpose of this Indenture and (subject to
Section 6.01) conclusive in favor of the Trustee and the Company,
if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of
any such instrument or writing may be proved in any manner which
the Trustee deems sufficient.
(c) The ownership of Bonds shall be proved by the
Bond Register.
(d) Any request, demand, authorization, direction,
notice, consent, waiver, or other action by the Holder of any
Bonds shall bind every future Holder of the same Bond and the
Holder of every Bond issued upon the registration of transfer
thereof or in exchange therefor or in lieu thereof, in respect of
anything done, omitted, or suffered to be done by the Trustee,
any Bond Registrar, any Paying Agent or the Company in reliance
thereon, whether or not notation of such action is made upon such
Bond.
Section 1.06 Notices, Etc. to Trustee and Company.
Except as otherwise provided in this Indenture, any request,
demand, authorization, direction, notice, consent, waiver, or Act
of Bondholders or other documents provided or permitted by this
Indenture to be made upon, given, or furnished to, or filed with:
(a) The Trustee by any Bondholder or by the Company
shall be sufficient for every purpose hereunder if made, given,
furnished, or filed in writing to or with a Responsible Officer
of the Trustee at its Corporate Trust Office, Attention:
Corporate Trust Department; or
(b) The Company by the Trustee or by any Bondholder
shall be sufficient for every purpose hereunder (except as
provided in Section 5.01(c)) if in writing and mailed,
first-class, postage prepaid, to the Company addressed to it at
1440 Chapin Avenue, Suite 310, Burlingame, California 94010,
Attention: President, or at any other address previously
furnished in writing to the Trustee by the Company.
Section 1.07 Notices to Bondholders; Waiver. Where this
Indenture provides for notice to Bondholders of any event, such
notice shall be sufficiently given (unless otherwise herein
expressly provided) if in writing and mailed, first-class,
postage prepaid, to each Bondholder at his address as it appears
on the Bond Register, not later than the latest date, and not
earlier than the earliest date, prescribed for the giving of such
notice. In any
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case where notice to Bondholders is given by mail, neither the
failure to mail such notice, nor any defect in any notice so
mailed, to any particular Bondholder shall affect the sufficiency
of such notice with respect to other Bondholders, and any notice
which is mailed in the manner herein provided shall conclusively
be presumed to have been duly given.
Where the Indenture provides for notice in any manner,
such notice may be waived in writing by any Person entitled to
receive such notice either before or after the event, and such
waiver shall be the equivalent of such notice. Waivers of notice
by Bondholders shall be filed with the Trustee but such filing
shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.
In case, by reason of the suspension of regular mail
service as a result of a strike, work stoppage, or similar
activity, it shall be impractical to mail notice of any event to
Bondholders when such notice is required to be given pursuant to
any provision of this Indenture, then any manner of giving such
notice as shall be satisfactory to the Trustee shall be deemed to
be sufficient giving of such notice.
Section 1.08 Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents
are for convenience only and shall not affect the construction
hereof.
Section 1.09 Successors and Assigns. All covenants and
agreements in this Indenture by the Company shall bind its
successors and assigns, whether so expressed or not.
Section 1.10 Separability. In case any provision in this
Indenture or the Bonds shall be invalid, illegal, or
unenforceable, the validity, legality, and enforceability of the
remaining provisions shall not in any way be affected or impaired
thereby.
Section 1.11 Benefits of Indenture. Nothing in this
Indenture or in the Bonds, express or implied, shall give to any
Person, other than the parties hereto, any Bond Registrar and any
Paying Agent that may be appointed pursuant to the provisions
hereof and any of their successors hereunder, and the
Bondholders, any benefit or any legal or equitable right, remedy,
or claim under this Indenture.
Section 1.12 Legal Holidays. In any case where the date
of any Payment Date, Special Payment Date, or Maturity shall not
be a Business Day, then (notwithstanding any other provisions of
the Bonds or this Indenture) payment need not be made on such
date, but may be made on the next succeeding Business Day with
the same force and effect as if made on the nominal date and,
assuming timely payments on such subsequent Business Day, no
interest shall accrue for the period from and after any such
nominal date.
Section 1.13 Governing Law. This Indenture and each Bond
shall be construed in accordance with and governed by the laws of
the State of California applicable to agreements made and to be
performed therein.
Section 1.14 Counterparts. This instrument may be
executed in any number of counterparts, each of which so executed
shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
Section 1.15 Corporate Obligation. No recourse may be
taken, directly or indirectly, against any incorporator,
subscriber to the capital stock, stockholder, officer, or
director of the Company or of any predecessor or successor of the
Company with respect to the Company's obligation on the Bonds or
under this Indenture or any certificate or other writing
delivered in connection herewith.
Section 1.16 Inspection. The Company agrees that, on
reasonable prior notice, it will permit any representative of the
Trustee, during the Company's normal business hours, to examine
all of the books of account, records, reports, and other papers
of the Company, to make copies and extracts therefrom, to cause
such books to be audited or reviewed by Independent certified
public accountants selected by the Trustee, and to discuss the
Company's affairs, finances, and accounts with the Company's
officers, employees, and Independent certified public accountants
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(and by this provision the Company hereby authorizes its
accountants to discuss with such representative such affairs,
finances, and accounts), all at such reasonable times and as
often as may be reasonably requested. The Trustee shall and shall
cause its representatives to hold in confidence all such
information except to the extent disclosure may be required by
law (and all reasonable applications for confidential treatment
are unavailing) and except to the extent that the Trustee may
reasonably determine that such disclosure is consistent with its
obligations hereunder. Any out-of-pocket expenses incident to the
reasonable exercise by the Trustee of any right under this
Section shall be borne by the Company. The Trustee hereunder is
under no obligation to examine any documents except as it may
determine to do at its sole option.
Section 1.17 Trust Indenture Act Controls. If any
provision of this Indenture limits, qualifies, or conflicts with
a provision which is required to be included in this Indenture by
the TIA, the required provision shall control.
ARTICLE II
BOND FORM
Section 2.01 Form Generally. The Bonds and the Trustee's
certificates of authentication shall be in the form set forth in
Exhibit 2.01 attached hereto, which is hereby incorporated herein
by reference, and the Bonds may have such letters, numbers, or
other marks of identification and such legends or endorsements
placed thereon as may be determined by the officers executing
such Bonds, as evidenced by their execution of the Bonds.
The definitive Bonds shall be typed on safety paper,
printed, lithographed, reproduced, or engraved, or produced by
any combination of these methods (with or without steel engraved
borders) or may be produced in any other manner as determined by
the officers executing such Bonds, as evidenced by their
execution of such Bonds.
ARTICLE III
THE BONDS AND THE ASSETS
Section 3.01 Amount Of Indenture. The principal of and
interest on the Bonds shall be payable at the office or agency of
the Company maintained for such purpose pursuant to Section 9.02;
provided, however, that principal and/or interest may be payable
at the option of the Company by check mailed to the address of
the Person entitled thereto as such address shall appear in the
Bond Register. The aggregate principal amount of Bonds which may
be authenticated and delivered and Outstanding under this
Indenture is $10,000,000.
Section 3.02 Denominations and Stated Maturity. Bonds
will be issuable with a minimum denomination of $5,000 (except
for IRAs, which the minimum shall be $2,000), and larger
denominations of integral multiples of $1,000 (in each case
expressed in terms of the principal amount thereof on the date of
issuance). The Stated Maturity of the Bonds shall be April 30,
2005, unless the maturity date is extended in the sole discretion
of the Company, by written notice to the Trustee on or before
October 30, 2004, to a date that is no later than October 30,
2005.
Section 3.03 Execution, Authentication, Delivery, and
Dating. The Bonds shall be executed on behalf of the Company by
its President or Vice President under its corporate seal, which
may be in facsimile form and be imprinted or otherwise reproduced
thereon, and attested by its Secretary or Assistant Secretary.
Bonds bearing the signature of individuals who were at
any time the proper officers of the Company shall bind the
Company, notwithstanding that such individuals or any of them
have ceased to hold such offices prior to the authentication or
delivery of such Bonds or did not hold such offices at the date
of such Bonds.
At any time and from time to time after the execution
and delivery of this Indenture, the Company may deliver Bonds
executed by the Company together with a Company Order authorizing
authentication thereof to the Trustee for authentication, and the
Trustee shall authenticate and deliver such Bonds as in this
Indenture provided and not otherwise.
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Each Bond shall be dated as of the date of its
authentication.
No Bond shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there
appears on such Bond a certificate of authentication
substantially in the form provided for herein executed by the
Trustee by the manual signature of one of its authorized
officers, and such certificate upon such Bond shall be conclusive
evidence, and the only evidence, that such Bond has been duly
authenticated and delivered hereunder.
Section 3.04 Temporary Bonds. Pending the preparation of
definitive Bonds, the Company may execute, and upon Company
Order, the Trustee shall authenticate and deliver, temporary
Bonds which are printed, lithographed, typewritten, mimeographed,
or otherwise produced, in any denomination, substantially of the
tenor of the definitive Bonds in lieu of which they are issued
and with such variations as the officers executing such Bonds may
determine, as evidenced by their execution of such Bonds.
If temporary Bonds are issued, the Company shall cause
definitive Bonds to be prepared without unreasonable delay. After
the preparation of definitive Bonds, the temporary Bonds shall be
exchangeable for definitive Bonds upon surrender of the temporary
Bonds at the office or agency of the Company to be maintained as
provided in Section 9.02, without charge to the Bondholder. Upon
surrender for cancellation of any one or more temporary Bonds,
the Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor one or more definitive Bonds of any
authorized denomination and of a like principal amount, Interest
Rate and Stated Maturity. Until so exchanged, the temporary Bonds
shall in all respects be entitled to the same benefits under this
Indenture as definitive Bonds.
Section 3.05 Registration, Registration of Transfer, and
Exchange. The Company shall cause to be kept a Bond Register in
which, subject to such reasonable regulations as it may
prescribe, the Company shall provide for the registration of
Bonds and the registration of transfers of Bonds. In no case
shall there be more than one Bond Register. The Trustee is hereby
appointed the initial "Bond Registrar" for the purpose of
registering Bonds and transfers of Bonds as herein provided. The
Trustee, in such capacity, shall not register the transfer of any
Bond bearing a restrictive legend without first obtaining an
Officer's Certificate (which need not comply with Section 1.03)
that the terms of such restrictive legend have been complied
with. Upon any resignation of any Bond Registrar, the Company
shall promptly appoint a successor or, in the absence of such
appointment, assume the duties of Bond Registrar.
If a person other than the Trustee is appointed by the
Company as Bond Registrar, the Company will give the Trustee
prompt written notice of the appointment of such Bond Registrar
and of the location, and any change in the location, of the Bond
Register, and the Trustee shall have the right to inspect the
Bond Register at all reasonable times and to obtain copies
thereof, and the Trustee shall have the right to rely upon a
certificate executed on behalf of the Bond Registrar by an
officer thereof as to the names and addresses of the Bondholders
and the other information included therein. The Bond Registrar
shall, at any time upon request of the Company, provide the
Company with a copy of the Bond Register.
Upon surrender for registration of transfer of any Bond
at the office or agency of the Company to be maintained as
provided in Section 9.02, and satisfaction of the other
conditions to transfer required herein, the Company shall
execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new
Bonds, of any authorized denominations and of a like aggregate
principal amount, and containing identical terms and provisions.
At the option of the Bondholder, Bonds may be exchanged
for other Bonds, of any authorized denominations and of a like
aggregate principal amount, containing identical terms and
provisions, upon surrender of the Bonds to be exchanged at such
office or agency. Whenever any Bonds are so surrendered for
exchange, the Company shall execute, and the Trustee shall
authenticate and deliver, the Bonds that the Bondholder making
the exchange is entitled to receive.
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All Bonds issued upon any registration of transfer or
exchange of Bonds shall be the valid obligations of the Company,
evidencing the same debt, and entitled to the same benefits under
this Indenture, as the Bonds surrendered upon such registration
of transfer or exchange.
Every Bond presented or surrendered for registration of
transfer or exchange shall (if so required by the Company or the
Bond Registrar) be duly endorsed, or be accompanied by a written
instrument of transfer in form satisfactory to the Company and
the Bond Registrar duly executed, by the Bondholder thereof or
his attorney duly authorized in writing, with such signature
guaranteed by a national bank or a commercial bank, or by a
member firm of the New York Stock Exchange or the American Stock
Exchange, and shall be accompanied by such other documents as the
Company or Bond Registrar may reasonably require.
A service charge of $10.00 shall be payable by a
Bondholder for any registration of transfer or exchange of Bonds,
and the Company may require payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Bonds
other than exchanges pursuant to Section 3.04 not involving any
transfer. Neither the Company nor the Bond Registrar shall be
required to make any such registration of transfer or exchange of
Bonds during the period commencing 15 days immediately preceding
the mailing of notice of redemption and ending at the close of
business on the date of such redemption.
Section 3.06 Mutilated, Destroyed, Lost, or Stolen
Bonds. If (i) any mutilated Bond is surrendered to the Company,
or the Company and the Trustee receive evidence to their
satisfaction of the destruction, loss, or theft of any Bond, and
(ii) there is delivered to the Company and the Trustee such
security or indemnity as may be required by them to save and hold
each of them harmless, then, in the absence of a notice to the
Company or the Trustee that such Bond has been acquired by a bona
fide purchaser, the Company shall execute and the Trustee shall
authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost, or stolen Bond, a new Bond of like
principal amount, containing identical terms and provisions and
bearing a number not contemporaneously outstanding; provided,
however, that if any such mutilated, destroyed, lost, or stolen
Bond shall have become or shall be about to become due and
payable, instead of issuing a new Bond, the Company, in its
discretion, may pay or cause to be paid such Bond without
surrender thereof, except that any mutilated Bond shall be
surrendered.
Upon the issuance of any new Bond under this Section,
the Company may require the payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in
relation thereto and any other reasonable expenses (including the
fees and expenses of the Trustee) connected therewith.
Every new Bond issued pursuant to this Section in lieu
of any destroyed, lost, or stolen Bond shall constitute an
original, additional, contractual obligation of the Company,
whether or not the destroyed, lost, or stolen Bond shall be at
any time enforceable by anyone, and shall be entitled to all the
benefits of this Indenture equally and proportionately with any
and all other Bonds duly issued hereunder.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies
with respect to the replacement or payment of mutilated,
destroyed, lost, or stolen Bonds.
Section 3.07 Payments of Principal and Interest;
Principal and Interest Rights Preserved.
(a) Each Bond shall accrue interest in arrears from the
date of its related Closing, at the interest rate set forth in
the Bonds, until the principal thereof has been fully paid or
made available for payment. Interest shall be payable quarterly
on a Bond, on each Payment Date occurring after the related
Closing until the principal thereof has been fully paid or made
available for payment; provided, however, that the first payment
of interest on any Bond originally issued after a Regular Record
Date and on or before the immediately following Payment Date will
be made on the next succeeding Payment Date to the Holder of such
Bond on the Regular Record Date next preceding such date of
payment. Payments of interest on any Payment Date shall be for
the period from and including the next
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preceding Regular Record Date to which interest has been paid or
duly provided for or, if no interest has been paid or duly
provided for, from and including the date of such Closing, to but
excluding the Regular Record Date with respect to such Payment
Date.
(b) All outstanding principal on the Bonds shall be made
on the Stated Maturity Date. The payment of principal of any Bond
at the Stated Maturity shall be payable only upon presentation
and surrender of such Bond at or after the Stated Maturity
thereof at the office or agency of the Company maintained by it
for such purpose pursuant to Section 10.02 or at the office of
any Paying Agent for the Bonds. All payments made on the Maturity
Date shall be first applied to accrued but unpaid interest, then
toward unpaid principal.
(c) Any installment of principal or interest payable on
any Bond that is punctually paid or duly provided for by the
Company on the applicable Payment Date shall be paid to the
Person in whose name such Bond (or one or more Predecessor Bonds)
is registered at the close of business on the Regular Record Date
for such Payment Date by check mailed to such Person's address as
it appears in the Bond Register on such Regular Record Date, or
to such other address as such Person shall have specified in
writing for receipt of such payments.
(d) If the principal of or interest on the Bonds due and
payable on any Payment Date or the Stated Maturity shall not have
been punctually paid or duly provided for when and as due and
payable (any Bond on which such an amount due and payable has not
been punctually paid or duly provided for being hereinafter
referred to as an "Overdue Bond"), then interest on the amount
not so punctually paid or duly provided for shall accrue from
such Payment Date through the day immediately preceding the
Special Payment Date on which such amount is paid, at the
Interest Rate relating thereto (but only to the extent that
payment of such interest shall be legally enforceable). Payments
of interest on overdue payments of principal or interest, as well
as payments of overdue payments of principal and interest, shall
be made to the Person entitled thereto as provided below by check
mailed to such Person's address as it appears in the Bond
Register or to such other address as such Person shall have
specified in writing for receipt of such payments. Amounts
payable with respect to any Overdue Bond consisting of overdue
installments of principal or interest, and any interest thereon,
shall be payable (i) on any Special Payment Date to the Person in
whose name that Bond (or one or more Predecessor Bonds) is
registered at the close of business on the Special Record Date
(which shall be 15 days prior to the Special Payment Date) for
such Special Payment Date, or (ii) at any other time in any other
lawful manner if, after notice given by the Company to the
Trustee of the proposed payment pursuant to this provision, such
manner of payment shall be deemed practicable by the Trustee. The
Company shall either mail or cause to be mailed notice of the
Special Record Date and Special Payment Date, first-class,
postage prepaid, to each Bondholder at his address as it appears
in the Bond Register, not less than 10 days prior to such Special
Record Date.
(e) All computations of interest due with respect to any
Bond shall be made on the basis of a 360-day year, consisting of
twelve months of thirty (30) days each; provided, however, that
the first interest payment due on any Bond issued on a day other
than the first day of a calendar quarter shall be prorated to
reflect the portion of the calendar quarter for which such
interest accrues from the time of issuance of the Bond to the end
of the calendar quarter.
(f) Notwithstanding any of the foregoing provisions with
respect to payments of principal or any interest on the Bonds, if
the Bonds have become or been declared due and payable following
an Event of Default and such acceleration of maturity and its
consequences have not been rescinded and annulled and the
provisions of Section 5.05 are not applicable, then payments of
principal and interest on such Bonds shall be made in accordance
with Section 5.08.
Section 3.08 Persons Deemed Owners. Prior to due
presentment for registration of transfer of any Bond, the
Company, the Trustee, and any agent of the Company or the Trustee
may conclusively treat the Person in whose name any Bond is
registered as the owner of such Bond for the purpose of receiving
payments of principal of and interest on such Bond (subject to
Section 3.07) and for all other purposes whatsoever, whether or
not such Bond be overdue, and neither the Company, the Trustee,
nor any agent of the Company or the Trustee shall be affected by
notice to the contrary.
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Section 3.09 Cancellation. All Bonds surrendered to the
Trustee for payment, redemption, registration of transfer, or
exchange (including Bonds surrendered to any Person other than
the Trustee which shall be delivered to the Trustee) shall be
promptly canceled by the Trustee. The Company may at any time
deliver to the Trustee for cancellation any Bonds previously
authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and all Bonds so delivered
shall be promptly canceled by the Trustee. No Bonds shall be
authenticated in lieu of or in exchange for any Bonds canceled as
provided in this Section except as expressly permitted by this
Indenture. All canceled Bonds held by the Trustee shall be held
by the Trustee in accordance with its standard retention policy,
and upon destruction of canceled Bonds a certificate evidencing
such destruction shall be sent to the Company.
Section 3.10 Covenants as to Leases and Financial
Assets. With respect to each of the Equipment, the Financial
Assets and Leases, the Company covenants to the Trustee as
follows:
(a) Within thirty (30) days of the date of acquisition
of Equipment or Financial Assets, as the case may be, the Company
will Grant to the Trustee a valid and enforceable collateral
assignment of any Lease for such Equipment, and a valid and
enforceable lien on and security interest in the Equipment or
Financial Asset, as the case may be, and such lien and security
interest or collateral assignment will be duly perfected and,
except as otherwise provided herein, will be prior to all other
liens upon, security interests in, and collateral assignments of
such Equipment, Financial Assets and Leases, except for Senior
Acquisition Liens.
(b) As of the date of acquisition, execution, and Grant,
the Company will have good indefeasible title to and will be the
sole owner of such Equipment, Financial Assets or Leases free of
liens, encumbrances, and rights of others, except for (i) the
lien of this Indenture; (ii) any subordinated liens on Equipment;
(iii) landlord liens under state laws; (iv) Senior Acquisition
Liens and (v) rights of Lessees under Leases.
(c) As of the date of the execution of a Lease or a
Financial Asset, there will be no right of rescission, offset,
defense, or counterclaim to the obligation of the obligor
thereunder to pay the unpaid payments due under such Lease or
Financial Asset; the operation of the terms of such Lease or
Financial Asset or the exercise of any right thereunder will not
render such Lease or Financial Asset unenforceable in whole or in
part or subject to any right of rescission, offset, defense, or
counterclaim, and no such right of rescission, offset, defense,
or counterclaim shall have been asserted.
(d) As of the date of acquisition of any Equipment,
there will not be any liens or claims affecting the Equipment
which are or may become a lien prior to or equal with the
security interest granted to the Trustee in such Equipment except
for landlord liens under state laws, which liens may have
priority over the liens and security interests granted to the
Trustee, and except for Senior Acquisition Liens.
(e) As of the date of its execution, each Lease or
Financial Asset will be a legal, valid, and binding obligation of
the obligor thereunder and will be enforceable in accordance with
its terms, except only as such enforcement may be limited by
bankruptcy, insolvency, or similar laws affecting the enforcement
of creditors' rights generally or by general equity principles,
and all parties to such Lease or Financial Asset will have full
legal capacity to execute such Lease or Financial Asset and all
other documents related thereto, and the terms of such Lease or
Financial Asset will not have been waived or modified in any
respect.
(f) Each Lease or Financial Asset shall contain
customary and enforceable provisions such as to render the rights
and remedies of the Company adequate for the realization against
the collateral of the benefits of the security.
Section 3.11 General Obligations. The Bonds are a
general obligation of the Company and the Company shall be
obligated to pay the Bonds from any of its assets to the extent
provided herein.
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No covenant or agreement contained in any Bond or this
Indenture shall be deemed to be a covenant or agreement of any
shareholder, director, officer, agent, or employee of the Company
in his individual capacity, and neither the directors of the
Company nor any officer or employee thereof executing the Bonds
shall be liable personally on any Bond or be subject to any
personal liability or accountability by reason of the issuance of
such Bonds.
Section 3.12 Redemption. The Bonds are not redeemable at
the option of the Holders. The Company, at its option, may repay
to all Bondholders on a pro-rata basis, based on outstanding
principal, all or a portion of the outstanding principal of
("redeem") Bonds at any time after April 30, 2000.
Section 3.13 Notice by Company; Redemption Amount.
(a) Any optional redemption election, the amount of any
optional redemption, the Redemption Date for any optional
redemption, and the Redemption Record Date with respect to any
redemption (whether optional or mandatory), shall be authorized
and established by a Board Resolution, a copy of which shall be
delivered to the Trustee not less than 60 days prior to the
Redemption Date. At least sixty (60) days before the Redemption
Date, the Company shall mail a notice of redemption ("Redemption
Notice") by first-class mail to each Bondholder, with a copy
thereto to the Trustee.
(b) The notice shall identify the Bonds to be redeemed
and shall state:
(1) The Redemption Date;
(2) The aggregate amount of the Bonds to be
redeemed by the Company;
(3) The name and address of the Paying Agent;
(4) That the Bonds must be delivered to the
Paying Agent at the address stated in the notice for the Holder
to receive the Redemption Amount; and
(5) That interest on the portion of the Bonds to
be redeemed ceases to accrue on and after the Redemption Date.
(c) At the Company's request, upon thirty (30) days
prior written notice, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense.
Failure to give notice of redemption, or any defect therein, to
any Bondholder shall not impair or affect the validity of the
redemption of any Bond.
(d) Within thirty (30) days before the proposed
Redemption Date, each Bondholder must then notify the Company of
the amount of principal of the Bond, if any, he or she desires to
redeem. If the amount of principal that the Company desires to
prepay is sufficient to cover all of the prepayment requests,
then the requests will be honored in full. If, however, the
requested prepayments exceed the Company's desired prepayment
amount, requesting Bondholders will receive prepayments on a
pro-rata basis, based upon the amount requested to be prepaid by
each Bondholder. If the amount the Company wishes to prepay
exceeds the aggregate prepayment requests, then all Bonds for
which prepayment has been requested shall be repaid in full, and
any excess prepayment funds will be used to prepay all other
Bonds not presented for payment on a pro-rata basis, based upon
the outstanding principal of such Bonds.
Section 3.14 Interest Rate. From the issuance of the
Bond at the Closing until the maturity date, each Bond will bear
interest, calculated quarterly, at the rate of 10% simple
interest per annum.
Section 3.15 Usury. The Company agrees to the effective
rate of interest under the Bonds, which is the rate stated in
Section 3.14 above plus any additional rate of interest resulting
from any other charges in the nature of interest paid or to be
paid in connection with the Bonds and the loans evidenced by the
Bonds. In no event shall the aggregate interest amount under a
Bond exceed the maximum allowed by applicable law. In the event
that the
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aggregate interest amount is held by a court of competent
jurisdiction to exceed the amount allowed by applicable law, the
aggregate interest amount under a Bond shall be that amount which
is equal to, but not in excess of, the maximum amount allowable
by applicable law. Further, the Company covenants not to insist
upon, or plead, or in any manner whatsoever claim, and to resist
any and all efforts to compel the Company to claim, the benefit
or the advantage of usury law against the Bondholder in
connection with any claim, action or proceeding which may be
brought by the Bondholder in order to enforce any right or remedy
under this Agreement.
ARTICLE IV
SATISFACTION AND DISCHARGE; RELEASE OF COLLATERAL
Section 4.01 Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect with respect
to the Bonds, and the Trustee, on demand of and at the expense of
the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture and shall pay,
assign, transfer, and deliver to the Company or upon Company
Order all cash, securities, and other property held by it as part
of the Trust Estate securing the Bonds (except for amounts
required to pay and discharge the entire indebtedness on the
Bonds), when
(a) Either
(i) All Bonds theretofore authenticated and
delivered (other than (1) Bonds which have been destroyed, lost,
or stolen and which have been replaced as provided in Section
3.06, and (2) Bonds for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Company
and thereafter repaid to the Company or discharged from such
trust, as provided in Section 9.03) have been delivered to the
Trustee for cancellation; or
(ii) All Bonds not theretofore delivered to
the Trustee for cancellation
(A) Have become due and payable,
or
(B) Will become due and payable
at
their Stated Maturity within six months, or
(C) Are to be called for
redemption
within six months under arrangements satisfactory to the Trustee
for the giving of notice of redemption by the Trustee in the
name, and at the expense, of the Company,
and the Company has irrevocably deposited or caused to be
deposited with the Trustee in trust for the purpose, an amount
sufficient to pay and discharge the entire indebtedness on such
Bonds not theretofore delivered to the Trustee for cancellation;
(b) The Company has paid or caused to be paid all
other sums payable hereunder by the Company with respect to the
Bonds; and
(c) The Company has delivered to the Trustee an
Officer's Certificate and an Opinion of Counsel each stating that
all conditions precedent herein provided for relating to the
satisfaction and discharge of this Indenture with respect to the
Bonds have been complied with.
Notwithstanding the satisfaction and discharge of this
Indenture with respect to the Bonds, the Company's obligations in
Sections 3.05 and 6.07, the Trustee's obligations in Section
4.02, and the rights and immunities of the Trustee under this
Indenture shall survive.
Section 4.02 Application of Trust Money. All moneys
deposited with the Trustee pursuant to Section 4.01 shall be held
in trust and applied by it in accordance with the provisions of
the Bonds and this Indenture to the payment, either directly or
through any Paying Agent (including the Company acting as its own
Paying Agent), as the Trustee may determine to the Persons
entitled thereto, of the principal and interest for whose payment
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such money has been deposited with the Trustee, but such money
need not be segregated from other funds except to the extent
required herein or to the extent required by law.
Section 4.03 Repayment of Moneys Held by Paying Agent.
In connection with the satisfaction and discharge of this
Indenture, all moneys then held by any Paying Agent other than
the Trustee under the provisions of the Indenture with respect to
such Bonds shall, upon demand of the Company or the Trustee, be
paid to the Trustee to be held and applied according to Section
4.02 hereof and thereupon such Paying Agent shall be released
from all further liability with respect to such moneys.
Section 4.04 Release of Collateral.
(a) The lien on and security interest in the Equipment
or a Financial Asset or a collateral assignment of a Lease
relating to such Asset, any related Guarantee, and any other part
of the Trust Estate related to such Asset, shall be released from
the lien of this Indenture by the Trustee if there is to be
substituted for such Lease or Financial Asset (and related
Equipment) a new Lease or Financial Asset (and related Equipment,
if applicable) with a Fair Market Value equal to or greater than
the Net Book Value of the released Asset.
(b) The lien on and security interest in any Equipment
subject to a Lease shall be released from the lien of this
Indenture by the Trustee if there is to be substituted for such
Equipment new Equipment under the same Lease with a Fair Market
Value equal to or greater than the Net Book Value of the replaced
Equipment.
(c) To the extent required by TIA Sections 314(c) and
314(d), in connection with any release of collateral pursuant to
this Section 4.04, the Company shall deliver to the Trustee an
Officer's Certificate and an Opinion of Counsel each stating that
all conditions precedent herein provided for relating to the
release, or release and substitution, of collateral have been
complied with, together with a certificate of an engineer,
appraiser or other expert in conformity with TIA Section 314(d).
(d) The Trustee hereby agrees to promptly execute and
file proper instruments acknowledging and effecting the releases
provided by subsections (a), (b) and (c), above, upon request by,
and at the expense of, the Company.
(e) Notwithstanding anything to the contrary contained
in this Indenture, the Company may sell or otherwise dispose of
an Asset upon which the lien of this Indenture shall be released,
and the Trustee shall release such Asset from the lien of this
Indenture, upon request of the Company, if, and only if, either:
(i) the Trustee receives an Officer's Certificate of the Company
representing that all Net Resale Proceeds received in respect of
such Asset will be received by the Company and that the Company
will only use such funds in one or more of the following manners,
or a combination thereof: (1) to immediately make a deposit into
the Sinking Fund Account or Payment Account (in the case of the
proceeds funding a redemption), (2) within ninety (90) days after
closing of the sale, to acquire for the Trust Estate additional
Assets, and/or (3) to place such funds in a segregated account
maintained with the Trustee and held as part of the Trust Estate,
which funds may only be reinvested in additional Assets, provided
such purchase occurs before May 1, 2003; or (ii) the Trustee
requires the Company to sell such Asset in order to cure an
interest payment default pursuant to Section 5.20.
ARTICLE V
DEFAULTS; REMEDIES
Section 5.01 Events of Default. "Event of Default"
wherever used herein means any one of the following events
(whatever the reason for such Event of Default and without regard
to whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree, or order of
any court or any order, rule, or regulation of any administrative
or governmental body):
(a) Default in the payment of any interest upon any Bond
when the same becomes due and payable under the provisions of
this Indenture, and continuance of such default for a period of
ninety (90) days; or
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(b) Default in the payment of the principal of any Bond
when the same becomes due and payable under the provisions of
this Indenture and continuance of such default for a period of
sixty (60) days; or
(c) Breach of or default in the performance of any
covenant or agreement of the Company in this Indenture or in the
Security Documents (other than a covenant or agreement a breach
of which or default in the performance of which is elsewhere in
this Section 5.01 specifically dealt with) or if any
representation or warranty of the Company made in this Indenture
or in any certificate or other writing delivered pursuant hereto
or in connection herewith, including the Security Documents,
shall prove to be incorrect in any material respect as of the
time when the same shall have been made, and continuance of such
breach or default for a period of thirty (30) days after there
shall have been given, by registered or certified mail, to the
Company by the Trustee or to the Company and the Trustee by the
Holders of at least 25% of the Aggregate Outstanding Amount of
the Bonds, a written notice specifying such breach or default and
requiring it to be remedied and stating that such notice is a
"Notice of Default" hereunder; or
(d) The entry of a decree or order for relief by a court
having jurisdiction in the premises in respect of the Company in
any involuntary case under any applicable federal or state
bankruptcy, insolvency, or other similar law now or hereafter in
effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, or sequestrator (or other similar official)
for the Company or for any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and the
continuance of any such decree or order unstayed and in effect
for a period of ninety (90) consecutive days; or
(e) The commencement by the Company of a voluntary case
under any applicable federal or state bankruptcy, insolvency or
other similar law now or hereafter in effect, or the consent by
the Company to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, or
sequestrator (or other similar official) of the Company or of any
substantial part of its property, or the making by the Company of
any general assignment for the benefit of creditors or the
general failure by the Company to pay its debts as they become
due, or the taking of corporate action by the Company in
furtherance of any such action; or
(f) Any writ of execution, attachment, or garnishment or
any lien, judgment, or other legal process issued against any
collateral described in this Indenture or in any of the Security
Documents shall remain unvacated, unbonded, or unstayed for a
period of sixty (60) days, or in any event no later than five (5)
days prior to the date of any proposed sale thereunder; or
(g) The Company shall disaffirm the obligations
represented by the Bonds, or the Bonds shall be declared
unenforceable or defective by any court or other tribunal.
Section 5.02 Acceleration of Stated Maturity; Rescission
and Annulment. Subject to Section 5.20, if an Event of Default
occurs and is continuing with respect to the Bonds, then and in
every such case, the Trustee or the Holders of not less than 25%
of the Aggregate Outstanding Amount of the Bonds may declare the
principal and all accrued but unpaid interest owed under all the
Bonds to be immediately due and payable, by a notice in writing
to the Company (and to the Trustee if given by Bondholders), and
upon any such declaration such Bonds shall become immediately due
and payable.
At any time after such a declaration of acceleration has
been made, but before any Sale of the Trust Estate has been made
or a judgment or decree for payment of the money due has been
obtained by the Trustee as hereinafter in this Article provided,
the Holders of 75% of the Aggregate Outstanding Amount of the
Bonds, by written notice to the Company and the Trustee, may
rescind and annul such declaration and its consequences if:
(a) The Company has paid or deposited with the
Trustee a sum sufficient to pay:
(i) All overdue installments on all Bonds and
all other amounts that would be due hereunder or upon such Bonds
if the Event of Default giving rise to such acceleration had not
occurred; and
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(ii) To the extent that payment of such
interest is lawful, interest upon overdue installments of
principal and interest on the Bonds; and
(iii) All sums paid or advanced by the Trustee
hereunder and fees, expenses, disbursements, and advances of the
Trustee, its agents and counsel; and
(b) All Events of Default with respect to Bonds, other
than the nonpayment of the principal of Bonds that has become due
solely by such acceleration, have been cured or waived as
provided in Section 5.15.
No such rescission shall affect any subsequent Event of Default
or impair any right consequent thereon.
Section 5.03 Collection of Indebtedness and Suits for
Enforcement by Trustee. Subject to Section 5.20, the Company
covenants that if:
(a) Default is made in the payment of any interest upon
any Bond when the same becomes due and payable under the
provisions of this Indenture, and continuance of such default for
a period of ninety (90) days; or
(b) Default is made in the payment of the principal of
any Bond when the same becomes due and payable under the
provisions of this Indenture and continuance of such default for
a period of sixty (60) days; or
the Company shall, upon demand of the Trustee, promptly pay to
it, for the benefit of the Holders of all Bonds, (i) the
Aggregate Outstanding Amount due and payable on all Bonds, (ii)
accrued interest on such Bonds at the Interest Rate to the date
of payment to the Bondholders, (iii) in addition thereto, such
further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation,
expenses, fees, disbursements, and advances of the Trustee, its
agents, and counsel.
Until such demand is made by the Trustee, the Company
may pay, or cause to be paid the principal of and interest on the
Bonds to the registered Bondholders, whether or not such payments
are overdue.
If the Company shall fail to pay forthwith such amounts
upon such demand, the Trustee, in its own name and as trustee of
an express trust, shall be entitled and empowered to institute
any Proceeding for the collection of the sums so due and unpaid,
and may prosecute such Proceeding to judgment or final decree,
and may enforce such judgment or final decree against the Company
or any other obligor upon such Bonds and collect the moneys
adjudged or decreed to be payable in the manner provided by law
out of the property of the Company or any other obligor upon such
Bonds, wherever situated.
If an Event of Default occurs and is continuing, the
Trustee may in its discretion proceed to protect and enforce its
rights and the rights of the Bondholders by such appropriate
Proceedings as the Trustee shall deem most effectual to protect
and enforce any such rights, whether for the specific enforcement
of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other
proper remedy or legal or equitable right vested in the Trustee
by this Indenture or by law.
Section 5.04 Remedies. If an Event of Default shall have
occurred and be continuing, the Trustee may do one or more of the
following:
(a) Institute Proceedings for the collection of all
amounts then due and payable on the Bonds or under this Indenture
with respect thereto whether by declaration or otherwise, enforce
any judgment obtained, and collect from the Trust Estate and from
the Company moneys adjudged due;
(b) Sell the portion of the Trust Estate collateralizing
the Bonds, or any portion thereof or rights or interest therein,
at one or more public or private sales called and conducted in
any manner permitted by law;
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(c) Institute Proceedings from time to time for the
complete or partial foreclosure of this Indenture or any Security
Documents with respect to the portion of the Trust Estate
collateralizing the Bonds; and
(d) Exercise any remedies of a secured party under the
Uniform Commercial Code (including retaining and re-leasing the
Equipment which constitutes collateral for the Bonds or keeping
all Leases relative thereto not in default in place) and take any
other appropriate action to protect and enforce the rights and
remedies of the Trustee or the Bondholders hereunder.
Section 5.05 Optional Preservation of Trust Estate. If
the Bonds have been declared to be due and payable following an
Event of Default and such declaration and its consequences have
not been rescinded and annulled, the Trustee may take possession
of the portion of the Trust Estate collateralizing the Bonds, but
is not obligated to do so, and, so long as the Trustee determines
that the portion of the Trust Estate collateralizing the Bonds
will continue to provide sufficient funds for the payment of
principal of and interest on the Bonds as they would have become
due if there had not been such a declaration or the Trustee
determines that the portion of the Trust Estate collateralizing
the Bonds would maximize funds for the payment of principal of
and interest on the Bonds, retain the Trust Estate intact for the
benefit of the Bondholders and apply all distributions received
on the Trust Estate to the payment of principal of and interest
on the Bonds as if there had not been such a declaration. In such
case, the Trustee may, but need not, obtain and rely upon an
opinion of an Independent investment banking firm and/or
accountants acceptable to the Trustee as to the feasibility of
such proposed action and as to the value of the Trust Estate,
which opinion shall be conclusive evidence as to such value in
any Proceeding seeking to recover a deficiency from the Company.
Section 5.06 Trustee May File Proofs of Claim. In case
there shall be pending Proceedings relative to the Company or any
other obligor upon the Bonds or any Person having or claiming an
ownership interest in the Trust Estate, under Title 11 of the
United States Code or any other applicable federal or state
bankruptcy, insolvency, or other similar law, or in case a
receiver, assignee, or trustee in bankruptcy or reorganization,
liquidator, sequestrator, or similar official shall have been
appointed for or taken possession of the Company or its property
or taken possession of such other obligor or its property, or in
case of any other comparable judicial proceedings relative to the
Company or other obligor upon the Bonds, or to the creditors or
property of the Company or such other obligor, the Trustee
(irrespective of whether the principal of the Bonds shall then be
due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made
any demand on the Company or such other obligor for the payment
of overdue principal or interest) shall be entitled and empowered
to intervene in such Proceedings or otherwise:
(a) To file and prove a claim or claims for the whole
amount of principal and interest (owing and unpaid) in respect of
the Bonds and to file such other papers or documents as may be
necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation to the
Trustee, each predecessor Trustee, and their respective agents,
attorneys, and counsel and for reimbursement of all expenses and
liabilities incurred, and all advances made, by the Trustee and
each predecessor Trustee, except as a result of gross negligence
or bad faith) and of the Bondholders allowed in any Proceedings
relative to the Company or other obligor upon such Bonds, or to
the creditors or property of the Company or such other obligor;
(b) Unless prohibited by applicable law and regulations,
to vote on behalf of the Bondholders in any election of a trustee
or a standby trustee in arrangement, reorganization, liquidation,
or other bankruptcy or insolvency Proceedings or Person
performing similar functions in comparable Proceedings; and
(c) To collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute all
amounts received with respect to the claims of the Bondholders
and of the Trustee on their behalf; and any trustee, receiver,
liquidator, custodian, or other similar official is hereby
authorized by each of such Bondholders to make payments to the
Trustee, and in the event that the Trustee shall consent to the
making of payments directly to such Bondholders, to pay to the
Trustee such amounts as shall be sufficient to cover reasonable
compensation to the Trustee, each predecessor Trustee, and their
respective agents, attorneys, and counsel, and all
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other expenses and liabilities incurred, and all advances made,
by the Trustee and each predecessor Trustee except as a result of
gross negligence or bad faith.
Nothing herein contained shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on
behalf of any Bondholder any plan of reorganization, arrangement,
adjustment, or composition affecting the Bonds or the rights of
any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Bondholder in any such Proceeding
except to vote, as allowed by this Section, in the election of a
trustee or Person performing similar functions.
Section 5.07 Trustee May Enforce Claims Without
Possession of Bonds. All rights of action and of asserting claims
under this Indenture or the Bonds may be prosecuted and enforced
by the Trustee without the possession of any of the Bonds or the
production thereof in any Proceeding relating thereto, and any
such Proceeding instituted by the Trustee shall be brought in its
own name as trustee of an express trust, and any recovery of
judgment shall, subject to the payment of the reasonable
compensation, expenses, disbursements, and advances of the
Trustee, each predecessor Trustee, and their respective agents
and counsel, be for the ratable benefit of the Bondholders.
In any proceedings brought by the Trustee (and also any
proceedings involving the interpretation of any provision of this
Indenture to which the Trustee shall be a party), the Trustee
shall be held to represent all of the Bondholders, and it shall
not be necessary to make any Bondholder party to any such
proceedings.
Section 5.08 Application of Money Collected. Any money
collected by the Trustee pursuant to this Article or otherwise
and any other moneys that may then be held or thereafter received
by the Trustee as security for the Bonds shall be applied, to the
extent permitted by applicable law, in the following order, at
the date or dates fixed by the Trustee and, in case of the
distribution of such moneys on account of principal or interest,
upon presentation of the several Bonds and stamping (or otherwise
noting) thereon the payment, or issuing Bonds in reduced
principal amounts in exchange for the presented Bonds if only
partially paid, or upon surrender thereof if fully paid:
First: To the payment of all amounts due the Trustee
under Section 6.07;
Second: To the payment of all amounts of interest then
due and unpaid upon the Bonds, interest on the Aggregate
Outstanding Amount of the Bonds to the date of payment thereof at
the Interest Rate, or at such lower rate at which payment of such
interest shall be legally enforceable, all such amounts to be
paid ratably among the Bonds, and without preference or priority
of any kind;
Third: To the payment of any amounts then due and unpaid
upon the Aggregate Outstanding Amount of the Bonds for principal,
ratably among the Bonds, without preference or priority of any
kind;
Fourth: To the payment to the Company or any other
Person
legally entitled thereto of any surplus.
Section 5.09 Limitation on Suits. No Bondholder shall
have any right to institute any Proceeding, judicial or
otherwise, with respect to this Indenture, or for the appointment
of a receiver or trustee, or for any other remedy hereunder,
unless:
(a) Such Bondholder has previously given written
notice to the Trustee of a continuing Event of Default;
(b) The Holders of not less than 25% in Aggregate
Outstanding Amount of the Bonds shall have made written request
to the Trustee to institute Proceedings in respect of such Event
of Default in its own name as Trustee hereunder;
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(c) Such Bondholder or Bondholders have provided to the
Trustee security or indemnity satisfactory to the Trustee against
the costs, expenses, and liabilities to be incurred in compliance
with such request;
(d) The Trustee for sixty (60) days after its receipt
of such notice, request, and provision of indemnity has failed to
institute any such Proceeding; and
(e) No direction inconsistent with such written request
has been given to the Trustee during such 60-day period by the
Holders of more than 50% of the Aggregate Outstanding Amount of
the Bonds;
it being understood and intended that no one or more Bondholders
shall have any right in any manner whatever by virtue of, or by
availing of, any provision of this Indenture to affect, disturb,
or prejudice the rights of any other Bondholders or to obtain or
to seek to obtain priority or preference over any other
Bondholders or to enforce any right under this Indenture, except
in the manner provided herein or in the Bonds and for the equal
and ratable benefit of all the Bondholders.
In the event the Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of
Bondholders, each representing 50% or less of the Aggregate
Outstanding Amount, the Trustee in its sole discretion may
determine what action, if any, shall be taken, notwithstanding
any other provisions of this Indenture.
Section 5.10 Nonimpairment of Bondholders' Rights.
Notwithstanding any other provisions of this Indenture, the right
of any Holder to receive payment of the principal of and interest
on any Bond, on or after the respective due dates thereof, or to
institute suit for the enforcement of any such payment on or
after the due date thereof shall not be impaired or affected
without the consent of such Holder; provided that no such Holder
shall have the right to institute any such suit if and to the
extent that the institution or prosecution thereof or the entry
of judgment therein would, under applicable law, result in the
surrender, impairment, waiver, or loss of the lien of this
Indenture upon any property subject to such lien.
Section 5.11 Restoration of Rights and Remedies. If the
Trustee or any Bondholder has instituted any Proceeding to
enforce any right or remedy under this Indenture and such
Proceeding has been discontinued or abandoned for any reason, or
has been determined adversely to the Trustee or to such
Bondholder, then and in every such case the Company, the Trustee,
and the Bondholders shall, subject to any determination in such
Proceeding, be restored severally and respectively to their
former positions hereunder, and thereafter all rights and
remedies of the Trustee and the Bondholders shall continue as
though no such Proceeding had been instituted.
Section 5.12 Rights and Remedies Cumulative. No right or
remedy herein conferred upon or reserved to the Trustee or to the
Bondholders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted
by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in
equity or otherwise. The assertion or employment of any right or
remedy hereunder or otherwise shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
Section 5.13 Delay or Omission Not Waiver. No delay or
omission of the Trustee or of any Bondholder to exercise any
right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event
of Default or an acquiescence therein. Every right and remedy
given by this Article or by law to the Trustee or to the
Bondholders may be exercised from time to time, and as often as
may be deemed expedient by the Trustee or by the Bondholders, as
the case may be.
Section 5.14 Control by Bondholders. The Holders of more
than 50% of the Aggregate Outstanding Amount of the Bonds shall
have the right to direct the time, method, and place of
conducting any Proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee with
respect to the Bonds; provided that:
(a) Such direction shall not be in conflict with any
rule of law or with any provision of this Indenture;
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(b) Such Bondholders have provided to the Trustee
security or indemnity satisfactory to the Trustee against costs,
expenses, and liabilities which it might incur in connection
therewith as provided in Section 6.03(e);
(c) If the conditions to retention of the Trust Estate
set forth in Section 5.05 hereof have been satisfied and the
Trustee elects to retain such Trust Estate pursuant to such
Section, then any direction to the Trustee by Bondholders
representing less than 100% of the Aggregate Outstanding Amount
of the Bonds to undertake a Sale of the Trust Estate shall be of
no force and effect; and
(d) The Trustee may take any other action deemed proper
by the Trustee which is not inconsistent with such direction;
provided, however, that, subject to Section 6.01, the Trustee
need not take any action which it determines might involve it in
personal liability or be unjustly prejudicial to the Holders of
the Bonds not consenting.
Section 5.15 Waiver of Past Defaults. The Holders of
more than 50% of the Aggregate Outstanding Amount of the Bonds
may, on behalf of the Bondholders, waive any past Default
hereunder and its consequences, except a Default:
(a) In the payment of the principal of or interest
on any Bond that constitutes an Event of Default; or
(b) In respect of a covenant or provision hereof
that cannot be modified or amended without the consent of all the
Bondholders.
Upon any such waiver, such Default and any Event of
Default arising therefrom shall cease to exist and shall be
deemed to have been cured and not to have occurred for every
purpose of this Indenture; but no such waiver shall extend to any
subsequent or other Default or impair any right consequent
thereon.
Section 5.16 Undertaking for Costs. All parties to this
Indenture agree, and each Bondholder by his acceptance thereof
shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right
or remedy under this Indenture, or in any suit against the
Trustee for any action, taken, suffered, or omitted by it as
Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court
may in its discretion assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in such
suit, having due regard to the merits and good faith of the
claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted
by the Trustee, to any suit instituted by any Bondholder, or
group of Bondholders, holding in the aggregate more than 10% of
the Aggregate Outstanding Amount of the Bonds (except in the case
of any suit against the Trustee), or to any suit instituted by
any Bondholder for the enforcement of the payment of the
principal of or interest on any Bond on or after Maturity.
Section 5.17 Waiver of Stay or Extension Laws. The
Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or
extension law wherever enacted, now or at any time hereafter in
force, which may affect the covenants or the performance of this
Indenture; and the Company (to the extent that it may lawfully do
so) hereby expressly waives all benefit or advantage of any such
law and covenants that it will not hinder, delay, or impede the
execution of any power herein granted to the Trustee, but will
suffer and permit the execution of every such power as though no
such law had been enacted.
Section 5.18 Sale of Trust Estate.
(a) The power to effect any sale (a "Sale") of any
portion of the Trust Estate securing the Bonds pursuant to
Section 5.04 shall not be exhausted by any one or more Sales as
to any portion of such Trust Estate remaining unsold, but shall
continue unimpaired until the entire Trust Estate shall have been
sold or all amounts payable on the Bonds and under this Indenture
with respect thereto shall have been paid. The Trustee may from
time
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to time postpone any Sale by public announcement made at the time
and place of such Sale. The Trustee hereby expressly waives its
rights to any amount fixed by law as compensation for any Sale;
provided, however, that such waiver shall not affect the
Trustee's right to receive reasonable compensation, as set forth
in Section 6.07, for the providing by the Trustee of ordinary
services as Trustee under this Indenture.
(b) The Trustee shall execute and deliver an appropriate
instrument of conveyance transferring its interest in any portion
of the Trust Estate in connection with a Sale thereof. In
addition, the Trustee is hereby irrevocably appointed the agent
and attorney-in-fact of the Company to transfer and convey its
interest in any portion of the Trust Estate in connection with a
Sale thereof, and to take all action necessary to effect such
Sale. No purchaser or transferee at such a Sale shall be bound to
ascertain the Trustee's authority, inquire into the satisfaction
of any conditions precedent, or see to the application of any
moneys.
Section 5.19 Action on Bonds. The Trustee's right to
seek and recover judgment on the Bonds or under this Indenture
shall not be affected by the seeking or obtaining of or
application for any other relief under or with respect to this
Indenture. Neither the lien of this Indenture nor any rights or
remedies of the Trustee or the Bondholders shall be impaired by
the recovery of any judgment by the Trustee against the Company
or by the levy of any execution under such judgment upon any
portion of the Trust Estate or upon any of the assets of the
Company.
ARTICLE VI
THE TRUSTEE
Section 6.01 Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of
Default,
(i) The Trustee undertakes to perform such
duties and only such duties as are specifically set forth in this
Indenture, and no implied covenants or obligations shall be read
into this Indenture against the Trustee; and
(ii) In the absence of bad faith on its part,
the Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein,
upon certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture; but in the case
of any such certificates or opinions which by any provision
hereof are specifically required to be furnished to the Trustee,
the Trustee shall be under a duty to examine the same to
determine whether or not they conform to the requirements of this
Indenture.
(b) In case an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and
powers vested in it by this Indenture, and use the same degree of
care and skill in their exercise, as a prudent man would exercise
or use under the circumstances in the conduct of his own affairs.
(c) No provision of this Indenture shall be construed to
relieve the Trustee from liability for its own gross negligent
action, its own gross negligent failure to act, or its own
willful misconduct, except that:
(i) This subsection shall not be construed
to limit the effect of subsection (a) of this Section;
(ii) The Trustee shall not be liable for any
error of judgment made in good faith by a Responsible Officer,
unless it is proved that the Trustee was grossly negligent in
ascertaining the pertinent facts;
(iii) The Trustee shall not be liable with
respect to any action taken or omitted to be taken by it in good
faith in accordance with the direction of the Holders of more
than 50% of the Aggregate Outstanding Amount relating to a
Default on all of the Bonds or the Aggregate Outstanding Amount
of the Bonds relating to the time, method, and place of
conducting any Proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the
Trustee, under this Indenture in accordance with the terms of
this Indenture; and
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(iv) No provision of this Indenture shall
require the Trustee to expend or risk its own funds or otherwise
incur any financial liability in the performance of any of its
duties hereunder, or in the exercise of any of its rights or
powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate security or indemnity against
such risk or liability is not reasonably assured to it.
(d) For all purposes under this Indenture, the Trustee
shall not be deemed to have notice or knowledge of any Default or
Event of Default described in Section 5.01(c), 5.01(d), 5.01(e),
5.01(f), or 5.01(g) unless written notice of any event that is in
fact such a Default or an Event of Default is received by the
Trustee at the Corporate Trust Office and such notice refers to
the Company, the Bonds, the Trust Estate, or this Indenture.
(e) Notwithstanding the extinguishment of all right,
title, and interest of the Company or any other Person having an
ownership interest in the Trust Estate, in and to the Trust
Estate following an Event of Default and a consequent declaration
of acceleration of the Maturity of the Bonds, whether such
extinguishment occurs through a Sale of the Trust Estate to
another Person, the acquisition of the Trust Estate by the
Trustee or otherwise, the rights, powers, and duties of the
Trustee with respect to the Trust Estate (or the proceeds
thereof) and the Bondholders and the rights of Bondholders shall
continue to be governed by the terms of this Indenture.
(f) The permissive right of the Trustee to take actions
enumerated in this Indenture shall not be construed as a duty and
the Trustee shall not be answerable for other than its own gross
negligence or willful misconduct.
(g) The Trustee shall be under no obligation to
institute any suit, or to take any remedial Proceeding under this
Indenture, or to enter any appearance or in any way defend in any
suit in which it may be made defendant, or to take any steps in
the execution of the trusts hereby created or in the enforcement
of any rights and powers hereunder until it shall be either
secured or indemnified to its satisfaction against any and all
costs and expenses, outlays, and counsel fees and other
reasonable disbursements and against all liability, except
liability which is adjudicated to have resulted from its gross
negligence or willful misconduct, in connection with any action
so taken; the Trustee may, nevertheless, begin suit, or appear in
or defend suit, or do anything else in its judgment proper to be
done by it as such Trustee without indemnity, and in such case
the Company shall reimburse the Trustee for all reasonable costs
and expenses, outlays, and counsel fees and other reasonable
disbursements incurred in connection therewith.
(h) Whether or not therein expressly so provided, every
provision of this Indenture relating to the conduct or affecting
the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section.
(i) The Trustee shall, not later than the 15th day of
each month preceding a Payment Date, provide a statement to the
Company of the balances, as of such date, in the Payment Account,
and the value of all Eligible Investments made with funds in the
Sinking Fund Account, if any, which statement shall list
separately each such account balance and value. For purposes of
the foregoing, the Eligible Investments shall be valued at their
face value, without regard to interest or other income earned
thereon or anticipated to be earned thereon.
Section 6.02 Notice of Default. Within 90 days after the
occurrence of any Default known to the Trustee, the Trustee shall
transmit by first-class mail to all Bondholders to which such
Default relates, as their names and addresses appear on the Bond
Register, notice of such Default hereunder known to the Trustee,
unless such Default shall have been cured or waived; provided,
that, except in the case of a Default in the payment of principal
of or interest on any Bond, the Trustee shall be protected in
withholding such notice if and so long as the Board of Directors,
the executive committee, or a trust committee of directors and/or
Responsible Officers of the Trustee in good faith determine that
the withholding of such notice is in the interests of the
Bondholders; and provided, further, that in the case of any
Default of the character specified in Section 5.01(c) no such
notice to Bondholders shall be given until at least 30 days after
the occurrence thereof.
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Section 6.03 Certain Rights of Trustee. Except as
otherwise provided in Section 6.01:
(a) The Trustee may rely and shall be protected in
acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, note, or other
obligation, paper, or document believed by it to be genuine and
to have been signed or presented by the proper party or parties;
(b) Any request or direction of the Company mentioned
herein shall be sufficiently evidenced by a Company Request or
Company Order and any resolution of the Board of Directors may be
sufficiently evidenced by a Board Resolution;
(c) Whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or
established prior to taking, suffering, or omitting any action
hereunder, the Trustee (unless other evidence be herein
specifically prescribed) may, in the absence of bad faith on its
part, rely upon an Officer's Certificate;
(d) As a condition to the taking, suffering, or omitting
of any action by it hereunder, the Trustee may consult with
counsel, and the written advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and protection
in respect of any action taken, suffered, or omitted by it
hereunder in good faith and in reliance thereon;
(e) The Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Indenture or to
honor the request or direction of any of the Bondholders pursuant
to this Indenture, unless such Bondholders shall have provided to
the Trustee security or indemnity satisfactory to it against the
costs, expenses, and liabilities which might be incurred by it in
compliance with such request or direction;
(f) The Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, Bond, note or other
obligation, paper, or documents, but the Trustee, in its
discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit, and, if the Trustee
shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records, and premises of
the Company, personally or by agent or attorney; provided that
the Trustee shall, and shall cause its agents to, hold in
confidence all such information except to the extent disclosure
may be required by law (and all reasonable applications for
confidential treatment are unavailing) and except to the extent
that the Trustee may reasonably determine that such disclosure is
consistent with its obligations hereunder;
(g) The Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by
or through agents or attorneys and the Trustee shall not be
responsible for any misconduct or negligence on the part of any
agent or attorney appointed with due care by it hereunder.
Section 6.04 Not Responsible for Recitals or Issuance of
Bonds. The recitals contained herein and in the Bonds, except the
Certificate of Authentication, shall be taken as the statements
of the Company, and the Trustee assumes no responsibility for
their correctness. The Trustee makes no representations as to the
validity or condition of the Trust Estate or any part thereof, or
as to the title of the Company thereto or as to the security
afforded thereby or hereby, or as to the validity or genuineness
of any securities at any time pledged and deposited with the
Trustee hereunder, or as to the validity or sufficiency of this
Indenture or of the Bonds. The Trustee shall not be accountable
for the use or application by the Company of Bonds or the
proceeds thereof or of any money paid to the Company or upon
Company Order under any provisions hereof.
Except as otherwise expressly provided herein and
without limiting the generality of the foregoing, the Trustee
shall have no responsibility or liability for or with respect to
the existence or validity of any Asset or Lease, the perfection
of any security interest (whether as of the date hereof or at any
future time), the maintenance of or the taking of any action to
maintain such perfection, the validity of the assignment of any
portion of the Trust Estate to the Trustee or of any intervening
assignment, the review of any Asset or Lease (it being understood
that the Trustee has not reviewed and does not intend to review
the substance or form of any such Asset or Lease), the receipt by
it or
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the Company of any Asset or Lease, the performance or enforcement
of any Asset or Lease, the compliance by the Company with any
covenant or the breach by the Company of any warranty or
representation made hereunder or in any related document or the
accuracy of any such warranty or representation, any investment
of moneys in the Payment Account or the Sinking Fund Account, or
any loss resulting therefrom (provided such moneys have been
invested in accordance with Sections 10.02 and 10.03), the acts
or omissions of the Company or of any servicer of the Leases, any
action of any such servicer taken in the name of the Trustee, or
the validity of any servicing agreement.
The Trustee shall not have any obligation or liability
under any Asset by reason of or arising out of this Indenture or
the granting of a security interest in such Asset hereunder or
the receipt by the Trustee of any payment relating to any Asset
pursuant hereto, nor shall the Trustee be required or obligated
in any manner to perform or fulfill any of the obligations of the
Company under or pursuant to any Asset, or to make any payment,
or to make any inquiry as to the nature or the sufficiency of any
payment received by it, or the sufficiency of any performance by
any party, under any Asset.
Section 6.05 May Hold Bonds. The Trustee, any Paying
Agent, Bond Registrar, or any other agent of the Company, in its
individual or any other capacity, may become the owner or pledgee
of Bonds, and may otherwise deal with the Company with the same
rights it would have if it were not Trustee, Paying Agent, Bond
Registrar, or such other agent.
Section 6.06 Money Held in Trust. Money held by the
Trustee in trust hereunder need not be segregated from other
funds except to the extent required herein or required by law.
The Trustee shall be under no liability for interest which is not
actually received on any money received by it hereunder except as
otherwise agreed with the Company and except to the extent of
income or gain on investments which are obligations of the
Trustee, and income or other gain actually received by the
Trustee on investments which are obligations of others.
Section 6.07 Compensation and Reimbursement to Trustee.
(a) The Company agrees:
(i) To promptly pay the Trustee, on demand,
from time to time reasonable compensation for all services
rendered by it hereunder (which compensation shall not be limited
by any provision of law in regard to the compensation of a
trustee of an express trust);
(ii) Except as expressly provided in any
Security Documents or otherwise herein, to promptly reimburse the
Trustee, on demand, upon its prior written request, for all
reasonable and customary expenses, disbursements, and advances
incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the
expenses and disbursements of its agents), except any such
expense, disbursement, or advance as may be attributable to its
gross negligence or willful misconduct; and
(iii) To indemnify the Trustee for, and to hold
it harmless against, any loss, liability, or expense arising out
of or in connection with the acceptance or administration of this
trust, including the costs and expenses of defending itself
against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder, other than
any claim or liability arising from gross negligence or willful
misconduct on the part of the Trustee.
(b) As security for the payment obligations of the
Company pursuant to the foregoing provisions of this Section
6.07, the Company hereby Grants to the Trustee a lien ranking at
all times senior to the lien of the Bonds upon all property and
funds held or collected as part of the Trust Estate by the
Trustee in its capacity as such; provided, however, that such
lien shall in no event extend to property and funds held in trust
for the payment of principal of or interest on any Bonds pursuant
to Section 4.01(a)(ii).
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(c) Nothing in this Section 6.07 shall be construed to
limit the exercise by the Trustee of any right or remedy
permitted under the Indenture or otherwise in the event of the
Company's failure to pay the amounts due the Trustee pursuant to
this Section 6.07.
(d) The obligations of the Company under Section 6.07(a)
shall survive any resignation or removal of the Trustee pursuant
to Section 6.09 hereof.
Section 6.08 Eligibility; Disqualification. This
Indenture shall always have a Trustee with respect to the Bonds
who satisfies the requirements of TIA Section 310(a)(1). The
Trustee shall always have a combined capital and surplus of at
least twenty million dollars ($20,000,000) as set forth in its
most recent published annual report of condition. The Trustee is
subject to TIA Section 310(b).
Section 6.09 Resignation and Removal; Appointment of
Successor.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall
become effective until the acceptance of appointment by the
successor Trustee under Section 6.10.
(b) The Trustee may resign at any time by giving written
notice thereof to the Company. If an instrument of acceptance by
a successor Trustee shall not have been delivered to the Trustee
within 30 days after the giving of such notice of resignation,
the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee, or any
Holder of a Bond who has been a bona fide Holder of a Bond or
Bonds for at least six months may, subject to Section 5.16, on
behalf of himself and all others similarly situated, petition any
such court for the appointment of a successor Trustee.
(c) The Trustee may be removed as to the Bonds at any
time by Act of the Holders of more than 50% of the Aggregate
Outstanding Amount of the Bonds, delivered to the Trustee and to
the Company.
(d) If at any time:
(i) The Trustee shall fail to comply with
Section 6.08 after written request therefor by the Company or by
any Bondholder who has been a bona fide Bondholder for at least
six months;
(ii) The Trustee shall cease to be eligible
under Section 6.08 and shall fail to resign after written request
therefor by the Company or by any such Bondholder; or
(iii) (A) The Trustee shall become incapable of
acting with respect to the Bonds or (B) there shall have been
entered a decree or order for relief by a court having
jurisdiction in the premises in respect of the Trustee in an
involuntary case under the federal bankruptcy laws, as now or
hereafter constituted, or any other applicable federal or state
bankruptcy, insolvency, or other similar law, or appointing a
receiver, liquidator, assignee, custodian, trustee, or
sequestrator (or similar official) of the Trustee for any
substantial part of its property, or ordering the winding up or
liquidation of its affairs, and the continuance of any such
decree or order unstayed and in effect for a period of 60
consecutive days or (C) the Trustee commences a voluntary case
under the federal bankruptcy laws, as now or hereafter
constituted, or any other applicable federal or state bankruptcy,
insolvency, or other similar law, or consents to the appointment
of or taking possession by a receiver, liquidator, assignee,
trustee, custodian, or sequestrator (or similar official) of the
Trustee or of any substantial part of its property, or the making
by it of any assignment for the benefit of creditors, or the
Trustee fails generally to pay its debts as such debts become due
or takes any corporate action in furtherance of the foregoing,
then, in any such case, (A) the Company by a Board Resolution may
remove the Trustee, or (B) subject to Section 5.16 any Bondholder
who has been a bona fide Bondholder for at least six (6) months
may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the removal of
the Trustee and the appointment of a successor Trustee.
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(e) If the Trustee shall resign, be removed, or become
incapable of acting, or if a vacancy shall occur in the office of
the Trustee for any cause, the Company, by a Board Resolution,
shall promptly appoint a successor Trustee. If within one year
after such resignation, removal, or incapability or the
occurrence of such vacancy, a further successor Trustee shall be
appointed by Act of the Bondholders of more than 50% of the
Aggregate Outstanding Amount of the Bonds, the successor Trustee
so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee and supersede the
successor Trustee appointed by the Company.
(f) The Company shall give notice of each resignation
and each removal of the Trustee and each appointment of a
successor Trustee by mailing written notice of such event by
first-class mail, postage prepaid, to the Bondholders as their
names and addresses appear in the Bond Register. Each notice
shall include the name of the successor Trustee and the address
of its Corporate Trust Office.
Section 6.10 Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute,
acknowledge, and deliver to the Company and the retiring Trustee
an instrument accepting such appointment, and thereupon the
resignation or removal of the retiring Trustee shall become
effective and such successor Trustee, without any further act,
deed, or conveyance, shall become vested with all the rights,
powers, trusts, duties, and obligations of the retiring Trustee;
but, on request of the Company or the successor Trustee, such
retiring Trustee shall, upon payment of its charges then unpaid,
execute and deliver an instrument transferring to such successor
Trustee all the rights, powers, and trusts of the retiring
Trustee, and shall duly assign, transfer, and deliver to such
successor Trustee all property and money held by such retiring
Trustee hereunder, subject nevertheless to its lien, if any,
provided for in Section 6.07. Upon request of any such successor
Trustee, the Company shall execute any and all instruments for
more fully and certainly vesting in and confirming to such
successor Trustee all such rights, powers, and trusts.
No successor Trustee shall accept its appointment unless
at the time of such acceptance such successor Trustee shall be
qualified and eligible under this Article.
Section 6.11 Merger, Conversion, Consolidation, or
Succession to Business of Trustee. Any corporation into which the
Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger,
conversion, or consolidation to which the Trustee shall be a
party or any corporation succeeding to all or substantially all
of the corporate trust business of the Trustee, shall be the
successor of the Trustee hereunder, provided such corporation
shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act
on the part of any of the parties hereto. In case any Bonds have
been authenticated, but not delivered, by the Trustee then in
office, any successor by merger, conversion, or consolidation to
such authenticating Trustee may adopt such authentication and
deliver the Bonds so authenticated with the same effect as if
such successor Trustee had itself authenticated such Bonds.
Section 6.12 Co-trustees and Separate Trustee. At any
time or times, for the purpose of meeting the legal requirements
of any jurisdiction in which any part of a Trust Estate may at
the time be located, the Company and the Trustee shall have power
to appoint, and, upon the written request of the Trustee or of
the Holders of Bonds representing at least 25% of the Aggregate
Outstanding Amount, the Company shall for such purpose join with
the Trustee in the execution, delivery, and performance of all
instruments and agreements necessary or proper to appoint, one or
more Persons approved by the Trustee either to act as co-trustee,
jointly with the Trustee, of all or any part of such Trust
Estate, or to act as separate trustee of any such property, in
either case with such powers as may be provided in the instrument
of appointment, and to vest in such Person or Persons in the
capacity aforesaid, any property, title, right, or power deemed
necessary or desirable, subject to the other provisions of this
Section. If the Company does not join in such appointment within
15 days after the receipt by it of a request so to do, or in case
an Event of Default has occurred and is continuing, the Trustee
alone shall have power to make such appointment. Any co-trustee
or separate trustee appointed pursuant to this Section shall
satisfy the requirements of Section 6.08.
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Should any written instrument from the Company be
required by any co-trustee or separate trustee so appointed for
more fully confirming to such co-trustee or separate trustee such
property, title, right, or power, any and all such instruments
shall, on request, be executed, acknowledged, and delivered by
the Company.
Every co-trustee or separate trustee shall, to the
extent permitted by law, but to such extent only, be appointed
subject to the following terms, namely:
(a) The Bonds shall be authenticated and delivered
solely by the Trustee and all rights, powers, duties, and
obligations hereunder in respect of the custody of securities,
cash, and other personal property held by, or required to be
deposited or pledged with, the Trustee hereunder, shall be
exercised solely by the Trustee;
(b) The rights, powers, duties, and obligations hereby
conferred or imposed upon the Trustee in respect of any property
covered by such appointment shall be conferred or imposed upon
and exercised or performed by the Trustee or by the Trustee and
such co-trustee or separate trustee jointly, as shall be provided
in the instrument appointing such co-trustee or separate trustee,
except to the extent that under any law of any jurisdiction in
which any particular act is to be performed, the Trustee shall be
incompetent or unqualified to perform such act, in which event
such rights, powers, duties, and obligations shall be exercised
and performed by such co-trustee or separate trustee;
(c) The Trustee, at any time by an instrument in writing
executed by it, with the concurrence of the Company evidenced by
a Board Resolution, may accept the resignation of or remove any
co-trustee or separate trustee appointed under this Section, and,
in case an Event of Default has occurred and is continuing, the
Trustee shall have power to accept the resignation of, or remove,
any such co-trustee or separate trustee without the concurrence
of the Company. Upon the written request of the Trustee, the
Company shall join with the Trustee in the execution, delivery,
and performance of all instruments and agreements necessary or
proper to effectuate such resignation or removal. A successor to
any co-trustee or separate trustee so resigned or removed may be
appointed in the manner provided in this Section;
(d) No co-trustee or separate trustee hereunder shall be
personally liable by reason of any act or omission of the
Trustee, or any other such trustee hereunder, nor shall the
Trustee be liable by reason of any act or omission of any
co-trustee or separate trustee hereunder; and
(e) Any Act of Bondholders delivered to the Trustee
shall be deemed to have been delivered to each such co-trustee
and separate trustee.
Section 6.13 Withholding Taxes and Reports. Whenever it
is acting as Paying Agent for the Bonds, the Trustee shall comply
with all requirements of the Code and all regulations thereunder
with respect to the withholding from any payments made on such
Bonds of any withholding taxes imposed thereon and with respect
to any reporting requirements in connection therewith, including
all requirements to deliver reports timely to the Bondholders.
Section 6.14 Preferential Collection of Claims Against
the Company. The Trustee is subject to TIA Section 311(a),
excluding any creditor relationship listed in TIA Section 311(b).
A Trustee who has resigned or been removed shall be subject to
TIA Section 311(a) to the extent required thereby.
ARTICLE VII
BONDHOLDERS' LIST AND REPORTS BY TRUSTEE AND COMPANY
Section 7.01 Company to Furnish Trustee Names and
Addresses of Bondholders. The Company will furnish or cause to be
furnished to the Trustee (a) quarterly, not more than 10 days
after each Regular Record Date with respect to the Bonds, a list,
in such form as the Trustee may reasonably require, of the names
and addresses and amounts of ownership of the Bondholders as of
such Regular Record Date, and (b) at such other times as the
Trustee may request in writing, within 30 days after receipt by
the Company of any such request, a list of
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similar form and content as of a date not more than 10 days prior
to the time such list is furnished; provided, however, that for
so long as the Trustee is the Bond Registrar, no such list shall
be required to be furnished for Bonds for which the Trustee acts
as Bond Registrar.
Section 7.02 Preservation of Information; Communications
to Bondholders.
(a) The Trustee shall preserve, in as current a form as
is reasonably practicable, the names and addresses of the
Bondholders contained in the most recent list furnished to the
Trustee as provided in Section 7.01. The Trustee may destroy any
list furnished to it as provided in Section 7.01 upon receipt of
a new list so furnished.
(b) Bondholders may communicate pursuant to TIA Section
312(b) with other Bondholders with respect to their rights under
this Indenture or under the Bonds. The Company, the Trustee, and
all other appropriate Persons shall have the protection of TIA
Section 312(c).
(c) Every Holder of Bonds, by receiving and holding the
same, agrees with the Company and the Trustee that neither the
Company nor the Trustee nor any Paying Agent nor any Bond
Registrar shall be held accountable by reason of the disclosure
of any such information as to the names and addresses of the
Holders of Bonds in accordance with TIA Section 312, regardless
of the source from which such information was derived, and that
the Trustee shall not be held accountable by reason of mailing
any material pursuant to a request made under TIA Section 312(b).
Section 7.03 Reports by Trustee.
(a) On each anniversary of the Final Closing, to the
extent required by TIA Section 313(a), the Trustee shall transmit
by mail to all Bondholders, as their names and addresses appear
in the Bond Register, and to all Bondholders as have, within the
two years preceding such transmission, filed their names and
addresses with the Trustee for such purpose, and to all
Bondholders whose names and addresses have been furnished to or
received by the Trustee under Section 7.01 of this Indenture, a
brief report dated as of such date that complies with TIA Section
313(a). The Trustee also shall comply with TIA Section 313(b).
(b) Reports pursuant to this Section shall be
transmitted in the manner and to the Persons required by TIA
Sections 313(c) and (d).
Section 7.04 Reports by Company.
(a) The Company, in accordance with rules and
regulations promulgated by the Commission, shall, simultaneously
with filing such documents with the Commission:
(i) File with the Trustee copies of the annual
reports and of the information, documents, and other reports
which the Company is required to file with the Commission
pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934; or, if the Company is not required to file
information, documents, or reports pursuant to either of such
sections, then to file with the Trustee and the Commission, in
accordance with rules and regulations prescribed by the
Commission, such of the supplementary and periodic information,
documents, and reports which may be required pursuant to Section
13 of the Securities Exchange Act of 1934, in respect of a
security listed and registered on a national securities exchange
as may be prescribed in such rules and regulations;
(ii) File with the Trustee, in accordance with
rules and regulations prescribed by the Commission, such
additional information, documents, and reports with respect to
compliance by the Company with the conditions and covenants
provided for in this Indenture, as may be required by such rules
and regulations, including, in the case of annual reports, if
required by such rules and regulations, certificates or opinions
of independent public accountants, conforming with the
requirements of Section 1.03 hereof, as to compliance with
conditions or covenants, compliance with which is subject to
verification by accountants;
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(iii) Transmit to the Holders of Bonds such
summaries of any information, documents and reports required to
be filed by the Company pursuant to paragraphs (i) and (ii)
above;
(iv) Furnish to the Trustee, not less often
than annually, a brief certificate from the principal executive
officer, principal financial officer, or principal accounting
officer as to his or her knowledge of the Company's compliance,
in all material respects, with all the conditions and covenants
under this Indenture. Such compliance shall be determined without
regard to any period of grace or requirement of notice provided
under the Indenture.
(b) The Company shall furnish to the Trustee:
(i) Promptly after the execution and delivery
of this Indenture, an Opinion of Counsel either stating that in
the opinion of such counsel the Security Documents have been
properly recorded and filed so as to make effective the lien
intended to be created thereby, and reciting the details of such
action, or stating that in the opinion of such counsel no such
action is necessary to make such lien effective;
(ii) At least annually after the execution and
delivery of this Indenture, an Opinion of Counsel either stating
that in the opinion of such counsel such action has been taken
with respect to the recording, filing, re-recording, and refiling
of the Security Documents as is necessary to maintain the lien
thereof, and reciting the details of such action, or stating that
in the opinion of such counsel no such action is necessary to
maintain such lien; and
(iii) Promptly after the date on which a Final
Closing with respect to the Bonds occurs, the Company shall
advise the Trustee in writing that the Final Closing with respect
to Bonds has occurred.
ARTICLE VIII
CONSOLIDATION AND MERGER
Section 8.01 Company May Consolidate, Etc., Only on
Certain Terms.
(a) The Company shall not consolidate or merge with or
into any other Person or convey or transfer its properties and
assets substantially as an entirety to any Person, unless:
(i) The Person (if other than the Company)
formed by or surviving such consolidation or merger or that
acquires by conveyance or transfer the properties and assets of
the Company substantially as an entirety shall be a Person
organized and existing under the laws of the United States of
America or any state or the District of Columbia, and shall
expressly assume, by an indenture supplemental hereto, executed
and delivered to the Trustee, in form satisfactory to the
Trustee, the due and punctual payment of the principal of and
interest on all Bonds and the performance of every covenant of
this Indenture on the part of the Company to be performed or
observed, all as provided herein;
(ii) Immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred
and be continuing;
(iii) The Company shall have delivered to the
Trustee an Officer's Certificate and an Opinion of Counsel each
stating that such consolidation, merger, conveyance, or transfer
and such supplemental indenture comply with this Article and that
all conditions precedent herein provided for relating to such
transaction have been complied with; and
(iv) Such consolidation, merger, conveyance, or
transfer shall be on such terms as shall fully preserve the lien
and security hereof and the rights and powers of the Trustee and
the Bondholders hereunder.
(b) The Company shall not convey or transfer its
properties and assets included in the Trust Estate to any Person
unless:
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(i) The Person that acquires by conveyance or
transfer the properties and assets of the Company, the conveyance
or transfer of which is hereby restricted, shall (A) be a United
States citizen or a Person organized and existing under the laws
of the United States of America or any state or the District of
Columbia, (B) expressly assumes, by an indenture supplemental
hereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, the due and punctual payment of the
principal of and interest on all Bonds and the performance or
observance of every agreement and covenant of this Indenture on
the part of the Company to be performed or observed all as
provided herein, (C) expressly agrees by means of such indenture
supplemental hereto that all right, title, and interest so
conveyed or transferred shall be subject and subordinate to the
rights of the Bondholders, and (D) expressly agrees to indemnify,
defend, and hold harmless the Company against and from any loss,
liability, or expense arising under or related to this Indenture
and the Bonds;
(ii) Immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred
and be continuing;
(iii) The Company shall remain bound by every
covenant and agreement of this Indenture on the part of the
Company to be observed or performed with respect to the Bonds;
and
(iv) The Company shall have delivered to the
Trustee an Officer's Certificate and an Opinion of Counsel each
stating that such conveyance or transfer and such supplemental
indenture comply with this Article and that all conditions
precedent herein provided for relating to such transaction have
been complied with.
Section 8.02 Successor Substituted. Upon any
consolidation or merger, or any conveyance or transfer of the
properties and assets of the Company substantially as an entirety
in accordance with Section 8.01, the Person formed by or
surviving such consolidation or merger (if other than the
Company) or the Person to which such conveyance or transfer is
made shall succeed to, and may exercise every right and power of,
the Company under this Indenture with the same effect as if such
Person had been named as the Company herein. In the event of any
such conveyance or transfer, the Person named as the "Company" in
the first paragraph of this instrument or any successor which
shall theretofore have become such in the manner prescribed in
this Article may be dissolved, wound-up, and liquidated at any
time thereafter, and such Person thereafter shall be released
from its liabilities as obligor and maker on all the Bonds and
from its obligations under this Indenture.
ARTICLE IX
COVENANTS OF THE COMPANY
Section 9.01 Payment of Principal and Interest. The
Company will duly and punctually pay the principal of and
interest on the Bonds in accordance with the terms of the Bonds
and this Indenture.
Section 9.02 Maintenance of Office or Agency. The
Company will maintain an office or agency at the Corporate Trust
Office of the Trustee, where Bonds may be presented or
surrendered for payment, where Bonds may be surrendered for
registration of transfer or exchange, and where notices and
demands to or upon the Company in respect of the Bonds and this
Indenture may be served.
Section 9.03 Money for Bond Payments to Be Held in
Trust. If the Company shall at any time act as its own Paying
Agent, it will, on or before each Payment Date, Special Payment
Date, Redemption Date or Stated Maturity, segregate and hold in
trust for the benefit of the Bondholders entitled thereto in cash
a sum sufficient to pay the principal of and interest then
becoming due (to the extent funds are then available for such
purposes), until such sums shall be paid to such Bondholders or
otherwise disposed of as herein provided, and will promptly
notify the Trustee of any Default in the making of any payment of
principal of or interest with respect to the Bonds. The Company
hereby appoints the Trustee as the initial Paying Agent.
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If the Company should appoint a Paying Agent other than
itself or the Trustee, then the Company will cause each such
Paying Agent to execute and deliver to the Trustee an instrument
in which such Paying Agent shall agree with the Trustee, subject
to the provisions of this Section, that such Paying Agent will:
(a) Hold all sums held by it for the payment of
principal of or interest on Bonds in trust for the benefit of the
Bondholders entitled thereto until such sums shall be paid to
such Persons or otherwise disposed of as herein provided;
(b) Give the Trustee written notice of any Default by
the Company (or any other obligor upon the Bonds) in the making
of any payment of principal or interest with respect to the
Bonds; and
(c) At any time during the continuance of any such
Default, upon the written request of the Trustee, forthwith pay
to the Trustee all sums so held in trust by such Paying Agent.
The Paying Agent, regardless of whether such Paying
Agent is the Company, the Trustee, or some other Person, shall
comply with all requirements of the Code and all regulations
thereunder with respect to the withholding from any payments made
by it on any Bonds of any applicable withholding taxes imposed
thereon and with respect to any applicable reporting requirements
in connection therewith, including all requirements to deliver
reports timely to the Holders of the Bonds.
The Company may at any time, for the purpose of
obtaining the satisfaction and discharge of this Indenture or for
any other purpose, pay, or by Company Order direct any Paying
Agent to pay, to the Trustee all sums held in trust by the
Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by
the Company or such Paying Agent; and, upon such payment by any
Paying Agent to the Trustee, such Paying Agent shall be released
from all further liability with respect to such money.
Any money deposited with the Trustee or any Paying
Agent, or then held by the Company in trust for the payment of
the principal of or interest on any Bond and remaining unclaimed
for two (2) years after such principal or interest has become due
and payable shall be paid to the Company on Company Request along
with interest that has accumulated thereon, or (if then held by
the Company) shall be discharged from such trust and the
Bondholder shall thereafter, as an unsecured general creditor,
look only to the Company for payment thereof, and all liability
of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall
thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment,
may at the expense of the Company cause to be published once, in
a newspaper published in the English language customarily
published on each Business Day and of general circulation in the
city in which the Company's principal office is located, notice
that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the
date of such publication, any unclaimed balance of such money
then remaining will be repaid to the Company. The Trustee may
also adopt and employ, at the expense of the Company, any other
reasonable means of notification of such repayment (including,
but not limited to, mailing notice of such repayment to
Bondholders whose right to or interest in moneys due and payable
but not claimed is determinable from the records of any Paying
Agent, at the last address as shown on the Bond Register for each
such Bondholder).
Section 9.04 Corporate Existence. Subject to Article
VIII, the Company will keep in full effect its existence, rights,
and franchises as a corporation under the laws of the State of
California (unless it becomes incorporated under the laws of any
other state of the United States of America), and will obtain and
preserve its qualification to do business as a foreign
corporation in each jurisdiction in which such qualification is
or shall be necessary to protect the validity and enforceability
of this Indenture, the Bonds, and the lien on the Equipment, the
Financial Assets and the Leases and each other instrument or
agreement included in the Trust Estate.
Section 9.05 Protection of Trust Estate. The Company
will from time to time execute and deliver all such supplements
and amendments hereto and all such financing statements,
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continuation statements, instruments of further assurance and
other instruments, and will take such other action as the Company
or the Trustee deems necessary or advisable to:
(a) Grant more effectively all or any portion of the
Trust Estate;
(b) Maintain or preserve the lien of this Indenture
and the Security Documents and carry out more effectively the
purposes thereof;
(c) Perfect, publish notice of, or protect the
validity of any Grant made or to be made by this Indenture;
(d) Enforce any of the Leases and the Guarantees or
any rights under the Financial Assets;
(e) Preserve and defend title to the Trust Estate
securing the Bonds and the rights therein of the Trustee and the
Bondholders secured thereby against the claims of all persons and
parties, including but not limited to claims by any party to a
Lease; and
(f) Promptly pay any tax or similar claim levied
against all or any portion of the Trust Estate.
Additionally, the Company will make, execute or endorse,
acknowledge, and file, or deliver to the Trustee from time to
time such schedules, confirmatory assignments, conveyances,
transfer endorsements, powers of attorney, certificates, reports,
and other assurances or instruments and take such further steps
relating to the Trust Estate and the other rights covered by this
Indenture, as the Trustee may request and reasonably require.
Section 9.06 Annual Certification as to Trust Estate and
Contracts. Within 90 days after the Final Closing with respect to
the Bonds, the Company shall furnish to the Trustee an Officer's
Certificate, which need not comply with Section 1.03, stating
that the Company has complied with the covenants set forth in
Section 3.10 and either stating that such action has been taken
with respect to the recording and filing of this Indenture, any
indentures supplemental hereto, the Security Documents and any
other requisite documents, and with respect to the execution and
filing of any financing statements and continuation statements,
as are necessary to make effective the lien and security interest
of this Indenture and the Security Documents and reciting the
details of such action, or stating that no such action is
necessary to make such lien and security interest effective;
provided, that if Equipment or Financial Assets are acquired and
Leases are executed subsequent to such 90-day period, the Company
shall provide an additional Officer's Certificate to the Trustee
meeting the requirements of this Section within 10 days of such
acquisition and execution. Such Officer's Certificate shall also
describe the recording, filing, re-recording, and refiling of
this Indenture and the Security Documents, any indentures
supplemental hereto, and any other requisite documents (including
financing statements and continuation statements) that will be
required to maintain the lien and security interest of this
Indenture and the Security Documents.
Section 9.07 Negative Covenants. The Company will not:
(a) Sell, transfer, exchange, or otherwise dispose of
any part of the Trust Estate, including but not limited to the
Leases, the Financial Assets or the Equipment, except as
permitted under Section 4.04(e) and as otherwise expressly
permitted by this Indenture; or
(b) Incur any indebtedness that is to be secured by a
collateral assignment of the Leases, or a lien on and security
interest in the Equipment or Financial Assets, prior to or on a
parity with that of the Trustee pursuant to this Indenture,
except for Senior Acquisition Liens; or
(c) Claim any credit on, or make any deduction from, the
principal, premium, if any, or interest payable in respect to the
Bonds by reason of the payment of any taxes levied or assessed
upon any part of the Trust Estate;
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(d) (i) Permit the validity or effectiveness of this
Indenture to be impaired, or permit this Indenture to be amended,
hypothecated, subordinated, terminated, or discharged, or permit
any person to be released from any covenants or obligations under
this Indenture, except with respect to Senior Acquisition Liens
or as may be expressly permitted hereby, (ii) except as provided
herein, permit any lien, charge, security interest, mortgage, or
other encumbrances ("Liens") to be created on or extended to or
otherwise arise upon or burden the Trust Estate or any part
thereof or any interest therein or the proceeds thereof, except
for Senior Acquisition Liens and Liens subordinated to the
security interest of the Trustee, pursuant to a written
subordinated agreement reasonably satisfactory to the Trustee, or
(iii) except as provided herein, permit this Indenture not to
constitute a valid first priority security interest in the Trust
Estate, except as subordinated to Senior Acquisition Liens; or
(e) Pay any dividends on the Common or Preferred
Stock of the Company, so long as any Bonds remain outstanding.
Section 9.08 Statement as to Compliance. The Company
will deliver to the Trustee, within 90 days after the end of each
fiscal year, a written statement signed by the Chairman or the
President or a Vice President and by the Treasurer or an
Assistant Treasurer of the Company, stating, as to each signer
thereof, that:
(a) A review of the activities of the Company during
such year and of the Company's performance under this Indenture
has been made under his supervision; and
(b) To the best of his knowledge, based on such review,
the Company has fulfilled all of its obligations under this
Indenture throughout such year, or, if there has been a Default
in the fulfillment of any such obligation, specifying each such
Default known to him and the nature and status thereof and the
status of any steps taken to remedy any such Default.
Section 9.09 Investment Company Act. The Company will
conduct its operations in a manner that will not subject it to
the requirement of registration as an "investment company" under
the Investment Company Act of 1940, as amended.
Section 9.10 Continuing Liability of the Company.
Subject to the provisions of Section 8.02, but notwithstanding
any other provision herein to the contrary, the Company shall
remain liable under each Asset included in the Trust Estate to
observe and perform all the conditions and obligations to be
observed and performed by it thereunder, all in accordance with
and pursuant to the terms thereof. Neither the Trustee nor any
Bondholder shall have any liability or obligation under any such
contract or other instrument by reason of or arising out of this
Indenture or the transactions contemplated hereby or the receipt
by the Trustee or any Bondholder of any payment relating to any
such contract or other instrument.
Section 9.11 Lease or Financial Asset Defaults. The
Company will notify the Trustee in writing within fifteen (15)
days of a Defaulted Lease by a Lessee or a Defaulted Financial
Asset by an Obligor and will specify the actions taken and being
taken to remedy any such default; provided that if the event of
default is the failure to pay rent or make payment when due, then
the Company may, in its discretion, provide in its notice to the
Trustee that such notice shall serve as a continuing notice of
default by that Lessee or Obligor in which case no further notice
to the Trustee relative to the failure of that Lessee or Obligor
to timely pay rent or make payment under the Lease or Financial
Asset, respectively, need be given by the Company unless the
Company deems itself to be insecure.
ARTICLE X
ACCOUNTS
Section 10.01 Collection of Money. Except as otherwise
expressly provided herein, the Trustee may demand payment or
delivery of, and shall receive and collect, directly and without
intervention or assistance of any fiscal agent or other
intermediary, all money and other property payable to or
receivable by the Trustee pursuant to this Indenture. The Trustee
shall hold all such money and property received by it as part of
the Trust Estate and
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shall apply it as provided in this Indenture. If the Company
shall default in its obligation to ensure the remittance of
moneys and checks or other instruments into the Payment Account,
and if the Trustee either has actual notice of such default or
shall have received written notice of such default, the Trustee
shall, unless the Company shall have made provision satisfactory
to the Trustee for the performance of such obligations, request
the Company to perform such obligation or obligations within 10
days after such request or as promptly as legally permitted.
Except as otherwise expressly provided in this Indenture, if,
following such request for performance, any default continues in
the performing of such obligation or obligations, the Trustee may
take such action as may be appropriate to enforce such obligation
or obligations, including the institution and prosecution of
appropriate Proceedings. Any such action shall be without
prejudice to any right to claim a Default or Event of Default
under this Indenture and to proceed thereafter as provided in
Article V hereof.
Section 10.02 Payment Account.
(a) Not later than one day following the Initial
Closing, the Trustee shall open, and thereafter maintain, one or
more accounts (collectively, "the Payment Account") at the
Corporate Trust Office in the name of the Trustee for the receipt
of all moneys deposited by the Company in accordance with this
Section and payment of interest on and principal of the Bonds to
the Bondholders. The Company shall deposit into the Payment
Account not later than two Business Days prior to a Payment Date,
Special Payment Date, Redemption Date or Stated Maturity, the
Debt Service Amount due and payable by the Company on any such
date.
(b) The Company shall deliver to the Trustee not later
than one Business Day prior to a Payment Date, Special Payment
Date, or Maturity, an Officer's Certificate stating whether, on
such Payment Date, there will be sufficient cash in the Payment
Account to pay the Debt Service Amount and, if not, the amount of
the deficiency.
(c) On each Payment Date, Special Payment Date, or
Redemption Date, and at Maturity, the Paying Agent shall withdraw
from the Payment Account an amount equal to the Debt Service
Amount for payment to the Bondholders as provided in Section
3.07. Within 10 Business Days following each Payment Date on
which a payment of interest or principal is made, the Paying
Agent, if other than the Company, shall remit to the Company any
cash remaining in the Payment Account after such payment. If at
any time the Trustee is not the Paying Agent, then the Trustee
shall cooperate fully with the Paying Agent to permit the
payments called for by this Section 10.02(c).
(e) All or a portion of the Payment Account may be
invested and reinvested in Eligible Investments.
Section 10.03 Sinking Fund Account.
(a) On or before the Sinking Fund Trigger Date, the
Trustee shall establish, and thereafter maintain, one or more
accounts (collectively, the "Sinking Fund Account") at the office
of the Trustee in the name of the Trustee, into which shall be
deposited, upon all Net Sales Proceeds and all Net Cash Flow
received by the Company after the Sinking Fund Trigger Date. All
or any portion of the Sinking Fund Account may be invested or
reinvested in Eligible Investments.
(b) Moneys in the Sinking Fund Account may be used by
the Trustee (i) on the Stated Maturity Date to pay in whole or in
part principal of and interest then due on the Bonds or (ii) in
the discretion of the Company, on any Redemption Date occurring
after the Sinking Fund Trigger Date to redeem all or a part of
the outstanding principal due under the Bonds. Moneys on deposit
in the Sinking Fund Account may not be used except as provided
herein.
Section 10.04 Final Balances. Upon the Stated Maturity
Date and payment by the Company to the Bondholders of all amounts
due and payable as principal of and Interest on the Bonds, or
upon the making of adequate provisions for the payment of such
amounts as permitted hereby, all moneys remaining in all Accounts
in excess of any amounts due to the Trustee in payment of fees
and other amounts due to the Trustee provided for hereunder shall
promptly be remitted to the Company.
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ARTICLE XI
SUPPLEMENTAL INDENTURES
Section 11.01 Supplemental Indentures Without Consent of
Bondholders. Without the consent of any Holders, the Company,
when authorized by a Board Resolution, and the Trustee, at any
time and from time to time, may enter into one or more indentures
supplemental hereto, in form satisfactory to the Trustee, for any
of the following purposes:
(a) To correct or amplify the description of any
property at any time subject to the lien of this Indenture, or
better to assure, convey, and confirm unto the Trustee any
property subject or required to be subjected to the lien of this
Indenture, or to subject to the lien of this Indenture additional
property; or
(b) To add to the conditions, limitations, and
restrictions on the authorized amount, terms, and purposes of
issue, authentication, and delivery of the Bonds, as herein set
forth, additional conditions, limitations, and restrictions
thereafter to be observed; or
(c) To evidence the succession of another Person to
the Company pursuant to Article VIII, and the assumption by any
such successor of the covenants of the Company herein and in the
Bonds contained; or
(d) To add to the covenants of the Company, for the
benefit of the Bondholders, or to surrender any right or power
herein conferred upon the Company; or
(e) To convey, transfer, assign, mortgage, or pledge
any property to or with the Trustee; or
(f) To cure any ambiguity, to correct or supplement any
provision herein or in any supplemental indenture that may be
defective or inconsistent with any other provision herein or in
any supplemental indenture, or to make any other provisions with
respect to matters or questions arising under this Indenture
which shall not be inconsistent with the provisions of this
Indenture; provided that such action shall not adversely affect
the interests of the Bondholders; or
(g) To evidence and provide for the acceptance of
appointment hereunder by a successor Trustee with respect to the
Bonds and to add to or change any of the provisions of this
Indenture as shall be necessary to facilitate the administration
of the trusts hereunder by more than one Trustee, pursuant to the
requirements of Article VI hereof;
(h) To add to any Events of Default; and
(i) To provide for the creation of one or more separate
series of under this Trust Indenture, in connection with the
issuance of additional series of promissory notes, each of which
additional series of notes shall have a separate and distinct
trust estate from that of the Bondholders
Section 11.02 Supplemental Indentures With Consent of
Bondholders. With the consent of the Holders of more than 50% of
the Aggregate Outstanding Amount of the Bonds, by Act of said
Holders delivered to the Company and the Trustee, the Company,
when authorized by a Board Resolution, and the Trustee may enter
into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Bondholders under this
Indenture; provided, however, that no such supplemental indenture
shall, without the consent of the Holder of each Outstanding Bond
affected thereby:
(a) Change the Stated Maturity of the principal of, or
any installment of principal of or interest on, any Bond, or
reduce the principal amount thereof or the Interest Rate thereon
or change any place where, or the coin
39
<PAGE>
or currency in which, any Bond or the interest thereon is
payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Maturity thereof;
or
(b) Reduce the percentage in Aggregate Outstanding
Amount of the Bonds, the consent of the Bondholders of which is
required for the execution of any such supplemental indenture, or
the consent of the Bondholders of which is required for any
waiver of certain Defaults hereunder and their consequences
provided for in this Indenture; or
(c) Impair or adversely affect the Trust Estate
except as otherwise permitted herein; or
(d) Permit the creation of any lien ranking prior to or
on a parity with the lien of this Indenture with respect to any
part of the Trust Estate or terminate the lien of this Indenture
on any property at any time subject hereto or deprive the Holder
of any Bond of the security afforded by the lien of this
Indenture, except as otherwise permitted herein; or
(e) Modify any of the provisions of this Section or
Section 5.15, except to increase the percentage in Aggregate
Outstanding Amount of the Bonds the consent of the Holders of
which is required for the actions specified herein or therein, or
to provide that certain other provisions of this Indenture cannot
be modified or waived without the consent of the Holder of each
Outstanding Bond affected thereby; or
(f) Modify or alter the definitions of the terms
"Outstanding" or "Aggregate Outstanding Amount"; or
(g) Modify any of the provisions of this Indenture in
such a manner as to affect the amount of any payment of interest
or principal due on any Bond on any Payment Date or at the Stated
Maturity.
The Trustee may in its discretion determine whether or
not any Bonds would be affected by any supplemental indenture and
any such determination shall be conclusive upon the Holders of
all Bonds, whether theretofore or thereafter authenticated and
delivered hereunder. The Trustee shall not be liable for any such
determination made in good faith.
It shall not be necessary for any Act of Bondholders
under this Section to approve the particular form of any proposed
supplemental indenture, but it shall be sufficient if such Act
shall approve the substance thereof.
Promptly after the execution by the Company and the
Trustee of any supplemental indenture pursuant to this Section,
the Company shall mail to the Bondholders to which such
supplemental indenture relates, a notice setting forth in general
terms the substance of such supplemental indenture. Any failure
of the Company to mail such notice, or any defect therein, shall
not, however, in any way impair or affect the validity of any
such supplemental indenture.
Section 11.03 Execution of Supplemental Indentures. In
executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the
modifications thereby of the trusts created by this Indenture,
the Trustee shall be entitled to receive, and (subject to Section
6.01) shall be fully protected in relying upon, an Opinion of
Counsel stating that the execution of such supplemental indenture
is authorized or permitted by this Indenture. The Trustee may,
but shall not be obligated to, enter into any such supplemental
indenture which affects the Trustee's own rights, duties, or
immunities under this Indenture or otherwise.
Section 11.04 Effect of Supplemental Indenture. Upon the
execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for
all purposes; and every Holder of Bonds theretofore and
thereafter authenticated and delivered hereunder shall be bound
thereby.
Section 11.05 Reference in Bonds to Supplemental
Indentures. Bonds authenticated and delivered after the execution
of any supplemental indenture pursuant to this Article may, and
if required by the
40
<PAGE>
Trustee shall, bear a notation in form approved by the Trustee as
to any matter provided for in such supplemental indenture. If the
Company shall so determine, new Bonds so modified as to conform,
in the opinion of the Trustee and the Company, to any such
supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in
exchange for Outstanding Bonds.
41
<PAGE>
Section 11.06 Conformity with Trust Indenture Act. Every
supplemental indenture executed pursuant to this Article shall
conform to the requirements of the TIA.
IN WITNESS WHEREOF, the Company and the Trustee have
caused this Amended and Restated Indenture to be duly executed by
their respective officers thereunto duly authorized and their
respective seals, duly attested, to be hereunto affixed, all as
of the day and year first above written.
AEROCENTURY FUND IV, INC.
A California Corporation
By: __________________________
Neal D. Crispin, President
Attest:
By: _________________
_________________, Secretary
FIRST SECURITY BANK, NATIONAL
ASSOCIATION
As Trustee
By: __________________________
Authorized Signatory
Attest:
By: _________________
Its: _________________
42
<PAGE>
STATE OF )
) SS:
COUNTY OF )
On the ____ day of ____________, before me personally
came _______________________, to me known, who being by me duly
sworn, did depose and say that he is President of
__________________________ described in and which executed the
above instrument; that he knows the corporate seal of said
association; that the seal affixed to the said instrument is such
corporate seal, that it was so affixed by authority of the Board
of Directors of said association, and that he signed his name
thereto by authority of the Board of Directors of said
association.
[SEAL] ______________________________
Notary Public
My commission expires:
_________________
STATE OF )
) SS:
COUNTY OF )
On the ____ day of ___________, before me personally
came __________________________, to me known, who being by me
duly sworn, did depose and say that he is
____________________________ of First Security Bank of Utah,
National Association, one of the organizations described in and
which executed the above instrument; and that he signed his name
thereto by authority of the Board of Directors of said
association.
[SEAL] ______________________________
Notary Public
My commission expires:
_________________
43
<PAGE>
EXHIBIT 4.2
FORM OF SECURED NOTE
<PAGE>
[FACE OF THE BOND]
AEROCENTURY FUND IV, INC.
SERIES A SECURED BOND
ISSUE DATE: _________
REGISTERED NO: ______ CUSIP NO. __________
AeroCentury Fund IV, Inc.,a corporation duly organized
and existing under the laws of the State of California (herein
referred to as the "Company"), for value received, hereby
promises to pay to __________________________________, or
registered assigns, the principal sum of
__________________________ DOLLARS ($__________) on the Stated
Maturity (as defined below) and to pay interest on the unpaid
principal balance thereof from the Issue Date set forth above
quarterly (computed on the basis of a 360-day year of twelve
30-day months) on the unpaid principal until such principal is
fully paid or made available for payment, at the Interest Rate
per annum set forth below, such principal and interest being
payable on February 1, May 1, August 1 and November 1 of each
year (or if such date is not a Business Day, then the next
immediate following Business Day), commencing on August 1, 1997,
to the registered holder of this Bond at the close of business on
the corresponding Regular Record Date (as defined on the reverse
hereof). The principal of and interest on this Bond shall be paid
in the manner specified on the reverse hereof.
The principal of and interest on this Bond are payable
in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and
private debts. Any payment of principal or interest that is not
paid when and as due shall bear interest at the Bond Interest
Rate (as defined in the Indenture referred to on the reverse
hereof) from the date due to the date of payment thereof, but
only to the extent payment of such interest shall be lawful and
enforceable.
THE PRINCIPAL OF THIS BOND IS TO BE PAID IN FULL ON THE
STATED MATURITY DATE. THE OUTSTANDING PRINCIPAL BALANCE AT ANY
GIVEN TIME MAY BE OBTAINED BY CONTACTING THE COMPANY OR THE
TRUSTEE.
Reference is made to the further provisions of this Bond
as set forth on the reverse hereof, which shall have the same
effect as though fully set forth on the face of this Bond.
Unless the certificate of authentication hereon has been
executed by the Trustee whose name appears below by manual
signature, this Bond shall not be entitled to any benefit under
the Indenture referred to on the reverse hereof, or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, __________________________ has
caused this instrument to be signed by its President or a Vice
President and a facsimile of its corporate seal to be imprinted
hereon, and attested by a Secretary or any Assistant Secretary.
Dated:
[SEAL] AEROCENTURY FUND IV, INC.
Attest: By:______________________
[Vice] President
By:_______________________
[Assistant] Secretary
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Bonds
designated herein referred
to in the within-mentioned Indenture.
FIRST SECURITY BANK
NATIONAL ASSOCIATION,
as Trustee
By:______________________
Authorized Signatory
[FORM OF THE REVERSE OF THE BONDS]
This Bond is one of a duly authorized issue of JetFleet
III Series A Secured Bonds (the "Bonds") of the Company, to be
issued under an Indenture of Trust dated as of February ___, 1997
(herein called the "Indenture"), between the Company and First
Security Bank of Utah, National Association, as trustee (the
"Trustee") and reference is hereby made to the Indenture and all
indentures supplemental thereto for a statement of the respective
rights thereunder of the Company, the Trustee, and the
Bondholders and the terms upon which the Bonds are, and are to
be, authenticated and delivered. The Bonds may bear different
dates, but will all mature on the same date (the "Stated Maturity
Date"), which shall be April 30, 2005, unless such date is
extended to a date not more than six months later by the Company,
as provided in the Indenture. All terms used in this Bond that
are defined in the Indenture shall have the meanings assigned to
them in the Indenture.
As provided in the Indenture, the Bonds are general
obligations of the Company and are secured by the Trust Estate.
All outstanding principal on this Bond shall be due and
payable on the Stated Maturity Date. Until the entire principal
amount hereof has been paid or made available for payment,
commencing on the date of issue, unpaid principal will bear
interest. Until the maturity date, interest shall be calculated
quarterly, at a rate of 10% simple interest per annum.
Payment of the unpaid principal amount of this Bond at
the Stated Maturity shall be made upon presentment and surrender
of this Bond to the Trustee at its Corporate Trust Office.
Payments of interest on this Bond due and payable on each Payment
Date shall be made by check mailed to the Person whose name
appears as the registered Holder of this Bond (or one or more
Predecessor Bonds) in the Bond Register as of the close of
business on the fifteenth day of the month immediately preceding
each Payment Date, whether or not a Business Day (the "Regular
Record Date"). Such checks shall be mailed to the Person entitled
thereto at the address of such Person as it appears on the Bond
Register as of the applicable Regular Record Date, unless a
different address is specified by the Bondholder for receipt of
such checks.
If an Event of Default (as defined in the Indenture)
shall occur and be continuing with respect to the Bonds, the
Bonds may be declared due and payable in the manner and with the
effect and subject to the conditions provided in the Indenture.
As provided in the Indenture and subject to certain
limitations therein and herein set forth, the transfer of this
Bond may be registered on the Bond Register of the Company, upon
surrender of this Bond for registration of transfer at the office
or agency designated by the Company pursuant to the Indenture,
duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Bond
Registrar duly executed by, the Holder hereof or his attorney
duly authorized in writing, with such signature guaranteed by a
national bank or a commercial bank or by a member firm of the New
York Stock Exchange or the American Stock Exchange, and upon
presentation of such other documents as the Company or the Bond
Registrar may reasonably require, and thereupon one or more new
Bonds having the same Interest Rate and Stated Maturity as this
Bond, of authorized denominations and in the same aggregate
principal amount, will be issued to the designated transferee or
transferees.
Prior to due presentment for registration of transfer of
this Bond, the Company, the Trustee, and any agent of the Company
or the Trustee may conclusively treat the Person in whose name
this Bond is registered as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes,
whether or not this Bond be overdue, and neither the Company, the
Trustee, nor any such agent shall be affected by notice to the
contrary.
Subject to certain exceptions, the Indenture permits the
Company and the Trustee to enter into one or more supplemental
indentures, with the consent of the Holders of more than 50% of
the Aggregate Outstanding Amount for the purpose of adding any
provisions to or changing in any manner or eliminating any of the
provisions of the Indenture or of modifying in any manner the
rights of the Bondholders. The Indenture also permits the Holders
of Bonds representing more than 50% of the outstanding principal
amount of the Bonds, on behalf of the Holders of all Bonds of
such Series, to waive certain past defaults under the Indenture
and their consequences, except defaults in the payment of
principal of or interest on any Bond or in respect of a covenant
or provision of the Indenture that cannot be modified or amended
without the consent of all the Bondholders. Any such consent or
waiver by the Holder of this Bond (or any one or more Predecessor
Bonds) shall be conclusive and binding upon such Holder and upon
all future Holders of this Bond and of any Bond issued upon
registration of transfer hereof or in exchange herefor or in lieu
hereof, whether or not notation of such consent or waiver is made
upon this Bond.
The term "Company" as used in this Bond includes any
successor to the Company under the Indenture.
The Bonds are issuable only in registered form without
coupons and only in denominations of $1,000 and integral
multiples thereof. As provided in the Indenture and subject to
certain limitations therein set forth, this Bond is exchangeable
for a like aggregate principal amount of Bonds having the same
Interest Rate and Stated Maturity as this Bond, of different
authorized denominations, as requested by the Holder surrendering
same.
This Bond and the Indenture shall be construed in
accordance with, and governed by, the laws of the State of
California applicable to agreements made and to be performed
therein.
The Bonds are not redeemable at the option of the
Holders. The Company, at its option, may repay to all Bondholders
on a pro-rata basis, based on outstanding principal, all or a
portion of the outstanding principal of ("redeem") Bonds at any
time after April 30, 2000.
In any case where the date of any Payment Date, Special
Payment Date, Redemption Date or Maturity shall not be a Business
Day, then payment need not be made on such date, but may be made
on the next succeeding Business Day with the same force and
effect as if made on the nominal date of any such Payment Date,
Special Payment Date, Redemption Date or Maturity, as the case
may be, and no additional interest shall accrue for any period as
a result of payment being made on such next succeeding Business
Day.
No reference herein to the Indenture and no provision of
this Bond or of the Indenture shall alter or impair the
obligation of the Company, which is absolute and unconditional,
to pay the principal of and interest on this Bond at the times,
place, and rate, and in the coin or currency, herein prescribed.
[FORM OF ASSIGNMENT]
FOR VALUE RECEIVED, the undersigned hereby sells,
assigns, and transfers unto
(Please insert Social Security or other United States
tax identifying number of assignee)
the within Bond of __________________________ standing in the
name(s) of the undersigned in the Bond Register of the Company
with respect to such Bond and does hereby irrevocably constitute
and appoint ______________________________ Attorney to transfer
such Bond in such Bond Register, with full power of substitution
in the premises.
Dated: ___________________
Signature
___________________
Signature
NOTICE: The signature(s) to this Assignment must correspond with
the name(s) as written upon the face of this Bond in every
particular without alteration or any change whatsoever. The
signature(s) must be guaranteed by a national bank or a
commercial bank, or by a member firm of the New York Stock
Exchange or the American Stock Exchange. Notarized or witnessed
signatures are not acceptable as guaranteed signatures.
Signature Guarantee:
By: __________________
Authorized Officer
Name of Institution
[END OF FORM OF THE BONDS]
EXHIBIT 5.1
Opinion of Steven C. Ryan & Associates
regarding legality of issue of Secured Notes
<PAGE>
[LETTERHEAD OF STEPHEN C. RYAN & ASSOCIATES]
February 21, 1997
AEROCENTURY FUND IV, INC.
1440 Chapin Avenue, Suite 310
Burlingame, California 94010
Re: Aerocentury Fund IV, Inc.
Securities Opinion;
Our File No. CMA01-019
Gentlemen:
We have acted as special counsel for Aerocentury Fund
IV, Inc., a California corporation formed pursuant to the
California General Corporation Law (the "Company"), in connection
with the public offering of up to $10,000,000 of Secured
Promissory Notes (the "Notes"), at $1,000 per Note, as described
more fully in the Registration Statement and Prospectus of
Aerocentury Fund IV, as filed on Form SB-2. We have not
represented the Noteholders or any other party regarding the
preparation of this opinion or the offering of Notes.
We have been requested by the Company to furnish our
opinion as to the legality of Notes being offered by the Company.
In connection therewith, we have examined (i) the Prospectus;
(ii) the Articles of Incorporation of the Company; (iii) the
Certificate of Amendment to the Articles of Incorporation; (iv)
the Bylaws of the Company; (v) minutes of applicable meeting of
the shareholders and Board of Directors of the Company; and (vi)
such other documents and instruments as we have deemed necessary
or appropriate for the purposes of this opinion. We have also
conducted various meeting, discussions and conversations with the
Management of the Company regarding the offer and sale of the
Notes. Nothing has come to our attention in the representation of
the Company that would make it unreasonable to assume that the
foregoing documents will be utilized in the manner intended as
set forth in those documents. However, we have not independently
verified any of the facts or representations contained in such
documents.
In our examination, we have assumed the authenticity of
the original documents, the conformity to the originals of all
documents purporting to be copies thereof, the accuracy of the
copies and genuineness and due authority of all signatures. We
have relied upon the representations and statements of the
Management (without making any independent investigation of the
facts) with respect to the factual determinations underlying the
legal conclusions set forth herein. We have not attempted to
verify independently such representations and statements.
1
<PAGE>
In rendering this Opinion, we have assumed that: (i)
each other party that has executed or will execute a document,
instrument or agreement to which the Company is a party duly and
validly executed and delivered each document, instrument or
agreement to which such party is a signatory and that such
party's obligations set forth therein are its legal, valid and
binding obligations, enforceable in accordance with their
respective terms; (ii) each person executing any document,
instrument or agreement on behalf of any such party is duly
authorized to do so; and (iii) each natural person executing any
instrument, document or agreement referred to herein is legally
competent to do so.
We are members of the Bar of the State of California and
do not purport to be conversant with the laws of jurisdictions
other than California and the United States of America.
Accordingly, we do not express any opinion as to the effect on
the transactions described herein of the laws of any state or
jurisdiction other than the federal laws of the United States of
America and the laws of the State of California.
Based upon the foregoing, we are of the opinion that:
1. The Company as described in the Prospectus, has
been duly formed and is a validly existing corporation under the
laws of the State of California.
2. All necessary corporate actions on behalf of the
Company have been taken to authorize (i) the execution and
delivery of the Indenture of Trust dated as of _______________,
1997 (the "Indenture") between the Company and First Security
Bank, National Association, a national bank organized and
existing under the laws of the United States of America, relating
to the Notes; and (ii) for the issuance of the Notes in
accordance with the provisions of the Indenture and for the
consideration set forth in the Prospectus. Upon issuance of the
Notes in accordance with the provisions of the Indenture and for
the consideration set forth in the Prospectus, and subject to
compliance with any state securities laws and any other
governmental approvals, the Notes will be validly issued and
legally binding obligations of the Company and will be entitled
to the benefits of the Indenture.
The opinions expressed herein have been carefully
considered and reflect what we regard as the likely manner in
which the Notes in the Company will be issued based upon the
statutory provisions, regulations promulgated thereunder, and
interpretations thereof by the Commission and the courts having
jurisdiction over such matters as of the date of this opinion.
However, a number of questions raised by the matters on which we
have not expressed an opinion herein have not been definitely
answered by statute, regulations, Commission interpretations or
court decisions. We assume no obligation to revise or supplement
this Opinion Letter should applicable law be changed by
legislative, judicial or administrative action or otherwise.
Except as set forth herein, we have made no independent
attempts to verify the facts or representations or assumptions
made herein except to the extent we deem reasonable under ABA
Formal Opinion 335 and in connection with our position as counsel
to the issuer. Where we render an opinion "to the best of our
knowledge" or concerning an item that "has come to our attention"
or our opinion otherwise refers to knowledge it means a conscious
awareness of facts or other information based upon: (i) an
inquiry of attorneys within this firm; (ii) receipt of a
certificate executed by the Management covering such matters or
(iii) such other actual investigation, if any, that we
specifically set forth herein, Reference to "us" or "our" is
limited to a reference to the lawyer who signs this Opinion
Letter or any lawyer of this firm who has been active in
preparing the relevant documents. Any inaccuracy in any fact or
representation by the Management or any amendment to any
documents or any materials cited herein,
2
<PAGE>
or any changes in the affairs of the Company or Management after
the date of this opinion may affect all or part of this opinion.
Except as expressly set forth below, this opinion may
not be filed with or furnished to any other person or any
governmental agency, and may not be quoted in whole or in part or
otherwise referred to in any context, without, in each instance,
our prior written consent, and without in each instance, the
exercise of due diligence on the part of the Company and the
Management to verify that there are no material errors or
omissions of fact and no changes in the facts or in the text of
the materials provided to us.
We hereby consent to the inclusion of this Opinion in
the Registration Statement as an exhibit thereto and to any
reference to our firm included or made a part thereof.
Very truly yours,
/s/ STEPHEN C. RYAN & ASSOCIATES
STEPHEN C. RYAN & ASSOCIATES
3
EXHIBIT 8.1
Tax Opinion of Steven C. Ryan & Associates
<PAGE>
February 21, 1997
AEROCENTURY FUND IV, INC.
1440 Chapin Avenue, Suite 310
Burlingame, California 94010
Re: AEROCENTURY FUND IV, INC.
Our File No. CMA01-019
Gentlemen:
You have requested our opinion as to certain federal
income tax questions involved in the operation of the referenced
corporation (the "Company") for use in connection with the
offering of Notes of the Company ("Notes"), pursuant to the
Prospectus dated February 21, 1997 (the "Prospectus").
This opinion is based upon the provisions of the
Internal Revenue Code of 1986 (the "Code"), as amended, the
applicable Treasury Regulations promulgated thereunder (the
"Regulations") and proposed Treasury Regulations (the "Proposed
Treasury Regulations"), current administrative rulings and
judicial interpretations of the foregoing, all existing as of the
date of this letter. It must be emphasized, however, that all
such authority is subject to modification at any time by
legislative, judicial and/or administrative action and that any
such modification could be applied on a retroactive basis. Future
tax reform proposals including pending tax bills may have a
material adverse effect upon the potential tax benefits which may
be expected to be realized by operation of the Company. Even
under current law, the tax treatment of the Notes and the Company
involve complex legal and factual issues and will depend upon
certain factual determinations, characterizations, expenditures
and other matters, all or any of which may be subject to
challenge and possible disallowance by the Internal Revenue
Service (the "Service") upon an audit of the return of the
Company.
In rendering this opinion, we have considered the
relevant professional standards. Generally speaking, counsel must
consider the material tax issues in light of the facts and must
fully and fairly address such issues. These relevant guidelines
generally provide that we may rely upon the Company's statement
of facts, and we have no responsibility to audit or independently
verify those asserted facts, or assume that the Company's
statement of facts cannot be relied upon, unless we have reason
to believe that the relevant facts asserted by the Company are
untrue, suspect or inconsistent in any material respect either on
their face or on the basis of other known facts. In rendering
this opinion we have relied upon the representations of the
Company and those persons retained by the Company including
consultants and accountants, whose opinions and representations,
we have been instructed by the Company to rely on. We have also
conducted various meetings, discussions and conversations with
the Management of the Company regarding the Company. We have not
independently
-1-
<PAGE>
audited or verified those representations and we have assumed
that those representations of fact can be relied upon. Nothing
has come to our attention in our representation of the Company
that would make it unreasonable in our judgment to assume that
these representations are untrue or cannot be relied upon.
We have reviewed the following documents in connection
with our Opinion:
(i) Registration Statement as filed with the
Securities and Exchange Commission on February 21, 1997 and all
exhibits thereto including without limitation, the Prospectus,
the Articles of Incorporation and the amendments thereto and
Bylaws of the Company and the Trust Indenture covering the Notes
(the "Trust Indenture").
(ii) The Minutes of the Board of Directors
of the Company.
As to matters of fact, we have relied upon certificates
of the Company's management, public officials or other persons
and other documents and have assumed the genuineness of all
signatures, the authenticity of all documents purporting to be
originals, and the conformity to the originals of all documents
purporting to be copies thereof.
In rendering this Opinion, we have assumed that: (1)
each other party that has executed or will execute a document,
instrument or agreement to which the Company is a party duly and
validly executed and delivered each document, instrument or
agreement to which such party is a signatory and that such
party's obligations set forth herein are its legal, valid and
binding obligations, enforceable in accordance with their
respective terms; (2) each person executing and document,
instrument or agreement on behalf of any such party is duly
authorized to do so; and (3) each natural person executing any
instrument, document or agreement referred to herein is legally
competent to do so.
Further, we have assumed that: (1) the Company will be
organized and operated in accordance with the California
Corporation's Code, as adopted by and in effect in the State of
California; (2) the Notes will be issued in accordance with the
Trust Indenture, and the Notes will have the characteristics
described in the Prospectus; (3) the factual matters and
representations described in the Prospectus are true and
complete; (4) there are no agreements or understanding among the
parties referred to or described in the Prospectus, written or
oral, and there is no usage of trade or course of prior dealings
among the parties referred to or described in the Prospectus that
would, in either case, define, supplement or qualify the
statements contained in the Prospectus. The Income Producing
Assets will generate a yield, and will maintain a residual value,
sufficient to timely service and retire the Notes; and (5) the
Company will not in the future take any discretionary action
(including the decision not to act), under the Trust Indenture,
that would result in the violation of the law or constitute
breach or default under the Trust Indenture or any other
agreement or conflict with any of the descriptions set forth in
the Prospectus.
The Company will not request a ruling from the Service
as to any tax matters related to the herein described
transactions. While the Company will receive this opinion as to
certain tax matters, it is not binding upon the Service. Thus,
there can be no assurance that the Service will not contest one
or more of the conclusions reached herein, or one or more tax
matters as to which no opinion is expressed herein, nor can there
be any assurance that the Service will not prevail in any such
contest. Further, even if the Service was not successful in any
such contest, the Company, in opposing the Service's position,
could incur substantial legal, accounting and other expenses.
-2-
<PAGE>
OPINION
Based upon and subject to the foregoing, please be
advised that the sections of the Prospectus which discuss the
material tax risks and the sections of the Prospectus entitled
"Certain Federal Income Tax Considerations" accurately reflect
our opinion as to each of those matters set forth therein (to the
extent any opinion is attributed to us). In addition, we are of
the opinion that, subject to the assumptions, limitations,
conditions and representations set forth in the Prospectus, the
Registration Statement fairly and completely addresses the
material tax aspects associated with an investment in the Notes.
As more fully set forth in the Prospectus, no opinion is
expressed as to a number of tax aspects since such matters are
dependent upon future factual circumstances which cannot be
resolved or projected at this time.
SCOPE OF OPINION
The current state of the law with respect to many issues
which might be raised in connection with the activities described
herein is unsettled. Several of the relevant statutory provisions
discussed above have been enacted only recently; few Regulations
have been proposed or promulgated under these provisions, and
there is little or no judicial interpretation of these
provisions. Therefore, the tax consequences to the Company cannot
be predicted with a high degree of assurance. Further, although
the transactions contemplated by the Prospectus are prospective
in nature, we are not assuming an obligation to revise or
supplement this Opinion Letter for any reason.
There is no assurance that the Service will not raise
issues that have not been discussed herein. The Service may
disagree with our conclusions and may be upheld by a court. The
Service has indicated that it will closely scrutinize activities
such as those in which the Company will be engaged, and there is
a very substantial possibility that the Service will examine the
Company's activities and take positions adverse to the Company.
Except as set forth herein, we have made no independent
attempts to verify the facts or representations or assumptions
made herein except to the extent we deem reasonable under
applicable rules of professional conduct and in connection with
our position as counsel to the Company. Where we render an
opinion "to the best of our knowledge" or concerning an item that
"has come to our attention" or our opinion otherwise refers to
knowledge it means a conscious awareness of facts or other
information based upon: (1) an inquiry of attorneys within this
firm; (2) receipt of a certificate executed by the Company
covering such matters; or (3) such other actual investigation, if
any, that we specifically set forth herein, Reference to "us" or
"our" is limited to a reference to the lawyer who signs this
Opinion letter or any lawyer of this firm who has been actively
involved in preparing the Registration Statement.
The opinions expressed in this letter are based solely
upon the information and representations set forth above and we
have not attempted, nor deemed it necessary, to verify
independently the relevant or pertinent facts or representations.
If there have been any misstatements of a fact or omissions of
any material facts, or any amendment or change in any document
referred to herein, please notify us, since any misstatement,
omission or change may affect all or part of this letter.
This firm consents to the filing of this Opinion as an
Exhibit to the Registration Statement and to the reference to
this firm contained in the Registration Statement. In giving such
consent, we do not concede that
-3-
<PAGE>
we come within the category of persons whose consent is required
by Section 7 of the Securities Act of 1933, as amended, or the
rules or regulations promulgated thereunder.
No opinion is expressed with respect to federal or state
securities laws, state and local taxes, and federal income tax
issues other than those discussed herein, or any other federal or
state laws not explicitly referred to or discussed herein.
Very truly yours,
/s/ Stephen C. Ryan & Associates
STEPHEN C. RYAN & ASSOCIATES
-4-
EXHIBIT 10.1
Form of Management Agreement
<PAGE>
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT, dated as _____, 1997, is
entered by and among AEROCENTURY FUND IV, INC., a California
corporation (the "Company"), and JETFLEET MANAGEMENT CORP., a
California corporation (the "Management Company").
WITNESSETH
WHEREAS, the Company will be engaged in the business of
acquiring income producing assets, consisting primarily of
aircraft equipment on lease to third party users;
WHEREAS, the Company desires to hire the Management
Company to perform management services for the Company.
NOW THEREFORE, in consideration of the mutual covenants
contained herein, and other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the parties
hereto agree as follows.
ARTICLE 1
DELEGATION TO THE MANAGEMENT COMPANY
1.1 Powers, Rights and Obligations of the Management
Company. The Management Company shall conduct all aspects of the
business affairs of the Company including, without limitation,
management of; (i) organization of the Company, and public
offering the ("Offering") of its 10% Secured Promissory Notes as
described in that certain Prospectus (the "Prospectus") and
registration of such offering under applicable federal and state
securities laws; (ii) the identification and selection of income
producing assets ("Assets") for acquisition by the Company with
the proceeds of the Offering; (iii) administration of the leases
for such Assets; (iv) management of remarketing and resale of the
Assets; (v) payment of the holder's Secured Bonds of the Company;
and (vi) general administrative and day-to-day operations of the
Company. The Management shall devote such time as may be
necessary for the proper performance of its duties and shall use
its best efforts to carry out the purposes of the Company and
shall manage the affairs of the Company to the best of its
abilities. The Company agrees and acknowledges that the
Management Company may, in the future, act as management company
for other investment entities sponsored by the Management
Company, which entities may engage in the same line of business
as the Company.
1.2 Identification. The Company shall indemnify and hold
the Management Company, its directions, officers, shareholders,
employees and agents harmless from and against any and all
liability, demands, claims, actions, losses, interest, cost of
defense, and expenses (including reasonable attorney's fees)
which arise out of or in connection with the acceptance or
appointment as management company and the performance of its
duties hereunder except such acts or omissions as may result from
the willful misconduct or gross negligence of the Management
Company. Promptly after receipt by the Management Company of
notice of any demand or claim or the commencement of any action,
suit or proceeding relating to this Management Agreement, the
Management Company shall notify the Company in writing. IT IS
EXPRESSLY THE INTENT OF THE COMPANY TO INDEMNIFY THE MANAGEMENT
COMPANY, AND ITS DIRECTORS, OFFICERS, SHAREHOLDERS AND EMPLOYEES
AND AGENTS FROM ERRORS IN JUDGEMENT OR OTHER ACTS OR OMISSIONS
NOT AMOUNTING TO WILFUL MISCONDUCT OR GROSS NEGLIGENCE.
<PAGE>
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE MANAGEMENT COMPANY
2.1 The Management Company hereby makes the following
representations andwarranties on which the company has relied in
making the delegation set forth in Section 1.1:
(a) Organization. The Management Company is a
California corporation duly organized, validly existing and in a
good standing under the laws of the States of California and is
duly qualified as a foreign corporation in each jurisdiction in
which the nature of its business makes such qualification
necessary.
(b) Authorization. The Management Company has all
requisite power andauthority to execute, deliver and perform this
Agreement, and the execution, delivery and performance of this
Agreement have been duly authorized by all necessary action on
the part of the Management Company.
(c) Binding Obligation. The Agreement constitutes
a legal, valid and binding obligation of the Management Company,
enforceable against the Management Company in accordance with its
terms.
(d) No Violations. The execution, delivery and
performance by the Management Company of this Agreement does not
(i) violate any provision of the corporate charter or by-laws of
the Management Company, (ii) violate any statue or regulation or
any order, writ, judgment or decree of any court, arbitrator or
governmental authority applicable to the Management Company or
any of its assets, or (iii) violate or constitute, with or
without notice or lapse of time, a default under, or result in
the creation or imposition of any lien on the assets of the
Management Company pursuant to the provisions of, any mortgage,
indenture, contract, agreement or other undertaking to which the
Management Company is a party.
ARTICLE 3
AGENTS; CHANGES IN THE MANAGEMENT COMPANY; COMPENSATION
3.1 Agents.
(a) The Management Company amy delegate any or all
of the powers, rights and obligations under this Agreement and
may appoint, employ, contract or otherwise deal with any person
or entity (each, an "Agent") in respect of the conduct of the
business and affairs of the Company. Without limitation, the
Management Company may assign to any such Agent the right to
receive any fee or reimbursement of expenses as the Management
Company would be entitled to receive under this Agreement.
(b) The Management Company shall supervise the
activities of its Agents, and notwithstanding the designation of
or delegation to any Agent, the Management Company shall remain
obligated to the Company for the proper performance of the
obligations of its obligations as Management Company; provided,
however, that the Management Company may enter into any agreement
for indemnification pursuant to which an Agent may indemnify and
hold harmless the Management Company from any liability to the
Company arising by reason of the act or omission of such Agent.
3.2 Removal or Withdrawal of the Management Company. The
Management Company shall serve at the pleasure of the Company's
Board of Directors and, by resolution of the Board of Directors,
may be removed, and this Agreement terminated, upon 90 days prior
notice, at any time. The Management Company may withdraw as
management company upon 90 days prior notice, at any time, upon
which withdrawal this Agreement shall terminate; provided,
however that
<PAGE>
such withdrawal and termination shall not take effect until the
Company has selected a substitute management company to take over
the responsibilities of the Management Company.
3.3 Effect of Removal. In the event of the Bankruptcy,
dissolution, withdrawal or removal of a Management Company, such
Management Company shall cease to participate in the conduct of
the business affairs of the Company. If the termination of the
Management Company takes effect on a day other than the end of a
calendar quarter, quarterly management fees shall be prorated
based on the number of days that the Management Company served as
management company during such calendar until termination.
3.4 Successor by Merger or Acquisition of Business. Any
entity resulting from any merger or consolidation to which the
Management Company shall be a party or succeeding to the business
of the Management Company will be the successor to the Management
Company hereunder without the execution or filing of any paper or
any further act on the part of any the parties hereto. The
Management Company shall provide prompt written notice of any
such event to the Company.
3.5 Compensation. As full and exclusive compensation for
all duties assumed and services provided hereunder, the
Management Company shall entitled to receive (subject to Section
3.1 hereof) a management fee payable quarterly on the last day of
each calendar quarter to 0.5% of the Aggregate Gross Offering
Proceeds (as defined in the Prospectus for the Offering) received
by the Company since inception up through the last day of such
calendar quarter. In addition, the Management Company shall
receive reimbursement of expenses incurred by JMC in connection
with the administration and management of the Company.
ARTICLE 4
MISCELLANEOUS PROVISIONS
4.1 Applicable Law. This Agreement shall by governed by
and construed and enforced in accordance with the internal laws
of the State of California without regard to principles of
conflicts of law.
4.2 Counterparts. This Agreement may be executed in
several counterparts, all of which together shall constitute one
agreement binding on all parties hereto, notwithstanding that all
the parties have not signed the same counterpart.
4.3 Separability of Provisions. If any provision of this
Agreement is determined by a court of competent jurisdiction to
be unenforceable, such provision shall be automatically reformed
and construed so as to be valid and enforceable to the maximum
extent permitted by law while most nearly preserving its original
intent. The invalidity of all or any part of this Agreement shall
not render invalid the remainder of this Agreement.
4.4 Captions. Article and Section titles and any table of
contents are for convenience of reference only and shall not
control or alter the meaning of this Agreement as set forth in
this text.
4.5 No Benefit to Third Parties. The provisions of this
Agreement shall not be construed for the benefit of or
enforceable by a Person not a party hereto.
4.6 Successors and Assigns. The covenants and agreements
contained herein shall be binding upon, and inure to the benefit
of, the successors and permitted assigns of the respective
parties hereto.
4.7 Amendments. This Agreement may only be amended in
writing executed by the
<PAGE>
parties hereto.
4.8 Conflicts. In the event a conflict exists or arises
between this Agreement and the Prospectus, the terms and
provisions of the Prospectus shall control.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first above written.
THE COMPANY:
AEROCENTURY FUND IV, INC.
a California corporation
By:_____________________________
Neal D. Crispin, President
MANAGEMENT COMPANY:
JETFLEET MANAGEMENT CORP.,
a California corporation
By:_____________________________
Name:
Title:
EXHIBIT 10.2
Form of Sales Agency Agreement
<PAGE>
AEROCENTURY FUND IV, INC.
A California Corporation
SALES AGENCY AGREEMENT
________________, 1997
Crispin Koehler Securities
1440 Chapin Avenue, Suite 310
Burlingame, California 94010
Dear Sirs:
The undersigned, AeroCentury Fund IV, Inc. ("ACF") hereby
confirm their agreement with Crispin Koehler Securities ("you" or
the "Sales Agent") as follows:
1. Introduction. This Agreement sets forth the
understandings and agreements among ACF and you, whereby, subject
to the terms and conditions herein contained, you will offer to
sell, on a best efforts basis, and ACF will sell, up to
$10,000,000 of 10% Secured Promissory Notes, each with a
principal amount of $1,000 (the "Note"), as provided in Section
3.1 hereof. Capitalized terms not otherwise defined in this
Agreement shall have the meanings set forth in the Prospectus (as
defined in Section 2.1 (a).
2. Representations and Warranties of ACF.
2.1 ACF represents and warrants to you that:
(a) Registration Statement. ACF has filed with the Securities and
Exchange Commission (the "Commission") a registration statement
on Form SB-2 (File No. 33-_______), including a related
prospectus, for the registration of the ACF under the Securities
Act of 1933, as amended (the "Securities Act"), and will file
such amendments of such registration statement and such amended
or supplemented prospectuses as may be required. Such
registration statement, as amended, and the prospectus on file
with the Commission at the time such registration statement
becomes effective (including financial statements and schedules,
exhibits and all other documents filed as a part thereof or
incorporated therein) are herein referred to, respectively, as
the "Registration Statement" and the "Prospectus," except that,
if the Registration Statement is amended by post-effective
amendment, from and after the date of effectiveness of such
post-effective amendment, the term "Registration Statement" shall
refer to the Registration Statement as so amended, and if the
Prospectus filed on behalf of ACF pursuant to Rule 424 of the
Rules and Regulations of the Commission (collectively, the
"Regulations") under the Securities Act shall differ from the
Prospectus on file at the time the Registration Statement shall
become effective, or if the Prospectus is thereafter amended or
supplemented pursuant to Rule 424 of the Regulations, the term
"Prospectus" shall refer to the Prospectus filed pursuant to Rule
424 of the Regulations from and after the date on which it shall
have been so filed or mailed to the Commission for filing.
(b) Organization: Qualification of ACF. ACF
is duly organized and validly existing as a corporation under the
laws of the state of California, with full power and authority to
acquire, own, lease and manage the assets referred to in the
Registration Statement and
1
<PAGE>
the Prospectus as assets to be acquired by ACF, including
interests in joint ventures to acquire assets in which ACF is a
participant (collectively, the "Assets"), and to conduct the
business in which ACF is engaged as described in the Prospectus.
(c) Validity of Units. The Notes, when issued,
sold, delivered and paid for in accordance with the terms and
conditions of the Prospectus, will be duly and validly issued,
fully paid and free of any liens or encumbrances.
(d) Compliance with Securities Act. At the time
the Registration Statement is declared effective by the
Commission (the "Effective Date") and during the period (the
"Offering Period") from the Effective Date to the Termination
Date (as hereinafter defined), the Registration Statement and the
Prospectus and any written materials used in connection with the
offering and sale of the Units, which materials will be approved
prior to use by an executive officer of ACF and the Sales Agent
(collectively, the "Sales Materials"), will contain all
statements which are required to be stated therein in accordance
with the Securities Act and the Regulations, will comply in all
material respects with the provisions of the Securities Act and
the Regulations and will not contain any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading; provided, however, that the representations and
warranties in this Section 2.1 (d) shall not apply to statements
in or omissions from the Registration Statement, with information
in the Prospectus or the Sales Materials made in reliance upon or
in conformity with information furnished to ACF in writing by you
expressly for use in the Registration Statement, the Prospectus
or the Sales Materials. Every contract or other document,
including, without limitation, the Sales Materials, required by
the Securities Act or the Regulations to be filed as an exhibit
to the Registration Statement has been so filed.
(e) Litigation. There is not pending or, to ACF's
knowledge, threatened or contemplated any action, suit or
proceeding before or by any court or any federal, state or local
governmental authority or agency to which ACF is or may be a
party, or to which any of the Assets or any other property owned
by ACF are or may be subject which is not referred to in the
Prospectus and which will result in any material adverse change
in the business or condition (financial or otherwise), of ACF or
will materially and adversely affect any of the Assets or any
other property of ACF.
(f) Description of ACF. The condition (financial
or otherwise) of ACF, the business of ACF, and the contracts,
options, rights or other commitments, if any, for the lease or
purchase of Assets entered into by or on behalf of ACF
(collectively, the "Asset Agreements") conform in all material
respects to the descriptions thereof contained in the
Registration Statement and the Prospectus.
(g) Changes, Etc. Since the respective dates as of
which information is given in the Registration Statement and the
Prospectus, except as may otherwise be stated in or contemplated
by the Registration Statement and the Prospectus: (a) there has
not been any material adverse change in the condition (financial
or otherwise) of ACF, any of the Assets or any other property of
ACF or in the earnings, affairs of business of ACF, any of the
Assets or any other property of ACF, whether or not arising in
the ordinary course of business; (b) there has not been any
transaction entered into by ACF, whether or not relating to any
of the Assets or any other property of ACF, other than in the
ordinary course of business; (c) there has not been any increase
in indebtedness or borrowings of ACF or any change in the capital
contributions to ACF; and (d) ACF has not issued or sold any
limited or general partnership interest or any right or option to
acquire any such interest.
2
<PAGE>
(h) Receipt of Commissions and Fees. Neither ACF
nor any Affiliate of ACF has received or is entitled to receive,
directly or indirectly, any compensation or other benefit,
including, but not limited to, any commission, finder's fee,
acquisition fee, selection fee, nonrecurring management fee or
other fee relating to the investments of ACF, except as described
in the Prospectus. For the purposes of this Agreement, the term
"Affiliate" means, when used with reference to a specified
person, (a) any person directly or indirectly controlling,
controlled by or under common control with such person, (b) any
person owning or controlling 10% or more of the outstanding
voting securities of such person, (c), any officer, director or
partner of such person, and (d) if any such person is an officer,
director or partner, any company for which such person acts in
any such capacity.
(i) Payment of Commissions and Fees. Neither ACF
nor any Affiliate of ACF has paid or awarded, nor will ACF, or
any Affiliate of ACF pay or award, directly or indirectly, any
commission or other compensation to any person engaged to render
investment advice to a potential purchaser of Units as an
inducement to advise the purchase of Units, except as such
commissions or other compensation may be paid or awarded by you
in connection with the offer and sale of the Units as described
in the Prospectus.
(j) Government Consents. No authorization,
approval or consent of any court or federal, state or local
governmental authority or agency is necessary in connection with
the execution and delivery of this Agreement, the consummation of
the transactions contemplated hereby or by the Prospectus or the
issuance and sale of the Units, except such as may be required
under the Securities Act or the "blue sky" or securities laws of
the jurisdictions referred to in Section 4.3 hereof, each of
which (i) has been obtained or applied for, or (ii) will be
obtained prior to the time when such authorization, approval or
consent is required by applicable law or regulations, or (iii) if
not obtained, will not result in a material adverse effect on
ACF, the Sales Agent or the offer and sale of Notes.
(k) Title to Aircraft. At such time as ACF
acquires ownership of an Asset, to the extent of its interest
therein, will be the beneficial owner, of good and marketable
title to each of the Assets purportedly owned by it and will have
legal and beneficial ownership, respectively, as described in the
Prospectus, subject to no mortgage, lien, charge or encumbrance
other than (a) the lien of the Noteholders and others as stated
in the Prospectus, (b) defects or encumbrances customarily found
in the case of assets or like size and character and which do not
impair the operation, development, use or sale of the particular
Asset by ACF as contemplated by the Prospectus, or (c) leases of
the Asset to users. Except as stated in the Prospectus, ACF will
possess, when required, all licenses, permits and approvals,
consents and orders of all federal, state and local governmental
agencies and authorities required for the acquisition, ownership
and leasing of the Assets acquired by ACF.
3. Sale of Units.
3.1 Agency. ACF hereby appoints you as its agent
to offer for sale, and hereby agrees to sell, up to 10,000 Notes,
each with a principal amount of $1,000, and, on the basis of the
representations and warranties herein contained (but subject to
the terms and conditions herein set forth), you agree to use your
best efforts as agent, promptly following receipt of written or
telegraphic notice of the Effective Date, to offer for sale for
the account of ACF such number of Units as is contemplated by
this Agreement at the public offering price of $1,000 per Note
upon such terms and in such minimum amounts as are described in
the Prospectus. In connection therewith, the Sales Agent shall
not offer any unit for sale, or solicit any offers to subscribe
for or
3
<PAGE>
purchase, any Unit other than in accordance with the Prospectus.
During the Offering Period, neither ACF or any Affiliate thereof
will sell or agree to sell Units otherwise than through you, as
herein provided. Subject to your commitment to sell the Units on
a "best efforts" basis, nothing in this Agreement shall prevent
you from entering into any agency agreement, underwriting
agreement or other similar agreement governing the offer and sale
of securities with any other issuer of securities, and nothing
contained herein shall be construed in any way as precluding or
restricting your right to sell or offer for sale securities
issued by any other person, including securities similar to, or
competing with, the Units. To the extent that you have actual
knowledge of the matters identified in Section 4.5 hereof, you
will give notice thereof to ACF and provide such information or
take such other actions as may be reasonably requested by ACF to
lift any stop order entered by the Commission referred to in
clause (iii) of Section 4.1 hereof.
3.2 Minimal Funds for Closing. No closing,
including the Initial Closing, will occur unless (i) the amount
of funds then held in escrow by the Escrow Agent is equal to or
greater than $500,000 and (ii) a specific asset has been
identified for acquisition and a written contract for such
purchase has been entered into by the seller thereof with ACF.
3.3 Acceptance of Subscriptions. No subscription
for Units shall be effective unless accepted by the Company. The
Company retains the unconditional right to reject any
subscription in whole or in part, in which event the funds
delivered by the subscriber thereunder with respect to such
subscription shall be returned to such subscriber, with any
interest earned thereon, immediately. Subscriptions shall be
accepted or rejected by the Company as promptly as practicable
after receipt, in no event later than 30 days after receipt.
3.4 Escrow Account. All funds received from
subscribers (the "Escrow Funds") shall be placed in an escrow
account (the "Escrow Account") with ____________ (the "Escrow
Agent"), in accordance with an Escrow Agreement in a form
satisfactory to the parties hereto, and all payments of, from or
on account of such funds shall be made pursuant to the Escrow
Agreement. Funds will be placed with the Escrow Agent in the form
of a check payable to "_______/AeroCentury Fund IV Escrow
Account", or by wire transfer of funds from the account of the
subscriber into the Escrow Account within the time periods
specified below:
(a) Off-Site Supervisory Review. Where
pursuant to your internal supervisory procedures, final internal
supervisory review of subscriptions is conducted at a different
office from where a check and confirmations are received, such
check and confirmation will be transmitted on the day received to
your office conducting such final internal supervisory review,
which will in turn, by the end of that day, transmit such check
and confirmation to the Escrow Agent.
(b) On-Site Supervisory Review. Where,
pursuant to your internal supervisory procedures, final internal
supervisory review of subscriptions is conducted at a different
office from where a check and confirmation are received, such
check and confirmation will be transmitted on the day received to
your office conducting such final internal supervisory review,
which will in turn, by the end of that day, transmit such check
and confirmation to the Escrow Agent.
(c) Wire Transfer of Funds. Where the
subscriber is to pay for the purchase of funds by wire transfer
rather than by check, such wire transfer is to be forwarded in
the same manner and within the same time limits as if the
subscriber had paid by check, as specified in the preceding two
paragraphs.
4
<PAGE>
(d) Involvement in Distribution
Process. Where you intend to transmit from your own funds the
purchase price for the Units and to subsequently debit a
customer's account in a like amount, you will debit the
securities account of such customer no later than the next
business day following the date that you transmit such purchase
price and any subscription documentation to the Escrow Agent.
3.5 Initial Closing Date. If subscription for
Notes have been received and accepted for purchase of an Asset or
interest therein on or before the Termination Date, you will
cause the Escrow Agent, on such date and at such time and place
as determined by you and ACF (which determination shall be
subject to the satisfaction on such date of the conditions
contained herein) following the deposit of the proceeds from the
Offering (such date and time being herein referred to as the
"Initial Closing Date"), to deliver to ACF immediately available
funds in an amount equal to the amount of funds on deposit in the
Escrow Account ("Escrow Funds") on the Initial Closing Date,
except for (i) any amount earned on such Escrow Funds which shall
be returned to the subscribers, (ii) the 5.0% Sales Commission
payable to you calculated in accordance with Section 3.8 with
respect to the aggregate principal amount of all Notes purchased
and paid for at the Initial Closing Date, including the aggregate
amount of reimbursements of Sales Commissions on certain orders
which amounts will be delivered to you and promptly reimbursed by
you to investors entitled to such reimbursements, (iii) due
diligence costs actually incurred by you in an amount not to
exceed 1.5% of the purchase price of all Notes purchased and paid
for at the Initial Closing Date, and (iv) the nonaccountable
organizational and offering expense allowance (the "Allowance")
payable to the Management Company in an amount equal to 1.5% the
purchase price of all Notes purchased and paid for at the Initial
Closing.
3.6 Additional Closing Dates. If, after the
Initial Closing Date and on or before the Termination Date,
additional sales of Notes are made on each such date or dates and
at each such time and place as determined by ACF (which
determination shall be subject to the satisfaction on each such
date of the conditions contained herein) (all such dates being
referred to herein as the "Additional Closing Dates"; the
Additional Closing Dates and the Initial Closing Date are herein
referred to collectively as the "Closing Dates"), you will cause
the Escrow Agent to deliver to ACF immediately available funds in
an amount equal to the Escrow Funds on deposit in the Escrow
Account on such Additional Closing Date, except for (i) any
amount earned on the Escrow Funds which shall be distributed by
the Escrow Agents directly to the subscribers, (ii) the Sales
Commission, the Allowance and due diligence costs payable to you
calculated in accordance with Section 3.6 hereof with respect to
the aggregate principal amount all Notes purchased and paid for
on such Additional Closing Date.
3.7 Selected Dealers. You may, in your sole
discretion, engage broker-dealers ("Selected Dealers") for the
offer and sale of Notes pursuant to a Selected Dealer Agreement
in a form satisfactory to the parties hereto. The Sales Agent
may, pursuant to the Selected Dealer agreement, allow such
concessions to the Selected Dealer out of its selling commission
as it may determine within the limits set forth in the
Registration Statement and Prospectus. Any such Selected Dealers
shall be members of the National Association of Securities
Dealers, Inc. (The "NASD"). Each such Selected Dealer Agreement
shall provide that the Selected Dealer must represent and warrant
that each Note sold by it will be in compliance with the terms of
the Prospectus, including without limitation, any suitability
requirement placed upon investors, and in compliance with
applicable blue sky laws. Each Selected Dealer Agreement shall
contain a provision indemnifying the Company for any losses,
claims, damages or other expenses arising out of a Selected
Dealer's breach of such representation and warranty.
3.8 Fees and Reimbursement. In consideration
for your execution of this
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agreement and for the performance of your obligations hereunder,
ACF agrees to cause the Escrow Agent to pay you, as provided in
Sections 3.5 and 3.6 hereof, (i) a Sales Commission equal to 5.0%
of all Notes sold, and (ii) reimbursement of actual costs
incurred in due diligence investigations not to exceed 1.5% of
all Notes sold. You may reallow all or a portion of such fees and
reimbursement to the Selected Dealers. Notwithstanding anything
herein to the contrary, if you, or your or ACF's respective
Affiliates or employees purchase any Notes, the Sales Agent, in
its discretion, may waive the Sales Commissions with respect to
such Notes. In the event that an Asset or interests therein, are
not available for purchase and this Agreement is terminated, you
shall not receive any Sales Commissions or reimbursement of due
diligence costs.
3.9 Finder's Fees. Except as set forth in the
Prospectus, none of you, ACF, directly or indirectly, shall pay
or award any finder's fee, commission or other compensation to
any person engaged by a potential subscriber for investment
advice as an inducement to such advisor to advise the purchase of
Notes or for any other purpose.
4. Covenants. ACF covenants with you and, where
applicable, you covenant with them as follows:
4.1 Notices. ACF immediately will notify you and
confirm the notice in writing, (i) when the Registration
Statement and any post-effective amendment thereto becomes
effective, (ii) when any Prospectus is filed with the Commission
or mailed to the Commission for filing pursuant to Rule 424 of
the Regulations, (iii) of the issuance by the Commission of any
stop order or of the initiation or threatening of any proceeding
for that purpose, (iv) of the receipt of comments from the
Commission with respect to the Registration Statement or of any
request, written or oral, by the Commission for any amendment to
the Registration Statement or any amendment or supplement to the
Prospectus or for additional information relating thereto, and
(v) of any fact known to it which would make inaccurate any
representation or warranty by ACF or of any change in facts on
which your obligation to perform under this Agreement is
dependent. If the Commission shall enter a stop order at any
time, ACF will make every reasonable effort to obtain the lifting
of such order at the earliest possible moment.
4.2 Delivery of Registration Statements,
Prospectuses, Etc. ACF will deliver to you, without expense to
you, at such locations as you shall request, (i) as soon as
practicable, three signed copies of the Registration Statement
and all amendments thereto, including exhibits, and (ii) as soon
as any Prospectus is filed with the Commission or is mailed to
the Commission for filing pursuant to Rule 424 of the
Regulations, or any supplement to the Prospectus is available,
such number of copies of the Prospectus and supplements and
amendments thereto, if any, as you reasonably may request
4.3 Blue Sky Qualification. ACF has delegated to
the Sales Agent the responsibility for the filing of material in
connection with the offering of the Notes to qualify the Notes or
to establish an exemption from qualification for the Notes prior
to the time that the Registration Statement becomes effective or
as soon thereafter as possible with the state securities, or
"blue sky," administrators or authorities in those jurisdictions
in which Notes will be offered and for that number of Notes in
each jurisdiction as shall be determined by the Sales Agent, and
the Sales Agent agrees to perform such functions as an agent of
ACF. In each jurisdiction where such qualification shall be
effected, the Sales Agent, in cooperation with ACF will file and
make such statements or reports at such time as may be required
by the laws of such jurisdiction. ACF will cooperate with the
Sales Agent in making filings or obtaining such qualifications,
and no filing shall be made without the review and approval of
ACF. ACF will furnish to the Sales Agent all information
requested by the Sales Agent to comply with the state securities,
or "blue sky" laws
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<PAGE>
and regulations of all such jurisdictions. Any material so
furnished will not contain any misstatement of a material fact or
omit to state any material fact necessary to make any statement
of fact contained therein not misleading. Neither the Sales Agent
nor any Selected Dealer shall make any offers or sales of Notes
in any jurisdiction in which the offering of Notes has not been
qualified or an exemption from qualification has not been
established and shall not make any offers or sales to investors
that do not meet the suitability requirements applicable to such
investor as set forth in the Prospectus or by virtue of
applicable blue sky laws. ACF or the Sales Agent, as the case may
be, immediately will notify each other and confirm such advice in
writing, (i) of the receipt of comments from the authorities in
any jurisdiction or of any request, written or oral, by the
authorities in any such jurisdiction for any amendment of the
Registration Statement or any amendment or supplement to the
Prospectus or for additional information relating thereto, and
(ii) of the issuance by the authorities in any jurisdiction of
any stop order at any time, ACF and the Sales Agent will make
every reasonable effort to obtain the lifting of such order at
the earliest possible moment.
4.4 Amendments to Registration Statement, Etc. ACF
will not, before the Registration Statement becomes effective,
file any amendment thereto, without including therein such
changes or additions as you reasonably shall request after being
furnished with a copy thereof. If, during the time when a
Prospectus is required to be delivered under the Securities Act,
any event shall occur as a result of which it is necessary to
amend or supplement the Prospectus in order to make the
statements in the Prospectus not misleading in the light of
circumstances existing at the time it is delivered to a potential
subscriber, ACF forthwith will notify you promptly of the
occurrence of each such event and prepare and file with the
Commission an amendment or amendments of, or a supplement or
supplements to, the Registration Statement and the Prospectus
which will amend or supplement the Registration Statement and the
Prospectus, as necessary, so that, as amended or supplemented,
the Registration Statement and the Prospectus will not contain an
untrue statement of material fact or omit to state a material
fact required to be stated therein or necessary in order to make
the statements therein not misleading; provided, however, that
ACF will not file any amendment to the Registration Statement or
any supplement to the Prospectus without including therein such
changes or additions as you reasonably request after being
furnished with a copy thereof. ACF will furnish to you such
information with respect to themselves as you or your counsel may
from time to time reasonably request. During the time when a
Prospectus is required to be delivered under the Securities Act,
ACF and the Sales Agent shall comply with all requirements
imposed upon them by the Securities Act, the Regulations, the
Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder (collectively, the "Exchange
Act"), the rules and regulations of the NASD and by the laws of
each jurisdiction in which the Notes shall be offered or sold.
4.5 Financial and Other Information. So
long as Notes remain outstanding, ACF will notify you of and
furnish you, upon request, the following:
(a) At least three business days prior
to the date on which the same shall be sent to the Noteholders
and not later than the date on which the same is filed with the
Commission, two copies of each annual and interim financial and
other report, application, communication or document furnished to
the Noteholders or filed with the Commission, including, without
limitation, any accountant's report, together with such
accountant's comments and notations with respect thereto, in such
detail as ACF customarily may receive from such accountants;
(b) At least three business days prior
to the filing or submission thereof, a copy of any report,
application or document which ACF shall file with or submit to
any
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<PAGE>
administrative authority under the "blue sky" or securities laws
of any state or other jurisdiction.
(c) At least three business days prior
to the release thereof, unless ACF shall conclude, upon advise of
counsel, that compliance with applicable law requires an earlier
release and in any event prior to such release, two copies of
every press release to be issued and every material new item and
article in respect of ACF or its affairs to be released by ACF;
and
(d) Promptly, such additional documents and information with
respect to ACF and its affairs as you from time to time
reasonably request.
4.6 Sales Material. ACF will deliver to you, in
such reasonable quantities as you may request, all supplemental
Sales Materials (whether designated solely for broker-dealer use
or otherwise) proposed to be used or delivered by ACF in
connection with the offer of the Notes prior to the use or
delivery to third parties of the Sales Materials and will not use
or deliver any such material to which you shall object. Prior to
the use or delivery to third parties of any Sales Materials, ACF
will file the Sales Materials in any jurisdiction in which the
Notes have been qualified for offering and sale, in every
jurisdiction in which an application for such qualification is
pending and with the Commission and the NASD.
4.7 Application of Net Proceeds. ACF will apply
the proceeds of the sale of the Notes substantially as set forth
under the caption "Estimated Use of Proceeds" in the Prospectus
and will file such reports on Form SR with the Commission with
respect to the sale of the Notes and the application of the
proceeds therefrom as may be required in accordance with Rule 463
under the Securities Act and the "blue sky" laws or regulation of
any state "blue sky" authority.
4.8 Approval of Sales Materials. Without your
prior approval, neither ACF nor any of its Affiliates will
distribute any Sales Materials to any Noteholder, subscriber,
potential subscriber or any regulatory authority, including,
without limitation, the Commission or any state "blue sky"
authority.
4.9 Sales Incentives. No sales incentive
bonuses shall be paid directly or indirectly in connection with
the offer and sale of the units.
4.10 Undertakings. ACF will comply with all
provisions of any undertaking contained in the Registration
Statement and, until the Termination Date, ACF will timely file
all documents, and any amendments to previously filed documents,
required to be filed by ACF pursuant to Section 13, 14 or 15(d)
of the Exchange Act or, subject to Section 4.3 hereof, any state
"blue sky" law or regulation. You hereby undertake to comply with
all applicable rules and regulations of the NASD including,
without limitation, Section 3 and 4 of Appendix F of the NASD's
Rules of Fair Practice.
4.11 Suitability Requirements. The Notes will be
sold only to persons who represent and warrant that they or their
beneficiaries meet the suitability requirements set forth in the
Prospectus either by payment for the Notes or, where required, by
execution of the Subscription Agreement in the manner described
in the Prospectus.
4.12 Investment Criteria. ACF will use its
best efforts to comply with the investment criteria set forth in
the Prospectus.
4.13 Assets Registration. ACF will file for
registration of all aircraft
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<PAGE>
purchased by ACF (as that term is defined in the Registration
Statement), whether or not identified in the Prospectus as owned
by ACF, with the Federal Aviation Administration (the "FAA") to
the extent required by the Federal Aviation Act of 1958 as
amended, and all rules and regulations promulgated thereunder.
5. Payment of Expenses. ACF will pay all costs and
expenses incident to the performance of the obligations of ACF
under this Agreement, including, without limitation, all costs
and expenses incident to (i) the preparation, printing, filing
and delivery of the Registration Statement and the Prospectus,
including the cost of all copies thereof and any amendment
thereof or supplement thereto, including, without limitation,
such quantities of each such document as you reasonably may
request, (ii) the preparation of this Agreement, the Sales
Materials, the Escrow Agreement and all amendments or supplements
thereto and related documents and the filing or recording of such
certificates or other documents necessary to comply with the laws
of the State of California and other jurisdictions in which ACF
may own property or conduct business for the continued
qualification of a corporation, (iii) the delivery of the units,
(iv) any escrow arrangement in connection with the offer and sale
of the Notes, including any compensation with the offer and sale
of the Notes, including any compensation and reimbursement to the
Escrow Agents, (v) the qualification of the Notes under, and
continued compliance with, "blue sky" or securities laws of the
jurisdictions designated by you in Accordance with the provisions
of Section 4.3 hereof, including filing fees and the fees and
disbursements of counsel incurred in connection therewith and the
cost of printing of the "blue sky" survey and supplements thereto
referred to in Section 4.3 hereof, (vi) the fees and
disbursements of legal counsel and independent accountants
engaged by ACF and you in connection with the offer and sale of
the Notes, (vii) the filing fees payable to the Commission and to
the NASD, (viii) the fees of counsel and accountants for ACF in
connection with the offer and sale of the Notes, and (ix)
seminars and other activities incident to the marketing of the
Notes, provided that in the event the Initial Closing Date does
not occur, ACF shall have no liability for expenses set forth
above.
6. Conditions of Your Obligations. Your obligations
hereunder shall be subject to the continued accuracy throughout
the Offering Period of the representations and warranties of ACF,
to the performance by ACF of its obligations hereunder and to the
following terms and conditions:
6.1 Effective Registration Statement. The
Registration Statement shall have been declared effective and, at
any time during the term of this Agreement, no stop order shall
have been issued or proceeding therefor initiated or threatened
by the Commission or by the authorities in any jurisdiction in
which the Notes shall have been qualified for offering and sale
in accordance with the provisions of Section 4.3 hereof, unless
such order or proceedings have been withdrawn or terminated by
the Commission of such authorities.
6.2 Representations, Warranties and Covenants. At
the initial Closing Date and on each Additional Closing Date, the
representations and warranties contained in Section 2.1 hereof,
continue to be true and correct with the same effect as though
expressly made at such date and ACF shall have performed all
covenants or conditions on their or its part to be performed or
satisfied at or prior to the Effective Date and the Initial
Closing Date or the Additional Closing Date, as the case may be.
6.3 No Stop Order. At the Initial Closing Date and
on each Additional Closing Date, you shall receive such evidence
as you reasonably shall request to evidence that no order
suspending the sale of the Notes in any jurisdiction have been
issued and no proceeding for that purpose shall be been
instituted or contemplated.
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<PAGE>
7. Indemnification and Contribution.
7.1 Indemnification by ACF. Subject to the
conditions set forth below, ACF agrees to indemnify and hold
harmless you and each Selected Dealer, if any, and each person,
if any, who controls you or a Selected Dealer within the meaning
of Section 15 of the Securities Act, against any and all loss,
liability, claim, damage and expense whatsoever (including, but
not limited to, reasonable expense incurred in investigating,
preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever) arising out of or based upon
(a) any untrue statement or alleged untrue statement of a
material fact contained (i) in any preliminary prospectus, the
Registration Statement or the Prospectus (as from time to time
amended and supplemented, (ii) in any application or other
document (in this Section 7, collectively called "application")
filed in any jurisdiction in order to qualify the Notes under the
"blue sky" or securities laws thereof or filed with the
Commission or any securities exchange, (iii) in any Sales
Materials (whether designated for broker-dealer use or
otherwise), or (iv) in any additional written or oral information
provided to prospective purchasers of Notes by an authorized
representative (other than the Sales Agent or a Selected Dealer)
of ACF, or (b) the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make
the statements therein not misleading, except (with respect to
paragraph (a) and paragraph (b) insofar as such untrue statement
or omission was made in reliance upon and in conformity with
written information furnished to ACF by you expressly for use in
the Registration Statement or the Prospectus or any Sales
Materials, application or any other written materials authorized
by the Sales Agent.
7.2 Indemnification by Sales Agent. You agree to
indemnify and hold harmless ACF and each person, if any, who
controls or manages ACF, including without limitation ACF
Management Corp., within the meaning of Section 15 of the
Securities Act to the same extent as the foregoing indemnity from
ACF to you pursuant to Section 7.1 herein, but only with respect
to (a) the statements in or omissions from the Registration
Statement or the Prospectus made in reliance upon and in
conformity with information separately furnished by you in
writing specifically for inclusion in the Registration Statement
or the Prospectus, and (b) any loss, liability, claim, damage or
expense resulting from (i) your failure to grant appropriate
credits or provide appropriate refunds to Noteholders entitled to
discounts from Sales Commissions pursuant to Section 3.8, or (ii)
any failure by you and your investment executives, or other
employees or agents to comply with requirements pertaining to the
offer and purchase of Notes (including, without limitation, those
requirements set forth in this Agreement, the Selected Dealer
Agreement or described in the Prospectus).
7.3 Notices of Claims: Employment of Counsel. Any
party which proposes to assert the right to be indemnified under
this Section 7 promptly shall notify in writing each party
against which a claim is to be made under this Section 7 of the
institution of such action, but the omissions so to notify such
indemnifying party of any such action shall not relieve it from
any liability it may have to any indemnified party otherwise than
under this Section 7. Such indemnifying party or parties shall
assume the defense of such action, including the employment of
counsel (satisfactory to the indemnified party) and payment of
fees and expenses, including attorneys' fees. An indemnified
party shall have the right to employ its own counsel in any such
case, but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless the employment of such
counsel shall have been authorized in writing by the indemnifying
party or parties in connection with the defense of such action or
the indemnifying party or parties shall not have employed counsel
to have charge of the defense of such action or such indemnified
party or parties reasonably shall have concluded that there may
be defenses available to it or them which are different from or
additional to those available to such indemnifying party or
parties (in which case such indemnifying party or parties shall
not have the right to direct the defense of such action on behalf
of the indemnified party or parties), in any of which events such
fees and expenses shall be borne by such indemnifying party or
parties. Anything in this paragraph to the contrary
notwithstanding, an indemnifying party shall not be liable for
any settlement of any such claim or action effected without its
written consent.
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7.4 Contribution. If the indemnification provided
for in Sections 7.1 or 7.2 is unavailable to or insufficient to
hold harmless an indemnified party in respect of any losses,
claims, damages or liabilities (or actions in respect thereof)
referred to therein, then ACF, on the one hand, and you, on the
other, shall contribute to such amount paid or payable in such
proportion as is appropriate to reflect the relative fault of
ACF, on the one hand, and you, on the other, in connection with
the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof),
as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a
material fact relates to information supplied by ACF, on the one
hand, or to information with respect to you furnished by you, on
the other, in writing specifically for inclusion in the
Registration Statement or the Prospectus and the parties'
relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. ACF and you
agree that it would not be just and equitable if contribution
pursuant to this Section 7.4 were determined by pro rata
allocation or by any other method of allocation. The amount paid
or payable as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in
this Section 7.4 shall be deemed to include any legal or other
expenses reasonably incurred by any such party in connection with
investigating or defending any such action or claim. No person
guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) with respect to the
transactions giving rise to the right of contribution provided in
this Section 7.4 shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
7.5 Common Law. Nothing in this Agreement
shall be deemed to abrogate or restrict any rights or remedies to
indemnification or contribution to which any party hereto is
entitled under common law.
7.6 Limitation. Notwithstanding the above, ACF
should have no obligation to indemnify any person or any person
who controls such person within the meaning of Section 15 of the
Securities Act for any losses, liabilities or expenses arising
from or out of an alleged violation of federal or state
securities laws unless (i) there has been a successful
adjudication on the merits of each count involving alleged
securities law violations as to the particular indemnity before a
court of competent jurisdiction and the court approves
indemnification of the litigation costs, or (ii) such claims have
been dismissed with prejudice on the merits by a court of
competent jurisdiction as to the particular indemnity and the
court approves indemnification of the litigation costs, or (iii)
a court of competent jurisdiction approves a settlement of the
claims against a particular indemnity and finds that
indemnification of the settlement and related costs should be
made. In any claim for indemnification for federal or state
securities law violations, the party seeking indemnification
shall place before such court of competent jurisdiction the
position of the Commission and any other applicable regulatory
authority with respect to the issue of indemnification for
securities law violations.
8. Representations and Agreements to Survive. Except
as the context otherwise requires, all representations,
warranties, covenants and agreements contained in this
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Agreement shall be deemed to be representations, warranties,
covenants and agreements of ACF and you, as the case may be, and
shall remain operative and in full force and effect regardless of
any investigation made by you, or on your behalf, or by a
controlling person, or by or on behalf of ACF and shall survive
the Termination Date for a period of two years from the date
hereof, provided that any representation, warranty or covenant
concerning the truth or completeness of any information contained
in the Registration Statement, the Prospectus or the Sales
Materials, and any indemnification for the breach thereof, shall
survive the Termination Date for the period of any applicable
statute of limitations.
9. Effective Date and Termination of Agreement.
9.1 Effective Date. This Agreement shall become
effective on the Effective Date.
9.2. Termination of Agreement. You shall have the
right to terminate this Agreement at any time prior to the
Initial Closing Date or any Additional Closing Date (i) if any
representation or warranty hereunder shall be found to have been
incorrect or misleading when or made or ACF shall fail, refuse or
be unable to perform any of its agreement hereunder or to fulfill
any condition of your obligations hereunder, (ii) if there shall
have been a material adverse change in the condition (financial
or otherwise) of ACF or any of their Affiliates or if ACF or any
Asset shall have sustained a material or substantial loss by
fire, flood, accident, earthquake, act of terrorism or other
calamity or malicious act which, whether or not such loss shall
have been insured, will in your opinion make it inadvisable to
proceed with the offering and sale of Notes, (iii) if trading on
the New York Stock Exchange or the American Stock Exchange shall
have been suspended, or minimum or maximum prices for trading
generally shall have been fixed or maximum ranges for prices for
all securities shall have been required on either such Exchange
by such Exchange or by order of the Commission or any other
governmental authority having jurisdiction, (iv) if the United
States shall have become engaged in a war or other major
hostilities, (v) if a banking moratorium has been declared by a
state or federal authority, (vi) if there shall have been such a
change in the condition of securities markets generally as, in
your judgment, would make it inadvisable to proceed with the
offering and sale of Notes, or (vii) there shall have been a
federal legislation, a change in Internal Revenue Service's
rulings or a proposed change in Treasury Regulations or relevant
court decisions which, in your reasonable judgment, have a
material adverse effect on the tax consequences to the
Noteholders set forth in the Prospectus.
9.3 Result in Termination. If for any reason, this
Agreement shall not become effective or the offering of the Notes
is terminated as a result of Assets or any interest therein not
being available for purchase, ACF shall have no liability to you.
If this Agreement shall be terminated by you for treason of the
failure on the part of ACF to perform any material undertaking or
satisfy any condition of this Agreement by it to be performed or
satisfied, ACF shall pay you commissions on all Notes sold, to
the extent there is a closing with respect to such Notes, as
provided in Section 3 hereof, and shall pay expenses as required
by SEction 5 hereof, but will have no additional liability to you
except for such liabilities, if any, as amy exist or thereafter
arise under Section 7 hereof.
10. Notices.
10.1 Method and Location of Notices. All
communications hereunder, except as herein otherwise specifically
provided, shall be in writing and, if sent to you, shall be
mailed, delivered or telegraphed and confirmed to you at Crispin
Koehler Securities, 1440 Chapin
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Avenue, Suite 310, Burlingame, California 94010, Attention:
Richard D. Koehler; if sent to ACF, shall be mailed, delivered or
telegraphed and confirmed to it at 1440 Chapin Avenue, Suite 310,
Burlingame, California 94010, Attention: Neal D. Crispin.
10.2 Time of Notices. Notice shall be deemed to be
given (i) if by personal delivery, on the date of delivery; (ii)
if telegraphed, on the date of transmission, and (iii) if mailed,
three days after delivery to the mails, postage prepaid,
registered mail, return receipt requested to the addresses
provided in Section 10.1 hereof.
11. Parties. This Agreement shall inure solely to the benefit of
and shall be binding upon you, ACF and the controlling persons
referred to in Section 7.6 hereof, and their respective
successors, legal representatives and assigns, and no other
person shall have or be construed to have any legal or equitable
right, remedy or claim under or in respect of or by virtue of
this Agreement of any provision herein contained.
12. Construction. This Agreement shall be construed in
accordance with the laws of the State of California, without
giving effect to the principles thereof relating to the conflicts
of laws.
3. Descriptive Headings. The descriptive headings of the
several sections and paragraphs of this Agreement are inserted
for convenience only and do not constitute a part of this
Agreement.
14. Counterparts. This Agreement may be executed in one or
more counterparts, and, if executed in more than one counterpart,
the executed counterparts shall together constitute a single
instrument.
If the foregoing correctly sets forth the understanding
between you and ACF, please so indicate in the space provided for
that purpose, whereupon this letter shall constitute a binding
agreement between us.
Very truly yours
AEROCENTURY FUND IV, INC.
A California Corporation
By:__________________________
Neal D. Crispin, President
Confirmed and Accepted as of
the date first above written
CRISPIN KOEHLER SECURITIES
A California Corporation
By:_____________________________
Richard D. Koehler, President
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EXHIBIT 10.3
Form of Selected Dealer Agreement between
Registrant, Sales Agent and Selected Dealers
<PAGE>
SELECTED DEALER AGREEMENT
Crispin Koehler Securities
301 East Main Street, Suite 1140
Lexington, Kentucky 40504
Dear Sirs:
The undersigned understands that AeroCentury Fund IV,
Inc., a California corporation (the "Company"), proposed to make
a public offering and sale of up to $10,000,000 of 10% Secured
Promissory Notes ("Notes"), each Note with a principal face
amount of $1,000, on a best efforts basis through Crispin Koehler
Securities (the "Sales Agent") and certain additional broker
dealers (the "Selected Dealers") who are members of the National
Association of Securities Dealers, Inc. (the "NASD"). The Sales
Agent has advised the undersigned that in connection therewith,
the Company has filed with the Securities and Exchange Commission
(the "SEC"), a registration statement on Form SB-2 and has filed
or expects to file one or more amendments thereto. As used
herein, "Registration Statement" refers to Registration Statement
No.___ as declared effective by the SEC on _____, and
"Prospectus" refers to the final prospectus constituting Part I
of such Registration Statement, and in the event of any
supplement or amendment to such Registration Statement or
Prospectus after the Registration Statement has become effective,
the terms "Registration Statement" and "Prospectus" shall mean
such Registration Statement or Prospectus as so supplemented or
amended. Certain terms used herein which begin with initial
capital letters are defined in the Prospectus and shall have the
same meanings given therein. Upon the terms and conditions set
forth herein, the undersigned agrees to use its best efforts to
solicit and obtain subscriptions to purchase Notes at a price of
$1,000 per Note in accordance with the following terms and
conditions.
The undersigned hereby makes the following agreements,
representations, and warranties to the Company and the Sales
Agent which agreements, representations and warranties are made
by the undersigned severally and not jointly with the other
Selected Dealers:
1. Representation and Warranties. The undersigned
represents and warrants that (i) it is a member in good standing
of the NASD, (ii) it is registered as a broker-dealer under the
Securities and Exchange Act of 1934, (iii) it is licensed as a
broker-dealer under the law of the state(s) listed below the
undersigned's signature hereunder, (iv) neither the undersigned
nor any of its executive officers and directors are currently
subject to any administrative order or judgment in any state
which prohibits the use of any exemption from registration in
connection with the purchase or sale of securities, (v) neither
the undersigned nor any of its executive officers and directors
are subject to any order, judgment or decree of any court of
competent jurisdiction temporarily or preliminarily restraining
or enjoining, or subject to any order, judgment or decree of any
court of competent jurisdiction entered within the last five
years permanently restraining or enjoining such person from
engaging in or continuing any conduct or practice in connection
with the purchase or sale of any security or commodity or
involving the making of any false filing with any state and (vi)
neither the undersigned nor any of its executive officers and
directors has been convicted of a felony involving the purchase
or sale of a security within five years prior to the commencement
of the Offering.
2. Duties. The undersigned agrees that its duties
under this Agreement include the following:
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(a) To use its best efforts to procure purchase(s)
for Notes at a price of $1,000 per Note in accordance with the
terms of the Offering as set forth in the Prospectus. The minimum
investment in Notes is set forth in the Prospectus. The
undersigned shall not be entitled to solicit the services of
other broker-dealers or pass through or reallow any portion of
the compensation set forth in Section 3 in connection with
performing the undersigned's service hereunder;
(b) To at all times comply with all applicable
provisions of the Securities Act of 1933, as amended (the "Act"),
the Securities Exchange Act of 1934 and the rules and regulations
of the Commission thereunder, state blue sky securities laws and
the rules of the NASD, including, without limitation, Sections
2730, 2740, 2420 and 2750 of the NASD Conduct Rules, all
prospectus delivery requirements, and the prohibition against the
direct or indirect payment or awarding of any finder's fees,
commissions, or other compensation to any person engaged by a
potential investor for investment advice as an inducement to such
advisor to advise the purchase of interests in a particular
program; provided, however, that the payment of the normal sales
commissions payable to a registered broker-dealer or other
properly licensed person for selling Notes shall not be
prohibited;
(c) To sell Notes only in state(s) and
jurisdiction(s) in which the undersigned is licensed as a
broker-dealer, and only in state(s) and jurisdiction(s) and in
such amounts for which Blue Sky clearance has been obtained as
indicated to the undersigned by the Sales Agent;
(d) To take such actions as may be required by law
or which it may deem reasonably necessary in order to ascertain
that a purchase of the Notes is suitable for a prospective
purchaser, and maintain a record thereof for a period of at least
six years, or such other period as required by law;
(e) To confirm through diligent inquiry that each
prospective purchaser is a citizen of the United States in the
manner described in the Prospectus prior to submitting his
subscription payment and related documentation to the Escrow
Agents, and maintain a record of the basis upon which such
determination was made;
(f) To supply the Sales Agent and the Company with
such written reports of the undersigned's activities relating to
the offering of Notes as the Sale Agent or the Company may from
time to time reasonably request;
(g) To deliver a current copy of the Prospectus
and any amendments or supplements thereto, to each prospective
purchaser prior to accepting a subscription from such purchaser;
(h) To obtain each of the following in connection
with the sale of the Notes and to transmit the same to the Escrow
Agents, within the time periods specified below:
(i) A fully completed Subscription
Agreement, executed by the prospective purchaser, if required by
applicable state law or otherwise requested by the Company; and
(ii) Appropriate payment by the purchaser
for the number of Notes subscribed for, either in the form of a
check payable to "First Security Bank of Utah/AeroCentury Fund IV
Escrow Account" or by wire transfer of funds from the account of
the purchaser into the above-referenced escrow account (the
account number will be provided upon request of the Company).
2
<PAGE>
The undersigned, the Sales Agent and the
Company agree and acknowledge that, unless specifically requested
by the Company or otherwise required by the state of residence of
a particular investor, investors will not be required to enter
into a subscription agreement with the Company.
Where, pursuant to the undersigned's
internal supervisory procedures, final internal supervisory
review of subscriptions is conducted at the office where a check
and a Subscription Agreement, if any, are received, such check
and any Subscription Agreement shall be transmitted to the Escrow
Agents on the day received.
Where, pursuant to the undersigned's
internal supervisory procedures, final internal supervisory
review of subscriptions is conducted at a different office from
where a check and any Subscription Agreement are received, such
check and any Subscription Agreement shall be transmitted on the
day received to the office of the undersigned conducting such
final internal supervisory review for receipt on or before the
next business day, which shall in turn, by noon of the day of
receipt, transmit such check and any Subscription Agreement to
the Escrow Agents.
Where the purchaser is to pay for the
purchase of funds by wire transfer rather than by check, such
wire transfer is to be forwarded with any Subscription Agreement
in the same manner and within the same time limits as if the
purchaser had paid by check, as specified in the preceding two
paragraphs.
Where the undersigned intends to
transmit from its own funds the purchase price for the Notes and
to subsequently debit a customer's account in a like amount, the
undersigned shall debit the securities account of such customer
no later than the next business day following the date that the
undersigned transmits such purchase price and any Subscription
Agreement to the Escrow Agents.
Notwithstanding the foregoing, the account
of a customer who subscribes for Notes during the first five
business days after commencement of the Offering of the Notes
shall be debited to the customer's account on the sixth business
day after the commencement of the Offering.
In the event that the payment received
by the undersigned is not made payable as set forth in
subparagraph (h) (ii) above, such payment shall be returned to
the purchaser within one business day from receipt thereof.
In addition, the undersigned will provide
the Escrow Agents with the name, address and social security or
tax identification number of, and the amount tendered and number
of Notes subscribed for by each such Subscriber (it being
understood that the undersigned will have in its possession a
properly executed Form W-9 for each such Subscriber subject to
back-up withholding, as required under the Tax Equity and Fiscal
Reform Act of 1982). The data furnished to the Escrow Agents in
accordance with the preceding sentence shall also be provided to
the Escrow Agents in magnetic media tape format.
(i) In recommending to a participant the purchase,
sale or exchange of Notes, the undersigned and persons associated
with the undersigned shall:
(A) Have reasonable grounds to believe,
on the basis of information obtained from the investor concerning
his investment objectives, other investments, financial situation
and needs, and any other information known by the undersigned or
associated person
3
<PAGE>
that:
(1) The investor complies with the
suitability requirements, if any, set forth in the Prospectus, or
applicable blue-sky laws;
(2) The investor is or will be in a
financial position appropriate to enable the participant to
realize to a significant extent the benefits described in the
Prospectus;
(3) The investor has a fair market net
worth sufficient to sustain the risk inherent in the Company,
including loss of investment and lack of liquidity; and
(4) An investment in the Company is
otherwise suitable for the participant; and
(B) Maintain in the files of the
undersigned for a period of six years documents disclosing the
basis upon which the determination of suitability was reached as
to each participant.
Notwithstanding the provisions of the
Section 2(i), the undersigned shall not execute any transaction
in a discretionary account without prior written approval of the
transaction by the customer;
(j) To comply with and abide by all terms and
conditions of the Registration Statement and the Prospectus;
(k) To submit to the Sales Agent any sales
materials prepared by it in connection with the offer or sale of
Notes and not to use such materials until they have been reviewed
and cleared for presentation by the staff of the SEC, the NASD
and such other regulatory agencies as my be appropriate. As used
herein, "sales materials" shall not be deemed to include
administrative, nonsubstantive materials which are not to be
distributed to the public;
(l) To review the Company's Registration Statement
and other materials provided by the Company and to have
reasonable grounds to believe, based on information obtained from
the Company, through the Prospectus and any other materials
provided, that all material facts are adequately and accurately
disclosed and provide a basis for evaluating the proposed
activities of the Company. In determining the adequacy of
disclosed facts pursuant to this Section 2, the undersigned and
persons associated with the undersigned shall obtain information
on material facts relating at a minimum to the following, if
relevant in view of the nature of the proposed activities of the
Company:
(i) Items of compensation;
(ii) Financial stability and experience of
the management;
(iii) The Company's conflicts and risk
factors; and
(iv) Tax aspects.
(m) Prior to executing a purchase transaction in
the Company, to inform the prospective participant of all
pertinent facts relating to the liquidity and marketability of
the Notes during the term of the investment;
4
<PAGE>
(n) To promptly inform the Sales Agent and the
Company if the undersigned shall have knowledge of any material
misstatement or omission to state a material fact in any
Subscription Agreement; and
(o) Promptly upon the written request of the Sales
Agent, (i) account to the Sales Agent for each copy of the
Prospectus delivered to the undersigned hereunder and to return
to the Sales Agent all copies of the Prospectus then in the
undersigned's possession, and (ii) at the Sales Agent's request,
deliver to the Sales Agent a certificate from the undersigned
dated as of the date requested by the Sales Agent to the effect
that the undersigned's representations and warranties in this
agreement are true and correct, as if made on and as of the date
of such certificate; and that the undersigned complied with all
the agreements and covenants and satisfied all conditions on its
part to be performed or satisfied at or prior to the date of such
certificate and further representing that the undersigned has
made offers to sell Notes to, or solicit offers to buy Notes
from, or otherwise negotiated in respect thereof with, only
persons who (i) the undersigned reasonably believed were able to
satisfy the investor suitability standards set forth in the
Prospectus and (ii) either (a) have an account with the
undersigned in which there has been at least one securities
transaction effected by the undersigned during the preceding
three years, or (b) with respect to whom the initial contact with
the undersigned occurred prior to the date on which the
undersigned was first aware of the Offering and with respect to
whom (based on information with such person, the nature of our
contacts with such person, and other information available to the
undersigned) the undersigned has a reasonable basis for knowing
such person's net worth, investment objectives, investment
experience and sophistication.
3. Compensation. The undersigned shall receive from the
Escrow Agent (through the Sales Agent) as compensation Selling
Commissions of 5.0% of the sales price of any Notes sold by it to
the public in accordance herewith. In addition, in the Sales
Agent's sole discretion, up to 1.5% of the sales price for any
Notes may be reallowed by the Sales Agent to the undersigned for
due diligence and selling efforts. Notwithstanding the above, no
Sales Commissions and no expense allowance or reimbursement shall
be paid with respect to any Notes sold hereunder until the
occurrence of a Closing Date following the sale of such Notes.
Subject to the previous sentence, all Selling Commissions and
other compensation is being paid to the undersigned in
consideration of its efforts to conduct the due diligence
determined by the undersigned to be reasonably necessary and that
the undersigned will be solely responsible for such diligence;
the Sales Agent will have no responsibility or liability
pertaining thereto (although the Sales Agent may, in its
discretion, reallow a portion of its due diligence cost
reimbursement to the undersigned in connection therewith).
Notwithstanding the foregoing, the undersigned will not be
entitled to receive compensation pursuant to this Section 3 in
the event that (i) the Sales Agent or the Company determines that
any offer, sale or solicitation by the undersigned was made in
violation of the Act, or any of the regulations thereunder, of
the securities or "blue sky" laws of any jurisdiction or the
NASD, or of any covenant or representation made hereunder, (ii)
if the Sales Agent shall not have previously received from the
undersigned a confirmed copy of this Agreement, or (iii) with
respect to certain subscriptions, the Company or the Sales Agent,
in their sole discretion do not accept (in whole or in part) such
subscriptions to purchase Notes obtained by the undersigned for
any reason, or any Subscription Documents for such subscriptions,
if any, fully completed and duly executed, are received by the
Sales Agent after the final Closing Date.
4. Sales Incentive Programs. No sales incentive
bonuses shall be paid directly or indirectly in connection with
the offer and sale of the Notes.
5. Terms and Termination. The undersigned's obligation
under this Agreement shall commence as of the date of this
Agreement or the effective date of the Registration Statement,
5
<PAGE>
whichever occurs earlier, and shall continue (unless otherwise
terminated as provided herein) until the undersigned has been
notified that the Offering of Notes has ceased or has been
completed.
The undersigned's services under this Agreement may be
terminated by the Sales Agent or the Company if (i) the
undersigned fails to comply with any provisions of this
Agreement: (ii) any of the undersigned's representations or
warranties made herein is false: or (iii) the undersigned ceases
to be (a) a member in good standing of the NASD, (b) registered
as a broker-dealer under the Securities Exchange Act of 1934, (c)
licensed as a broker-dealer under the Securities Exchange Act of
1934, or (d) licensed as a broker-dealer under the state(s)
listed on the signature page hereto; provided, however, that if
the undersigned ceases to be registered in less than all the
states listed herein, this Agreement may not be terminated by the
Company but the undersigned shall no longer offer or sell Notes
in such states. The undersigned will promptly notify the Company
in writing of the occurrence of any of the foregoing. In the
event of termination, the undersigned shall not be entitled to
any commissions earned after the date of the occurrence giving
rise to the termination or any restitution for the value of its
services thereafter performed.
6. Authority. It is understood that the undersigned's
relationship with the Company is as an independent contractor and
that nothing herein shall be construed as creating a partnership,
joint venture, or employer and employee relationship between the
undersigned and the Company. The undersigned is not authorized to
give any information or make any representations or warranties in
connection with the offer and sale of the Notes except as stated
in the Prospectus, or any sales material approved in writing by
the Company or use any sales material or advertising in
connection with the offer of the Notes except as approved in
writing by the Company; and provided further that any such sales
material or advertising may be delivered to a person only if
accompanied or preceded by the delivery of a copy of the
Prospectus.
7. Third Party Beneficiary. It is understood that the
Company intends to rely, in connection with the Offering, on the
covenants, representations and warranties made herein by the
undersigned to the Sales Agent, and that the Company is intended
to be a third party beneficiary of such covenants,
representations and warranties.
8. Indemnification. The Company agrees to indemnify and
hold harmless the undersigned and each person, if any, who
controls the undersigned, within the meaning of Section 15 of the
Act, for any and all losses, claims, damages, and liabilities
arising in connection with the offering or sale of Notes, insofar
as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of, or are based upon any untrue
statement of any material fact contained in the Registration
Statement or any amendment thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, and to reimburse any legal or
other expense reasonably incurred by such persons in connection
with investigation or defense of any such loss, claim, damage,
liability or action.
The undersigned agrees to indemnify and hold harmless the
Company and the Sales Agent and their controlling persons,
shareholders, officers and directors, for any and all losses,
claims, damages, or liabilities arising in connection with the
offering or sale of Notes, insofar as such losses, claims,
damages or liabilities (or action in respect thereof) arise out
of, or are based upon any unauthorized verbal or written
representations by the undersigned, any untrue statement or
alleged untrue statement of any material fact made by the
undersigned in writing to the Company or the Sales Agent, or the
failure of the undersigned to deliver a copy of the Prospectus to
a purchaser of the Notes, or for a violation of any federal,
state (including Blue Sky and securities laws and any applicable
suitability requirements) or local statue or common law, or of
any court order, or of
6
<PAGE>
any rule or regulation of any governmental unit or agency or
the NASD, for the breach of any representation or warranty made
by the undersigned herein, or for the failure of the undersigned
to properly perform any of its duties described herein, and to
reimburse any legal or other expense reasonably incurred by any
of such persons in connection with investigation or defense of
any such loss, claim, damage, liability or action.
Notwithstanding the foregoing, the Company and the Sales
Agent and their Affiliates and any person acting as a Selected
Dealer shall not be indemnified hereunder for any losses,
liabilities or expenses arising from or out of an alleged
violation of federal or state securities laws unless (1) there
has been a successful adjudication on the merits of each count
involving alleged securities law violations as to the particular
indemnitee and the court approves indemnification or the
litigation costs, or (2)) such claims have been dismissed with
prejudice on the merits by a court of competent jurisdiction as
to the indemnification of the litigation costs, or (3) a court of
competent jurisdiction approves a settlement of the claims
against a particular indemnitee and finds that indemnification of
the settlement and related costs should be made. If any claim for
indemnification for federal or state securities law violations,
the party seeking indemnification shall place before the court
the position of the SEC and any other applicable regulatory
authority with respect to the issue of indemnification for
securities law violations.
9. Method and Location of Notices. All communications
hereunder, except as herein otherwise specifically provided,
shall be in writing and, if sent to the Sales Agent, shall be
mailed, delivered, or telecopied and confirmed to you at Crispin
Koehler Securities, 301 East Main Street, Suite 1140, Lexington,
Kentucky 40507; Attention: Richard D. Koehler (Telecopy
606-253-3872); if sent to the Company, shall be mailed, delivered
or telecopied and confirmed to it at 1440 Chapin Avenue,
Burlingame, California 94010, Attention: Neal D. Crispin
(Telecopy 415-696-3929); if sent to the undersigned, shall be
mailed, delivered or telecopied and confirmed to it at the
address listed on the signature page. Notice shall be deemed to
be given by a party to another (i) if by personal delivery, on
the date of such delivery, (ii) if telecopied, on the date of
transmission, if the receiving party confirms receipt of such
notice telephonically, and (iii) if mailed, three days after
delivery to the mails, postage prepaid, registered mail, return
receipt requested, to the addresses provided in Section 9 hereof.
10. Miscellaneous.
(a) No rights or interests created hereunder may
be transferred, conveyed or assigned except with the prior
written consent of the Company and the Sales Agent.
(b) This Agreement shall be governed by the laws
of the State of California and venue for any legal action arising
out of this Agreement shall be in San Mateo County, California.
(c) Notwithstanding the date or dates that this
Agreement shall be actually signed by the parties hereto, the
undersigned's representations, warranties and agreements herein
shall be effective as if made prior to the commencement by the
undersigned of its performance hereunder.
7
<PAGE>
If the foregoing is in accordance with the Sales Agent
and the Company's understanding, please sign and return to the
undersigned the counterpart hereof, whereupon this letter and
your acceptance as signified by your signature shall constitute a
binding agreement.
Very truly yours,
_______________________________________
Name of Selected Dealer (type or print)
By:____________________________________
Title:_________________________________
Address:_______________________________
_______________________________________
Att'n:_________________________________
Telecopy:______________________________
State(s) in which Dealer is licensed:
_______________________________________
_______________________________________
_______________________________________
Dated:_________________________________
The foregoing is hereby confirmed and accepted as of the date
written below:
Crispin Koehler Securities,
a California corporation
By:____________________________________
Its:___________________________________
Dated:_________________________________
AGREED AND ACKNOWLEDGED: AeroCentury Fund IV, Inc.
a California corporation
By:____________________________________
Its:___________________________________
Dated:_________________________________
EXHIBIT 10.4
Form of Subscription Escrow Agreement
between Registrant and First Security
Bank, National Association, as Escrow Agent
<PAGE>
ESCROW AGREEMENT
This Agreement is entered in to as of ________, 1997,
by, between and among FIRST SECURITY BANK OF NATIONAL ASSOCIATION
(the "Escrow Agent"), CKS SECURITIES, INCORPORATED (the "Sales
Agent"), and AEROCENTURY FUND IV, INC., a California corporation
(the "Company").
RECITALS
A. The Company proposes to make an offering (the
"Offering") and sell $20,000,000 of 10% Secure Promissory Notes,
each with a principal face amount of $1,000 and to investors (the
"Investors") in accordance with the terms and conditions of the
Company's Prospectus included in the Company's Registration
Statement on Form SB-2 filed with the Securities and Exchange
Commission (the "Prospectus"). The Units are to be offered to
investors on a best-efforts basis through the Sales Agent and
through members of the National Association of Securities
Dealers, Inc., selected by the Sales Agent (the "Selected
Dealers").
B. The Offering is subject to the provisions of Rule
15c2-4 promulgated by the Securities Exchange Commission pursuant
to Section 15c2-4 of the Exchange Act ("Rule 15c-2-4").
C. The Offering will commence on ________, 1997 and will
terminate two years after the date of commencement of the
Offering, unless such date is advanced by the Company
(the"Termination Date").
D. The Sales Agent intends to participate in the Offering
on a best efforts basis pursuant to the terms of the Sales Agent
Agreement entered into by and between the Company and the Sales
Agent.
E. The Escrow Agent has agreed to act as the
Escrow Agent for the Escrow Account referred to below, on the
terms and conditions set forth below.
NOW, THEREFORE, the parties agree as follows:
1. Establishment of an Escrow Account. By execution of
this Escrow Agreement parties establish an interest-bearing
Escrow Account entitled First Security Bank/AeroCentury Fund IV
Escrow Account, (the Escrow Account"). All funds deposited in the
Escrow Account shall be held in trust for the benefit of the
parties entitled thereto pursuant to the terms of this Escrow
Agreement.
2. Deposit of Subscription Proceeds.
(a) The Escrow Agent from time to time will
receive from the Company, the Sales Agent or Selected Dealers,
funds representing subscription payments for Units. All checks
representing subscription payments shall be made payable to the
order of the First Security Bank/AeroCentury Fund IV Escrow
Account, and shall be accompanied by a copy of any subscription
documents executed by the subscriber. In the event any checks are
made payable to a party other than the Escrow Agent, such checks
shall be promptly returned to the Sales Agent or the Selected
Dealer who submitted such checks.
(b) The Sales Agent agrees that it shall, and
shall require the Selected Dealers to, deliver to Escrow Agent by
noon of the next business day following receipt by the Selected
Dealer all monies received from subscribers for the payment of
Units to the Escrow Agent for deposit into the Escrow Account
together with a written account of each sale, which account shall
<PAGE>
set forth, among other things, the subscriber's name and address,
social security or federal taxpayer identification number
together with the Form W-9 referenced in Section 2(d) below, the
number of Units purchase, the amount paid therefor, and whether
the consideration received was in the form of a check or wire
transfer, draft, or money order. The Company shall also provide
the Escrow Agent with such other information as the Escrow Agent
may reasonably request in connection with its duties under this
Agreement.
(c) Escrow Agent will deposit subscribers' checks
for collection and credit the proceeds to the Escrow Account.
Notwithstanding anything to the contrary contained herein, Escrow
Agent is under no duty or responsibility to enforce collection of
any checks delivered to Escrow Agent hereunder. The Escrow Agent
hereby is authorized to forward each check for collection and
deposit the proceeds in the Escrow Account. As an alternative,
the Escrow Agent may telephone the bank on which the check is
drawn to confirm that the check has been paid. Additionally, to
ensure that such funds have cleared normal banking channels for
collection, Escrow Agent is hereby authorized to hold for three
(3) business days any funds to be released pursuant to Section 4
hereof. The Company shall immediately reimburse the Escrow Agent
any monies paid to it if thereafter the Subscriber's check is
returned unpaid. Any item returned unpaid to the Escrow Agent on
its first presentation for payment shall be returned to the
Company and need not be again presented by the Escrow Agent for
collection. The Company agrees to reimburse the Escrow Agent for
the cost incurred with any returned check. For purposes of this
Agreement, the term "Collected Funds" or the term "collected"
when referring to the proceeds of subscribers' checks shall mean
all funds received by the Escrow Agent that have cleared normal
banking channels and are in the form of cash.
(d) The Sales Agent will provide for each
subscription an Internal Revenue Service Form W-9, pursuant to
which each subscriber will furnish the Escrow Agent such
subscriber's taxpayer identification number and will state under
penalties of perjury that such taxpayer identification number is
true and correct and whether the subscriber is subject to the
requirements of the Interest and Dividend Tax Compliance Act of
1983 providing for the withholding of 31% of the reportable
interest, dividends or other payments.
3. Rejection of Subscription. The Company warrants and
represents that pursuant to the terms of the Prospectus it may
accept or reject a subscription in whole or in part for any
reason. In the event the Company elects to reject the
subscription of any subscriber whose subscription payment has
been deposited into the Escrow Account, the Company shall deliver
written notice of the rejection to the Escrow agent setting forth
the name, address, taxpayer information identification number of
social security number and subscription amount of the subscriber
whose subscription has been rejected. The Escrow Agent shall
return to the subscriber within five (5) banking days or receipt
of such notice the subscription proceeds, together with the
subscriber's pro rata share of earnings on subscription proceeds
held in the escrow account when the funds have been collected
pursuant to Section 2(c) of this Agreement. Pro rata share of
earnings for each subscriber shall be calculated on a 360-day
year. Subscriptions will be deemed to be accepted if not rejected
or canceled with thirty (30) calendar days of receipt by the
Escrow Agent, said time limitation to include that date or
receipt. The Escrow Agent shall not be responsible for the
decision by the Company to accept or reject a subscription.
4. Release of Funds. The Escrow Agent is authorized
to release the subscription funds, and all interest earned
thereon, from the Escrow Account as follows:
(a) If: (i) the Escrow Agent has received
Collected Funds of at least $500,000 representing 500 Units (the
"Minimum Subscription"), on or before seven (7) business days
after the Termination Date, and (ii) either (A) with respect to
the initial release of Collected Funds (the "Initial Closing")
from escrow , the Company and Sales Agent deliver to Escrow Agent
a Certificate confirming that subscriptions totaling the Minimum
Subscription or more have been
<PAGE>
received and accepted by the Company and that all other
conditions for release of the Collected Funds from escrow as set
forth in the Prospectus have been satisfied or (B) with respect
to release of Collected Funds from escrow subsequent to the
Initial Closing, the Company and the Sales Agent certify in
writing that the Collected Funds then held in escrow are
sufficient to purchase Income Producing Assets (as defined in the
Prospectus) or an interest therein; then, the Escrow Agent is
authorized to release the funds, together with interest earned,
to the Company.
(b) If the Escrow Agent does not receive Collected
Funds equal the Minimum Subscription or more by May 1, 1998
1997, the Company and the Sales Agent promptly shall deliver to
the Escrow Agent written instructions stating the subscription
amount and pro rata interest to be returned to each subscriber.
Upon receipt of the written instructions, the Escrow Agent shall
mail to each subscriber check made payable to the subscriber in
the amount mutually specified by the Company and Sales Agent. The
Escrow Agent shall not be responsible for the determination of
the amounts to be returned to each subscriber.
(c) In the event the Company decides to cancel or
terminate the Offering prior to the Termination Date, the Company
promptly shall deliver to the Escrow Agent written instruction
stating the subscription amount and pro rata interest to be
returned to each subscriber (to be based on the amount of
subscriber's funds, the length of time in escrow and calculated
on a 360-day year). Upon receipt to the subscriber in the amount
specified by the Company. The Escrow Agent shall not be
responsible for the determination of the amounts to be returned
to each subscriber.
(d) Any subscription funds returned to subscribers
pursuant to written instructions furnished to the Escrow Agent by
the Company pursuant to paragraphs 4(b) or 4(c) of this Escrow
Agreement shall be without deduction or offset for any fee or
compensation due Escrow Agent. Any unpaid escrow fee or other
compensation due Escrow Agent pursuant to the terms of this
Escrow Agreement shall not be deducted pro rata from any interest
earned on the subscription funds prior to their return to the
subscribers. The amount of any fee or other compensation due
Escrow Agent will be payable jointly and severally by the Company
and the Sales Agent as set forth in Section 8 hereof.
(e) The Company expressly acknowledges that prior
to the release of the subscription funds pursuant to paragraph
4(a) above, the Company shall not have any interest in or claim
to the subscription funds nor are the subscription funds subject
to claims of creditors of the Company.
5. Segregation of Funds. The subscription funds deposited
into the Escrow Account and any interest earned thereon shall be
kept separate from all other funds in the custody of the Escrow
Agent, including any other funds that may be deposited with the
Escrow Agent by the Company, the Sales Agent, the Selected
Dealers or any of their affiliates.
6. Investment of Funds. All Collected Funds received by
the Escrow Agent shall be promptly invested in the name of Escrow
Agent as agent for the Company, in no event later than the third
business day immediately following the date of each deposit made
by the Escrow Agent into the Escrow Account. The Collected Funds
only may be invested in short-term securities issued or
guaranteed by the U.S. Government, interest-bearing bank
accounts, short-term bank certificates of deposit, or bank money
market accounts, including those accounts issued or offered by
the Escrow Agent, as directed in writing by the Company. The
maturity date of investment may not extend past the Termination
Date, unless the investment may be disposed of by the Termination
Date without any dissipation of the funds. Funds shall not be
invested in money-market mutual funds, corporate equity or debt
securities, repurchase agreements, banker's acceptances,
commercial paper, or municipal securities. The Escrow Agent shall
have not obligation to invest such amounts until all applicable
tax withholding requirements have been satisfied. The Escrow
Agent shall in no event be liable for any investment loss if such
loss results from an investment
<PAGE>
made in accordance with this Agreement. The Escrow Agent shall
retain the prospective Subscriber's Form W-9, but shall deliver
to the Company the remainder of any subscription documents of the
prospective subscriber to the Company within five business days
of receipt by the Escrow Agent.
7. Duties of the Escrow Agent.
(a) The Escrow Agent acts as depositary only and
is not responsible or liable in manner whatsoever for the
sufficiency, correctness, genuineness, or validity of any
instrument deposited under this Escrow Agreement. The Escrow
Agent makes no representation whatsoever as to the compliance of
the Offering of Notes with any applicable state or federal laws,
regulations, or rulings. The Escrow Agent has not make, not will
make, any representations or warranties made by the Company or
the Sales Agent or any Selected Dealer concerning the Company.
Furthermore, the Escrow Agent shall not be responsible for the
application or use of any funds released from the Escrow Account
pursuant to this Escrow Agreement.
(b) Except as expressly provided in this Escrow
Agreement, the Escrow Agent shall be entitled, to act entirely on
the basis of written instructions received from the Company and
shall have no independent duty of inquiry regarding the basis for
such instructions or the calculation of the amount of interest
earned with respect to any subscription payments.
(c) The Escrow Agent shall not be liable for any
error of judgment or for any act taken or omitted by it in good
faith or for any mistake of fact or law, or for anything which it
may do or refrain from doing in connection with this Escrow
Agreement except for its own willful misconduct, and the Escrow
Agent shall have not duties to anyone except the Company.
(d) The Escrow Agent may consult with legal
counsel in the event of any dispute or question as to the
construction of this Escrow Agreement or the Escrow Agent's
duties under this Escrow Agreement, and the Escrow Agent shall
incur no liability and shall be fully protected in acting in
accordance with the opinion and instructions of counsel.
Notwithstanding the Escrow Agent's consultation with counsel, the
Escrow Agent is not obligated to institute, defend or participate
in any litigation regarding a dispute arising from the Escrow
Account or this Escrow Agreement.
(e) Should any controversy arise involving the
parties hereto or any of them or any other person, firm or entity
with respect to this Escrow Agreement or the Collected Funds, or
should a substitute escrow agent fail to be designated as
provided in Section 15 hereof, or if Escrow Agent should be in
doubt as to what action to take, Escrow Agent shall have the
right, but not the obligation, either to (i) withhold delivery of
the Collected Funds until the controversy is resolved, the
conflicting demands are withdrawn or its doubt is resolved, or
(ii) institute a petition for interpleader in any court of
competent jurisdiction to determine the rights of the parties
hereto. In the event Escrow Agent is a party to any dispute,
Escrow Agent shall have the additional right to refer to such
controversy to binding arbitration. Should a petition for
interpleader be instituted, or should Escrow Agent be threatened
with litigation or become involved in litigation or binding
arbitration in any manner whatsoever in connection with this
Escrow Agreement or the Collected Funds, then, the Company and
the Sales Agent hereby jointly and severally agree to reimburse
Escrow Agent for its attorneys' fees and any and all other
expenses, losses, costs and damages incurred by Escrow Agent in
connection with or resulting from such threatened or actual
litigation or arbitration prior to any disbursement hereunder.
8. Fee.
(a) For its ordinary services rendered pursuant to
this Escrow Agreement, the Escrow Agent shall be paid by the
Company and the Sales Agent, the fees and expenses set forth
<PAGE>
in Exhibit A whether or not the offering contemplated by the
Prospectus is consummated.
(b) In the event:
(i) That the Escrow Agent performs
any service no specifically provided in this Escrow Agreement;
(ii) That there is any assignment,
modification, or attachment of any interest in the subject matter
of this Escrow Agreement;
(iii) That any controversy arises under
this Escrow Agreement; or
(iv) That the Escrow Agent is made a
party to, or intervenes in, any litigation pertaining to this
Escrow Agreement, the Escrow Agent shall be reasonably
compensated any reimbursed by the Company and the Sales Agent,
jointly and severally, for all costs and expenses (including,
without limitation, attorney's fees whether or not suit is
instituted) occasioned thereby. The Escrow Agent shall have a
first lien on the money, property, and papers held by it under
this Escrow Agreement for its compensation and expenses, and the
Company and the Sales Agent, jointly and severally, agree to pay
such compensation and expenses; provided, however, that the lien
shall attach only if the conditions set forth in paragraph 4(a)
of this Escrow Agreement have been met.
9. Resignation of Escrow Agent. The Escrow Agent reserves
the right to resign as escrow holder at any time by given thirty
(30) days prior written notice of such resignation to the
Company. In the event of such resignation by the Escrow Agent,
the Escrow Agent shall deliver the funds then held in the Escrow
Account and all related records to any replacement escrow holder
appointed by the Company. If the Company fails to notify the
Escrow Agent in writing as of the identity of such replacement
escrow holder within thirty (30) days after receiving the notice
of the Escrow Agent's resignation, the Escrow Agent will be
entitled to return to each subscriber whose subscription payment
is then being held in the Escrow Account the amount of such
subscriber's subscription payment plus the net amount of interest
earned with respect to such subscriber's subscription payment. If
the Escrow Agent decides to return such amounts to subscribers
and the Company fails to notify the Escrow Agent of their
determination of the net interest amounts payable to the
respective subscribers, the Escrow Agent shall determine such net
interest amounts in such a manner as it deems appropriate, and in
no event shall the Escrow Agent be liable for its determination
of such net interest amounts. Notwithstanding the resignation of
the Escrow Agent, the Company shall remain liable for all fees
payable to the Escrow Agent pursuant to the terms of this Escrow
Agreement.
10. Representations and Warranties of the Company.
The Company represents and warrants as follows:
(a) The Offering complies with, or is exempt from,
all applicable registration or qualification requirements,
including, without limitation, those of the Securities and
Exchange Commission, the California Department of Corporations,
and all other applicable state regulatory authorities.
(b) The Offering complies with all other
applicable federal and state laws, rules and regulations.
(c) All selling agreements entered into with the
Sales Agent and selling agreements which in the future may be
entered into, contain or will contain a provisions which binds
the Sales Agent to comply with the terms of this Escrow
Agreement.
<PAGE>
(d) This Escrow Agreement does not conflict with
any representation, written or oral, made by the Company to any
person, organization, or governmental agency in connection with
the Offering.
(e) The Prospectus indicates that subscribers will
not receive any interest on subscription payments, unless
subscription payments are refunded to subscribers pursuant to
paragraphs 3, 4(b) or 4(c).
(f) The proceeds of the Offering are not subject
to any impound condition imposed by the Department of Corporation
of the State of California or by another regulatory authority.
11. Representation of the Sales Agent. The Sales Agent
represents and warrants that the terms of this Escrow Agreement
do not conflict with any representation or warranty, oral or
written, made by the Sales Agent in connection with the Offering.
12. Offering Materials. The Company shall cause
substantially all of the following language to be included in the
Prospectus and any other offering materials.
"The sole role of the Escrow Agent in this offering is
that of escrow holder. The Escrow Agent has not reviewed
this Prospectus or any other offering materials and has
not made any representations whatsoever as to the nature
of this offering or its compliance, or lack thereof, with
any applicable federal or state laws, rules or
regulations. The Escrow Agent does not represent the
interest of the Note holders or potential investors. The
Escrow Agent's duties are limited as expressly set forth
in the Escrow Agreement. Note holders and potential
investors may request a copy of the Escrow Agreement from
the Company. Also, a copy of the Escrow Agreement is on
file as an exhibit to the Company's Registration
Statement with the Securities and Exchange Commission,
and a copy may be obtained from the Commission. The
payment of interest and the refunds of funds deposited in
escrow and provided for in the Escrow Agreement and are
not matters of discretion for Escrow Agent."
The Company shall not make any other references,
written oral, to or regarding the Escrow Agent without the prior
written consent of the Escrow Agent.
13. Indemnification of Escrow Agent. The Company
and the Sales Agent shall indemnify and hold the Escrow Agent,
its directors, officers, employees and agents harmless from and
against any and all liability, demands, claims, actions, losses,
interest, cost of defense, and expenses (including reasonable
attorney's fees) which arise out of or in connection with the
acceptance or appointment as Escrow Agent except such acts or
omissions as may result from the willful misconduct or gross
negligence of the Escrow Agent in connection with this Escrow
Agreement. Promptly after receipt by the Escrow Agent of notice
of any demand or claim or the commencement of any action, suit or
proceeding relating to this Escrow Agreement, the Escrow Agent
shall notify the Company and Sales Agent in writing. IT IS
EXPRESSLY THE INTENT OF THE COMPANY AND THE SALES AGENT TO
INDEMNIFY THE ESCROW AGENT, AND ITS DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS FROM THEIR ORDINARY NEGLIGENCE. The
provision of this Section 13 shall survive termination of this
Agreement.
14. Notices. Notice required to be given pursuant
to the terms of this Escrow Agreement shall be deemed received
upon personal delivery or deposit into the mail by overnight
courier or by telecopy, subject to confirmation as follows:
<PAGE>
If to the Company:
AEROCENTURY FUND IV, INC.
1440 Chapin Avenue, Suite 310
Burlingame, CA 94010
(415) 696-3900
Telecopy: (415) 696-3929
If to the Escrow Agent:
FIRST SECURITY BANK, NATIONAL ASSOCIATION
79 South Main Street
Salt Lake City, UT 84111
Attn: Greg Hawley, Esq.
(801) 246-5826
Telecopy: (801)245-5053
If to the Sales Agent:
CKS SECURITIES, INCORPORATED
301 East Main Street
Lexington, KY 40507
15. Miscellaneous.
(a) The provisions of this Escrow Agreement shall
be binding upon and inure to the benefit of the parties hereto
and their respective legal representatives, heirs, successors or
assigns.
(b) This Escrow Agreement may be executed in two
or more counterparts, each of which shall e deemed an original,
but all of which together shall constitute one and the same
instrument.
(c) This Escrow Agreement shall be governed, by
and construed in accordance with the laws of the State of Utah,
and the federal and state courts located in Salt Lake City, utah
shall be the proper forum and venue for any action arising from
this Escrow Agreement.
(d) All captions contained in this Escrow
Agreement are for convenience only and are not to be deemed part
of the agreement or to be referred to in connection with the
interpretation of this Escrow Agreement.
(e) Whenever required by the context of this
Escrow Agreement, the singular number shall include the plural,
and vice versa; the masculine gender shall include the feminine
and neuter genders; and the neuter gender shall include the
masculine and feminine genders.
(f) This Escrow Agreement shall not be subject to
rescission or modification except on receipt by the Escrow Agent
of the written instructions of the Company and the Sales Agent or
their respective successors in interest, and no such
modifications shall be effective unless and until consented in
writing by the Escrow Agent.
(g) The failure of the Escrow Agent to insist upon
strict adherence to any term of this Escrow Agreement on one or
more occasions shall not be considered a waiver or deprive the
Escrow Agent of the right thereafter to insist upon strict
adherence to such term or any other term of this Escrow
Agreement. Any waiver must be in writing.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the data first above written.
AEROCENTURY FUND IV, INC.
By:_____________________________
Neal D. Crispin
Tax. I.D. No. __________________
FIRST SECURITY BANK,
NATIONAL ASSOCIATION
By:_____________________________
Its:____________________________
CKS SECURITIES, INCORPORATED
By:_____________________________
Its:____________________________
<PAGE>
EXHIBIT A
FEE SCHEDULE
UNIT FEES
Initial Charge
Annual Administrative Fee
Receipts Into Escrow
EXHIBIT 24.1
Consent of Stephen C. Ryan & Associates
<PAGE>
CONSENT OF STEPHEN C. RYAN & ASSOCIATES
The undersigned hereby consents to the reference to it
under the caption "Legal Matters" in the Prospectus which
constitutes a part of the Registration Statement referred to
above. The undersigned also consent to the inclusion in the
Registration Statement of its opinions as Exhibit 5.1 and 8.1
thereto.
/s/ STEPHEN C. RYAN & ASSOCIATES
--------------------------------
Stephen C. Ryan & Associates
February 21, 1997
EXHIBIT 24.2
Consent of Vocker Kristofferson & Company
<PAGE>
CONSENT OF VOCKER KRISTOFFERSON & COMPANY
We hereby consent to the use of our report dated February 18,
1997, with respect to the balance sheet of AeroCentury Fund IV,
Inc. in the Prospectus and Registration Statement filed on Form
SB-2 for AeroCentury Fund IV, Inc. We also consent to the
reference to our firm under the caption "EXPERTS" in the
Prospectus.
/s/ VOCKER KRISTOFFERSON & CO.
------------------------------
Vocker Kristofferson & Co.
February 18, 1997
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF
A TRUSTEE PURSUANT TO SECTION 305(b)(2)
FIRST SECURITY BANK,
NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
NOT APPLICABLE 87-0131890
(Jurisdiction of Incorporation (I.R.S. Employer
if not a U.S. national bank) identification No.)
79 SOUTH MAIN STREET
SALT LAKE CITY, UTAH 84111
(Address of principal executive offices) (Zip Code)
NOT APPLICABLE
(Name, address and telephone number of agent for service)
AEROCENTURY FUND IV, INC.
(Exact name of obligor as specified in its charter)
CALIFORNIA 94-3260392
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1440 CHAPIN AVENUE
SUITE 310
BURLINGAME, CA 94010
(Address or principal executive offices) (Zip Code)
SECURED PROMISSORY NOTES
(Title of the Indenture securities)
<PAGE>
Item 1. General Information. Furnish the following information
as to the trustee:
(a) Name and address of each examining of supervising
authority to which it is subject.
Comptroller of the Currency, Washington, D.C. 20230;
Federal Reserve Bank of San Francisco, San Francisco,
CA 94120; Federal Deposit Insurance Corporation,
Washington, D.C. 20429.
(b) Whether it is authorized to exercise corporate
trust powers.
The Trustee is authorized to exercise corporate trust
powers.
Item 2. Affiliations With The Obligor. If the obligor is an
affiliate of the trustee, describe each such
affiliation.
Neither the obligor nor any underwriter for the obligor
is an affiliate of the Trustee.
Item 16. List of Exhibits. List below all exhibits filed as part
of this statement of eligibility and qualification.
Exhibit 1: copy of the articles of association as now
in effect
Exhibit 2: certificate of authority to commence
business including a certificate of the Comptroller of
the Currency evidencing the change of the Trustee's
name
Exhibit 3: copy of the authorization of the trustee to
exercise corpora te trust powers
Exhibit 4: copy of the bylaws of the trustee
Exhibit 5: Not applicable
Exhibit 6: Not applicable
Exhibit 7: A copy of the latest report published
pursuant to law or its supervising or examining
authority
Exhibit 8: Not applicable
Exhibit 9: Not applicable
<PAGE>
Signature
Pursuant to the requirements of the Trust Indenture Act of
1939, as amen ded, the trustee, First Security Bank, National
Association, a national banking as sociation organized and
existing under the laws of the United States, has duly caused
this statement of eligibility and qualification to be signed on
its behalf by the undersigned thereunder duly authorized, all in
the City of Salt Lake City, and State of Utah, on the 19th day of
February, 1997.
FIRST SECURITY BANK,
NATIONAL ASSOCIATION, Trustee
/s/Greg A. Hawley
By: ________________________
Greg A. Hawley
Vice President
<PAGE>
EXHIBIT 1
ARTICLES OF ASSOCIATION
OF
FIRST SECURITY BANK
NATIONAL ASSOCIATION
(As Amended)
FIRST. The title of this Association, which shall carry on
the busines s of banking under the laws of the United States,
shall be "First Security Bank, National Association."
SECOND. The place where the main banking house or office of
this Association shall be located shall be Ogden, County of
Weber, State of Ut ah. Its general business and its operations of
discount and deposit shall also be carried on in said city, and
the branch or branches established or maintained by it in
accordance with the provisions of Section 36 of Title 12, United
States Code. The Board of Directors shall the power to change the
location of the main office of this Association (i) to any oth er
authorized branch location within the limits of Ogden, Utah,
without the approval of the sh areholders of this Association and
upon notice to the Comptroller of the Currency or, (ii) t o any
other place within Ogden, Utah, or within thirty (30) miles of
Ogden, Utah, with the approval of the shareholders and the
Comptroller of the Currency. The Board of Directors shall have
the power to change the location of any branch or branches of
this Associatio n to any other location, without the approval of
the shareholders of this Association bu t subject to the approval
of the Comptroller of the Currency.
THIRD. The Board of Directors of the consolidated
association shall consist of not less than five (5) nor more than
twenty-five (25) of its shareholders.
FOURTH. There shall be an annual meeting of the shareholders
the purpose of which shall be the election of Directors and the
transaction of whatever other business may be brought before
said meeting. It shall be held at the main office of the Bank or
other convenient place as the Board of Directors may designate,
on the third Monday of March of each year, but if no election is
held on that day, it may be held on any subsequent day according
to such lawful rules as may be prescribed by the Board of
Directors. Nominations for election to the Board of Directors may
be made by the Board of Directors or by any stockholder of any
outstanding class of capital stock of the Bank entitled to vote
for election of directors. Nominations, other than those made by
or on behalf of the existing management of the Bank, shall be
made in writing and shall be delivered or mailed to the
President of the Bank and to the Comptroller of the Currency,
Washington, D.C., not less than 14 days nor more than 50 days
prior to any meeting of stockholders c alled for the election of
directors, provided, however, that if less than 21 days notice
of the meeting is given to shareholders, such nomination shall be
mailed or delivered to the President of the Bank and to the
Comptroller of the Currency not later than the close of business
on the seventh day following the day on which the notice of
meeting was mailed. Such notification shall contain the following
information to the extent known to the notifying shareholder:
(a) the name and address of each proposed nominee; (b) the
principal occupation of each proposed nominee; (c) the total
number of shares of capital stock of the Bank that will be voted
for each proposed nominee; (d) the name and residence address of
the notifying shareholder; and (e) the number of shares of
capital stock of the Bank owned by the notifying shareholder.
Nominations not made in accordance herewith may, in his
discretion, be disregarded by the Chairman of the meeting, and
upon his instructions, the voting inspectors may disregard all
votes cast for each such nominee.
FIFTH. The authorized amount of capital stock of this
Association shall be One Hundred Million Dollars
($100,000,000.00), divided into 4,000,000 shares of common stock
of the par value of Twenty-five Dollars ($25.00) each; provided,
however, that said capital stock may be increased or decreased
from time to time, in accordance with the provision of the laws
of the United States. The shareholders of this Association shall
not have any pre-emptive rights to acquire unissued shares of
this Association.
<PAGE>
SIXTH. (1) The Board of Directors shall appoint one of its
members President of this Association. It may also appoint a
Chairman of the Boa rd, and one or more Vice Chairman. The Board
of Directors shall have the power to appoint on e or more Vice
Presidents, at least one of whom shall also be a member of the
Board of D irectors, and who shall be authorized, in the absence
of the President, to perform all acts and duties pertaining to
the office of the President; to appoint a Cashier and such other
offic ers and employees as may be required to transact the
business of this Association; to fix the salaries to be paid to
such officers or employees and appoint others to take their
place.
(2) The Board of Directors shall have the power to define
the duties of officers and employees of this Association and to
require adequate bonds from them for the faithful performance of
their duties; to make all By-Laws that may be lawful for the
general regulation of the business of this Association and the
management of its affairs, and generally to do and perform all
acts that may be lawful for a Board of Directors to do and
perform.
(3) Each person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit
or proceeding, whether civil, administrative or investigative
(other than an action by or in the right of the Association) by
reason of the fact that he is or was a director, officer,
employee or agent of the Association or is or was serving at the
request of the Association as a director, officer, employee,
fiduciary or agent of another corporation, partnership, joint
venture, trust, estate or other enterprise or was acting in
furtherance of the Association's busine ss shall be indemnified
against expenses (including attorney's fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he
acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the Association;
provided, however, no indemnification shall be given to a person
adjudged guilty of, or liable for, willful misconduct, gross
neglect of duty, or criminal acts or where there is a final order
assessing civil money penalties or requiring affirmative action
by such person in the form of payments to the Association. The
termination of any action, suit or proceeding by judgment, order,
settlement, or its equivalent, shall not of itself, create a
presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to
the best interests of the Association.
(4) Each person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or
suit by or in the right of the Association (such action or suit
being known as a "derivative proceeding" ) to procure a judgment
in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the Association or is or was
serving at the request of the Association as a director,
officer, employee, fiduciary or agent of another corporation,
partnership , joint venture, trust, estate or other enterprise
shall be indemnified against expenses (including attorney's
fees) actually and reasonably incurred by him in connection with
the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Association; provided,
however, that no indemnification shall be given where there is a
final order assessing civil money penalties or requiring
affirmative action by such person in the form of payments to the
Association; and provided further that no indemnification shall
be made in respect of any claim, is sue or matter as to which
such person shall have been adjudged to be liable for negligence
or misconduct in the performance of his duty to the Association,
unless and only to the extent that the court in which such action
or suit was brought shall determine upon application th at,
despite the adjudication of liability but in view of all
circumstances of the case, s uch person is fairly and reasonably
entitled to indemnity for such expenses which such court shall
deem proper.
(5) To the extent that a director, officer, employee or
agent of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred
to in (3) or (4) of this Article or in defense of any claim,
issue or matter therein, he shall be indemnified against expenses
(including attorney's fees) actually and reasonably incurred by
him in connection therewith.
<PAGE>
(6) Any indemnification under (3) or (4) of this Article
(unless ordered by a court) shall be made by the Association only
as authorized in the specific case upon a reasonable
determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because he has
met the applicable st andard of conduct set forth in (3) or (4)
of this Article. Such determination shall be mad e (a) by the
Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or
proceeding, or (b) if such a quorum is not obtainable, or , even
if obtainable a quorum of disinterested directors so directs, by
independent legal counse l in written opinion, or (c) by the
stockholders.
(7) Expenses incurred in defending a civil or criminal
action, suit or proceeding may be paid by the Association in
advance of the final disp osition of such action, suit or
proceeding as authorized in the manner provided in (6) of this
Article (i) if the Board of Directors determines, in writing,
that (1) the director, officer , employee or agent has a
substantial likelihood or prevailing on the merits; (2) in the
event th e director, officer, employee or agent does not prevail,
he or she will have the financial cap ability or reimburse the
Association; and (3) payment of expenses by the Association will
not adversely affect its safety and soundness; and (ii) upon
receipt of an undertaking by or on be half of the director,
officer, employee or agent to repay such amount unless it shall
ultimatel y be determined that he is entitled to be indemnified
by the Association as authorized in this Article.
(8) The indemnification provided by this Article shall not
be deemed exclusive of any other rights to which those
indemnified may be en titled under any By-Law, agreement, vote of
shareholders or disinterested directors or oth erwise, both as to
action in his official capacity and as to action in another
capacity whil e holding such office and shall continue as to a
person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors,
successors in int erest, and administrators of such a person.
SEVENTH. This Association shall have succession from the
date of its organization certificate until such time as it be
dissolved by the act of its shareholders in accordance with the
provisions of the banking laws of the United States, or until its
franchise becomes forfeited by reason of violation of law, or
until terminated by either a general or a special act of
Congress, or until its affairs be placed in the hands of a
receiver and finally wound up by him.
EIGHTH. The Board of Directors of this Association, or any
three or more shareholders owning, in the aggregate, not less
than ten per centum of the stock of this Association, may call a
special meeting of shareholders at any time: Provided, however,
that unless otherwise provided by law, not less than ten days
prior to the date fixed for any such meeting, a notice of the
time, place and purpose of the meeting shall be given by
first-class mail, postage prepaid, to all shareholders of record
of this Association. These Articles of Association may be amended
at any regular or special meeting of the Share holders by the
affirmative vote of the shareholders owning at least a majority
of th e stock of this Association, subject to the provisions of
the banking laws of the United States. The notice of any
shareholders' meeting, at which an amendment to the Articles of
Association of this Association is to be considered shall be
given as hereinabove set forth.
<PAGE>
EXHIBIT 2
CERTIFICATE
TREASURY DEPARTMENT )
Office of ) ss:
Comptroller of the Currency )
I, Thomas G. DeShazo, Deputy Comptroller of the Currency, do
hereby certify that:
Pursuant to Revised Statutes 324, et seq., as amended, 12 U.S.C.
1, et seq., the Comptroller of the Currency charters and
exercises regulatory and supervisory authority over all national
banking associations;
On December 9, 1881, The First National Bank of Ogden, Ogden,
Utah was chartered as a National Banking Association under the
laws of the United States and under Charter No. 2597;
The document hereto attached is a true and complete copy of the
Comptroller Certificate issued to The First National Bank of
Ogden, Ogden, Utah, the original of which certificate was issued
by this Office on December 9, 1881;
On October 2, 1922, in connection with a consolidation of The
First Bank of Ogden, Ogden, Utah, and The Utah National Bank of
Ogden, Ogden, Utah, the title was charged to "The First & Utah
National Bank of Ogden"; on January 18, 1923, The First & Utah
National Bank of Ogden changed its title to "First Utah National
Bank of Ogden"; on January 19, 1926, the title was changed to
"First National Bank of Ogden"; and on February 24, 1934, the
title was changed to "First Security Bank of Utah, National
Association"; and
First Security Bank of Utah, National Association, Ogden, Utah,
continues to hold a valid certificate to do business as a
National Banking Association.
IN TESTIMONY WHEREOF, I have
hereunto subscribed my name and
caused the seal of Office of the
Comptroller of the Currency to be
affixed to these presents at the
Treasury Department, in the City of
Washington and District of
Columbia, this fourth day of April,
A.D. 1972.
Thomas G. DeShazo
__________________________________
Deputy Comptroller of the Currency
<PAGE>
TREASURY DEPARTMENT
Comptroller of the Currency,
Washington, December 9th, 1881
WHEREAS, by satisfactory evidence presented to
the undersigned it has been made to appear that
"The First National Bank of Ogden" in Ogden City
in the County of Weber, and Territory of Utah has
complied with all the provisions of the Revised
Statutes of the United States, required to be
complied with before an association shall be
authorized to commence the business of Banking.
Now, therefore, I, John Jay Knox, Comptroller of
the Currency, do hereby certify that "The First
National Bank of Ogden" in Ogden City in the
County of Weber, and Territory of Utah is
authorized to commence the business of Banking,
as provided in Section Fifty-one hundred and
sixty-nine of the Revised Statutes of the United
States.
In testimony whereof, witness my hand
and seal of office this 9th day of
December, 1881.
John Jay Knox
___________________________
Comptroller of the Currency
<PAGE>
EXHIBIT 3
FEDERAL RESERVE BOARD
WASHINGTON, D.C.
I, S.R. Carpenter, Assistant Secretary of the Federal Reserve
Board, do hereby certify that it appears from the records of the
Federal Reserve Bo ard that:
(1) Pursuant to authority vested in the Federal Reserve
Board by an Act of Congress approved December 23, 1913, known as
the Federal Reserve Act, as amended, the Federal Reserve Board
has heretofore granted to the First National Bank of Ogden,
Ogden, Utah, the right to ac t when not in contravention of State
or local law, as trustee, executor, administrator, registrar of
stocks and bonds, guardian of estates, assign ee, receiver,
committee of estates of lunatics, or in any other fiduciary cap
acity in which State banks, trust companies or other corporations
which come into competition with national banks are permitted to
act under the laws of the State of Utah;
(2) On February 24, 1934, the First National Bank of Ogden,
Ogden, Utah, changed its title to First Security Bank of Utah,
National Associat ion, under the provisions of an Act of Congress
approved May 1, 1886, whereby all of the rights, liabilities and
powers of such national bank under its old name devolved upon and
inured to the bank under its new name; and
(3) Pursuant to the permission heretofore granted by the
Federal Reserve Board to the First National Bank of Ogden, Ogden,
Utah, as
<PAGE>
aforesaid, and by virtue of the change in the title of such bank,
the Fir st Security Bank of Utah, National Association has
authority to act, when no t in contravention of State or local
law, as trustee, executor, administrat or, registrar of stocks
and bonds, guardian of estates of lunatics, or in any other
fiduciary capacity in which State banks, trust companies or other
corporations which come into competition with national banks are
permitte d to act under the laws of the State of Utah, subject to
regulations prescr ibed by the Federal Reserve Board.
IN WITNESS WHEREOF, I have hereunto subscribed my name and
caused the seal of the Federal Reserve Board to be affixed at the
City of Washington, in the District of Columbia, on the 1st day
of March, 1934.
S.R. Carpenter
___________________________________________
Assistant Secretary, Federal Reserve Board.
<PAGE>
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
March 1, 1934.
First Security Bank of Utah, National Association,
Ogden, Utah.
Dear Sirs:
Reference is made to the change in the name of the First
National Bank of Ogden, Ogden, Utah, pursuant to the provisions
of the Act of May 1, 1886, to First Security Bank of Utah,
National Association, and there is inclosed a certificate issued
by the Federal Reserve Board showing the trust powers heretofore
granted to the bank under its former name and that it is
authorized to exercise such powers under its new name.
Very truly yours,
S.R. Carpenter
S.R. Carpenter,
Assistant Secretary.
Enclosure
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[Logo]
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Comptroller of the Currency
Administrator of National Banks
- -----------------------------------------------------------------
Licensing Unit (Applications)
50 Fremont Street, Suite 3900
San Francisco, CA 94105
(415) 545-5900, FAX (415) 545-5925
June 20, 1996
Board of Directors
First Security Bank of Utah, N.A.
c/o First Security Corporation
Attn: Brad D. Hardy, EVP
Post Office Box 30006
Salt Lake City, Utah 84130
Re: Merger - First Security Bank of Idaho, N.A., Boise, Idaho
into First Security Bank of Utah, N.A., Ogden, Utah, under
the title of First Security Bank, N.A., Odgen, Utah. Control
No: 96-WE-02-010
Dear Members of the Board:
This letter is the official certification of the Comptroller of
the Currency to merge First Security Bank of Idaho, National
Association, Boise, Idaho into First Security Bank of Utah,
National Association, Ogden, Utah, effective as of June 21, 1996.
The resulting bank title is First Security Bank, National
Association and charter number is 2597.
This is also the official authorization given to First Security
Bank, National Association to operate the branches of the target
institution and to operate the main office of the target
institution as a branch. Branches of a national bank target are
not listed since they are automatically carried over to the
resulting bank and retain their current OCC branch numbers.
Please be advised that the Charter Certificate for the merged
bank, First Security Bank of Idaho, National Association, must be
returned to the Western District Off ce for cancellation.
Very truly yours,
Robert G. Tornborg
Robert G. Tornborg
Acting Director of Bank Supervision - Compliance and Analysis
<PAGE>
EXHIBIT 4
BY-LAWS OF THE
FIRST SECURITY BANK,
NATIONAL ASSOCIATION
Organized under the National Banking laws of the United States.
MEETINGS
SECTION 1. Unless otherwise provided by the articles of
association a not ice of each shareholder's meeting, setting
forth clearly the time, place and pur pose of the meeting, shall
be given, by mail, to each shareholder of record of this bank at
le ase 10 days prior to the date of such meeting. Any failure to
mail such notice or any irregul arity therein, shall not affect
the validity of such meeting or of any of the proceedings
thereat.
SECTION 2. A record shall be made of the shareholders represented
in pers on and by proxy, after which the shareholders shall
proceed to the transaction of any business that may properly come
before the meeting. A record of the shareholder's meet ing,
giving the names of the shareholders present and the number of
shares of stock held by each, the names of the shareholders
represented by proxy and the number of shares held by each, and
the names of the proxies, shall be entered in the records of the
meeting in the minute book of the bank. This record shall show
the names of the shareholders and the number of shares voted for
each resolution or voted for each candidate for director.
Proxies shall be secured for the annual meeting alone, shall be
dated, and shall be filed with the records of the meeting. No
officer, director, employee, or attorney for the bank may act as
proxy.
The chairman or Secretary of the meeting shall notify the
directors-elect of their election and of the time at which they
are required to meet at the banking house for the purpose of
organizing the new board. At the appointed time, which as closely
as possible shall follow their election, the directors-elect
shall convene and organize.
The president or cashier shall then forward to the office of the
Comptroller of the Currency a letter stating that a meeting of
the shareholders was held in accordance with these by-laws,
stating the number of shares represented in person and the number
of shar es represented by proxy, together with a list of the
directors elected and the report of the appointment and
signatures of officers.
OFFICERS
SECTION 3. Each officer and employee of this bank shall be
responsible for all such moneys, funds, valuables, and property
of every kind as may be entrusted to his care or otherwise come
into his possession, and shall faithfully and honestly dis charge
his duties and apply and account for all such moneys, funds,
valuables and other property that may come into his hands as such
officer or employee and pay over and deliver the same to the
order of the Board of Directors or to such person or persons as
may be authorized to demand and receive same.
SECTION 4. If the Board of Directors shall not require separate
bonds, it shall require a blanket bond in an amount deemed by it
to be sufficient.
SECTION 5. The following is an impression of the seal adopted by
the Board of Directors of this bank: (Here in the original
resolution was imprinted the Association's seal).
Association By-Laws
<PAGE>
SECTION 6. The various branches of this bank shall be open for
business during such hours as shall be customary in the vicinity,
or as shall be fixed, as to any branch, by the clearing house
association of which such branch shall be a member.
SECTION 7. The regular meeting of the board of directors shall be
held on the first Wednesday after the first Tuesday of each
month. When any regular meeting of the board of directors falls
upon a holiday, the meeting shall be held on such other day as
the board may previously designate. Special meetings may be
called by the president, an vice-president, the secretary or the
cashier, or at the request of three or more director.
MINUTE BOOK
SECTION 8. The organization papers of this bank, the returns of
the elections, the proceedings of all regular and special
meetings of the directors and of t he shareholders, the by-laws
and any amendments thereto, and reports of the committees of
directors shall be recorded in the minute book; and the minutes
of each meeting shall be signed by the chairman and attest by the
secretary of the meeting.
TRANSFERS OF STOCK
SECTION 9. The stock of this bank shall be assignable and
transferable only on the books of this bank, subject to the
restrictions and provisions of the national banking laws; and a
transfer book shall be provided in which all assignments and
transf ers of stock shall be made.
SECTION 10. Certificates of stock, signed by the president or
vice-president, and the secretary or the cashier or any assistant
cashier, may be issued to shareholders, and when stock is
transferred the certificates thereof shall be returned to the
association, cancelled, preserved, and new certificates issued.
Certificates of stock shall state upon the face thereof that the
stock is transferable only upon the books of the association, and
shall meet the requirements of section 5139, United States
Revised Statutes, as amended.
EXPENSES
SECTION 11. All the current expenses of the bank shall be paid by
the cashier, except that the current expenses of each branch
shall be paid by the manager thereof; and such officer shall,
every six months, or more often if required, make to the board a
report thereof.
EXAMINATIONS
SECTION 12. There shall be appointed by the board of directors a
committee of three members, exclusive of the active officers of
the bank, whose duty it shall be to examine, at least once in
each period of eighteen months, the affairs of each branch as
well as the head office of the association, count its cash, and
compare its assets and liabilities with the accounts of the
general ledgers, ascertain whether the accounts are corre ctly
kept and that the condition of the bank corresponds therewith,
and whether the bank is in a sound and solvent condition, and to
recommend to the board such changes in the manner of doing
business, etc., as shall seem to be desirable, the result of
which examin ation shall be reported in writing to the board at
the next regular meeting thereafter, provided that the
appointment of such committee and the examinations by it may be
dispensed with if the board shall cause such examination to be
made and reported to the board by accountants approved by it.
<PAGE>
CHANGES IN BY-LAWS
SECTION 13. These by-laws may be changed or amended by the vote
of a majority of the directors at any regular or special meeting
of the board, provided, however, that the directors shall have
been given 10 days notice of the intention to change or offer an
amended thereto.
REPEAL
SECTION 14. All by-laws heretofore adopted are repealed.
Association By-Laws
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> AEROCENTURY FUND IV, INC,
<MULTIPLIER> 1
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> FEB-15-1997
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0
0
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