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As filed with the Securities and Exchange Commission on April 8, 1997
Registration No. __________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
-------------------------
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
-------------------------
AEROMAX, INC.
(Exact name of Registrant as specified in its charter)
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DELAWARE 7394 94-3263974
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
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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 office)
-------------------------
NEAL D. CRISPIN, PRESIDENT
AEROMAX, INC.
1440 CHAPIN AVENUE, SUITE 310, BURLINGAME, CALIFORNIA 94010, (415)-696-3900
(Name, address, including ZIP code and telephone number, including area code of
agent for service)
with a copy to:
JAMES E. TOPINKA, ESQ.
GRAHAM & JAMES LLP
ONE MARITIME PLAZA, SUITE 300, SAN FRANCISCO, CALIFORNIA 94111, (415)-954-0200
Approximate date of proposed sale of securities to the public:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box [ ]
CALCULATION OF REGISTRATION FEE
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Title of each class Proposed maximum Proposed maximum
of securities to be Amount to be offering price per aggregate offering Amount of
registered registered (1) share (2) price (1)(2) Registration Fee
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Common Stock, par 1,464,951 $10 $14,649,510 $ 4,439.26
value $0.001 per
Share
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(1) Includes 35,000 Shares subject to a warrant issued to the Dealer
Manager for the Consolidation and 150,000 Shares issued to the
Management Company, JMC ("JMC Shares").
(2) Estimated solely for purposes of calculating the Registration Fee
pursuant to Rule 457(a) under the Securities Act of 1933, including
the warrant shares at an exercise price of $3.00 per Share and the JMC
Shares at $1.00 per Share.
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 that specifically states that the Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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CROSS REFERENCE SHEET
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ITEM OF S-4 CAPTION IN PROSPECTUS
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A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Facing page of Registration Statement;
Statement and Outside Front Outside Front Cover Page of Prospectus
Cover Page of Prospectus
2. Inside Front and Outside Back AVAILABLE INFORMATION; TABLE OF
Cover Pages of Prospectus CONTENTS; Inside Front Cover Page of
Prospectus
3. Risk Factors, Ratio of VOTING PROCEDURES; SUMMARY; RISK
Earnings to Fixed Charges and FACTORS; CONFLICTS OF INTEREST;
Other Information; PROFORMA FINANCIAL INFORMATION;
MANAGEMENT OF LIMITED PARTNERSHIP AND
CORPORATE STRUCTURE; FEDERAL INCOME
TAX CONSIDERATIONS; SECONDARY MARKET
AND OWNERSHIP OF PARTNERSHIP UNITS
4. Terms of the Transaction SUMMARY; BACKGROUND AND REASONS FOR
THE CONSOLIDATION; BENEFITS OF THE
CONSOLIDATION; THE CONSOLIDATION;
COMPARISON OF LIMITED PARTNERSHIP AND
CORPORATE STRUCTURE; FEDERAL INCOME
TAX CONSIDERATIONS; REPORTS,
APPRAISALS AND OPINIONS; DESCRIPTION
OF COMMON STOCK
5. Pro Forma Financial PRO FORMA FINANCIAL INFORMATION
Information
6. Material Contracts with THE CONSOLIDATION; MANAGEMENT OF THE
Company Being Acquired COMPANY
7. Additional Information Not Applicable
Required for Reoffering by
Persons and Parties Deemed to
be Underwriters
8. Interest of Named Experts and Not Applicable
Counsel
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ii
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9. Disclosure of Commission Not Applicable
Position on Indemnification
for Securities Act Liabilities
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to Not Applicable
S-3 Registrants
11. Incorporation of Certain Not Applicable
Information by Reference
12. Information with Respect to Not Applicable
S-2 or S-3 Registrations
13. Incorporation of Certain Not Applicable
Information by Reference
14. Information with Respect to THE COMPANY; THE CONSOLIDATION;
Registrants Other than S-3 or PROPERTIES OF THE PARTNERSHIPS
S-2 Registrants
C. INFORMATION ABOUT THE COMPANY
BEING ACQUIRED
15. Information with Respect to Not Applicable
S-3 Companies
16. Information with Respect to Not Applicable
S-2 or S-3 Companies
17. Information with Respect to BACKGROUND AND REASONS FOR THE
Companies other than S-3 or CONSOLIDATION; THE CONSOLIDATION --
S-2 Companies Exchange Value and Allocation of
Shares; SELECTED FINANCIAL INFORMATION
REGARDING THE PARTNERSHIPS; PROPERTIES
OF THE PARTNERSHIPS
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, AVAILABLE INFORMATION; SUMMARY; THE
Consents or Authorizations are CONSOLIDATION -- Vote Required for
to be Solicited Approval of the Consolidation; VOTING
PROCEDURES; MANAGEMENT OF THE COMPANY;
CONFLICTS OF INTEREST; DISSENTERS'
RIGHTS
19. Information if Proxies, Not Applicable
Consents or Authorizations are
not to be Solicited or in an
Exchange Offer
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SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS/CONSENT SOLICITATION STATEMENT
AEROMAX, INC.
1,464,951 SHARES OF COMMON STOCK
As described in this Prospectus/Consent Solicitation Statement (this
"Prospectus"), CMA Capital Group, L.P. (the "Corporate General Partner"), as
corporate general partner, and Neal D. Crispin and Richard D. Koehler, Jr., as
individual general partners (all three general partners collectively referred
to herein as the "General Partner") of JetFleet Aircraft, L.P. ("JetFleet I")
and JetFleet Aircraft II, L.P. ("JetFleet II") (collectively, the
"Partnerships") are proposing a consolidation by merger (the "Consolidation")
of JetFleet I and JetFleet II, with and into AeroMax, Inc., a newly organized
Delaware corporation (the "Company"). Upon completion of the Consolidation,
these participating Partnerships ("Participating Partnerships") will merge with
and into the Company and the limited partner investors ("Investors") of the
participating Partnerships will have the right to receive Common Stock of the
Company ("Common Stock"). The number of Shares issued to Investors will be
calculated using an exchange value (the "Exchange Value") assigned to the
Partnerships based primarily upon an independent appraisal of the Partnerships'
assets. The Company has applied to have the Common Stock listed on the
American Stock Exchange ("AMEX"), subject to official notice of issuance. It
is anticipated that the Consolidation will occur on or about July 1, 1997.
The General Partner believes the Consolidation will give Investors the
opportunity (i) to participate in a larger company with a more diverse asset
base, potentially greater access to capital and a greater ability to respond to
the demand for equipment financing in the Partnerships' existing niche market,
used turboprop aircraft leased by regional air carriers and (ii) to own
securities with potentially greater liquidity than the limited partnership
interests ("Units") held by Investors. Upon completion of the Consolidation,
the Company will continue in the aircraft leasing business and will use debt
and equity financing to acquire additional aircraft assets on lease.
An Investor who votes "YES" on the enclosed consent card (the"Consent
Card") will have the right to receive Common Stock of the Company, if the
majority of Investors in the Partnership approves the Consolidation and such
Partnership and the Company consummate the Consolidation. A "YES" vote will
also constitute approval of certain amendments to the Partnership's Partnership
Agreement necessary to effect the Consolidation on the terms set forth in this
Prospectus. An Investor who abstains from voting or votes "NO" will receive
Shares of Common Stock if (i) the majority of Investors in the Partnership
approve the Consolidation and (ii) all other conditions for the consummation of
the Consolidation of the Partnership and the Company are satisfied, unless he
or she exercises dissenters' rights. See "DISSENTERS' RIGHTS." If the
majority of Investors of a Partnership do not approve the Consolidation, the
Consolidation between the Company and that Partnership will not occur, and such
Partnership will continue in its current form. If a majority of the Investors
of JetFleet II approve the Consolidation, but a majority of the Investors in
JetFleet I do not approve the Consolidation, the Consolidation may be
consummated between the Company and JetFleet II only. If a majority of the
Investors in JetFleet II do not approve the Consolidation, the Consolidation
will not occur.
This Prospectus describes the risks and benefits of the Consolidation.
SEE "RISK FACTORS." THE GENERAL PARTNER REQUESTS THAT EACH INVESTOR COMPLETE
AND SIGN THE ENCLOSED CONSENT CARD. Capitalized terms used herein have the
meanings set forth in the "GLOSSARY OF TERMS." THE GENERAL PARTNER STRONGLY
RECOMMENDS THAT ALL INVESTORS VOTE "YES" IN FAVOR OF THE CONSOLIDATION.
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THE PRINCIPAL RISKS AND OTHER ADVERSE FACTORS OF THE CONSOLIDATION ARE:
o NO INDEPENDENT REPRESENTATIVE HAS ACTED ON BEHALF OF THE PARTNERSHIPS OR
THE INVESTORS AND NO INDEPENDENT PARTY HAS OPINED ON THE FAIRNESS OF THE
CONSOLIDATION TO THE INVESTORS.
o THE GENERAL PARTNER WILL RECEIVE SHARES OF THE COMPANY'S COMMON STOCK IN
RETURN FOR ITS GENERAL PARTNERSHIP INTERESTS IN THE PARTNERSHIP, AND AN
AFFILIATE OF THE GENERAL PARTNER WILL RECEIVE A WARRANT TO PURCHASE
SHARES IN CONNECTION WITH INVESTMENT BANKING SERVICES RENDERED TO THE
COMPANY. ANOTHER AFFILIATE OF THE GENERAL PARTNER SHALL RECEIVE
COMPENSATION IN CONNECTION WITH MANAGEMENT SERVICES TO BE RENDERED TO
THE COMPANY AND PURCHASED SHARES OF COMMON STOCK AT THE FOUNDING OF THE
COMPANY AT AN ARBITRARILY SET PURCHASE PRICE. NONE OF THESE ITEMS OF
COMPENSATION WERE NEGOTIATED AT ARM'S LENGTH. THESE RELATIONSHIPS CREATE
AN INHERENT CONFLICT OF INTEREST IN THE STRUCTURING OF THE TERMS AND
CONDITIONS OF THE CONSOLIDATION.
o THERE HAS BEEN NO PRIOR MARKET FOR THE COMMON STOCK, AND IT IS POSSIBLE
THAT THE COMMON STOCK WILL TRADE AT A PRICE BELOW THE EXCHANGE VALUE OR
THE BOOK VALUE OF THE ASSETS OF THE COMPANY.
o THERE IS NO ASSURANCE THAT A MARKET FOR THE COMPANY'S COMMON STOCK WILL
DEVELOP AS A RESULT OF THE CONSOLIDATION. ALTHOUGH IT IS ANTICIPATED
THAT THE COMMON STOCK ISSUED TO INVESTORS WILL BE LISTED ON THE AMERICAN
STOCK EXCHANGE, THERE IS NO ASSURANCE THAT THE MARKET IN THE COMPANY'S
COMMON STOCK WILL PROVIDE SHAREHOLDERS OF THE COMPANY WITH SUFFICIENT
LIQUIDITY, SINCE THE SHARES OF COMMON STOCK MAY NOT BE ACTIVELY TRADED.
o THE EXCHANGE VALUES ASSIGNED TO THE PARTNERSHIP ARE BASED PRIMARILY ON
INDEPENDENT APPRAISALS OF THE PARTNERSHIPS' ASSETS BY AIRCRAFT
INFORMATION SERVICES, INC. ("APPRAISER"), AND ARE SUBJECT TO SIGNIFICANT
ASSUMPTIONS AND LIMITATIONS; THERE IS NO ASSURANCE THAT PROPERTIES MAY
ACTUALLY BE SOLD FOR THE APPRAISED AMOUNTS, OR THAT ANOTHER APPRAISER
WOULD REACH THE SAME CONCLUSIONS REGARDING SUCH APPRAISED VALUES; THE
TRADING PRICES OF THE COMPANY'S COMMON STOCK AFTER THE CONSOLIDATION MAY
HAVE NO RELATIONSHIP TO THE APPRAISED VALUE OF ITS ASSETS.
o UPON COMPLETION OF THE CONSOLIDATION, INVESTORS WILL OWN COMMON STOCK IN
THE COMPANY WHICH HAS NO CURRENT PLANS TO LIQUIDATE OR OTHERWISE REDEEM
THE SHARES ISSUED IN THE CONSOLIDATION, AS OPPOSED TO THE PARTNERSHIPS
WHICH WERE DUE TO TERMINATE IN 10-15 YEARS. ADDITIONAL ISSUANCES OF
STOCK BY THE COMPANY MAY DILUTE THE INTERESTS OF INVESTORS.
o THE COMPANY'S POLICY TO BORROW USING THE ASSETS OF THE COMPANY AS
COLLATERAL MAY ADVERSELY AFFECT ITS CASH FLOW AND ABILITY TO REINVEST
INCOME IN ORDER TO PROMOTE GROWTH OF THE COMPANY, AS A
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SIGNIFICANT PORTION OF ITS REVENUE MAY BE DIRECTED TOWARD INTEREST AND
LOAN REPAYMENTS.
o UPON COMPLETION OF THE CONSOLIDATION, INVESTORS WILL BECOME STOCKHOLDERS
OF THE COMPANY, AND THEIR RIGHTS WILL DIFFER FROM THOSE OF LIMITED
PARTNERS IN THE PARTNERSHIPS.
o FOR JETFLEET II INVESTORS ONLY: UNDER THE CURRENT JETFLEET II
PARTNERSHIP AGREEMENT, DISSENTING INVESTORS WOULD BE ENTITLED TO RECEIVE
THE APPRAISED VALUE OF THE NET ASSETS OF JETFLEET II. AS PART OF THE
CONSOLIDATION, INVESTORS ARE BEING REQUESTED TO APPROVE AN AMENDMENT TO
THE JETFLEET II PARTNERSHIP AGREEMENT THAT, AMONG OTHER THINGS, WOULD
INSTEAD GIVE DISSENTERS THE RIGHT TO RECEIVE THE FAIR VALUE OF THEIR
UNITS NOT VOTED IN FAVOR OF THE CONSOLIDATION.
NO PERSON IS AUTHORIZED BY THE PARTNERSHIPS OR THE COMPANY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION, OTHER THAN ANY INFORMATION OR
REPRESENTATION CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH THE
SOLICITATION AND THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY OR
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES IN
ANY JURISDICTION IN WHICH A SOLICITATION OR OFFERING MAY NOT LAWFULLY BE MADE.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE
HEREUNDER SHALL IMPLY THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET
FORTH HEREIN OR IN THE AFFAIRS OF THE PARTNERSHIPS OR THE COMPANY SINCE THE
DATE HEREOF.
NEITHER THIS TRANSACTION NOR THE SECURITIES HAVE BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS PASSED UPON THE FAIRNESS OR MERITS OF THIS TRANSACTION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION OF
THE CONTRARY IS A CRIMINAL OFFENSE.
ALL QUESTIONS AND INQUIRIES SHOULD BE DIRECTED TO CMA CAPITAL GROUP, INC.
GENERAL PARTNER, AT ___________________________.
The date of this Prospectus is ________, 1997.
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The Partnerships are subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, must file reports and other information with the Securities and
Exchange Commission (the "Commission"), 450 Fifth Street N.W., Washington D.C.
20549. In addition, the Company has filed a Registration Statement on Form S-4
under the Securities Act of 1933, as amended (the "Securities Act") and the
rules and regulations promulgated thereunder, with respect to the Common Stock
offered pursuant to this Prospectus (this "Prospectus"). This Prospectus,
which is part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement and the exhibits and
financial schedules thereto. For further information with respect to the
Partnerships and the Company, reference is made to the reports of the
Partnerships filed under the Exchange Act and the Company's Registration
Statement and such exhibits and schedules, copies of which may be examined
without charge via the Internet at the Commission's web site at
http://www.sec.gov, or upon payment of prescribed fees from, the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such documents may also be obtained from the
Partnerships upon written request to Neal D. Crispin, General Partner, 1440
Chapin Avenue, Suite 310, Burlingame, California 94010.
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TABLE OF CONTENTS
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SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
BACKGROUND AND REASONS FOR THE CONSOLIDATION . . . . . . . . . . . . . . . 18
THE CONSOLIDATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
BENEFITS OF THE CONSOLIDATION . . . . . . . . . . . . . . . . . . . . . . 34
FAIRNESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
VOTING PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
DISSENTERS' RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
COMPARISONS OF LIMITED PARTNERSHIP AND
CORPORATE STRUCTURE . . . . . . . . . . . . . . . . . . . . . . . . . . 54
CONFLICTS OF INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . 63
FIDUCIARY RESPONSIBILITIES . . . . . . . . . . . . . . . . . . . . . . . . 66
PRO FORMA FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . 68
COMPARISON OF COMPENSATION PAID TO GENERAL
PARTNER AND AFFILIATES DILUTION . . . . . . . . . . . . . . . . . . . . 74
MANAGEMENT OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . 77
SECONDARY MARKET AND OWNERSHIP
OF PARTNERSHIP UNITS . . . . . . . . . . . . . . . . . . . . . . . . . 83
PROPERTIES OF THE PARTNERSHIPS . . . . . . . . . . . . . . . . . . . . . . 85
REPORTS, OPINIONS AND APPRAISALS . . . . . . . . . . . . . . . . . . . . . 86
DESCRIPTION OF COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . 88
DILUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
FEDERAL INCOME TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . 92
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 98
GLOSSARY OF TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
SELECTED FINANCIAL INFORMATION REGARDING THE PARTNERSHIPS
AND THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
APPENDIX A -- MERGER AGREEMENT
APPENDIX B -- APPRAISAL OF PARTNERSHIP ASSETS
APPENDIX C -- CALIFORNIA LIMITED PARTNERSHIP ACT DISSENTERS' RIGHTS
APPENDIX D -- FORM OF CONSENT
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SUMMARY
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The following Summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Capitalized terms not otherwise defined in this Summary have the meanings set
forth in the "GLOSSARY OF TERMS."
THE CONSOLIDATION
The General Partner is proposing the Consolidation of the Partnerships,
JetFleet I and JetFleet II, with and into the Company, subject to approval by
the majority of Investors in both Partnerships; the Partnerships' separate
existence will cease and the Company will continue as the surviving entity.
Upon completion of the Consolidation, the Company will continue in the aircraft
leasing business and will use debt and equity financing to acquire additional
aircraft assets.
THE PARTNERSHIPS
JetFleet I and JetFleet II are each California limited partnerships
formed in 1989 and 1991, respectively, to invest in leased aircraft equipment.
The general partners of each of the Partnerships are CMA Capital Group, Inc.,
Richard D. Koehler and Neal D. Crispin. The Partnerships collectively own 7
aircraft and 25 aircraft engines.
THE COMPANY
The Company was organized under the laws of the State of Delaware on
February 28, 1997, to facilitate the Consolidation. The Company's principal
executive offices are located at 1440 Chapin Avenue, Suite 310, Burlingame,
California 94010.
Upon consummation of the Consolidation, the Company will invest
primarily in aircraft equipment. If both of the Partnerships participate in
the Consolidation, the Company will initially own approximately $15.9 million
in aircraft assets (based on a current value appraisal as of February 4, 1997).
See "PROPERTIES OF THE PARTNERSHIPS."
BACKGROUND AND REASONS FOR THE CONSOLIDATION
CMA Capital Group, Inc., the corporate general partner was organized in
1989 to sponsor investment limited partnerships which invested primarily in
aircraft equipment, and in 1989 and 1991, sponsored JetFleet I and JetFleet II,
respectively. From 1989 to 1994, the Partnerships raised an aggregate of $55
million. When the Partnerships were formed, Investors anticipated an n
investment over the 21 and 25 year life of JetFleet I and JetFleet II,
respectively, with a disposition strategy that included the sale of assets and
liquidation of the Partnerships. Since inception, the Partnerships' investment
objective has been to provide Investors with cash distributions. Increasingly,
however, in written and oral communications with the General Partner, Investors
have indicated a desire to have liquidity of their investment in the
Partnerships. Currently, Investors are able to sell their Units only in the
secondary market, which is characterized by a small number of participants and
infrequent transactions. See "SECONDARY MARKET AND OWNERSHIP OF PARTNERSHIP
UNITS."
One means to provide liquidity to Investors would be for the General
Partner to terminate
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each Partnership and liquidate all of its assets. However, an immediate
liquidation of the Partnerships' assets is unlikely to return the Investors'
original capital investment in the Partnerships. Furthermore, such a
liquidation would be undesirable to those Investors who wish to remain invested
in aircraft equipment. Consequently, the Consolidation is intended to meet the
desire of certain Investors for liquidity in their investment, while enabling
those Investors who believe the current market conditions favor continued
investments in aircraft assets to maintain their investment in the business of
the Partnerships. The Consolidation will have the further benefit of creating
an entity that will have more flexibility than the Partnerships to take
advantage of in market opportunities and use debt and equity financing to
promote its growth.
The General Partner believes that the aircraft industry is in the early
stages of recovery, with demand for equipment once again on the rise, but
prices are depressed relative to the value of the equipment. See "BACKGROUND
AND REASONS FOR THE CONSOLIDATION - Aircraft Industry Outlook." The General
Partner believes the current market presents a favorable one in which to buy
assets that have the capability of generating income while retaining, or
possibly even increasing in, value. Those same market conditions that make it
favorable to buy make it an inopportune time to sell the Partnerships' assets.
The proposed Consolidation is the result of the General Partner' review
of possible alternatives considered to meet the Investors' objectives of
liquidity and return on capital. See "BACKGROUND AND REASONS FOR THE
CONSOLIDATION -- Background of the Consolidation and Alternatives Considered."
PARTNERSHIP PARTICIPATION
A Partnership will participate in the Consolidation with the affirmative
vote of holders of more than 50% of the outstanding Units of the Partnership.
Upon the completion of the Consolidation, the Partnerships shall cease to exist
and shall be merged with and into the Company and the Investors in such
Partnerships will cease to be limited partners in the Partnerships and will
receive Shares of Common Stock of the Company. The Consolidation is subject to
various conditions such as accuracy of representations and warranties contained
in the Merger Agreement between the Company and the Participating Partnerships,
no material adverse changes in the Partnerships' or the Company's financial
condition, and approval of the Consolidation by the majority of the Investors
of the Partnerships.
Under the Merger Agreement, if the JetFleet I Investors fail to approve
the Consolidation, but the JetFleet II Investors approve the Consolidation, the
Company in its sole discretion, may consummate the Consolidation between
JetFleet II and the Company only. As of July 1, 1997 (the anticipated date of
the consummation of the Consolidation), (the "Anticipated Consummation Date")
JetFleet II's net assets would constitute approximately 88% of the aggregate
net assets of the two Partnerships. In determining whether to proceed with a
Consolidation with JetFleet II only, the Company will determine whether based
on the number of dissenting Investors, the number of Participating Investors
and the asset base of JetFleet II alone will provide a sufficient basis for the
Company to meet its objectives and satisfy all the conditions for the
Consolidation set forth in the Merger Agreement. JetFleet II Investors are
urged to review the JetFleet II Supplement accompanying this Prospectus which,
among other things, discusses the considerations regarding a Consolidation
between the Company and JetFleet II only. Although all of JetFleet I's assets
are co-owned with JetFleet II, the General Partner believes that the failure of
JetFleet I to participate in the Consolidation will have no material impact on
JetFleet I's continued operations as a partnership, or the Company's business
as successor to JetFleet II's assets.
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If a majority of the Investors in a Partnership do not approve the
Consolidation, then that Partnership ("Nonparticipating Partnership") will
continue to operate as a separate legal entity with its own assets and
liabilities. There will be no change in its investment objectives, policies
and restrictions, and the Nonparticipating Partnership will continue to be
operated in accordance with the terms of its Partnership Agreement; however, it
is likely, however, that distributions will not remain at current levels over
the long term, and may decline. See "THE CONSOLIDATION -- Effect of
Consolidation on Nonparticipating Partnerships."
RISKS AND OTHER ADVERSE FACTORS
The following is a summary of the potential disadvantages, adverse
consequences and risks of the Consolidation. This summary is qualified in its
entirety by the more detailed discussion in the section entitled "RISK FACTORS"
contained in this Prospectus:
o No independent representative has acted on behalf of the
Partnerships or the Investors and no independent party has opined
on the fairness of the consolidation to the Investors.
o The General Partner will receive shares of the Company's Common
Stock in return for its general partnership interests in the
Partnership, and an affiliate of the General Partner will receive
a warrant to purchase Shares in connection with investment
banking services rendered to the Company. Another affiliate of
the General Partner shall receive compensation in connection with
management services to be rendered to the Company and purchased
shares of common stock at the founding of the Company at an
arbitrarily set purchase price. Neither of these items of
compensation was negotiated at arm's length. These relationships
create an inherent conflict of interest in the structuring of the
terms and conditions of the Consolidation.
o There has been no prior market for the Common Stock, and it is
possible that the Common Stock may trade at below the Exchange
Value or the book value of the assets of the Company.
o There is no assurance that a market for the Company's Common
Stock will develop as a result of the Consolidation. Although it
is anticipated that the Common Stock issued to Investors will be
listed on the American Stock Exchange, there is no assurance that
the market in the Company's Common Stock will develop to provide
shareholders of the Company with sufficient liquidity, since the
Shares of Common Stock may not be actively traded.
o The Exchange Values assigned to the Partnerships are based
primarily on independent appraisals of the Partnerships' assets
by Aircraft Information Services, Inc. (the "Appraiser"), and are
subject to significant assumptions and limitations; there is no
assurance that properties may actually be sold for the appraised
amounts, or that another appraiser would reach the same
conclusions regarding such appraised values; the trading prices
of the Company's Common Stock after the Consolidation may have no
relationship to the appraised value of its assets.
o Upon completion of the consolidation, investors will own Common
Stock in the Company which has no current plans to liquidate or
otherwise redeem the Shares issued in the Consolidation, as
opposed to the Partnerships partnership which were due to
terminate in 10-15 years. Additional issuances of stock by the
Company may dilute the interests of Investors.
3
<PAGE> 12
o The Company's policy to borrow using the assets of the Company as
collateral may adversely affect its cash flow and ability to
reinvest income in order to promote growth of the Company, as a
significant portion of its revenue may be directed toward
interest and loan repayments.
o Upon completion of the Consolidation, Investors will become
stockholders of the Company, and their rights will differ
materially from those of limited partners in the Partnership.
o For JetFleet II Investors Only: Under the current JetFleet II
Partnership Agreement, dissenting investors would be entitled to
receive the appraised value of the net assets of JetFleet II. As
part of the consolidation, investors are being requested to
approve an amendment to the JetFleet II Partnership Agreement
that, among other things, would instead give dissenters the right
to receive the fair value of their Units not voted in favor of
the Consolidation.
BENEFITS
The following is a summary of the potential benefits of the
Consolidation. This summary is qualified in its entirety by the more detailed
discussion in the section entitled "BENEFITS OF CONSOLIDATION" contained in
this Prospectus.
o The Consolidation will enable the Company to seek additional debt
or equity financing, the proceeds of which can be used to acquire
additional income producing assets, which may enable it to
increase its earnings and thus potentially increase the value of
the Company and the price at which the Common Stock of the
Company trades.
o The Consolidation enhances the potential liquidity of the
Investor's investment due to conversion of illiquid Units into
Common Stock that will be listed on a national securities
exchange.
o The purchase of additional assets by the Company will result in a
diversification of assets held by the Company, which may reduce
stockholder risks associated with investments concentrated in any
specific geographic area, equipment type or air carrier.
o The Consolidation will give the Company access to capital markets
not available to the Partnerships. The Company will have the
ability to obtain capital through the issuance of its securities,
which generally entails a lower cost of capital than other
conventional sources. The Company may be able to acquire assets
or other companies using cash or its stock.
o The Consolidation will result in simplified federal and tax
reporting. Investors will no longer need to annually reflect
Partnership operations on their federal income tax returns.
Investors will not be subject to state tax withholding or be
required to file individual state tax returns (other than in
their state of residence) solely as a result of their investment
in the Company.
4
<PAGE> 13
RECOMMENDATION OF THE GENERAL PARTNER
CMA Capital Group, Inc., the Corporate general partner, and the two
individual general partners of the Partnerships, Neal D. Crispin and Richard D.
Koehler, Jr., have unanimously approved the Consolidation and as explained
below, believe that the Consolidation is fair as to each Partnership and as a
whole. See "FAIRNESS."
THE GENERAL PARTNER STRONGLY RECOMMENDS THAT THE INVESTORS IN EACH
PARTNERSHIP VOTE "YES" IN FAVOR OF THE CONSOLIDATION. See 'THE
CONSOLIDATION--Approval and Recommendation of the General Partner."
FAIRNESS
The General Partner believes the terms of the Consolidation are fair to
the Partnerships and to the Investors in each of the Partnerships. The General
Partner has based their determination as to fairness of the Consolidation on a
variety of factors, including, but not limited to the following in order of
importance as determined by the General Partner: (i) the form and amount of
consideration offered to Investors (See "THE CONSOLIDATION -- Exchange Value
and Allocation of Shares") (ii) the independent appraisals with respect to the
Partnership assets prepared by the Appraiser (See "FAIRNESS."); and (iii) the
availability of statutory dissenters' rights for Investors who exercise
dissenter's rights with respect to the Consolidation ("Dissenting Investors")
See "DISSENTERS' RIGHTS".
CONTACTS REGARDING VALUATIONS OR REPORTS
Neither the Partnerships, the General Partner nor the Company has made
any contact with independent third parties regarding the preparation by such
party of an opinion concerning the fairness of the Consolidation, a valuation
of the Partnerships or their assets or the preparation of any other report with
respect to the Consolidation, other than contacts with the Appraiser, as
described in "REPORTS, OPINIONS AND APPRAISALS."
PRO FORMA FINANCIAL INFORMATION
Unaudited pro forma financial information based on the historical
financial statements of each Partnership is set forth under "PRO FORMA
FINANCIAL STATEMENTS." The pro forma financial information has been prepared
assuming both JetFleet I and JetFleet II participate in the Consolidation
("100% Partnership Participation"). The Supplement for JetFleet II contains a
similar pro forma financial information based on the assumption that JetFleet
II, but not JetFleet I, participates in the Consolidation.
DETERMINATION OF THE EXCHANGE VALUES AND ALLOCATION OF SHARES BETWEEN
PARTNERSHIPS
Exchange Values were determined based on aircraft values as of February
4, 1997 and projected cash and liabilities as of July 1, 1997 (the anticipated
date of consummation of the Consolidation), and have been assigned to each of
the Partnerships solely to establish a consistent method of allocating Shares
for purposes of the Consolidation. The Exchange Values of the Partnerships do
not indicate the aggregate price at which Shares may be sold after the
Consolidation, nor does the number of Shares to be issued indicate the trading
price or volume of the Common Stock. See "RISK FACTORS." The number of Shares
to be issued to each Participating Partnership upon consummation of the
Consolidation will equal the Exchange Value of the Participating Partnership
divided by $10, an arbitrary amount chosen for the sole purpose of
5
<PAGE> 14
determining the number of Shares of Common Stock to be issued to each
Partnership. No fractional Shares will be issued by the Company with respect
to the Consolidation. There has been no prior market for the Common Stock, and
it is possible that the Common Stock will trade at a price substantially below
the Exchange Value or the book value of the assets of the Company. There is no
assurance that a market for the Common Stock will develop as a result of the
Consolidation.
The Exchange Value for each Partnership is an amount equal to the sum of
(i) the appraised market value of its aircraft assets as of February 4, 1997,
(ii) the present value of rental income owed to the Partnership on a full
payout finance lease for a DC-9 aircraft owned jointly by JetFleet I and
JetFleet II and a second DC-9 owned 100% by JetFleet II (discounted at an
annual interest rate of 10%) and (iii) projected cash and other assets as of
the anticipated date of consummation of the Consolidation, July 1, 1997 (the
"Anticipated Consummation Date"), less (iv) projected total liabilities of each
Partnership as of the Anticipated Consummation Date.
<TABLE>
<CAPTION>
Market Value Discounted Other Total Exchange No of.
of Assets(1) DC-9 Rent(2) Assets(3) Liabilities(4) Value Shares (5)
------------- ------------ --------- -------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
JetFleet I $ 1,762,554 $144,543 $107,490 $ 651,080 $ 1,363,507 136,351
JetFleet II $13,927,446 $622,178 $731,304 $1,994,932 $13,285,996 1,328,600
</TABLE>
- ---------------
(1) Based upon the market value of the assets as set forth in the Appraisal
of Aircraft Information Services, dated February 4, 1997, for each
Partnership, attached as Appendix B.
(2) JetFleet I and JetFleet II hold 50% and 50% interests, respectively, in
a DC-9 aircraft, and JetFleet II holds a 100% interest in a second DC-9
aircraft, each on a full-payout finance lease to AeroCalifornia. The
amount shown in this column represents the Partnership's portion of the
present value of the rent payable to the Partnership, discounted at an
annual rate of 10%.
(3) Consists mainly of projected cash holdings and miscellaneous
receivables.
(4) Consists primarily of deferred tax liabilities, accounts payable,
accrued maintenance costs and security deposits and prepaid rents.
(5) Exchange Value divided by $10.
Exchange Values for each Partnership are subject to adjustment to the
extent that any material change occurs in the assets or actual assets and
liabilities differ than the projected amounts if such change is greater than 5%
of the the Exchange Value of the Partnership. The General Partner reserves the
right in its sole discretion to adjust the Exchange Value of a Partnership to
compensate for cash payments to dissenting Investors of such Partnership.
ALLOCATION OF SHARES BETWEEN GENERAL PARTNER AND LIMITED PARTNER
<TABLE>
<CAPTION>
Total Shares No. of No. Of Percent of Total
Allocated to Shares Issued Shares Issued Shares Issued
Partnership Partnership(1) to General Partner(2) to Ltd. Partners to Limited Partners
- ----------- -------------- ------------------- ---------------- --------------------
<S> <C> <C> <C> <C>
JetFleet I 136,351 1,364 134,987 99.0%
JetFleet II 1,328,600 66,429 1,262,171 95.0%
</TABLE>
- ---------------
(1) The number of Shares to be issued to each Participating Partnership upon
consummation of the Consolidation will equal the Exchange Value of the
Participating Partnership (last column of the previous table entitled
6
<PAGE> 15
"Determination of Allocation of Shares Between Partnerships") divided by
$10, an arbitrary amount chosen for the sole purpose of allocating
Shares and which is not intended to imply that the Shares will trade at
a price of $10 per Share.
(2) The Shares will be issued to the General Partner in consideration of
its 1% and 5% general partnership interest in the Partnerships
represented by the General Partner's interest (for which the General
Partner paid $750 and $750, respectively), according to the Partnership
Agreement for JetFleet I and JetFleet II respectively. In addition to
its 5% interest in any distributions made by JetFleet II, the General
Partner of JetFleet II is also entitled to a subordinated disposition
fee equal to one half of the industry standard commission ordinarily
paid in such transactions, up to a maximum of 3% of the gross sales
price of any assets disposed by JetFleet II. The General Partner will
waive this fee in connection with the Consolidation.
CONVERSION RATIO
At the consummation of the Consolidation, each Participating Investor's
limited partnership Units will be automatically converted into the right to
receive that number of Shares of Common Stock of the Company equal to the
number of Units held by the Investor multiplied by the Conversion Ratio,
rounded up to the nearest whole Share. The Conversion Ratio shall equal the
quotient obtained by dividing (a) the number of Shares to be issued to the
Investors of the Partnership; by (b) the total number of Units of limited
partnership outstanding for the Partnership held by Participating Investors.
HISTORICAL CASH DISTRIBUTIONS AND ASSIGNED EXCHANGE VALUE
The following table sets forth selected information per $1,000 original
investment in the Partnership projected through the Anticipated Consummation
Date. The Exchange Value of the Partnerships is based primarily on the
independently appraised market value of their assets, and does not necessarily
reflect the aggregate price at which Shares may be sold. See "THE
CONSOLIDATION--Exchange Values and Allocation of Shares." The table below shows
the amount of cash distributions received to date on the Units of JetFleet I
and JetFleet II Investors, and the proportional ownership of assets to be held
by the Company attributable to a $1,000 original investment.
PER $1,000 ORIGINAL INVESTMENT
<TABLE>
<CAPTION>
Total of
Cumulative
Cumulative Distributions and
Distributions to Assigned Assigned
Partnership Investors(1) Exchange Value(2) Exchange Value
- ----------- --------- --------------- --------------
<S> <C> <C> <C> <C>
JetFleet I
First $ 603.40 $ 90.00 $ 694.40
Last $ 383.40 $ 90.00 $ 373.60
JetFleet II
First $ 641.60 $ 360.00 $ 1001.60
Last $ 361.00 $ 360.00 $ 721.00
</TABLE>
- ---------------
(1) Each of the Partnership offerings lasted approximately two years, during
which period limited partners were being
7
<PAGE> 16
admitted to the Partnership on a monthly basis. "First" value
represents total cumulative distributions given to Investors who were
admitted first to the Partnership; "Last" value represents total
cumulative distributions given to Investors who were the last partners
admitted to the Partnership. Assumes current distribution level is
maintained through July 1, 1997.
(2) The assigned Exchange Value is based on the proportionate share of the
aggregate appraised value of the Partnerships' net assets to be
contributed to the Company, and does not necessarily reflect the
aggregate price at which Shares may be sold. Reflects rounding to
nearest whole Share.
SECONDARY MARKET PRICES OF UNITS
The Units are not listed on any national or regional securities exchange
or quoted on NASDAQ, and there is no established public trading market for the
Units. There has been limited secondary market sales activity. Set forth
below is certain information regarding sales transactions in the Units. Since
there is no formal market for the Units, and limited partners who have
transferred Units are not required to report sale prices to the General
Partner, historical information on sales is not available.
<TABLE>
<CAPTION>
No. of Units Date and Price of Source of
Partnership Sold in 1996 Most Recent Quote Information
- ----------- ------------ ----------------- -----------
<S> <C> <C> <C>
JetFleet I 2,040 $____/Unit - ____/97 Chicago Partnership Board
JetFleet II 958 $____/Unit - ____/97 Chicago Partnership Board
</TABLE>
APPRAISAL METHOD
Aircraft Information Services, Inc. (the "Appraiser"), a nationally
recognized independent aircraft appraiser, has made an appraisal for the
aircraft equipment assets of each of the Partnerships in connection with the
Consolidation. The Appraiser is a member of the International Society of
Transport Aircraft Tracking. In its valuation of the Partnership aircraft
equipment assets, it determined the "current market value" of the equipment.
As set forth in the Appraisal "current market value is based upon the value
reflective of real market conditions at the time of the appraisal of an asset,
and takes into account the status of the economy in which the equipment is
used, the status of supply and demand for the particular item of equipment, the
value of recent transactions and the opinions of informed buyers and sellers."
The current market value approach assumes that there is "no short term time
constraint to buy or sell the asset." See "REPORTS OPINIONS AND APPRAISALS."
VOTING
Each Investor is being asked by the General Partner to consider the
following elections with respect to the Consolidation:
"YES" I approve of my Partnership's participation in the
Consolidation; or
"NO" I do not approve of my Partnership's participation in the
Consolidation.
Investors may also abstain from voting. AN INVESTOR WHO RETURNS A
8
<PAGE> 17
CONSENT CARD WITHOUT INDICATING A VOTE, HOWEVER, WILL BE DEEMED TO HAVE VOTED
"YES" IN FAVOR OF THE CONSOLIDATION AND RELATED PROPOSALS AND WILL RECEIVE
SHARES OF COMMON STOCK OF THE COMPANY IF THE CONSOLIDATION IS CONSUMMATED
BETWEEN THE COMPANY AND THE INVESTOR'S PARTNERSHIP.
An Investor of a Partnership who votes "YES" will receive Common Stock
of the Company, if the majority of Investors approve the Consolidation and the
Partnership and the Company consummate the Consolidation. An Investor who
abstains from voting or votes "NO" on the Consolidation will receive Shares of
Common Stock if the majority of Investors approve the Consolidation and the
Partnership and the Company consummate the Consolidation, unless he or she
exercises dissenters' rights. See "DISSENTERS' RIGHTS." If the majority of
Investors of a Partnership do not approve the Consolidation, the Consolidation
between the Company and that Partnership will not occur, and such Partnership
will continue its existence in its current form. If a majority of JetFleet II
Investors do not approve the Consolidation, the Consolidation will not be
consummated.
Investors holding Units of the Partnerships as of May 1, 1997 (the
"Record Date") have until June 30, 1997, 11:59 p.m. Pacific Daylight Time,
unless extended (the "Approval Date") to vote in favor of or against the
consolidation. Investors may withdraw or revoke their consent at any time
prior to the Approval Date. See "VOTING--Voting Procedures--Revocability of
Consent."
The General Partner requests that each Investor complete and return the
enclosed Consent Card. THE GENERAL PARTNER STRONGLY URGES THE INVESTORS TO
VOTE "YES" IN FAVOR OF THE CONSOLIDATION.
INVESTOR LISTS
Investors are entitled to request copies of lists showing the names and
addresses of all general and limited partners of the Investor's Partnership.
The right to receive the list is subject to Investor's payment of the cost of
mailing and duplication at a rate of $0.15 per page. See "VOTING PROCEDURES --
Investor Names and Addresses."
DISSENTERS' RIGHTS
Any Investor of a Partnership that does not vote "YES" on the
Consolidation, will be entitled to exercise dissenters' or appraisal rights, if
such Partnership participates in the Consolidation and the Investor follows
specific procedures set forth under the California Revised Limited Partnership
Act ("California Partnership Act"). See "DISSENTERS' RIGHTS." JetFleet II
Investors, see "THE CONSOLIDATION -- Amendment to Partnership Agreements --
JetFleet II Partnership Agreement Amendments," and the JetFleet II Supplement
distributed with this Prospectus to JetFleet II Investors. If the proposed
amendments to the JetFleet II Partnership Agreement are approved, Investors in
JetFleet II that exercise dissenters' rights shall have the right to receive
the fair value of their Units in JetFleet II, rather than receiving cash in an
amount equal to their prorata share of the appraised value of the net assets of
JetFleet II, as is set forth in the current agreement.
CONFLICTS OF INTEREST
The General Partner and its affiliates initiated and structured the
Consolidation. Because
9
<PAGE> 18
the General Partner will receive economic benefit from the Consolidation in the
form of Shares in exchange for the General Partners' partnership interest in
the Partnership, it may be subject to a conflict of interest. With respect to
the structure of the Consolidation, this conflict is mitigated by the fact that
the General Partner will only receive that percentage share of the
distributions to which the General Partner is entitled under the Partnership
Agreement. Certain affiliates of the General Partner have entered into
agreements with the Company to perform services for the Company and will
receive compensation therefor. JetFleet Management Corp., an affiliate of Neal
D. Crispin, an individual general partner of the Partnerships, will receive
compensation for providing management services to the Company, and purchased
150,000 shares of Common Stock of the Company at its founding at a price which
was arbitrarily set at $1.00 per share, which may be dilutive with respect to
the Shares issued to Investors in the Consolidation. Crispin Koehler
Securities, the Dealer Manager for the Consolidation, is an affiliate of
Richard D. Koehler, an individual General Partner of the Partnerships, and will
be paid an investment banking fee and shall receive a warrant to purchase
35,000 shares of Common Stock at a price of $3.00 per share. Neither of these
items of compensation were negotiated at arms-length. See "CONFLICTS OF
INTEREST"; "MANAGEMENT -- The Management Company"; "THE CONSOLIDATION -- The
Dealer Manager"; and "COMPARISON OF COMPENSATION PAID TO GENERAL PARTNER AND
AFFILIATES".
DIVIDEND POLICY
The Company does not intend to pay dividends to its Stockholders so that
it can reinvest earnings in additional aircraft assets.
STATUS OF THE COMPANY UNDER ERISA
The Company has received an opinion of Counsel to the effect that based
on certain assumptions concerning the public ownership and transferability of
the Common Stock, shares of Common Stock should be "publicly-offered
securities" for purposes of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") and that, consequently, the assets of the Company
should not be deemed "plan assets" of an ERISA plan, individual retirement
account, or other non-ERISA plan that invests in the Common Stock. If the
Company's assets were deemed to be plan assets of any such plan, then, among
other consequences, certain persons exercising discretion as to the Company's
assets would be fiduciaries under ERISA, transactions involving the Company
undertaken at their discretion or pursuant to their advice might violate ERISA,
and certain transactions that the Company might enter into in the ordinary
course of its business might constitute "prohibited transactions" under ERISA
and the Code.
MANAGEMENT COMPANY
The Company will not hire its own employees. Instead, the Company
intends to contract with JetFleet Management Corp. ("JMC"), an affiliate of the
General Partner, to manage the business of the Company, including selection of
the additional assets to be purchased by the Company. The operational officers
of JMC are expected to devote approximately 80% of their time as JMC officers
to matters related to the Company. The Company believes that this management
services contract will permit the Company to take advantage of the background
and expertise of JMC, while at the same time avoiding exposure to the economic
commitments and risks attendant with hiring its own employees. JMC, however,
will not owe any fiduciary duties to the Company or its shareholders. See
"RISK FACTORS -- Reliance on JMC" and "FIDUCIARY RESPONSIBILITIES" and
"CONFLICTS OF INTEREST." JMC currently manages the assets of the Partnerships
on behalf of the General Partner, and it is also the sole
10
<PAGE> 19
shareholder of the Company, holding all of the 150,000 shares of outstanding
founding shares of Common Stock of the Company. JMC purchased the shares for
an aggregate purchase price of $150,000, or $1.00 per share, an arbitrary
purchase price chosen at the founding of the Company, pursuant to a Stock
Purchase Agreement, entered into between the Company and JMC, in connection
with JMC's agreement to render management services to the Company. See
"DILUTION." The issuance of the stock was intended to be exempt from federal
registration under the exemption provided by Rule 701 for issuances of stock
that are compensatory in nature. In consideration for JMC's management
services, under the terms of a Management Agreement between the Company and
JMC, the Company will pay JMC a monthly management fee equal to 0.25% of the
Net Asset Value of the Company's aircraft assets as of the end of the calendar
month for which the fee accrues. Because the Management Agreement would
require JMC to devote significant personnel and other resources exclusively to
the Company, the Management Agreement has a term of 15 years, and provides for
liquidated damages in the event of breach by the Company of its obligations
under the Agreement. See "COMPARISON OF COMPENSATION PAID TO GENERAL PARTNER
AND ITS AFFILIATES", and "PROFORMA FINANCIAL INFORMATION."
The agreement also grants the Company an option to acquire all of the
outstanding stock of JMC at any time on or before December 31, 2000, subject to
such shareholder approval as is required by applicable law, for a purchase
price based on the earnings of JMC, in the form of registered stock of the
Company. See "MANAGEMENT -- The Management Company."
BENEFIT TO EXISTING STOCKHOLDER; DILUTION
The sole stockholder of the Company, JMC, holds 150,000 shares of
Common Stock of the Company, purchased at the founding of the Company for
$150,000. Immediately following the Consolidation, assuming a net tangible
book value of the Company of $14,649,503, Investors will incur immediate
dilution of $0.84 per share in the net tangible book value of Common Stock.
See "DILUTION"; and "CONFLICTS OF INTEREST."
DEALER MANAGER
The Company has engaged Crispin Koehler Securities ("CKS"), an NASD-
registered broker dealer, to act as Dealer-Manager for the Consolidation.
Richard D. Koehler, an individual general partner, is an officer and director
and a principal shareholder of CKS's parent corporation Crispin Koehler Holding
Corp. ("CK Holding"). Neal D. Crispin, an individual general partner, is
neither an officer nor director of CK Holding, but is a 9% shareholder thereof.
In consideration of CKS providing investment banking services to the Company in
connection with the Consolidation, CKS will receive an investment banking fee
of $ 80,000 and warrants to purchase up to 35,000 shares of Common Stock of the
Company at a purchase price of $3.00 per share. See "THE CONSOLIDATION --
Dealer Manager."; and "DILUTION." Such shares are being registered under the
Securities Act along with the Shares to be issued to Investors in the
Consolidation.
11
<PAGE> 20
- --------------------------------------------------------------------------------
RISK FACTORS
- --------------------------------------------------------------------------------
The Consolidation involves certain risks and other adverse factors.
Investors should read this entire Prospectus, including all Appendices and
Supplements thereto, and consider carefully the following factors in evaluating
the Consolidation, the Company and its business before completing the enclosed
form of Consent Card. Although the risks described below are materially
similar for the Investors in each of the Partnerships, Investors should
carefully review the Supplement regarding their particular Partnership for
specific considerations relating to the Investor's Partnership.
RISKS AND OTHER ADVERSE FACTORS RELATING TO CONSOLIDATION
No Independent Representative for the Partnerships or Investors. The
General Partner initiated the Consolidation and the terms were not the result
of arm's length negotiations among the General Partner, JMC, the Partnerships
and the Investors. While the General Partner believes that the Consolidation
is fair to the Partnerships and their respective Investors, no independent
representative has acted on behalf of the Partnerships or the Investors in
connection with the Consolidation, nor did the General Partner negotiate the
terms of the Consolidation with any Investor. If an independent representative
had been retained, the terms and conditions of the Consolidation may have been
different for both the Investors and the General Partner and its Affiliates.
There are a number of conflicts of interest that arise out of the
proposed Consolidation and certain compensation to be paid to affiliates of the
General Partner, including conflicts of interest arising out of the terms and
conditions of, and compensation to be paid for, management services to be
rendered to the Company by JMC, an affiliate of Neal D. Crispin, an individual
general partner of the Partnerships, and the investment banking fee and
warrants to be paid to CKS, the Dealer Manager, an affiliate of Richard D.
Koehler, an individual General Partner of the Partnerships. Neither of these
items of compensation were negotiated at arms-length. See "CONFLICTS OF
INTEREST"; and "COMPARISON OF COMPENSATION PAID TO GENERAL PARTNER AND
AFFILIATES."
No Prior Market for Common Stock; Market Price May Decrease After
Consolidation. There has been no prior market for the Common Stock of the
Company and it is possible that the Common Stock may trade at prices
substantially below the Exchange Value or the book value of the assets of the
Company. The Company has applied for the listing of the Common Stock on the
American Stock Exchange, subject to official notice of issuance. The market
price of the Common Stock may be subject to significant volatility after the
Consolidation and could substantially decrease as a result of increased selling
activity following issuance of the Shares, and the fluctuating interest level
of investors in purchasing the Common Stock after the Consolidation.
Secondary Market Value Not Reflective of Relative Value of Partnership
Assets. Since the Partnership Units were not listed on any national or regional
stock exchange, nor quoted on the National Association of Securities Dealers
Automated Quotations System ("NASDAQ"), there has been limited liquidity
available to Investors. Secondary sales activity for the Units has been
limited and sporadic, with less than one percent of all outstanding Partnership
Units traded during 1996. See "SECONDARY MARKET AND OWNERSHIP OF PARTNERSHIP
UNITS." Consequently, while the secondary market may indicate an objective
market value of the
12
<PAGE> 21
Partnership Units, these values were not taken into account when determining
the relative values of the Partnerships. There is no assurance that the
listing of the Company's Common Stock on the American Stock Exchange will
provide greater liquidity to holders thereof or that the price of such Common
Stock will accurately reflect the value of the Company's assets.
Dilution. At the founding of the Company, JMC was issued 150,000
shares of Common Stock at a purchase price of $1.00 per share. This price was
arbitrarily determined since at the founding the Company had no assets and
there was no assurance that the Consolidation would be consummated. In
addition, in connection with investment banking services to be rendered to the
Company by CKS, the Dealer Manager, a warrant to purchase 35,000 Shares at a
price of $3.00 per Share will be issued to CKS. Although there is no assurance
as to what the trading price of the Shares will be once the Consolidation is
consummated, it is possible that the issuance of stock to JMC and the future
issuance of Shares to Dealer Manager upon exercise of the warrant would have a
dilutive effect upon the Investors holding Shares in the Company. See
"DILUTION."
Uncertain Composition of the Company; Risks of Consolidation if Only
JetFleet II Participates. Because participation in the Consolidation by each
Partnership requires the approval of Investors holding a majority of the
outstanding Units of the Partnership, which approval is outside the Company's
control, no assurance can be given as to whether JetFleet I and JetFleet II
will both participate in the Consolidation. Although all of JetFleet I's
assets are co-owned with JetFleet II, the General Partner believes that the
failure of JetFleet I to participate in the Consolidation will have no material
impact on JetFleet I's continued operations as a partnership, or the Company's
business as successor to JetFleet II's assets.
Aggregation of Partnerships' Assets. The assets and liabilities of the
Participating Partnerships will be combined in the Consolidation. Changes in
the value of the assets that previously were owned by Investors in one
Partnership or in the operating cash flow will now be shared by all
Stockholders.
Determination of Exchange Values. The Exchange Values assigned to the
Partnerships are based primarily on the independent appraisals of the
Partnership aircraft properties by the Appraiser, dated February 4, 1997, and
do not necessarily reflect the aggregate price at which Shares may be sold on
the open market after the Consolidation. The appraisals are only the
Appraiser's opinions of the "current market value" of such properties, which
opinions are subject to significant assumptions and limitations. There can be
no assurance that such properties may actually be sold for the appraised
amounts or that another appraiser would reach the same conclusion with respect
to appraised values. See "THE CONSOLIDATION- Exchange Value and Allocation of
Shares" and "OPINIONS, APPRAISALS and REPORTS."
Changes in Form of Investment Will Change Rights of Participating
Investors. Participating Investors will become Stockholders and their rights
as such will be different from their rights as Investors of a Partnership.
Specifically, Investors currently hold Units in a Partnership which intended to
hold properties for nineteen to twenty-five years after commencement of
operations, and then depending on market conditions, liquidate the entirety of
the Partnerships' assets. Upon liquidation of a Partnership, the Investors of
the Partnerships would realize the value of the Partnerships' asset
investments, less the expenses of liquidation and liquidation fees payable to
the General Partner. After the Consolidation, Participating Investors, as
holders of Common Stock of the Company listed on the AMEX would be able to sell
such shares received in the Consolidation in the public market to liquidate
their investment, but the market value of the Shares may never reflect the fair
market value of such assets of the Company. The Company is not required to,
nor is it likely that the Company will, at any time in the future dissolve
13
<PAGE> 22
and liquidate its assets. In addition, it is unlikely that the Company will be
sold in its entirety to another entity unless the Board of Directors decides to
do so.. See "COMPARISON OF LIMITED PARTNERSHIP AND CORPORATE STRUCTURE."
The Delaware General Corporate Law ("Delaware GCL") imposes restrictions
upon certain business combinations which may discourage a change in control of
the Company and limit the liability of directors to Stockholders. In addition,
the Company's Certificate of Incorporation generally provides for (i) greater
indemnification of directors than is available to the General Partner under the
Partnership Agreements, and (ii) the ability to relieve directors of certain
monetary liabilities not available to the General Partner under the Partnership
Agreements. See "MANAGEMENT OF THE COMPANY-Limitation of Directors' Liability"
and "Indemnification."
Voting. If the Consolidation is completed, Stockholders will have an
investment in a larger company and will thus lose relative voting power.
Investors may currently vote on certain Partnership matters in proportion to
their interests in the Partnership relative to the interests of other Investors
in the same Partnership. After the Consolidation, Participating Investors who
elect to receive Shares will be able to vote as stockholders of the Company,
and will hold approximately 88% of the 1,614,951 outstanding Shares, assuming
both Partnerships participate. Stockholders will have one vote per Share. No
cumulative voting for directors is authorized under the Company's Certificate
of Incorporation. See "DILUTION;" "COMPARISON OF LIMITED PARTNERSHIP AND
CORPORATE STRUCTURE."
Intent to Incur Debt and/or Sell Equity. The Partnerships' assets were
purchased for cash and are all unleveraged. One of the motivations for the
Consolidation was to permit the Company to purchase assets using debt financing
on existing assets or assets to be purchased. Though the Company anticipates
that the revenue generated from such acquired assets will be more than
sufficient to meet its obligations under any such debt financing, any such
leveraging of assets increases interest expense, exposure to risk relating to
resale values of aircraft assets that it holds and increases the risk that the
Company may default on its obligations. See "THE COMPANY -- Borrowing
Policies." In addition, the Company may sell additional securities which could
dilute the interests of its current stockholders.
Contingent or Undisclosed Liabilities. Under the Agreement and Plan of
Merger to be executed by the Company and the Participating Partnerships in
connection with the Consolidation (the "Merger Agreement"), the Company will,
as of the Closing Date, acquire all assets and liabilities of the Participating
Partnerships. Participating Partnerships will deliver to the Company audited
financial statements for such entity disclosing all known existing liabilities
and reserves, if any, set aside for contingent liabilities as of the Closing
Date. The General Partner will represent and warrant that, to the best of the
General Partner's knowledge, the financial statements fairly present the
financial position of each Participating Partnership, as if there is no
liability or obligation to be set forth or reserved against in the financial
statements based upon generally accepted accounting principles. The accuracy
and completeness of these representations are conditions to the closing of the
Consolidation and if, on or prior to the Closing Date, these representations
and warranties are shown to be inaccurate, there may be adjustments to the
consideration paid by the Company or the Company may elect not to proceed to
close the Consolidation with the Partnership that failed to fully and
accurately disclose its financial position. See "THE CONSOLIDATION-Exchange
Value and Allocation of Shares."
Majority Vote Will Bind All Investors of the Partnership. In accordance
with the Partnership Agreements of the Partnerships, upon the affirmative vote
of holders of more than 50% of the outstanding Units of a Partnership approve
the Consolidation and the related
14
<PAGE> 23
amendments to the Partnership Agreements, the Partnership will be merged with
and into the Company and all Investors of the Partnership, excluding Dissenting
Investors who comply with the procedure of the California Partnership Act, will
participate in the Consolidation and will receive Common Stock of the Company.
Dissenting Investors who follow the statutory procedure for perfecting
dissenters rights are entitled to receive the fair market value of their Units
in the Partnership as of the date the Consolidation is announced. See "THE
CONSOLIDATION-Dissenting Rights." If, however, JetFleet I Investors approve the
Consolidation, but JetFleet II Investors do not, the Consolidation will not be
consummated. The Company may, however, consummate the Consolidation between
the Company and JetFleet II, if the JetFleet II Investors approve the
Consolidation, notwithstanding that JetFleet I Investors fail to approve it.
In determining whether to proceed with a Consolidation with JetFleet II only,
the Company will determine whether the number of dissenting Investors, the
number of Participating Investors and the asset base of JetFleet II alone will
provide a sufficient basis for the Company to meet its objectives and satisfy
all the conditions for the Consolidation set forth in the Merger Agreement.
Investment Policies as Guidelines Only. The descriptions in this
Prospectus of the major policies and the various types of investments to be
made by the Company reflect only the current plans of the Company's Board of
Directors. In addition, the methods of implementing the Company's investment
policies may vary as new investment techniques are developed. See "THE
COMPANY-Acquisition Policies." THE COMPANY RESERVES THE RIGHT AT THE SOLE
DISCRETION OF THE BOARD OF DIRECTORS TO ALTER THE NATURE AND TIMING OF THE
COMPANY'S BUSINESS PLANS IN ORDER TO RESPOND TO CHANGING MARKET CONDITIONS AND
OPPORTUNITIES.
JetFleet II Partnership Amendments. JetFleet II Investors should note
that under the current JetFleet II Partnership Agreement, dissenting investors
would be entitled to receive the appraised value of the net assets of JetFleet
II. As part of the consolidation, investors are being requested to approve an
amendment to the JetFleet II Partnership Agreement that, among other things,
would give dissenters the right to receive the fair value of their Units not
voted in favor of the Consolidation. See Supplement for JetFleet II, attached.
RISKS RELATING TO THE BUSINESS OF THE COMPANY AND THE PARTNERSHIPS
Although Investors already face many of the following risks as holders
of Units, they should nevertheless consider carefully the following factors
before completing the enclosed form of Consent Card.
Acquisition of Additional Assets by the Company. Subsequent to the
Consolidation, the Company intends to seek debt financing which may be secured
by the existing or to-be-acquired assets of the Company. The proceeds will be
used by the Company to acquire additional assets for the purpose of generating
income for the Company. The Company anticipates it will be able to expend the
entire financing proceeds on the acquisition of additional assets on terms
favorable to the Company, but the Company has not entered into any contracts
and there is no assurance that the Company will be able to purchase assets and
sell or lease assets on favorable terms. The Company may thereafter use debt
or equity financing to acquire additional assets. Additional debt financing
will subject the Company to increased risks of leveraging. See "RISK FACTORS -
- - Risks and Other Factors Relating to the Consolidation -- Intent to Incur
Significant Debt;" and "THE COMPANY -- Borrowing Policies." Additional equity
financing may dilute the equity holdings of the Investors. See "THE COMPANY --
Equity Financing." In any event, due to the cyclical nature of the aircraft
industry, there is no assurance that assets acquired by the Company will retain
their anticipated resale value or will generate the income anticipated over
their useful life.
15
<PAGE> 24
See "BACKGROUND AND REASONS FOR THE CONSOLIDATION -- Aircraft Industry
Outlook."
Reliance on JMC. Once the Consolidation is consummated, all management
of the Company will be performed by JMC pursuant to the terms of the Management
Agreement between JMC and the Company. Investors should be prepared to entrust
all aspects of management to the Board of Directors of the Company. JMC will
not be a fiduciary to the Company or its stockholders. The Management
Agreement may be terminated upon a default in the obligations of JMC to the
Company. The officers of JMC will also be officers of the Company, and certain
directors of the Company may also be directors of JMC. Consequently, the
directors and officers of JMC may have a conflict of interest in the event of a
dispute over obligations of the Company to JMC. See "RISK FACTORS -- Reliance
on JMC," "FIDUCIARY RESPONSIBILITIES" and "CONFLICTS OF INTEREST."
Government Regulation. As discussed in detail in "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, future government
regulations could cause the value of any non-complying Equipment owned by the
Company to substantially decline.
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. The Company, however, believes
that it has a competitive advantage in its niche market of financing used
turbo-prop aircraft to regional air carriers. The larger competitors in the
aircraft industry have largely neglected this market, which is characterized by
transaction sizes of less than $10 million and lessee credits that are strong,
but generally unrated and more speculative than the major air carriers.
JetFleet Management Company ("JMC"), the management company for the Company has
developed a reputation as a global participant in this segment of the market,
and the Company believes this will benefit the Company. There is no assurance
that the lack of significant competition from the larger aircraft leasing
companies will continue or that the reputation of JMC will continue to be
strong in this market segment and benefit the Company. See "THE COMPANY."
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 equipment, foreign taxes, currency risks and
seizure of the asset by the foreign government. See "THE COMPANY-Lessees."
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 "THE COMPANY - Lessees."
16
<PAGE> 25
Leasing Risks. 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 assets depends on the economic condition of the
airline industry. 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, and generally,
but not always, reflects economic conditions and the strength of the travel and
transportation industry. The demand for and resale value of many types of
older aircraft in the recent past has been 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; however, the General
Partner and the Company believe that just as general economic conditions have
improved over the last few years, the aircraft industry is improving, with both
demand, asset prices and lease rates strengthening and increasing. See
"BACKGROUND AND REASONS FOR THE CONSOLIDATION -- The Aircraft Industry
Outlook." There is no assurance that such improvement will continue. The
Company's expected concentration in a limited number of airframe and aircraft
engine types (generally, turboprop equipment) subjects the Company to economic
risks if those aircraft engine types should decline in value.
Risks Related to Regional Air Carriers. Because the Company intends to
concentrate on leases to regional air carriers, it will be subject to
additional risks. First, lessees in the regional air carrier market include a
number of companies that are start-up, low margin operations. Often, the
success of such carriers is dependent upon arrangements with major trunk
carriers, which may be subject to termination or cancellation by such major
carrier. This market segment is also characterized by low entry costs, and
thus, there is strong competition in this industry segment from start-ups as
well as major airlines. Thus, leasing transactions with these types of lessees
results in a generally higher lease rate on aircraft, but also entails
significantly higher risk of default or lessee bankruptcy. The Company will
evaluate the credit risk of each lessee carefully, and will attempt to obtain
third party guaranties, letters of credit or other credit enhancements, if it
deems such is necessary. There is no assurance, however, that such
enhancements will be available or that even if obtained will fully protect the
Company from losses resulting from a lessee default or bankruptcy. See "THE
COMPANY -- Lessees." Second, a significant area of growth of this market is
in areas outside of the United States. Leasing to foreign operators entails
certain risks. See "-- Risk of Foreign Operations," above.
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<PAGE> 26
BACKGROUND AND REASONS FOR THE CONSOLIDATION
BACKGROUND OF THE PARTNERSHIPS AND THE GENERAL PARTNER
The proceeds of the offerings of the Partnership Units were invested in
aircraft assets. The following table sets forth additional information
concerning the Partnerships and the capital raised by each:
<TABLE>
<CAPTION>
No. Units Aggregate
Partnership Offering Period Sold Offering Amount No. of Investors
- ----------- --------------- --------- --------------- ----------------
<S> <C> <C> <C> <C>
JetFleet I 6/89 - 6/91 296,069 $14,803,450 1,032
JetFleet II 10/91 - 4/94 693,505 $34,675,250 1,919
</TABLE>
All of the net proceeds from the offerings of the Partnership Units have
been invested, except for amounts reserved to meet maintenance obligations not
covered by lessees. Since inception, the Partnerships' investment objective
has been to provide Investors with cash distributions. Increasingly, however,
Investors, have indicated a desire to have liquidity of their investment in the
Partnership. Currently, one avenue available to provide liquidity to such an
Investor is the secondary market, which is characterized by a small number of
participants and infrequent transactions. See "SECONDARY MARKET AND OWNERSHIP
OF PARTNERSHIP UNITS." Another way to provide liquidity would be for the
General Partner to terminate each Partnership and liquidate all of its assets.
However, for reasons as discussed below, the Partnerships may be unable,
because of current market conditions which have devalued the assets of the
Partnership, to liquidate the Partnerships in a way that will allow the
Partnerships to return the Investors' original capital investment in the
Partnerships. Furthermore, such a liquidation will adversely affect those
Investors who desire to remain invested in the aircraft equipment industry.
Consequently, the Consolidation is intended to meet demands of certain
Investors for liquidity in investment, while enabling those Investors who
believe that current market conditions favor growth in their investments in
aircraft assets to maintain their investment in the business of the
Partnerships. The Consolidation will also have the further benefit of creating
an investment entity that will have more flexibility than the Partnerships to
invest in market opportunities and use debt and equity financing to promote its
growth.
The General Partner and the Company believe that the aircraft industry
is in the early stages of a recovery market, with demand for equipment once
again on the rise, but prices depressed relative to the value of the equipment.
See "-- Aircraft Industry Outlook," below. The General Partner believes the
current market is a favorable one in which to buy assets that have the
capability of generating income while retaining, or possibly even appreciating
in value. Sale of existing assets, however, would be the only practicable way
to raise capital in the Partnerships to make additional purchases at this time,
which purchase of additional assets is believed by the General Partner to be an
important part of a strategy to return original capital to the Investors.
The Consolidation will provide Participating Investors with an
investment in a new entity that has much greater flexibility than the
Partnerships and can best take advantage of the
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<PAGE> 27
opportunities available in the current aircraft industry market. The Company
will not be limited to the strict acquisition policies of the Partnerships and
will have the ability to adjust its policies to take advantage of market
opportunities. The Company should be able to more easily obtain financing to
acquire additional aircraft, and by its status as a listed company on a
national exchange should have access to both debt and equity capital at costs
lower than that available to the Partnerships.
THE AIRCRAFT INDUSTRY OUTLOOK
General. According to the 1996 Current Market Outlook Report, (the "1996
Report") published by the Boeing Commercial Airplane Group Marketing (March
1996), the early 1990's can best be characterized by the imbalance between
capacity and demand. The slowdown in the world economic growth coincided with
the delivery of a record number of airplanes, ordered during the boom years of
the late 1980's. By the mid-1990's, airlines had restrained growth, increased
load factors, and aggressively reduced costs. A world economic recovery and
stable fuel prices also benefitted the airline industry. In the 1996 Report,
Ron Woodard, President of the Boeing Commercial Airplane Group states, "The
industry appears to have made it through the bottom of the cycle." The 1996
Report projects that leasing companies are expected to continue to play an
increasing role in the aircraft industry financing, with lessors continuing the
growth shown in the increase in lessor's fleets from 200 aircraft in 1986 to
over 1,000 in 1995. Aircraft operators will depend upon operating lease
companies to continue to make investment in aircraft, and are expected to
benefit from the increased flexibility offered by operating lessors. According
to Aviation Week and Space Technology 's "Forecast '97" (March 17, 1997),
"Civil aviation is booming, with Asia expected to fuel much of the industry's
future growth. Moreover, it appears that the upturn following the worst
recession in commercial aviation history may last at least several more years
before peaking."
Regional Air Carrier Segment. The Company believes that it has
identified a market niche of leasing used turboprop aircraft to regional air
carriers. The Company is one of the few lessors of used aircraft in that
market. Although there are many larger competitors, including leasing
companies, banks and financial institutions, that engage in financing of leased
aircraft, management of the Company has observed that most of those larger
competitors have chosen not to finance used aircraft, engage in financing
transactions for less than $10 million and/or engage in transactions with the
smaller regional carriers and operators. The remaining competitors of the
Company in this market are generally captive to a particular aircraft
manufacturer, and only finance transactions for aircraft manufactured by that
particular company.
The regional air carrier market is expected to experience high growth in
the coming years. According to an article in Aviation Week and Space
Technology 's "Forecast '97" (March 17, 1997), entitled "Regionals Poised for
Steady Expansion," by 2005, regional airlines in the U.S. will be carrying
record numbers of passengers on board larger, faster turboprops and jet
aircraft, flying on longer routes, as unprecedented growth in air travel fuels
expansion. The article goes on to explain that the regional fleet in the U.S.
is expected to grow from 2,100 aircraft today to nearly 3,000 in the next
decade, with turbo-prop aircraft, especially those capable of cruise speeds in
excess of 300 knots continuing to form the backbone of the regional fleet in
the years ahead. According to the article, acquisitions of high speed turbine
power transports will increase and is expected to be the most active segment of
the market.
Growth of regional airlines outside of the United States is expected to
be even stronger. According to Phillips 1997 Regional Airline Directory's
"Regional Market Overview," worldwide traffic forecasts call for regional
revenue passenger miles ("RPMs") to continue to increase at rates
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<PAGE> 28
higher than mainline traffic. While the FAA's 1996 Outlook projects a 6.7% RPM
growth for U.S. regional carriers, Saab's 1995-2010 market forecasts calls for
annual worldwide growth ranging from 7.3% in the Pacific Rim to 4.0% in North
America. To accommodate the expected growth in revenue passenger demand,
carriers will need to acquire and finance appropriate short-haul regional
aircraft.
BACKGROUND OF THE CONSOLIDATION AND ALTERNATIVES CONSIDERED
Before deciding to recommend the Consolidation, the General Partner
considered numerous alternatives including (i) sales of entire Partnership
portfolios, (ii) debt alternatives, and (iii) sales of individual Partnership
properties. The General Partner also considered the continued management of
the Partnerships as currently structured, but does not believe that it is in
the best interest of Investors as the General Partner believes that the level
of Partnership cash distributions is likely to decline. This decline would be
due to the combination of (i) the anticipated loss of revenue associated with
the termination of equipment leases and (ii) current Partnership Agreement
prohibitions on incurring debt, which precludes the Partnerships from using
such debt financing to acquire assets, and thereby increase revenue and cash
distributions to Investors. Consequently, the General Partner believes that
the Consolidation will have the greater potential likelihood of providing
optimal economic benefits for the Investors.
The following is a summary of the principal alternatives to the
Consolidation considered by the General Partner and the reasons for their
rejection of such alternatives. A more detailed description follows this
summary:
<TABLE>
<CAPTION>
Alternative Reason
----------- ------
<S> <C> <C>
Continued Management of Partnerships o Despite a potentially rising
as Currently Structured market, depreciation of the
Partnerships' asset base and the
inability to purchase additional
assets in this favorable market is
anticipated to result in declining
Partnership revenue and value.
o Fixed expenses will take an
increasing proportion of the
Partnership's declining revenue
base.
</TABLE>
20
<PAGE> 29
<TABLE>
<S> <C>
Debt Financing o The Partnership Agreements
severely limit or prohibit debt
financing and would require
amendment by a vote of the limited
partners.
o Even if a partial debt financing
for the purpose of funding cash
distributions were permissible,
the maximum practicable projected
debt financing amount available
from lenders would only provide a
partial return of capital to the
Investors.
o In the event of a partial debt
financing, the remaining
Investors' equity in the
Partnership's assets would be
subject to greater risk of loss
due to the debt on the assets, and
yet would yield a lower rate of
return, as servicing the debt
would reduce cash available for
distribution.
Sale of Individual Properties or o Sales during the early stages of
the Portfolio of Properties the current recovery market are
likely to result in less than
optimal sales prices for the
assets.
o High transaction costs may be
prohibitive for sales of
individual properties to separate
buyers.
o Pre-existing long-term leases on
equipment owned by the
Partnerships makes sales to
parties desiring immediate use of
the Equipment impossible.
o There are a limited number of
purchasers with the financial
capability to purchase individual
assets and even fewer purchasers
able to acquire the entire
portfolio.
</TABLE>
General. Since each Partnership expected to hold its properties for a
number of years after investment in order to permit the assets to generate cash
flow for the Partnership, the General Partner made no efforts to dispose of the
properties in the early years of the Partnership. The General Partner
concentrated its initial efforts on making suitable investments for the
Partnerships, consistent with the Partnerships' investment policies and
restrictions, and on managing the Partnerships efficiently to control operating
expenses while maximizing operating revenues.
Recently, an increasing number of Investors in the Partnerships in
written and oral
21
<PAGE> 30
communications with the General Partner have begun to ask for the General
Partner to provide liquidity of the Investors' investments in the Partnership.
The only way in which the General Partner could provide such liquidity,
however, would be to terminate the Partnership, liquidate the assets of the
Partnership and distribute the cash proceeds to the Investors. However, the
General Partner believes that the sale of Partnership assets and liquidation of
the Partnerships in the current market would be difficult to achieve on terms
favorable to the Investors.
Significant unanticipated changes occurred in the financial and aircraft
leasing markets since the inception of the Partnerships in the early 1990's.
These changes, consisting primarily of new government regulations regarding
aircraft engine noise and aging airframes, the Gulf War, the general economic
recession, and the oversupply of aircraft in the market caused by a record
delivery of aircraft ordered during the boom years of the late 1980's,
adversely affected asset prices in general and the value of the Partnerships'
properties. The aircraft industry appears to be at the beginning of an upturn;
the aircraft equipment market has recently showed signs of strengthening, and
equipment prices and lease rates appear to be firming up. See "-- The
Aircraft Industry Outlook," above. The General Partner believes that this
market is potentially an advantageous one for making additional investments in
aircraft equipment.
In response to the inquiries of Investors, the General Partner began to
explore the options that would enable the Partnerships to meet the divergent
investment objectives of the Investors of a return on original capital through
continued investment in the aircraft industry and immediate liquidity of
investment in the Partnership investments. The economic factors described
above led them to conclude that liquidation of the Partnerships' assets under
the current general market conditions would likely result in sales of the
Partnerships' assets at prices that would not provide Investors their best
return on the investment. Before deciding to recommend the Consolidation, the
General Partner considered alternatives to the proposed Consolidation in an
effort to achieve maximum investor return while also providing Investors with
anticipated liquidity within an earlier time frame than the nineteen to twenty-
five year time frame after investment until termination of the Partnership.
These alternatives were (i) continued management of the Partnerships as
currently structured, (ii) entire portfolio sales, (iii) debt financing, and
(iv) sales of individual properties.
Continued Management of Partnerships As Currently Structured. The
General Partner has considered continuing the management of the Partnerships as
they are currently structured. JetFleet I and JetFleet II are not required to
liquidate and wind up until the year 2014 or 2010, respectively. The General
Partner does not believe that this alternative to the Consolidation is in the
best interests of the Investors, as it is not likely to enable the Partnerships
to return original capital to the Investors. Furthermore, it does nothing to
provide current liquidity to Investors, and the only avenue for liquidity for
Investors would be the thinly and sporadically traded secondary market.
As a result of the expiration of initial equipment leases, each
Partnership will likely have declining revenue. Furthermore, the Partnership
structure prevents the General Partner from making new leveraged investments to
maintain cash distributions at an acceptable level, since the use of borrowings
to acquire new properties is either not permitted or severely restricted under
the current Partnership Agreements. Therefore, the Partnership structure
contributes to the difficulty the General Partner has experienced in attempting
to meet the Partnership's investment objectives. As a result of these factors,
each Partnership generally has and will continue to have fixed expenses
allocated over a declining revenue base. Finally, the General Partner believes
there is no viable market in which to liquidate the Partnership properties
under favorable terms and conditions. Therefore, if the Partnerships were to
continue as currently managed, Investors would likely retain an investment
without growth or liquidation opportunities in a Partnership which has a
declining asset base and the likelihood of a declining income stream for a
significant period of time.
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<PAGE> 31
Debt Financing. The Partnership Agreements require that the
Partnerships acquire property without the use of debt. After considering the
proposals described above, however, the General Partner began to explore
alternatives to the Consolidation that would require the Partnerships to borrow
significant amounts of secured and unsecured debt and would require the
approval of Investors. The funds borrowed would be returned to the Investors
as return of capital.
Although this debt alternative would have enabled the Partnerships to
return a significant portion of an Investor's capital, in order to obtain
optimal debt pricing, the General Partner would have had to combine the
Partnerships in a manner that would allow cross-collateralization of the
largest possible pool of assets of the Partnerships, which would permit one
large borrowing, and lower the transaction costs. Second, to secure a rating
on the debt transaction sufficient to market the debt to investors, the maximum
borrowing would have approximated 70% of the asset value of the Partnership.
After receiving this partial return of their capital, Investors would remain
holders of the Units for a significant time period, with greater risk on their
investment due to the borrowing and yet with a lower return than holders of the
senior debt. Third, the use of debt was inconsistent with the General
Partner's obligation to develop a long-term strategy for liquidation of
investment and maximum investor return because the Investors would remain
holders of the Units, and the Partnerships' properties would still have to be
sold. Finally, although the debt alternative provided some tax advantages for
certain investors, those Investors that were tax-exempt entities would likely
have been required to pay taxes on the unrelated business taxable income
("UBTI") that borrowing at the Partnership level would have created.
Approximately 15% of Investors of the Partnerships are tax-exempt investors.
Sale of Assets. Other alternatives to the Consolidation considered by
the General Partner included selling its assets, either as individual items or
as an entire portfolio. These alternatives were rejected by the General
Partner for various reasons. Since nearly all of the assets of the
Partnerships are subject to long term leases with third parties, sale of these
assets is not possible to purchasers who desire immediate use of the aircraft.
The remaining companies that have the financial capability to purchase such
assets for investment purposes are limited. There are even fewer potential
buyers of an entire portfolio. In addition, the sale of each individual
Partnership asset would be more costly and time consuming. Finally, though the
General Partner has not made nor solicited any offers regarding sale of any of
its assets, it continuously monitors the sales prices of assets it holds. The
General Partner believes there is currently no viable market in which to
liquidate all of the assets of the Partnerships at one time under favorable
terms and conditions, as demand and prices are now only beginning to recover
from their depressed state during the early 1990's.
DEFINITIVE OFFERS
During the 18 months preceding the date of this Prospectus, no offer has
been made by a third party or solicited by the Partnership regarding a merger,
consolidation or combination of the Partnerships, an acquisition of any of the
Partnerships or a material amount of their assets, a tender offer for or other
acquisition of securities of any class issued by any of the Partnerships or a
change in control of any of the Partnerships.
23
<PAGE> 32
REASONS FOR THE CONSOLIDATION
Among the reasons for the General Partner's decision to recommend the
Consolidation are the following:
o The General Partner believes that the Consolidation will result
in the Company becoming a broader based, more financially capable
aircraft lessor. The Company as successor company to the
Partnerships will have flexibility to make investments that take
advantage of the current market conditions in a way that the
Partnerships could not.
o The General Partner believes that the Consolidation provides an
opportunity to meet the original Partnership investment
objectives of providing a return on capital of Investors.
Through anticipated Company growth, the Company intends to be
able to increase the value of the Investors' equity holdings in
the Company.
o As a result of the Consolidation and the listing of the Company's
Common Stock on a national securities exchange, Stockholders will
have the potential for greater liquidity of investment.
o Appreciation in the price of the Shares could result if the
Company is successful in taking advantage of growth opportunities
based on the Company's anticipated cost of the new capital and
the anticipated return from investment in additional properties.
o The Consolidation will help create a more visible, active leasing
company within its market niche. The Company's increased
visibility due to its anticipated increased leasing capability
and activity and a strong market position within its niche should
contribute to its objectives of achieving growth and increased
investor value.
o The Company expects to grow through investments in new and
existing assets in the Company's market niche of used turbo-prop
equipment for regional air carriers, which industry segment is
growing at a fast rate. As a result, the General Partner believes
significant growth is attainable.
o Assuming both Partnerships participate in the Consolidation, the
Company will hold a larger portfolio of assets than any single
Partnership, and will be become even more diverse as additional
assets are acquired by the Company using debt and equity
financing. The diversification of assets is anticipated to
reduce risk for Stockholders by spreading the risk of investment
over a broader and more diverse group of assets, and by reducing
the dependence of investment on the performance of any particular
asset or group of assets, any specific geographic area or any
specific lessee.
o The consolidation will result in simplified federal and state tax
reporting for Investors and the Company. Stockholders will
receive Form 1099-DIV to report any dividends. This form will be
distributed by January 31 of each year following a year in which
dividend distributions have been made. The complicated Schedule
K-1, which Investors generally receive by March 15 of each year,
will not be used. Participating Investors will no longer be
subject to state tax withholding, or be required to file
individual state tax returns (other than in their state of
residence) solely as a result of an investment in the Company.
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<PAGE> 33
- --------------------------------------------------------------------------------
THE CONSOLIDATION
- --------------------------------------------------------------------------------
The information contained in this Prospectus with respect to the
Consolidation is qualified in its entirety by reference to the Agreement and
Plan of Merger by and among the Company and the Participating Partnerships (the
"Merger Agreement"), a copy of which is attached hereto as Appendix A and
incorporated herein by reference.
GENERAL
The Consolidation is to be effected in accordance with the terms and
conditions set forth in the Merger Agreement. The Merger Agreement provides
that, in accordance with the Delaware GCL and the California Partnership Law,
at the time of filing of a Certificate of Merger with the Delaware Secretary of
State, or at such later time thereafter as may be specified in the Certificate
of Merger (the "Effective Time"), each of the Participating Partnerships will
be merged with and into the Company, their separate existences will cease and
the Company will continue as the surviving entity. As of the Effective Time,
each Unit of a Participating Partnership will automatically be converted into
the right to receive Shares.
Approval of the Consolidation by a Partnership constitutes consent to
the merger of the Partnership with and into the Company pursuant to the terms
of the Merger Agreement and to all actions necessary or appropriate to
accomplish the Consolidation, including approval of the Amendments to the
Partnership Agreements. Immediately after the Effective Time, the officers of
the Company shall consist of the persons listed under "MANAGEMENT." The Board
of Directors shall consist of the three current directors of the Company, and
it is anticipated that two additional outside directors will be appointed
immediately after the Consolidation.
Consummation of the Consolidation is subject to certain conditions. See
"THE CONSOLIDATION -- Conditions to the Consolidation."
APPROVAL AND RECOMMENDATIONS OF THE GENERAL PARTNER
Each general partner of the Partnerships has approved the Consolidation.
The General Partner believes that an investment in the Company through the
ownership of Common Stock will provide greater benefits to Investors than the
benefits derived from an investment in an individual Partnership. See
"BACKGROUND AND REASONS FOR THE CONSOLIDATION;" "FAIRNESS." Consequently, the
General Partner recommends that the Investors of each Partnership consent to
the Consolidation. However, Investors are urged to consider carefully the
factors described under "RISK FACTORS" and the comparison of an investment in a
limited partnership versus an investment in the Company set forth under
"COMPARISON OF LIMITED PARTNERSHIP AND CORPORATE STRUCTURE." Investors are also
urged to review the Supplement for their respective Partnership and to consult
with their independent financial and tax advisors prior to consenting to the
Consolidation.
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<PAGE> 34
VOTE REQUIRED FOR APPROVAL OF THE CONSOLIDATION
Participation in the Consolidation by a Partnership requires the
affirmative vote of holders of more than 50% of the outstanding Units of the
Partnership. This Prospectus constitutes the solicitation of the approval of
the Investors to the Consolidation, including all such actions required by the
Partnerships to consummate the Consolidation. Because JetFleet II's
anticipated net assets as of the Anticipated Consummation Date constitute over
88% of the aggregate value of the Partnerships' assets, at the discretion of
the Company, the Consolidation will be consummated notwithstanding the
nonparticipation of JetFleet I, provided that the Consolidation is approved by
JetFleet II. In determining whether to proceed with a Consolidation with
JetFleet II only, the Company will determine whether the number of dissenting
Investors, the number of Participating Investors and the asset base of JetFleet
II alone will provide a sufficient basis for the Company to meet its objectives
and satisfy all the conditions for the Consolidation set forth in the Merger
Agreement. Such a Consolidation between JetFleet II and the Company alone is
subject to certain considerations summarized in the Supplement for JetFleet II.
JetFleet II Investors are urged to carefully review the Supplement accompanying
this Prospectus when considering the Consolidation.
AMENDMENTS TO PARTNERSHIP AGREEMENTS
The Partnership Agreements do not specifically address the merger of the
Partnerships or the conversion of equity securities for Partnership Units.
Therefore, the General Partner is requesting the consent of Investors to amend
the Partnership Agreements to include specific provisions regarding the
Consolidation. By voting "YES" in favor of the Consolidation, an Investor will
also have approved the proposed amendments to his or her Partnership Agreement
(the "Amendments"), which expressly authorize all actions necessary to
successfully accomplish the Consolidation as described in this Prospectus. The
amendments also provide for a uniform dissenters' rights procedures for both
JetFleet I and JetFleet II Investors. See "VOTING PROCEDURES--Amendments to
Partnership Agreements." A discussion of the substance of each of the
amendments and the form of the Amendment to the Partnership Agreement is set
forth in the Supplement for the respective Partnership.
JetFleet II Partnership Amendments. Under the current JetFleet II
Partnership Agreement, dissenting investors would be entitled to receive the
appraised value of the net assets of JetFleet II. As part of the
consolidation, investors are being requested to approve an amendment to the
JetFleet II Partnership Agreement that, among other things, would give
dissenters the right to receive the fair value of their Units not voted in
favor of the Consolidation.
CONDITIONS TO THE CONSOLIDATION
Consummation of the Consolidation is conditioned upon each of the
following, any or all of which other than (i), (ii) and (viii) may be waived by
the General Partner in its sole discretion:
(i) approval of the Consolidation by Investors holding a
majority of the outstanding Units of the Partnerships; provided,
however, that at the sole discretion of the General Partner and the
Company, the merger of JetFleet II with the Company may be consummated
notwithstanding the failure of Investors in JetFleet I to approve the
Consolidation.
(ii) approval of the listing of the Shares on the American
Stock Exchange, subject to official notice of issuance;
26
<PAGE> 35
(iii) receipt of all necessary consents, waivers, approvals,
authorizations or orders required to be obtained and the making of all
filings required to be made by any of the parties for the authorization,
execution and delivery of the Merger Agreement and the consummation of
the transactions contemplated thereby on or before (and remaining in
effect at) the Effective Time;
(iv) there shall not have occurred or been threatened any
material adverse change in the overall business or prospects of the
Participating Partnerships or in the tax or other regulatory provisions
applicable to the Participating Partnerships, or the Company, and the
Company shall not have become aware of any facts that, in the sole
judgment of the Company and General Partner, have or may have a material
effect, whether adverse or otherwise, on the Participating Partnerships,
taken as a whole, the Consolidation, or the value to the Company of the
properties of the Participating Partnerships, taken as a whole;
(v) receipt, on or prior to the Closing Date, by the Company
of an opinion from Counsel confirming that in all material respects, as
of the Closing Date, the discussion set forth under "FEDERAL INCOME TAX
CONSIDERATIONS," including any opinions expressed therein, is accurate
and complete;
(vi) there having been no statute, rule, or regulation enacted
or issued by the United States or any State, or by a court, which
prohibits or challenges the consummation of the Consolidation;
(vii) there having been no declaration of suspension of trading
in, or limitation on prices for, securities generally on the American
Stock Exchange, declaration of a banking moratorium by federal or state
authorities or any suspension of payments by banks in the United States
(whether mandatory or not) or of the extension of credit by lending
institutions in the United States, or commencement of war, armed
hostility, or other international or national calamity directly or
indirectly involving the United States, which war, hostility or
calamity, in the sole judgment of the Company and the General Partner,
would have a material adverse effect on the business objectives of the
Company, or, in the case of any of the foregoing existing on the date of
this Prospectus, any material acceleration or worsening thereof;
(viii) the Registration Statement having been declared
effective and no stop order suspending the effectiveness of the
Registration Statement having been issued or proceedings for such
purpose having been instituted, and all necessary approvals under state
securities or blue sky laws having been received; and
(ix) if more than 5% of the Investors of either of the
Partnership shall have elected to exercise dissenters' rights available
under the California Partnership Act, the Company shall have the option
not to consummate the Consolidation with such Partnership.
If any event shall occur or any matter shall be brought to the attention
of the Company and the General Partner that, in their sole judgment, materially
affects, whether adversely or otherwise, any of the Participating Partnerships
or one or more of their properties, subject to the terms of the Merger
Agreement, the Company and the General Partner reserve the right to modify or
amend the terms of the Consolidation to take such event or matter into account,
or to take such other actions as may be appropriate, including, without
limitation, canceling the Consolidation. Any determination of the Company
concerning the events and matters set forth above will be final and
27
<PAGE> 36
binding on all parties. All of the foregoing conditions, except for the
conditions set forth in (i), (ii) and (viii), are for the sole benefit of the
Company and the General Partner and may be waived by the Company and the
General Partner in whole or in part. Certain of the conditions to the
consummation of the Consolidation are beyond the control of the Company, the
General Partner and the Partnerships; consequently, there can be no assurance
that the Consolidation will occur.
EXCHANGE VALUE AND ALLOCATION OF SHARES
General. Exchange Values were determined based on appraisals as of
February 4, 1997 and cash and liabilities projections as of the Anticipated
Consummation Date of July 1, 1997, and have been assigned to each of the
Partnerships solely to establish a consistent method of allocating Shares for
purposes of the Consolidation. The Exchange Values of the Partnerships do not
indicate the aggregate price at which Shares may be sold after the
Consolidation, nor does the number of Shares to be issued indicate the actual
or potential trading price of the Company's Common Stock. See "RISK FACTORS."
The number of Shares to be issued to each Participating Partnership upon
consummation of the Consolidation will equal the Exchange Value of the
Participating Partnership divided by $10, an arbitrary amount chosen for the
sole purpose of determining the number of Shares of Common Stock to be issued
to each Partnership. No fractional Shares will be issued by the Company with
respect to the Consolidation. There has been no prior market for the Common
Stock, and it is possible that the Common Stock will trade at a price
substantially below the Exchange Value or the book value of the assets of the
Company. There is no assurance that a market for the Company's Common Stock
will develop as a result of the Consolidation. No fractional Shares will be
issued by the Company with respect to the Consolidation. See "-- Conversion
Ratio; No Fractional Shares."
The Exchange Value for each Partnership is an amount equal to the
sum of (i) the appraised market value of its assets as of February 4, 1997,
(ii) the present value of rental income owed to the Partnership on a full
payout finance lease for a DC-9 aircraft owned jointly by JetFleet I and
JetFleet II and a second DC-9 owned 100% by JetFleet II (discounted at an
annual interest rate of 10%) and (iii) projected cash and other assets as of
July 1, 1997 (the anticipated date of consummation of the Consolidation), less
(x) projected total liabilities of each Partnership as of July 1, 1997 In
determining the value of each asset held by the Partnership, the Appraiser used
the "current market value approach." Current market value is based upon the
value reflective of real market conditions at the time of the appraisal of an
asset, and takes into account the status of the economy in which the equipment
is used, the status of supply and demand for the particular item of equipment,
the value of recent transactions and the opinions of informed buyers and
sellers. The current market value approach assumes that there is no short term
time constraint to buy or sell the asset. See "REPORTS, OPINIONS AND
APPRAISALS."
As of the date of this Prospectus, the General Partner does not know of
any material change in the financial performance of any of the Partnerships
which will materially affect the Exchange Value.
Adjustments to Exchange Value and Allocation of Shares. All
determinations of the Exchange Value for purposes of allocating the Shares
among the Partnerships, other than the final computation of the expenses of the
Consolidation, were determined in the manner described below. Each
Partnership will operate and make distributions prior to the Closing Date such
that, to the extent possible, its Exchange Value relative to the Exchange Value
of the other parties to the Consolidation remains the same, excluding, for
these purposes only, the estimated expenses of the Consolidation allocated to
each of the Partnerships.
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<PAGE> 37
In the event it is discovered prior to the Effective Time that cash
positions or anticipated liabilities differ from those used to calculate
Exchange Values as described below, an adjustment may be made to the Exchange
Value of that Partnership. If the required adjustment is in excess of 5% of
the Exchange Value for the Partnership, the Partnership's Exchange Value will
be redetermined and its allocation of Shares changed. In the event the amount
of the discovered liability is less than the foregoing amount, no adjustment to
the Partnership's Exchange Value will be made.
The Exchange Value for each Partnership is an amount equal to the sum of
(i) the appraised market value of its assets as of February 4, 1997, (ii) the
present value of rental income owed to the Partnership on a full payout finance
lease for a DC-9 aircraft owned jointly by JetFleet I and JetFleet II and a
second DC-9 owned 100% by JetFleet II (discounted at an annual interest rate of
10%) and (iii) projected cash and other assets as of the Anticipated
Consummation Date of July 1, 1997, less (x) projected total liabilities of each
Partnership as of the Anticipated Consummation Date. The method of calculation
is shown below. The General Partner reserves the right in its sole
discretion, to make adjustments to the Exchange Value of a Partnership, when
necessary to take into account the payment of cash to dissenting Investors of a
Partnership.
<TABLE>
<CAPTION>
Market Value Discounted Other Total Exchange No of.
of Assets(1) DC-9 Rent(2) Assets(3) Liabilities(4) Value Shares
------------- ------------ --------- -------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
JetFleet I $ 1,762,554 $144,543 $107,490 $ 651,080 $ 1,363,507 136,351
JetFleet II $13,927,446 $622,178 $731,304 $1,994,932 $13,285,996 1,328,600
</TABLE>
- ---------------
(1) Based upon the market value of the assets as set forth in the Appraisal
of Aircraft Information Services, dated February 4, 1997, for each
Partnership, attached as Appendix B.
(2) JetFleet I and JetFleet II hold 50% and 50% interests, respectively, in
a DC-9 aircraft, and JetFleet II holds a 100% interest in a second DC-9
aircraft, each on a full-payout finance lease to AeroCalifornia. The
amount shown in this column represents the Partnership's portion of the
present value of the rent payable to the Partnership, discounted at an
annual rate of 10%.
(3) Consists mainly of projected cash holdings and miscellaneous
receivables.
(4) Consists primarily of deferred tax liabilities, accounts payable,
accrued maintenance costs and security deposits and prepaid rents.
(5) Exchange Value divided by $10.
29
<PAGE> 38
ALLOCATION OF SHARES BETWEEN GENERAL PARTNER AND LIMITED PARTNER
The following table shows how the allocation of each Partnerships' shares
between the General Partner and the Investors was calculated. The General
Partner's allocation is based upon the percentage interest of the General
Partner in the Partnership as set fort in the respective Partnership Agreements
of the Partnerships.
<TABLE>
<CAPTION>
Total Shares General No. Of No. of Shares
Allocated to Partners' Shares Issued Issued to
Partnership Partnership(1) Partner Interest(2) to General Partner Limited Partners
- ----------- -------------- ------------------- ------------------ -----------------
<S> <C> <C> <C> <C>
JetFleet I 136,351 1.0% 1,364 134,987
JetFleet II 1,328,600 5.0%(3) 66,429 1,262,171
</TABLE>
- ---------------
(1) The number of Shares to be issued to each Participating Partnership upon
consummation of the Consolidation will equal the Exchange Value of the
Participating Partnership (last column of the previous table entitled
"Determination of Allocation of Shares Between Partnerships") divided by
$10, an arbitrary amount chosen for the sole purpose of allocating
Shares and which is not intended to imply that the Shares will trade at
a price of $10 per Share.
(2) Represents the percentage interest of the General Partners in the
Partnership's distributions, according to the applicable Partnership
Agreement.
(3) In addition to its 5% interest in any distributions made by JetFleet II,
the General Partner of JetFleet II is also entitled to a subordinated
disposition fee equal to one half of the industry standard commission
ordinary paid in such transactions, up to a maximum of 3% of the gross
sales price of any assets disposed by JetFleet II. The General Partner
will waive this fee in connection with the Consolidation.
ACCOUNTING TREATMENT
In accordance with generally accepted accounting principles, the
Consolidation will be accounted for as a reorganization of entities under
common control at historical cost in a manner similar to a "pooling-of-
interests." Under this accounting method, the assets and liabilities of the
combining entities will be carried forward at their recorded historical book
values. For a discussion of the accounting adjustments necessary to give
effect to the Consolidation, see "PRO FORMA FINANCIAL INFORMATION" and "SELECTED
FINANCIAL INFORMATION OF THE PARTNERSHIPS."
CONVERSION RATIO; NO FRACTIONAL SHARES
At the consummation of the Consolidation, each Participating Investor's
limited partnership Units will be automatically converted into the right to
receive that number of Shares of Common Stock of the Company equal to the
number of Units held by the Investor multiplied by the Conversion Ratio,
rounded up to the nearest whole Share. The Conversion Ratio shall equal the
quotient obtained by dividing (a) the number of Shares allocated to be issued
to the Investors of the Partnership; by (b) the total number of Units of
limited partnership outstanding for the Partnership.
The Company will not issue fractional Shares in connection with the
Consolidation. The number of Shares issuable to an Investor will equal the
number of Units held by the Investor multiplied by the Conversion Ratio,
rounded up or down to the nearest whole share.
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<PAGE> 39
EFFECT OF THE CONSOLIDATION ON DISSENTING INVESTORS
An Investor of a Participating Partnership who dissents or abstains from
voting with respect to the Consolidation will have statutory rights to elect to
be paid the appraised value of his or her interest in the Partnership. See
"DISSENTERS' RIGHTS," for a summary of statutory dissenters' appraisal rights
available to Investors who do not vote in favor of the Consolidation.
EFFECTIVE TIME
The Effective Time of the Consolidation will be the time when the
Certificate of Merger with respect to the merger of the Participating
Partnerships are filed with the Secretary of State of Delaware, or at such
later time as may be specified in the Certificate of Merger. It is anticipated
that such filings will be made as promptly as practicable after the requisite
approval of the Investors has been obtained and the other conditions to the
Consolidation have been satisfied or waived, if permitted under the Merger
Agreement, as the case may be. The General Partner intends that such approvals
will be obtained on or about June 30, 1997.
CORPORATE HEADQUARTERS
The Company's principal place of business will be 1440 Chapin Avenue,
Suite 310, Burlingame, California.
LEGAL PROCEEDINGS
There is no material litigation currently pending or threatened against
any of the Partnerships, their properties or the General Partner.
AMENDMENT, TERMINATION AND WAIVER
Subject to applicable law, the Merger Agreement may be amended by the
Company and the Participating Partnerships at any time prior to the filing of
the Certificate of Merger with the Delaware Secretary of State, provided that,
after approval by Investors holding a majority of the outstanding Units of a
Partnership, without the further approval of the Investors of such Partnership
and the shareholders of the Company, no amendment may be made which alters or
changes (i) the amount or kind of consideration which an Investor of such
Partnership shall be entitled to receive for Units in such Partnership, (ii)
the Certificate of Incorporation of the Company, or (iii) the terms and
conditions of the Merger Agreement if such alteration or change would
materially and adversely affect the Participating Investors or the shareholders
of the Company.
The Merger Agreement may be terminated at any time prior to the filing
of the Certificate of Merger with the Delaware Secretary of State by mutual
consent of the Board of Directors of the Company and the General Partner.
At any time prior to the filing of the Certificate of Merger with the Delaware
Secretary of State, any party to a Merger Agreement may extend the time for the
performance of any of the obligations or other acts of any other party thereto,
or waive compliance with any of the agreements of any other party or with any
conditions to its own obligations, in each case only to the extent that such
obligations, agreements and conditions are intended for its benefit.
DEALER MANAGER
The Company has engaged Crispin Koehler Securities ("CKS"), an NASD-
registered broker dealer to act as Dealer-Manager for the Consolidation. CKS
acted as Dealer Manager in connection with the offering of limited partnership
units of each of the Partnerships. CKS, which acted as Dealer Manager for the
JetFleet I and JetFleet II offerings, will be providing such
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<PAGE> 40
investment banking services to the Company in connection with the solicitation,
including rendering advice regarding the preparation of the solicitation
documents and solicitation strategy and as acting as liaison between the
Company and the broker-dealers who were in the syndicate that sold the
Partnership Units and who will be acting on behalf of certain Investors. In
consideration of those service in connection with the Consolidation, CKS will
receive an investment banking fee of $80,000 and warrants to purchase up to
35,000 shares of Common Stock of the Company at a purchase price of $3.00 per
share. Richard D. Koehler, an individual General Partner of each of the
Partnerships, is an officer and director of CKS, and a principal shareholder of
its parent corporation, CK Holding. Neal D. Crispin is neither a shareholder,
officer or director of CKS and is not an officer or director of CK Holding, but
does own 9% of the voting common stock of CK Holding. The compensation to be
paid to CKS was not negotiated at arm's length by the Company and CKS.
CONSOLIDATION EXPENSES
General. Assuming 100% Partnership Participation, expenses of the
Consolidation are estimated to be as follows:
SOLICITATION/COMMUNICATION EXPENSES
<TABLE>
<S> <C> <C>
Communication Expenses $ 30,000
Other $ 20,000
Sub Total $ 50,000
</TABLE>
TRANSACTION COSTS
<TABLE>
<S> <C> <C>
Investment Banking Fee $ 80,000
Legal Fees $ 50,000
Appraisals and Valuation $ 3,000
Registration, Listing and Filing Fees $ 20,000
Financial Consulting Fees $ 19,000
Accounting and Other Fees $ 10,000
Printing $ 20,000
Sub Total $ 202,000
-------
Total Costs $ 252,000
=======
</TABLE>
Solicitation/Communication Expenses. The Solicitation/Communication
Expenses related to the Consolidation will be allocated among the Partnerships,
the General Partner and the Company depending upon whether the Consolidation is
consummated, as described below. For purposes of the Consolidation, the term
"Solicitation/Communication Expenses" includes expenses such as telephone
calls, broker-dealer fact sheets, legal and other fees related to the
solicitation of consents, as well as reimbursement of expenses incurred by
brokers and banks in forwarding the Prospectus to Investors.
If the Consolidation is consummated with both JetFleet I and JetFleet
II, all of the Solicitation/Communication Expenses will be payable by the
Company. If the Consolidation is consummated only with JetFleet II, all of the
Solicitation/Communication Expenses will be paid by the Company or JetFleet II.
The Solicitation Communication Expenses of JetFleet I, if it does not
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<PAGE> 41
participate, will be payable by the Company. If the Consolidation is not
consummated, all of the Solicitation/Communications Expenses will be payable by
the Company.
Transaction Costs. The Transaction Costs for the Consolidation will be
allocated among the Partnerships and/or the Company depending upon the votes
received with respect to the Consolidation and whether the Consolidation is
consummated. The term "Transaction Costs" means, for purposes of the
Consolidation, the costs of mailing and printing this Prospectus, any
supplements thereto or other documents related to the Consolidation, legal fees
not related to the solicitation of consents, financial advisory fees,
investment banking fees, appraisal fees, accounting fees, independent committee
expenses, travel expenses and all other fees related to the preparatory work of
the Consolidation, but not including Solicitation/Communication Expenses or
costs that would have otherwise been incurred by the Partnerships in the
ordinary course of business.
If the Consolidation is consummated with both JetFleet I and JetFleet
II, all of the Transaction Costs will be payable by the Company. If the
Consolidation is consummated with just JetFleet II, the Transaction Costs will
be allocated among the Partnerships in proportion to their respective Exchange
Values. The Transaction Costs allocated to JetFleet I, as a Nonparticipating
Partnership, will be payable by the Company and JetFleet I in such proportion
corresponding to the votes to reject the Consolidation and the votes to approve
the Consolidation. The Transaction Costs allocated to JetFleet II as a
Participating Partnership will be payable by the Company.
REPORTS, OPINIONS AND APPRAISALS
The General Partner has engaged Aircraft Information Services, Inc., an
independent appraisal firm, to appraise the value of the aircraft equipment
assets of the Partnerships. The Exchange Value of each of the Partnerships was
determined primarily based on these appraised values. The allocation of Shares
among the Participating Partnerships was determined primarily based on these
appraised values. See "THE CONSOLIDATION--Exchange Value and Allocation of
Shares." See "REPORTS, OPINIONS AND APPRAISALS" regarding the parties providing
the appraisals, valuations, and any material relationships with these parties
and compensation received or expected to be received by them, the determination
of the consideration to be received by Investors and summaries of the
appraisals and valuations.
EFFECT OF CONSOLIDATION ON NONPARTICIPATING PARTNERSHIPS
A Nonparticipating Partnership will continue to operate as a separate
legal entity with its own assets and liabilities. There will be no change in
its investment objectives, policies or restrictions and the Nonparticipating
Partnership will remain subject to the terms of its Partnership Agreement. The
General Partner anticipates that it will not take any steps to increase
liquidity to the Partnerships in the near term, and will re-evaluate the market
conditions periodically to determine if liquidation of the Partnerships prior
to the termination date of the Partnership set forth in the Partnership
Agreement would be advantageous to the Partnerships' Investors.
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- --------------------------------------------------------------------------------
BENEFITS OF THE CONSOLIDATION
- --------------------------------------------------------------------------------
The following is a brief discussion of the potential benefits of the
Consolidation.
Potential for Increasing Value of Investment While Providing Enhanced
Liquidity By combining the Participating Partnerships into the Company, the
Consolidation will give the Company the asset base and the flexibility to take
advantage of the current upturn in the cyclical aircraft industry, potentially
increasing the investment value to Investors, while at the same time creating
enhanced investment liquidity.
Growth Potential. The Company, as successor to the Partnerships'
business, believes it will have significant growth opportunities as a result of
increased efficiency in existing portfolio management and the fragmented
availability of capital for investment in the Partnerships' niche market,
regional air carrier turboprop equipment. The Company's management and the
General Partner believe there may be attractive investment opportunities in
current market and, as a result of its ability to raise additional capital and
to reinvest net sale or refinancing proceeds, the Company should be positioned
to take advantage of these investment opportunities. The Company believes
there is potential for increased total return to Stockholders through potential
appreciation in the price of Shares from growth opportunities based upon the
Company's anticipated cost of new capital and the anticipated return on the
investment in additional properties.
Substantially Enhanced Liquidity Potential. Stockholders of the Company
will have the potential for enhanced liquidity of investment as a result of
holding securities listed on a national securities exchange. The Company has
applied to list its Common Stock on the American Stock Exchange subject to
official notice of issuance. There is expected to be a public market for the
Shares following the Consolidation, but there is no assurance that such market
will be active and result in greater liquidity for the Investors.
Common Business Objectives. The Consolidation establishes, through the
formation of the Company, a single business enterprise. The assets of the
Participating Partnerships will be combined for the purpose of pursuing common
business objectives, through an integrated management and operational system.
Since the Company will not be operated as a finite-life enterprise, it will
have the right to pursue certain business opportunities which cannot be pursued
by any of the Partnerships. These opportunities include the opportunity of
making new investments, raising additional capital, leveraging assets to
acquire additional assets, using equity to purchase additional assets, and
combining assets to take advantage of new financing opportunities or resale
packages.
Access of Capital Markets. With a larger base of assets and
Stockholders' equity, the Company should be able to issue additional debt and
equity securities with greater ease and on more attractive terms than would be
available to either of the Partnerships individually.
Timing of Asset Sales. The Board of Directors of the Company has the
discretion to determine when or whether to dispose of the Company's assets or
the Company itself, subject to, under certain circumstances, approval of the
stockholders of the Company. Unlike the
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<PAGE> 43
Partnerships, the Company has no established time frame in which the Company's
investments are expected to be liquidated and may select the optimum time for
disposing of aircraft asset investments.
Diversification of Assets. By combining the Participating Partnerships
into a single ownership entity, the Consolidation will create an investment
portfolio larger than the portfolio of either Partnership. For JetFleet I,
this increased size and the resulting combination of operations spreads the
risk of investment over a broader group of assets and reduces the dependence of
investment upon the performance of any particular asset or group of assets, any
specific lessee or any particular type of aircraft equipment. For JetFleet II,
the Consolidation brings assets it co-owns under the control of one entity.
Simplification of Business. Each of the Partnerships is subject to the
periodic reporting and filing obligations of the Securities Exchange Act of
1934, as amended. As separate legal entities with different investors, the
Partnerships must segregate their assets and liabilities (to avoid commingling
assets), conduct their operations independently, and maintain separate books
and records for the preparation of financial statements, tax returns, investor
information and reports and filings to be made to the Securities and Exchange
Commission (the "Commission"). By combining the Participating Partnerships
into a single ownership entity, the Consolidation eliminates much of the
duplication in reporting, filing and other administrative services and
simplifies the manner in which the businesses of the Participating Partnerships
are pursued.
Simplified Tax Reporting. The Consolidation will result in simplified
tax administration for many Investors. Stockholders will receive Form 1099-DIV
by January 31 of the year following any year in which a distribution has been
made. Form 1099-DIV is substantially easier to understand than the more
complicated Schedule K-1, which is prepared for the reporting of the tax
information of the Partnerships and is generally mailed to Investors by March
15 of each year.
Benefits to Tax-Exempt Stockholders. Counsel has delivered its opinion
that, subject to the conditions described therein, the income to be derived by
certain Tax-Exempt Stockholders from the Company will not constitute UBTI.
Accordingly, unlike the Partnerships, the Company may incur indebtedness in
connection with the acquisition of property and not cause distributions to Tax-
Exempt Stockholders to be UBTI. See "FEDERAL INCOME TAX CONSEQUENCES."
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FAIRNESS
GENERAL PARTNER'S BELIEF AS TO FAIRNESS
The General Partner of the Partnerships and the Board of Directors of
the Company believe that the terms of the Consolidation are fair as a whole to
the Partnerships and to their respective Investors. The material factors
underlying the beliefs of the General Partner relating to the fairness of the
Consolidation are discussed below.
In reaching the conclusion that the Consolidation is fair, the General
Partner considered first the similarity of the assets, the partnership
agreements and the investment objectives of the Partnerships, and determined
that so long as the Consolidation accurately valued the assets of the
Partnerships relative to each other, each Partnership would be treated fairly
in a combination of the two Partnerships.
The General Partner believes that the Consolidation is fair from a
procedural standpoint for the following reasons. First, the General Partner
believes that the Exchange Values have been determined according to a process
that is fair, because such process is based on appraisals of all properties of
the Partnerships by the same nationally recognized independent appraisal firm,
which is intended to maximize consistency among the appraisals. In addition,
the Exchange Values include adjustments for the Partnership's liabilities.
Second, the similarities in the Partnerships and its assets simplifies relative
valuation of the assets of the Partnerships. Third, the Consolidation is
required to be approved by Investors holding a majority of each Partnership's
outstanding Units and is subject to certain conditions set forth under "THE
CONSOLIDATION--Conditions to the Consolidation." All dissenting investors will
be given statutory dissenters' rights, subject to certain limitations.
MATERIAL FACTORS UNDERLYING BELIEF AS TO FAIRNESS
The following is a discussion of the material factors, in order of
importance as determined by the General Partner, underlying the General
Partner's belief that the terms of the Consolidation are fair to the Investors
and as a whole.
1. Consideration Offered. The General Partner believes that the
form and amount of consideration offered to Investors, including Dissenting
Investors, constitute fair value. The number of Shares to be issued to each
Partnership is based on the same valuation methodology consistently applied to
each of the Partnerships. Therefore, the General Partner believes that the
Exchange Value adequately takes into account the relative value of each of the
Partnerships.
2. Independent Appraisals. The General Partner's belief as to
fairness of the Consolidation as a whole and to the Investors, and the General
Partner's statements above regarding the material terms underlying their belief
as to fairness, are based partially on the appraisals rendered by the
Appraiser. The General Partner attributed significant weight to these
appraisals and believes that these independent appraisals support the
conclusion that the Consolidation is fair to the Partnerships as a whole and to
the Investors. The General Partner does not know of any factors that relate to
the conclusions in the appraisals, including developments or trends that have
materially affected or are reasonably likely to materially affect such
conclusions, other than as described under "REPORTS, OPINIONS AND APPRAISALS."
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<PAGE> 45
Other than as described above and in "RISK FACTORS" and "REPORTS,
OPINIONS AND APPRAISALS," the General Partner does not know of any factors that
may materially affect (i) the value of the consideration to be received by the
Participating Investors in the Consolidation, (ii) the value of the Units for
purposes of comparing the potential benefits of the Consolidation to the
potential alternatives considered by the General Partner, or (iii) the analysis
of the fairness of the Consolidation.
The General Partner determined that due to the nature of the
Consolidation and the Partnerships as described below, a third party fairness
opinion was unnecessary, and that obtaining such an opinion would result in a
significant increase in the cost of the transaction without any significant
incremental benefit to the Investors, the Partnerships or the Company.
3. Similarity of Partnerships. The General Partner does not believe
that there are any material differences among the Partnerships which would
affect the fairness of the Consolidation. Substantially all of the assets of
the Partnerships are aircraft equipment that are similar in nature and no
Partnership is leveraged; in fact, approximately $3.3 of the total $15.9 of
assets of the Partnerships are owned in joint tenancy by JetFleet I and
JetFleet II. All of the assets of JetFleet I are co-owned with JetFleet II.
The Consolidation is not a proposal for bringing together investments in
different types of aircraft assets. In addition, the investment objectives of
each of the Partnerships are substantially similar. The substantially uniform
nature of the potential pool of aircraft assets of the Company, the absence of
leverage and the similar investment objectives of the Partnerships help ensure
that the Investors in each Partnership receive a number of Shares which
accurately reflects their proportional ownership of the assets contributed by
their Partnership to the Company.
The differences among the Partnerships are as follows:
o Amount of Equipment Owned. Based on appraised values,
JetFleet II owns assets with values almost eight times the
value of those owned by JetFleet I.
o Cash Distributions. There is currently a disparity
between the cash distributed by the two Partnerships.
JetFleet I currently makes cash distributions at a rate of
$2.00 per year per Unit JetFleet II, distributes
approximately $5.00 per year per Unit in income to its
partners.
o Partnership Structure. Although the Partnerships have
slightly different provisions with respect to allocations,
distributions and fees, the General Partner believes the
differences in such provisions are not substantial.
o Size and Diversity. JetFleet I has acquired fewer
properties and is less diverse with respect to its assets
than JetFleet II.
4. Voting Procedures. As discussed above, the General Partner
believes that the voting process and alternatives presented to Investors,
including Dissenting Investors, are fair. Each Investor has the opportunity to
make his investment decision by deciding whether to vote "YES," "NO" or
"ABSTAIN" with respect to the Consolidation. Those Investors who do not vote
"YES" on the Consolidation may be entitled to statutory dissenter's rights to
receive the value of their Units as of the time of the announcement of the
Consolidation. See "VOTING PROCEDURES," and "DISSENTERS' RIGHTS."
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THE COMPANY
GENERAL
As a result of the Consolidation, the Company would have the potential
to raise capital in order to permit growth of the Company's business and
potentially increase efficiency. As a result, the Company will be positioned
to provide competitive sale-leaseback and other types of financing to the
regional air carrier segment of the aircraft finance industry thereby enhancing
its market position. The Company believes that critical attributes of
providing competitive sale-leaseback and other types of financing include:
o the ability to be a source of financing for lessees,
o the ability to provide commitments for investment opportunities,
o the ability to tailor investment structures to meet
lessee/borrower needs, and
o the ability to offer competitive rates and terms.
COMPETITIVE ADVANTAGES
The Company believes it will have certain potential competitive
advantages which will enable it to be selective with respect to aircraft
equipment investment opportunities. These advantages should enhance the
Company's ability to meet its investment objective of enhanced Stockholder
value. The Company's competitive advantages may include:
o Size - The Company will be one of the only aircraft leasing
companies in the United States specializing exclusively in used
turboprop aircraft that is not captive to a particular manufacturer. The
capitalization of the Company will permit it to invest in both large and
small investments of this type. The Company believes that its
significant size relative to each Partnership will permit the Company to
obtain capital from various sources at more competitive rates than would
a single Partnership.
o Diversification - If both Partnerships participate in the
Consolidation, the Company's equipment investments will be comprised of
over 7 aircraft and 25 engines which are diversified by lessee, aircraft
type, and geographic location. As the Company grows, it is anticipated
that this diversification will have a favorable impact upon the
Company's access to, and cost of, capital.
o Management - The Company believes that Stockholders will benefit
from JMC's knowledge and industry relationships. The Company believes
that JMC's specialized ability to invest in and manage aircraft assets
will decrease investment risk and enhance Stockholders' potential
returns.
GROWTH OPPORTUNITIES
Based upon management's knowledge of the aircraft industry, management
believes that current market conditions in the aircraft industry, and in
particular, the Company's niche market,
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regional air carriers, offer the Company an opportunity for potential growth
and increased stockholder value.
BUSINESS OBJECTIVES AND OPERATING STRATEGIES
The Company's principal business objectives are to achieve a stable and
increasing asset base along with increased cash flow, which will be reinvested
to achieve significant capital growth while also seeking to maintain low
investment risk. By achieving these objectives, the Company seeks to enhance
Stockholder value. The Company intends to achieve these objectives through the
following:
o The Company seeks to make aircraft investments which would be
funded either through the issuance of debt or the sale of equity
securities, either for cash or in exchange for desired assets.
o Through active portfolio management and careful acquisition
underwriting, the Company seeks to create a pool of aircraft
equipment which provides higher returns with less risk than the
aircraft leasing industry experiences as a whole.
o The Company's management will continue to develop its aircraft
industry knowledge through continued research which will be used
to lower portfolio investment risk and enhance Stockholders'
returns.
o The Company intends to take advantage of administrative economies
of scale which have the potential to increase profitability as
the investment portfolio grows.
o The Company seeks to enhance its market position and existing
lessee and industry relationships in order to improve its access
to new investment opportunities.
The financing of additional aircraft equipment by the Company may be
funded through public or private offerings of equity securities in the Company,
by additional borrowings by the Company through various means, including public
or private offerings of convertible or nonconvertible debt securities or loans,
or by the use of cash flow from operations or proceeds from the sale or
remarketing of equipment (including the properties acquired pursuant to the
Consolidation). The Company has authority to offer shares of its capital stock
in exchange for equipment which conforms to its investment standards and to
repurchase or otherwise acquire its capital stock or other securities. Any
issuance of equity securities or convertible debt securities may, however, have
a dilutive impact on the shareholders of the Company. Currently, the Company
has no plans to invest in the securities of any other entity for the purpose of
exercising control. See "Equity Financings," below.
UNDER APPLICABLE LAW AND ITS ARTICLES AND BYLAWS, THE COMPANY IS AUTHORIZED TO
CONDUCT ANY LAWFUL BUSINESS. THE FOREGOING DESCRIPTION OF THE MAJOR POLICIES
AND THE VARIOUS TYPES OF INVESTMENTS TO BE MADE BY THE COMPANY REFLECT ONLY THE
CURRENT PLANS OF THE COMPANY'S BOARD OF DIRECTORS. SUCH PLANS AND THE METHODS
OF IMPLEMENTING THEM MAY VARY AS NEW INVESTMENT STRATEGIES AND TECHNIQUES ARE
DEVELOPED. THE COMPANY RESERVES THE RIGHT AT THE SOLE DISCRETION OF THE BOARD
OF DIRECTORS TO ALTER THE NATURE AND TIMING OF THE COMPANY'S BUSINESS POLICIES
IN ORDER TO RESPOND TO CHANGING MARKET CONDITIONS AND OPPORTUNITIES.
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PROPERTIES OF THE COMPANY
The Company was recently formed and therefore does not currently own any
equipment assets. The Company's initial portfolio will consist of the
equipment of the Participating Partnerships. For information about the
properties owned by the Partnerships in which the Company may obtain an
interest as a result of the Consolidation, see "PROPERTIES OF THE
PARTNERSHIPS."
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company was formed on February 28, 1997 and has not yet had any significant
operations.
Results of Operations. The Company has yet to generate a profit due to
the fact the Company is recently formed. The Company does not anticipate
significant operating activity, other than incurring merger costs in connection
with the proposed Consolidation.
Liquidity and Capital Resources. The Company's cash and temporary
investments were $150,000 at March 5, 1997. The Company estimates that costs
associated with the Consolidation will be approximately $250,000. It is
anticipated that such offering costs in excess of current cash balances will be
financed through short-term payables and paid at the time of the Consolidation.
Should the Consolidation not occur, the Company's sole shareholder, JetFleet
Management Corp., has committed to pay such costs.
Competition. Upon Consolidation, 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.
Investment Objective. The Company's investment objective is to maximize
the value of the Shares. There can be no assurance that this objective will be
realized.
BORROWING POLICIES
The Company will be permitted to borrow for such purposes as approved by
the Board of Directors. Debt financing will subject the Company to risks of
leveraging. See "RISK FACTORS -- Risks and Other Factors Relating to the
Consolidation -- Intent to Incur Significant Debt.
EQUITY FINANCING
The financing of additional aircraft equipment by the Company may be
funded through public or private offerings of equity securities of the Company.
Such equity financings are potentially the most efficient and cost-effective
manner of raising capital for the Company. Equity securities sold in such a
financing may be Common Stock of the Company or may be shares of a class of
Preferred Stock, which Preferred Stock may be authorized and designated by the
Board of Directors without the approval of the Stockholders. Such Preferred
Stock may carry certain rights and preferences senior to the rights of holders
of Common Stock. Any issuance of equity securities may result in dilution of
the Investors' interest in the Company.
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The Company has authority to offer shares of its capital stock in
exchange for equipment or other assets and to repurchase or otherwise acquire
its capital stock or other securities. The Company may also use shares of its
capital stock to acquire other companies engaged in aircraft leasing subject to
shareholder approval, if required. The Company has an option to purchase the
management company, JMC, and the purchase price for JMC may be payable in
registered Common Stock of the Company.
FUTURE SALES
It is not the present intention of the Company to sell any particular
asset. However, the Company may consider selling one or more of the assets in
the event circumstances should arise which would make the sale advisable and
the Company intends to reinvest some or all of the proceeds of such sale rather
than distribute them to Stockholders in the form of a taxable dividend.
LISTING, PRICE, TRADING AND HOLDERS OF SHARES
Listing and Price. The Company has applied to list the Common Stock on
the American Stock Exchange under the symbol "________", subject to official
notice of issuance. Prior to the Consolidation, there will be no established
public trading market for the Shares and the Shares will not be listed on any
national securities exchange or quoted on the NASDAQ. Therefore, no sale or
bid price information is available with respect to the Shares.
Trading. Shares received by Participating Investors in the
Consolidation will be freely transferable, except for Shares received by
persons who may be deemed to be affiliates of the Company under the Securities
Act. Persons who may be deemed to be affiliates of the Company after the
Consolidation generally include individuals or entities that control, are
controlled by, or are under common control with the Company and may include
certain principal stockholders of the Company. Persons who are affiliates will
be permitted to sell their Shares only pursuant to an effective registration
statement under the Securities Act or an applicable exemption from registration
under the Securities Act. See "DESCRIPTION OF COMMON STOCK--Restrictions on
Ownership and Transfer" for a description of the limitations on the transfer
and ownership of the Shares. Due to the unique position of the Company within
its market, the Company anticipates that after the Consolidation, it may adopt
a shareholder rights plan that could restrict business combinations and similar
transactions between the Company and significant shareholders of the Company.
Pursuant to Section 203 of the Delaware GCL, certain business combinations with
stockholders owning 15% or more of the Company's outstanding stock are
prohibited for three years after the stockholder acquires such stock. See
"COMPARISON OF LIMITED PARTNERSHIP AND CORPORATE STRUCTURE."
JMC Shares. As of the date of this Prospectus, JMC is the sole
shareholder of the Company, owning 150,000 shares of Common Stock. JMC has
been managing the business of the Partnerships since 1994, under a management
agreement between the General Partner and JMC. JMC has entered into a
management agreement with the Company to act as management company for the
Company upon consummation of the Consolidation. See "MANAGEMENT -- The
Management Company." As part of the compensation to JMC for its management
services, the Company issued 150,000 shares of its Common Stock at a price of
$1.00 per share pursuant to a Restricted Stock Purchase Agreement. The
Restricted Stock Purchase Agreement contains an 18-month vesting schedule and
grants the Company the right to repurchase shares of unvested Common Stock if
the Management Agreement with JMC is terminated prior to the full vesting date.
The issuance of such stock was made in reliance on an exemption from the
Securities Act provided
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by Rule 701 thereunder. Since the shares of Common Stock were issued at
inception of the Company, and since the Company will not show any net worth
other than the stock purchase price paid, and will only have value if the
Consolidation is approved, which is not certain at this time, the price of the
Common Stock was arbitrarily set at $1.00 per Share.
The proceeds of the purchase of Common Stock by JMC are being used by
the Company to fund the organization of the Company and to pay for certain
expenses in connection with the consent solicitation and proposed
Consolidation.
Dividend Policy. The Board of Directors will periodically evaluate its
dividend policies, and will not be prohibited from declaring dividends by any
organizational corporate document. The Company does not intend to pay
dividends, but instead anticipates re-investing earnings into additional
assets.
For a discussion of the tax treatment of distributions to the
Stockholders, see "FEDERAL INCOME TAX CONSIDERATIONS--Taxation of the Company."
BENEFICIAL OWNERSHIP OF DIRECTORS, OFFICERS AND PRINCIPAL SHAREHOLDERS
The following table sets forth the number and percentage of Shares of
the Company expected to be held upon the Consolidation by persons owning five
percent or more of the Shares, each director of the Company and all directors
and officers of the Company as a group, assuming both JetFleet I and JetFleet
II participate in the Consolidation. The exact percentage of ownership of
Shares by such persons will be affected by whether JetFleet I participates in
the Consolidation along with JetFleet II and the number of Participating
Investors receiving Shares of Common Stock.
ASSUMING 100%
PARTNERSHIP PARTICIPATION
<TABLE>
<CAPTION>
Number of
Name and Position Shares Percent
- ----------------- --------- -------
<S> <C> <C>
JetFleet Management Corp., 150,000 9.09%
Principal Shareholder
All Officers and Directors 150,000 9.09%
of the Company (1) (2)
</TABLE>
- ---------------
(1) None of the officers and directors of the Company will hold shares of
the Company immediately after the Consolidation. The shares listed
represent shares held by JetFleet Management Corp. Mr. Crispin and Ms.
Perazzo own 79% and 12%, respectively, of the Common Stock, and are
directors and officers, of JetFleet Management Corp.
(2) Does not include 67,793 Shares, (4.2% of the outstanding Common Stock),
to be issued to the General Partner, CMA Capital Group, Inc. Richard D.
Koehler, an individual general partner, and Neal D. Crispin, an
individual General Partner, are 91 and 9% shareholders, respectively, of
the parent corporation of CMA Capital Group, Inc. Does not include
35,000 shares issuable under a warrant issued to Dealer Manager, CKS.
Richard D. Koehler, an individual general partner, and Neal D. Crispin,
an individual General Partner, are 91 and 9% shareholders, respectively,
of the parent corporation of CKS, Crispin Koehler Holding Corp. Mr.
Koehler is also a director and officer of CKS and Crispin Koehler
Holding Corp.
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PRINCIPAL EXECUTIVE OFFICES AND EMPLOYEES
The Company was organized under the laws of the State of Delaware on
February 28, 1997 to facilitate the Consolidation and for all lawful purposes,
including financing, acquiring, managing and disposing of aircraft assets. The
Company's executive offices are located at 1440 Chapin Avenue, Suite 310,
Burlingame, California 94010 and its telephone number is (415) 696-3900. Upon
completion of the Consolidation, it is anticipated that the Company will have
no employees, as all management will be provided by JMC pursuant to a
management agreement.
ACQUISITION POLICIES
THE COMPANY IS AUTHORIZED TO CONDUCT ANY LAWFUL BUSINESS. THE FOLLOWING
DESCRIPTION OF THE MAJOR POLICIES AND THE VARIOUS TYPES OF INVESTMENTS TO BE
MADE BY THE COMPANY REFLECT ONLY THE CURRENT PLANS OF THE COMPANY'S BOARD OF
DIRECTORS. THE METHODS OF IMPLEMENTING THE COMPANY'S INVESTMENT POLICIES MAY
VARY AS NEW INVESTMENT TECHNIQUES ARE DEVELOPED. THE COMPANY RESERVES THE RIGHT
AT THE SOLE DISCRETION OF THE BOARD OF DIRECTORS TO ALTER THE NATURE AND TIMING
OF THE COMPANY'S BUSINESS POLICIES IN ORDER TO RESPOND TO CHANGING MARKET
CONDITIONS AND OPPORTUNITIES.
General. Subsequent to the Consolidation, the Company intends to
purchase additional income producing equipment assets ("Equipment"). The
Company anticipates that these assets will be equipment, consisting mainly of
aircraft, aircraft engines, aircraft parts or other equipment subject to
operating or full payout leases with third parties. Though the Company
anticipates that it will concentrate on turbo-prop equipment, it may also
purchase jet aircraft or helicopter equipment. The Company may also, however,
acquire certain financial assets, such as indebtedness secured by Equipment, or
income streams from Equipment Leases.
JMC will select the 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, JMC will receive a
monthly Management Fee based upon the book value of the Company's assets. See
"MANAGEMENT OF THE COMPANY--The Management Company". 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.
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 use 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 the Company can require the seller to
repurchase, at the Company'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.
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Equipment. The Company may acquire aircraft, aircraft engines, aircraft
spare parts and equipment inventories as part of its Equipment portfolio. In
addition, the Company may purchase appliances, parts, instruments, accessories
and other equipment related to aircraft for installation on aircraft previously
purchased by the Company.
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.
Adjusted Purchase Price. The Company will not acquire an interest in an
asset without first obtaining an appraisal of the fair market value of the
asset from an independent appraiser. Generally, it will be the Company's
policy that the Adjusted Purchase Price of any 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 Costs
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 Adjusted Purchase Price plus the brokerage fee shall not exceed the fair
market value of the asset at the time of the purchase as Appraised by the
Appraiser.
LEASES
The Company will generally invest in assets subject to 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 may be subject to negotiations.
There are two types of triple net leases: 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 non-cancelable rental payments due during the initial term of
the lease are at least sufficient to recover the purchase price of the
Equipment. 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.
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 provided 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
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<PAGE> 53
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) 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); (iii)
sublease the aircraft to United States air carriers and/or a selected,
specified group of foreign air carriers; (iv) transfer possession of the
aircraft to any agency of the United States government; or (v) 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 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
"Lessees" below).
LESSEES
No Equipment or interests in Equipment (including Financial Assets) will
be purchased by the Company unless the lessee under the lease for the asset or
the obligor under the Financial Assets (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 the Company's management. Management will evaluate the
Payer's (or its parent's) net worth, liquidity, debt burden, credit rating,
payment history and other financial factors. Management 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 ratings by a nationally
recognized credit rating agency are available, management 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 management to take
advantage of attractive acquisition and leasing opportunities, management will
not be limited by specific guidelines in approving potential Payers. The
Company may even, in some cases, acquire an asset whose Payer may be in
bankruptcy or other reorganization proceedings, if the return is sufficiently
attractive relative to other available transactions and management deems the
risk of default to be reasonable in light of the business circumstances.
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. If a lessee enters bankruptcy, it is quite possible that even
though the lessee's lease payments cease, the Company may be deprived of the
possession of the Equipment. 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.
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<PAGE> 54
Because the Company intends to concentrate on leases to regional air
carriers, it will be subject to additional risks. First, lessees in the
regional air carrier market include a number of companies that are start-up,
low margin operations. Often, the success of such carriers is dependent upon
arrangements with major trunk carriers, which may be subject to termination or
cancellation by such major carrier. This market segment is also characterized
by low entry costs, and thus, there is strong competition in this industry
segment from start-ups as well as major airlines. Thus, leasing transactions
with these types of lessees result in a generally higher lease rate on
aircraft, but also entails significantly higher risk of default or lessee
bankruptcy. The Company will evaluate the credit risk of each lessee
carefully, and will attempt to obtain third party guaranties, letters of credit
or other credit enhancements, if it deems such is necessary. There is no
assurance, however, that such enhancements will be available or that even if
obtained will fully protect the Company from losses resulting from a lessee
default or bankruptcy.
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 judgements 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.
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 law of such countries.
There is also a risk that the records maintained for the Equipment abroad might
not be adequate to permit transfer of 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 of 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 sell the equipment.
The success of the Company will depend on, among other things, the
quality of the equipment it purchases, the quality and level of maintenance and
repairs by the lessee, the timing of the purchases by the Company, and the
Company's ability to anticipate technological advances and regulatory
requirements concerning its 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-lease and
sales may be
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<PAGE> 55
critical to its ability to achieve its financial objectives, and will involve a
number of factors. In the first instance, its 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 market for used aircraft is cyclical, with
the demand for and resale value of many types of older aircraft in the recent
past having been depressed by such factors as airline financial difficulties,
increased fuel costs, the number of older aircraft coming off lease. Currently,
the aircraft industry appears to be on an upturn and demand and equipment
prices and rental rates have been strengthening. See "BACKGROUND AND REASONS
FOR THE CONSOLIDATION -- Aircraft Industry Outlook." There is no assurance
that this improvement will continue. 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 assets. 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. Due to the Company's intention
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. 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 which, when added to the lease rental revenue received
from the lessee, results in a return of the purchase price plus the Company's
initial costs therefor.
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
residual values of all aircraft and aircraft engines, particularly if that
fleet contained a high proportion of turboprop aircraft.
Remarketing Arrangement. Under the Management Agreement, JMC has
overall responsibility for the management and remarketing of the Company's
assets. 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. At this time, no
arrangements with such brokers have been entered into with respect to the
Company's equipment.
REGULATORY CONCERNS
General. 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.
This would expose the Equipment to the risk of foreign expropriation and risk
of loss from war.
Aircraft Noise Abatement. Pursuant to the Noise Control Act of 1972 and
the Aviation
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<PAGE> 56
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 only applicable to certain
types of aircraft initially certified after 1975. Generally, turboprop
aircraft comply with the current aircraft noise requirements known as Stage 3
requirements. 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. 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. Furthermore,
if an asset is not leased to a user at the time of such regulatory change, the
Company may be required to pay for such modification in order to make the
aircraft marketable. 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 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.
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<PAGE> 57
VOTING PROCEDURES
THE VOTE OF EACH INVESTOR IS IMPORTANT. EACH INVESTOR IS URGED TO MARK,
DATE AND SIGN THE CONSENT CARD AND RETURN IT IN THE ENCLOSED ENVELOPE.
TIME OF VOTING
The vote of the Investors with respect to the Consolidation will be
tabulated on __________, 1997, unless such date is extended by the General
Partner in its sole discretion. The votes will be tabulated by D.F. King &
Co., Inc. (the "Information Agent"), which is not affiliated with the Company,
the Partnerships or the General Partner. See "--Consent Card and Vote
Required."
RECORD DATE AND OUTSTANDING UNITS
The Consolidation is being submitted for approval to those Persons
holding Partnership Units as of the Record Date. The Record Date is May 1,
1997, for all Partnerships. At the Record Date, the following number of Units
were held of record by the number of Investors indicated below:
<TABLE>
<CAPTION>
Number of Units Number of Number of Units
Partnership Held of Record Existing Investors Necessary to Approve
----------- -------------- ------------------ --------------------
<S> <C> <C> <C>
JetFleet I 296,069 1,051 148,035
JetFleet II 693,505 1,908 346,753
</TABLE>
Each Investor is entitled to one vote for each Unit held. Accordingly,
the number of Units entitled to vote with respect to the Consolidation is
equivalent to the number of Partnership Units held of record at the Record
Date.
APPROVAL DATE
The Prospectus and form of Consent Card constitute the General Partner's
notice of the Consolidation. Each Investor has until 11:59 p.m. Pacific Time,
on June 30, 1997, unless extended by the General Partner in its sole discretion
(the "Approval Date") to inform the General Partner whether such Investor
wishes to approve or disapprove of his Partnership's participation in the
Consolidation. The General Partner asks that each Investor vote by completing
and returning the form of Consent Card accompanying this Prospectus in the
manner described below.
CONSENT CARD AND VOTE REQUIRED
Investors who wish to vote "YES" for the Consolidation and the related
Amendments to the Partnership Agreements should complete, sign and return to
the Consent Card relating to the Units which accompanies this Prospectus. A
Consent Card and Letter of Instructions have been prepared for each Investor
and are enclosed with this Prospectus. Consent Cards must be delivered in
person or by mail or other delivery service to the Information Agent at the
following
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<PAGE> 58
address on, or prior to, the Approval Date:
If in person, to: If by mail, to:
D.F. King & Co., Inc. D.F. King & Co., Inc.
77 Water Street Post Office Box 1379
20th Floor New York, New York 10269-0296
New York, New York 10005 Attn: Tabulation Department
Approval of the Consolidation by a Partnership requires the vote of
Investors holding a majority of the outstanding Units of the Partnership as of
the Record Date. The following number of Units must be voted in favor of the
Consolidation for it to be approved by the respective Partnerships:
<TABLE>
<CAPTION>
Number of Units Required
for
Partnership Approval of Consolidation
----------- -------------------------
<S> <C>
JetFleet I 148,036
JetFleet II 346,754
</TABLE>
Investors who wish to vote "NO" against the Consolidation should also
complete a Consent Card. Investors who sign and return the Consent Card
without indicating a vote will be deemed to have voted "YES" in favor of the
Consolidation. The failure to return a Consent Card will be the same as
abstaining from voting with respect to the Consolidation.
Investors of a Partnership which approves and participates in the
Consolidation will receive Common Stock of the Company unless the Investor
follows the procedure for becoming a Dissenting Investor. See "DISSENTERS'
RIGHTS."
All questions as to the form of all documents and the validity
(including time of receipt) of all approvals will be determined by the General
Partner; such determinations shall be final and binding. The General Partner
reserves the absolute right to waive any of the conditions of the Consolidation
or any defects or irregularities in any approval of the Consolidation or
preparation of the form of Consent Card. The General Partner's interpretation
of the terms and conditions of the Consolidation will be final and binding.
The General Partner shall be under no duty to give notification of any defects
or irregularities in any approval of the Consolidation or preparation of the
form of Consent Card and shall not incur any liability for failure to give such
notification.
REVOCABILITY OF CONSENT
Investors may withdraw or revoke their consent at any time prior to the
earlier of the Approval Date or the date on which the Consolidation is approved
by the holders of more than 50% of the outstanding Units of the Investor's
Partnership. TO BE EFFECTIVE, A WRITTEN, FACSIMILE, TELEGRAPHIC OR TELEX
NOTICE OF REVOCATION OR WITHDRAWAL OF THE CONSENT CARD MUST BE RECEIVED BY THE
INFORMATION AGENT NO LATER THAN THE APPROVAL DATE, ADDRESSED AS FOLLOWS: D.F.
KING & CO., INC., POST OFFICE BOX 1379, NEW YORK, NEW YORK 10269-0296. A
notice of revocation or withdrawal must specify the Investor's name and the
name of the Partnership to which such revocation or withdrawal relates.
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SOLICITATION OF VOTES; SOLICITATION EXPENSES
Votes of Investors may be solicited by the management of the General
Partner, assisted by the Dealer Manager. Costs of solicitation will be
allocated as set forth in "THE CONSOLIDATION-Consolidation Expenses." No party
will receive any compensation contingent upon solicitation of a favorable vote.
INVESTOR NAMES AND ADDRESSES
The General Partner will supply to any Investor a list of the names and
addresses of the general and limited partners of the Investor's Partnership.
The right to receive the list is subject to the Investor's payment of the cost
of mailing and duplication at a rate of $.15 per page. The list will be mailed
within 10 days of the receipt of the request. The list will have the names in
alphabetical order, will be on white paper, and will be in a readily readable
type size.
DISSENTERS' RIGHTS
Investors of a Participating Partnership who do not vote in favor of the
Consolidation are entitled to dissenters' or appraisal rights under the
California Partnership Act. Such rights, give the holders of securities the
right to surrender such securities for an appraised value in cash, if they
oppose a merger or similar reorganization. See "DISSENTERS' RIGHTS" for an
explanation of dissenter's rights procedures.
AMENDMENTS TO PARTNERSHIP AGREEMENTS
The Partnership Agreements do not specifically address the merger of the
Partnerships or the conversion of equity securities for Partnership Units. The
General Partner is therefore proposing to amend the Partnership Agreements to
include specific provisions regarding the Consolidation and the transactions
related thereto, including setting forth dissenters' rights provisions (the
"Amendments"). The proposed Amendments, the form of which is set forth in the
respective Partnership's Supplement to this Prospectus, expressly authorize all
actions necessary to successfully accomplish the Consolidation, including the
merger of the Partnership with and into the Company and the distribution of the
Shares to Participating Investors, and provide for a uniform dissenters'
rights procedure for both JetFleet I and JetFleet II Investors.
INVESTORS VOTING IN FAVOR OF THEIR PARTNERSHIP'S PARTICIPATION IN THE
CONSOLIDATION WILL ALSO HAVE VOTED IN FAVOR OF THE PROPOSED AMENDMENTS. Since
a Partnership's participation in the Consolidation and the approval of the
Amendments both require approval of Investors holding a majority of outstanding
Units of the Partnership, the Amendments will be effective as to each
Partnership participating in the Consolidation.
For JetFleet II Investors Only: Under the current JetFleet II
Partnership Agreement, dissenting investors would be entitled to receive the
appraised value of the net assets of JetFleet II. As part of the
consolidation, investors are being requested to approve an amendment to the
JetFleet II Partnership Agreement that, among other things, would give
dissenters the right to receive the fair value of their Units not voted in
favor of the Consolidation.
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<PAGE> 60
DISSENTERS' RIGHTS
Since the Partnerships are California limited partnerships, the
Consolidation will be subject to the California Partnership Act, including
Chapter 7.6 regarding dissenting limited partners' rights. JetFleet II
Investors should note that the dissenter's rights provisions set forth here
differ from dissenters' rights provisions contained in the JetFleet II
Partnership Agreement. As part of the Consolidation, the latter provisions,
including the right of dissenting Investors to receive the pro rata share of
the net asset value of JetFleet II, have been amended to conform with the
procedures set forth herein. See Supplement for JetFleet II.
Subject to certain conditions summarized below, Investors who do not
vote in favor of the Consolidation may be entitled under the provisions of
Section 15679.1, et seq., of the California Partnership Act to receive the fair
market value of their Units that are not voted in favor of the Consolidation
("Dissenting Units"). Such rights to receive the fair market value of the
Dissenting Units are referred to herein as "Dissenters' Rights." The fair
market value of the Units of a Partnership is determined as of the date before
the first announcement of the terms of the Consolidation, excluding any
appreciation or depreciation in consequence of the proposed Consolidation. The
General Partner and the Company have agreed that based primarily on the
secondary market prices as of the date of this Prospectus (which is deemed to
be the date of the announcement of the proposed Consolidation) the fair market
values of a Unit of JetFleet I and JetFleet II are $____ and $____,
respectively.
To exercise Dissenters' Rights under the California statutory law with
respect to the Units, a Dissenting Investor must meet the following
requirements:
(a) The Investor must not have executed the Consent indicating
Investor's approval and consent to the Consolidation;
(b) Within 30 days after the date on which the Partnership and the
Company have given notice of the Approval of the Consolidation by the Investors
in the Partnership, the Investor must deliver a written demand ("Demand") to
the Company, demanding the purchase of Dissenting Units for cash at the fair
market value.
Thereafter, if the Company and the Dissenting Investor agree on a fair
market value for the Dissenting Units, the Dissenting Investor will be entitled
to receive from the Company the agreed price for such Dissenting Units in cash.
If the Company and the Dissenting Investor cannot agree on the fair market
value of the Dissenting Units, at any time within six months after the date of
the Notice of Approval, the Dissenting Investor may file a complaint in the
California Superior Court seeking a determination that the Units are dissenting
limited partnership interests and a determination of the fair market value of
those Units.
THIS SUMMARY OF APPRAISAL RIGHTS UNDER THE CALIFORNIA REVISED PARTNERSHIP ACT
IS QUALIFIED IN ITS ENTIRETY BY THE PROVISIONS OF CHAPTER 7.6 OF THE ACT
INCLUDED WITH THIS STATEMENT AS APPENDIX D. INVESTORS ARE URGED TO REVIEW THE
APPLICABLE LAW IN ITS ENTIRETY AND REVIEW THE PROVISIONS WITH THEIR LEGAL OR
FINANCIAL ADVISORS.
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COMPARISON OF LIMITED PARTNERSHIP AND CORPORATE STRUCTURE
The rights of Limited Partners are governed by the California Partnership Act
and the Partnership Agreement; the rights of Stockholders will be governed by
the Delaware GCL and the Organizational Documents of the Company. The
following summarizes the key material differences between Units and Shares.
<TABLE>
<CAPTION>
UNITS SHARES
FORM OF ORGANIZATION
<S> <C>
Each of the Partnerships is a limited The Company was organized under the
partnership formed under the Delaware GCL as a corporation.
California Partnership Act. Each
Partnership has been treated as a
partnership for federal income tax
purposes.
BUSINESS
The Partnership Agreements limit the The Company will invest in aircraft
business of the Partnerships to equipment and financial assets related
unleveraged investments in certain to the aircraft industry and engage in
leased qualifying aircraft assets, and any other business activities
re-lease and resale of assets permitted a corporation organized
purchased during the offering period under the laws of the State of
for each of the Partnerships. The Delaware. The powers, limitations and
Partnership Agreements do not permit rights with respect to the operations
the Partnerships to raise new capital. conferred in the Partnership
Agreements will not be applicable to
the business activities of the
Company. The Company will be in the
position to raise additional capital
through all available sources,
including additional equity financing,
borrowings from banks, institutional
investors, public and private debt
markets or other financing vehicles
which will be dependent upon the
market conditions, interest rates and
other factors.
</TABLE>
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<PAGE> 62
DURATION OF EXISTENCE
<TABLE>
<S> <C>
The Partnership Agreements provide In accordance with the Delaware GCL
that the Partnerships may exist for and the Company's Certificate of
JetFleet I and JetFleet II until 2014 Incorporation, the Company will
and 2010 respectively, and that the continue in perpetual existence. The
Partnerships have a limited existence. Company has no present intention to
If market conditions permit, the sell any substantial assets, although
Partnerships intend to hold their it may do so at any time in accordance
respective properties as long-term with the Delaware GCL.
investments for periods ranging from
19 to 25 years, although the
properties could be sold earlier if
economic conditions permit or later at
the discretion of the respective
General Partner based upon its
assessment of prevailing economic
factors.
INVESTMENT OBJECTIVES AND POLICIES
The principal investment objectives of The investment objective of the
the Partnerships are the same: to Company is to expand the capital and
preserve invested capital, and to asset base of the Company, thereby
provide cash distributions throughout increasing Stockholder value.
a finite life.
The Company intends to continue its
JetFleet I and JetFleet II will operations for an indefinite period of
automatically dissolve in the year time and is not precluded from raising
2014 and 2010, respectively unless new capital, including senior
dissolved earlier. The Partnerships securities that would have priority
have no present intention to liquidate over the Common Stock as to cash flow,
or to sell or finance their properties distributions and liquidation
because, in the opinion of the General proceeds, or from reinvesting cash
Partner, sales under current market flow or sale or financing proceeds in
conditions would result in unfavorable new properties. Stockholders have the
prices being received by the ability to liquidate their investment
Partnership for the assets. only by selling their Shares in the
market.
BORROWING POLICIES
JetFleet I is not authorized to incur The Company has broad powers to
borrowings for acquisition purposes, borrow. The Company intends to incur
and JetFleet II is restricted in the in the future both short-term and
amount and nature of borrowings. The long-term debt to increase its funds
Partnerships have not incurred available for investment in aircraft-
borrowings in the ordinary course of related assets, capital expenditures
business. and distributions.
PROPERTIES AND DIVERSIFICATION
JetFleet I owns undivided interests in Assuming JetFleet I and JetFleet II
2 aircraft with an appraised value participate in the Consolidation,
of $1,762,554. JetFleet II owns the Company will own equity interests
undivided or entire interests in 7 in the Partnerships' properties after
aircraft and 25 engines with an the Consolidation. This will result
appraised value of $13,927,446. in increased asset diversification.
</TABLE>
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<PAGE> 63
MANAGEMENT
<TABLE>
<S> <C>
The Partnerships are managed by the The business and affairs of the
General Partner which has, subject to Company will be under the control of
certain limitations provided in the its Board of Directors elected by the
Partnership Agreements, exclusive Stockholders. Under Delaware law, the
authority over the Partnership's directors are accountable to the
operations. The General Partner may Company and its Stockholders as
be removed by a vote of a majority of fiduciaries and are required to
partnership interests in the perform their duties in good faith, in
respective Partnership. Under the a manner believed to be in the best
California Partnership Act, the interests of the Company and its
General Partner is accountable to the Stockholders and with such care,
Partnerships as a fiduciary and including reasonable inquiry, as an
consequently is required to exercise ordinarily prudent person in a like
good faith and integrity in all its position would use under similar
dealings with respect to partnership circumstances. The liability of the
affairs and limited partners may not directors is limited pursuant to the
participate in management of the provisions of Delaware law and the
Partnerships. The General Partner has Company's Organizational Documents,
general liability for all partnership which limits a director's liability
obligations. The Partnership for monetary damages to the Company or
Agreements provide generally that the its Stockholders for breach of the
General Partner is indemnified from director's duty of care, where a
losses relating to acts performed or director fails to exercise sufficient
omitted to be performed in good faith care in carrying out the
and in the best interests of the responsibilities of office. Those
Partnerships, provided the conduct did provisions would not protect a
not constitute negligence, misconduct, director for a breach of duty of
breach of a fiduciary duty or a breach loyalty, intentional misconduct or
of obligations under the Partnership knowing violations of law, unlawful
Agreements. dividend payments or redemption of
stock, or any transaction in which the
director derived an improper personal
benefit, nor would they foreclose any
other remedy which might be available
to the Company or the Stockholders.
The Bylaws require the Company to
indemnify its officers and directors
under certain circumstances for
expenses or liability incurred as a
result of litigation. The Company
intends to take full advantage of
those provisions and enter into
separate agreements with the Company's
directors and officers, indemnifying
them to the fullest extent permitted
by Delaware law. See "FIDUCIARY
RESPONSIBILITIES."
</TABLE>
55
<PAGE> 64
OWNERSHIP INTEREST OF GENERAL PARTNER
<TABLE>
<S> <C>
The General Partner has a 1.0% The General Partner will receive
interest in JetFleet I, and a 5.0% 67,794 Shares of the Company's Common
interest in JetFleet II. Stock in the Consolidation, which will
constitute approximately 4.2% of the
JMC is currently acting as management outstanding Shares assuming both
company for the Partnerships on behalf JetFleet I and II participate in the
of the General Partner, but has no Consolidation.
interest in the Partnership or its
distributions. JMC, by virtue of its initial
capitalization of the Company, will
hold 150,000 shares, which will
constitute 9.09% of the outstanding
Shares assuming both JetFleet I and II
participate in the Consolidation.
PROPERTY MANAGEMENT COMPENSATION
JetFleet I pays a base management fee The Company will pay any fee of 0.25%
of 1.5% of gross rentals, 3.5% of the of the Net Asset Value of the assets
lease rentals and an incentive of the Company each month to JMC in
management fee of 3% of cash flow and compensation for its management of the
sales proceeds to the General Partner Company. JMC may receive an
which incentive management fee is Acquisition Fee in connection with the
subordinated to receipt by the acquisition of an asset which shall in
Investors for the year of a no event be greater than the customary
noncompounded annual return of 8% on charge for such services between
its capital contributions, as unrelated parties. See "CONFLICTS OF
adjusted. INTEREST."
JetFleet II pays to the General
Partner an acquisition fee of 1.5% of
the Adjusted Purchase Price of an
asset and a management fee of 3% of
gross rentals on operating leases and
2% of gross rentals on full payout
leases.
REIMBURSEMENT OF EXPENSES
The Partnership Agreements provide JMC will pay its out-of-pocket
that all of the Partnerships' expenses with respect to its
expenses, including legal, auditing management services out of the
and accounting expenses, will be management fee it receives from the
billed directly to and paid by the Company.
Partnerships. Under the Partnership
Agreements, the General Partner is
reimbursed for its expenses for
services performed for the
Partnerships, such as legal,
accounting, transfer agent, data
processing and duplicating services.
</TABLE>
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<PAGE> 65
REMARKETING EXPENSES
<TABLE>
<S> <C>
The Partnership Agreements generally JMC may receive a remarketing
provide for the payment of a brokerage fee, which shall in no event
disposition fee equal to not more than be greater than the customary charge
3% of the selling price of the for such services between unrelated
Company's assets to the General parties, and shall be reimbursed for
Partner, subordinated to receipt by out-of-pocket remarketing expenses.
the Investor of a non-compounded
annual return of 8% of capital
contributions.
VOTING RIGHTS
Under the Partnership Agreements, Stockholders are entitled to vote with
Investors (but not assignees) can vote respect to more matters than are the
only in certain circumstances because Investors. For instance, stockholders
the General Partner has the authority are entitled to vote in most cases on
to make nearly all management any merger or consolidation of the
decisions affecting the Partnerships. Company, the sale of all or
Investors holding a majority of the substantially all of the Company's
Units in a Partnership can generally Assets, and, upon a supermajority vote
vote to (i) amend the Partnership of 66-2/3% on amendments to the bylaws
Agreement, (ii) approve the of the Company. The Company will hold
disposition of all or substantially annual meetings, with each such
all the Partnership's assets, (iii) meeting on a date within 13 months of
elect to dissolve the Partnership, the prior annual meeting, at which the
except for certain events causing Stockholders will elect the directors.
dissolution, (iv) remove the General Since the Company has a classified
Partner, (v) approve the incurrence of Board of Directors with one class
material indebtedness by the being elected each year, Stockholders
Partnership, (vi) terminate a contract will be entitled to vote on only one
between the Partnership and General class each year. Stockholders will
Partner or an affiliate of the General not be entitled to solicit written
Partner, and (vii) consent to a consents without the approval of the
successor General Partner. The Company's Board of Directors.
Investors cannot elect any directors
of the corporate General Partner. On
substantially all matters on which the
Investors can vote, the General
Partner has no vote.
</TABLE>
57
<PAGE> 66
TRANSFER RESTRICTIONS/ANTI-TAKEOVER PROVISIONS
<TABLE>
<S> <C>
While the Units are transferable, Under Section 203 of the Delaware GCL,
subject to certain restrictions, the certain business combinations with
General Partner under the Partnership stockholders owning 15% or more of the
Agreements may under certain Company's outstanding stock (an
circumstances refuse to permit "interested stockholder") are
assignees (who are not permitted to prohibited for three years after such
vote on any partnership matters) to interested stockholder becomes an
become substitute Investors. interested stockholder. Due to the
unique position of the Company within
its market, the Company anticipates
that after the Consolidation, it may
adopt a shareholder rights plan that
could restrict business combinations
and similar transactions between the
Company and significant shareholders
of the Company. Notwithstanding such
provisions, the Company or its assets
may be sold at any time in accordance
with applicable law, including
stockholder approval, if required.
REVIEW OF INVESTOR LISTS
Under the Partnership Agreements and At the discretion of the Board of
the California Partnership Act, any Directors, a Stockholder may be
Investor is entitled, upon request and allowed to inspect and copy the record
payment of reasonable expense, to of stockholders, at any time during
obtain a list of the Investors in his usual business hours, for a purpose
or her Partnership. See 'VOTING reasonably related to his or her
PROCEDURES -- Investors' Names and interest as a Stockholder.
Addresses."
NATURE OF INVESTMENT
The Units of each Partnership The Shares constitute equity interests
constitute equity interests entitling in the Company. Each Stockholder will
each Investor to his pro rata share of be entitled to his pro rata share of
cash distributions made to the the dividends made with respect to the
Investors of the Partnership. Each of Common Stock if any are declared.
the Partnership Agreements specifies Dividends may be in cash or securities
how the cash available for of the Company. The dividends payable
distribution is to be shared among the to the Stockholders are not fixed in
General Partner and Investors. The amount and are only paid when, as and
Distributions payable to the Investors if declared by the Company's Board of
are not fixed in amount and depend Directors. The Company has no intent
upon the operating results and net to declare or pay dividends in the
sale or refinancing proceeds available near future.
from the disposition of the
Partnerships' assets.
</TABLE>
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<PAGE> 67
POTENTIAL DILUTION
<TABLE>
<S> <C>
Since the Partnerships are not The Board of Directors may, in its
authorized to issue additional equity discretion, issue additional Shares of
securities, there can be no dilution Common Stock or issue Preferred Stock,
of distributions to Investors. with such powers, preferences and
rights as the Board of Directors may
at the time designate. The issuance
of additional Shares of either Common
Stock or Preferred Stock, beyond the
Shares to be issued in the
Consolidation, may result in the
dilution of the interests of the
Stockholders. Such Preferred Stock
may have liquidation and dividend
preferences that may materially and
adversely affect the rights of holders
of Common Stock. See "DESCRIPTION OF
COMMON STOCK."
EXPECTED DISTRIBUTIONS AND PAYMENTS
The Partnerships make quarterly or The Company does not intend to make
monthly distributions. Amounts any dividend and distribution payments
distributed to the Investors are to its Stockholders in the near
derived from their share of cash flow future. At some point in the future,
from operations or cash flow from the Board of Directors may decide to
sales or financings or constitute a declare dividends, taking into account
return of the Investors' equity the cash needs of the Company, and
contributions to the Partnerships. yields available to Stockholders, and
The General Partner may, under the ranges in market prices for the
Partnership Agreements, create Shares. Unlike the Partnerships, the
reserves which may decrease cash Company is not required to distribute
distributions. See "SELECTED net proceeds from the sale or
FINANCIAL INFORMATION OF THE refinancing of properties.
PARTNERSHIPS" for a presentation of
the cash distributions to the
Investors of the Partnerships over the
five most recent calendar years.
Given current market conditions, there
is no expectation that significant
distributions of net sale proceeds
will be made to the Investors of any
of the Partnerships within the next 7-
10 years.
</TABLE>
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<PAGE> 68
LIQUIDITY AND TRANSFERABILITY
<TABLE>
<S> <C>
While the Units are transferrable, the Although the Company anticipates that
General Partner has discretion under the market for the Common Stock should
the Partnership Agreements to refuse be more active and broader based than
to permit assignees to become the market for the Units, there is no
substituted Investors and the assurance that such will be the case.
Partnership Agreements contain various The Common Stock may trade at a
other restrictions on the discount to the Company's book value,
transferability of Units. Although and the trading price of the Shares
limited secondary sales of Units have may never equal or exceed the net
occurred, there is essentially no proceeds that might be available if
established public trading market for the Company's assets, including the
the Units and none is expected to investments in the Partnerships, were
develop. The Units are not liquidated.
marginable. Potential adverse tax
consequences would arise if a
Partnership were to be considered a
"publicly traded" partnership and
therefore the partnerships limit
trading to less than 5% of the Units
annually.
TAXATION OF TAXABLE INVESTORS
The Partnerships, as partnerships for The Company will be taxed as a
federal income tax purposes, are not corporation. Any dividends will be
subject to tax, but the Investors taxed as portfolio income to
report their allocable share of Stockholders.
partnership income and loss on their
respective tax returns. Income from
the Partnerships generally constitutes
"passive" income to the Investors,
which can generally offset "passive"
losses from other investments.
Generally, by March 15 of each year,
Investors receive annual Schedule K-1
forms with respect to information for
inclusion on their federal income tax
returns.
Investors must file state income tax
returns and incur state income tax in
most states in which the Partnerships
have property.
TAXATION OF TAX-EXEMPT INVESTORS
A portion of income or loss earned by See "FEDERAL INCOME TAX
the Partnerships is generally treated CONSIDERATIONS--Taxation of Tax-Exempt
as UBTI unless the type of income Stockholders."
generated by the Partnership would
constitute qualified rental income or
other specifically excluded types of
income.
</TABLE>
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<PAGE> 69
CONFLICTS OF INTEREST
The General Partner and its Affiliates has conflicts of interest with
respect to the Consolidation. The General Partner of each of the Partnerships
has fiduciary duties to their Partnerships, in addition to the specific duties
and obligations imposed upon it under the Partnership Agreements. Subject to
the terms of the Partnership Agreements, the General Partner, in managing the
affairs of the Partnership, is expected to exercise good faith, to use care and
prudence and to act with an undivided duty of loyalty to the Investors. Under
these fiduciary duties, the General Partner is obligated to ensure that each
Partnership is treated fairly and equitably in transactions with third parties,
especially where consummation of such transactions may result in the interests
of the General Partner being opposed to, or not aligned with, the interests of
the Investors. Accordingly, the General Partner of each Partnership is
required to assess whether the Consolidation is fair and equitable, taking into
account the unique characteristics of each Partnership (such as the
Partnership's revenues and expenses and the prospects for increases or
decreases in future cash flow) affecting the value of its assets, and comparing
these factors against similar factors affecting the value of the assets held by
the other Partnerships and the General Partner. As discussed in "BACKGROUND
AND REASONS FOR THE CONSOLIDATION," after consideration of the terms and
conditions of the Consolidation, the General Partner recommends that Investors
vote in favor of the Partnerships' participation in the Consolidation.
Lack of Independent Representation. The General Partner has not
retained an independent representative to act on behalf of the Investors or the
Partnerships in designing the overall structure of the Consolidation and, in
particular, in structuring and negotiating the terms and conditions (including
the consideration to be received) upon which the Partnerships will participate
in the Consolidation. No group of Investors was empowered to negotiate the
terms and conditions of the Consolidation or to determine what procedures
should be used to protect the rights and interests of the Investors. In
addition, no investment banker, attorney, financial consultant or expert was
engaged to represent the interests of the Investors. The General Partner has
been the party responsible for structuring all the terms and conditions of the
Consolidation. Legal counsel engaged to assist with the preparation of the
documentation for the Consolidation, including this Prospectus, was engaged by
the Company and did not serve, or purport to serve, as legal counsel for the
Partnerships or Investors. If an independent representative had been retained
for the Partnerships, the terms of the Consolidation may have been materially
different and possibly more favorable to the Investors. In particular, had
separate representation for each of the Partnerships been arranged by the
General Partner, issues unique to the value of each of the Partnerships might
have been identified, resulting in adjustments to the value assigned to the
assets of such partnerships and increasing the number of Shares that would be
allocable to such Partnership if participating in the Consolidation.
While independent representatives were not engaged to represent the
interests of the Partnerships in structuring the Consolidation, the General
Partner believes the procedures used to protect the financial interests of the
Investors are fair. See "FAIRNESS" For example, the primary basis for
allocating the consideration to be offered by the Company in the Consolidation,
consisting of the Shares, was the Exchange Values of the respective
Partnerships. Recognizing the inherent conflict of interest in having the
General Partner establish these allocations (without active involvement from
persons not having a financial interest in the Consolidation), the General
Partner
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<PAGE> 70
engaged the Appraiser to value the portfolios owned by each of the
Partnerships. Apart from these general instructions, there were no limitations
imposed by General Partner upon the methods, procedures or investigations that
might be pursued or undertaken by the Appraiser in performing the requested
valuations. The Appraiser was at liberty to (a) conduct such investigations,
inquiries and due diligence as deemed necessary or advisable in establishing
the requested valuation, (b) select and follow the procedures, techniques and
methods deemed to be most appropriate to establish and confirm such valuations;
and (c) make such assumptions, and identify such qualifications and
limitations, as deemed necessary in their findings. See "REPORTS, OPINIONS AND
APPRAISALS."
Substantial Benefits to General Partner. The General Partner has
participated in the initiation and structuring of the Consolidation and, in
exchange for transferring certain assets to the Company, will realize economic
benefits in the form of Shares of the Company in return for its general
partnership interest in the Partnerships, if the Company is able to proceed
with and consummate the Consolidation with the Partnerships (or JetFleet II
alone). Because the General Partner and its affiliate JMC, the founding
shareholder and management company of the Company, themselves have a financial
interest in the consummation of the Consolidation, there is an inherent
conflict of interest in their structuring of the terms and conditions of the
Consolidation and the manner in which the Consolidation has been structured
might have been different if structured by persons having no financial interest
in whether or not the Consolidation proceeded. The number of Shares received
by the General Partner relative to the limited partners of the Partnership,
however, was not the subject of negotiation and will be solely based on a
mathematical calculation using the percentage interest of the General Partner
in the Partnership. This allocation is set forth in the Partnership Agreement.
Certain of the potential benefits to the General Partner from the
Consolidation, and the inherent conflicts related thereto, are reviewed below.
See "COMPARISON OF COMPENSATION PAID TO GENERAL PARTNERS AND AFFILIATES"
JMC Founding Shares. JMC, an affiliate of the General Partner, provided
the initial capital of $150,000 to organize the Company and cover certain
expenses incurred by the Company in connection with the solicitation of
consents to the Consolidation. This initial capital funding was in the form of
an equity investment in Common Stock of the Company, issued at $1.00 per share
pursuant to a stock purchase agreement entered into in connection with the
Management Agreement between JMC and the Company. The stock purchase agreement
is intended to be part of the compensation package for JMC for management
services, and contains a vesting provision, in which the Company has certain
repurchase rights that expire with respect to a portion of the shares purchased
over time. The valuation of the shares issued to JMC was arbitrarily
determined by the Company and JMC, since the Company, at its founding, had no
assets. If both JetFleet I and II participate in the Consolidation, the
founding shares issued to JMC will represent approximately 9% of the
outstanding shares of Common Stock of the Company. If the Consolidation does
not occur, the shares will likely be worthless. The purchase equity interest
of JMC in the post-Consolidation Company represented by the 150,000 founding
shares was not negotiated at arms-length between the Company and JMC, and their
issuance will have an immediately dilutive effect on the shares issued to
Investors. See "DILUTION."
Because JMC will be a significant shareholder of the Company but will
also be a service provider to the Company under the Management Agreement, the
interests of JMC and the Company will coincide in many respects. There may,
however, be certain instances in which the interests of the Company and JMC
diverge. For instance, in the event of a dispute between JMC and the Company
under the Management Agreement, JMC, as a major shareholder, may be able to
exert influence upon the Board of Directors of the Company. All transactions
between JMC and the Company must, however, be approved by the Board of
Directors, which will include
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<PAGE> 71
independent directors, and it will be the duty of the Board of Directors to
make such decisions for the best interests of the Company and all of its
shareholder. Neither the stock purchase transaction nor the management
arrangement was negotiated at arms' length between the Company and JMC.
Dealer Manager Compensation. The Company has engaged Crispin Koehler
Securities ("CKS"), an NASD-registered broker dealer to act as Dealer-Manager
for the Consolidation. Richard D. Koehler, an individual General Partner of
each of the Partnerships, is an officer and director of CKS, and a principal
shareholder of its parent corporation, CK Holding. Neal D. Crispin is neither
a shareholder, officer or director of CKS and is not an officer or director of
CK Holding, but does own 9% of the voting common stock of CK Holding. CKS
acted as Dealer Manager in connection with the offering of limited partnership
units of each of the Partnerships. CKS, which acted as Dealer Manager for the
JetFleet I and JetFleet II offerings, will be providing such investment banking
services to the Company in connection with the solicitation, including
rendering advice regarding the preparation of the solicitation documents and
solicitation strategy and as acting as liaison between the Company and the
broker-dealers who were in the syndicate that sold the Partnership Units and
who will be acting on behalf of certain Investors. In consideration of those
service in connection with the Consolidation, CKS will receive an investment
banking fee of $80,000 and warrants to purchase up to 35,000 shares of Common
Stock of the Company at a purchase price of $3.00 per share. The compensation
to be paid to CKS was not negotiated at arm's length by the Company and CKS.
Features Discouraging Potential Takeovers. Certain provisions in the
Bylaws, as well as statutory rights under the Delaware GCL, could be used by
the Company's management to delay, discourage or thwart efforts of third
parties to acquire control of, or a significant equity interest in, the
Company. See "COMPARISON OF LIMITED PARTNERSHIP AND CORPORATE STRUCTURE."
Initial Company Directors and Officers. The persons currently serving
as directors of the Company, as well as the anticipated officers of the
Company, are presently directors and officers of JMC, and have had long-
standing business and professional relationships with the General Partner or
its Affiliates. Owing to these relationships, such persons may not exercise
the same degree of independence in conducting the Company's business with
respect to the Investors as might be expected of persons having no prior
business, professional or personal dealings with the General Partner or JMC,
when considering transactions in which the General Partner or an Affiliate has
an interest. As directors or officers of the Company, however, these persons
are required to discharge such duties and responsibilities in a professional
and competent manner, consistent with their fiduciary and contractual
responsibility to the Company's Stockholders, and without regard to whether
General Partner or its Affiliates has an interest in a proposed transaction
with the Company.
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<PAGE> 72
FIDUCIARY RESPONSIBILITIES
Under the Delaware GCL, the directors and officers of the Company, in
exercising their powers and responsibilities of managing the Company, owe the
Company and its Stockholders a duty of care and a duty of loyalty. However,
the directors and officers of the Company are not liable for errors in judgment
or other acts or omissions made in good faith unless their actions are found to
be grossly negligent. Under California law, the General Partner is accountable
to the Partnership and the Investors as fiduciaries and consequently must
exercise good faith and integrity in handling Partnership affairs. Investors
who have questions concerning the duties of the directors and officers with
respect to the Company or the duties of the General Partner with respect to any
of the Partnerships should consult their counsel.
The liability of the directors is limited pursuant to the provisions of
the Delaware GCL and the Company's Organizational Documents, which limit the
personal liability of a director to the Company or its Stockholders for
monetary damages for breach of fiduciary duty as a director. Those provisions
would not protect a director (i) for any breach of the director's duty of
loyalty to the Company or its Stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for any unlawful payment of dividends or unlawful purchase or
redemption of the Company's stock, or (iv) for any transaction from which the
director derived an improper personal benefit. In addition, the Company's
Organizational Documents provide for mandatory indemnification of the directors
and officers by the Company to the full extent permitted under Delaware law.
Delaware law generally authorizes Delaware corporations to indemnify their
directors, officers, employees or agents against liabilities (including
litigation costs) incurred as the result of their service to the corporation if
such persons acted in good faith and in a manner they reasonably believed to be
in, or not opposed to, the best interest of the corporation and, with respect
to any criminal action or proceeding, had no reasonable cause to believe their
conduct was unlawful. In accordance with these provisions, the Company has
entered into agreements with the Company's directors and executive officers
indemnifying them to the fullest extent permitted by Delaware law. To the
extent that the foregoing provisions concerning indemnification apply to
actions arising under the Securities Act, the Company has been advised that, in
the opinion of the Commission, such provisions are contrary to public policy
and therefore are not enforceable.
The Partnership Agreements provide for indemnification of the General
Partner for losses arising out of any act or omission, provided that it was
determined in good faith that such conduct was in the best interest of the
Partnership and that such conduct did not constitute negligence, misconduct or
a breach of fiduciary obligations to the Investors.
The rights of Stockholders against management of the Company in certain
circumstances are more limited than the rights of Investors against the General
Partner. See " COMPARISON OF LIMITED PARTNERSHIP AND CORPORATE STRUCTURE."
Once the Consolidation is consummated, all management of the Company
will be performed by JMC, as management company, serving at the pleasure of the
Board of Directors, subject to the terms and conditions of the Management
Agreement. JMC will have responsibility for the day-to-day management of the
Company as well as strategic business planning. As an outside management
company, JMC will not owe any fiduciary duties to the shareholders of the
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<PAGE> 73
Company. The Board of Directors will, however, have ultimate control and
supervisory responsibility over all aspects of the Company and will owe
fiduciary duties to the Company and its shareholders. In addition, while JMC
may not owe any fiduciary duties to the Company by virtue of the Management
Agreement, the officers of JMC are also officers of the Company, and in that
capacity owe fiduciary duties to the Company and the shareholders by virtue of
holding such offices. There may, however, be conflicts of interest arising
from such dual roles. See "RISK FACTORS -- Reliance on JMC."
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<PAGE> 74
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial statements have been
prepared by the Company to reflect the Consolidation and related adjustments
and assumptions described in the accompanying notes as if the Consolidation
occurred on January 1, 1996. Such pro forma financial information is based on
the historical financial statements of each Participating Partnership and
should be read in conjunction with the financial statements included in this
Prospectus. In the opinion of management, all adjustments necessary to reflect
the effects of the transactions have been made.
The pro forma information is unaudited and is not necessarily indicative
of the combined results which actually would have occurred if the transactions
had been consummated at the beginning of 1996, or on any particular date in the
future, nor does it purport to represent the financial position, results of
operations or changes in cash flows for future periods.
The pro forma financial information assumes 100% Partnership
Participation and includes the following:
Unaudited pro forma combining:
o Balance Sheets as of December 31, 1996
o Statements of Operations for the year ended December 31, 1996
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PRO FORMA
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The pro forma financial statements contained herein assume that the
Consolidation takes place with 100% Partnership Participation. Pro forma
adjustments reflect the cost of a management contract with JMC (which is
partially offset by anticipated savings for professional fees and general and
administrative costs) and an adjustment in depreciation expense to reflect
individual asset straight-line depreciation to estimated residual value over
estimated useful life. (See Notes to Unaudited Pro Forma Financial
Statements.)
Pro Forma Results of Operations. The Company reported pro forma
earnings per share of $0.61 per share. Rental income from assets under
operating leases accounted for 88% of revenues, with interest income from full
financing leases comprising 12% of revenues.
The Company's single largest expense is depreciation of its aircraft
assets. The Company will pay management fees pursuant to a newly entered
contract with JMC at the rate of 3% per annum of the net asset value of the
assets under management. The cost of the Consolidation approximates $250,000
in offering costs, and $245,000 in estimated expenses associated with the
issuance of warrants for 35,000 shares because of the deemed discount in
exercise price of the warrants. Taxes of approximately $559,000 reflect an
effective tax rate of 40% on earnings as if the Company were in existence as of
January 1, 1996.
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<PAGE> 75
Pro Forma Liquidity and Financial Condition
At December 31, 1996, cash totalled $1,362,600 before payment of
offering costs approximating $250,000.
See Management's Discussion and Analysis of Financial Condition and Results of
Operations of AeroMax, JetFleet I, and JetFleet II contained in "SELECTED
FINANCIAL INFORMATION REGARDING THE PARTNERSHIPS AND THE COMPANY."
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<PAGE> 76
AeroMax, Inc.
Unaudited Pro Forma Combining Balance Sheets
December 31, 1996
(Assuming 100% Participation)
<TABLE>
<CAPTION>
JetFleet JetFleet
AeroMax,Inc. Aircraft, L.P. Aircraft II, L.P. Adjustments Pro Forma
------------ -------------- ----------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $ 140,000 $ 30,700 $ 1,191,900 $ $ 1,362,600
Lease payments receivable 180,000 540,000 720,000
Other assets 4,800 29,800 34,600
------------ ------------ --------------- -------------- ----------------
Total current assets 140,000 215,500 1,761,700 2,117,200
Aircraft and aircraft engines
under/held for operating
lease, net 2,328,300 14,435,600 16,763,900
Lease payments receivable 180,000 180,000
Organization costs, net 10,000 32,900 (32,900)(a) 10,000
------------ ------------ --------------- -------------- ----------------
$ 150,000 $ 2,543,800 $ 16,410,200 $ (32,900) $ 19,071,100
============ ============ =============== ============== ================
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable $ 2,800 $ 16,000 $ 112,500 $ 495,000 (b) $ 626,300
Deferred taxes 1,800,000 (c) 1,800,000
Accrued maintenance costs 25,300 501,100 526,400
Security deposits 143,100 143,100
Prepaid rents 8,900 27,600 36,500
Unearned interest income 14,700 79,200 93,900
Other accrued liabilities 700 10,900 11,600
------------ ------------ --------------- -------------- ----------------
Total current liabilities 2,800 65,600 874,400 2,295,000 3,237,800
Unearned interest income 8,800 8,800
------------ ------------ --------------- -------------- ----------------
Total liabilities 2,800 65,600 883,200 2,295,000 3,246,600
Equity 147,200 2,478,200 15,527,000 (32,900)(a) 15,824,500
(2,295,000)(b,c)
------------ ------------ --------------- -------------- ----------------
$ 150,000 $ 2,543,800 $ 16,410,200 $ (32,900) $ 19,071,100
============ ============ =============== ============== ================
</TABLE>
See accompanying notes.
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<PAGE> 77
AeroMax, Inc.
Unaudited Pro Forma Combining Statements of Operations
For the Year ended December 31, 1996
(Assuming 100% Participation)
<TABLE>
<CAPTION>
JetFleet JetFleet
AeroMax, Inc. Aircraft, L.P. Aircraft II, L.P. Adjustments Pro Forma
------------- -------------- ----------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Revenues
Rental income $ $ 578,600 2,658,500 $ $ 3,237,100
Other income 45,700 394,300 440,000
------------- ------------- ------------- --------------- --------------
624,300 3,052,800 3,677,100
Costs and expenses:
Management fees 0 113,700 379,900 (aa) 493,600
Depreciation 1,041,300 3,260,000 (3,406,100)(bb) 895,200
Professional fees and general
and administrative 134,400 384,500 (278,900)(aa) 240,000
Merger costs 495,000 (cc) 495,000
Maintenance 35,500 119,300 154,800
Amortization 2,000 1,600 31,900 (33,500)(dd) 2,000
------------- ------------- ------------- --------------- --------------
2,000 1,212,800 3,909,400 (2,843,600) 2,280,600
Income before taxes (2,000) (588,500) (856,600) 2,843,600 1,396,500
Provision for income taxes 800 558,600 (ee) 559,400
------------- ------------- ------------- --------------- --------------
Net income $ (2,800) $ (588,500) $ (856,600) $ 2,285,000 $ 837,100
============= ============= ============= =============== ==============
Earnings per share:
Net income
Number of common shares $ 0.51
==============
outstanding 1,649,951
==============
</TABLE>
See accompanying notes.
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<PAGE> 78
AeroMax, Inc.
Notes to Unaudited Pro Forma Financial Statements
1. Basis of presentation
AeroMax, Inc. ("AeroMax"), a Delaware corporation, was formed on
February 28, 1997. JetFleet Management Corp. ("JMC"), a California
corporation formed in 1994, owns all of AeroMax's 150,000 shares of common
stock. CMA Capital Group (the "General Partner") is proposing a consolidation
by merger (the "Consolidation") of JetFleet Aircraft, L.P. ("JetFleet I") and
JetFleet Aircraft II, L.P. ("JetFleet II") with and into AeroMax. JetFleet I
and JetFleet II are each California limited partnerships formed in 1989 and
1991, respectively, to invest in leased aircraft equipment. Upon completion of
the Consolidation, the Company will continue in the aircraft leasing business
and intends to use leveraged financing to acquire additional aircraft assets on
lease.
Upon Consolidation, the General Partner and the limited partners
(collectively, the "Partners") will receive stock in AeroMax in return for
their partnership interests in JetFleet I and JetFleet II. The Consolidation
will be accounted for as a pooling of interests and, therefore, no adjustment
to the historical carrying amount of assets and liabilities will be made.
Historical information for AeroMax, JetFleet I, and JetFleet II are
based on audited financial statements which are included elsewhere herein. The
unaudited pro forma balance sheet and statement of operations have been
prepared on the basis of 100% partnership participation. 100% participation
results in 1,464,951 additional shares of common stock being issued to the
Partners. Warrants to purchase 35,000 shares of common stock at $3.00 per share
will be issued in Crispin Koehler Securities in consideration for investment
banking services rendered in connection with the Consolidation.
The unaudited pro forma balance sheet as of December 31, 1996 has been
prepared as if the transactions contemplated by the Consolidation had occurred
on December 31, 1996, and the accompanying unaudited pro forma statement of
operations has been prepared as if the Consolidation had occurred on January 1,
1996.
The unaudited pro forma financial statements have been prepared by
making certain adjustments (as explained in Note 2 below) to the historical
financial information of JetFleet I and JetFleet II. The pro forma
information presented is not necessarily indicative of the result that would
have occurred had the Consolidation occurred and AeroMax operated as a single
entity during the period presented, or of the future operations of the
Partnerships.
2. Pro forma adjustments
The pro forma balance sheet includes the following adjustment:
(a) Elimination of unamortized organization costs at December 31,
1996.
(b) Offering costs, estimated to be $250,000, have been charged
directly to 1996 operations. It is anticipated that the
offering costs will be short-term payables, paid
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<PAGE> 79
from cash on hand at the time of the Consolidation.
(c) A deferred tax liability has been recognized for the
difference of $4.5 million between the book value of the assets
and liabilities of JetFleet I and JetFleet II at December 31,
1996 and the tax basis due to accelerated depreciation used
for tax purposes.
The pro forma statement of operations includes the following
adjustments:
(aa) Upon Consolidation, AeroMax will sign a management agreement
with JMC under which JMC will manage AeroMax's assets. Under
this agreement, AeroMax will pay JMC monthly in arrears 3% per
annum of the net asset value of the assets under management.
Such fees have been increased to reflect the terms of this
agreement. Professional fees and general and administrative
have been decreased to reflect anticipated savings.
(bb) AeroMax intends to depreciate each asset on a straight-line
basis over its estimated useful life, generally twelve years,
to its estimated residual value at that time. Assuming the
Consolidation is effective mid-1997, under this method, annual
depreciation on the existing assets would approximate
$450,000.
(cc) Offering costs of the Consolidation, estimated to be $250,000,
have been expensed. In addition, $245,000 in estimated costs
of issuing warrants to purchase 35,000 shares of common stock
(see Note 1 above) has been expensed.
(dd) Amortization of JetFleet I and JetFleet II organization costs
has been eliminated.
(ee) Corporate taxes at the estimated federal and state combined
rate of 40% have been provided.
3. Calculation of number of common shares outstanding
The number of shares outstanding for the year ended December 31, 1996
used in computing pro forma net income is based on the number of shares and
warrants which would be outstanding as a result of the Consolidation assuming
100% acceptance on January 1, 1996.
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<PAGE> 80
COMPARISON OF COMPENSATION PAID TO GENERAL PARTNER AND
AFFILIATES
The following table describes the items of compensation payable by each of the
Partnerships to the General Partner and its affiliates, and compensation that
would be payable following the consolidation. For information regarding
historical amounts paid and estimated fees payable by the Company, see "PRO
FORMA FINANCIAL INFORMATION."
<TABLE>
<CAPTION>
Type of Payable by Payable by Payable by the
Compensation JetFleet I JetFleet II Company
- ------------ ---------- ----------- -------
<S> <C> <C> <C>
Equity Interest 1% of cash flow and 5% of all General Partner
sales proceeds, 1% distributions of shall receive 1%
of all liquidation available cash, and 5% of the
distributions Shares issued to
1% of distributions JetFleet I and
on net proceeds of JetFleet II,
sales of assets
until Investors JMC has purchased
have received a 150,000 shares of
noncompounded Common Stock of the
return of 8% (the Company at $1.00
"Preferred per Share in
Return"), then 5%, connection with its
payable to General engagement as
Partner Management Company.
respectively.
JMC and General
Partner shall not
have any interest
in the revenue or
profits of the
Company other than
as shareholders.
Acquisition Fee None Equal to 1.5% of Ordinary and
the Adjusted customary fee for
Purchase Price the Industry
payable to General payable to JMC per
Partner per transaction.
transaction.
</TABLE>
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<PAGE> 81
<TABLE>
<S> <C> <C> <C>
Management Fee Equal to 1.5% of 3% of gross rentals 0.25% of the net
Gross Rentals, on Operating Leases asset value of the
or 2% of gross Company's assets
plus rentals on full payable monthly to
payout leases JMC
3% of Cash Flow and payable monthly to
Sales Proceeds (of General Partner
which 1% is paid to
an unaffiliated
third party broker,
SPLC)
subordinated to 8%
preferred return
("Preferred Return)
of Investors
payable monthly to
General Partner
Re-lease Fee None Ordinary and
3.5% of release or customary re-lease
renewal rentals fee for industry
payable monthly payable per
(1.5% of which is transaction to JMC
paid to SPLC)
Accountable General Reimbursement of Reimbursement of None
Administrative expenses incurred expenses incurred
Expenses in management and in management and
administration of administration of
Partnership (1) Partnership(1)
Resale Fee 3% of contract 50% of ordinary and Ordinary and
sales price (of customary resale customary
which 2% is paid to commissions, not to remarketing fees
SPLC), subordinated exceed 3% of payable per
to Preferred Return contract sales transaction to JMC.
and reduced by fees price, subordinated
payable per to Preferred Return
transaction to
third parties
</TABLE>
- ---------------
(1) The Partnerships pay directly all of their respective general and
administrative expenses that are payable to third parties for legal,
auditing and accounting services, for the renewal of Aircraft leases or
the re-lease or sale of Aircraft, for preparing and distributing reports
and for other general and administrative expenses. General Partner is
entitled to receive reimbursement for the general and administrative
expenses that the General Partner incurs including: (i) actual cost to
the General Partner of goods, materials or services obtained from third
parties for a Partnership; (ii) general and administrative expenses for
services performed by the General Partner for the Partnerships,
including but not limited to legal, auditing, accounting, transfer
agent, data processing, duplication and other similar services; (iii)
expense for services performed by the General Partner in connection with
investor communications; and (iv) expenses for administrative services
performed by the General Partner that are necessary for the prudent
operation of the Partnership. Reimbursement of items (ii) through (iv)
can be no greater than the amount the Partnership would have to pay to
third parties in the same geographic location for the same service.
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<PAGE> 82
MANAGEMENT OF THE COMPANY
BOARD OF DIRECTORS
The Board of Directors of the Company is responsible for the management
of the Company, its property and the disposition thereof, and is responsible
for the general policies of the Company and the general supervision of the
Company's activities conducted by its officers, agents, employees, advisors,
managers, or independent contractors as may be necessary in the course of the
Company's business. At all meetings of the Board of Directors, a majority of
the authorized number of directors shall constitute a quorum for the
transaction of business. Actions to be taken by the Board of Directors will
require approval of a majority of the directors present at any meeting in which
there is a quorum, unless otherwise specified by the Company's Bylaws or by
law.
The Board of Directors of the Company currently consists of Neal D.
Crispin, Toni M. Perazzo, and Marc J. Anderson. Following the Consolidation,
the Company's Board of Directors will be increased to five directors, with the
resulting vacancies to be filled by a vote of the existing directors.
Thereafter, the Board of Directors will consist of not less than five nor more
than nine directors. At each annual meeting of stockholders, or at any
special meeting of the stockholders called for such purpose, the directors of
the Company will be elected by a vote of the holders of Common Stock, with each
holder of Common Stock having one vote for each Share held. No cumulative
voting will be authorized by the Company's Certificate of Incorporation,
Directors may resign at any time and may be removed, with or without cause, by
a majority vote of the outstanding Common Stock of the Company.
The Board of Directors expects to hold meetings at least quarterly, and
may take action on behalf of the Company by unanimous written consent without a
meeting. Directors may participate in meetings by conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other.
The Company's Board of Directors currently consists of the following
persons:
<TABLE>
<CAPTION>
NAME AGE ANTICIPATED POSITION WITH THE COMPANY
---- --- -------------------------------------
<S> <C> <C>
Neal D. Crispin 51 President, Chairman
Marc J. Anderson 60 Chief Operating Officer
Toni M. Perazzo 50 Vice President - Finance & Secretary
</TABLE>
The directors of the Company listed above are currently directors of JMC
as well. The business experience during the past five years of each of the
current directors is as follows:
MR. NEAL D. CRISPIN, age 51, President and a Director of CMA
Consolidated, Inc. ("CMA"); the Chief Executive Officer. 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. 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 and the Company.
He received a
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<PAGE> 83
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. MARC J. ANDERSON, age 60. Mr. Anderson is in charge of portfolio
management and aircraft marketing and financing. Prior to joining the Company
in 1994, 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%. From
1983 until 1985, Mr. Anderson served as Contract Administrator for Fairchild
Aircraft Corp., and from 1981 to 1983, he served as Director of Aircraft Sales
for Fairchild SAAB Joint Venture. From 1979 until 1981, Mr Anderson was Vice
President, Contracts for SHORTS Aircraft USA, Inc. In these positions, 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 Chief Operating Officer.
MS. TONI M. PERAZZO, age 50. 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 JMC
and the Company. She received her Bachelor's Degree from the University of
California at Berkeley, 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.
Promptly after the Consolidation, the Company anticipates that the Board
of Directors will appoint two independent directors to the Board.
BOARD OF DIRECTORS COMPENSATION
The Company intends to pay an annual fee of $10,000 and a per meeting
fee of $1,000 to its directors who are not officers of the Company. Directors
who are employees of the Company or JMC will not be paid any directors' fees.
The Company will reimburse all directors for travel expenses and other
out-of-pocket expenses incurred in connection with their activities on behalf
of the Company.
Each member of a duly authorized committee of the Board of Directors
that is not an officer of the Company will receive a fee of $500 for each duly
called committee meeting which they attend either in person or by
telecommunication.
COMMITTEES OF THE DIRECTORS
Promptly following the consummation of the Consolidation, the Board of
Directors will establish the following committees:
Audit Committee. The Audit Committee will consist of at least two
independent directors.
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<PAGE> 84
The Audit Committee will be established to make recommendations concerning the
engagement of independent public accountants, review with the independent
public accountants the plans and results of the audit engagement, approve
professional services provided by the independent public accountants, review
the independence of the independent public accountants, consider the range of
audit and non-audit fees and review the adequacy of the Company's internal
accounting controls.
Executive Committee. The Executive Committee will consist of three
directors, which will include Neal D. Crispin, Toni M. Perazzo, and Marc J.
Anderson. The Executive Committee will have the authority to acquire, dispose
of and finance investments for the Company and execute contracts and
agreements, including those related to the borrowing of money by the Company,
and generally exercise all other powers of the Board of Directors except for
those which require action by all the directors or the independent directors
under the Certificate of Incorporation or the Bylaws of the Company, or under
applicable law.
The Board of Directors may from time to time establish certain other
committees to facilitate the management of the Company. The Board of Directors
initially will not have a nominating committee and the entire Board of
Directors will perform the function of such a committee.
EXECUTIVE OFFICERS
Officers of the Company will be elected by and serve at the discretion
of the Board of Directors. Subject to the approval of the Board of Directors,
it is anticipated that the following persons will function as executive
officers of the Company after the Consolidation. Each person listed below
currently serves in a substantially similar capacity as an executive officer of
JMC.
<TABLE>
<CAPTION>
NAME AGE ANTICIPATED POSITION WITH THE COMPANY
---- --- -------------------------------------
<S> <C> <C>
Neal D. Crispin 51 President, Chairman
Marc J. Anderson 60 Chief Operating Officer
Frank Duckstein 44 Vice President
Toni M. Perazzo 50 Vice President, Finance & Secretary
</TABLE>
Neal D. Crispin, President and Chairman, is expected to devote
approximately 50% of his time as a JMC officer to company matters; all other
officers are expected to devote approximately 80% of their time as JMC officers
to company matters. For biographies of Messrs. Crispin and Anderson and Ms.
Perazzo, see "Board of Directors" above.
FRANK DUCKSTEIN, VICE PRESIDENT, age 44. 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 corporate and commuter
aircraft, as well as their helicopter fleet. Previously, he was with the
following international and regional airlines operating within Europe and the
U.S. with responsibility for operation, market development and sales:
Aeroamerica (Berlin, Germany) 1976-1979; Air Berlin (Berlin, Germany)
1980-1983; Direct Air (Berlin, Germany) 1983-1985; and Pacific Air Express
(Millbrae, CA) 1986-1996; Mr. Duckstein attended the Technical University of
Berlin, majoring in Economics.
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<PAGE> 85
It is anticipated that the foregoing officers will be elected upon
consummation of the Consolidation and shall serve a one-year term and until
their successors are elected and qualified or until their earlier resignation
or removal. There are no arrangements or understandings between or among any
of the officers or directors and any other person pursuant to which any officer
or director was selected as such.
COMPENSATION OF EXECUTIVE OFFICERS
The Company was formed on February 28,1997. Accordingly, the Company
has not paid any cash compensation to its executive officers for prior years.
No compensation will be paid by the Company to its officers as the Company will
engage JMC as Management Company pursuant to the Management Agreement. The
officers of the Company are officers of JMC, and will receive compensation
therefor. There are no employment agreements between the Company and any of
its officers, and the Company does not expect to enter into any such agreements
in the future. JMC is an at-will employer.
Neal D. Crispin's cash compensation from JMC including bonuses is
expected to be $60,000. The only executive officer of JMC whose compensation
exceeds $100,000, is Marc J. Anderson, Chief Operating Officer, whose salary
and bonus is expected to be $150,000.
LIMITATION OF DIRECTORS' LIABILITY
Delaware law authorizes Delaware corporations to limit or eliminate the
personal liability of a director to the corporation and its stockholders for
monetary damages for certain breaches of the director's fiduciary duties as a
director, other than for breach of his duty of loyalty to the corporation and
its stockholders, or for acts or omissions not in good faith or involving
intentional misconduct or knowing violation of the law, or for the unlawful
purchase or redemption of stock or payment of unlawful dividends or the receipt
of improper personal benefits. The Board of Directors believes that such
provisions have become commonplace among major corporations and are beneficial
in attracting and retaining qualified directors, and the Company's Certificate
of Incorporation includes such provisions.
The director's duty of care requires that, when acting on behalf of the
corporation, directors must exercise an informed business judgment based on all
material information reasonably available to them. Absent these limitations,
directors are accountable to corporations and/or their stockholders for
monetary damages for conduct constituting gross negligence in the exercise of
their duty of care. Although this provision of Delaware law does not change
directors' duty of care, it enables corporations to limit available relief to
equitable remedies such as injunction or rescission.
The Company's Certificate of Incorporation limits the liability of
directors of the Company to its stockholders (in their capacity as directors
but not in their capacity as officers) to the fullest extent permitted by
Delaware law. Specifically, directors of the Company will not be personally
liable for monetary damages for breach of a director's fiduciary duty as a
director, except for liability (i) for any breach of the directors' duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or that involve intentional misconduct or a knowing violation of
law, (iii) for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware GCL or (iv) for any
transaction from which the director derived an improper personal benefit. The
inclusion of this provision in the Certificate of Incorporation may have the
effect of reducing the likelihood of derivative litigation against directors
and may discourage or deter stockholders or management from bringing a lawsuit
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<PAGE> 86
against directors for breach of their duty of care, even though the action, if
successful, might otherwise benefit the Company and its stockholders.
INDEMNIFICATION
Subject to applicable law, the Company's Bylaws require the Company to
indemnify its officers and directors against expenses, judgments, settlements
and fines incurred in the defense of any claim, including any claim brought by
or in the right of the Company, to which they were made party by reason of
being or having been officers or directors.
It is anticipated that each of the Company's directors and executive
officers will enter into an indemnity agreement with the Company following
completion of the Consolidation. Pursuant to such agreements, the Company will
agree to indemnify the directors and executive officers against any costs and
expenses, judgments, settlements and fines incurred in connection with any
claim involving a director or executive officer by reason of his position as
director or executive officer that are in excess of the coverage provided by
any insurance if the indemnitee meets certain standards of conduct.
THE MANAGEMENT COMPANY
Neal D. Crispin, an individual General Partner of the Partnerships, is a
director, officer and significant shareholder of JMC. JMC currently manages the
assets of those partnerships on behalf of the General Partner. It also manages
the assets of a wholly owned subsidiary, JetFleet III, and by the effective
time of the Consolidation will have completed an equipment debt syndication
program with a special purpose wholly owned subsidiary, AeroCentury Fund IV,
Inc. ("ACF"). It is anticipated that JetFleet III's and ACF's offering and
acquisition activities will be completed prior to consummation of the
Consolidation.
Immediately prior to the Consolidation, JMC will be the sole holder of
the Common Stock of the Company. JMC will also act as the management company
for the Company pursuant to a Management Agreement between JMC and the Company,
which will have a 15-year initial term. The Management Agreement is terminable
in the event of a breach of obligations under the agreement upon 12 months
prior notice to the breaching party by the other party. Under the Management
Agreement, JMC will have ultimate responsibility and authority for the
selection of assets to be acquired by the Company and the leasing, re-leasing
and/or subsequent sale of the assets. JMC will have control over, among other
things, the negotiation and execution of lease agreements for the assets,
payment of operating expenses, review of compliance by lessees and obligors
under leases or loan agreements, the recovery of equipment in the event of
default or foreclosure on an asset, and the exercise of appropriate remedies
under such agreements. See "FIDUCIARY RESPONSIBILITIES" and "RISK FACTORS --
Reliance on JMC."
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. The agreement also
grants the Company an option to acquire all of the outstanding stock of JMC at
any time on or before December 31, 2000, subject to such shareholder approval
as required by applicable law, for a purchase price based on the earnings of
JMC, in the form of freely tradeable registered stock of the Company. The
purchase price would be set at 90% of the product of (i) the earnings of JMC as
of the most recent 12-month period prior to the acquisition, multiplied by (ii)
the average price to earnings ratio of the Company over the same 12-month
period, each as determined according to generally accepted accounting
principles; provided, however, that if the purchase price is less than $12
million, JMC would have the right to decline the acquisition.
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<PAGE> 87
In addition to managing the Company's operations, JMC will be involved
in other business for its own account. This would include asset management for
third parties, brokerage services and other third party remarketing activities.
JMC will, however, not compete with the Company in the acquisition and resale
and remarketing of leased aircraft equipment, and will not provide third party
services that are competitive with that of the Company. All purchases and
sales of leased aircraft engaged in by JMC after the Consolidation will be on
behalf of the Company.
Compensation. Under the Management Agreement, JMC will be entitled to
receive a monthly management fee from the Company equal to 0.25% of the Net
Asset Value of the Company's assets as of the last day of the month for which
such fee is earned. JMC and/or its affiliates may also receive reimbursement
for accountable general administrative expense payable to third parties by JMC
in connection with the administration and management of the company, and may
also receive a brokerage fee in connection with the acquisition of assets by
the Company, and/or a remarketing fee in connection with the sale or re-lease
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 "COMPARISON OF COMPENSATION TO GENERAL
PARTNERS AND ITS AFFILIATES." See "PRO FORMA FINANCIAL INFORMATION."
Officers and Directors of JMC. The two directors of JMC are also
directors of the Company: Neal D. Crispin and Toni M. Perazzo. The officers of
JMC are also the current officers of the Company: Neal Crispin, President, Marc
Anderson, Chief Operating Officer, Toni Perazzo, Vice President - Finance &
Secretary, and Frank Duckstein, Vice President. Officers serve at the
discretion of the Board of Directors. For biographies of the officers and
directors of JMC, see "MANAGEMENT -- Directors" and "-- Executive Officers."
See "FIDUCIARY RESPONSIBILITIES" and "RISK FACTORS -- Reliance on JMC."
79
<PAGE> 88
SECONDARY MARKET AND OWNERSHIP OF PARTNERSHIP UNITS
SALE PRICES OF UNITS
The Partnership Units are not listed on any national or regional
securities exchange or quoted on the NASDAQ, and there is no established public
trading market for the Units. Secondary sales activity for the Units has been
limited and sporadic. The General Partner monitors transfers of the Units (a)
because the admission of the transferee as a substitute investor requires the
consent of the General Partner under each of the Partnership Agreements, and
(b) in order to track compliance with safe harbor provisions to avoid treatment
of the Partnerships as "publicly traded partnerships" for federal income tax
purposes.
Set forth in the tables that follow is certain information regarding
sale transactions in the Units. Such information was obtained from the sources
indicated. The transactions reflected in the tables below represent only some
of the sale transactions in the Units. There have been other secondary sale
transactions in the Units, although specific information regarding such
transactions is not readily available to the General Partner. Because the
information regarding sale transactions in the Units included in the tables
below is provided without verification by the General Partner and because the
information provided does not reflect sufficient activity to cause the prices
shown to be representative of the market values of the Units, such information
should not be relied upon as indicative of the ability of Investors to sell
their Units in secondary sale transactions or as to the prices at which such
Units may be sold. Therefore, the information presented should not be relied
upon by Investors in determining whether or not to tender their Units in the
Consolidation.
The General Partner does not believe that the secondary market sale
prices of the Units accurately reflect the value of the assets of the
Partnerships because secondary sale prices are adversely affected by a variety
of factors unrelated to the value of the assets of a limited partnership, such
as: (i) limited partnerships are currently out of favor in the investment
community; (ii) limited partner interests are generally traded on a sporadic
basis; (iii) Unit sale prices can vary dramatically based on the number of
interests sold at once or over time; and (iv) the Tax Reform Act of 1986
contained provisions which eliminated certain federal income tax advantages
associated with investments in limited partnerships and which caused limited
partnerships to place restrictions on transfers of interests in order to avoid
taxation of income at the partnership and partner levels.
While the General Partner receives some information regarding the prices
of secondary sales transactions of the Units, the General Partner does not
receive or maintain comprehensive information regarding all activities of all
broker/dealers and others known to facilitate secondary sales of the Units.
The General Partner estimates, based solely on the transfer records of the
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<PAGE> 89
Partnerships, that the number of Units transferred in sale transactions (i.e.,
excluding transactions believed to be between related parties, family members
or the same beneficial owner) was as follows:
<TABLE>
<CAPTION>
NO. OF UNITS TRANSFERRED DATE AND PRICE OF MOST
IN 1996 RECENT QUOTE SOURCE OF INFORMATION
------------------------ ---------------------- ---------------------
<S> <C> <C> <C>
JetFleet I 2,040 $____/Unit - ____/97 Chicago Partnership Board
JetFleet II 958 $____/Unit - ____/97 Chicago Partnership Board
</TABLE>
To date in calendar year 1997, there have been ____ and _____ Units transferred
of JetFleet I and JetFleet II, respectively.
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<PAGE> 90
PROPERTIES OF THE PARTNERSHIPS
The following Table sets forth the assets held by each Partnership:
JETFLEET I
<TABLE>
<CAPTION>
Percentage Current
Asset Interest Lessee Year Acquired Appraised Value
- ----- -------- ------ ------------- ---------------
<S> <C> <C> <C> <C>
DHC-7-102 S/N 57 95.90* Raytheon 1991 $ 1,294,650
DHC-7-103 S/N 72 24.37* Air Tindi, Ltd. 1991 $ 467,904
</TABLE>
JETFLEET II
<TABLE>
<CAPTION>
Percentage Current
Asset Interest Lessee Year Acquired Appraised Value
- ----- -------- ------ ------------- ---------------
<S> <C> <C> <C> <C>
DHC-7-102 S/N 57 4.00* Raytheon 1991 $ 55,350
DHC-7-103 S/N 72 75.53* Air Tindi, Ltd. 1991 $ 1,452,096
DHC-7-102 S/N 44 100.00 Raytheon 1992 $ 1,350,000
DHC-7-103 S/N 11 100.00 Raytheon 1992 $ 1,860,000
DHC-6-300 S/N 666 100.00 LoganAir 1995 $ 950,000
Metro II, SA-227-AC 100.00 Merlin Express 1995 $ 830,000
Metro II, SA-226 50.00* Sunbird Air 1996 $ 220,000
Services
Turboprop Engines (24) 100.00 Airwork Corp. 1993 $ 6,880,000
PT6A-50 Engine 100.00 (spare) 1993 $ 330,000
</TABLE>
- ---------------
* Co-owned by JetFleet I and JetFleet II.
** The other 50% undivided interest is owned by JetFleet III, an affiliated
equipment program.
JetFleet I and JetFleet II hold 50% and 50% interests, respectively, in
a DC-9 Aircraft, and JetFleet II holds a 100% interest in a second DC-9
Aircraft, each on a full-payout finance lease to AeroCalifornia which contains
a repurchase option at the end of the lease term. These assets are treated as
financing leases, with a current aggregate present value to JetFleet I and
JetFleet II of $144,543 and $622,178, respectively.
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<PAGE> 91
REPORTS, OPINIONS AND APPRAISALS
GENERAL
Exchange Values were determined as of February 4, 1997 and have been
assigned to each of the Partnerships solely to establish a consistent method of
allocating the Shares for purposes of the Consolidation. The Exchange Values
were determined by the General Partner based in part on the independent
appraisal of certain assets of the Partnerships by Aircraft Information
Services, Inc. (the "Appraiser"). The appraisals and valuations completed by
the Appraiser have been filed as exhibits to the Registration Statement of
which this Prospectus is a part. The General Partner did not impose any
limitations on the scope of the investigations conducted by Appraiser to render
its appraisal. The General Partner has not made any contacts, other than as
described in this Prospectus, with any outside party regarding the preparation
by the outside party, of an opinion as to the fairness of the Consolidation, an
appraisal of the Partnerships or their assets, or any other report with respect
to the Consolidation.
PARTNERSHIP ASSET APPRAISALS
General. The Appraiser, Aircraft Information Services, Inc., has
prepared and delivered to the Partnerships, the General Partner and the Company
an appraisal report dated February 4, 1997, based upon and subject to the
matters referenced in the appraisal, containing its opinion regarding the value
of each Partnership aircraft asset as of February 4, 1997. Aircraft Information
Services, Inc., is a nationally recognized and independent appraisal firm with
extensive valuation experience with used aircraft equipment. It is a member of
the International Society of Transport Aircraft (ISTAT) and employs an ISTAT-
certified Senior Aircraft Appraiser.
The purpose of the appraisal is to establish the relative values of each
Partnership in order to assign Exchange Values and to allocate the Company's
Shares, if any, for purposes of the Consolidation. See "PROPERTIES OF THE
PARTNERSHIP."
Current Market Value. In its valuation of the Partnership assets, the
Appraiser determined the "current market value" of the equipment. Current
market value is based upon the value reflective of real market conditions at
the time of the appraisal of an asset, and takes into account the status of the
economy in which the equipment is used, the status of supply and demand for the
particular item of equipment, the value of recent transactions and the opinions
of informed buyers and sellers. The current market value approach assumes that
there is no short term time constraint to buy or sell the asset. Under this
approach, the aggregate asset values of JetFleet I and II were calculated to be
$1,762,554 and $13,927,446, respectively. The compensation paid to the
Appraiser was not contingent upon General Partner's approval of the Appraisal
or completion of Consolidation.
Base Valuation. The Appraiser also provided a valuation of assets based
on the base value approach. This approach analyzes the value that would be
placed on an asset in a transaction between equally willing and informed buyers
and sellers not under a compulsion to buy or sell, and desiring to transfer
only a single item of equipment for cash, with no hidden liability or value,
and with supply and demand roughly in balance. Under this approach, the
aggregate aircraft asset values of JetFleet I and II were calculated to be
$2,937,590 and $18,097,410, respectively. These base values reflect a somewhat
higher valuation than that under the current market value approach.
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<PAGE> 92
However, since the appraisals are only relevant in determining the relative
ownership of the Company between the two Partnerships, and since base value is
generally used only to consider historical trends, as a basis for long term
future value considerations, the Company and the General Partner decided to use
the generally accepted current market value approach in determining Exchange
Values for the Partnerships.
A copy of the current value appraisal is attached as Appendix B to this
Prospectus. A copy of the base value appraisal of the Partnerships' assets is
included as an exhibit to the Registration Statement filed with the Commission
with this Prospectus, and will be sent to Investors upon written request to CMA
Capital Group, Inc., General Partner, 1440 Chapin Avenue, Suite 310,
Burlingame, California 94010.
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<PAGE> 93
DESCRIPTION OF COMMON STOCK
GENERAL
The Certificate of Incorporation of the Company authorizes the issuance
of up to 5,000,000 share of Common Stock with a par value of $.001 per share
and 2,000,000 shares of Preferred Stock. There are presently 150,000 shares of
Common Stock issued and outstanding, all of which are held by JMC, which
purchased the shares at a price of $1.00 per share when the Company was
organized. The number of shares of Common Stock to be issued in connection
with the Consolidation depends upon the Partnerships that approve and
participate in the Consolidation and the number of Dissenting Investors.
Assuming both Partnerships participate in the Consolidation and that all
Investors receive Shares in connection therewith, 1,614,951 shares of Common
Stock will be issued and outstanding after the Consolidation based upon the
Exchange Value of the Participating Partnerships divided by $10. See "THE
CONSOLIDATION -- Exchange Value and Allocation of Shares." There is currently
no established trading market for the Common Stock. The Company has applied to
list the Common Stock on the American Stock Exchange under the symbol "____."
Subject to official notice of issuance, ________ will act as transfer agent and
registrar of the Common Stock.
Holders of the Company's Common Stock are entitled to receive dividends,
when and as declared by the Board of Directors of the Company, out of funds
legally available therefor. The holders of Common Stock, upon any liquidation,
dissolution or winding-up of the Company, are entitled to receive ratably any
assets remaining after payment in full of all liabilities of the Company. The
holders of Common Stock have voting rights in the election of directors and
with respect to all other corporate matters, each share entitling the holder
thereof to one vote. Cumulative voting is not permitted for the election of
directors. Holders of shares of Common Stock do not have preemptive rights,
which means they have no right to acquire any additional shares of Common Stock
that may be issued by the Company at a subsequent date.
The Board of Directors may, in its discretion, issue additional Shares
of Common Stock or issue Preferred Stock, with such powers, preferences and
rights as the Board of Directors may at the time designate. The issuance of
additional Shares of either Common Stock or Preferred Stock, beyond the Shares
to be issued in the Consolidation, may result in the dilution of the
Stockholders. Such Preferred Stock may have liquidation and dividend
preferences that may materially and adversely affect the rights of holders of
Common Stock.
All shares of the Company's Common Stock now outstanding are, and the
shares of Common Stock offered hereby will be when issued, fully paid and
nonassessable.
Under Section 203 of the Delaware GCL, certain business combinations
with stockholders owning 15% or more of the Company's outstanding stock (an
"interested stockholder") are prohibited for three years after such interested
stockholder becomes an interested stockholder. Due to the unique position of
the Company within its market, the Company anticipates that after the
Consolidation, it may adopt a shareholder rights plan that could restrict
business combinations and similar transactions between the Company and
significant shareholders of the Company.
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<PAGE> 94
SHARES ELIGIBLE FOR FUTURE SALE
Assuming both Partnerships participate in the Consolidation and that all
Investors receive Shares in connection with the Consolidation, the Company will
have an aggregate of 1,397,158 shares of Common Stock outstanding, all of which
will be freely tradeable without restriction under the Securities Act except
for any shares owned by Affiliates of the Company. Subject to certain
conditions, Rule 144 permits an Affiliate to sell during any three-month period
such number of shares equal to one percent of outstanding shares of Common
Stock or the average weekly trading volume of Common Stock reported on all
exchanges for the four weeks prior to the date of notice of sale, whichever is
greater.
The 150,000 Shares of Common Stock issued to JMC and will become freely
transferable under Rule 701 under the Securities Act, 90 days after the first
sale of Common Stock of the Company to the general public pursuant to a
registration statement filed with and declared effective by the Commission;
provided, however, that such sales must comply with the provisions (other than
the holding period requirements) of Rule 144.
The shares issuable under the warrant for 35,000 Shares issued to the
Dealer Manager may be resold may be resold in reliance on and pursuant to the
provisions of Rule 144 under the Securities Act or any other applicable
exemption from registration under the Securities Act.
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<PAGE> 95
DILUTION
The difference between the market price per Share of Common Stock and
the net tangible book value per Share of the Company after the Consolidation
constitutes dilution to the Investors. Net tangible book value per Share is
determined by dividing the net tangible book value of the Company (total assets
minus total liabilities) by the applicable number of shares of Common Stock.
For the purposes of this discussion, it is assumed that the market price of the
Shares after the Consolidation will be equal to the aggregate Exchange Values
for the Partnership divided by the total number of Shares of the Company
outstanding after the Consolidation.
At March 5, 1997, the net tangible book value of the Company was
$150,000 or $1.00 per Share. After the Consolidation, the net tangible book
value of the Company will be $14,649,503. After giving effect to the
Consolidation and the issuance of 1,464,950 additional Shares, the net tangible
book value per share will be $9.16, representing an immediate increase of $8.16
in the net book value to the existing sole stockholder of the Company, JMC, and
an immediate dilution of $0.84 per share to Investors (based upon a $10.00
market price, equal to the aggregate Exchange Values of the Partnerships
divided by the total number of Shares issued to the Investors and General
Partner in the Consolidation.
The following Table illustrates the following information with respect
to dilution to Investors on a per-Share basis:
<TABLE>
<S> <C> <C>
Market Price (1) $10.00
Net Tangible Book Value before Consolidation $ 1.00
Increase in Net Tangible Book Value
Attributable to Investors $ 8.16
Proforma Net Tangible Book Value
after the Offering $ 9.16
Dilution to Investors $ 0.84
</TABLE>
- ---------------
(1) Computed by dividing aggregate Exchange Value of the Partnerships by the
number of Shares to be issued to the Investors and General Partners in
the Consolidation. May not necessarily reflect the price at which the
Shares may trade following the Consolidation.
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<PAGE> 96
The following Table sets forth, with respect to the existing
Stockholders and the Investors, a comparison of the number of Shares acquired
from the Company, the percentage of ownership of such Shares, the total
consideration paid, and the average purchase price per Share.
<TABLE>
<CAPTION>
Total Consideration
Shares Purchased -------------------- Average Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholder 150,000 9.28% $ 150,000 1.01% $ 1.00
Investors(2) 1,397,158 86.51% $13,971,580(3) 94.41% $10.00
</TABLE>
- ---------------
(2) Represents the number of Shares issued to Investors in the Consolidation
assuming 100% Partnership Participation.
(3) Represents the pro-rata portion of the Partnerships' Aggregate Exchange
Value attributable to the Investors' aggregate interest in the
Partnerships, calculated by multiplying the aggregate number of Shares
issued in the Consolidation to the Partnerships by a fraction, the
numerator of which is the number of Shares issued to the Investors and
the denominator of which is the number of Shares issued to the Investors
and the General Partner.
The foregoing Table assumes no exercise of the Dealer Manager Warrant
for 35,000 Shares at $3.00 per Share. If such Warrant is exercised, there
would be an immediate dilution of $0.13 per Share. See "THE CONSOLIDATION--
Dealer Manager."
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<PAGE> 97
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is the tax counsel's opinion as to the material
federal income tax consequences of the Consolidation, the operations of the
Company and the transactions related thereto which may affect Investors who are
individuals and citizens or residents of the United States. This discussion
was prepared by Graham & James, counsel for the Company ("Counsel"), and is
based upon the Code, Treasury Regulations promulgated or proposed thereunder
and published rulings and court decisions, all of which are subject to changes
which could adversely affect the Investors. Each Investor should consult his
or her own tax advisor as to the specific consequences of the proposed
Consolidation, the receipt and ownership of Shares by Participating Investors,
the taxation of the Company and the application and effect of federal, state
and local income and other tax laws and of any potential changes in the
applicable law after the date hereof. No ruling from the IRS, or from any
other taxing authority, will be sought or obtained as to any of the following
tax issues, and, neither the IRS nor the courts are bound by the summary below
or the opinion of Counsel.
Subject to the limitations and qualifications described below and
assuming the Consolidation and the operations of the Company each are conducted
substantially as described in this Prospectus, Counsel is of the opinion that:
1. General Nonrecognition. Investors will not recognize gain or loss
as a result of the Consolidation and resulting conversion of their interest and
the Partnerships into Common Stock of the Company, except as set forth below.
2. Low-Basis Units. An Investor who has a tax basis in his or her
interest in the Partnership that is significantly less than the tax basis of
the original holder of that interest may recognize gain to the extent that the
tax basis in that Partnership interest is less than the pro rata share of
Partnership liabilities.
3. Basis. An Investor will have an aggregate tax basis in all Shares
of Common Stock of the Company received in the Consolidation equal to the
aggregate basis of that Investors' interests in the Partnerships, as adjusted
for operations through the Effective Time; such basis will be pro-rated among
all Shares of Common Stock received.
4. Holding Period. Based upon the assumption that the Partnerships
hold no ordinary income assets (such as appreciated inventory) that will be
transferred to the Company, the holding period of Common Stock received by an
Investor as a result of the Consolidation will include the period for which
that Investor held his interest in the Partnership.
5. Reporting Requirements. Each Investor who receives Common Stock in
the Company in the Consolidation will be required to file with his federal
income tax return a statement that provides details relating to the property
transferred, the stock received, and his or her share of any liabilities
assumed by the company in the Consolidation. The Company has represented that
it will provide stockholders with information to assist them in preparing such
a statement.
6. Dissenters. Any Investor subject to federal income tax who
exercises dissenter's rights and receives the appraised value of his interest
in the Partnership, will recognize gain (or loss) to the
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<PAGE> 98
extent that the total amount received exceeds (or in the case of loss, is less
than) the tax basis in that interest.
7. Tax-Exempt Investors. The Consolidation will not result in the
recognition of substantial unrelated business taxable income by any Tax-Exempt
Investor which does not hold Units either as a "dealer" or subject to
acquisition indebtedness, and is not an organization described in Section
501(c)(7) (social clubs), 501(c)(9) (voluntary employees' beneficiary
associations), 501(c)(17) (supplemental unemployment benefit trusts) or
501(c)(20) (qualified group legal services plans) of the Code. In addition,
distributions with regard to Shares owned by certain tax-exempt persons should
not result in recognition of unrelated business taxable income, unless such
Shares are subject to acquisition indebtedness.
CONSOLIDATION AS NON-TAXABLE EVENT
The Consolidation is intended as a non-taxable transaction under Section
351 of the Code. At the Effective Time, the Investors will effectively
transfer their interest in the Partnerships to the Company solely in exchange
for Common Stock in the Company. This exchange effectively terminates the
Partnerships. The exchange generally has the tax consequences described in
paragraphs 1-7, above.
The above conclusions are based upon the assumption that, immediately
after the Effective Time, Investors in the Partnerships own at least 80% of the
Common Stock of the Company (which is the only outstanding class of the
Company). IF AN INSUFFICIENT NUMBER OF INVESTORS PARTICIPATE IN THE
CONSOLIDATION, OR THE CONSOLIDATION PROCEEDS WITH ONLY JETFLEET II, SO THAT
INVESTORS DO NOT OWN AT LEAST 80% OF THE COMPANY IMMEDIATELY AFTER THE
EFFECTIVE TIME, THEN THE CONSOLIDATION WILL BE A TAXABLE EVENT, AND INVESTORS
WILL RECOGNIZE GAIN (OR LOSS) TO THE EXTENT THAT THE FAIR MARKET VALUE OF THE
COMPANY'S STOCK RECEIVED EXCEEDS (OR IN THE CASE OF LOSS, IS LESS THAN) THE TAX
BASIS IN THAT INVESTOR'S INTEREST IN THE PARTNERSHIP.
In addition, the above conclusions are based upon the assumption that no
contracts have been or will be entered into prior to the Effective Time of the
Consolidation, pursuant to which Investors would sell stock in the Company to
bring the aggregate ownership of the Investors in the Company below 80% (the
"Control Assumption"). None of the Company, the Corporate General Partner, or
the individual General Partners is aware of any contracts that have been or
will be entered into prior to the Effective Time of the Consolidation which
would make the Control Assumptions incorrect. If the Control Assumption was
not correct, each Participating Investor would recognize gain or loss on the
conversion of interests in the Partnership for Company Stock as if the
Investors had sold the interest in the Partnership for an amount equal to the
value of the Company Stock received, plus his or her share of the Partnership's
nonrecourse liabilities assumed by the Company in the Consolidation. Each
Investor's basis in the Company's Common Stock received would be increased (or
reduced) by the gain (or loss) recognized, and each Investor's holding period
in the Company stock received would being the day after the Effective Time.
PRE-CONSOLIDATION OPERATIONS
The income and deductions of the Partnerships incurred during 1997 prior
to the Effective Time will be allocated among the Investors, and each
Investor's basis in his interest in the Partnerships will be adjusted by the
allocations, in essentially the same manner as they would have been allocated
and adjusted apart from the Consolidation. Each Investor will receive a
Schedule K-1
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<PAGE> 99
for 1997 reflecting the income and deductions allocated to him during the
period in 1997 the Investor owned an interest in the Partnership.
TAX CONSEQUENCES TO THE COMPANY
The Company will not recognize gain or loss as a result of the
Consolidation. The basis of the assets received by the Company from the
Partnerships will equal the aggregate tax basis of Participating Investors'
interests in the Partnerships, plus any cash paid by the Company on behalf of
the Partnerships to Investors exercising dissenters' rights, and the amount of
liabilities of the Partnership assumed by the Company in the Consolidation.
The Company's basis in the properties may differ form the Partnerships' basis
in such properties, and the properties may be subject to longer depreciable
lives as a result of the Consolidation. These factors could result in an
overall decrease or increase in the depreciation deductions attributable to the
assets of the Partnership.
CERTAIN TAX DIFFERENCES BETWEEN THE OWNERSHIP OF UNITS AND SHARES
Unitholders are treated as limited partners of a partnership for federal
income tax purposes. As a partnership, each Partnership itself is not subject
to taxation, and instead each Investor is required to take into account his
share of the income or loss of such Partnership, regardless of whether any cash
is distributed to him. Upon consummation of the Consolidation with respect to
a Participating Partnership, the Participating Investors therein will receive
Shares in liquidation of such Partnership. See "COMPARISON OF LIMITED
PARTNERSHIP AND CORPORATE STRUCTURE."
In contrast to the treatment of partners, Stockholders of the Company
will be taxed based on the amount of distributions received from the Company.
Each Stockholder will receive a Form 1099-DIV reporting the amount of taxable
and nontaxable distributions, if any, paid to him during the preceding year.
The taxable portion of such distributions depends on the amount of the
Company's earnings and profits. In computing earnings and profits, the Company
will have earnings and profits with respect to amounts otherwise treated as a
return of principal if the Company acquires loans from a participating
partnership at a discount. In addition, the Company may be required to use a
slower method of depreciation than that used by certain Participating
Partnerships with respect to assets transferred to the Company. Accordingly,
under certain circumstances, even if the Company were to make the same level of
distributions as the Participating Partnerships, a larger portion of such
distributions by the Company could constitute taxable income as compared to the
distributions of such Partnerships. In addition, the character of this income
to Stockholders is not dependent on its character to the Company, and is
generally ordinary dividend income to the Stockholders and classified as
portfolio income under the passive loss rules, except with respect to capital
gains dividends, discussed below. Furthermore, should the Company incur a
taxable loss, such loss will not be passed through to the Stockholders.
STATE TAX CONSEQUENCES
The Company and its Stockholders may be subject to state or local
taxation in various state or local jurisdictions, including those in which it
or they transact business or reside. The state and local tax treatment of the
Company and its Stockholders may not conform to the federal income tax
consequences discussed above. The Company does not believe, however, that
Participating Investors will be required to file state tax returns, other than
in their respective states of residence, as a result of the ownership of
Shares. Consequently, prospective Stockholders should consult their own tax
advisors regarding the effect of state and local tax laws on an investment in
the Company.
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<PAGE> 100
A copy of such opinion is included as Exhibits to the Registration
Statement of which this Prospectus is a part, and are available upon written
request to CMA Capital Group, Inc., General Partner, 1440 Chapin Avenue, Suite
310, Burlingame, California 94010.
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<PAGE> 101
EXPERTS
ACCOUNTANTS
The audited balance sheet of the Company and the audited financial
statements of the Partnerships included in this Prospectus have been audited
by Vocker Kristofferson and Co., independent public accountants, as indicated
in their reports with respect thereto, and are included herein in reliance upon
the authority of said firm as experts in giving said reports.
APPRAISER
The Appraisal of Aircraft Information Services, Inc. included as
Appendix B to this Prospectus has been so included in reliance on their
authority as experts in valuing aircraft equipment.
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<PAGE> 102
LEGAL OPINIONS
Graham & James LLP will deliver an opinion to the effect that the Shares
offered by this Prospectus will be validly issued, fully paid and
nonassessable. Graham & James LLP will also deliver opinions as to the
material federal income tax consequences of the Consolidation, including issues
under ERISA. Copies of such opinions are included as Exhibits to the
Registration Statement of which this Prospectus is a part, and are available
upon written request to CMA Capital Group, Inc., General Partner, 1440 Chapin
Avenue, Suite 310, Burlingame, California 94010.
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<PAGE> 103
AVAILABLE INFORMATION
The Partnerships are subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, must file reports and other information with the Securities and
Exchange Commission (the "Commission"), 450 Fifth Street N.W., Washington D.C.
20549. In addition, the Company has filed a Registration Statement on Form S-4
under the Securities Act of 1933, as amended (the "Securities Act") and the
rules and regulations promulgated thereunder, with respect to the Common Stock
offered pursuant to this Prospectus (this "Prospectus"). This Prospectus,
which is part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement and the exhibits and
financial schedules thereto. For further information with respect to the
Partnerships and the Company, reference is made to the reports of the
Partnerships filed under the Exchange Act and the Company's Registration
Statement and such exhibits and schedules, copies of which may be examined
without charge via the Internet at the Commission's web site at
http://www.sec.gov, or upon payment of prescribed fees from, the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such documents may also be obtained from the
Partnerships upon written request to Neal D. Crispin, General Partner, 1440
Chapin Avenue, Suite 310, Burlingame, California 94010.
A separate supplement has been prepared for each Partnership and will be
delivered to each Investor in the Partnership covered thereby. Upon receipt of
a written request by an Investor or representative so designated in writing,
the General Partner will send to an Investor a copy of the Supplement for the
other Partnership without charge. All requests should be directed to CMA
Capital Group, Inc., General Partner, 1440 Chapin Avenue, Suite 310,
Burlingame, California 94010.
Statements contained in this Prospectus as to the contents of any
contract or other document which is filed as an exhibit to the Registration
Statement are not necessarily complete, and each such statement is qualified in
its entirety by reference to the full text of such contract or document.
Upon consummation of the Consolidation, the Company will be required to
file reports and other information with the Commission pursuant to the Exchange
Act. In addition to applicable legal or other regulatory requirements, if any,
holders of the Common Stock will receive annual reports containing audited
financial statements with a report thereon by the Company's independent public
accountants, and quarterly reports containing unaudited financial information
for each of the first three quarters of each fiscal year.
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GLOSSARY OF TERMS
Certain capitalized terms used in this Prospectus shall have the
following meanings unless the context otherwise requires:
"Adjusted Purchase Price" means the seller's purchase price of an asset
plus all Chargeable Acquisition Expenses. Generally, the Company will not
acquire an asset if the Adjusted Purchase Price exceeds the fair market value
of the asset at the time of purchase as determined by an appraisal by an
independent appraiser.
"Affiliate" means, with respect to a Person, any other Person directly
or indirectly controlling, controlled by or under common control with such
Person, or any other person owning or controlling 10% or more of the
outstanding voting securities of such Person.
"Amendments" means the proposed amendments to the Partnership
Agreements to be adopted by the Investors of the Partnerships in connection
with the Consolidation.
"Appraisal" means the appraisals of the assets of each of the
Partnerships prepared by Aircraft Information Services, Inc., to show the
fair market value of such assets as of February 4, 1997.
"Appraised Value" means, with respect to the assets of a Partnership,
the appraised value of such assets based upon the current market value
appraisal by Aircraft Information Services, Inc., prepared in connection with
the Consolidation, reduced, if applicable, by any adverse material events
occurring subsequent to the date of the Prospectus but prior to the Closing
Date in accordance with the guidelines described in the Prospectus.
"Appraiser" means Aircraft Information Services, Inc.
"Approval Date" means the date by which each Investor must inform the
General Partner as to whether the Investor wishes to vote in favor of or
against the Consolidation, and the date on which the vote of the Investors will
be tabulated by the Information Agent.
"Bylaws" means the Bylaws of the Company, as in effect from time to
time.
"California Partnership Act" means the California Revised Limited
Partnership Act, as may be amended from time to time.
"Certificate of Incorporation" means the Certificate of Incorporation of
the Company, as in effect from time to time.
"Certificate of Merger" means the Certificate of Merger to be filed with
the Delaware Secretary of State with respect to the merger of the Participating
Partnerships and the Company under the terms and conditions set forth in the
Merger Agreement.
"Chargeable Acquisition Costs" means acquisition expenses that are
incurred in connection with the selection and acquisition of assets and that
are to be paid by the Company. Chargeable
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Acquisition Expenses include, without limitation, legal, accounting, brokerage
expenses incurred in connection with the acquisition of 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 assets.
"Closing Date" means the date on which the Consolidation is to be
consummated.
"Code" means the Internal Revenue Code of 1986, as amended, including
successor statutes thereto.
"Common Stock" means the $.001 par value common stock of the Company.
"Company" means AeroMax, Inc., a Delaware corporation, a newly-formed
corporation and its successors and assigns.
"Consent Card" means the consent card accompanying the Prospectus which
includes a ballot on which the Investor may vote in favor of or against his
Partnership's participation in the Consolidation or abstain from voting with
respect thereto.
"Consolidation" means the merger of the Participating Partnerships with
and into the Company pursuant to the terms and conditions set forth in the
Merger Agreement, as more fully described in the Prospectus.
"Consolidation Properties" means assets owned by the Company after the
Consolidation which were previously owned by a Participating Partnership.
"Conversion Ratio" means the number of Shares issuable to an Investor
per Unit of Partnership Interest, and shall equal the quotient obtained by
dividing (a) the number of Shares to be issued to the Participating Investors
of the Partnership; by (b) the number of Units of limited partnership to be
exchanged for Shares in the Consolidation.
"Counsel" means Graham & James, which has served as counsel to the
Company in the preparation of the Consolidation.
"Dealer Manager" means Crispin Koehler Securities.
"Delaware GCL" means the Delaware General Corporation Law, as may be
amended from time to time.
"Dissenting Investor" means an Investor of a Participating Partnership
who does not vote in favor of the Consolidation and complies with certain
procedures set forth in the California Partnership Act.
"Effective Time" means the time at which the Participating Partnerships
will be merged with and into the Company in accordance with the Merger
Agreement.
"Equipment" means an item of aircraft equipment acquired by the Company.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
97
<PAGE> 106
"ERISA Plan" means an employee benefit plan subject to Title I of ERISA.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and all rules and regulations promulgated thereunder.
"Exchange Value" means the value attributable to the Partnerships for
the purposes of the Consolidation.
"General Partner" means collectively, Neal D. Crispin, Richard D.
Koehler, and CMA Capital Group.
"Independent Directors" means the directors of the Company who are not
Affiliated with the Company and do not perform any services for the Company,
other than as directors, and are not officers or employees of the Company or
any of its affiliates.
"Information Agent" means ________________, Inc., which will provide
information to Investors and tabulate consents in connection with the
Consolidation.
"Investor" means a holder of one or more Units of a Partnership as of
the Record Date.
"IRS" means the Internal Revenue Service.
"JetFleet I" means JetFleet Aircraft, L.P. (a California Limited
Partnership).
"JetFleet II" means JetFleet Aircraft II, L.P. (a California Limited
Partnership).
"JMC" means JetFleet Management Corp., a California corporation, the
sole shareholder of the Company.
"Letter of Instructions" means the letter of instructions to the
Investors accompanying the Consent Card and pertaining to the method of voting
with respect to the Consolidation and related issues.
"Merger Agreement" means the Agreement and Plan of Merger among the
Participating Partnerships and the Company pursuant to which the Consolidation
of such entities is to be consummated.
"NASDAQ National Market System" means the National Association of
Securities Dealers Automated Quotations System National Market System.
"Net Asset Value" means the original cost of the Company's assets less
depreciation, as calculated in accordance with generally accepted accounting
principles.
"100% Partnership Participation" means the approval of and participation
in the Consolidation by both of the Partnerships.
"Organizational Documents" means the Certificate of Incorporation and
Bylaws of the Company, as amended.
"Participating Partnership" means a Partnership whose Investors approve,
by a majority of
98
<PAGE> 107
outstanding Units, the Partnership's participation in the Consolidation
pursuant to the terms and conditions of the Merger Agreement.
"Participating Investor" means an Investor of a Partnership which
participates in the Consolidation under the terms and conditions set forth in
the Merger Agreement.
"Partnership Agreements" means, collectively, the amended and restated
certificates and agreements of limited partnership of the Partnerships, the
provisions of which govern the rights and obligations of their respective
partners.
"Partnerships" means, collectively, JetFleet I and JetFleet II.
Reference to a "Partnership" shall be understood to refer to any one of them.
"Person" means an individual, partnership, corporation, trust or other
entity.
"Prospectus" means this Prospectus, together with the supplements and
appendices thereto, filed with the SEC as it may be further supplemented or
amended from time to time.
"Prospectus Supplement" means, with respect to each of the Partnerships,
the Supplement to this Prospectus prepared specifically for the Investors of
that Partnership.
"Qualified Plans" means the following plans: (i) any employee benefit
plan subject to Title I of ERISA, including any pension or profit sharing plan
that is qualified under Section 401(a) of the Code and exempt from federal
income taxation under Section 501(a) of the Code, and (ii) any plan described
in Section 4975(e)(1) of the Code, including any IRA.
"Record Date" means __________, 1997.
"Registration Statement" means the Registration Statement on Form S-4 as
filed with the SEC by the Company under the Securities Act to register the
offering and sale of Shares pursuant to the Consolidation as the same may be
amended or supplemented from time to time.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Shares" means shares of the Company's $.001 par value Common Stock
proposed to be exchanged for the Units in connection with the Consolidation.
"Solicitation/Communication Expenses" means the expenses associated with
the solicitation of consents from Investors, including such expenses as
telephone calls, broker-dealer fact sheets, legal and other fees related to the
solicitation of consents, as well as reimbursement of expenses incurred by
brokers and banks in forwarding the Prospectus to Investors.
"State" means any state of the United States of America, and the
District of Columbia.
"Stockholder" means a holder of Shares of Common Stock of the Company.
"Taxable Investor" means any Investor subject to federal income
taxation.
99
<PAGE> 108
"Tax-Exempt Investor" means any Investor whose income is exempt from
federal income taxation.
"Transaction Costs" means, with respect to the Consolidation, the costs
of mailing and printing the Prospectus, any supplement thereto or other
documents related to the Consolidation, legal fees not related to the
solicitation of consents, financial advisory fees, investment fees, banking
appraisal fees, accounting fees, independent committee expenses, travel
expenses and all other fees related to the preparatory work of the
Consolidation, but not including costs that would have otherwise been incurred
by the Partnerships in the ordinary course of business or
Solicitation/Communication Expenses.
"UBTI" means unrelated business taxable income under the Code.
"Unit" means a beneficial ownership of limited partner interest in, or
limited partner assignment interest or limited partner depositary interest of,
a Partnership.
"Unitholder" means a holder of Units in a Partnership.
100
<PAGE> 109
SELECTED FINANCIAL INFORMATION REGARDING
THE PARTNERSHIPS AND THE COMPANY
101
<PAGE> 110
INDEX TO FINANCIAL INFORMATION
<TABLE>
<S> <C>
JetFleet Aircraft, L.P.
Report of Vocker Kristofferson and Co., Independent Auditors . . . . . F-1
Balance Sheets as of December 31, 1995 and 1996 . . . . . . . . . . . F-2
Statements of Operations for the Fiscal Years Ended
December 31, 1996 1995 and 1994 . . . . . . . . . . . . . . . . . F-3
Statements of Partners' Capital for Fiscal Years Ended
December 31, 1994, 1995 and 1996 . . . . . . . . . . . . . . . . F-4
Statements of Cash Flows for the Fiscal Years Ended
December 31, 1996 1995, and 1994 . . . . . . . . . . . . . . . . . F-5
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . F-6
Management Discussion and Analysis . . . . . . . . . . . . . . . . . F-14
JetFleet Aircraft II, L.P.
Report of Vocker Kristofferson and Co., Independent Auditors . . . . F-17
Balance Sheets as of December 31, 1995 and 1996 . . . . . . . . . . . F-18
Statements of Operations for the Fiscal Years Ended
December 31, 1996 1995 and 1994 . . . . . . . . . . . . . . . . . F-19
Statements of Partners' Capital for Fiscal Years Ended
December 31, 1994, 1995 and 1996 . . . . . . . . . . . . . . . . F-20
Statements of Cash Flows for the Fiscal Years Ended
December 31, 1996 1995, and 1994 . . . . . . . . . . . . . . . . . F-21
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . F-22
Management Discussion and Analysis . . . . . . . . . . . . . . . . . F-33
AeroMax, Inc.
Report of Vocker Kristofferson and Co., Independent Auditors . . . . F-34
Balance Sheet at March 5, 1997 . . . . . . . . . . . . . . . . . . . . F-35
Notes to Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . F-36
Management Discussion and Analysis . . . . . . . . . . . . . . . . . . F-37
</TABLE>
102
<PAGE> 111
REPORT OF INDEPENDENT AUDITORS
The Partners
JetFleet(TM) Aircraft, L.P.
We have audited the accompanying balance sheets of JetFleet(TM) Aircraft, L.P.,
a California Limited Partnership, as of December 31, 1996 and December 31,
1995, and the related statements of operations, partners' capital and cash
flows for the years ended December 31, 1996, December 31, 1995 and December 31,
1994. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 JetFleet(TM) Aircraft, L.P.,
at December 31, 1996 and December 31, 1995, and the results of its operations
and its cash flows for the years ended December 31, 1996, December 31, 1995 and
December 31, 1994, in conformity with generally accepted accounting principles.
VOCKER KRISTOFFERSON AND CO.
February 6, 1997
San Mateo, California
F-1
<PAGE> 112
JetFleet(TM) Aircraft, L.P.
Balance Sheets
ASSETS
<TABLE>
<CAPTION>
December 31,
----------------------------------
1996 1995
------------- -------------
<S> <C> <C>
Current assets:
Cash $ 30,728 $ 96,184
Lease payments receivable 180,000 180,000
Reserves receivable from lessee 4,688 -
Receivable from affiliates - 45,856
------------- -------------
Total current assets 215,416 322,040
Aircraft under operating leases and aircraft
held for operating leases,
net of accumulated depreciation of
$4,055,292 in 1996 and $3,014,002 in 1995 2,328,345 3,369,635
Lease payments receivable - 165,000
Organization costs, net of accumulated
amortization of $66,615 in 1996 and
$64,966 in 1995 - 1,649
------------- -------------
$ 2,543,761 $ 3,858,324
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable $ 16,000 $ 28,109
Accrued maintenance costs 25,277 58,984
Payable to affiliates 743 45,000
Prepaid rents 8,890 -
Unearned interest income 14,674 45,417
------------- -------------
Total current liabilities 65,584 177,510
Unearned interest income - 14,674
------------- -------------
Total liabilities 65,584 192,184
Partners' capital
General partners (51,970) (40,091)
Limited partners (1,100,000 authorized
Units, 296,069 issued Units in 1996 and 1995) 2,530,147 3,706,231
------------- -------------
$ 2,543,761 $ 3,858,324
============= =============
</TABLE>
See accompanying notes.
F-2
<PAGE> 113
JetFleet(TM) Aircraft, L.P.
Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1996 1995 1994
-------------- -------------- ------------
<S> <C> <C> <C>
Revenues:
Rental income, net $ 578,602 $ 561,254 $ 1,026,322
Loss on sale of interest
in aircraft - - (219,885)
Interest income 45,705 73,827 16,356
-------------- -------------- ------------
624,307 635,081 822,793
-------------- -------------- ------------
Costs and expenses:
Amortization of organization costs 1,649 8,404 12,854
Professional fees 22,272 26,240 68,189
General and administrative 112,097 75,286 16,701
Maintenance costs 35,517 43,464 61,531
Depreciation of aircraft 1,041,290 1,041,292 657,088
-------------- -------------- ------------
1,212,825 1,194,686 816,363
-------------- -------------- ------------
Net (loss) income $ (588,518) $ (559,605) $ 6,430
============== ============== ============
Allocation of net (loss) income:
General partners $ (5,885) $ (5,596) $ 64
Limited partners (582,633) (554,009) 6,366
-------------- -------------- -----------
$ (588,518) $ (559,605) $ 6,430
============== ============== ===========
Per Limited Partnership Unit $ (1.97) $ (1.87) $ 0.02
============== ============== ===========
Limited Partnership Units outstanding 296,069 296,069 296,069
============== ============== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 114
JetFleet(TM) Aircraft, L.P.
Statements of Partners' Capital
For the Years Ended December 31, 1994, 1995 and 1996
<TABLE>
<CAPTION>
Limited
Partner Limited General
Units Partners Partners Total
----- -------- -------- ----
<S> <C> <C> <C> <C>
Balance, December 31, 1993 296,069 $5,688,190 $ (20,090) $5,668,100
Distributions ($3.01 per
Limited Partner Unit) - (890,114) (8,972) (899,086)
Net income - 6,366 64 6,430
------- ---------- ------------ ----------
Balance, December 31, 1994 296,069 4,804,442 (28,998) 4,775,444
Distributions ($1.84 per
Limited Partner Unit) - (544,202) (5,497) (549,699)
Net loss - (554,009) (5,596) (559,605)
------- ---------- ------------ ----------
Balance, December 31, 1995 296,069 3,706,231 (40,091) 3,666,140
Distributions ($2.00 per
Limited Partner Unit) - (593,451) (5,994) (599,445)
Net loss - (582,633) (5,885) (588,518)
------- ---------- ------------ ----------
Balance, December 31, 1996 296,069 $2,530,147 $(51,970) $2,478,177
======= ========== ============ ==========
</TABLE>
See accompanying notes.
F-4
<PAGE> 115
JetFleet(TM) Aircraft, L.P.
Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Operating activities:
Net (loss) income $ (588,518) $ (559,605) $ 6,430
Adjustments to reconcile net (loss)
income to net cash provided
by operating activities:
Depreciation of aircraft 1,041,290 1,041,292 657,088
Loss on sale of
interest in aircraft - - 219,885
Amortization of organization costs 1,649 8,404 12,854
Change in operating assets and liabilities:
Reserves receivable from lessee (4,688) - 18,035
Accounts payable (12,109) (12,591) 13,600
Accrued maintenance costs (33,707) (14,847) 73,831
Prepaid rents 8,890 - -
Unearned interest income (45,417) (70,019) (3,140)
Deferred income - (40,823)
Receivable from affiliates 45,856 (45,856) -
Payable to affiliates (44,257) 32,078 (11,327)
---------- ---------- ----------
Net cash provided by operating activities 368,989 378,856 946,433
---------- ---------- ----------
Investing activities:
Sales of interests in aircraft - - 423,316
Purchase of interest in aircraft - - (406,750)
Payments received on capital lease 165,000 150,000 45,000
---------- ---------- ----------
Net cash provided by
investing activities 165,000 150,000 61,566
---------- ---------- ----------
Financing activities -
Distributions (599,445) (549,699) (899,086)
---------- ---------- ----------
Net (decrease) increase in cash (65,456) (20,843) 108,913
Cash, beginning of period 96,184 117,027 8,114
---------- ---------- ----------
Cash, end of period $ 30,728 $ 96, 184 $117,027
========== ========== ==========
</TABLE>
Supplemental schedule of noncash investing and financing activities:
JetFleet(TM) entered into a capital lease for its interest in a DC-9 aircraft
during 1994. In conjunction with the lease, a liability for unearned interest
income was recorded at the beginning of the lease as follows:
<TABLE>
<S> <C>
Minimum lease payments receivable $ 540,000
Cost of interest of aircraft leased (406,750)
------------
Unearned interest income $ 133,250
============
</TABLE>
See accompanying notes.
F-5
<PAGE> 116
JetFleet(TM) Aircraft, L.P.
Notes to Financial Statements
1. Summary of Significant Accounting Policies
Basis of presentation
JetFleet(TM) Aircraft, L.P. ("JetFleet(TM)") is a California
limited partnership formed on February 16, 1989 for the purpose of acquiring,
on a world-wide cash basis, a portfolio of commercial aircraft which are
already in service pursuant to triple net leases. The corporate general
partner of JetFleet(TM) is CMA Capital Group ("Group"), a California
corporation formed in February 1989. The individual general partners, Neal D.
Crispin and Richard D. Koehler, are the founding principals of Group. Group
is exclusively entitled to manage and control JetFleet's(TM) business. Capital
Management Associates ("CMA"), an affiliated California corporation owned by
Mr. Crispin, provides certain accounting and investor-related services for
Group. JetFleet(TM) Management Corp. ("JMC") an affiliated California
corporation formed in January 1994, and owned by the individual general
partners and an officer of CMA, has been authorized to perform remarketing
duties on behalf of JetFleet(TM). CKS Securities, Incorporated, an affiliated
California corporation owned by Messrs. Crispin and Koehler, provides certain
administrative and investor-related services for Group. JetFleet(TM) owns
interests in certain aircraft in which JetFleet(TM) Aircaft II, L.P. ("JetFleet
II(TM)"), an affiliated California limited partnership, also owns interests.
JetFleet(TM) has had significant transactions with these affiliates as well as
Range Systems Engineering, Aviation Enterprises 1988, Inc. ("AEI"), Eclipse
Airlines, Inc. ("Eclipse"), an affiliate of AEI, The AGES Group, L.P., a
Limited Partnership ("AGES"), National Airline Commission of Papua New Guinea
(trading as Air Niugini) ("Air Niugini") and Air Tindi Limited ("Air Tindi").
Aircraft under operating leases and aircraft held for
operating leases
The aircraft are recorded at cost. Depreciation is computed
using the straight line method over the estimated economic lives of the
aircraft. Beginning in 1995, the estimated economic life for the purpose of
calculating depreciation of deHavilland Dash-7 aircraft was lowered from 12 to
8 years to reflect technological change. This change had the effect of
increasing depreciation by $506,592 and increasing the net loss by $506,592, or
$1.71 per Limited Partnership Unit outstanding in 1995.
Investment in capital lease
JetFleet's(TM) investment in the McDonnell Douglas DC-9-32 is
recorded as an investment in a capital lease. The gross investment is recorded
as lease payments receivable while the difference between the gross investment
and the acquisition cost of the DC-9-32 is recorded as unearned interest income
(see Note 4).
F-6
<PAGE> 117
JetFleet(TM) Aircraft, L.P.
Notes to Financial Statements
1. Summary of Significant Accounting Policies (continued)
Organization and offering costs
Pursuant to the terms of the Partnership Agreement, a
non-accountable organizational and offering expense allowance, in an amount
equal to 3% of limited partner capital contributions, was paid to Group for
reimbursement of certain organizational and offering expenses incurred in
connection with the formation and offering of units in JetFleet(TM). A portion
of the allowance was capitalized as organization costs and is being amortized
using the straight-line method over 60 months.
The remaining amount, along with sales commissions, investment
banking fees, and due diligence reimbursements, has been reflected as a direct
reduction of partners' capital contributions.
Income taxes
Income taxes are the liability of the individual partners;
accordingly, the financial statements do not include any provision for income
taxes. At December 31, 1996, assets and liabilities on a tax basis were
approximately $1.5 million lower than on a book basis due to accelerated
depreciation methods used for tax purposes.
Cash balances
As of December 31, 1996, JetFleet(TM) maintained cash balances
of $20,756 in a large open-end money fund, which is not federally insured.
Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
2. Allocation of Income, Losses and Distributions
Pursuant to the Partnership Agreement, all revenues and
expenses and income and losses are generally allocated 99% to the limited
partners and 1% to the general partners. Cash distributions from
JetFleet's(TM) operations are made 99% to the limited partners and 1% to the
general partners.
F-7
<PAGE> 118
JetFleet(TM) Aircraft, L.P.
Notes to Financial Statements
3. Aircraft Under Operating Leases and Aircraft Held for
Operating Leases
Boeing 727-231 aircraft
In 1989 and 1990, JetFleet(TM) acquired a 100% interest in a
Boeing 727-231 aircraft ("Boeing 727") for $6,090,000. Acquisition and legal
fees were capitalized to bring the total investment in the Boeing 727 to
$6,185,408. In 1991, JetFleet(TM) recorded a provision for impairment in value
of the Boeing 727 of $3,740,434 to reduce the recorded value at December 31,
1991 to $1,500,000.
At the time the Boeing 727 was purchased, it was under an
initial lease (the "Initial Lease") to Trans World Airlines, Inc. ("TWA")
through January 1994. In two amendments to the Initial Lease in March 1991 and
March 1992, JetFleet(TM) agreed to lower monthly rental amounts while
maintaining the lease expiration date at January 31, 1994.
A third amendment provided for rent equal to based on hourly
usage, paid monthly, and extended the lease expiration date to April 11, 1994.
TWA paid a total of $134,820 over the term of the third amendment.
On April 18, 1994, JetFleet(TM) sold the Boeing 727 for
$445,000 to Amtec Jet, Inc., incurring a loss of $219,885.
deHavilland aircraft
In 1991, JetFleet(TM) purchased undivided interests in a
deHavilland DHC-7-102 aircraft, serial number 57 ("S/N 57"), for $4,989,693
including acquisition costs of $74,613. As a result of these purchases,
JetFleet(TM) held a 99.9% undivided interest in S/N 57, and the seller retained
the remaining .1% undivided interest at December 31, 1991. During 1992, an
affiliate of the seller purchased an additional undivided interest of 4.0% in
S/N 57 for $196,800, the same price for which it was originally sold to
JetFleet(TM). JetFleet(TM) recognized a gain of $15,488 in connection with
this transaction. On April 30, 1992, JetFleet II(TM) purchased that 4.0%
undivided interest in S/N 57 for $196,800, the same price for which it was
originally sold to JetFleet(TM).
F-8
<PAGE> 119
JetFleet(TM) Aircraft, L.P.
Notes to Financial Statements
3. Aircraft Under Operating Leases and Aircraft Held for
Operating Leases (continued)
deHavilland aircraft (continued)
S/N 57 was subject to a triple net lease with Johnson Controls
World Services, Inc. ("JCWS") under an eight year contract, which commenced in
1986, with the United States Army for use in the Marshall Islands at the site
of the Army's deep space research center where missile guidance systems are
tested. During 1994 the lease was extended, at reduced rent, through September
30, 1995. A new contract with the United States Army commenced on February 15,
1995 for a term of two years with three two-year renewal options. The contract
was awarded to Range Systems Engineering, a subsidiary of Raytheon Service
Company ("Raytheon"). During 1995 the lease was extended through September 30,
1996. During 1996 the lease was extended, at reduced rent, through September
30, 1998.
JetFleet(TM) purchased a 24.37% undivided interest in a
deHavilland DHC-7-103, serial number 72 ("S/N 72"), on November 15, 1991 for
$1,558,320 including acquisition costs of $28,820. JetFleet(TM) purchased its
undivided interest from CMA at CMA's cost. CMA purchased a 100% undivided
interest in S/N 72 on November 15, 1991, at a cost of $6,277,006, for the
purpose of reselling undivided interests to JetFleet(TM) and JetFleet II(TM).
JetFleet II(TM) purchased CMA's undivided interests, as funds were raised in
the offering of limited partnership units in JetFleet II(TM). JetFleet II(TM)
and AEI own the remaining 75.53% and 0.10% undivided interests, respectively,
at December 31, 1996.
At the time the undivided interest in S/N 72 was purchased,
S/N 72 was subject to the same United States Army contract as S/N 57.
Under the terms of the sales agreements for S/N's 57 and 72,
AEI, the seller of both aircraft, receives 4% of monthly lease revenues during
the first eight years of the lease in return for providing remarketing and
certain other services in connection with the lease, release and resale of the
aircraft.
Upon the return of S/N 72 by JCWS, discussed below, a
collision-avoidance radar system ("TCAS") was installed on the aircraft in
order to comply with FAA regulations regarding commercial airline operations.
In connection with the TCAS installation, JetFleet(TM) paid and capitalized
$35,211 which represents its pro rata share of the cost. This amount is being
depreciated over the remaining useful life of S/N 72.
In April 1993, JetFleet(TM) was notified that JCWS would not
renew the lease of one of the aircraft. As a result of subsequent
negotiations, JetFleet(TM), JetFleet II(TM) and AEI (collectively, the
"Co-Owners") agreed to terminate the initial lease on S/N 72 as of June 25,
1993, after the airplane had been fully inspected to confirm that it had been
returned in the condition required under the lease.
F-9
<PAGE> 120
JetFleet(TM) Aircraft, L.P.
Notes to Financial Statements
3. Aircraft Under Operating Leases and Aircraft Held for
Operating Leases (continued)
deHavilland aircraft (continued)
AEI was obligated for up to six months of rental payments for
the early termination of S/N 72, net of rent payments received on S/N 72 and
economic adjustments received during the period. JCWS agreed to pay an
economic adjustment totaling $242,893 to the Co-Owners of S/N 72. This payment
was based upon the difference between the condition of certain aircraft
components at the time of S/N 72's delivery to JCWS and the time of its return
to the Co- Owners. JetFleet(TM) received $12,376 from JCWS' payment of the
economic adjustment, as well as $9,243 of additional rent from AEI. JCWS paid
the economic adjustment during February 1994; AEI's obligation was fulfilled in
January 1994.
On August 13, 1993, S/N 72 was re-leased to Eclipse. The
lease (the "Eclipse Lease") was a triple net lease with a term of one year,
except that it could be canceled by any party on 30 days' notice. The rental
amount, paid monthly, was equal to $400 per hour of usage during the month.
On October 19, 1993, due to an event of default by Eclipse
under the Eclipse Lease, the Co-Owners terminated the Eclipse Lease and
repossessed the aircraft. Since Eclipse had no immediate need for S/N 72,
Eclipse and the Co-Owners agreed that the Co-Owners would enter into a
short-term lease with another party, at the expiration of which the Eclipse
lease would be reinstated. At the same time, Eclipse paid all overdue rent and
reserve charges. The Co-Owners and Eclipse mutually agreed in June 1994 not to
reinstate the Eclipse Lease.
On December 22, 1993 the Co-Owners entered into a lease (the
"AGES Lease") with AGES for a term not to exceed ninety days at a monthly
rental rate of $38,800. AGES had subleased S/N 72 to Alas Chiricanas S.A., a
corporation conducting business in the Republic of Panama. The lease was
subsequently extended until September 1, 1994. JetFleet(TM) collected a total
of $78,351 in rents from AGES during the term of the lease.
F-10
<PAGE> 121
JetFleet(TM) Aircraft, L.P.
Notes to Financial Statements
3. Aircraft Under Operating Leases and Aircraft Held for
Operating Leases (continued)
deHavilland aircraft (continued)
S/N 72 was re-leased on March 22, 1995 to Air Niugini for a
term of six months. The lease was subsequently extended until October 31,
1995. JetFleet(TM) collected a total of $53,060 in monthly lease payments from
Air Niugini during the term of the lease. In addition, Air Niugini paid
JetFleet(TM) its pro-rata share of maintenance costs of $31,710. Upon its
return by Air Niugini and at the direction of JetFleet(TM) management, S/N 72
again underwent certain scheduled maintenance and other repair work.
On April 25, 1996, S/N 72 was leased to Air Tindi for a term
of thirty-six months. Air Tindi has provided a letter of credit which serves
as a security deposit under the lease. In addition, Air Tindi pays
JetFleet(TM) its pro-rata share of maintenance costs per hour of usage, which
amount is to be applied for scheduled overhauls and inspections. Air Tindi is
a regional airline headquartered in Yellowknife, Northwest Territories, Canada
and provides charter and regularly scheduled flights throughout the Northwest
Territories. During 1996, JetFleet(TM) collected a total of $104,182 of rent
from Air Tindi.
Future minimum rents
The following is a schedule of future minimum rental income by
year under the existing leases:
<TABLE>
<CAPTION>
Year Amount
---- ----------
<S> <C>
1997 $ 581,967
1998 471,203
1999 34,727
----------
Total $1,087,897
==========
</TABLE>
Detail of investment
The following schedule provides an analysis of JetFleet's(TM)
investment in aircraft under operating leases and aircraft held for operating
leases as of December 31, 1995, additions during 1996 and as of December 31,
1996:
<TABLE>
<CAPTION>
December 31, December 31,
1995 Additions 1996
------------------ -------------- ----------------
<S> <C> <C> <C>
S/N 57 $ 4,790,106 $ - $ 4,790,106
S/N 72 1,593,531 - 1,593,531
------------------ -------------- ----------------
6,383,637 - 6,383,637
Less accumulated
depreciation (3,014,002) (1,041,290) (4,055,292)
------------------ -------------- ----------------
$ 3,369,635 $ (1,041,290) $ 2,328,345
================== ============== ================
</TABLE>
F-11
<PAGE> 122
JetFleet(TM) Aircraft, L.P.
Notes to Financial Statements
3. Aircraft Under Operating Leases and Aircraft Held for
Operating Leases (continued)
Detail of investment
The following schedule provides an analysis of JetFleet's(TM)
investment in aircraft under operating leases and aircraft held for operating
leases and the related accumulated depreciation for the years ended December
31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation Net
------------- ------------- --------------
<S> <C> <C> <C>
Balance,
December 31, 1993 $ 8,828,611 $ (3,117,395) $ 5,711,216
Additions 406,750 (657,088) (250,338)
Sales ( 2,851,724) 1,801,773 (1,049,951)
------------- ------------- --------------
Balance,
December 31, 1994 6,383,637 (1,972,710) 4,410,927
Additions - (1,041,292) (1,041,292)
------------- ------------- --------------
Balance,
December 31, 1995 6,383,637 (3,014,002) 3,369,635
Additions - (1,041,290) (1,041,290)
------------- ------------- --------------
Balance,
December 31, 1996 $ 6,383,637 $ (4,055,292) $ 2,328,345
============= ============= ==============
</TABLE>
4. Investment in Capital Lease
McDonnell Douglas DC-9-32
On December 16, 1994, JetFleet(TM) purchased a 50.00%
undivided interest in a McDonnell Douglas DC-9- 32, serial number 47236 (the
"DC-9"), for $400,000. JetFleet II(TM) purchased the remaining 50.00% interest
at the same time. The DC-9 was leased back to the seller, Interglobal, Inc.
for thirty-six months at a monthly rate of $30,000, of which JetFleet(TM) is
entitled to $15,000 (the "DC-9 lease"). The DC-9 is currently sub-leased to
and being operated by Aero California S.A. de CV. As part of the sale and
leaseback described above, Interglobal, Inc. assigned its rights under the
sublease to Aero California S.A. de CV. As discussed in Note 1 above,
JetFleet's(TM) investment in the DC-9 is being accounted for as a capital
lease. The investment is essentially a financing in which JetFleet(TM) will
recover its investment over the term of the lease. Interglobal, Inc. has a
purchase option for a nominal amount which may be exercised upon expiration of
the DC-9 lease. In 1996, JetFleet(TM) recorded $45,417 of interest income
attributable to the DC-9 lease.
F-12
<PAGE> 123
JetFleet(TM) Aircraft, L.P.
Notes to Financial Statements
4. Investment in Capital Lease
Future minimum lease payments
The following is a schedule of maturities of lease payments
receivable and recognition of unearned interest income:
<TABLE>
<CAPTION>
Collection Interest
on Income
Year Receivable Recognition
---- ---------- -----------
<S> <C> <C>
1997 180,000 14,674
</TABLE>
5. Related Party Transactions
Group is entitled to receive base management, incentive
management and re-lease fees in any year in which the annualize rate of
distributions is equal to or greater than the Preferred Return. There was no
accrual or payment of the base management, incentive management or re-lease
fees for 1994, 1995 and 1996 since the annualized rate of distributions in
those years did not meet the Preferred Return.
Group is also entitled to receive a subordinated resale fee
with respect to each Aircraft sold by JetFleet(TM). Group and BankAmerica
agreed to forego the re-lease and resale fees on the Boeing 727 aircraft for
any re-leases or sales of that aircraft subsequent to its return by TWA.
Re-lease fees and resale fees, however, were paid to a third party.
JetFleet(TM) pays for all direct, indirect, administrative and
overhead expenses incurred on its behalf by Group and its affiliates. In 1996,
1995 and 1994, $93,794, $63,826 and $53,807, respectively, was reimbursable by
JetFleet(TM) to Group or its affiliates in connection with the administration
and management of JetFleet(TM).
All of the above fees payable by JetFleet(TM) to Group were
paid to Group which in turn reimbursed CMA or its affiliates, which have
incurred all costs in connection with the organization and offering of units
in, and the administration and management of, JetFleet(TM).
F-13
<PAGE> 124
JetFleet Aircraft, L.P.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Capital Resources and Liquidity
At the end of 1996, JetFleet(TM) had cash balances of $30,728.
This amount was held primarily for the distribution made to the Unitholders in
January 1997 and to pay accrued expenses.
During the year, JetFleet's(TM) primary sources of liquidity
were cash flows from leasing operations and capital lease payments.
JetFleet's(TM) liquidity will vary in the future, increasing to the extent cash
flows from operations exceed expenses, and decreasing as distributions are made
to the Unitholders and to the extent expenses exceed cash flows from leases.
JetFleet(TM) uses substantially all its operating cash flow to
make cash distributions to its Unitholders. Since JetFleet's(TM) leases are
triple net leases (the lessee pays operating and maintenance expenses,
insurance and taxes), JetFleet(TM) does not anticipate that it will incur
significant operating expenses in connection with ownership of its aircraft as
long as they remain on lease.
JetFleet(TM) currently has available adequate reserves to meet
is immediate cash requirements.
During 1996, JetFleet(TM) made distributions at an annualized
rate of 4%, as compared to 3% during January 1995 through April 1995 and 4%
during May 1995 through December 1995. The increase for 1996 is primarily
because of higher monthly rent received for S/N 72 during 1996 compared to the
rent received during 1995. Future distributions will depend on the amount of
lease revenue received by JetFleet(TM) for its assets.
If inflation in the general economy becomes significant, it
may affect JetFleet(TM) inasmuch as the residual values and rates on re-leases
of its aircraft may increase as the costs of similar assets increase. However,
JetFleet's(TM) revenues from existing leases would not increase, as such rates
are generally fixed for the terms of the leases without adjustment for
inflation. At the same time, any significant inflation in the general economy
may cause an increase in professional fees and general and administrative
expense reimbursements.
If interest rates increase significantly, the lease rates that
JetFleet(TM) can obtain on future leases would be expected to increase as the
cost of capital is a significant factor in the pricing of lease financing.
Leases already in place, for the most part, would not be affected by changes in
interest rates.
1996 versus 1995
Cash flows from operations decreased by $9,867 primarily due
an increase of approximately $32,000 in general and administrative expenses
which was only partially offset by an increase of approximately $17,000 in cash
flows from lease-related revenues. Certain other cash expenses increased in
1996 as discussed under "Results of Operations" below. The increased cash
flows from leases resulted from the increased rent received for S/N 72 during
1996.
Cash flows from investing activities increased $15,000 in 1996
because one less month of revenue from the DC-9 financing lease was received in
1995 as compared to 1996, the result of a prepayment of rent at the lease
inception in December 1994.
F-14
<PAGE> 125
In 1996, there were no financing sources of cash. Cash
distributions to Unitholders increased by $49,249, or by $0.16 per weighted
average Limited Partnership Unit outstanding. The increased distributions to
Unitholders resulted from the increased monthly rent received for S/N 72.
1995 versus 1994
Cash flows from operations decreased by $567,577 primarily due
to a decrease of approximately $408,000 in cash flows from lease-related
revenues. Certain other cash expenses increased in 1995 as discussed under
"Results of Operations" below. The decreased cash flows from leases resulted
from reduced rents on S/N 57 as well as S/N 72's off- lease periods during
1995.
Cash flows from investing activities increased approximately
$88,000 in 1995 primarily because of the capital lease for the DC-9 entered
into in December, 1994.
In 1995, there were no financing sources of cash. Cash
distributions to Unitholders decreased by $345,912, or by $1.17 per weighted
average Limited Partnership Unit outstanding. The decreased distributions to
Unitholders resulted from reduced rents on S/N 57 as well as S/N 72's off-lease
periods during 1995 which were only partially offset by the cash received as a
result of the capital lease for the DC-9.
Results of Operations
JetFleet(TM) recorded net income of $6,430 and net losses of
($559,605) and ($588,518) in 1994, 1995 and 1996, respectively. The decrease
from 1994 to 1995 was primarily a result of the decrease in rent received for
the Dash-7s along with increased depreciation expense resulting from a change
in the estimated economic life of the Dash-7s. The decrease from 1995 to 1996
was primarily a result of an increase in general and administrative expenses
and a decrease in interest income realized from the DC-9 financing lease, which
changes were only partially offset by an increase in rental income from S/N 72
and decreased amortization and maintenance expenses.
1996 versus 1995
Rental income increased approximately $17,000. This was due
to the higher monthly rent received for S/N 72 during 1996.
There was no change in depreciation from 1995 to 1996.
There was no accrual or payment of the base management,
incentive management or re-lease fees for 1995 or 1996 as the annualized rate
of distributions in those years did not meet the Preferred Return as defined in
the Prospectus.
General and administrative expenses and professional fees
increased approximately $32,000 due to increased costs associated with the
ongoing management of JetFleet's(TM) portfolio as well as the increased costs
of administering investor-related inquiries. As mentioned above, the Corporate
General Partner has authorized JMC to perform remarketing duties on behalf of
JetFleet(TM). JMC and other third parties who perform such services receive
reimbursement for those services regardless of whether or not the base
management, incentive management or re-lease fees are paid. If base
management, incentive management or re-lease fees are payable within a given
year, such fees would be reduced to the extent that any payments are made to
JMC or other third parties performing such remarketing duties.
F-15
<PAGE> 126
1995 versus 1994
Rental income decreased approximately $465,000. This was due
to reduced rents on S/N 57 beginning in October 1994 as well as receiving no
rent in 1995 as a result of the sale of the Boeing 727 in April 1994. In
addition, the payments under the DC-9 financing lease, which was acquired in
December 1994 with the sales proceeds from the sale of the Boeing 727, are
treated as a return of capital with an imputed interest component, rather than
as rental income.
Depreciation increased approximately $384,000 primarily as a
result of JetFleet(TM) reducing its estimate of the useful life of certain
aircraft.
There was no accrual or payment of the base management,
incentive management or re-lease fees for 1994 or 1995 as the annualized rate
of distributions in those years did not meet the Preferred Return as defined in
the Prospectus.
General and administrative expenses and professional fees
increased approximately $16,000 due to increased costs associated with the
ongoing management of JetFleet's(TM) portfolio as well as the increased costs
of administering investor-related inquiries. See discussion above (1996 versus
1995) regarding the treatment of remarketing costs.
F-16
<PAGE> 127
REPORT OF INDEPENDENT AUDITORS
The Partners
JetFleet(TM) Aircraft II, L.P.
We have audited the accompanying balance sheets of JetFleet(TM) Aircraft II,
L.P., a California Limited Partnership, as of December 31, 1996 and December
31, 1995, and the related statements of operations, partners' capital and cash
flows for the years ended December 31, 1996, December 31, 1995 and December 31,
1994. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 JetFleet(TM) Aircraft II,
L.P., at December 31, 1996 and December 31, 1995, and the results of its
operations and its cash flows for the years ended December 31, 1996, December
31, 1995 and December 31, 1994 in conformity with generally accepted accounting
principles.
VOCKER KRISTOFFERSON AND CO.
February 6, 1997
San Mateo, California
F-17
<PAGE> 128
JetFleet(TM) Aircraft II, L.P.
Balance Sheets
ASSETS
<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Current assets
Cash $ 1,191,914 $ 1,364,593
Receivable from affiliates -- 45,000
Reserves receivable from lessees 29,781 --
Lease payments receivable 540,000 960,000
----------- -----------
Total current assets 1,761,695 2,369,593
Aircraft and aircraft engines under operating
leases and aircraft held for operating leases,
net of accumulated depreciation of
$10,425,030 in 1996 and $7,213,339 in 1995 14,435,613 17,520,291
Lease payments receivable 180,000 1,275,000
Organization and offering costs, net of
accumulated amortization of $123,141 in 1996
and $91,214 in 1995 32,895 64,822
----------- -----------
$16,410,203 $21,229,706
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable $ 112,519 $ 119,254
Accrued maintenance costs 501,072 410,702
Payable to affiliates 10,933 49,075
Security deposits 143,101 140,415
Unearned interest income 79,186 287,373
Prepaid rent receive 27,553 15,000
----------- -----------
Total current liabilities 874,364 1,021,819
Unearned interest income 8,793 174,032
----------- -----------
Total liabilities 883,157 1,195,851
Partners' capital
(Limited partners 1,100,000 authorized
Units, 693,505 issued Units in 1996 and 1995) 15,527,046 20,033,855
----------- -----------
$16,410,203 $21,229,706
=========== ===========
</TABLE>
See accompanying notes.
F-18
<PAGE> 129
JetFleet(TM) Aircraft II, L.P.
Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Rental income $ 2,658,450 $ 2,601,541 $ 3,796,913
Gain on sale of aircraft 94,081 -- --
Gain / (Loss) on sale of
aircraft engines 34,860 (46,090) (6,868)
Interest income 265,359 236,631 33,514
----------- ----------- -----------
3,052,750 2,792,082 3,823,559
----------- -----------
Costs and expenses:
Management fees 113,657 1 02,440 190,137
Depreciation of aircraft
and aircraft engines 3,260,014 3,372,163 2,347,282
Amortization of organization
and offering costs 31,927 31,927 31,086
Professional fees 36,511 50,438 28,242
Maintenance costs 119,252 153,096 206,308
General and administrative 347,971 242,779 175,884
----------- ----------- -----------
3,909,332 3,952,843 2,978,939
----------- ----------- -----------
Net (loss) income $ (856,582) $(1,160,761) $ 844,620
=========== =========== ===========
Allocation of net (loss) income:
General partners $ 182,511 $ 167,240 $ 213,592
Limited partners (1,039,093) (1,328,001) 631,028
----------- ----------- -----------
$ (856,582) $(1,160,761) $ 844,620
=========== =========== ===========
Per Limited Partner Unit $ (1.50) $ (1.91) $ 0.93
=========== =========== ===========
Weighted average Limited
Partner Units outstanding 693,505 693,505 675,964
=========== =========== ===========
</TABLE>
See accompanying notes.
F-19
<PAGE> 130
JetFleet(TM) Aircraft II, L.P.
Statements of Partners' Capital
For the Years Ended December 31, 1994, 1995 and 1996
<TABLE>
<CAPTION>
Limited
Partner Limited General
Units Partners Partners Total
------- -------- -------- -----
<S> <C> <C> <C> <C>
Balance, December 31, 1993 599,757 $ 23,890,926 $ -- $ 23,890,926
Capital contributions 93,748 4,687,400 -- 4,687,400
Offering costs (611,706) -- (611,706)
Distributions ($6.00 per
weighted average Limited
Partner Unit) -- (4,058,238) (213,592) (4,271,830)
Net income 631,028 213,592 844,620
------------ ------------ ------------ ------------
Balance, December 31, 1994 693,505 24,539,410 -- 24,539,410
Distributions ($4.58 per
Limited Partner Unit) -- (3,177,553) (167,240) (3,344,793)
Net loss (1,328,001) 167,240 (1,160,761)
------------ ------------ ------------ ------------
Balance, December 31, 1995 693,505 20,033,856 -- 20,033,856
Distributions ($5.00 per
Limited Partner Unit) -- (3,467,715) (182,511) (3,650,226)
Net loss (1,039,093) 182,511 (856,582)
------------ ------------ ------------ ------------
Balance, December 31, 1996 693,505 $ 15,527,046 $ -- $ 15,527,046
============ ============ ============ ============
</TABLE>
See accompanying notes.
F-20
<PAGE> 131
JetFleet(TM) Aircraft II, L.P.
Statements of Cash Flows
<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities:
Net (loss) income $ (856,582) $(1,160,761) $ 844,620
Adjustments to reconcile net (loss) income
to net cash provided by operating activities:
(Gain) / loss on sale of aircraft engines (34,860) 46,090 6,868
Gain on sale of aircraft 94,081 -- --
Depreciation of aircraft
and aircraft engines 3,260,014 3,372,163 2,347,282
Amortization of organization
and offering costs 31,927 31,927 31,086
Change in operating assets
and liabilities:
Receivable from affiliates 45,000 (32,558) (12,442)
Rent receivable -- 75,000 166,678
Reserves receivable from lessees (29,781) -- --
Accounts payable (6,735) 78,572 (93,726)
Accrued maintenance costs 90,370 181,575 150,923
Unearned interest income (279,345) (185,430) (3,014)
Payable to affiliates (38,142) 37,500 (99,808)
Security deposits 2,686 66,800 --
Prepaid rent received 12,553 15,000 (139,153)
----------- ----------- -----------
Net cash provided by operating activities 2,103,024 2,525,878 3,199,314
----------- ----------- -----------
Investing activities:
Proceeds from sale of aircraft engines 211,000 5,089,344 190,000
Proceeds from sale of aircraft 735,000 -- --
Purchase of interests in
aircraft and aircraft engines (351,477) (3,696,146) (4,222,146)
Payments received on capital lease 780,000 420,000 45,000
Net cash provided by (used in)
investing activities 1,374,523 1,813,198 (3,987,146)
----------- ----------- -----------
Financing activities:
Capital contributions -- -- 4,687,400
Distributions (3,650,226) (3,344,793) (4,271,830)
Offering costs -- -- (611,706)
Organization costs -- -- (21,093)
----------- ----------- -----------
Net cash used in
financing activities (3,650,226) (3,344,793) (217,229)
----------- ----------- -----------
Net (decrease) increase in cash (172,679) 994,283 (1,005,061)
Cash, beginning of period 1,364,593 370,310 1,375,371
----------- ----------- -----------
Cash, end of period $ 1,191,914 $ 1,364,593 $ 370,310
=========== =========== ===========
</TABLE>
Supplemental schedule of noncash investing and financing activities:
JetFleet II(TM)entered into capital leases for its interests in one DC-9
aircraft during 1994 and two DC-9 aircraft during 1995. In conjunction with the
leases, a liability for unearned interest income was recorded at the beginning
of the lease as follows:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Minimum lease payments receivable $ 540,000 $ 2,160,000
Cost of interest of aircraft leased (412,851) (1,637,300)
----------- -----------
Unearned interest income $ 127,149 $ 522,700
=========== ===========
</TABLE>
See accompanying notes.
F-21
<PAGE> 132
JetFleet(TM) Aircraft II, L.P.
Notes to Financial Statements
1. Summary of Significant Accounting Policies
Basis of presentation
JetFleet(TM) Aircraft II, L.P. ("JetFleet II(TM)") is a California
limited partnership formed on June 24, 1991 for the purpose of acquiring, on a
world-wide basis, a portfolio of aircraft and aircraft engines, or interests
therein, which are subject to triple net leases. The corporate general partner
of JetFleet II(TM) (the "Corporate General Partner") is CMA Capital Group
("Group"), a California corporation formed in February 1989. The individual
general partners, Neal D. Crispin and Richard D. Koehler (the "Individual
General Partners"), are the founding principals of the Corporate General
Partner. Group is exclusively entitled to manage JetFleet II's(TM) business.
Capital Management Associates ("CMA"), a subsidiary of CMA Consolidated, Inc.,
an affiliated California corporation owned by Mr. Crispin, provides certain
accounting and investor-related services for Group. JetFleet(TM) Management
Corp. ("JMC") an affiliated California corporation formed in January 1994 owned
by the individual general partners and an officer of CMA has been authorized to
perform remarketing duties on behalf of JetFleet II(TM). Crispin Koehler
Securities, an affiliated California corporation owned by Messrs. Crispin and
Koehler, provides certain administrative and investor- related services for
Group. JetFleet II(TM) owns interests in certain aircraft in which JetFleet(TM)
Aircraft, L.P. ("JetFleet(TM)"), an affiliated California limited partnership,
also owns interests. JetFleet II(TM) has had significant transactions with
these affiliates as well as Range Systems Engineering, Aviation Enterprises
1988, Inc. ("AEI"), Eclipse Airlines, Inc. ("Eclipse"), an affiliate of AEI,
Airwork Corporation ("Airwork"), The AGES Group, L.P., a Limited Partnership
("AGES"), the National Airline Commission of Papua New Guinea (trading as Air
Niugini) ("Air Niugini") and Air Tindi Limited ("Air Tindi"). The Corporate
General Partner contributed $750 to the capital of JetFleet II(TM).
Aircraft and aircraft engines under operating leases and aircraft held
for operating leases
JetFleet II's(TM) interests in aircraft and aircraft engines are
recorded at cost, which includes acquisition costs and loan fees. JetFleet
II(TM) also pays and capitalizes an acquisition fee equal to 1.5% of the
adjusted purchase price of each asset. The capitalization of each asset is
discussed in detail in Note 3. Depreciation is computed using the straight-line
method over the aircraft's estimated economic life to a zero residual value.
Beginning in 1995, JetFleet II(TM) reduced the estimated economic life of the
Dash-7 aircraft from 12 to 8 years to reflect technological change. This change
had the effect of increasing depreciation by $1,068,972 and increasing the net
loss by $1,068,972, or $1.54 per Limited Partnership Unit outstanding in 1995.
At the same time, JetFleet II(TM) began using an 8-year estimated economic life
for depreciating any newly acquired aircraft.
F-22
<PAGE> 133
JetFleet(TM) Aircraft II, L.P.
Notes to Financial Statements
1. Summary of Significant Accounting Policies (continued)
Organization and offering costs
Pursuant to the terms of the Partnership Agreement, a non-accountable
organizational and offering expense allowance, in an amount equal to 3% of
limited partner capital contributions, is paid to Group for reimbursement of
certain organizational and offering expenses incurred in connection with the
formation and offering of units in JetFleet II(TM). A portion of the allowance
is capitalized as organization and offering costs and is being amortized using
the straight-line method over 60 months. The remaining amount, along with sales
commissions, investment banking fees, and due diligence reimbursements, is
reflected as a direct reduction of partners' capital contributions.
Investments in capital leases
JetFleet II's(TM) investments in the three McDonnell Douglas DC-9
aircraft are recorded as investments in capital leases. The gross investment in
each is recorded as lease payments receivable while the difference between the
gross investment and the acquisition cost of each respective DC-9 is recorded
as unearned interest income (see Note 4).
Income taxes
Income taxes are the liability of the individual partners; accordingly,
the financial statements do not include any provision for income taxes. At
December 31, 1996, assets and liabilities on a tax basis were approximately $3
million lower than on a book basis due to accelerated depreciation used for tax
purposes.
Cash balances
As of December 31, 1996, JetFleet II(TM) maintained cash balances of
$655,039, $226,597, $188,025 and $64,413 in four large open-end money funds,
which are not federally insured. JetFleet II(TM) also maintained a cash balance
of $231,972 in a regional bank headquartered in San Francisco, $131,972 of
which is not federally insured. JetFleet II(TM) has accumulated cash in excess
of the federally insured amount as it searches for suitable investments using
proceeds from assets previously sold and in order to make quarterly
distributions. JetFleet II(TM) is also accumulating maintenance reserves
collected from various lessees which will be used to fund certain scheduled
maintenance and repairs required for certain aircraft.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
F-23
<PAGE> 134
JetFleet(TM) Aircraft II, L.P.
Notes to Financial Statements
2. Allocation of Income, Losses and Distributions
Pursuant to the Partnership Agreement, all revenues and expenses and
income and losses are generally allocated 95% to the limited partners and 5% to
the general partners. In accordance with the Partnership Agreement, during
1994, 1995 and 1996, additional revenues were specially allocated to the
general partners to bring their capital account to a zero balance. Cash
distributions from JetFleet II's(TM) operations are made 95% to the limited
partners and 5% to the general partners.
3. Aircraft and Aircraft Engines Under Operating Leases and Aircraft Held
for Operating Leases
Aircraft
deHavilland DHC-103, serial number 72 ("S/N 72")
CMA purchased a 100% undivided interest in S/N 72 on November 15, 1991,
at a cost of $6,277,006, for the purpose of reselling the undivided interests
to JetFleet II(TM) and JetFleet(TM).
JetFleet II(TM) agreed to purchase CMA's undivided interest in S/N 72
at a price equal to CMA's cost, including chargeable acquisition costs and loan
fees, in one or more installments as funds were raised in the JetFleet II(TM)
offering and became available for investment. As a result, JetFleet II(TM) held
an undivided interest of 75.53% at December 31, 1996. JetFleet(TM) and AEI own
the remaining 24.37% and 0.10% undivided interests, respectively, at December
31, 1996. The total cost of $5,223,047 paid to CMA for JetFleet II's(TM) 75.53%
undivided interest included reimbursement of chargeable acquisition and loan
fees, and acquisition fees totaling $481,817.
Upon the return of S/N 72 by Johnson Controls World Services, Inc.
("JCWS") in June 1993, discussed below, a collision-avoidance radar system
("TCAS") was installed on the aircraft in order to comply with FAA regulations
regarding commercial airline operations. In connection with the TCAS
installation, JetFleet II(TM) paid and capitalized $105,630 which represents
its pro rata share of the cost. This amount is being depreciated over the
remaining depreciable life of S/N 72.
deHavilland DHC-7-102, serial number 57 ("S/N 57")
During 1992, JetFleet II(TM) purchased a 4.00% undivided interest in
S/N 57 for $199,752, including an acquisition fee of $2,952. The remaining
undivided interests in S/N 57 are held 95.90% by JetFleet(TM) and 0.10% by AEI
at December 31, 1996.
F-24
<PAGE> 135
JetFleet(TM) Aircraft II, L.P.
Notes to Financial Statements
3. Aircraft and Aircraft Engines Under Operating Leases and Aircraft Held
for Operating Leases (continued)
Aircraft (continued)
deHavilland DHC-7-102, serial number 44 ("S/N 44")
During 1992, JetFleet II(TM) purchased undivided interests totaling
100.00% in S/N 44 for $5,208,656, in a series of monthly installments. The
total cost included reimbursement of chargeable acquisition costs and
acquisition fees totaling $126,656.
deHavilland DHC-7-103, serial number 11 ("S/N 11")
CMA purchased a 100% undivided interest in S/N 11 on October 30, 1992,
at a cost of $5,900,000, for the purpose of reselling the undivided interests
to JetFleet II(TM). JetFleet II(TM) purchased CMA's undivided interest in S/N
11 at a price equal to CMA's cost, plus chargeable acquisition costs, loan fees
and acquisition fees totaling $325,556, in installments as funds were raised in
the JetFleet II(TM) offering and became available for investment. As a result,
JetFleet II(TM) held an undivided interest of 100.00% at December 31, 1996.
deHavilland DHC-6-310, serial number 666 ("S/N 666")
JMC purchased a 100% undivided interest in S/N 666 on January 31, 1995,
at a cost of $850,000, for the purpose of reselling the undivided interest to
JetFleet II(TM). In April 1995, JetFleet II(TM) purchased JMC's undivided
interest in S/N 666 at a price equal to JMC's cost plus chargeable acquisition
costs, loan fees and acquisition fees totaling $40,923.
Fairchild Metro III SA-227-AC, serial number AC-576 ("S/N 576")
JetFleet II(TM) purchased a 100% undivided interest in S/N 576 on June
30, 1995, at a cost of $1,140,000. In connection with the purchase, JetFleet
II(TM) paid $25,750 in chargeable acquisition costs and acquisition fees.
Fairchild Metro II SA-226-TC, serial number TC-370 ("S/N 370")
On February 27, 1996, JetFleet II(TM) purchased a 50% undivided
interest in a Fairchild SA226-TC aircraft, serial number TC-370 ("S/N TC-370")
at a cost of $341,750. CMA Capital Management, Inc., a subsidiary of CMA
Consolidated, Inc., purchased the remaining 50% interest at the same time.
During 1996, JetFleet III(TM), an affiliate of JetFleet II(TM), purchased the
50% interest from CMA Capital Management, Inc. In connection with the
acquisition, JetFleet II(TM) paid a total of $9,727 to CMA Capital Group in
chargeable acquisition costs and acquisition fees.
F-25
<PAGE> 136
JetFleet(TM) Aircraft II, L.P.
Notes to Financial Statements
3. Aircraft and Aircraft Engines Under Operating Leases and Aircraft Held
for Operating Leases (continued)
Aircraft engines (continued)
Aircraft engines
In March 1993, JetFleet II(TM) agreed to purchase, in monthly
installments twenty-five used aircraft engines (the "Airwork Engines"). At
December 31, 1996 JetFleet II(TM) held 100.00% undivided interests in all of
the Airwork engines, comprised of four Pratt & Whitney PT6A-42 aircraft
engines, nine Pratt & Whitney PT6A-41 aircraft engines, five Pratt & Whitney
PT6A-41 aircraft engines, two Pratt & Whitney PT6A-28 aircraft engines, one
Pratt & Whitney PT6A-65 aircraft engine, one Pratt & Whitney PT6A-45 aircraft
engine, one Pratt & Whitney PT6A-65R aircraft engine, and two Allison
A-250-C30P aircraft engines.
The total acquisition cost of $5,498,993 included reimbursement for
chargeable acquisition costs and acquisition fees totaling $301,493. During
January 1996, Airwork notified JetFleet II(TM) of an event of loss concerning
one of the Airwork Engines (the "Lost Airwork Engine"). Rather than replace the
Lost Airwork Engine, Airwork chose to pay to JetFleet II(TM) the stipulated
loss value as stated in the lease agreement for the Airwork Engines ($211,000).
JetFleet II(TM) recognized a gain of $34,860 on the disposition of the Lost
Airwork Engine.
During December 1993, JetFleet II(TM) purchased two Pratt & Whitney
PT6A-50 aircraft engines (the "AEI Engines") for $433,608 which included
reimbursement of acquisition costs and acquisition fees totaling $13,608. On
December 1, 1994, JetFleet II(TM) sold one of the AEI Engines to deHavilland,
Inc. for $190,000. JetFleet II(TM) recognized a loss of $6,868 in connection
with this transaction.
In December 1993 and during the first quarter of 1994, JetFleet II(TM)
purchased three Pratt & Whitney JT8D- 217A aircraft engines (the "AGES
Engines") from AGES. The total cost of the three engines including
reimbursement of acquisition costs and acquisition fees totaling $173,312 was
$5,871,824. During the first quarter of 1995, JetFleet II(TM) and AGES agreed
to rescind the AGES Engines purchase transaction. JetFleet II(TM) received a
total of $5,089,344 in proceeds from the rescission during the first and second
quarters of 1995.
The Dash-7 leases
At the time of purchase, all four Dash-7's were subject to triple net
leases with JCWS under an eight year contract, which commenced in 1986, with
the United States Army for use in the Marshall Islands at the site of the
Army's deep space research center where missile guidance systems are tested.
Under the terms of the sales agreements for the aircraft, AEI receives
4% of monthly lease revenues during the first eight years of the lease in
return for providing remarketing and certain other services in connection with
the lease, release and resale of the aircraft.
F-26
<PAGE> 137
JetFleet(TM) Aircraft II, L.P.
Notes to Financial Statements
3. Aircraft and Aircraft Engines Under Operating Leases and Aircraft Held
for Operating Leases (continued)
The Dash-7 leases (continued)
In April 1993, JetFleet II(TM) was notified that JCWS would not renew
the lease of one of the aircraft. As a result of subsequent negotiations,
JetFleet II(TM), JetFleet(TM) and AEI (collectively, the "Co-Owners") agreed to
terminate the initial lease on S/N 72 as soon as the airplane was fully
inspected to confirm that it had been returned in the condition required under
the lease. The Co-Owners accepted the return of S/N 72 on June 25, 1993.
AEI was obligated for up to six months of rental payments for the early
termination of S/N 72, net of rent payments received on S/N 72 and economic
adjustments received during the period. JCWS agreed to pay an economic
adjustment totaling $242,893 to the Co-Owners of S/N 72. This payment is based
upon the difference between the condition of certain aircraft components at the
time of S/N 72's delivery to JCWS and the time of its return to the Co- Owners.
JetFleet II(TM) received $230,517 from JCWS' payment of the economic
adjustment, as well as $29,281 of additional rent from AEI. JCWS paid the
economic adjustment during February 1994; AEI's obligation was fulfilled in
January 1994.
On August 13, 1993, S/N 72 was re-leased to Eclipse. The lease was a
triple net lease with a term of one year, except that it was cancelable by any
party on 30 days' notice. The rental amount, paid monthly, was equal to $400
per hour of usage during the month.
On October 19, 1993, due to an event of default by Eclipse under the
Eclipse Lease, the Co-Owners terminated the Eclipse Lease and repossessed the
aircraft. Since Eclipse had no immediate need for S/N 72, Eclipse and the Co-
Owners agreed that the Co-Owners would enter into a short-term lease with
another party, at the expiration of which the Eclipse lease would be
reinstated. At the same time, Eclipse also paid all overdue rent and reserve
charges. The Co- Owners and Eclipse mutually agreed in June 1994 not to
reinstate the Eclipse Lease.
On December 22, 1993 the Co-Owners entered into a lease (the "AGES
Lease") with AGES for a term not to exceed ninety days. AGES had subleased S/N
72 to Alas Chiricanas S.A., a corporation conducting business in the Republic
of Panama. The lease was subsequently extended until September 1, 1994.
JetFleet II(TM) collected a total of $246,390 in rents from AGES during the
term of the lease.
S/N 72 was re-leased on March 22, 1995 to Air Niugini for a term of six
months. The lease was subsequently extended to October 31, 1995. JetFleet
II(TM) collected a total of $189,581 in rents from Air Niugini. In addition,
Air Niugini paid JetFleet II(TM) its share of maintenance costs of $121,058.
Upon its return from Air Niugini and at the direction of JetFleet II(TM)
management, S/N 72 underwent certain scheduled maintenance and other repair
work.
F-27
<PAGE> 138
JetFleet(TM) Aircraft II, L.P.
Notes to Financial Statements
3. Aircraft and Aircraft Engines Under Operating Leases and Aircraft Held
for Operating Leases (continued)
The Dash-7 leases (continued)
On April 25, 1996, S/N 72 was leased to Air Tindi Limited ("Air Tindi")
for a term of thirty-six months. Air Tindi has provided a letter of credit in
the amount of $142,000 which serves as a security deposit under the lease. In
addition, Air Tindi pays JetFleet II(TM) its pro-rata share of maintenance
costs of $265.00 per hour of usage, which amount is to be applied for scheduled
overhauls and inspections. Air Tindi is a regional airline headquartered in
Yellowknife, Northwest Territories, Canada and provides charter and regularly
scheduled flights throughout the Northwest Territories. JetFleet II(TM)
collected a total of $322,891 from Air Tindi during 1996.
During 1994 the current leases for S/N 57, S/N 44 and S/N 11 were
extended, at reduced rent, through September 30, 1995. A new contract with the
United States Army commenced on February 15, 1995 for a term of two years with
three two-year renewal options. During 1995, the leases for all three aircraft
were extended through September 30, 1996. During 1996, the current leases for
all three aircraft were extended, at reduced rent, through September 30, 1998.
Other aircraft leases
S/N 666 is leased to Loganair Limited, a British Airways franchisee
("Loganair"), for a term expiring on January 30, 1998 (the "Loganair Lease").
As part of the purchase of S/N 666 from JMC, JMC assigned the Loganair Lease to
JetFleet II. Loganair also pays, on a monthly basis, maintenance costs based on
usage. JetFleet II(TM) holds a security deposit from Loganair of $45,000 in an
interest-bearing account (which interest accrues for the benefit of Loganair).
Under the Loganair Lease, the lessee holds two extension options for up to an
additional 39 months.
S/N 576 is subject to a lease with Merlin Express, Inc., a subsidiary
of Fairchild Aircraft Incorporated ("Merlin"), for a term expiring on July 18,
1999 (the "Merlin Lease"). The Merlin Lease contains a guaranty by Fairchild
Aircraft Incorporated for the equivalent of six months of rent. As part of the
purchase of S/N 576, the seller assigned the Merlin Lease to JetFleet II(TM).
Merlin also pays, on a monthly basis, maintenance costs based on usage.
JetFleet II(TM) holds a security deposit from Merlin of $45,000 in an
interest-bearing account (which interest accrues for the benefit of Merlin).
F-28
<PAGE> 139
JetFleet(TM) Aircraft II, L.P.
Notes to Financial Statements
3. Aircraft and Aircraft Engines Under Operating Leases and Aircraft Held
for Operating Leases (continued)
The Dash-7 leases (continued)
The aircraft engine leases
S/N TC-370 is subject to a lease with Sunbird Air Services, Ltd. for a
term expiring September 30, 2000 (the "Sunbird Lease"). The Sunbird Lease
contains a guaranty by the seller for basic rent in an amount not to exceed a
total aggregate amount of $29,250 (which guaranty is shared equally by JetFleet
II(TM) and JetFleet III(TM)). As part of the purchase of S/N TC-370, the seller
assigned its interests and obligations under the Sunbird Lease to JetFleet
II(TM).
The Airwork Engines acquired by JetFleet II(TM) are leased back to
Airwork pursuant to a master lease (the "Airwork Lease") between Airwork and
JetFleet II(TM). The Airwork Lease is a triple net lease, has an initial
seven-year term (which expires on April 30, 2000), and Airwork has two two-year
renewal options. UNC Incorporated, the parent of Airwork, has guaranteed the
obligations of Airwork under the Airwork Lease. Upon the purchase of each
engine by JetFleet II(TM), Airwork was required to pay a security deposit equal
to one month of rent.
The remaining AEI Engine is currently off lease. JetFleet II(TM)
management is currently negotiating lease and/or sale arrangements for the
engine.
The AGES Engines were leased to GPA Group plc ("GPA") and subleased to
Aerovias de Mexico, S.A. de C.V. ("AeroMexico"). As mentioned above, JetFleet
II(TM) and AGES agreed during the first quarter of 1995 to rescind the AGES
Engines purchase by JetFleet II(TM). JetFleet II(TM) received a total of
$150,000 in rental payments during 1995 for the AGES Engines.
Future minimum rents
The following is a schedule of future minimum rental income by year
under the existing leases:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C> <C>
1997 $2,634,081
1998 2,219,521
1999 1,050,771
2000 542,686
----------
$6,447,059
==========
</TABLE>
F-29
<PAGE> 140
JetFleet(TM) Aircraft II, L.P.
Notes to Financial Statements
3. Aircraft and Aircraft Engines Under Operating Leases (continued)
Operating Leases and Aircraft Held for
Detail of investment
The following schedule provides an analysis of JetFleet II's(TM)
investment in aircraft under operating leases and aircraft held for operating
leases as of December 31, 1995, additions and disposals during 1996, and as of
December 31, 1996:
<TABLE>
<CAPTION>
December 31, December 31,
1995 Additions Disposals 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
S/N 72 $ 5,328,677 $ -- $ -- $ 5,328,677
S/N 57 199,752 -- 199,752
S/N 44 5,208,656 -- 5,208,656
S/N 11 6,225,556 -- 6,225,556
Airwork Engines 5,498,993 -- (224,464) 5,274,529
AEI Engine 213,150 -- 213,150
S/N 370 -- 351,477 -- 351,477
S/N 666 893,096 -- 893,096
S/N 576 1,165,750 -- -- 1,165,750
------------ ------------ ------------ ------------
24,733,630 351,477 (224,464) 24,860,643
Less accumulated
depreciation (7,213,339) (3,260,014) 48,323 (10,425,030)
------------ ------------ ------------ ------------
$ 17,520,291 $ (2,908,537) $ (176,141) $ 14,435,613
============ ============ ============ ============
</TABLE>
The following schedule provides an analysis of JetFleet II's(TM)
investment in aircraft under operating leases and aircraft held for operating
leases and the related accumulated depreciation for the years ended December
31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation Net
------------ ------------ ------------
<S> <C> <C> <C>
Balance,
December 31, 1993 $ 24,872,259 $ (2,168,361) $ 22,703,898
Additions 4,222,146 (2,347,282) 1,874,864
Disposals (626,001) 16,282 (609,719)
------------ ------------ ------------
Balance,
December 31, 1994 28,468,404 (4,499,361) 23,969,043
Additions 3,696,146 (3,372,163) 323,983
Disposals (7,430,920) 658,185 (6,772,735)
Balance,
December 31, 1995 $ 24,733,630 $ (7,213,339) $ 17,520,291
Additions 351,477 (3,260,014) (2,908,537)
Disposals (224,464) 48,323 (176,141)
Balance,
December 31, 1996 $ 24,860,643 $(10,425,030) $ 14,435,613
============ ============ ============
</TABLE>
F-30
<PAGE> 141
JetFleet(TM) Aircraft II, L.P.
Notes to Financial Statements
4. Investments in Capital Leases
McDonnell Douglas DC-9-32, serial number 47236 ("First DC-9")
On December 16, 1994, JetFleet II(TM) purchased a 50% undivided
interest in the First DC-9 for $400,000 plus reimbursement of chargeable
acquisition costs and acquisition fees totaling $12,851. JetFleet(TM) purchased
the remaining 50% interest at the same time. The First DC-9 was leased back to
the seller, Interglobal, Inc. for thirty-six months at a monthly rate of
$30,000, of which JetFleet II(TM) is entitled to $15,000 (the "First DC-9
Lease"). The First DC-9 is currently sub-leased to and being operated by Aero
California S.A. de CV. As discussed in Note 1 above, JetFleet II's(TM)
investment in the First DC-9 is being accounted for as a capital lease. The
investment is essentially a financing in which JetFleet II(TM) will recover its
investment over the term of the lease. Interglobal, Inc. has a purchase option
for a nominal amount which may be exercised upon expiration of the First DC-9
Lease. In 1996, JetFleet II(TM) recorded $43,238 of interest income
attributable to the First DC-9 Lease.
McDonnell Douglas DC-9-14, serial number 45702 ("Second DC-9")
On July 10, 1995, JetFleet II(TM) purchased a 100% undivided interest
in the Second DC-9 for $800,000 plus reimbursement of chargeable acquisition
costs and acquisition fees totaling $18,850. The Second DC-9 is subject to
similar lease terms as the First DC-9 and is accounted for in the same manner.
In 1996, JetFleet II(TM) recorded $119,157 of interest income attributable to
the lease of the Second DC-9.
McDonnell Douglas DC-9-32, serial number 47553 ("Third DC-9")
On August 31, 1995, JetFleet II(TM) purchased a 100% undivided interest
in the Third DC-9 for $800,000 plus reimbursement of chargeable acquisition
costs and acquisition fees totaling $18,450. The Third DC-9 was also subject to
similar lease terms as the First DC-9 and was accounted for in the same manner.
During 1996, JetFleet II(TM) agreed to resell the Third DC-9 and reassign the
sublease to the original seller, Interglobal, Inc. In 1996, JetFleet II(TM)
recorded $71,950 of interest income attributable to the lease of the Third
DC-9.
Future minimum lease payments
The following is a schedule of maturities of lease payments receivable
and recognition of unearned interest income:
<TABLE>
<CAPTION>
Collection Interest
on Income
Year Receivable Recognition
---- ---------- -----------
<S> <C> <C>
1997 $540,000 $ 79,186
1998 180,000 8,793
-------- --------
$720,000 $ 87,979
======== ========
</TABLE>
F-31
<PAGE> 142
JetFleet(TM) Aircraft II, L.P.
Notes to Financial Statements
5. Related Party Transactions
In connection with the organization and offering of units in JetFleet
II(TM), Group received a non-accountable organizational and offering expense
allowance of $140,622 in 1994, for reimbursement of certain organizational and
offering expenses, as discussed in Note 1. In addition, CKS Securities,
Incorporated, a member of the National Association of Securities Dealers, Inc.
and an affiliate of the general partners, received sales commissions,
investment banking fees, and due diligence reimbursements of $492,177 in 1994,
portions of which were paid to third parties.
As discussed in Note 3, JetFleet II's(TM) investment in aircraft and
aircraft engines includes reimbursements to CMA and Group for chargeable
acquisition costs. These amounts, which totaled $4,533, $41,097 and $61,750 in
1996, 1995 and 1994, respectively, included legal and consulting costs in
connection with the acquisition of the aircraft, as well as appraisal and title
insurance costs. JetFleet II(TM) also reimbursed JMC for loan fees incurred of
$16,251 in 1995 and paid Group acquisition fees of $5,194, $54,376 and $62,396
in 1996, 1995 and 1994, respectively.
Group receives an equipment management fee ($43,249, $48,857 and
$93,920 in 1996, 1995 and 1994, respectively) equal to 3% of gross rentals
received by JetFleet II(TM) from operating leases and 2% of gross rentals from
full payout leases.
JetFleet II(TM) did not pay a resale fee (normally 3% of the contract
sales price of each asset sold) to Group or any third-party in connection with
the sale of the AEI Engine or the rescission of the AGES Engines purchase.
JetFleet II(TM) paid a resale fee of to Group in connection with the Third DC-9
transaction in the amount of $13,700 in 1995.
JetFleet II(TM) pays for all direct, indirect, administrative and
overhead expenses incurred on its behalf by Group and its affiliates. In 1996,
1995 and 1994, $301,407, $220,361, and $151,430, respectively, was reimbursable
by JetFleet II(TM) to Group or its affiliates in connection with the
administration and management of JetFleet II(TM).
All of the above fees payable by JetFleet II(TM) to Group were paid to
Group which in turn reimbursed CMA or its affiliates which had incurred costs
in connection with the organization and offering of units in, and the
administration and management of, JetFleet II(TM).
F-32
<PAGE> 143
Jetfleet Aircraft II, L.P.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Capital Resources and Liquidity
At the end of 1996, JetFleet II(TM) had cash balances of
$1,191,914. This amount was held primarily for the distribution made to the
Unitholders in January 1997 and to pay for accrued expenses.
During the year, JetFleet II's(TM) primary sources of
liquidity were cash flows from leasing operations and capital lease payments.
JetFleet II's(TM) liquidity will vary in the future, increasing to the extent
cash flows from operations exceed expenses, and decreasing as distributions are
made to the Unitholders and to the extent expenses exceed cash flows from
leases.
JetFleet II(TM) uses substantially all its operating cash flow
to make cash distributions to its Unitholders. Since JetFleet II's(TM) leases
are triple net leases (the lessee pays operating and maintenance expenses,
insurance and taxes), JetFleet II(TM) does not anticipate that it will incur
significant operating expenses in connection with its ownership interest in the
Aircraft as long they remain on lease.
JetFleet II(TM) currently has available adequate reserves to
meet its immediate cash requirements.
From January 1995 through July 1995, JetFleet II(TM) made
distributions at an annualized rate of 10%. From August 1995 through December
1995, JetFleet II(TM) made distributions at an annualized rate of 8% primarily
because of the decreased monthly rents on S/N 57, S/N 44 and S/N 11, and
because S/N 72, which had come off lease in September 1995, had not been
re-leased. In addition, although JetFleet II(TM) has reinvested the net
proceeds received as a result of the AGES Engine rescission, it did so on a
staged basis which was not completed until early 1996. The level of monthly
rent received from these new assets did not equal the rent JetFleet II(TM) had
been receiving from the AGES Engines until late 1995. Since January 1996,
JetFleet II(TM) has made distributions at an annualized rate of 10% primarily
because the rent on the assets purchased using the AGES Engine rescission
proceeds is now higher than the rent received prior to the rescission. Future
distributions will depend on the amount of lease revenue received by
JetFleet(TM) for its assets.
If inflation in the general economy becomes significant, it
may affect JetFleet II(TM) inasmuch as the residual values and rates on
re-leases of its aircraft may increase as the costs of similar assets increase.
However, JetFleet II's(TM) revenues from existing leases would not increase, as
such rates are generally fixed for the terms of the leases without adjustment
for
F-33
<PAGE> 144
inflation. At the same time, any significant inflation in the general economy
may cause an increase in professional fees and general and administrative
expense reimbursements.
If interest rates increase significantly, the lease rates that
JetFleet II(TM) can obtain on future leases with be expected to increase as the
cost of capital is a significant factor in the pricing of lease financing.
Leases already in place, for the most part, would not be affected by changes in
interest rates.
1996 versus 1995
Cash flows from operations decreased approximately $423,000
primarily due to a decrease in unearned interest income as a result of the sale
of the Third DC-9 and a decrease in payables. These decreases were only
partially offset by an increase in lease related revenue resulting primarily
from higher monthly rents for S/N 72 during 1996.
Cash flows from investing activities decreased approximately
$439,000 in 1996 primarily due to the AGES Engines rescission during 1995.
This was partially offset by the funds received from the sale of the Third DC-9
during 1996 which had not been reinvested at December 31, 1996.
In 1996, there were no financing sources of cash. Cash
distributions to Unitholders increased approximately $305,000, or by $0.42 per
weighted average Limited Partnership Unit outstanding. The increased
distributions to Unitholders resulted from the additional rent received from
the reinvestment of the AGES rescission proceeds, as well as from the higher
monthly rent for S/N 72 during 1996. The increased rents were only partially
offset by reduced rents on S/N 57, S/N 44 and S/N 11.
1995 versus 1994
Cash flows from operations decreased approximately $673,000
primarily due to a decrease of approximately $1,195,000 in cash flows from
lease-related revenues. Certain other cash expenses increased in 1995 as
discussed under "Results of Operations" below. The decreased cash flows from
leases resulted from reduced rents on S/N 57, S/N 44 and S/N 11, S/N 72's
off-lease periods during 1995 and the loss of rent during the period that the
AGES Engines rescission proceeds were being reinvested.
Cash flows from investing activities increased approximately
$5,800,000 in 1995 primarily due to the AGES Engines rescission and staged
reinvestment in assets which was not completed until early 1996 and the
payments received from the capital leases on the DC-9s.
In 1995, there were no financing sources of cash. JetFleet
II(TM) raised $4,687,400 during 1994. In connection with these sales, JetFleet
II(TM) paid organization and offering costs in the amount of $632,799 to the
Corporate General Partner and CKS Securities, Incorporated.
F-34
<PAGE> 145
Cash distributions to Unitholders decreased approximately $881,000, or by $1.27
per weighted average Limited Partnership Unit outstanding. The decreased
distributions to Unitholders resulted from reduced rents on S/N 57, S/N 44 and
S/N 11 as well as S/N 72's off-lease periods during 1995 which were only
partially offset by the cash received as a result of the reinvestment of the
AGES Engines rescission proceeds.
Results of Operations
JetFleet II(TM) recorded net income of $844,620 and a net loss
of ($1,160,761) and ($856,582) in 1994, 1995 and 1996, respectively. The
decrease from 1994 to 1995 was due to the decrease in rents received for S/N
57, S/N 44 and S/N 11, S/N 72's off-lease periods during 1995 and the loss of
rent during the period that the AGES Engines rescission proceeds were being
reinvested. The increase from 1995 to 1996 was a result of the additional
interest income received from the reinvestment of the AGES rescission proceeds
in the DC-9 financing leases. There was no related increase in depreciation
because the DC-9 financing leases are capital leases.
1996 versus 1995
Rental income increased approximately $57,000. This was due
to the higher monthly rent for S/N 72 during 1996, which was only partially
offset by reduced rents on S/N 57, S/N 44 and S/N 11 beginning in October 1996.
Depreciation decreased approximately $112,000 primarily due to
the reinvestment of the AGES rescission proceeds in aircraft subject to
financing leases which are not subject to depreciation.
Management fees increased approximately $11,000. This was
primarily due to the increased rents discussed above. JetFleet II(TM) pays 4%
to AEI in connection with the purchases of each of the above aircraft.
General and administrative expenses and professional fees
increased approximately $92,000 due to increased costs associated with the
ongoing management of JetFleet II's(TM) and extensive negotiations with
Raytheon regarding the monthly rents for S/N 57, S/N 44 and S/N 11. As
mentioned above, the Corporate General Partner has authorized JMC to perform
remarketing duties on behalf of JetFleet II(TM). If management fees are
payable within a given year, such fees are reduced to the extent that any
payments are made to JMC or other third parties performing such remarketing
duties.
1995 versus 1994
Rental income decreased approximately $1,195,000. This was
due to reduced rents on S/N 57, S/N 44 and S/N 11 beginning in October 1994,
S/N 72's off-lease periods during 1995 and the loss of rent during the period
that the AGES Engines rescission proceeds were being
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<PAGE> 146
reinvested. In addition, the payments under the DC-9 financing leases, which
were acquired in December 1994, July 1995 and August 1995, are treated as a
return of capital with an imputed interest component, rather than rental
income.
Depreciation increased approximately $1,025,000 primarily due
to the additional purchases of interests in aircraft and aircraft engines
during 1994 and 1995 and a reduction in the estimate of the useful life of
certain aircraft.
Management fees decreased approximately $88,000. This was
primarily due to the reduced rents discussed above. JetFleet II(TM) pays 4% to
AEI in connection with the purchases of each of the above aircraft. Also,
JetFleet II(TM) pays a lower rate of management fees on full payout leases such
as the leases to which the DC-9s are subject.
General and administrative expenses and professional fees
increased approximately $89,000 due to increased costs associated with the
ongoing management of JetFleet II's(TM) portfolio, specifically the
maintenance, supervision and remarketing of S/N 72 and negotiation of the AGES
rescission. As mentioned above, the Corporate General Partner has authorized
JMC to perform remarketing duties on behalf of JetFleet II(TM). If management
fees are payable within a given year, such fees are reduced to the extent that
any payments are made to JMC or other third parties performing such remarketing
duties.
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<PAGE> 147
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
of Aero Max, Inc.
We have audited the accompanying balance sheet of AeroMax, Inc., a development
stage Delaware corporation, as of March 5, 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 audit 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 AeroMax, Inc. at March 5,
1997, in conformity with generally accepted accounting principles.
VOCKER KRISTOFFERSON AND CO.
March 6, 1997
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<PAGE> 148
AEROMAX, INC.
(A Development Stage Delaware Corporation)
Balance Sheet
March 5, 1997
<TABLE>
<S> <C>
ASSETS
Cash $150,000
-------
Total Assets $150,000
-------
SHAREHOLDER'S EQUITY
Common Stock, $.001 par value, 3,000,000 shares
authorized, 150,000 shares issued and outstanding $ 150
Paid in capital in excess of par 149,850
-------
Total Shareholder's Equity $ 150,000
---------
</TABLE>
See accompanying notes.
F-38
<PAGE> 149
AEROMAX, INC.
(A Development Stage Delaware Corporation)
Notes to Balance Sheet
March, 5, 1997
1. Organization and Capitalization
AeroMax, Inc. (The "Company") was incorporated in the state of
Delaware on February 28, 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. (Collectively, the "Partnership"), and JetFleet III.
The Company was formed solely for the purpose of acquiring the
Partnerships in a statutory merger (the "Consolidation"). The Partnerships,
formed under California law, invest in leased aircraft equipment. Upon
completion of the Consolidation, the Company will continue in the aircraft
leasing business and plans to use leveraged financing to acquire additional
aircraft assets on lease.
At March 5, 1997, the Company had not had any significant operations.
The Company maintains its cash balance of $150,000 in a regional bank
headquartered in San Francisco. Of this amount, $50,000 is not federally
insured.
2. Related Party Transactions
Upon completion of the Consolidation, the Company's portfolio of
leased aircraft assets will be managed and administered under the terms of a
management agreement with JMC. Under this agreement, JMC will receive a
monthly management fee based on the net asset value of the assets under
management. 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 the aggregate purchase price including
chargeable acquisition costs and any brokerage fee shall not exceed the fair
market value of the asset based on appraisal.
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<PAGE> 150
AeroMax, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The Company was formed on February 28, 1997 and has not yet had any significant
operations.
Results of Operations
The Company has yet to generate a profit due to the fact that the Company is
recently formed. The Company does not anticipate significant operating
activity, other than incurring merger costs in connection with the proposed
consolidation of JetFleet Aircraft, L.P. and JetFleet Aircraft II, L.P. with
and into the Company (the "Consolidation").
Liquidity and Capital Resources
The Company's cash and temporary investments were $150,000 at March 5, 1997.
The Company estimates that costs associated with the Consolidation will
approximate $250,000. It is anticipated that such offering costs in excess of
current cash balances will be financed through short-term payables and paid at
the time of the Consolidation. Should the Consolidation not occur, the
Company's sole shareholder, JetFleet Management Corp., has committed to pay such
costs.
Competition
Upon Consolidation, 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.
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<PAGE> 151
APPENDICES
Appendix A -- Form of Merger Agreement
Appendix B -- Current Value Appraisal of Partnerships' Assets
Appendix C -- California Partnership Act Dissenters' Rights Provisions
Appendix D -- Forms of Consent
<PAGE> 152
APPENDIX A
FORM OF MERGER AGREEMENT
<PAGE> 153
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") dated as of
________, 1997, by and among AeroMax, Inc., a Delaware corporation (the
"Company"), JetFleet Aircraft, L.P. ("JetFleet I"), a California limited
partnership, and JetFleet Aircraft II, L.P. ("JetFleet II"), a California
limited partnership, collectively, the "Partnerships" and individually, a
"Partnership").
WITNESSETH:
WHEREAS, the Company and the Partnerships desire that the Partnerships
merge with and into the Company, pursuant to Delaware law, with the Company
being the surviving entity (the "Merger"), as part of the merger by
consolidation of the Partnerships, and the Company (the "Consolidation") as set
forth in the Registration Statement of the Company on Form S-4, No. ________,
including all amendments thereto (the "Registration Statement"), filed with the
Securities and Exchange Commission (the "SEC") pursuant to the Securities Act
of 1933, as amended (the "Act"), of which the Prospectus/Consent Solicitation
Statement of the Company (the "Prospectus/Consent Solicitation Statement") is a
part; and
WHEREAS, Section 263 of the General Corporation Law of the State of
Delaware, 8 Del.C. Section 101, et seq. (the "DGCL") and Section 15678.7 of
the California Revised Limited Partnership Act (the "Partnership Act")
authorize the merger of a Delaware corporation and California limited
partnerships; and
WHEREAS, the Company's Certificate of Incorporation and Bylaws permit,
and resolutions adopted by the Company's Board of Directors authorize, this
Agreement and the consummation of the Merger.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties to this Agreement covenant and agree
as follows:
ARTICLE I
THE MERGER
1.01. The Merger; Surviving Corporation. Subject to the terms and
conditions set forth in this Agreement, at the Effective Time (as defined in
Section 1.02 below), the Partnerships shall each be merged with and into the
Company, pursuant to Section 15678.7 of the Partnership Act and Section 263 of
the DGCL, and the separate existence of each of the Partnerships shall cease.
The Company shall be the surviving entity (the "Surviving Corporation") and
shall continue to be governed by the DGCL.
1.02. Effective Time. In accordance with Section 15678.7 of the
Partnership Act and Sections 263, 251 and 103 of the DGCL, the Merger shall
become effective (the "Effective Time") upon the filing of a certificate of
merger (the "Certificate of Merger") with the Secretary of State of the State
of Delaware, or at such later time, not later than five business days
thereafter, as may be specified in the Certificate of Merger. All other
filings or recordings required by Delaware law in connection with the Merger
shall also be made.
1.03 Effect of the Merger. The Merger shall have the effects set
forth in Section 15678.6 of the Partnership Act and Section 263 of the DGCL.
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<PAGE> 154
ARTICLE II
THE SURVIVING CORPORATION
2.01 Name. The name of the Surviving Corporation shall be AeroMax,
Inc.
2.02. Certificate of Incorporation and Bylaws. The Certificate of
Incorporation and Bylaws of the Company as in effect immediately prior to the
Effective Time shall be the Certificate of the Incorporation and Bylaws of the
Surviving Corporation unless and until amended in accordance with their terms
and applicable law.
2.03. Officers and Directors. The officers of the Company
immediately prior to the Effective Time shall continue as officers of the
Surviving Corporation and remain officers until their successors are duly
appointed or their prior resignation, removal or death. The directors of the
Company immediately prior to the Effective Time shall continue as directors of
the Surviving Corporation and shall remain directors until their successors are
duly elected and qualified or their prior resignation, removal or death.
ARTICLE III
CONVERSION OF PARTNERSHIP INTERESTS
3.01 Conversion of Limited Partner Interests.
At the Effective Time, each limited partner interest ("Unit") in each
of the Partnerships shall be converted into the number of shares of Company's
Common Stock, $.001 par value per share (the "Common Stock"), as follows:
<TABLE>
<CAPTION>
(Conversion Rate)
Number of Shares of
Common Stock
Partnership Per Unit
--------------------------- ---------------------------
<S> <C>
JetFleet I ________
JetFleet II ________
</TABLE>
To determine the the number of shares of Common Stock to be issued as a
result of the conversion of Units to a limited partner of the Partnerships
("Existing Investor"), the applicable Conversion Rate as defined on Appendix A
shall be multiplied by the number of Units held by the Existing Investor
rounding to the nearest whole shares. No fractional shares of Common Stock
will be issued. The Conversion Rate shall be calculated as set forth in
Schedule 3.0 hereto.
3.02 General Partner Interests. In connection with the
Consolidation, the General Partners shall receive shares of Common Stock, in
consideration of its general partner interests in the Partnerships as set forth
on Schedule 3.04 and their general partner interests in the Partnerships shall
be deemed canceled.
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<PAGE> 155
3.03. Issuance of Shares.
(i) The Company shall designate an exchange agent (the "Exchange
Agent") to act as such in connection with the issuance of certificates
representing Common Stock pursuant to this Agreement.
(ii) As soon as practicable after the Effective Time, the Company
shall cause the Exchange Agent to distribute to each Existing Investor who is
not a "dissenting limited partner" under the Partnership Act certificates
representing the number of shares of Common Stock to which such Existing
Investor is entitled pursuant to Section 3.01(i) of this Agreement.
3.03 Characterization of Merger. For federal income tax purposes,
the conversion of the Units in the Partnerships pursuant to this Article III
shall be deemed a distribution in liquidation of each of the Partnerships
pursuant to the terms of each respective Partnership Agreement (individually, a
"Partnership Agreement" and collectively, the "Partnership Agreements").
ARTICLE IV
TRANSFER AND CONVEYANCE OF ASSETS
AND ASSUMPTION OF LIABILITIES
4.01. Transfer, Conveyance and Assumption. At the Effective Time,
the Company shall continue in existence as the Surviving Corporation, and
without further action on the part of the Partnerships or the Company,
transfer, succeed to and possess all the rights, privileges and powers of the
Partnerships, and all the assets and property of whatever kind and character of
the Partnerships shall vest in the Company without further act or deed;
thereafter, the Company, as the Surviving Corporation, shall be liable for all
of the liabilities and obligations of the Partnerships, and any claim or
judgement against the Partnerships may be enforced against the Company, as the
Surviving Corporation, in accordance with Section 15678.6 of the Partnership
Act and Sections 263, 259 and 103 of the DGCL.
4.02. Further Assurances. If at any time the Company shall consider
or be advised that any further assignment, conveyance or assurance is necessary
or advisable to vest, perfect or confirm of record in the Surviving Corporation
the title to any property or right of the Partnerships, or otherwise to carry
out the provisions hereof, the General Partners of the Partnerships as of the
Effective Time shall execute and deliver any and all proper deeds, assignments
and assurances, and do all things necessary and proper to vest, perfect or
convey title to such property or right in the Surviving Corporation and
otherwise to carry out the provisions hereof.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PARTNERSHIPS
The Partnerships each severally represent and warrant the Company and
to each other (with respect only to the Partnership making the representation
and warranty) as follows:
5.01. Validity of Actions. Each Partnership (i) is a limited
partnership duly formed, validly existing and in good standing under the laws
of the State of California, (ii) has the authority to conduct its business as
currently conducted and to own and operate the properties which it now owns and
operates, (iii) is qualified to do business in all jurisdictions in which such
qualification is
3
<PAGE> 156
necessary, and (iv) has full power and authority to enter into this Agreement
and to carry out all acts contemplated by it. This Agreement has been duly
executed and delivered on behalf of the Partnership, and has received all
necessary authorization and is a legal, valid and binding obligation of the
Partnership, enforceable against the Partnership in accordance with its terms.
The execution and delivery of this Agreement and consummation of the
transactions contemplated by it will not violate any provision of the
Partnership Agreement nor violate, conflict with or result in any breach of any
of the terms, provisions or conditions of, or constitute a default or cause
acceleration of, any indebtedness under any agreement or instrument to which
any of the Partnerships are a party or by which they or their assets may be
bound, or cause a breach of any applicable federal or state law or governmental
regulation, or any applicable order, judgment, writ, award, injunction or
decree of any court or governmental instrumentality.
5.02. Partnerships' Financial Statements. The financial statements
and schedules of the Partnerships, together with related notes (the "Financial
Statements"), set forth in the Registration Statement of the Company, fairly
present, on the basis stated in the Registration Statement, the financial
position of the Partnerships at the date or for the periods specified in the
Registration Statement. The Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis ("GAAP"), except to the extent stated therein.
5.03. No Misstatements. The representations of the Partnerships
contained in this Agreement and the information supplied by the Partnerships
for inclusion in the Registration Statement and the Prospectus/Consent
Solicitation Statement do not contain any untrue statements of a material fact
or omit to state any fact necessary to make such representations or information
not materially misleading.
5.04. No Material Adverse Change. Since the respective dates as to
which information is given in the Registration Statement and the
Prospectus/Consent Solicitation Statement with respect to the Partnerships, and
except as described in the Registration Statement or the Prospectus/Consent
Solicitation Statement, there have been no changes in the business, operations,
properties, assets or the prospects or condition, financial or otherwise, of
the Partnerships which would, in the aggregate, have a material adverse effect
on the business, properties, prospects, profitability, assets or financial
condition of the Partnerships.
5.05. Title to Assets. Each Partnership has good and marketable
title to the assets reflected in the most recent balance sheet (the "Balance
Sheet") included in the Financial Statements with respect to such Partnership,
and will hold good and marketable title to such assets, and any assets acquired
by the Partnership prior to the Effective Time, as of the Effective Time,
except for assets disposed of in the ordinary course of business. Such assets,
together with the related goodwill and rights of each Partnership as a going
concern, tangible and intangible, are collectively referred to as the "Assets."
Except as otherwise disclosed in the Balance Sheet or related notes
accompanying it, all of the Assets are owned free and clear of any and all
adverse claims, security interests, charges or other encumbrances or
restrictions of every nature, except liens for current taxes not yet due and
payable or landlords' liens as provided for in the relevant leases or by
applicable law.
5.06 Liabilities of the Partnerships. The Partnerships have no
material liabilities, contingent or otherwise, without limitation for state or
federal income, withholding or other taxes, except to the extent reflected,
reserved against, or provided for in the Balance Sheet, and except for any
material liabilities disclosed in the Prospectus/Consent Solicitation Statement
or any other obligations incurred after ________, 1997 in the ordinary course
of business which subsequently incurred obligations are of an amount and nature
as to be capable of being discharged from the
4
<PAGE> 157
operations of the Partnerships without requiring additional equity or
borrowing.
5.09 Taxes. Each Partnership has filed timely all federal, state
and local tax returns which it is required to file, has provided to its
Existing Investors all required Form K-1's and such other tax forms as may be
required by federal, state or local authorities, and has no outstanding
liability for any federal, state or local taxes or interest or penalties
thereon, whether disputed or not, except taxes not yet payable which have been
provided for in accordance with GAAP and are disclosed in the Financial
Statements.
5.10. Actions Pending. Except as disclosed in the
Prospectus/Consent Solicitation Statement: (i) there are no actions, suits,
proceedings or claims pending or threatened against the Partnerships or the
general partner of the Partnerships which, if determined adversely to such
Partnerships, could (A) have a material adverse effect on the Partnerships, the
Assets or the business of the Partnerships when taken as a whole, or (B)
prevent or delay the consummation of any of the transactions contemplated by
this Agreement; (ii) no Partnership, to the best of its knowledge, is the
subject of any pending or threatened investigation relating to any aspect of
such Partnership's operations by any federal, state or local governmental
agency or authority; and (iii) each Partnership, to the best of its knowledge,
is not and has not been the subject of any formal or informal complaint,
investigation or inspection under the Equal Employment Opportunity Act or the
Occupational Safety and Health Act (or their state or local counterparts) or by
any other federal, state or local authority.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Partnerships as follows:
6.01. Validity of Actions. The Company (i) is duly organized,
validly existing and in good standing under the laws of the State of Delaware,
(ii) has the authority to conduct its business as currently conducted, (iii) is
qualified to do business in all jurisdictions in which such qualification is
necessary, and (iv) has full power and authority to enter into this Agreement
and to carry out all acts contemplated by it. This Agreement has been duly
executed and delivered on behalf of the Company, has received all necessary
authorization and is a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms. The execution
and delivery of this Agreement and consummation of the transactions
contemplated by it will not violate any provision of the Certificate of
Incorporation or Bylaws of the Company nor violate, conflict with or result in
any breach of any of the terms, provisions or conditions of, or constitute a
default or cause acceleration of, any indebtedness under any agreement or
instrument to which the Company is a party or by which it or its assets may be
bound, or cause a breach of any applicable federal or state law or regulation,
or any applicable order, judgment, writ, award, injunction or decree of any
court or governmental instrumentality.
6.02. Capital Stock of the Company. The authorized capital stock of
the Company consists of 5,000,000 shares of Common Stock, and 2,000,000 of
Preferred Stock, of which 150,000 shares of common stock are issued and
outstanding as of the date of this Agreement. The shares of Common Stock of
the Company to be delivered to the General Partners and the Existing Investors
pursuant to this Agreement have been duly and validly authorized, and when
issued and delivered, will be fully paid and nonassessable.
5
<PAGE> 158
6.03. Misstatements. The representations of the Company contained
in this Agreement and the information regarding the Company contained in the
Registration Statement and the Prospectus/Consent Solicitation Statement do not
contain any untrue statements of a material fact or omit to state any fact
necessary to make such representations or information not materially
misleading.
ARTICLE VII
COVENANTS OF THE PARTIES
7.01. Prohibited Acts. Pending consummation of the Merger or prior
to termination of this Agreement, the Partnerships agree that, without prior
written consent of the Company, given in a letter which specifically refers to
this Section of the Agreement, the Partnerships shall not:
(i) perform any act or omit to take any action
that would make any of their representations made above or any
information pertaining to them in the Registration Statement
or the Prospectus/Consent Solicitation Statement inaccurate or
materially misleading as of the Effective Time;
(ii) enter into any commitment, contract or other
transaction in any way affecting any of the Partnership's
business, except to carry out its business in the ordinary
course, and as contemplated by this Agreement or in the
Prospectus/Consent Solicitation Statement;
(iii) make any loans or advances to, or investments
in, any other corporation, partnership or other legal entity
or to any other persons except in the ordinary course of
business;
(iv) borrow money for any purpose or agree to
become contingently liable, by guaranty or otherwise, for the
obligations or indebtedness of any other person other than in
the ordinary course of business; or
(v) mortgage, pledge, encumber, sell, lease or
transfer any of the Assets other than in the ordinary course
of business.
7.02. Notice. Pending the consummation of the Merger or prior to
termination of this Agreement, each party agrees that it will promptly advise
the other of the occurrence of any condition or event which would make any of
its representations, contained in this Agreement or the Prospectus/Consent
Solicitation Statement inaccurate, incorrect, or materially misleading.
7.03. Additional Documents. At the request of any party, each party
will execute and deliver any additional documents and perform in good faith
such acts as reasonably may be required in order to consummate the transactions
contemplated by this Agreement.
ARTICLE VIII
CONDITIONS TO THE MERGER
The obligation of the Company, on the one hand, and each of the
Partnerships on the other hand, to consummate the Merger shall be subject to
compliance with or satisfaction of the following conditions:
6
<PAGE> 159
8.01. Bring Down. The representations and warranties set forth in
this Agreement shall be true and correct in all material respects at and as of
the Effective Time as if then made (except for those representations and
warranties made as of a given date, which shall continue to be true and correct
as of such given date), as evidenced by a certificate made by the General
Partner of each Partnership and the President of the Company, as of the
Effective Time.
8.02. Compliance. The Company and each Partnership shall have
complied with all of the covenants and agreements in this Agreement on its part
to be complied with as of or prior to the Effective Time.
8.03. Partnership Approvals. The affirmative vote approving the
Consolidation of Existing Investors holding more than 50% of the outstanding
Units shall have been obtained; provided however, that at the Company's sole
discretion, the Consolidation may occur between JetFleet II and the Company if
only the required approval of JetFleet II Existing Investors is obtained.
8.04. Stock Exchange Listing. At or before the Effective Time, the
Common Stock to be issued in the Merger shall be approved for listing on the
American Strock Exchange, subject to official notice of issuance.
8.05. Consents Obtained. All necessary consents, waivers,
approvals, authorizations or orders required to be obtained, and the making of
all filings required to be made by any party to the Merger for the
authorization, execution and delivery of this Agreement, and the consummation
of the transactions contemplated thereby on or before (and remain in effect at)
the Effective Time shall have been obtained or made.
8.06. No Material Adverse Change. Since the respective dates as to
which information is given in the Registration Statement and the
Prospectus/Consent Solicitation Statement, there shall not have occurred or
been threatened any material adverse changes in the overall business or
prospects of the Partnerships, or in the tax or other regulatory provisions
applicable to the Partnerships or the Company, and the Company shall not have
become aware of any facts that, in the sole judgment of the Company and the
General Partner, have or may have a material effect, whether adverse or
otherwise, on the Partnerships, taken as a whole, the Consolidation, or the
value to the Company of the properties of the Partnerships, taken as a whole.
8.07. Opinions and Letters. The Company shall have received, on or
prior to the Effective Time, the following opinions and letters, which shall
not have been withdrawn as of the Effective Time:
(i) the opinion of counsel regarding the legality of the
issuance of the Shares;
(ii) the opinion of counsel confirming that in all
material respects, as of the Effective Time, the
discussion set forth in the Prospectus/Consent
Solicitation Statement under "Federal Income Tax
Considerations" including any opinions expressed
therein, is accurate; and
(iii) the opinion of counsel regarding the status of the
company's Common Stock under ERISA laws.
8.08. No Statute, Rule or Regulation Effecting. At the Effective
Time, there shall be no
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<PAGE> 160
statute, rule or regulation enacted or issued by the United States or any
State, or by a court, which prohibits or challenges the consummation of the
Consolidation.
8.09. No Declarations. At the Effective Time, there shall be no
declaration of suspension of trading in, or limitation on prices for,
securities generally on the New York Stock Exchange, declaration of a banking
moratorium by federal or state authorities or any suspension of payments by
banks in the United States (whether mandatory or not) or of the extension of
credit by lending institutions in the United States, or commencement of war,
armed hostility, or other international or national calamity directly or
indirectly involving the United States, which war, hostility or calamity, in
the sole judgment of the Company, would have a material adverse effect on the
business objectives of the Company, or, in the case of any of the foregoing
existing on the date of the Prospectus/Consent Solicitation Statement, any
material acceleration or worsening thereof.
8.10. Effectiveness of Registration Statement. At or prior to the
Effective Time, the Registration Statement shall have been declared effective,
no stop order suspending the effectiveness of the Registration Statement shall
have been issued, no proceedings for such purpose shall have been initiated,
and all necessary approvals under state securities or blue sky laws shall have
been received.
8.11. Dissenters' Rights. No more than 5% of the Units held by
limited partners of either Partnership shall be "dissenting interests" as
defined under Section 15679.2 of the Partnership Act.
8.12. Prospectus/Consent Solicitation Statement. All other
conditions to the Merger set forth in the Prospectus/Consent Solicitation
Statement shall have been satisfied.
ARTICLE IX
OTHER AGREEMENTS
9.01. Waiver by General Partners. Immediately prior to the
Effective Time, the General Partners of the Partnerships shall waive all rights
to (i) any fees not accrued to the Effective Time, and (ii) any proceeds from
the sale or liquidation of any property of a Partnership to which the General
Partners would have been entitled pursuant to the Partnership Agreement of such
Partnership.
9.02. Indemnification.
(i) To the fullest extent permitted by law, the
Partnerships, jointly and severally, agree to defend,
indemnify and hold harmless the Company and its directors,
officers, employees and agents from and against any losses,
claims, damages or liabilities (including, without limitation,
attorneys' fees and disbursements) to which the Company may
become subject under the Act, the Securities Exchange Act of
1934, as amended, or otherwise, insofar as such losses,
claims, damages or liabilities (or actions with respect
thereof arise out of or are based upon an untrue statement or
an alleged untrue statement of a material fact contained in
the Registration Statement, the Prospectus/Consent
Solicitation Statement, or any amendment or supplement to such
documents, 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, or to the extent that such losses, claims,
damages or liabilities (including, without limitation,
attorneys' fees and disbursements) result from a breach by the
Partnerships of the representations and warranties of the
Company
8
<PAGE> 161
contained in Article V of this Agreement. For the purposes of
this subsection (i), the word "Company" shall be deemed to
include the Company and its officers, directors, employees and
agents of the Company.
(ii) To the fullest extent permitted by law, the
Company, agrees to defend, indemnify and hold harmless each of
the Partnerships from and against any losses, claims, damages
or liabilities (including, without limitation, attorneys' fees
and disbursements) to which the Partnership may become subject
under the Act, the Securities Exchange Act of 1934, as
amended, or otherwise, insofar as such losses, claims, damages
or liabilities (or actions with respect thereof arise out of
or are based upon an untrue statement or an alleged untrue
statement of a material fact contained in the Registration
Statement, the Prospectus/Consent Solicitation Statement, or
any amendment or supplement to such documents, 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, or to
the extent that such losses, claims, damages or liabilities
(including, without limitation, attorneys' fees and
disbursements) result from a breach by the Company of the
representations and warranties of the Company contained in
Article VI of this Agreement. For the purposes of this
subsection (i), the word "Partnership" shall be deemed to
include the Partnership, its general partners and their
respective officers, directors, employees and agents.
(iii) A party entitled to indemnification hereunder
(an "Indemnifed Party") shall give (or cause to be given) to
the indemnifying party (the "Indemnifying Party") notice of
claim or matter for which indemnity is (or will be) sought
under this Section 9.02; such notice shall be given promptly
after the Indemnified Party receive actual notice or knowledge
of the claim or matter that is subject to indemnification.
With respect to any claim asserted by a third party against
any Indemnified Party for which indemnity is sought, the
relevant Indemnifying Party shall have the right to employ
counsel reasonably acceptable to the relevant Indemnified
Party to defend against such assertion, and such Indemnifying
Party shall have the right to compromise or otherwise settle
any such action or claim only with the prior written consent
of the relevant Indemnified Party, which shall not be
unreasonably withheld.
(iv) This Section 9.02 shall survive the Merger
for a period of three (3) years from the Effective Time.
ARTICLE X
TERMINATION; AMENDMENT; WAIVER
10.01. Termination. This Agreement and the transactions contemplated
hereby may be terminated at any time prior to the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware, (i) by mutual
consent of the Board of Directors of the Company and the General Partner of the
Partnerships, (ii) by action of the Board of Directors of the Company in the
event of a failure of a condition to the obligations of the Company set forth
in Article VIII of this Agreement, (iii) by action of the General Partners of
the Partnerships in the event of a failure of a condition to the obligations of
the Partnerships set forth in Article VIII of this Agreement, or (iv) by action
of the Board of Directors of the Company or of the General Partners of the
Partnerships
9
<PAGE> 162
in the event that the Merger is not consummated prior to ________, 1997 or such
later date as the parties shall mutually agree in writing.
10.02. Effect of Termination. If this Agreement is terminated
pursuant to Section 10.01, subject to the provisions of Section 9.02, this
Agreement shall become void and of no effect with no liability on the part of
any party hereto.
10.03. Amendment. The parties hereto may, by written agreement,
amend this Agreement at any time prior to the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware, such amendment to
be approved by the General Partner of each of the Partnerships agreeing to such
amendment with the Company; provided that, after the approval of the Merger by
the Existing Investors holding a majority of the Units of each Partnership or
the shareholders of the Company, no amendment shall be made which alters or
changes (i) the amount or kind of consideration which the Existing Investors of
each Partnership are entitled to receive upon conversion of the Units of each
Partnership, (ii) the Certificate of Incorporation of the Company, or (iii) the
terms and conditions of this Agreement if such alteration or change would have
an adverse effect on the Existing Investors of each Partnership or the
shareholders of the Company; provided further, that after the execution of this
Agreement the parties hereto may amend this Agreement without the necessity of
approval of the Existing Investors to make it internally consistent or
consistent with the terms set forth in the Prospectus/Consent Solicitation
Statement.
10.04. Waiver. At any time prior to the Effective Time, any party to
this Agreement may extend the time for the performance of any of the
obligations or other acts of any other party hereto, or waive compliance with
any of the agreements of any other party or with any condition to the
obligations hereunder, in each case only to the extent that such obligations,
agreements and conditions are intended for its benefit.
ARTICLE XI
MISCELLANEOUS
11.01. Expenses. If the Merger becomes effective, and all of the
Partnerships participate, all of the expenses incurred in connection with the
Merger shall be paid as specified in the Prospectus/Consent Solicitation
Statement.
11.02. Notices. All notices or other communications required or
permitted under the terms of this Agreement by any party shall be made in
writing and shall be delivered by first class mail or by personal delivery,
postage or fees prepaid, to the other parties at __________________, or to such
other address as any of the parties hereto may designate by notice to the
others.
11.03. Non-Assignability. This Agreement shall not be assignable by
any of the parties to this Agreement.
11.04. Entire Agreement. This Agreement contains the parties' entire
understanding and agreement with respect to its subject matter, and any and all
conflicting or inconsistent discussions, agreements, promises, representations
and statements, if any, between the parties or their representatives that are
not incorporated in this Agreement shall be null and void and are merged into
this Agreement.
10
<PAGE> 163
11.05. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original, but all of which
together shall constitute a single agreement.
11.06. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without giving
effect to conflicts of law principles.
11.07. Headings. The various section headings are inserted for
purposes of reference only and shall not affect the meaning or interpretation
of this Agreement or any provision hereof.
11.08. Gender; Number. All references to gender or number in this
Agreement shall be deemed interchangeably to have a masculine, feminine,
neuter, singular or plural meaning, as the sense of the context requires.
11.09. Severability. The provisions of this Agreement shall be
severable, and any invalidity, unenforceability or illegality of any provision
or provisions of this Agreement shall not affect any other provision or
provisions of this Agreement, and each term and provision of this Agreement
shall be construed to be valid and enforceable to the full extent permitted by
law.
11.10. Authorization. The General Partner (a) shall be authorized,
at such time in its full discretion as they deem appropriate, to execute,
acknowledge, verify, deliver, file and record, for and in the name of the
Partnerships and, to the extent necessary, the General Partners and the
Existing Investors, any and all documents and instruments, and (b) shall do and
perform any and all acts required by applicable law or which the General
Partner deems necessary or advisable to effectuate the Merger.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by an officer duly authorized to do so, all as of the day and year
first above written.
AEROMAX, INC.
By:
-------------------------------
Neal D. Crispin, President
JETFLEET AIRCRAFT, L. P.
By: CMA Capital Group, Inc.
Its: General Partner
By:
-----------------------
Its:
----------------------
JETFLEET AIRCRAFT II, L. P.
By: CMA Capital Group, Inc.
Its: General Partner
By:
-----------------------
Its:
----------------------
11
<PAGE> 164
SCHEDULE 3.0
Method of Calculation of Conversion Ratio
Allocation between General and Limited Partners of the Partnerships
12
<PAGE> 165
APPENDIX B
CURRENT VALUE APPRAISAL OF PARTNERSHIPS' ASSETS
<PAGE> 166
AIRCRAFT INFORMATION SERVICES, INC.
04 February 1997
Mr. Frank Duckstein
CMA Capital Group, Inc.
JetFleet Aircraft, L.P.
JetFleet Aircraft II, L.P.
1440 Chapin Avenue, Suite 310
Burlingame, CA 94010
Subject: AISI Report No. A7D008BVO
AISI Short Form Sight Unseen Base Value Appraisal
Fleet of Seven Selected Aircraft and Seven Engine Types
Reference: Jetfleet Fax Message, 14 January 1997
Dear Mr. Duckstein:
As requested, Aircraft Information Services, Inc. (AISI) is pleased to offer
Jetfleet Management Corporation our opinion of the sight unseen half-life
current market value of your seven aircraft and the 'zero time since
overhauled' current market value of your seven bare engine types as identified
in Table I of this report.
1. METHODOLOGY AND DEFINITIONS
The historical standard term of reference for commercial aircraft or engine
value has been 'half-life fair market value' of an 'average' aircraft or
engine. However, 'fair market value' could mean a fair value in the given
market or a value in a hypothetical 'fair' or balanced market, and the two
definitions are not equivalent. Recently, the term 'base value' has been
created to describe the theoretical balanced market condition and to avoid the
potentially misleading term 'fair market value' which has now become synonymous
with the term 'current market value' or a 'fair' value in the actual current
market. AISI value definitions are consistent with those of the International
Society of Transport Aircraft Trading (ISTAT) of 01 January 1994; AISI is a
member of that organization and employs an ISTAT Certified Senior Aircraft
Appraiser.
AISI defines a 'base value' as that of a transaction between equally willing
and informed buyer and seller, neither under compulsion to buy or sell, for a
single unit cash transaction with no hidden value or liability, and with supply
and demand of the sale item roughly in balance. Base values are typically
given for aircraft or engines in 'new' condition, 'average half-life'
condition, or in a specifically described condition unique to a single aircraft
or engine at a specific time. An 'average' aircraft or engine is an operable
airworthy aircraft or engine in average physical condition and with average
accumulated flight hours and cycles, with clear title and, for aircraft, a
standard unrestricted certificate of airworthiness and registered in an
authority which does not represent a penalty to aircraft value or liquidity;
with no damage history and with inventory configuration and level of
modification which is normal for the aircraft or engine's intended use and age.
AISI assumes average condition unless otherwise specified in this report.
'Half-life' condition assumes that every component or maintenance service which
has a prescribed interval that determines its service life, overhaul interval
or interval between maintenance services, is at a condition which is one- half
of the total interval. AISI defines engine 'zero time since overhaul'
condition to be that of an engine fresh from an engine heavy maintenance shop
visit which overhauled all engine modules or all engine compressor and
combustor/turbine stages as appropriate, with all life-limited components at
half-life.
<PAGE> 167
AISI defines a 'current market value' or 'fair market value' as that value
which reflects the real market conditions, whether at, above or below the base
value conditions. Definitions of aircraft or engine condition, buyer/seller
qualifications and type of transaction remain unchanged from that of base
value. Current market value takes into consideration the status of the economy
in which the aircraft or engine is used, the status of supply and demand for
the particular aircraft or engine type, the value of recent transactions and
the opinions of informed buyers and sellers. Current market value assumes that
there is no short term time constraint to buy or sell.
AISI encourages the use of base values only to consider historical trends, as a
basis for long term future value considerations, or to consider how actual
market values vary from theoretical base values. Base values are inappropriate
to determine near term values. AISI encourages the use of current market
values to consider the probable near term value of an aircraft or engine.
AISI determines an 'adjusted market value' by determining the value of known
deviations from half-life condition, which may be better or worse than
half-life condition, and to account for better or worse than average physical
condition, and the inclusion of additional equipment, or absence of standard
equipment.
Given the relatively thin used engine market and the relatively broad range of
values for transactions for an engine type, the meaning of 'base value' for
used engines is open to broad interpretation. Normally base value is derived
from historical normalized current market values with manufacturer's list price
as a start point, while current market value is deduced directly from recent
transactions. For used engines there are seldom sufficient historical
transactions to permit the same derivation of engine base values as is possible
for aircraft base values. In our opinion the used engine market is currently a
relatively hard market, and base value will be close to current market values
for most engine types.
AISI defines a BARE ENGINE as an engine without accessories, but complete with
all air, hydraulic and electrical lines which are not directly part of
accessories. For turboprop engines, a bare engine includes the gas generator
and power or gearbox sections but not the propellor.
AISI defines a BASIC QEC engine as the bare engine plus all accessories,
connecting lines and engine mounts but not including engine inlet cowl, fan
cowl or thrust reverser.
AISI defines a FULL QEC engine as a basic QEC engine plus inlet cowl, fan cowl
and thrust reverser. There will be some variation in full QEC inventory from
engine type to type, and from position to position.
2. VALUATION
The aircraft half-life base values and bare engine zero time since overhaul
base values are presented below in Table I subject to the assumptions,
definitions and disclaimers herein.
<PAGE> 168
Table I
<TABLE>
<CAPTION>
=============================================================================================================
AIRCRAFT/ S/N DATE OF CONFIGURATION AIRCRAFT ENGINE ZERO
ENGINE MANUFACTURE HALF LIFE TIME SINCE OVERHAUL
TYPE CURRENT CURRENT MARKET
MARKET VALUE
VALUE 1997 1997 MUSD
MUSD
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DHC-7-103 11 1979 Combi 1.86 -
- -------------------------------------------------------------------------------------------------------------
DHC-7-102 44 1981 Passenger 1.35 -
- -------------------------------------------------------------------------------------------------------------
DHC-7-102 57 1981 Passenger 1.35 -
- -------------------------------------------------------------------------------------------------------------
DHC-7-103 72 1982 Combi 1.92 -
- -------------------------------------------------------------------------------------------------------------
DHC-6-300 666 1980 Passenger 0.95 -
- -------------------------------------------------------------------------------------------------------------
Metro III AC576 1983 Passenger 0.83 -
- -------------------------------------------------------------------------------------------------------------
Metro II TC370 1980 Passenger 0.44 -
- -------------------------------------------------------------------------------------------------------------
PT6A-28 - - Bare - 0.20
- -------------------------------------------------------------------------------------------------------------
PT6A-41 - - Bare - 0.29
- -------------------------------------------------------------------------------------------------------------
PT6A-42 - - Bare - 0.30
- -------------------------------------------------------------------------------------------------------------
PT6A-45R - - Bare - 0.29
- -------------------------------------------------------------------------------------------------------------
PT6A-50 - - Bare - 0.33
- -------------------------------------------------------------------------------------------------------------
PT6A-65R - - Bare - 0.34
- -------------------------------------------------------------------------------------------------------------
A250-C30P - - Bare - 0.27
=============================================================================================================
</TABLE>
This report is offered as a fair and impartial assessment of subject aircraft
and engines based on data supplied by others, with no physical inspection or
verification by AISI. AISI has no past, present nor contemplated future
interest in subject aircraft and engines. This report is an opinion and is for
the sole use of the client/addressee and AISI shall not be liable to any party
for damages arising out of reliance or alleged reliance on it, or for any
parties action or failure to act as a result of reliance or alleged reliance on
this report.
Sincerely,
AIRCRAFT INFORMATION SERVICES, INC.
/s/ Fred E. Bearden
Fred E. Bearden
President
<PAGE> 169
APPENDIX C
CALIFORNIA PARTNERSHIP ACT DISSENTERS' RIGHTS PROVISIONS
<PAGE> 170
CALIFORNIA REVISED LIMITED PARTNERSHIP ACT
DISSENTERS' RIGHTS PROVISIONS
SECTION 15679.2. LIMITED PARTNERS' RIGHT TO REQUIRE PARTNERSHIPS TO PURCHASE
DISSENTING INTEREST.
(a) If the approval of outstanding limited partnership interests
is required for a limited partnership to participate in a reorganization,
pursuant to the limited partnership agreement of the partnership, or otherwise,
then each limited partner of the limited partnership holding those interests
may by complying with this article, require the limited partnership to purchase
for cash, at its fair market value, the interest owned by the limited partner
in the limited partnership, if the interest is a dissenting interest as defined
in subdivision (b). The fair market value shall be determined as of the day
before the first announcement of the terms of the proposed reorganization,
excluding any appreciation or depreciation in consequence of the proposed
reorganization.
(b) As used in this article, "dissenting interest" means the
interest of a limited partner that satisfies all of the following conditions:
(1) Either:
(A) The interest was not, immediately prior to the reorganization,
either (i) listed on any national securities exchange certified by the
Commissioner of Corporations under subdivision (o) of Section 25100, or (ii)
listed on the list of OTC margin stocks issued by the Board of Governors of the
Federal Reserve System, provided that in either of such instance, the limited
partnership whose outstanding interests are so listed provides, in its notice
to limited partners requesting their approval of the proposed reorganizations,
a summary of the provisions of this section and Sections 15679.3, 15679.4.,
15679.5, and 15679.6.
(B) Demands for payment are filed with respect to 5 percent or
more of the outstanding interests of any class of interests described in clause
(i) or (ii) of subparagraph (A).
(2) Which was outstanding on the date for the determination of
limited partners entitled to vote on the reorganization.
(3) (i) Which was not voted in favor of the reorganization, or
(ii) if the interest is described in clause (i) or (ii) of subparagraph (A) of
paragraph (1), was voted against the reorganization; provided, however, that
clause (i) rather than clause (ii) of this paragraph applies in any event where
the approval for the proposed reorganization is sought by written consent
rather than at a meeting.
(4) Which the limited partner has demanded that the limited
partnership purchase at its fair market value in accordance with Section
15679.3.
(5) Which the limited partner submits for endorsement, if
applicable, in accordance with Section 15679.4.
(c) As used in this article, "dissenting limited partner" means
the record holder of a dissenting interest, and includes an assignee of record
of such an interest.
SECTION 15679.3. PURCHASE OF DISSENTING INTERESTS -- NOTICE OF REORGANIZATION.
(a) If limited partners have a right under Section 15679.2,
subject to compliance with paragraphs (4) and (5) of subdivision (b) thereof,
to require the limited partnership to purchase their limited partnership
interests for cash, such limited partnership shall mail to each such limited
<PAGE> 171
partner a notice of the approval of the reorganization by the requisite vote or
consent of the limited partners, within 10 days after the date of such
approval, accompanied by a copy of this section and Sections 15679.2, 15679.4,
15679.5 and 15679.6, a statement of the price determined by the limited
partnership to represent the fair market value of its outstanding interests,
and a brief description of the procedure to be followed if the limited partner
desires to exercise the limited partner's rights under such sections. The
statement of price constitutes an offer by the limited partnership to purchase
at the price stated any dissenting limited partnership interests as defined in
subdivision (b) of Section 15679.2, unless they lose their status as dissenting
interests under Section 15679.11.
(b) Any limited partner who has a right to require the limited
partnership to purchase the limited partner's interest in cash under Section
15679.2, subject to compliance with paragraphs (4) and (5) of subdivision (b)
thereof, and who desires the limited partnership to purchase such interest,
shall make written demand upon the limited partnership for the purchase of such
interest and the payment to the limited partner in cash of its fair market
value. The demand is not effective for any purpose unless it is received by
the limited partnership or any transfer agent thereof (1) in the case of
interests described in clause (i) or (ii) of subparagraph (A) of paragraph (1)
or subdivision (b) of Section 15679.2, not later than the date of the limited
partners meeting to vote upon the reorganization, or (2) in any other case,
within 30 days after the date on which notice of approval of the reorganization
by the requisite vote or consent of the limed partners is mailed by the limited
partnership to the limited partners.
(c) The demand shall state the number or amount of the limited
partner's interest in the limited partnership and shall contain a statement of
what such limited partner claims to be the fair market value of that interest
on the day before the announcement of the proposed reorganization. The
statement of fair market value constitutes an offer by the limited partner to
sell the interest at such price.
SECTION 15679.4 PURCHASE OF DISSENTING INTERESTS -- SUBMISSION OF LIMITED
PARTNERSHIP INTEREST.
Within 30 days after the date on which notice of the approval of the
outstanding interests of the limited partnership is mailed to the limited
partner pursuant to subdivision (a) of Section 15679.3, the limited partner
shall submit to the limited partnership at its principal office or at the
office of any transfer agent thereof, (a) if the interest is evidenced by a
certificate, the limited partner's certificate representing the interest which
the limited partner demands that the limited partnership purchase, to be
stamped for endorsed with a statement that the interest is a dissenting
interest or to be exchanged for certificates of appropriate denominations so
stamped or endorsed, or (b) if the interest is not evidenced by a certificate,
written notice of the number or amount of interest which the limited partner
demands that the limited partnership purchase. Upon subsequent transfers of
the dissenting interest on the books of the limited partnership, the new
certificates or other written statement issued thereof shall bear a like
statement, together with the name of the original holder of the dissenting
interest.
SECTION 15679.5. AGREEMENT ON PURCHASE OF DISSENTING LIMITED PARTNERSHIP
INTEREST.
(a) If the limited partnership and the dissenting limited partner
agree that such limited partner's interest is a dissenting interest and agree
upon the price to be paid for he dissenting interest, the dissenting limited
partner is entitled to the agreed price with interest thereon at the legal rate
on judgments from the date of consummation of the reorganization. All
agreements fixing the fair market value of any dissenting limited partner's
interest as between the limited partnership and such limited partner shall be
in writing and filed in the records of the limited partnership.
<PAGE> 172
(b) Subject to the provisions of Section 15679.8, payment of the
fair market value for a dissenting interest shall be made in writing 30 days
after the amount thereof has been agreed or within 30 days after any statutory
or contractual conditions to the reorganization are satisfied, whichever is
later, and in the case of dissenting interests evidenced by certificates of
interest, subject to surrender of such certificate of interest, unless provided
otherwise by agreement.
15679.6. DISAGREEMENT OF PURCHASE OF DISSENTING LIMITED PARTNERSHIP INTEREST --
JUDICIAL RELIEF.
(a) If the limited partnership denies that a limited partnership
interest is a dissenting interest, or the limited partnership and a dissenting
limited partner fail to agree upon the fair market value of a dissenting
interest, then such limited partner or any interested limited partnership,
within six months after the date on which notice of the approval of the
reorganization by the requisite vote or consent of the limited partners was
mailed to the limited partner, but not thereafter, may file a complaint in the
superior court to determine whether the interest is a dissenting interest, or
the fair market value of the dissenting interest, or both, or may intervene in
any action pending on such a complaint.
(b) Two or more dissenting limited partners may join as plaintiffs
or be joined as defendants in any such action and two or more such actions may
be consolidated.
(c) On the trial of the action, the court shall determine the
issues. If the status of the limited partnership interest as a dissenting
interest is in issue, the court shall first determine that issue. If the fair
market value of the dissenting interest is in issue, the court shall determine,
or shall appoint one or more impartial appraisers to determine, the fair market
value of the dissenting interest.
<PAGE> 173
APPENDIX D
FORMS OF CONSENT
<PAGE> 174
JETFLEET AIRCRAFT, L.P.
SOLICITATION OF REVOCABLE CONSENT
The undersigned hereby votes his/her units as follows:
TO APPROVE THE CONSOLIDATION OF JETFLEET AIRCRAFT, L.P., A CALIFORNIA
LIMITED PARTNERSHIP, WITH AND INTO AEROMAX, INC., A NEWLY ORGANIZED
DELAWARE CORPORATION INCLUDING THE AGREEMENT AND PLAN OF MERGER DATED
AS OF _______________, 1997, AND THE RELATED AMENDMENTS TO THE
JETFLEET AIRCRAFT, L.P. PARTNERSHIP AGREEMENT AS SET FORTH IN THE
PROSPECTUS DATED __________, 1997.
YES[ ] NO[ ] ABSTAIN[ ]
(To be completed and signed on the reverse side)
================================================================================
(Continued from other side)
INVESTORS WHO SIGN AND RETURN THE CONSENT CARD WITHOUT INDICATING A
VOTE WILL BE DEEMED TO HAVE VOTED "YES" IN FAVOR OF THE PROPOSAL SET FORTH.
Please sign exactly as your name appears. When partnership units are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please provide full corporate name and name and capacity of the
authorized officer signing on behalf of such corporation. If a partnership,
please provide partnership name and name and capacity of the person signing on
behalf of such partnership.
Dated:________________________, 1997
------------------------------------
Signature (and Title, if applicable)
------------------------------------
Signature, if held jointly
THE GENERAL PARTNER REQUESTS THAT EACH INVESTOR COMPLETE AND SIGN THE ENCLOSED
CONSENT CARD.
<PAGE> 175
AEROMAX, INC.
SUPPLEMENT
TO
PROSPECTUS/CONSENT SOLICITATION STATEMENT
DATED ________________, 1997
FOR
JETFLEET AIRCRAFT, L.P.
As described in detail in the Prospectus/Consent Solicitation
Statement (this "Prospectus") which this Supplement accompanies, CMA Capital
Group, L.P. (the "Corporate General Partner"), as corporate general partner,
and Neal D. Crispin and Richard D. Koehler, Jr., as individual general partners
(all three general partners collectively referred to herein as the "General
Partner") of JetFleet Aircraft, L.P. ("JetFleet I") and JetFleet Aircraft II,
L.P. ("JetFleet II") (collectively, the "Partnerships") are proposing a
consolidation by merger (the "Consolidation") of JetFleet I and JetFleet II,
with and into AeroMax, Inc., a newly organized Delaware corporation (the
"Company"). Upon completion of the Consolidation, JetFleet I will have been
merged with and into the Company and the limited partner investors
("Investors") of JetFleet I will receive Common Stock of the Company ("Common
Stock"). The number of Shares issuable to each Partnership shall be calculated
using an exchange value (the "Exchange Value") assigned to the Partnerships
based primarily upon an independent appraisal of JetFleet I's assets. The
Company has applied to have the Common Stock listed on the American Stock
Exchange ("Amex"), subject to official notice of issuance.
The General Partner believes the Consolidation will give JetFleet I
Investors the opportunity to own securities with potentially greater liquidity
than the limited partnership interests ("Units"") held by Investors and to
participate in a significantly larger company with a more diverse asset base,
potentially greater access to capital and a greater ability to respond to the
demand for equipment financing in the Partnerships' existing niche market, used
turboprop aircraft leased by the regional air carriers than the Partnerships.
Upon completion of the Consolidation, the Company will continue in the aircraft
leasing business and will use debt and equity financing to acquire additional
aircraft assets on lease.
A JetFleet I Investor who votes "YES" will receive Common Stock of the
Company, if the majority of JetFleet I Investors approve the Consolidation and
JetFleet I and the Company consummate the Consolidation. A "YES" vote will
also constitute approval of certain amendments to the JetFleet I's Partnership
Agreement necessary to effect the Consolidation on the terms set forth in the
form of Amendment attached as Appendix A to this Supplement. An Investor who
abstains from voting or votes "NO" will receive Shares of Common Stock if (i)
the majority of JetFleet I Investors approve the Consolidation and (ii) all
other conditions for the consummation of the Consolidation of JetFleet I and
the Company are satisfied, unless he or she exercises dissenters' rights. See
"DISSENTERS' RIGHTS". If the majority of JetFleet I Investors do not approve
the Consolidation, the Consolidation between the Company and JetFleet I will
not occur, and JetFleet I will continue its existence in its current form. If
the Investors of JetFleet II approve the Consolidation, but the Investors in
JetFleet I do not approve the Consolidation, the Consolidation may be
consummated between the Company and JetFleet II only. If, however, a majority
of JetFleet II Investors do not approve the Consolidation, the Consolidation
will not be consummated, regardless of the approval or non-approval of the
Consolidation by JetFleet I
Prospectus/Consent Solicitation - JFI 1
<PAGE> 176
Investors.
This Supplement has been prepared to highlight for the Existing
Investors in JetFleet, the effects and fairness of the Consolidation with
respect to their Units and to provide information on the Partnership. A
supplement has also been prepared for JetFleet II and will be provided promptly
without charge to each JetFleet I Investor upon written request by such
Existing Investor or by his or her representative who has been so designated in
writing. All such requests should be directed to CMA Capital Group, Inc.,
General Partner, 1440 Chapin Ave., Suite 310, Burlingame, California 94010.
Capitalized terms not defined herein shall have the meaning set forth
in the Prospectus/Consent Solicitation Statement.
RISK FACTORS
The Consolidation involves certain risks and other adverse factors
which are discussed in detail in the Prospectus dated __________, 1997, which
accompanies this Supplement. See "RISK FACTORS" in the Prospectus. Because
all of the risks and adverse factors described in the Prospectus apply to the
effect of the Consolidation on each of the Partnerships, Investors in JetFleet
I should carefully review the section entitled "RISK FACTORS" therein. There
are no material differences in the manner in which JetFleet I or any other
Partnership will be affected by any of the risks or adverse factors discussed
in such "RISK FACTORS" section.
JETFLEET I CONSIDERATIONS
JetFleet I currently owns approximately aircraft assets with an
appraised value as of February 4, 1997, of $1.9 million, consisting of
undivided interests in two Dash-7 aircraft and a 50% interest in a finance
lease on a DC-9 aircraft. Each of these assets is already co-owned with
JetFleet II. By combining with JetFleet II, which has aircraft assets with an
appraised value of approximately $14 million, into the Company, Investors will
become equity owners in a significantly larger business, with a broader and
more diverse group of assets. In addition, the Shares of the Company will have
potentially greater liquidity than the Units, as the Company has applied to
list the Common Stock of the Company on the American Stock Exchange. The
General Partner believes that the Consolidation will provide JetFleet I
Investors with an opportunity to diversify their asset holdings while at the
same time increasing the potential liquidity of their investment. THE GENERAL
PARTNER STRONGLY RECOMMENDS THAT ALL INVESTORS VOTE "YES" IN FAVOR OF THE
CONSOLIDATION.
DETERMINATION OF THE EXCHANGE VALUES AND ALLOCATION OF SHARES BETWEEN
PARTNERSHIPS
The number of shares to be issued to JetFleet I Investors in the
Consolidation will be based upon an exchange value assigned to JetFleet I. The
Exchange Value was determined based on the value of aircraft asset held by
JetFleet I, as determined by an independent appraisal as of February 4, 1997,
and the projected cash, other asset and liability positions of JetFleet I as of
July 1, 1997 (the anticipated date of consummation of the Consolidation). An
Exchange Value was similarly determined for JetFleet II. The Exchange Values
have been assigned solely to establish a consistent method of allocating Shares
for purposes of the Consolidation. The Exchange Values of the Partnerships do
not indicate the aggregate price at which Shares may be sold after the
Consolidation, nor does the number of Shares to be issued indicate the trading
price of the Common Stock. See "RISK FACTORS" in the Prospectus. The number
of Shares to be issued to
Prospectus/Consent Solicitation - JFI 2
<PAGE> 177
JetFleet I upon consummation of the Consolidation will equal the Exchange Value
of the JetFleet I divided by $10, an arbitrary amount chosen for the sole
purpose of determining the number of Shares of Common Stock to be issued to
each Partnership. No fractional Shares will be issued by the Company with
respect to the Consolidation.
The Exchange Value for JetFleet I is an amount equal to the sum of (i)
the appraised market value of its aircraft assets as of February 4, 1997, (ii)
the present value of rental income owed to the Partnership on a full payout
finance lease for a DC-9 aircraft owned jointly by JetFleet I and JetFleet II
and (iii) projected cash and other assets as of the anticipated date of
consummation of the Consolidation, July 1, 1997 (the "Anticipated Consummation
Date"), less (iv) projected total liabilities of each Partnership as of the
Anticipated Consummation Date.
<TABLE>
<CAPTION>
Market Value Discounted Other Total Exchange No of.
of Assets(1) DC-9 Rent(2) Assets(3) Liabilities(4) Value Shares (5)
-------------- --------- -------- --------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
JetFleet I $ 1,762,554 $ 144,543 $107,490 $651,080 $1,363,507 136,351
</TABLE>
_________________________
(1) Based upon the market value of the assets as set forth in the Appraisal of
Aircraft Information Services, dated February 4, 1997, for each Partnership.
(2) JetFleet I holds a 50% interests in a DC-9 aircraft, on a full-payout
finance lease to AeroCalifornia. The other 50% interest is owned by JetFleet
II. The amount shown in this column represents the Partnership's portion of
the present value of the rent payable to the Partnership, discounted at an
annual rate of 10%.
(3) Consists mainly of projected cash holdings and miscellaneous receivables.
(4) Consists primarily of deferred tax liabilities, accounts payable, accrued
maintenance costs and security deposits and prepaid rents.
(5) Exchange Value divided by $10.
If a material difference in any of the asset or liability positions of
either Partnership used to calculate the Exchange Value of the Partnership as
set forth above is discovered on or before the Effective Time of the
Consolidation, the General Partner and such difference exceeds 5% of the
Exchange Value, then the General Partner shall adjust the Exchange Value to
take such difference into account. The General Partner may, in its sole
discretion, adjust the Exchange Value of a Partnership to take into account the
cash-out of dissenting Investors in that Partnership.
ALLOCATION OF SHARES BETWEEN GENERAL PARTNER AND LIMITED PARTNER
The table below shows how the Shares to be distributed to JetFleet I
are to be allocated between the General Partner and the limited partner
Investors.
<TABLE>
<CAPTION>
Total Shares No. of No. Of Percent of Total
Allocated to Shares Issued Shares Issued Shares Issued
Partnership Partnership(1) to General Partner(2) to Ltd. Partners to Ltd. Partner
- ----------- -------------- ------------------- ---------------- ----------------
<S> <C> <C> <C> <C>
JetFleet I 136,351 1,364 134,987 99.0%
</TABLE>
_________________________
(1) The number of Shares to be issued to JetFleet I upon consummation of the
Consolidation will equal the Exchange Value of JetFleet I (last column of the
previous table entitled "Determination of Allocation of Shares Between
Partnerships") divided by $10, an arbitrary amount chosen for the sole purpose
of allocating Shares and which is not intended to imply that the Shares will
trade at a price of $10 per Share.
(2) Represents the General Partner's 1% general partnership interest in
JetFleet I, for which the General Partner paid
Prospectus/Consent Solicitation - JFI 3
<PAGE> 178
$750 in cash at the organization of JetFleet I, according to the Partnership
Agreement for JetFleet I and JetFleet II respectively.
CONVERSION RATIO
At the consummation of the Consolidation, each Participating
Investor's limited partnership Units will be automatically converted into the
right to receive that number of Shares of Common Stock of the Company equal to
the number of Units held by the Investor multiplied by the Conversion Ratio,
rounded to the nearest whole Share. The Conversion Ratio shall equal the
quotient obtained by dividing (a) the number of Shares allocated to be issued
to the Investors of the Partnership; by (b) the total number of Units of
limited partnership outstanding for the Partnership held by Participating
Investors. The Conversion Ratio for JetFleet I shall be ____ Shares per Unit.
VOTING
Participation in the Consolidation by JetFleet I requires the approval
of Investors holding a majority of the outstanding Units of JetFleet I. The
Prospectus along with this Supplement constitutes the solicitation of the
approval of the JetFleet I Investors to the Consolidation, including all such
actions required by JetFleet I to consummate the Consolidation. Each Investor
is being asked by the General Partner to consider the following elections with
respect to the Consolidation:
"YES" I approve of my Partnership's participation in the
Consolidation; or
"NO" I do not approve of my Partnership's participation in the
Consolidation.
Investors may also abstain from voting. Upon completion of the
enclosed Consent Card, an Investor should send it to the General Partner at
____________________________.
AN INVESTOR WHO RETURNS A CONSENT CARD WITHOUT INDICATING A VOTE, HOWEVER,
WILL BE DEEMED TO HAVE VOTED "YES" IN FAVOR OF THE CONSOLIDATION AND RELATED
PROPOSALS AND WILL RECEIVE SHARES OF COMMON STOCK OF THE COMPANY IF THE
CONSOLIDATION IS CONSUMMATED BETWEEN THE COMPANY AND THE INVESTOR'S
PARTNERSHIP.
An Investor of a Partnership who votes "YES" will receive Common Stock
of the Company, if the majority of Investors in JetFleet I and JetFleet II
approve the Consolidation and the Partnerships and the Company consummate the
Consolidation. An Investor who abstains from voting or votes "NO" on the
Consolidation will receive Shares of Common Stock if the majority of Investors
in JetFleet I and JetFleet II approve the Consolidation and the Partnership and
the Company consummate the Consolidation, unless he or she exercises
dissenters' rights.See "Dissenters' Rights". If the majority of Investors of
JetFleet I do not approve the Consolidation, the Consolidation between the
Company and JetFleet I will not occur, and such Partnership will continue its
existence in its current form. Notwithstanding the nonapproval of the
Consolidation between JetFleet I and the Company, if the JetFleet II Investors
approve the Consolidation, then the Company may consummate the Consolidation
without JetFleet I. The Consolidation, however, will not be consummated
between the Company and JetFleet I without the participation of JetFleet II.
Investors holding Units of the Partnerships as of May 1, 1997 (the
"Record Date") have
Prospectus/Consent Solicitation - JFI 4
<PAGE> 179
until June 30, 1997, 11:59 p.m. Pacific Standard Time, unless extended (the
"Approval Date") to vote in favor of or against the consolidation. Investors
may withdraw or revoke their consent at any time prior to the Approval Date.
See "VOTING--Voting Procedures--Revocability of Consent."
AMENDMENTS TO PARTNERSHIP AGREEMENTS
The JetFleet I Partnership Agreement does not specifically address the
merger of the Partnerships or the conversion of equity securities for Units.
Therefore, the General Partner is requesting the consent of Investors to amend
the Partnership Agreements to include specific provisions regarding the
Consolidation. Because the JetFleet I Partnership Agreement also does not
address dissenters' rights, the amendments memorialize the dissenters' rights
set forth in the Prospectus, which must be in compliance with the California
Partnership Act. The amendments also provide for a uniform dissenters' rights
procedures for both JetFleet I and JetFleet II Investors. By voting "YES" in
favor of the Consolidation, an Investor will also have approved the proposed
amendments to JetFleet I Partnership Agreement (the "Amendment") attached in
the form of Appendix A hereto.
DISSENTERS' RIGHTS
Any JetFleet I Investor that does not vote "YES" on the Consolidation,
will be entitled to exercise dissenters' or appraisal rights, if JetFleet I
participates in the Consolidation and the Investor follows specific procedures
set forth under the California Revised Limited Partnership Act ("California
Partnership Act"). See "DISSENTERS' RIGHTS" in the Prospectus.
APPENDICES
Appendix A - Form of Partnership Amendment.
Prospectus/Consent Solicitation - JFI 5
<PAGE> 180
APPENDIX A
FORM OF PARTNERSHIP AMENDMENT
Prospectus/Consent Solicitation - JFI
<PAGE> 181
AMENDMENT TO
AMENDED AND RESTATED PARTNERSHIP AGREEMENT
This Amendment to Amended and Restated Partnership Agreement is entered
into as of __________, 1997, by and among CMA Capital Group, Inc., a California
corporation ("Managing General Partner"), Neal D. Crispin and Richard D.
Koehler as individual general partners (the Managing General Partner and the
individual general partners collectively, the "General Partners"), and CMA
Capital Group, Inc, as attorney-in-fact for the limited partners listed on
Appendix A, who constitute holders of a majority of the outstanding Units, to
amend that certain Amended and Restated Partnership Agreement of JetFleet
Aircraft, L.P. ("JetFleet I"), made and executed as of May 19, 1989 between the
parties hereto (the "Partnership Agreement"). Capitalized terms not otherwise
defined herein, shall have the meaning as set forth in the Partnership
Agreement.
RECITALS
Pursuant to the Partnership Agreement, JetFleet I was organized under
California law in May 1989.
The General Partner has proposed a consolidation (the "Consolidation")
of JetFleet I and its affiliated partnership, JetFleet Aircraft II, L.P.
("JetFleet II") with and into a newly-formed successor Delaware corporation,
AeroMax, Inc., pursuant to the terms and conditions of a certain Merger
Agreement by and between AeroMax, JetFleet I and JetFleet II. The General
Partner has solicited the requisite approval of the limited partners of
JetFleet I to participate in the Consolidation as more fully described in that
certain Prospectus/Consent Solicitation Statement, dated _____, 1997 (the
"Prospectus"). As part of the approval, the limited partners approved
amendments to the Partnership Agreement to enable the Consolidation.
NOW, THEREFORE, the parties hereto agree as follows:
1. Approval of the Consolidation. Upon receipt of the approval of
holders of a majority of the outstanding Units of limited partnership interest
of JetFleet I, the General Partner is authorized to executed, deliver and
perform all obligations of the Partnership under the Merger Agreement and all
other documents and agreements required to be delivered by the Partnership in
connection therewith. Any inconsistent provisions of the Partnership Agreement
are hereby amended to permit the Consolidation to be consummated.
2. Dissenters' Rights. Notwithstanding anything to the contrary
contained in the Partnership Agreement, limited partners that did not vote in
favor of the Consolidation and follow certain procedures set forth in the
Prospectus shall have the dissenters' rights as set forth in the Prospectus,
which dissenters' rights shall comply with the requirements of the California
Partnership Act.
3. Termination of the Partnership. Upon the effectiveness of the
Consolidation, the separate existence of the JetFleet I shall cease, and the
limited partners of the Partnership shall have the right to receive Common
Stock of AeroMax, Inc., all as set forth in the Prospectus.
<PAGE> 182
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first-above written:
CMA CAPITAL GROUP, INC.
------------------------------
Neal D. Crispin
By:
---------------------------------- ------------------------------
Richard D. Koehler Richard D. Koehler
LIMITED PARTNERS listed on
Appendix A
By: CMA Capital Group, Inc.
Attorney-in-fact
- -------------------------------------
Richard D. Koehler, President
<PAGE> 183
APPENDIX A
<TABLE>
<CAPTION>
List of Approving Limited Partners No. of Units Held
- ---------------------------------- -----------------
<S> <C>
Total Units:
--------------
</TABLE>
<PAGE> 184
AEROMAX, INC.
SUPPLEMENT
TO
PROSPECTUS/CONSENT SOLICITATION STATEMENT
DATED ________________, 1997
FOR
JETFLEET AIRCRAFT II, L.P.
As described in detail in the Prospectus/Consent Solicitation
Statement (this "Prospectus") which this Supplement accompanies, CMA Capital
Group, L.P. (the "Corporate General Partner"), as corporate general partner,
and Neal D. Crispin and Richard D. Koehler, Jr., as individual general partners
(all three general partners collectively referred to herein as the "General
Partner") of JetFleet Aircraft, L.P. ("JetFleet I") and JetFleet Aircraft II,
L.P. ("JetFleet II") (collectively, the "Partnerships") are proposing a
consolidation by merger (the "Consolidation") of JetFleet I and JetFleet II,
with and into AeroMax, Inc., a newly organized Delaware corporation (the
"Company"). Upon completion of the Consolidation, JetFleet II will have been
merged with and into the Company and the limited partner investors
("Investors") of JetFleet II will receive Common Stock of the Company ("Common
Stock"). The number of Shares issuable to each Partnership shall be calculated
using an exchange value (the "Exchange Value") assigned to the Partnerships
based primarily upon an independent appraisal of JetFleet II's assets. The
Company has applied to have the Common Stock listed on the American Stock
Exchange ("Amex"), subject to official notice of issuance.
The General Partner believes the Consolidation will give JetFleet II
Investors the opportunity to own securities with potentially greater liquidity
than the limited partnership interests ("Units"") held by Investors and to
participate in a company with a greater ability to respond to the demand for
equipment financing in the Partnerships' existing niche market, used turboprop
aircraft leased by the regional air carriers than the Partnerships. Upon
completion of the Consolidation, the Company will continue in the aircraft
leasing business and will use debt and equity financing to acquire additional
aircraft assets on lease.
A JetFleet II Investor who votes "YES" will receive Common Stock of
the Company, if the majority of JetFleet II Investors approve the Consolidation
and JetFleet II and the Company consummate the Consolidation. A "YES" vote
will also constitute approval of certain amendments to the JetFleet II's
Partnership Agreement necessary to effect the Consolidation on the terms set
forth in the form of Amendment attached as Appendix A to this Supplement. An
Investor who abstains from voting or votes "NO" will receive Shares of Common
Stock if (i) the majority of JetFleet II Investors approve the Consolidation
and (ii) all other conditions for the consummation of the Consolidation of
JetFleet II and the Company are satisfied, unless he or she exercises
dissenters' rights. See "DISSENTERS' RIGHTS".
If the JetFleet II Investors approve the Consolidation, but the
Investors in JetFleet I do not approve the Consolidation, the Consolidation may
be consummated between the Company and JetFleet II only. In determining
whether to proceed with a Consolidation with JetFleet II only, the Company will
determine whether the number of dissenting Investors, the number of
Participating Investors and the asset base of JetFleet II alone will provide a
sufficient basis for the Company to meet its objectives and satisfy all the
conditions for the Consolidation set forth in the Merger
Prospectus/Consent Solicitation - Jet II 1
<PAGE> 185
Agreement. If, however, a majority of JetFleet II Investors do not approve the
Consolidation, the Consolidation will not be consummated, regardless of the
approval or non-approval of the Consolidation by JetFleet I Investors.
This Supplement has been prepared to highlight for the Existing
Investors in JetFleet, the effects and fairness of the Consolidation with
respect to their Units and to provide information on the Partnership. A
supplement has also been prepared for JetFleet I and will be provided promptly
without charge to each JetFleet II Investor upon written request by such
Existing Investor or by his or her representative who has been so designated in
writing. All such requests should be directed to CMA Capital Group, Inc.,
General Partner, 1440 Chapin Ave., Suite 310, Burlingame, California 94010.
Capitalized terms not defined herein shall have the meaning set forth
in the Prospectus/Consent Solicitation Statement.
RISK FACTORS
The Consolidation involves certain risks and other adverse factors
which are discussed in detail in the Prospectus dated __________, 1997, which
accompanies this Supplement. See "RISK FACTORS" in the Prospectus. Because
all of the risks and adverse factors described in the Prospectus apply to the
effect of the Consolidation on each of the Partnerships, Investors in JetFleet
I should carefully review the section entitled "RISK FACTORS" therein. Except
as set forth herein, there are no material differences in the manner in which
JetFleet II or JetFleet I will be effected by any of the risks or adverse
factors discussed in such "RISK FACTORS" section.
JETFLEET II CONSIDERATIONS
JetFleet II currently owns approximately aircraft assets with an
appraised value as of February 4, 1997, of $14.9 million. Of those assets,
undivided interests in aircraft assets with an approximate appraised value of
$2.1 are co-owned with JetFleet I, including two Dash-7 Aircraft. By combining
with JetFleet I, which has aircraft assets with an appraised value of
approximately $1.9 million (consisting entirely of assets co-owned with
JetFleet II), into the Company, Investors will become equity owners in a
slightly larger business,but which, will have total control and ownership over
substantially all of its assets. In addition, the Shares of the Company will
have potentially greater liquidity than the Units, as the Company has applied
to list the Common Stock of the Company on the American Stock Exchange. The
General Partner believes that the Consolidation will provide JetFleet II
investors with an opportunity to diversify the asset holdings while at the same
time increasing the potential liquidity of their investment in the aircraft
industry. THE GENERAL PARTNER STRONGLY RECOMMENDS THAT ALL INVESTORS VOTE
"YES" IN FAVOR OF THE CONSOLIDATION.
PRO FORMA FINANCIAL STATEMENTS FOR A JETFLEET II - ONLY CONSOLIDATION
The General Partner believes that the Consolidation would still
benefit JetFleet II Investors and be fair to JetFleet II and its Investors even
if JetFleet I does not participate. Attached as Appendix B to this Supplement
are Pro-forma financial statements showing the effect of a combination of
JetFleet II and the Company only.
Prospectus/Consent Solicitation - Jet II 2
<PAGE> 186
DETERMINATION OF THE EXCHANGE VALUES AND ALLOCATION OF SHARES BETWEEN
PARTNERSHIPS
The number of shares to be issued to JetFleet II Investors in the
Consolidation will be based upon an exchange value assigned to JetFleet II.
The Exchange Value was determined based on the value of aircraft asset held by
JetFleet II, as determined by an independent appraisal as of February 4, 1997,
and the projected cash, other asset and liability positions of JetFleet II as
of July 1, 1997 (the anticipated date of consummation of the Consolidation).
An Exchange Value was similarly determined for JetFleet II. The Exchange
Values have been assigned solely to establish a consistent method of allocating
Shares for purposes of the Consolidation. The Exchange Values of the
Partnerships do not indicate the aggregate price at which Shares may be sold
after the Consolidation, nor does the number of Shares to be issued indicate
the trading price of the Common Stock. See "RISK FACTORS" in the Prospectus.
The number of Shares to be issued to JetFleet II upon consummation of the
Consolidation will equal the Exchange Value of the JetFleet II divided by $10,
an arbitrary amount chosen for the sole purpose of determining the number of
Shares of Common Stock to be issued to each Partnership. No fractional Shares
will be issued by the Company with respect to the Consolidation.
The Exchange Value for JetFleet II is an amount equal to the sum of
(i) the appraised market value of its aircraft assets as of February 4, 1997,
(ii) the present value of rental income owed to the Partnership on a full
payout finance lease for two DC-9 aircraft, one owned jointly by JetFleet I and
JetFleet II and one owned entirely by JetFleet I and (iii) projected cash and
other assets as of the anticipated date of consummation of the Consolidation,
July 1, 1997 (the "Anticipated Consummation Date"), less (iv) projected total
liabilities of each Partnership as of the Anticipated Consummation Date.
<TABLE>
<CAPTION>
Market Value Discounted Other Total Exchange No of.
of Assets(1) DC-9 Rent(2) Assets(3) Liabilities(4) Value Shares (5)
---------- --------- ------ ----------- ----- -------
<S> <C> <C> <C> <C> <C>
JetFleet II $13,927,446 $622,178 $731,304 $1,994,932 $13,285,996 1,328,600
</TABLE>
- --------------------
(1) Based upon the market value of the assets as set forth in the Appraisal of
Aircraft Information Services, dated February 4, 1997, for each Partnership.
(2) JetFleet II holds one DC-9 aircraft and a 50% interests in another DC-9
aircraft, on a full-payout finance lease to AeroCalifornia. The other 50%
interest in the second aircraft is owned by JetFleet II. The amount shown in
this column represents the Partnership's portion of the present value of the
rent payable to the Partnership, discounted at an annual rate of 10%.
(3) Consists mainly of projected cash holdings and miscellaneous receivables.
(4) Consists primarily of deferred tax liabilities, accounts payable, accrued
maintenance costs and security deposits and prepaid rents.
(5) Exchange Value divided by $10.
If a material difference in any of the asset or liability positions of
either Partnership used to calculate the Exchange Value of the Partnership as
set forth above is discovered on or before the Effective Time of the
Consolidation, the General Partner and such difference exceeds 5% of the
Exchange Value, then the General Partner shall adjust the Exchange Value to
take such difference into account. The General Partner may, in its sole
discretion, adjust the Exchange Value of a Partnership to take into account the
cash-out of dissenting Investors in that Partnership.
Prospectus/Consent Solicitation - Jet II 3
<PAGE> 187
ALLOCATION OF SHARES BETWEEN GENERAL PARTNER AND LIMITED PARTNER
The table below shows how the Shares to be distributed to JetFleet I
are to be allocated between the General Partner and the limited partner
Investors.
<TABLE>
<CAPTION>
Total Shares No. of No. Of Percent of Total
Allocated to Shares Issued Shares Issued Shares Issued
Partnership Partnership(1) to General Partner(2) to Ltd. Partners to Ltd. Partner
- ----------- -------------- ------------------- ---------------- ----------------
<S> <C> <C> <C> <C>
JetFleet II 1,328,600 66,429 1,262,171 95.0%
</TABLE>
- -------------------------
(1) The number of Shares to be issued to JetFleet II upon consummation of the
Consolidation will equal the Exchange Value of JetFleet II (last column of the
previous table entitled "Determination of Allocation of Shares Between
Partnerships") divided by $10, an arbitrary amount chosen for the sole purpose
of allocating Shares and which is not intended to imply that the Shares will
trade at a price of $10 per Share.
(2) Represents the General Partner's 5% general partnership interest in
JetFleet I, for which the General Partner paid $750 in cash at the organization
of JetFleet II, according to the Partnership Agreement for JetFleet II
respectively.
CONVERSION RATIO
At the consummation of the Consolidation, each Participating
Investor's limited partnership Units will be automatically converted into the
right to receive that number of Shares of Common Stock of the Company equal to
the number of Units held by the Investor multiplied by the Conversion Ratio,
rounded to the nearest whole Share. The Conversion Ratio shall equal the
quotient obtained by dividing (a) the number of Shares allocated to be issued
to the Investors of the Partnership; by (b) the total number of Units of
limited partnership outstanding for the Partnership held by Participating
Investors. The Conversion Ratio for JetFleet II shall be ____ Shares per Unit.
VOTING
Participation in the Consolidation by JetFleet II requires the
approval of Investors holding a majority of the outstanding Units of JetFleet
II. The Prospectus along with this Supplement constitutes the solicitation of
the approval of the JetFleet II Investors to the Consolidation, including all
such actions required by JetFleet I to consummate the Consolidation. Each
Investor is being asked by the General Partner to consider the following
elections with respect to the Consolidation:
"YES" I approve of my Partnership's participation in the
Consolidation; or
"NO" I do not approve of my Partnership's participation in the
Consolidation.
Investors may also abstain from voting. Upon completion of the
enclosed Consent Card, an Investor should send it to the General Partner at
____________________________.
AN INVESTOR WHO RETURNS A CONSENT CARD WITHOUT INDICATING A VOTE, HOWEVER,
WILL BE DEEMED TO HAVE VOTED "YES" IN FAVOR OF THE CONSOLIDATION AND RELATED
PROPOSALS AND WILL RECEIVE SHARES OF COMMON STOCK OF THE COMPANY IF THE
CONSOLIDATION IS CONSUMMATED BETWEEN THE COMPANY AND THE INVESTOR'S
PARTNERSHIP.
Prospectus/Consent Solicitation - Jet II 4
<PAGE> 188
An Investor of a Partnership who votes "YES" will receive Common Stock
of the Company, if the majority of Investors in JetFleet I and JetFleet II
approve the Consolidation and the Partnerships and the Company consummate the
Consolidation. An Investor who abstains from voting or votes "NO" on the
Consolidation will receive Shares of Common Stock if the majority of Investors
in JetFleet I and JetFleet II approve the Consolidation and the Partnership and
the Company consummate the Consolidation, unless he or she exercises
dissenters' rights. If the majority of Investors of JetFleet II do not approve
the Consolidation, the Consolidation between the Company and JetFleet II will
not occur, and JetFleet II will continue its existence in its current form.
Notwithstanding the nonapproval of the Consolidation between JetFleet I and the
Company, if the JetFleet II Investors approve the Consolidation, then the
Company may consummate the Consolidation without JetFleet I. The
Consolidation, however, will not be consummated between the Company and
JetFleet I without the participation of JetFleet II.
AMENDMENTS TO PARTNERSHIP AGREEMENT
The JetFleet II Partnership Agreement does not specifically address
the merger of the Partnerships or the conversion of equity securities for
Units. Therefore, the General Partner is requesting the consent of Investors
to amend the Partnership Agreements to include specific provisions regarding
the Consolidation. The amendments also provide for a uniform dissenters'
rights procedures for both JetFleet I and JetFleet II Investors. By voting
"YES" in favor of the Consolidation, an Investor will also have approved the
proposed amendments to JetFleet I Partnership Agreement (the "Amendment")
attached in the form of Appendix A hereto.
The Amendment changes certain amendments to the Partnership Agreement
made by the General Partner in 1993 in response to certain blue sky regulatory
requirements ("Rollup Provisions"). The Amendment amends the Rollup Provisions
of the Partnership Agreement to make their dissenters' rights provisions
consistent with the statutory dissenters' rights provisions under the
California Partnership Act (to which JetFleet I investors will be subject).
Under certain circumstances, the Roll up Provisions may be more favorable to
dissenting Investors than the procedures set forth for the Consolidation.
While the Consolidation and procedures for approval of the Consolidation set
forth in the Prospectus are consistent with the Rollup Provisions, one of
Rollup Provisions requires that any investor that votes "NO" on the
Consolidation receive the proportionate share of the appraised value of the
assets of the Partnership, net of the costs of an orderly liquidation. The
California Partnership Act provides that any Investor that does not vote "YES"
on the Consolidation receive the fair value of the Units at the time of the
announcement of the Consolidation. It is possible that the cash consideration
payable to dissenting Investors under the Rollup Provisions would be higher
than the cash consideration payable under the California Act provisions; there
are likely to be fewer Investors qualifying for dissenters' rights, however,
under the Rollup Provisions than under the California Partnership Act. The
General Partner believes that the dissenters' rights provisions as amended are
fair to the Investors and that the dissenters' rights provisions are consistent
with the requirements of both the California Partnership Act and the NASDAQ
listing requirements for "rollup" transactions. Under the terms of the
Consolidation, assuming that each Investors of both Partnerships participate in
the Consolidation, each dissenting Investor in JetFleet II shall be entitled to
receive $______ in cash. The pro-rata appraised value of JetFleet II's assets
represented by one Unit, based on current market appraisals performed by an
independent appraiser is $____. The current market value appraisal approach
assumes that there is no short term time constraint to buy or sell the
appraised assets. The Rollup Provisions require that the appraisal be based on
an orderly liquidation within 12 months, so it is possible that an appraisal of
JetFleet II assets in accordance with the Rollup Provisions would be lower than
for the current market value appraisals received by the Company from the
independent appraiser.
DISSENTERS' RIGHTS
Any JetFleet II Investor that does not vote "YES" on the
Consolidation, will be entitled to exercise dissenters' or appraisal rights, if
JetFleet II participates in the Consolidation and the
Prospectus/Consent Solicitation - Jet II 5
<PAGE> 189
Investor follows specific procedures set forth under the California Revised
Limited Partnership Act ("California Partnership Act"). See "DISSENTERS'
RIGHTS" in the Prospectus" and "Amendment to Partnership Agreement," above.
APPENDICES
Appendix A -- Form of Partnership Amendment
Appendix B -- Pro Forma Financial Information
Prospectus/Consent Solicitation - Jet II 6
<PAGE> 190
APPENDIX A
FORM OF PARTNERSHIP AMENDMENT
Prospectus/Consent Solicitation - Jet II
<PAGE> 191
AMENDMENT TO
LIMITED PARTNERSHIP AGREEMENT
This Amendment to Limited Partnership Agreement is entered into as of
__________, 1997, by and among CMA Capital Group, Inc., a California
corporation ("Managing General Partner"), Neal D. Crispin and Richard D.
Koehler as individual general partners (the Managing General Partner and the
individual general partners collectively, the "General Partners"), and CMA
Capital Group, Inc, as attorney-in-fact for the limited partners listed on
Appendix A, who constitute holders of a majority of the outstanding Units, to
amend that certain Amended and Restated Partnership Agreement of JetFleet
Aircraft II, L.P. ("JetFleet II"), made and executed as of June 21, 1991,
between the parties hereto (the "Partnership Agreement"). Capitalized terms
not otherwise defined herein, shall have the meaning as set forth in the
Partnership Agreement.
RECITALS
Pursuant to the Partnership Agreement, JetFleet II was organized under
California law in May 1991.
The General Partner has proposed a consolidation (the "Consolidation")
of JetFleet II and its affiliated partnership, JetFleet Aircraft, L.P.
("JetFleet I") with and into a newly-formed successor Delaware corporation,
AeroMax, Inc., pursuant to the terms and conditions of a certain Merger
Agreement by and between AeroMax, JetFleet I and JetFleet II. The General
Partner has solicited the requisite approval of the limited partners of
JetFleet I to participate in the Consolidation as more fully described in that
certain Prospectus/Consent Solicitation Statement, dated _____, 1997 (the
"Prospectus"). As part of the approval, the limited partners approved
amendments to the Partnership Agreement to enable the Consolidation.
NOW, THEREFORE, the parties hereto agree as follows:
1. Approval of the Consolidation. Upon receipt of the approval
of holders of a majority of the outstanding Units of limited partnership
interest of JetFleet II, the General Partner is authorized to executed, deliver
and perform all obligations of the Partnership under the Merger Agreement and
all other documents and agreements required to be delivered by the Partnership
in connection therewith. Any inconsistent provisions of the Partnership
Agreement are hereby amended to permit the Consolidation to be consummated.
2. Dissenters' Rights. Notwithstanding anything to the contrary
contained in the Partnership Agreement, limited partners that did not vote in
favor of the Consolidation and follow certain procedures set forth in the
Prospectus shall have the dissenters' rights as set forth in the Prospectus,
which dissenters' rights shall comply with the requirements of the California
Partnership Act. Section 13.9 of the Partnership Agreement is hereby deleted
in its entirety.
3. Waiver of Resale Fee. General Partner hereby waives the fee
set forth in 5.6(f) with respect to the Consolidation transactions.
4. Termination of the Partnership. Upon the effectiveness of the
Consolidation, the separate existence of the JetFleet II shall cease, and the
limited partners of the Partnership shall have the right to receive Common
Stock of AeroMax, Inc., all as set forth in the Prospectus.
<PAGE> 192
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first-above written:
CMA CAPITAL GROUP, INC.
---------------------------
By: Neal D. Crispin
-------------------------------------
Richard D. Koehler
---------------------------
Richard D. Koehler
LIMITED PARTNERS listed on
Appendix A
By: CMA Capital Group, Inc.
Attorney-in-fact
- ----------------------------------------
Richard D. Koehler, President
<PAGE> 193
APPENDIX A
<TABLE>
<CAPTION>
List of Approving Limited Partners No. of Units Held
- ---------------------------------- -----------------
<S> <C>
Total Units:
--------------
</TABLE>
<PAGE> 194
APPENDIX B
PRO FORMA FINANCIAL INFORMATION
<PAGE> 195
AEROMAX, INC.
UNAUDITED PRO FORMA COMBINING BALANCE SHEETS
DECEMBER 31, 1996
(ASSUMING ONLY JETFLEET II PARTICIPATION)
<TABLE>
<CAPTION>
JetFleet
AeroMax, Inc. Aircraft II, L.P. Adjustments Pro Forma
------------ ----------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $ 140,000 $ 1,191,900 $ $
Lease payments receivable 540,000
Other assets 229,800
------------ ------------ ------------ ------------
Total current assets 140,000 1,761,700
Aircraft and aircraft engines
under/held for operating leases, net 14,435,600
Lease payments receivable 180,000
Organization costs, net 10,000 32,900 (32,900)(a) 10,000
------------ ------------ ------------ ------------
$ 150,000 $ 16,410,200 $ (32,900) $ 16,527,300
============ ============ ============ ============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable $ 2,800 $ 112,500 $ 495,00 (b) $ 610,300
Deferred taxes 1,200,000 (c) 1,200,000
Accrued maintenance costs 501,100 501,100
Security deposits 143,100 143,100
Prepaid rents 27,600 27,600
Unearned interest income 79,200 79,200
Other accrued liabilities 10,900 10,900
------------ ------------ ------------ ------------
Total current liabilities 2,800 874,400 1,695,000 2,572,200
Unearned interest income 8,800 8,800
------------ ------------ ------------ ------------
Total liabilities 2,800 883,200 1,695,000 2,581,000
Equity 147,200 15,527,000 (32,900) 13,946,300
(1,695,000)(b,c)
------------ ------------ ------------ ------------
$ 150,000 $ 16,410,200 $ (32,900) $ 16,527,300
============ ============ ============ ============
</TABLE>
See accompanying notes.
<PAGE> 196
AEROMAX, INC.
UNAUDITED PRO FORMA COMBINING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(ASSUMING ONLY JETFLEET II PARTICIPATION)
<TABLE>
<CAPTION>
JetFleet
AeroMax, Inc. Aircraft II, L.P. Adjustments Pro Forma
----------- ----------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ $ 2,658,500 $ $ 2,628,500
Other income 394,300 394,300
----------- ----------- ----------- -----------
0 3,052,800 3,052,800
Costs and expenses:
Management fees 113,700 314,700 (aa) 428,400
Depreciation 3,260,000 (2,690,500)(bb) 569,500
Professional fees and general 384,500
and administrative 119,300 (266,400)(aa) 118,100
Merger costs 31,900 495,000 (cc) 495,000
Maintenance 119,300
Amortization 2,000 3,909,400 (31,900)(dd) 2,000
----------- ----------- ----------- -----------
2,000 (856,600) (2,179,100) 1,732,300
Income before taxes (2,000) 2,179,100 1,320,500
Provision for income taxes 800 528,200 (ee) 529,000
----------- ----------- ----------- -----------
Net income $ (2,800) $ (856,600) $ 1,650,900 $ 791,500
=========== =========== =========== ===========
Earnings per share
Net income $ 0.63
===========
Number of common shares
outstanding 1,262,171
===========
</TABLE>
See accompanying notes.
<PAGE> 197
AeroMax, Inc.
Notes to Unaudited Pro Forma Financial Statements
1. Basis of presentation
AeroMax, Inc. ("AeroMax"), a Delaware corporation, was formed on
February 28, 1997. JetFleet Management Corp. ("JMC"), a California
corporation formed in 1994, owns all of AeroMax's 150,000 shares of common
stock. CMA Capital Group (the "General Partner") is proposing a consolidation
by merger (the "Consolidation") of JetFleet Aircraft, L.P. ("JetFleet I") and
JetFleet Aircraft II, L.P. ("JetFleet II") with and into AeroMax. JetFleet I
and JetFleet II are each California limited partnerships formed in 1989 and
1991, respectively, to invest in leased aircraft equipment. Upon completion of
the Consolidation, the Company will continue in the aircraft leasing business
and intends to use leveraged financing to acquire additional aircraft assets on
lease.
The unaudited pro forma balance sheet and statement of operations have
been prepared on the basis that only JetFleet II participates in the
Consolidation. Upon Consolidation, the General Partner and the limited
partners (collectively, the "Partners") will receive stock in AeroMax in return
for their partnership interests in JetFleet II. The Consolidation will be
accounted for as a pooling of interests and, therefore, no adjustment to the
historical carrying amount of assets and liabilities will be made. Historical
information for AeroMax and JetFleet II are based on audited financial
statements which are included elsewhere herein. JetFleet II participation
results in 1,328,601 additional shares of common stock being issued to the
Partners. Warrants to purchase 35,000 shares of common stock at $3.00 per
share will be issued to Crispin Koehler Securities in consideration for
investment banking services rendered in connection with the Consolidation.
The unaudited pro forma balance sheet as of December 31, 1996 has been
prepared as if the transactions contemplated by the Consolidation had occurred
on December 31, 1996, and the accompanying unaudited pro forma statement of
operations has been prepared as if the Consolidation had occurred on January 1,
1996.
The unaudited pro forma financial statements have been prepared by
making certain adjustments (as explained in Note 2 below) to the historical
financial information of JetFleet II. The pro forma information presented is
not necessarily indicative of the result that would have occurred had the
Consolidation occurred and AeroMax operated as a single entity during the
period presented, or of the future operations of the Partnership.
1
<PAGE> 198
2. Pro forma adjustments
The pro forma balance sheet includes the following adjustment:
(a) Elimination of unamortized organization costs at December 31, 1996.
(b) Offering costs, estimated to be $250,000, have been charged directly
to 1996 operations. It is anticipated that the offering costs will be
short-term payables, paid from cash on hand at the time of the Consolidation.
(c) A deferred tax liability has been recognized for the difference of $3
million between the book value of the assets and liabilities of JetFleet II at
December 31, 1996 and the tax basis due to accelerated depreciation used for
tax purposes.
The pro forma statement of operations includes the following adjustments:
(aa) Upon Consolidation, AeroMax will sign a management agreement with JMC
under which JMC will manage AeroMax's assets. Under this agreement, AeroMax
will pay JMC monthly in arrears 3% per annum of the net asset value of the
assets under management. Such fees have been increased to reflect the terms of
this agreement. Professional fees and general and administrative have been
decreased to reflect anticipated savings.
(bb) AeroMax intends to depreciate each asset on a straight-line basis over
its estimated useful life, generally twelve years, to its estimated residual
value at that time. Assuming the Consolidation is effective mid-1997, under
this method, annual depreciation on the existing assets would approximate
$400,000.
(cc) Offering costs of the Consolidation, estimated to be $250,000, have
been expensed. In addition, $245,000 in estimated costs of issuing warrants to
purchase 35,000 shares of common stock (see Note 1 above) has been expensed.
(dd) Amortization of JetFleet II organization costs has been eliminated.
(ee) Corporate taxes at the estimated federal and state combined rate of
40% have been provided.
3. Calculation of number of common shares outstanding
The number of shares outstanding for the year ended December 31, 1996
used in computing pro forma net income is based on the number of shares and
warrants which would be outstanding as a result of the Consolidation assuming
JetFleet II acceptance on January 1, 1996.
2
<PAGE> 199
AeroMax, Inc.
Management's Discussion and Analysis of Pro Forma
Financial Condition and Results of Operations
The pro forma financial statements contained herein assume that the
Consolidation takes place with only JetFleet II participation.
Pro forma adjustments reflect the cost of a management contract with JMC (which
is partially offset by anticipated savings for professional fees and general
and administrative costs) and an adjustment in depreciation expense to reflect
individual asset straight-line depreciation to estimated residual value over
estimated useful life. (See Notes to Unaudited Pro Forma Financial
Statements.)
Pro Forma Results of Operations
The Company reported pro forma earnings per share of $0.75 per share. Rental
income from assets under operating leases accounted for 88% of revenues, with
interest income from full financing leases comprising 12% of revenues.
The Company's single largest expense is depreciation of its aircraft assets.
The Company will pay management fees pursuant to a newly entered contract with
JMC at the rate of 3% per annum of the net asset value of the assets under
management. The cost of the Consolidation approximates $250,000 in offering
costs and $245,000 in estimated expenses associated with the issuance of 35,000
of warrants. Taxes of approximately $529,000 reflect an effective tax rate of
40% on earnings as if the Company were in existence as of January 1, 1996.
See Management's Discussion and Analysis of Financial Condition and Results of
Operations of AeroMax, JetFleet I, and JetFleet II elsewhere herein.
Pro Forma Liquidity and Financial Condition
At December 31, 1996, cash totalled $1,331,900 before payment of offering costs
approximating $250,000.
See Management's Discussion and Analysis of Financial Condition and Results of
Operations of AeroMax and JetFleet II elsewhere herein.
3
<PAGE> 200
- --------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS/CONSENT
SOLICITATION STATEMENT
- --------------------------------------------------------------------------------
Item 20. Indemnification of Directors and Officers
The General Corporation Law of the State of Delaware permits a
Delaware corporation to indemnify its officers or directors under
certain circumstances. Such statue provides that, in actions which
the corporation is not a party, a corporation may indemnify its
officers or directors for losses incurred by them if the officer or
director acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation. In
actions in which the corporation is a party, the statue provides the
same standard but prohibits indemnification if the director or officer
is adjudged liable to the corporation.
The Company has implemented such indemnification provisions in
its Certificate of Incorporation which provides that officers and
directors shall be entitled to be indemnified by the corporation to
the fullest extent permitted by law against expenses (including
attorney's fees), judgements, fines and amounts paid in settlement
incurred in connection with any action, suit or proceeding by reason
of the fact that he is or was an officer or director of the Company.
Item 21. Exhibits and Financial Statement Schedules
(a) The following is a complete list of exhibits filed as
part of the Registration Statement. Exhibit numbers correspond to the numbers
in the Exhibit Table of Item 601 of Regulation S-K.
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
1.01 Form of Dealer Manager Agreement to be entered into by and between the Company and
Crispin Koehler Securities.
2.01 Form of Agreement and Plan of Merger to be entered into between and among the Company
and each of the Participating Partnerships is incorporated by reference to Appendix A
to the Prospectus/Consent Solicitation Statement.
3.01 Certificate of Incorporation of the Company.
3.02 Form of Bylaws of the Company
3.03 Limited Partnership Agreement of JetFleet Aircraft, L.P. ("JetFleet I")
</TABLE>
S-4 Part II 1
<PAGE> 201
<TABLE>
<S> <C>
3.04 Form of Amendment to Partnership Agreement of JetFleet I
3.05 Limited Partnership Agreement of JetFleet Aircraft II, L.P. ("JetFleet II")
3.06 Form of Amendment to Partnership Agreement of JetFleet II
5.01 Opinion of Graham & James LLP as to the Legality of the Shares of Common Stock.
8.01 Opinion of Graham & James LLP as to certain tax matters.
10.01 Form of Stock Purchase Agreement between Registrant and Jetfleet Management Corp
("JMC")
10.02 Form of Management Agreement between Registrant and JMC.
10.03 Form of Indemnity Agreement
23.01 Consent of Graham & James LLP
23.02 Consent of Vocker Kristofferson & Co.
23.03 Consent of Aircraft Information Services, Inc.
99.01 Appraisal reports of Aircraft Information Services, Inc.
</TABLE>
Item 22. Undertakings
A. The Company hereby undertakes the following:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(a) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(b) 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, represent a fundamental
change in the information set forth in the Registration
Statement; and
(c) 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, each such post-effective amendment 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.
S-4 Part II 2
<PAGE> 202
(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.
B. (1) The undersigned Registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this Registration Statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The undersigned Registrant undertakes that every prospectus
(i) that is filed pursuant to paragraph (1) immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Securities Act of
1933 and is used in connection with an offering of securities subject to Rule
415, will be filed as part of an amendment to the registration statement and
will not be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment 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.
C. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 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 Securities Act of 1933 and is, therefor, 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
action, 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 it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
D. The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the Prospectus/Consent
Solicitation Statement pursuant to Items 4, 10(b), 11 or 13 of this Form,
within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of this Registration Statement through the date of responding to the
Request.
E. The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
S-4 Part II 3
<PAGE> 203
- --------------------------------------------------------------------------------
SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the city
of Burlingame, state of California on April 4, 1997.
AEROMAX, INC.
By: /s/ Neal D. Crispin
----------------------------
Neal D. Crispin, President
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Neal D. Crispin President, Chairman of the Board April 4, 1997
- --------------------------
Neal D. Crispin
/s/ Marc J. Anderson Chief Operating Officer, Director April 4, 1997
- --------------------------
Marc J. Anderson
/s/ Toni M. Perazzo Vice President-Finance, Secretary April 4, 1997
- -------------------------- Director
Toni M. Perazzo
/s/ Frank Duckstein Vice President April 4, 1997
- --------------------------
Frank Duckstein
</TABLE>
S-4 Part II 4
<PAGE> 204
____________________________________
EXHIBITS
TO
FORM S-4
REGISTRATION STATEMENT under the
SECURITIES ACT OF 1933
_____________________________________
AEROMAX, INC.
<PAGE> 205
INDEX TO EXHIBIT
<TABLE>
<CAPTION>
Exhibits Sequential Page Number
<S> <C> <C>
1.01 Form of Dealer-Manager Agreement
2.01 Form of Agreement and Plan of Merger
(incorporated by reference to Appendix A to
Prospectus)
3.01 Form of Amended and Restated Certificate
of Incorporation
3.02 Form of Bylaws of the Registrant
3.03 JetFleet I Limited Partnership Agreement
3.04 JetFleet I Partnership Agreement Amendment
3.05 JetFleet II Partnership Agreement
3.06 JetFleet II Partnership Agreement Amendment
5.01 Opinion of Graham & James LLP Regarding
Legality
8.01 Opinion of Graham & James LLP Regarding
Certain Tax Matters
10.01 Form of JMC Stock Purchase Agreement
10.02 Form of Management Agreement
10.03 Form of Indemnity Agreement
23.01 Consent of Graham & James LLP
23.02 Consent of Vocker Kristofferson & Co.
23.03 Consent of Aircraft Information Services, Inc.
99.01 Appraisals of Aircraft Information Services, Inc.
</TABLE>
Exhibit Index
<PAGE> 1
EXHIBIT 1.01
DEALER MANAGER AGREEMENT
March __, 1997
CRISPIN KOEHLER SECURITIES
301 East Main Street
Lexington, Kentucky 40507
Ladies and Gentlemen:
AeroMax, Inc., a Delaware corporation (the "Company"), proposes to issue
(the "Offer") an aggregate of up to ________ shares of common stock, par value
$0.001 per share, of the Company ("Common Stock"), to the investors in the
limited partnerships listed on Schedule I of this Agreement (collectively,
"Partnerships" and individually, "Partnership"), in connection with the
proposed merger of the Partnerships with and into the Company. The aggregate
shares of Common Stock to be issued in connection with the Offer are
collectively referred to herein as the "Shares." CMA Capital Group, Inc.,
Richard D. Koehler and Neal D. Crispin, are the general partners of each of the
Partnerships (collectively, the "General Partner"). JetFleet Management Corp.
(the "Sponsor") is the founder and sole shareholder of the Company. The
limited partners (and their permitted assigns) and the general partners of the
Partnerships are collectively referred to herein as the "Partners." The Offer
will be made upon the terms and subject to the conditions set forth in the
Prospectus/Consent Solicitation Statement and Supplements (as defined in
Section 1 hereof) and the consent card to be distributed therewith (the
"Consent Card").
If all conditions to the merger of the Partnerships into the Company (as
set forth in the Prospectus/Consent Solicitation Statement) are either
satisfied or waived, then the Offer will be effected with such Partnerships by
merging such Partnerships with and into the Company, upon the terms and subject
to the conditions set forth in Merger Agreement dated of even date herewith by
and among each of the Partnerships that duly accepts the Offer with the Company
(the "Participating Partnerships") and the Company (such agreement, as the same
may be amended, is referred to herein as the "Merger Agreement"). The Offer
and the Merger, including, without limitation, the solicitation of consents in
connection therewith (the "Consents"), are herein collectively referred to as
the "Consolidation." This Agreement and the Merger Agreement are collectively
referred to herein as the "Operative Agreements."
The following sets forth the agreement among the General Partner,
Partnerships, the Sponsor, the Company and you as Dealer Manager.
1. PROSPECTUS/CONSENT SOLICITATION STATEMENT AND REGISTRATION
STATEMENT. The Company, with the assistance of the Sponsor, has prepared and
filed with the Securities and Exchange Commission (the "Commission"), a
Registration Statement on Form S-4 (No. 33-
<PAGE> 2
_____) for the registration under the Securities Act of 1933, as amended (the
"Securities Act"), of the Shares to be issued in connection with the Merger in
the manner described in the Prospectus/Consent Solicitation Statement. The
Company has filed with the Commission such amendments thereto, if any, as have
been required to the date hereof. Such registration statement (as amended) at
the time it becomes effective is hereinafter called the "Registration
Statement", except that if the Company files a post-effective amendment to the
registration statement, then the term "Registration Statement" shall, from and
after the declaration of the effectiveness of such post-effective amendment
thereto, refer to the registration statement as amended by such post-effective
amendment. The Registration Statement includes a prospectus/consent
solicitation statement and prospectus/consent solicitation statement
supplements, one relating to each of the Partnerships, which prospectus/consent
solicitation statement, together with the relevant such supplement, serves as
the prospectus and consent solicitation statement for each of the Partnerships,
and has been prepared and filed by the Company on behalf of each of the
Partnerships pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and Securities Act. The prospectus/consent solicitation
statement and prospectus/consent solicitation statement supplements on file
with the Commission as they may be amended at the time the Registration
Statement becomes effective are hereinafter called the "Prospectus/Consent
Solicitation Statement" and the "Supplements," respectively, except that, if
any revised Prospectus/Consent Solicitation Statement or Supplement shall be
provided to any of the Partners by the Company, any Partnership or the Sponsor
in connection with the Consolidation which differs from the Prospectus/Consent
Solicitation Statement or such Supplement(s) on file at the Commission at the
time the Registration Statement becomes effective (whether or not such revised
Prospectus/Consent Solicitation Statement or Supplement is required to be filed
by the Company pursuant to the rules and regulations of the Commission under
the Securities Act (the "Securities Act Regulations"), or by the Company on
behalf of any of the Partnerships under the rules and regulations of the
Commission under the Exchange Act (the "Exchange Act Regulations"), then the
terms "Prospectus/Consent Solicitation Statement" or "Supplement," as the case
may be, shall refer to such revised prospectus/consent solicitation statement
or prospectus/consent solicitation statement supplement from and after the time
it is first provided to any of the Partners of a Partnership.
2. THE OFFER. The Company will, as soon as practicable after the
Registration Statement shall have become effective under the Securities Act,
commence the Offer by mailing copies of the Prospectus/Consent Solicitation
Statement, the relevant Supplements, the Consent Card and other Solicitation
materials to the Partners (the time of commencement of such mailing being
referred to herein as the "Time of Mailing"); provided, however, that no
mailing will be made unless the covenants set forth in Section 10 hereof to be
satisfied at the Time of Mailing shall have been satisfied prior to or
concurrently with the commencement of such mailing. The Offer shall expire at
the time specified as the "Approval Date" in the Prospectus/Consent
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Solicitation Statement (which Approval Date shall be at least 60 days following
the date that the mailing is completed), unless extended by the Company with
your consent, which consent shall not be unreasonably withheld, as also
provided in the Prospectus/Consent Solicitation Statement.
The materials to be distributed to each of the Partners will
consist of a letter relating to the Offer accompanied by copies of the
Prospectus/Consent Solicitation Statement, the Supplement relating to the
Partnership of which such Partner is an investor, a Consent Card and other
soliciting materials, including a question and answer supplement, the use of
which will be subject to approval by counsel to the Company and by your
counsel. The documents to be distributed as aforesaid, any other documents
relating to the Offer or the Consolidation distributed by or on behalf of the
Company, the Sponsor or the Partnerships and any public announcements or
advertisements relating to the Offer or the Consolidation, shall be
collectively approved by the Company, counsel to the Company, the Sponsor, you
and your counsel, and such materials, as such materials may be amended,
modified or supplemented from time to time, are hereinafter referred to
collectively as the "Offer Materials."
3. APPOINTMENT AND DUTIES AS A DEALER MANAGER: ENGAGEMENT LETTER.
(a) On the basis of the representations, warranties and
covenants herein contained, but subject to the terms and conditions herein set
forth, you are hereby appointed to act as Dealer Manager in connection with the
Consolidation. On the basis of the representations, warranties and covenants
herein contained, but subject to the terms and conditions herein set forth,
you, as Dealer Manager, agree to perform those services in connection with the
Consolidation as are customarily performed by investment banking concerns in
connection with mergers.
(b) The obligations of the Dealer Manager hereunder shall
commence as of the Time of Mailing and, except as otherwise provided herein,
shall continue until the earlier of (i) the Approval Date or (ii) the close of
business on ________, 1997 (the "Expiration Time"), unless extended by the
agreement of the Sponsor and you to a date not later than ________, 1997.
(c) You shall not be liable to the General Partner, any
Partnership, any Partner, the Sponsor, the Company or any other person for any
act or omission on the part of any broker, commercial bank or trust company,
and you shall not be liable for your own acts or omissions in performing your
obligations hereunder except to the extent any loss, claim, damage, liability
or expense is found in a final judgment by a court of competent jurisdiction to
have resulted from your bad faith, gross negligence, recklessness or willful
misconduct. You, as Dealer Manager shall be deemed to act as the agent of the
others of you or any broker, commercial bank or trust company or of any of the
Partnerships, the Partners, the Sponsor or the Company or any other third
party.
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(d) The Partnerships, the Sponsor and the Company hereby
authorize you to communicate with D. F. King & Co., Inc., in its capacity as
Information Agent (the "Information Agent"), with respect to matters relating
to the Consolidation.
(e) The Partnerships, the Sponsor and the Company further
authorize you to use the Offer Materials in connection with the Offer and for
such period of time as any offer Materials are required by law to be delivered
in connection therewith.
4. PROSPECTUS/CONSENT SOLICITATION STATEMENT MATERIALS. Each
Partnership, as to such Partnership, the Company and the Sponsor agree to
provide or cause to be provided to you for your use in connection with the
Consolidation a list showing (i) the names and addresses of the brokers that
assisted in the sale of the interests or units in each Partnership's public
offering ("Partnership Interests") and the number of Partnership Interests of
each Partnership sold through each such broker and (ii) the names and addresses
of, and the numbers of Partnership Interests held by (and the name of the
broker through which such Partnership Interests were purchased), the Partners
as of a recent date, and to use their best efforts to obtain other information
concerning such brokers and the Partners reasonably requested by you in
connection with the Consolidation and to cause you to be advised daily as soon
thereafter as reasonably practicable prior to the Approval Date as to any
transfers of record of Partnership Interests of each Partnership. Dealer
Manager, on behalf of itself and its affiliates, authorizes the Sponsor and its
affiliates to supply the information described in clauses (i) and (ii) above to
the Dealer Manager, the Information Agent or the Transfer Agent. Each
Partnership, as to the Prospectus/Consent Solicitation Statement and its own
Supplement and other related solicitation materials filed with the Commission,
the Company and the Sponsor agree to furnish or cause to be furnished to you at
their expense as many copies as you may reasonably request of the
Prospectus/Consent Solicitation Statement, the Supplements, the Consent Cards
and all other Offer Materials. Each Partnership, the Sponsor and the Company
authorize you to use the Offer Materials in connection with the Consolidation,
and you agree that you shall not use any material in connection with any
communications with brokers or Partners of any Partnership other than the Offer
Materials and such other materials, if any, as such Partnership, the Company,
counsel to the Company and the Sponsor may approve. You shall have no
obligation to cause copies of the Offer Materials to be transmitted generally
to broker-dealers or to the Partners.
Each Partnership, the Sponsor and the Company agree that, prior
to using or permitting the use of any material in connection with the
Consolidation required to be filed with the Commission and prior to filing any
such material with the Commission or with any other person, they shall submit
copies of such material to you and you shall have reasonable opportunity to
object thereto, and each Partnership, the Sponsor and the Company further agree
that no such materials shall be used or filed to which you reasonably object.
If any Partnership, the Sponsor or the Company uses or permits the use of any
material in connection with the
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Consolidation or files any such material with the Commission or with any other
person (i) which has not been submitted to you for your comments or (ii) which
has been so submitted and with respect to which you have reasonably objected,
such materials shall nevertheless be deemed Offer Materials and shall be
subject to the provisions of Section 11 hereof.
5. FEES AND REIMBURSEMENT OF EXPENSES.
(a) For its services hereunder, the Partnerships, the Sponsor
and the Company, jointly and severally, agree to pay Dealer Manager as dealer
manager fee equal to $80,000 ("Dealer Manager Fee"). In addition, the Company
shall issue to Dealer Manager a warrant to purchase 35,000 shares of Common
Stock of the Company at a purchase price of $1.00 per share, which warrant
shall be in substantially the form attached hereto a Exhibit A.
The Partnerships, the Sponsor and the Company, jointly and
severally, agree to pay all (i) expenses of preparing the Offer Materials, (ii)
appraisal, financial advisory and accounting fees and related expenses incurred
in connection with the Consolidation, (iii) expenses incident to the
qualification or registration of the Shares under securities laws in accordance
with the terms of this Agreement, including filing fees of the Commission, the
National Association of Securities Dealers, Inc. and applicable state
governmental agencies and the fees and expenses of counsel in connection
therewith and in connection with the preparation of a Blue Sky memorandum if
necessary, (iii) charges for printing of the Offer Materials, (iv) travel and
entertainment expenses of any roadshow or other meetings related to marketing
the Consolidation as reasonably approved by a Sponsor, (v) other reasonable
out-of-pocket expenses incurred by you (other than any expense that may be
deemed Solicitation Expenses as described below) in connection with your
services pursuant to this Agreement or and (vi) other expenses incurred or
authorized by any Partnership, the Sponsor, or the Company, in connection with
the Consolidation (collectively, with the Dealer Manager Fees, the "Transaction
Expenses").
Notwithstanding the foregoing, (i) in the event the
Consolidation is consummated, but the merger of a Partnership is not approved
by the requisite vote of the Partners of such Partnership, then the Sponsor
shall solely bear and be responsible for all Transaction Expenses payable with
respect to that portion of the Transaction Expenses attributable to such
Partnership on the basis of its respective Exchange Value, and (ii) in the
event the Consolidation is not consummated with respect to any of the
Partnerships, then the Sponsor shall solely bear and be responsible for a
percentage of the Transaction Expenses allocable to each Nonparticipating
Partnership (on the basis of its respective Exchange Value) equal to the
percentage of votes to reject the Consolidation of each such Partnership and
each Nonparticipating Partnership shall solely bear and be responsible for a
percentage of the Transaction Expenses allocable to such Partnership (on the
basis of its respective Exchange Value) equal to the percentage of votes to
accept the Consolidation of such Partnership.
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(b) The Partnerships, the Sponsor and the Company, jointly and
severally, agree to pay all (i) expenses of mailing the Offer Materials, (ii)
fees and expenses of the Information Agent in connection with the Consolidation
and (iii) any direct marketing expenses such as telephone calls, broker-dealer
fact sheets, legal and other expenses related to the solicitation as well as
reimbursements of costs incurred by brokers and banks in forwarding the Offer
materials to Partners (collectively, "Solicitation Expenses").
Notwithstanding the foregoing, (i) if the Consolidation is
consummated with 100% Partnership Participation, all Solicitation Expenses will
be payable by the Company and (ii) in the event the Consolidation is not
consummated with respect to a Partnership, then the Company shall solely bear
and be responsible for the Solicitation Expenses for such Partnership.
(c) The Partnerships, the Sponsor and the Company, jointly and
severally, also agree to reimburse you promptly for your reasonable
out-of-pocket expenses incurred in connection with any litigation (subject to
Sections 11 and 20 hereof, other than litigation commenced by any Partnership,
the Sponsor or the Company against you), administrative proceeding,
investigation, inquiry, hearing or other formal or informal proceeding to which
you may be called upon to give evidence, produce documents or take any other
action arising out of your acting as Dealer Manager or otherwise.
Payment to you in reimbursement of your expenses (including
Solicitation Expenses and Transaction Expenses (other than the Dealer Manager
Fees) shall be made promptly upon your request submitted from time to time. If
so requested, you will provide a monthly status report of your expenses
including the fees and disbursements of your legal counsel. If this Agreement
shall have been terminated pursuant to Sections 3(b), 13 or 18, the
reimbursement for expenses (including Solicitation Expenses and Transaction
Expenses (other than the Dealer Manager Fees)) incurred by you through the date
of such withdrawal or termination shall be paid to you as soon as practicable
after the date of such withdrawal or termination. Payment of the Dealer
Manager Fees shall be made on the Closing Date (as defined in Section 7
hereof).
The obligation of the Company, the Partnerships and the
Sponsor, as the case may be, to reimburse your expenses (including Transaction
Expenses (other than the Dealer Manager Fees)) shall survive the expiration or
termination of this Agreement and any cancellation or abandonment of the
Consolidation prior to consummation of the Consolidation. Reimbursement of
your expenses (including Transaction Expenses) shall be due and payable at your
option in immediately available funds or by certified or official bank check in
New York City Clearing House funds.
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6. STATUS OF SOLICITATION. The Partnerships, the Company or the
Sponsor shall advise you daily as to the number of Partnership Interests with
respect to which Consents have been submitted pursuant to the
Prospectus/Consent Solicitation Statement and, upon request, the names and
addresses of the registered owners thereof. Dealer Manager, on behalf of
itself and its affiliates, authorizes the Sponsor and its affiliates to supply
the investor and broker-dealer information described in clauses (i) and (ii) of
the first paragraph of Section 4 hereof to the Information Agent or the
Transfer Agent.
7. REPRESENTATIONS AND WARRANTIES CONCERNING THE PARTNERSHIPS.
Each Partnership (as to itself), the Sponsor and the Company hereby jointly and
severally represents and warrants to you, as of the date hereof and as of the
effective date of the Merger (such latter date being hereinafter referred to as
the "Closing Date"), and agrees with you that, with respect to each such
Partnership:
(a) Such Partnership has been duly formed and is validly
existing in good standing as a limited partnership in good standing under the
laws of the Sate of California with full partnership owner and authority to
own, lease and operate its properties and to conduct its business as described
in its partnership agreement and the Prospectus/Consent Solicitation Statement.
The certificate of limited partnership of such Partnership as filed with the
Secretary of State of the State of California includes the information required
to be set forth therein by the California Revised Limited Partnership Act (the
"Act"), and all of the statements contained in such certificate of limited
partnership are true and correct in all material respects. Such Partnership is
and as of the Closing Date will be duly qualified or registered as a foreign
limited partnership or otherwise qualified as a limited partnership in each
jurisdiction in which such qualification or registration is required or
necessary, whether by reason of the ownership or leasing of its property or the
conduct of its business, except where the failure to so qualify or register
would not subject it to any material liability or disability and would not
subject any of its Partners to any material liability or disability.
(b) Such Partnership has duly taken all necessary partnership
action to authorize the Consolidation (other than the required approval of its
Partners as described in the Prospectus/Consent Solicitation Statement and
Supplement relating to such Partnership), and the execution, delivery and
performance of this Agreement, and the Merger Agreement, and such Partnership
has duly taken or will duly take all necessary partnership action to authorize
the Offer Materials and any amendments thereto. Each of this Agreement, and
the Merger Agreement has been duly executed and delivered by, and is a valid
and binding agreement of, such Partnership, enforceable in accordance with its
respective terms, subject to bankruptcy, insolvency, reorganization, moratorium
or other laws affecting creditors' rights and except as may be limited by
judicial discretion in applying principles of equity (regardless of whether
such agreements are considered in a proceeding in equity or law).
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(c) The Consolidation, and the execution, delivery and
performance of this Agreement and the Merger Agreement, do not and will not
violate any law, regulation, order, award, judgment, determination, writ,
injunction or decree applicable to such partnership or its property or assets,
except for such violations that would not, either singly or in the aggregate,
have a material adverse effect on the condition (financial or otherwise) or on
the operations, earnings, business affairs or business prospects of such
Partnership.
(d) The Consolidation, subject to the receipt of Partnership
approval as described in the Prospectus/Consent Solicitation Statement and the
Supplement relating to such Partnership, and the execution, delivery and
performance of this Agreement and the Merger Agreement, do not and will not (i)
conflict with or violate the partnership agreement or certificate of limited
partnership of such Partnership or (ii) conflict with or result in a breach of
any of the terms or provisions of, or constitute a default (with or without due
notice and/or lapse of time) under, or result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets of such Partnership
pursuant to, any indenture, loan agreement or other agreement, instrument or
contract affecting such Partnership or any of its property or assets or to
which such Partnership is a party or by which such Partnership or any of its
property or assets is bound, except for such conflicts, violations, defaults,
liens, charges or encumbrances that would not, either singly or in the
aggregate, have a material adverse effect on the condition (financial or
otherwise) or on the operations, earnings, business affairs or business
prospects of such Partnership.
(e) On behalf of such Partnership, the Company has filed the
Prospectus/Consent Solicitation Statement and Supplement relating to such
Partnership with the Commission in definitive form, including any schedules and
exhibits required to be filed in connection therewith, and has filed or will
promptly file as required any and all necessary amendments thereto. A correct
and complete copy of such Prospectus/Consent Solicitation Statement, Supplement
and any amendments thereto has been or will be furnished to you promptly upon
the filing thereof.
(f) The Prospectus/Consent Solicitation Statement (and all
documents incorporated therein by reference), the Supplement for such
Partnership and the other Offer Materials for such Partnership filed with the
Commission or distributed to Partners of such Partnership including any
schedules and exhibits required to be filed in connection therewith, comply and
will comply, at the dates of such filing and distribution (unless the Offer
Materials include a Prospectus/Consent Solicitation Statement or Supplement
which has been provided to the Partners of a Partnership by the Company, any of
the Partnerships or the Sponsor in connection with the Consolidation which
differs from the Prospectus/Consent Solicitation Statement or Supplement on
file at the Commission at the time the Registration Statement becomes
effective, in which case such date with respect to such Prospectus/Consent
Solicitation Statement or Supplement shall be the date it is first provide to
such Partners) and at the Closing
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Date, with the provisions of the Securities Act, the Securities Act
Regulations, the Exchange Act and the Exchange Act Regulations; and, when the
Registration Statement or any amendment thereto becomes effective, none of the
Registration Statement (including, without limitation, the Prospectus/Consent
Solicitation Statement and the Supplement relating to such Partnership), the
documents incorporated by reference and all amendments thereto contains or will
contain any untrue statement of a material fact or omits or will omit to state
a material fact required to be stated therein or necessary to make the
statement made therein, in light of the circumstances under which they were
made, not misleading; and none of the Offer Materials contains or will contain
any untrue statement of a material fact or omits or will omit to state a
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they were made, not
misleading. The properties, operations, business and indebtedness, if any, of
the Partnership conform in all material respects to the descriptions thereof in
the Prospectus/Consent Solicitation Statement and the Supplement relating to
such Partnership.
(g) The accountants who certified the financial statements of
such Partnership and supporting schedules included in the Registration
Statement, the Prospectus/Consent Solicitation Statement and the Supplement
relating to such partnership are independent public accountants as required by
the Securities Act, the Securities Act Regulations, the Exchange Act and the
Exchange Act Regulations.
(h) The financial statements of such Partnership included in
the Registration Statement, the Prospectus/Consent Solicitation Statement and
the Supplement relating to such Partnership present fairly the financial
position of such Partnership as at the dates indicated and the results of its
operations for the periods specified, and, except as otherwise stated therein,
said financial statements have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis; the supporting
schedules included in the Registration Statement, the Prospectus/Consent
Solicitation Statement and the Supplement relating to such Partnership present
fairly the information required go be stated therein; the selected financial
data included or incorporated by reference in the Registration Statement, the
Prospectus/Consent Solicitation Statement and the Supplement present fairly the
information shown therein and have been compiled on a basis consistent with
that of the audited financial statements included or incorporated by reference
in the Registration Statement, the Prospectus/Consent Solicitation Statement
and the Supplement; the pro forma financial information included in the
Registration Statement, the Prospectus/Consent Solicitation Statement and the
Supplement presents fairly the information shown therein and has been prepared
in accordance with the Commission's rules and guidelines with respect to pro
forma financial statements, has been properly compiled on the pro forma basis
described therein, and, in the opinion of such Partnership, the assumptions
used in the preparation thereof are reasonable and the adjustments used therein
are appropriate to give effect to the transactions or circumstances referred to
therein.
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(i) Since the respective dates as of which information is given
in the Registration Statement, the Prospectus/Consent Solicitation Statement
and the Supplement relating to such Partnership, except as otherwise stated
therein or contemplated thereby, (i) there has been no material adverse change
in the condition, financial or otherwise, or in the operations, earnings,
business affairs or business prospects of such Partnership, whether or not
arising in the ordinary course of business, (ii) there have been no
transactions entered into by such Partnership which are material with respect
to such Partnership, and (iii) there has been no distribution of any kind
declared, paid or made by such Partnership on any of its Partners Interests or
otherwise to any of its Partners, other than the quarterly distributions in the
ordinary course of business of such Partnership.
(j) The Consolidation, and the execution, delivery and
performance of this Agreement and the Merger Agreement by such Partnership,
comply and will comply with all applicable laws and regulations, and no
consent, license, authorization, approval of, or filing with, any governmental
authority or agency or any third party by or with respect to such partnership
is required in connection with the consummation by such Partnership of the
Consolidation, other than (i) any consent, approval or filing as may be
required under state securities laws, (ii) filings evidencing the consummation
of the Merger and (iii) as described in the Prospectus/Consent Solicitation
Statement and Supplement for such Partnership.
(k) Such Partnership is not an "investment company," as that
term is defined in the Investment Company Act of 1940, as amended (the "1940
Act"), and is not subject to regulation under the 1940 Act.
(l) Such Partnership is not currently in violation, and at the
Closing Date will not be in violation, of its partnership agreement or
certificate of limited partnership or in default in the performance or
observance of nay obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, loan agreement, note, lease or other instrument
to which such partnership is a party or by which it may be bound, or to which
any of the property or assets of such Partnership is subject, except for any
such defaults which would not, either singly or in the aggregate, have a
material adverse effect on the condition (financial or otherwise) or on the
operations, earnings, business affairs or business prospects of such
Partnership.
(m) Except as otherwise disclosed in the Prospectus/Consent
Solicitation Statement or the Supplement relating to such Partnership: (i) such
Partnership has good and marketable title to all assets (or a valid first lien
as to mortgaged properties) described in the Prospectus/Consent Solicitation
Statement or such Supplement as being owned (or mortgaged) by such Partnership
or as reflected in the most recent balance sheet of such Partnership contained
in the Prospectus/Consent Solicitation Statement or such Supplement; (ii) all
liens, charges, encumbrances, claims, or restrictions on or affecting the
properties and assets of such Partnership
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which are required to be disclosed in the Prospectus/Consent Solicitation
Statement or such Supplement are disclosed therein; (iii) the equipment leases,
if any, relating to each of such properties are in full force and effect and
will be transferred to the Company by the Partnership by operation of the
Merger.
(n) Such Partnership is currently in compliance, and at the
Closing Date will be in compliance, with all applicable laws and regulations,
except for any laws or regulations the violation of which would not, either
singly or in the aggregate, have a material adverse effect on the condition
(financial or otherwise) or on the operations, earnings, business affairs or
business prospects of such Partnership.
(o) To the knowledge of such Partnership and the Sponsor, there
is no action, suit or proceeding before or by any court or governmental agency
or body, domestic or foreign, now pending or threatened against or affecting
such Partnership or any of its properties, which is required to be disclosed in
the Prospectus/Consent Solicitation Statement or Supplement relating to such
Partnership (other than as disclosed therein), or which might, either singly or
in the aggregate, result in any material adverse change in the condition
(financial or otherwise) or in the operations, earnings, business affairs or
business prospects of such Partnership, or which might, either singly or in the
aggregate, materially and adversely affect the property or assets of such
Partnership or which might, either singly or in the aggregate, materially and
adversely affect the Consolidation; all pending legal or governmental
proceedings to which such Partnership is a party or of which any of its
property or assets is the subject which are not described in the
Prospectus/Consent Solicitation Statement or Supplement relating to such
Partnership, including ordinary routine litigation incidental to the business,
are, considered in the aggregate, not material; and there are no contracts or
documents of such Partnership required to be described in the
Prospectus/Consent Solicitation Statement or supplement relating to such
Partnership that are not described as so required.
(p) Such Partnership possesses such certificates, licenses,
authorities or permits issued by the appropriate state or federal regulatory
agencies or bodies necessary to conduct the business now operated by it, and
such partnership has not received any notice of proceedings relating to the
revocation or modification of any such certificate, license, authority or
permit which would, either singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, materially and adversely affect the
condition (financial or otherwise) or the operations, earnings, business
affairs or business prospects of such Partnership.
(q) In connection with the Consolidation, such Partnership has
complied and will comply in all material respects with the Securities Act, the
Securities Act Regulations, the Exchange Act and the Exchange Act Regulations.
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(r) No restraining order has been issued or proceedings,
litigation or investigation initiated or, to the best knowledge of such
Partnership, threatened, with respect to the Consolidation or the execution,
delivery and performance of this Agreement or the Merger Agreement by or before
the Commission, or any other regulatory, administrative, governmental or public
body or authority or any court other than as described in the
Prospectus/Consent Solicitation Statement and other than the receipt by the
Sponsor of requests for investor lists from several parties.
(s) Any certificate signed by or on behalf of any such
Partnership or either Sponsor and delivered to you or your counsel shall be
deemed a representation and warranty by such partnership or such Sponsor,
respectively, to you as to the matters covered thereby.
9. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SPONSOR.
The Company and the Sponsor hereby jointly and severally represent and warrant
to you, as of the date hereof (except as set forth below) and as of the Closing
Date, and agrees with you that:
(a) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
California and, immediately after the effective time of the Consolidation, will
have corporate power and authority to own, lease and operate the properties
currently owned, leased and operated by the Participating Partnerships and to
conduct the business currently conducted by the Participating Partnerships as
described in the Prospectus/Consent Solicitation Statement and the Supplements.
As of the Closing Date, the Company will be duly qualified as a foreign
corporation to transact business and will be in good standing in each
jurisdiction in which such qualification will be required after the effective
date of the Consolidation, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure to so qualify
would not have a material adverse effect on the condition (financial or
otherwise) or on the operations, earnings, business affairs or business
prospects of the Company. The Company does not and will not as of the Closing
Date have any subsidiaries or hold any capital stock or ownership interest in
any other entity.
(b) The Company has duly taken all necessary corporate action
to authorize the Consolidation, the issuance of the Shares, and the execution,
delivery and performance of each of this Agreement and the Merger Agreement,
and it has duly taken or will duly take prior to the Closing Date all necessary
corporate action to authorize the Offer materials and all amendments thereto.
Each of this Agreement and the Merger Agreement has been duly executed and
delivered by, and is a valid and binding agreement of, the Company enforceable
in accordance with its respective terms, subject to bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights and except
as may be limited by judicial discretion in applying principles of equity
(regardless of whether such agreements are considered in a proceeding in equity
or at law).
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(c) The Company has authorized an outstanding capital stock as
set forth on the balance sheet of the Company included in the
Prospectus/Consent Solicitation Statement; the Shares have been duly authorized
for issuance pursuant to the Merger Agreement and the Prospectus/Consent
Solicitation Statement; the Shares, when issued by the Company pursuant to the
Prospectus/Consent Solicitation Statement and the Merger Agreement, will be,
and all outstanding shares of capital stock of the Company are, validly issued,
fully paid and nonassessable securities of the Company; the Shares conform to
all statements relating thereto contained in the Registration Statement and
Prospectus/Consent Solicitation Statement and such statements conform to the
rights set forth in the instruments defining the same; and the issuance of the
Shares is not subject to any preemptive or other similar rights.
(d) The Consolidation, and the execution, delivery and
performance of this Agreement and the Merger Agreement, and the issuance of the
Shares, do not and will not violate any law, regulation, order, award,
judgment, determination, writ, injunction or decree applicable to the Company
or any of its subsidiaries or any of their respective properties or assets,
except for such violations that would not, either singly or in the aggregate,
have a material adverse effect on the condition (financial or otherwise) or on
the operations, earnings, business affairs or business prospects of the
Company.
(e) The Consolidation, and the execution, delivery and
performance of the Operative Agreements, and the issuance of the Shares, do not
and will not (i) conflict with or violate the certificate of incorporation or
by-laws of the Company or any of its subsidiaries or (ii) conflict with or
result in a breach of any of the terms or provisions of, or constitute a
default (with or without due notice and/or lapse of time) under, or result in
the creation or imposition of any lien, charge or encumbrance upon any property
or assets of the Company or any of its subsidiaries pursuant to, any indenture,
loan agreement or other agreement, instrument or contract affecting the Company
or any of its subsidiaries or to which the Company or any of its subsidiaries
is a party or by which it or any of its subsidiaries or any of their respective
properties is bound, except for such conflicts, violations, defaults, liens,
charges or encumbrances that would not, either singly or in the aggregate, have
a material adverse effect on the condition (financial or otherwise) or on the
operations, earnings, business affairs or business prospects of the Company.
(f) The Company has filed the Registration Statement with the
Commission, and has filed or will promptly file a required any and all
necessary amendments or supplements thereto. An accurate and complete copy of
the Registration Statement and any amendments thereto (including the documents
filed therewith as exhibits thereto) have been or will be furnished to you
promptly upon the filing thereof.
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<PAGE> 14
(g) The Registration Statement (and all documents incorporated
therein by reference) filed with the Commission and the Offer Materials filed
with the Commission or distributed to the Partners, comply and will comply at
the dates of such filing and distribution (unless the Registration Statement
includes a Prospectus/Consent Solicitation Statement or Supplement which has
been provided to the any of the Partners of a Partnership by the Company, any
of the Partnerships, or the Sponsor in connection with the Consolidation which
differs from the Prospectus/Consent Solicitation Statement or Supplement on
file at the Commission at the time the Registration Statement becomes
effective, in which case such date with respect to such Prospectus/Consent
Solicitation Statement or Supplement shall be the date it is first provided to
any such Partners) and at the Closing Date, with the provisions of the
Securities Act, the Securities Act Regulations, the Exchange Act and the
Exchange Act Regulations; when the Registration Statement or any amendment
thereto becomes effective, none of the Registration Statement (including,
without limitation, the Prospectus/Consent Solicitation Statement and
Supplements), the documents incorporated therein by reference and all
amendments thereto contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact required to be stated
therein or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading; and none of the Offer
Materials contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading.
(h) The accountants who certified the financial statements of
the Company and supporting schedules included in the Registration Statement and
the Prospectus/Consent Solicitation Statement are independent public
accountants as required by the Securities Act, the Securities Act Regulations,
the Exchange Act and the Exchange Act Regulations.
(i) The financial statements of the Company included in the
Registration Statement, the Prospectus/Consent Solicitation Statement and the
Supplements present fairly the financial position of the Company as at the date
indicated, and, except as otherwise stated therein, said financial statements
have been prepared in conformity with generally accepted accounting principles
applied on a consistent basis; the supporting schedules included in the
Registration Statement, the Prospectus/Consent Solicitation Statement and the
Supplements present fairly the information required to be stated therein; the
selected financial data included or incorporated by reference in the
Registration Statement, the Prospectus/Consent Solicitation Statement and the
Supplements present fairly the information shown therein and have been compiled
on a basis consistent with that of the audited financial statements included or
incorporated by reference in the Registration Statement, the Prospectus/Consent
Solicitation Statement and the Supplements; the pro forma financial information
included in the Registration Statement, the Prospectus/Consent Solicitation
Statement and the Supplements presents fairly the information shown therein and
has been prepared in accordance with the Commission's rules
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<PAGE> 15
and guidelines with respect to pro forma financial statements, has been properly
compiled on the pro forma bases described therein, and, in the opinion of the
Company and the Sponsor, the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate to give effect to
the transactions or circumstances referred to therein.
(j) Since the respective dates as of which information is given
in the Registration Statement, the Prospectus/Consent Solicitation Statement
and the Supplements, except as otherwise stated therein or contemplated
thereby, (i) there has been no material adverse change in the condition
(financial or otherwise) or in the operations, earnings, business affairs or
business prospects of the Company, whether or not arising in the ordinary
course of business, (ii) there have been no transactions entered into by the
Company or any of its subsidiaries which are material with respect to the
Company, and (iii) there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital stock.
(k) There are no contracts or documents of the Company or any
of its subsidiaries or any of the Partnerships which are required to be filed
as exhibits to the Registration Statement which have not been so filed.
(l) The Consolidation, the issuance of the Shares, and the
execution, delivery and performance of the Operative Agreements by the Company,
fully comply and will fully comply with all applicable laws and no consent,
license, authorization or approval of, filing with, any governmental authority
or agency or third party by or with respect to the Company is required in
connection with the consummation by the Company of the Consolidation, other
than (i) any consent, approval or filing as may be required under state
securities laws, (ii) filings evidencing the consummation of the Consolidation,
(iii) as described in the Prospectus/Consent Solicitation Statement and the
Supplements for each Partnership.
(m) Upon consummation of the Consolidation, the Company will
not be an "investment company," as that term is defined in the 1940 Act, and
will not be subject to regulation under the 1940 Act.
(n) Neither the Company nor any of its subsidiaries is
currently in violation, or at the Closing Date will be in violation, of its
certificate of incorporation or by-laws or in default in the performance or
observance of any obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, loan agreement, note, lease or other instrument
to which it is a party or by which it may be bound, or to which any of its
property or assets is subject, except for any such defaults which would not,
either singly or in the aggregate, have a material adverse effect on the
condition (financial or otherwise) or on the operations, earnings, business
affairs or business prospects of the Company.
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(o) Upon consummation of the merger of the Participating
Partnerships with and into the Company all property belonging to the
Partnerships will be the property of the Company, in each case subject to the
debts, liabilities, obligations and duties of the Participating Partnerships.
(p) To the Company's and the Sponsor's knowledge, there is no
action , suit or proceeding before or by any court or governmental agency or
body, or foreign, now pending or threatened against or affecting the Company or
any of its subsidiaries or any of their respective properties, which is
required to be disclosed in the Prospectus/Consent Solicitation Statement and
the Supplements/Consent Solicitation Statement or any Supplement (other than as
disclosed therein), or which might, either singly or in the aggregate, result
in any material adverse change in the condition (financial or otherwise) or in
the operations, earnings, business affairs or business prospects of the
Company, or which might, either singly or in the aggregate, materially and
adversely affect the properties or assets thereof or which might, either singly
or in the aggregate, materially and adversely affect the Consolidation or the
issuance of the Shares; all pending legal or governmental proceedings to which
the Company or any of its subsidiaries is a party or of which any of their
respective property or assets is the subject which are not described in the
Prospectus/Consent Solicitation Statement or a Supplement, including ordinary
routine litigation incidental to the business, are, considered in the
aggregate, not material; and there are no contracts or documents of the Company
or any of its subsidiaries required to be described in the Prospectus/Consent
Solicitation Statement and the Supplements/Consent Solicitation Statement or a
Supplement that are not described as so required.
(q) The Company does, and immediately after giving effect to
the Consolidation will, possess such certificates, licenses, authorities or
permits issued by the appropriate state or federal regulatory agencies or
bodies necessary to conduct the business now operated by the Participating
Partnerships, and the Company has not received any notice of proceedings
relating to eh revocation or modification of any such certificate, authority or
permit which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would materially and adversely affect the
condition (financial or otherwise) or the operations, earnings, business
affairs or business prospects of the Company.
(r) In connection with the Consolidation, the Company has
complied and will comply in all material respects with the Securities Act, the
Securities Act Regulations, the Exchange Act and the Exchange Act Regulations.
(s) No restraining order has been issued or proceedings,
litigation or investigation initiated or, to the Company's and the Sponsor's
best knowledge, threatened, with respect to the Consolidation, the issuance of
the Shares, or the execution, delivery and performance of any of the Operating
Agreements by or before the Commission, or any other regulatory,
administrative,
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<PAGE> 17
governmental or public body or authority or any court other than as described
in the Prospectus/Consent Solicitation Statement and other than the receipt by
the sponsor of requests for investor lists from several parties.
(t) Any certificate signed by any officer of the Company or the
Sponsor and delivered to you or your counsel shall be deemed a representation
and warranty by the Company or the Sponsor, respectively, to you as to the
matters covered thereby.
10. COVENANTS OF THE PARTNERSHIPS, THE SPONSOR AND THE COMPANY.
(a) The Company, the Partnerships and the Sponsor shall notify
you immediately, and confirm the notice in writing, (i) of the effectiveness of
the Registration Statement and any amendment thereto (including any post-
effective amendment), (ii) of the receipt of any comments from the Commission,
(iii) of any request by the Commission for any amendment or supplement to the
Registration Statement, the Prospectus/Consent Solicitation Statement, any
Supplement or any other Offer Materials or for additional information, and (iv)
the issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement, the suspension of the qualification of the
Shares in any jurisdiction or the initiation of any proceedings for any such
purpose. The Company will make every reasonable effort to prevent the issuance
of any stop order or suspension and, if any stop order or suspension is issued,
to obtain the lifting thereof at the earliest possible moment. The
Partnerships, the Sponsor and the Company shall notify you immediately, and
confirm the notice in writing, of any events described in clauses (ii) and
(iii) above pertaining to the Prospectus/Consent Solicitation Statement, any
Supplement or other Offer Materials.
(b) The Company shall deliver to each of you one signed copy of
the Registration Statement as originally filed and of each amendment thereto
(including exhibits filed therewith).
(c) The Company shall use its best efforts to qualify the
issuance of Shares in connection with the Consolidation in each state
jurisdiction in which such qualification is required and to file such
statements and reports as may be required by the laws of such jurisdiction to
continue such qualification in effect through the effective date of the
Consolidation.
(d) The Company shall use its best efforts to effect the
listing of the Shares on the American Stock Exchange.
(e) The Partnerships, the Sponsor and the Company shall advise
you promptly of the occurrence of any event which may or could cause any
Partnership, the Sponsor or the Company to amend or terminate the Consolidation
or the Merger Agreement and also advise you promptly of any proposal or
requirement to amend or supplement the Prospectus/Consent
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Solicitation Statement, any Supplement, any Offer Materials or any other filing
required by the Securities Act, the Exchange Act, the Securities Act
Regulations or the Exchange Act Regulations and no such document shall be filed
without your prior approval.
11. INDEMNIFICATION AND CONTRIBUTION. The Partnerships, the Sponsor
and the Company jointly and severally agree, whether or not the Consolidation
is consummated or any Consents are submitted pursuant to the Prospectus/Consent
Solicitation Statement, to indemnify and hold harmless you (including any
affiliated companies) and any officer, director, employee or agent of you or
such affiliated companies and any person who controls you (including any
affiliated companies) within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act (you and each such person to be so indemnified
being herein referred to as an "Indemnified Person"), from and against any and
all losses, claims, damages, expenses and liabilities whatsoever, joint or
several to which such Indemnified Person may become subject, under the
Securities Act, the Securities Act Regulations, the Exchange Act, the Exchange
Act Regulations or any other applicable federal or state law or otherwise,
related to or arising out of (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
amendment thereto, or the omission or alleged omission to state in any such
document a material fact required to be stated therein or necessary to make the
statements made therein not misleading, (ii) any untrue statement or alleged
untrue statement of a material fact contained in the Prospectus/Consent
Solicitation Statement or any amendment thereto, any Supplement of any
amendment thereto, any other Offer Materials or any other material used or
authorized for use by any of the Partnerships, the Sponsor or the Company in
connection with the Consolidation, or the omission or alleged omission to state
in any such document a material fact required to be stated therein or necessary
to make the statements made therein, in light of the circumstances under which
they were made, not misleading, (iii) any withdrawal by any Partnership, the
Sponsor or the Company from, or failure by any Partnership, the Sponsor or the
Company to consummate, the Consolidation, (iv) any breach by any partnership
the Sponsor or the Company of any representation or warranty contained herein
or failure to comply with any of the agreements obtained herein or (v) the
Consolidation, this Agreement or your engagement pursuant to, or your
performance of the services contemplated by this Agreement. None of the
Partnerships, the Sponsor or the Company shall, however, be liable for such
loss, claim, damage, expense or liability under subparagraph (v) of this
Section 11 to the extent that such loss, claim, damage, expense or liability is
found in a final judgment by a court of competent jurisdiction or in a final
settlement among you and the Company, the Sponsors and the Partnerships to have
resulted from your bad faith, gross negligence, recklessness or willful
misconduct.
The Partnerships, the Sponsor and the Company jointly and
severally agree to reimburse each Indemnified Person for all expenses
(including reasonable counsel fees and expenses) as they are incurred in
connection with the investigation of, preparation for or defense
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of any pending or threatened claim or any action or proceeding arising
therefrom, whether or not such Indemnified Person is a party and whether or not
such claim, action or proceeding is initiated or brought by any of the
Partnerships, the Sponsor or the Company.
Promptly after receipt by an Indemnified Person of written
notice of any claim or commencement of any action as to which such Indemnified
Person may seek indemnification hereunder, such Indemnified Person shall notify
the Partnerships, the Sponsor and the Company in writing of such claim or of
the commencement of such action; but the omission so to notify the
Partnerships, the Sponsor, or the Company shall not relieve the Partnerships,
the Sponsor or the Company rom any liability which they may have to such
Indemnified Person under this Section 11 or otherwise. In the event that any
such action shall be brought against any Indemnified person, and such
Indemnified Person shall notify the Partnerships, the Sponsor and the Company
of the commencement thereof, the Partnerships, the Sponsor or the Company shall
assume the defense thereof, with counsel reasonably satisfactory to such
Indemnified Person, and shall pay the fees and expenses of such counsel;
provided, however, that if there exists or will exist a conflict of interest
which would make it inappropriate in the reasonable judgment of the Indemnified
Person for the same counsel to represent both the Indemnified Person, on the
one hand, and any of the Partnerships, the Sponsor or the Company or any of
their affiliates or associates, on the other hand, or if such Indemnified
Person reasonably determines that the assumption of the defense of such claim
or action by the Company, the Sponsor, any Partnership or any other affiliates
or associates does not adequately represent such Indemnified Person's
interests, the Indemnified person shall be entitled to retain its own counsel
at the joint and several expense of the Partnerships, the Sponsor and the
Company. Notwithstanding the previous sentence, in no event shall the Company,
the Sponsor and the Partnerships be liable for the fees and expenses of more
than one counsel (in addition to local counsel) for all Indemnified Persons in
connection with any one action or separate but similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances. In any action or proceeding the defense of which is assumed by
the Company, the Sponsor or the Partnerships, the Indemnified Persons will have
the right to participate in such litigation and to retain its own counsel at
its own expense.
If the indemnification of an Indemnified Person provided for in
this Agreement was for any reason held unenforceable or was insufficient, the
Partnerships, the sponsor and the Company, jointly and severally, agree to
contribute to the claims, losses, expenses, damages or liabilities for which
such indemnification is held unavailable (i) in such proportion as is
appropriate to reflect the relative benefits to the Partnerships, the Sponsor
and the Company, on the one hand, and you, on the other hand, in connection
with the matter giving rise to such claims, losses, expenses, damages and
liabilities or (ii) if (but only if) the allocation provided for in clause (i)
is for any reason held unenforceable, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) but also the
relative fault of the Partnerships, the
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<PAGE> 20
Sponsor and the Company, on the one hand, and you, on the other hand, as well
as any other relevant equitable considerations. It is hereby agreed that, for
purposes of this paragraph, the relative benefits of the Partnerships, the
Sponsor and the Company, on the one hand, and you, on the other hand, with
respect to the Consolidation shall be deemed to be in the same proportion as
(x) the maximum total value of the consideration received or proposed to be
received by the Partners, the Sponsors (and their security-holders) and the
Company pursuant to the Consolidation (whether or not the Consolidation is
consummated) bears to (y) the fees paid to you with respect to the
Consolidation. Notwithstanding the foregoing, in any event your aggregate
contribution to all claims, losses, expenses, damages and liabilities shall not
exceed the amount of fees actually received by you with respect to the
Consolidation. The foregoing indemnity and contribution agreements shall be in
addition to any liability which the Partnerships, the Sponsor or the Company
might otherwise have to an Indemnified Person and shall survive the expiration
or termination of the Consolidation or the termination of this Agreement.
A withdrawal by you as Dealer Manager as permitted hereunder,
the termination or expiration of the Consolidation or the termination of this
Agreement by you, any of the Partnerships, the Sponsor or the Company shall not
in any way affect the rights of any Indemnified Person hereunder.
The Partnerships, the sponsor and the Company agree to promptly
notify you of the assertion of any claim or the commencement of any claim or
proceeding relating to the Consolidation or the matters subject to this Section
11, against any of them, any of their respective officers, directors or
employees or any person who controls any of them within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act.
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<PAGE> 21
12. NOTICES. Any communication or notice provided for hereunder
shall be in writing and mailed, telegraphed or delivered to the applicable
party at the addresses indicated below:
If to the Partnerships or the Sponsor:
JetFleet Management Corp.
1440 Chapin Avenue, Suite 310
Burlingame, California 94010
If to the Company:
AeroMax, Inc.
1440 Chapin Avenue, Suite 310
Burlingame, California 94010
If to Dealer Manager:
Crispin Koehler Securities
301 East Main Street
Lexington, Kentucky 40507
or , as to each party, at such other address as shall be
designated by such party in a written notice complying as to delivery with the
terms of this paragraph.
13. CONDITIONS TO OBLIGATIONS OF DEALER MANAGER. Your obligation to
act as Dealer Manager hereunder shall be subject at all times to the conditions
that (i) all representations, warranties and other statements contained herein
by any of the Partnerships, the Sponsor or the Company are now, and at all
times during the period of the Consolidation shall be, true and correct in all
material respects, (ii) the Partnerships, the Sponsor and the Company at all
times during the period of the Consolidation shall have performed in a timely
manner all of their respective obligations hereunder, (iii) the Registration
Statement shall have become effective not later than the date a
Prospectus/Consent Solicitation Statement is first used in connection with the
Consolidation, and (iv) no stop order suspending the effectiveness of the
Registration Statement or preventing or suspending the use of the
Prospectus/Consent Solicitation Statement or any Supplement or order under the
proxy rules of the Commission pursuant to the Exchange Act with respect to the
transactions contemplated in the Registration Statement or Merger Agreement
shall have been issued and no proceedings for any such purpose shall have been
initiated or threatened by the Commission. If any condition specified in this
Section shall not
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have been fulfilled when and as required to be fulfilled, this Agreement may be
terminated by the Dealer Manager by notice to the Partnerships, the Sponsor and
the Company at any time, and such termination shall be without liability of any
party to any other party except as provided in Section 18 hereof.
14. PARTIES IN INTEREST. This Agreement has been and is made for
your benefit, for the benefit of the other Indemnified Persons, for the benefit
of the Partnerships, the Sponsor and the Company and for the benefit of your
and their respective successors, assigns, executors and administrators, and no
other person shall acquire or have any right under or by virtue of this
Agreement.
15. COUNTERPARTS: SEVERABILITY. This Agreement may be executed in
any number of counterparts, and by the different parties hereto in separate
counterparts, each of which when so executed shall be an original, but all of
the counterparts shall together constitute one and the same agreement. Any
term or provision of this Agreement which is invalid or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such invalidity or unenforceability with rendering invalid or unenforceable the
remaining terms and provisions of this Agreement or affecting the validity or
enforceability of any of the terms or provisions of this Agreement in any other
jurisdiction.
16. MISCELLANEOUS. Subheadings are provided solely for convenience,
and are not intended to be part of this Agreement.
17. ENTIRE AGREEMENT: AMENDMENT. This Agreement supersedes all
prior negotiations and understandings of the parties hereto with respect to the
Consolidation and constitute the entire understanding of the parties hereto
with respect to the Consolidation. This Agreement may not be amended,
terminated or modified except in writing.
18. TERMINATION.
(a) The obligations of Dealer Manager, any Partnership, either
Sponsor and the Company under this Agreement, except as provided below in
clause (b), may be terminated by Dealer Manager, on the one hand, or by any
Partnership (as to itself only), either Sponsor (as to itself only) and the
Company, on the other hand, for any reason upon ten days prior written notice
to that effect to the other parties. The termination of this agreement by the
Dealer Manager will not affect the obligations of the Partnerships, the Company
or the Sponsor hereunder.
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(b) The Partnerships, the Sponsor and the Company understand
and agree that the provisions of Sections 5, 11, 13 and 19 will survive any
termination of the obligations of any of the parties either pursuant to this
Section 18 or pursuant to Sections 3(b) or 13 of this Agreement.
19. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California (not including
choice-of-laws rules thereof) applicable to agreements made and to be performed
in said State.
20. ATTORNEYS' FEES. If any party to this Agreement brings any
action to enforce its rights under this Agreement, the prevailing party shall
be entitled to recover its costs and expenses, including without limitation,
reasonable attorneys' fees and disbursements, incurred in connection with such
action, including any appeal of such action.
21. OBLIGATIONS OF PARTNERSHIPS. The Dealer Manager acknowledges
that, as among themselves, the Partnerships intend to allocate their
obligations under this Agreement, including, without limitation, the payment of
fees and expenses, indemnification and contribution, in accordance with the
exchange ratios offered to the Partners in connection with the Consolidation,
whether or not the Consolidation is consummated. Such allocation, however,
shall not affect the joint and several nature of the obligations of the
Partnerships, the Sponsor and the Company under this Agreement and shall comply
with all applicable laws, rules, regulations and orders; provided, however,
that any Partnership that is a Nonparticipating Partnership shall be deemed not
to be subject to Section 11 hereof.
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Kindly indicate your willingness to act as Dealer Manager and your
acceptance of the foregoing provisions by signing in the space provided below
for that purpose and returning to us a copy of this agreement so signed,
whereupon this agreement and your acceptance shall constitute a binding
agreement among us.
Very truly yours,
AEROMAX, INC., JETFLEET MANAGEMENT CORP.,
a California corporation a California corporation
By ____________________________ By ____________________________
Neal D. Crispin, President Neal D. Crispin, President
JETFLEET AIRCRAFT, L. P., JETFLEET AIRCRAFT II, L. P.,
a California Limited Partnership a California Limited Partnership
By: CMA CAPITAL GROUP, INC., By: CMA CAPITAL GROUP, INC.,
General Partner General Partner
By _________________________ By _________________________
Neal D. Crispin, President Neal D. Crispin, President
CMA CAPITAL GROUP, INC.,
By _________________________
Neal D. Crispin, President
ACCEPTED:
CRISPIN KOEHLER SECURITIES
By ___________________________
Richard D. Koehler, President
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SCHEDULE I
PARTNERSHIPS
JetFleet Aircraft, L.P.
JetFleet Aircraft II, L.P.
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<PAGE> 1
EXHIBIT 3.01
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
AEROMAX, INC.
AeroMax, Inc., a corporation duly organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
1. The name of this corporation is AeroMax, Inc., and the date of
filing of its original certificate of incorporation (the "Certificate of
Incorporation") with the Secretary of State is February 28, 1997.
2. The Board of Directors duly adopted resolutions proposing to amend
and restate the Certificate of Incorporation of this Corporation, declaring
said amendment and restatement to be advisable and in the best interest of this
Corporation and its stockholders, and authorizing the appropriate officers of
this corporation to solicit the consent of the stockholders therefore, which
resolutions setting forth the proposed amendment and restatement as follows:
ARTICLE I
The name of the Corporation is AeroMax, Inc.
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle,
Delaware 19805. The name of its registered agent at such address is Corporation
Service Company.
ARTICLE III
The nature of the business of the Corporation and the purposes for
which it is organized are to engage in any lawful act or activity for which
corporations may be organized under the Delaware General Corporation Law.
ARTICLE IV
This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Preferred Stock" and "Common Stock." The total
number of shares of stock which the Corporation shall have authority to issue
is 5,000,000, consisting of 2,000,000 shares of Preferred Stock, each with a
par value of $0.001 per share, and 3,000,000 shares of Common Stock, each with
a par value of $0.001 per share.
The Preferred Stock may be issued from time to time in one or more
series, without further stockholder approval. The Board of Directors of the
Corporation (the "Board") is hereby authorized to provide for the issuance of
shares of Preferred Stock in one or more series and, by
<PAGE> 2
filing a certificate pursuant to the applicable law of the State of Delaware
(hereinafter referred to as "Preferred Stock Designation"), to establish from
time to time the number of shares to be included in each such series, and to
fix the designation, powers, preferences and rights of the shares of each such
series and the qualifications, limitations and restrictions thereof. The
authority of the Board with respect to each series shall include, but not be
limited to, determination of the following:
(a) The designation of the series, which may be by distinguishing
number, letter or title.
(b) The number of shares of the series, which number the Board may
thereafter (except where otherwise provided in the Preferred Stock Designation)
increase or decrease (but not below the number of shares thereof then
outstanding).
(c) The amounts payable on, and the preferences, if any, of
shares of the series in respect of dividends, and whether such dividends, if
any, shall be cumulative or noncumulative.
(d) Dates at which dividends, if any, shall be payable.
(e) The redemption rights and price or prices, if any, for shares
of the series.
(f) The terms and amount of any sinking fund provided for the
purchase or redemption of shares of the series.
(g) The amounts payable on, and the preferences, if any, of
shares of the series in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation.
(h) Whether the shares of the series shall be convertible into or
exchangeable for shares of any other class or series, or any other security, of
the Corporation or any other corporation, and, if so, the specification of such
other class or series of such other security, the conversion or exchange price
or prices or rate or rates, any adjustments thereof, the date or dates at which
such shares shall be convertible or exchangeable and all other terms and
conditions upon which such conversion or exchange may be made.
(i) Restrictions on the issuance of shares of the same series or
of any other class or series.
(j) The voting rights, if any, of the holders of shares of the
series.
The Common Stock shall be subject to the express terms of the
Preferred Stock and any series thereof. Except as may otherwise be provided by
applicable law, in this Amended and Restated Certificate of Incorporation or in
a Preferred Stock Designation, the holders of shares of Preferred Stock and
Common Stock shall be entitled to one vote for each such share upon all
questions presented to the stockholders.
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<PAGE> 3
The Corporation shall be entitled to treat the person in whose name
any share of its stock is registered as the owner thereof for all purposes and
shall not be bound to recognize any equitable or other claim to, or interest
in, such share on the part of any other person, whether or not the Corporation
shall have notice thereof, except as otherwise expressly provided by applicable
law.
ARTICLE V
The business and affairs of the Corporation shall be managed by, or
under the direction of, the Board. The number of directors of the Corporation
shall be fixed from time to time by a bylaw or amendment thereof duly adopted
by the Board of Directors or by 66 2/3 percent of the voting power of the then
outstanding capital stock of the Corporation entitled to vote ("Voting Stock").
Any director, or the entire Board, may be removed from office at any time, but
only for cause and only by the affirmative vote of at least 66 2/3 percent of
the total voting power of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class. Unless and except to the extent that the bylaws of
the Corporation shall so require, the elections of directors of the Corporation
need not be by written ballot.
Notwithstanding anything contained in this Amended and Restated
Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least 66 2/3 percent of the Voting Stock, voting together as a
single class, shall be required to amend, alter, repeal or adopt any provision
inconsistent with Article V.
ARTICLE VI
In furtherance of, and not in limitation of, the powers conferred by
law, the Board is expressly authorized and empowered:
(a) to adopt, alter, amend or repeal the bylaws of the Corporation;
provided, however, that the bylaws adopted by the Board under the powers hereby
conferred may be amended or repealed by the Board or by the stockholders having
voting power with respect thereto, provided, further that, notwithstanding any
other provision of this Certificate of Incorporation or any provisions of law
which might otherwise permit a lesser vote or not vote, but in addition to any
affirmative vote of the holders of any particular class or series of the stock
required by law or this Amended and Restated Certificate of Incorporation, the
affirmative vote of the holders of at least 66 2/3 percent of the voting power
of the then outstanding Voting Stock, voting together as a single class, shall
be required in order for the stockholders to adopt, alter, amend or repeal any
bylaw; and
(b) from time to time to determine whether and to what extent, and
what times and places, and under what conditions and regulations, the accounts
and books of the Corporation, or any of them, shall be open to inspection of
stockholders; and, except as so determined or as expressly provided in this
Amended and Restated Certificate of Incorporation or in any Preferred
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<PAGE> 4
Stock Designation, no stockholder shall have any right to inspect any account,
book or document of the Corporation other than such rights as may be conferred
by applicable law.
The Corporation may in its bylaws confer powers upon the Board in
addition to the foregoing and in addition to the powers and authorities
expressly conferred upon the Board by applicable law. Notwithstanding anything
contained in this Amended and Restated Certificate of Incorporation to the
contrary, the affirmative vote of the holders of at least 66 2/3 percent of the
voting power of the then outstanding Voting Stock, voting together as a single
class, shall be required to amend, alter, repeal or adopt any provision
inconsistent with paragraph (a) of this Article VI.
ARTICLE VII
Any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special meeting of
stockholders of the Corporation and may not be effected by any consent in
writing in lieu of a meeting of such stockholders. Notwithstanding anything
contained in this Amended and Restated Certificate of Incorporation to the
contrary, the affirmative vote of at least 66 2/3 percent of the voting power
of the then outstanding Voting Stock, voting together as a single class, shall
be required to amend, alter, repeal or adopt any provision inconsistent with
this Article VII.
ARTICLE VIII
No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except as to liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for violations of Section 174 of the Delaware
General Corporation Law, or (iv) for any transaction from which the director
derived any improper personal benefit. If the Delaware General Corporation Law
hereafter is amended to eliminate or limit further the liability of a director,
then, in addition to the elimination and limitation of liability provided by
the preceding sentence, the liability of each director shall be eliminated or
limited to the fullest extent provided or permitted by the Delaware General
Corporation Law, as amended. Any repeal or modification of this Article VIII
shall not adversely affect any right or protection of a director under this
Article VIII, as in effect immediately prior to such repeal or modification,
with respect to any liability that would have accrued, but for this Article
VIII, prior to such repeal or modification.
ARTICLE IX
The Corporation shall, to the fullest extent permitted by Delaware
law, as in effect from time to time, indemnify any persons against all
liability and expense (including attorneys' fees) incurred by reason of the
fact that he is or was a director or officer of the Corporation or, while
serving as a director or officer of the Corporation, he is or was serving at
the request of the Corporation as a director, officer, partner or trustee of,
or in any similar managerial or fiduciary position of, or as an employee or
agent of, another corporation, partnership, joint venture, trust,
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association or other entity. Expenses (including attorneys' fees) incurred in
defending an action, suit or proceeding may be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding to the full
extent and under the circumstances permitted by Delaware law. The Corporation
may purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee, fiduciary, or agent of the Corporation against any
liability asserted against and incurred by such person in any such capacity or
arising out of such person's position, whether or not the Corporation would
have the power to indemnify against such liability under the provisions of this
Article IX. The indemnification provided by this Article IX shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
this Amended and Restated Certificate of Incorporation, any bylaw, agreement,
vote of stockholders or disinterested directors, statute or otherwise and shall
inure to the benefit of their heirs, executors, and administrators. The
provisions of this Article IX shall not be deemed to preclude the Corporation
from indemnifying other persons from similar or other expense and liabilities
as the Board of Directors or the stockholder may determine in a specific
instance or by resolution of general applications.
ARTICLE X
The Corporation shall have authority, to the fullest extent now or
hereafter permitted by the Delaware General Corporation Law, or by any other
applicable law, to enter into any contract or transaction with one or more of
its directors or officers, or with any corporation, partnership, joint venture,
trust, association, or other entity in which one or more of its directors or
officers are directors or officers, or have a financial interest,
notwithstanding such relationships and notwithstanding the fact that the
director of officer is present at or participates in the meeting of the Board
or committee thereof which authorizes the contact or transaction.
ARTICLE XI
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of this Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of this Corporation.
ARTICLE XII
This Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
------
3. The foregoing amendment was approved by the holders of the
requisite number of shares of said Corporation in accordance with Section 228
of the Delaware General Corporation Law.
4. This Amended and Restated Certificate of Incorporation has been
duly adopted in accordance with the provisions of Sections 242 and 245 of the
General Corporation Law of the State of Delaware.
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<PAGE> 6
IN WITNESS WHEREOF, AeroMax, Inc., has caused this Amended
and Restated Certificate of Incorporation to be signed by its duly authorized
officers as of this ____ day of March, 1997.
AEROMAX, INC.
By:
-----------------------------
Neal D. Crispin, President
Attest:
By:
----------------------------
Toni Perazzo, Secretary
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<PAGE> 1
EXHIBIT 3.02
BYLAWS
OF
AEROMAX, INC.
(a Delaware corporation)
_______________
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Certificates representing stock
in the corporation shall be signed by, or in the name of, the corporation by
the Chairman or Vice-Chairman of the Board of Directors, if any, or by the
President or a Vice-President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the corporation. Any or all the
signatures on any such certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue.
Whenever the corporation shall be authorized to issue more than one
class of stock or more than one series of any class of stock, and whenever the
corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set froth thereon the statement prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
The corporation may issue a new certificate of stock or uncertificated
shares in place of any certificate theretofore issued by it, alleged to have
been lost, stolen, or destroyed, and the Board of Directors may require the
owner of the lost, stolen, or destroyed certificate, or his legal
representative, to give the corporation a bond sufficient to indemnify the
corporation against any claim that may be made against it on account of the
alleged loss, theft, or destruction of any such certificate or the issuance of
any such new certificate or uncertificated shares.
2. UNCERTIFICATED SHARES. Subject to any conditions imposed by the
General Corporation Law, the Board of Directors of the corporation may provide
by resolution or resolutions that some or all of any or all classes or series
of the stock of the corporation shall be uncertificated shares. Within a
reasonable time after the issuance or transfer of any uncertificated shares, the
corporation shall send to the registered owner thereof any written notice
prescribed by the General Corporation Law.
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3. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not be
required to, issue fractions of a share. If the corporation does not issue
fractions of a share, if shall (1) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of
fractions of a share as of the time when those entitled to receive such
fractions are determined, or (3) issue scrip or warrants in registered form
(either represented by a certificate or uncertificated) or bearer form
(represented by a certificate) which shall entitle the holder to receive a full
share upon the surrender of such scrip or warrants aggregating a full share. A
certificate for a fractional share or an uncertificated fractional share shall,
but scrip or warrants shall not unless otherwise provided therein, entitle the
holder to exercise voting rights, to receive dividends thereon, and to
participate in any of the assets of the corporation in the event of
liquidation. The Board of Directors may cause scrip or warrants to be issued
subject to the conditions that they shall become void if not exchanged for
certificates representing the full shares for which scrip or warrants are
exchangeable may be sold by the corporation and the proceeds thereof
distributed to the holders of scrip or warrants, or subject to any other
conditions which the Board of Directors may impose.
4. STOCK TRANSFERS. Upon compliance with provisions restricting the
transfer or registration of transfer of shares of stock, if any, transfers or
registration of transfers of shares of stock of the corporation shall be made
only on the stock ledger of the corporation by the registered holder thereof,
or by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the corporation or with a transfer agent or a
registrar, if any, and, in the case of share represented by certificates, on
surrender of the certificated or certificates for such shares of stock properly
endorsed and the payment of all taxes due thereon.
5. RECORD DATE FOR STOCKHOLDERS. In order that the corporation may
determine the stockholders entitled to notice or to vote at any meeting of
stockholders or any adjournment thereof,the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than sixty nor less than ten days before the date of
such meeting. If no record date is fixed by the Board of Directors, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or, if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for
the adjourned meeting. In order that the corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted by the Board of Directors, and which date shall not be more that ten
days after the date upon which the resolution fixing the record date is adopted
by the Board of Directors. If no record date has been fixed by the Board of
Directors, the record date for determining the stockholders entitled to consent
to corporate action in writing without a meeting, when no prior action by the
Board of Directors is required by the General Corporation Law, shall be the
first date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the corporation by deliver to its
registered office in the State of Delaware, its principal place of business, or
an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. If no record has been fixed by the Board of
Directors and prior action by the Board of Directors is
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required by the General Corporation Law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action. In order that the
corporation may determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or the stockholders
entitled to exercise any rights in respect of any change, conversion, or
exchange of stock, or for the purpose of any other lawful action, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted, and which record
date shall be not more than sixty days prior to such action. If no record date
is fixed, the record date for determining stockholders for any such purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
6.MEANING OF CERTAIN TERMS. As used herein in respect of the right to
notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, there term "share" or "shares" or "share of stock" or "shares of
stock" or "stockholder" or "stockholders" refers to an outstanding share or
shares of stock and to a holder or holders of record of outstanding shares of
stock when the corporation is authorized to issue only one class of shares of
stock, and said reference is also intended to include any outstanding share or
shares of stock and any holder or holders of record of outstanding shares of
stock of any class upon which or upon whom the certificate of incorporation
confers such rights where there are two or more classes or series of
notwithstanding that the certificate or incorporation may provide for more than
one class or series of shares of stock, one or more of which are limited or
denied such rights thereunder; provided, however, that no such right shall vest
in the event of an increase or a decrease in the authorized number of shares of
stock of any class or series which is otherwise denied voting rights under the
provisions of the certificate of incorporation, except as any provision of law
may otherwise require.
7. STOCKHOLDER MEETINGS.
7.1 TIME. The annual meeting shall be held on the date
at the time fixed, from time to time, by the directors, provided, that the
first annual meeting shall be held on a date within thirteen months after the
organization of the corporation, and each successive annual meeting shall be
held on a date within thirteen months after the date of the preceding annual
meeting. A special meeting shall be held on the date and at the time fixed by
the directors.
7.2 PLACE. Annual meetings and special meetings shall be
held at such place, within or without the State of Delaware, as the directors
may, from time to time, fix. Whenever the directors shall fail to fix such
place, the meeting shall be held at the registered office of the corporation in
the State of Delaware.
7.3 CALL. Annual meetings and special meetings may be
called by the directors or by any officer instructed by the directors to call
the meeting.
7.4 NOTICE OR WAIVER OF NOTICE. Written notice of all
meetings shall be given, stating the place, date and hours of the meeting and
stating the place within the city or other municipality or community at which
the list of stockholders of the corporation may be examined. The notice of an
annual meeting shall state that the meeting is called for the election of
directors and for the transaction of other business which may properly come
before the meeting, and shall (if any other action which could be taken at a
special meeting is to be taken at such annual
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meeting) state the purpose or purposes. The notice of a special meeting shall
in all instances state the purposes or purposes for which the meeting is
called. The notice of any documents prescribed by the General Corporation Law.
Except as otherwise provided by the General Corporation Law, a copy of the
notice of any meeting shall be given, personally or by mail, not less than ten
days nor more than sixty days before the date of the meeting, unless the lapse
of the prescribed period of time shall have been waived, and directed to each
stockholder at his record address or at such other address which he may have
furnished by request in writing to the Secretary of the corporation. Notice by
mail shall be deemed to be given when deposited, with postage thereon prepaid,
in the United States Mail. If a meeting is adjourned to another time, not more
than thirty days hence, and/or to another place, and if an announcement of the
adjourned meeting unless the directors, after adjournment, fix a new record
date for the adjourned meeting. Notice need note be given to any stockholder
who submits a written waiver of notice signed by him before or after the time
stated therein. Attendance of a stockholder at a meeting of stockholders shall
constitute a waive of notice of such meeting, except when the stockholder
attends the meeting for the express purpose of objecting, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the stockholders need be
specified in any written waiver of notice.
7.5 STOCKHOLDER LIST. The officer who has charge of the
stock ledger of the corporation shall prepare and make, at least ten days
before every meeting of stockholders, a complete list of the stockholders,
arranged in alphabetical order, and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least ten days
prior to the meeting, either at a place within the city or other municipality
or community where the meeting is to be held, which place shall be specified in
the notice of the meeting, or if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time
and place of the meeting during the whole time thereof, and may be inspected by
any stockholder who is present. The stock ledger shall be the only evidence as
to who are the stockholders entitled to examine the stock ledger, the list
required by this section or the books of the corporation, or to vote at any
meeting of stockholders.
7.6 CONDUCT OF MEETING. Meetings of the stockholders
shall be presided over by one of the following officers in the order of
seniority and if present and acting - the Chairman of the Board, if any, the
Vice-Chairman of the Board, if any, the President, a Vice-President, or , if
none of the foregoing is in office and present and acting, by a chairman to be
chosen by the stockholders. The Secretary of the corporation, or in his
absence, an Assistant Secretary, shall act as secretary of every meeting, but
if neither the Secretary nor an Assistant Secretary is present the Chairman of
the meeting shall appoint a secretary of the meeting.
7.7 PROXY REPRESENTATION. Every stockholder may
authorize another person or persons to act for him by proxy in all matters in
which a stockholder is entitled to participate, whether by waiving notice of
any meeting, voting or participating at a meeting, or expressing consent or
dissent without a meeting. Every proxy must be signed by the stockholder or by
his attorney-in-fact. No proxy shall be voted or acted upon after three years
from its date unless such proxy provides for a longer period. A duly executed
proxy shall be irrevocable if it states that it is irrevocable and, if , and
only as long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of whether the
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interest with which it is coupled is an interest in the stock itself or an
interest in the corporation generally.
7.8 INSPECTORS. The directors, in advance of any meeting, may,
but need not, appoint one or more inspectors of election to act at the meeting
or any adjournment thereof. If an inspector or inspectors are not appointed,
the person presiding at the meeting may, but need not, appoint one or more
inspectors. In case any person who may be appointed as an inspector fails to
appear or act, the vacancy may be filled by appointment made by the directors
in advance of the meeting or at the meeting by the person presiding thereat.
Each inspector, if any, before entering upon the discharge of his duties, shall
take and sign an oath faithfully to execute the duties of inspectors at such
meeting with strict impartiality and according to the best of his ability. The
inspectors, if any, shall determine the number of shares of stock outstanding
and the voting power of each, the shares of stock represented at the meeting,
the existence of a quorum, the validity and effect of proxies, and shall
receive votes, ballots, or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots, or consents, determine the result, and do such acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the person presiding at the meeting, the inspector or inspectors, if
any, shall make a report in writing of any challenge, question, or matter
determined by him or them and execute a certificate of any fact found by him or
them. Except as otherwise required by subsection (e) of Section 231 of the
General Corporation Law, the provisions of that Section shall not apply to the
corporation.
7.9 QUORUM. The holders of a majority of the outstanding
shares of stock shall constitute a quorum at a meeting of stockholders for the
transaction of any business. The stockholders present may adjourn the meeting
despite the absence of a quorum.
7.10 VOTING. Each share of stock shall entitle the holder
thereof to one vote, Directors shall be elected by a plurality of the votes of
the shares present in person or represented by proxy at the meeting and
entitled to vote on the election of directors. Any other action shall be
authorized by a majority of at the votes cast except where the General
Corporation Law prescribes a different percentage of votes and/or a different
exercise of voting power, and except as may be otherwise prescribed by the
provisions of the certificate of incorporation and these Bylaws. In the
election of directors, and for any other action, voting need not be by ballot.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the
corporation shall be managed by or under the direction of the Board of
Directors of the corporation. The Board of Directors shall have the authority
to fix the compensation of the members thereof. The use of the phrase "whole
board" herein refers to the total number of directors which the corporation
would have if there were no vacancies.
2. QUALIFICATIONS AND NUMBER. A director need not be a
stockholder, a citizen of the United States, or a resident of the State of
Delaware. The initial Board of Directors shall consist of three persons.
Subject to the foregoing limitation and except for the first Board of
Directors, such number may be fixed from time to time by action of the
stockholders or of the
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directors, or, if the number is not fixed, the number shall be 5. The number
of directors may be increased or decreased by action of the stockholder or of
the directors.
3. ELECTION AND TERM. The first Board of Directors, unless the
members thereof shall have been named in the certificate of incorporation,
shall be elected by the incorporator or incorporators and shall hold office
until the first annual meeting of stockholders and until their successors are
elected and qualified or until their earlier resignation or removal. Any
director may resign at any time upon written notice to the corporation.
Thereafter, directors who are elected at an annual meeting of stockholders, and
directors,who are elected in the interim to fill vacancies and newly created
directorships, shall hold office until the next annual meeting of stockholders
and until their successors are elected and qualified or until their earlier
resignation or removal. Except as the General Corporation Law may otherwise
require, in the interim between annual meetings of stockholders or of special
meetings of stockholders called for the election of directors and/or for the
removal of one or more directors and for the filling of any vacancy in that
connection, newly created directorships and any vacancies in the Board of
Directors, including unfilled vacancies resulting from the removal of directors
for cause or without cause, may be filled by the vote of a majority of the
remaining directors then in office, although less than a quorum, or by the sole
remaining director.
4. MEETINGS.
4.1 TIME. Meetings shall be held at such time as the
Board shall fix, except that the first meeting of a newly elected Board shall
be held as soon after its election as the directors may conveniently assemble.
4.2 PLACE. Meetings shall be held at such place within
or without the State of Delaware as shall be fixed by the Board.
4.3 CALL. No call shall be required for regular meetings
for which the time and place have been fixed. Special meetings may be called
by or at the direction of the Chairman of the Board, if any, the Vice-Chairman
of the Board, if any, of the President, or of a majority of the directors in
office.
4.4 NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice
shall be required for regular meetings for which the time and place have been
fixed. Written, oral, or any other mode of notice of the time and place shall
be given for special meetings in sufficient time for the convenient assembly of
the directors thereat. Notice need not be given to any director or to any
member of a committee of directors who submits a written waiver of notice
signed by him before or after the time stated therein. Attendance of any such
person at a meeting shall constitute a waiver of notice of such meeting, except
when he attends a meeting for the express purpose of, any regular or special
meeting of the directors need by specified in any written waiver of notice.
4.5 QUORUM AND ACTION. A majority of the whole Board
shall constitute a quorum except when a vacancy or vacancies prevents such
majority, whereupon a majority of the directors in office shall constitute a
quorum, provided, that such majority shall constitute at least one-third of the
whole Board. A majority of the directors present, whether or not a quorum is
present, may adjourn a meeting to another time and place. Except as herein
otherwise provided, and except as otherwise provided by the General Corporation
Law, the vote of the majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board. The
ByLaws 6
<PAGE> 7
quorum and voting provisions herein stated shall not be construed as
conflicting with any provisions of the General Corporation Law and these Bylaws
which govern a meeting of directors held to fill vacancies and newly created
directorships in the Board or action of disinterested directors.
Any member or members of the Board of Directors or of any committee
designated by the Board, may participate in a meeting of the Board, or any such
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
4.6 CHAIRMAN OF THE MEETING. The Chairman of the Board,
if any and if present and acting,shall preside at all meetings. Otherwise, the
Vice-Chairman of the Board, if any and if present and acting, or the President,
if present and acting, or any other director chosen by the Board, shall
preside.
5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by
the General Corporation Law, any director or the entire Board of Directors may
be removed, with or without cause, by the holders of a majority of the shares
then entitled to vote at an election of directors.
6. COMMITTEES. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of any member
of any such committee or committees, the member or members thereof present at
any meeting and not disqualified from voting, whether or not such member or
members constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board, shall have and may exercise the powers and authority
of the Board of Directors in the management of the business and affairs of the
corporation with the exception of any authority the delegation of which is
prohibited by Section 141 of the General Corporation Law, and may authorize the
seal of the corporation to be affixed to all papers which may require it.
7. WRITTEN ACTION. Any action required or permitted to be taken
at any meeting of the Board of Directors or any committee thereof may be taken
without a meeting if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
ARTICLE III
OFFICERS
The officers of the corporation shall consist of a President, a Chief
Operating Officer, a Secretary, a Treasurer, and if deemed necessary,
expedient, or desirable by the Board of Directors, a Chairman of the Board, a
Vice-Chairman of the Board, an Executive Vice-President, one or more other
Vice-Presidents, one or more Assistant Secretaries, one or more Assistant
Treasurers, and such other officers with such titles as the resolution of the
Board of Directors choosing them shall designate. Except as may otherwise be
provided in the resolution of the Board of Directors
ByLaws 7
<PAGE> 8
choosing him, no officer other than the Chairman or Vice-Chairman of the Board,
if any, need be a director. Any number of offices may be held by the same
person, as the directors may determine.
Unless otherwise provided in the resolution choosing him or her, each
officer shall be chosen for a term which shall continue until the meeting of
the Board of Directors following the next annual meeting of stockholders and
until his successor shall have been chosen and qualified.
All officers of the corporation shall have such authority and perform
such duties in the management and operation of the corporation as shall be
prescribed in the resolutions of the Board of Directors designating and
choosing such officers and prescribing their authority and duties, and shall
have such additional authority and duties as are incident to their office
except to the extent that such resolutions may be inconsistent therewith. The
Secretary or an Assistant Secretary of the corporation shall record all of the
proceedings of all meetings and actions in authority and perform such
additional duties as the Board shall assign him. Any officer may be removed,
with or without cause, by the Board of Directors. Any vacancy in any office
may be filled by the Board of Directors.
ARTICLE IV
CORPORATE SEAL
The corporate seal shall be in such form as the Board of Directors
shall prescribe.
ARTICLE VI
CONTROL OVER BYLAWS
Subject to the provisions of the certificate of incorporation and the
provisions of the General Corporation Law, the power to amend, alter, or repeal
these Bylaws and to adopt new Bylaws may be exercised by the Board of Directors
or by the stockholders.
I HEREBY CERTIFY that the foregoing is a full, true and correct copy of the
Bylaws of AeroMax, Inc., a Delaware corporation, as in effect on the date
hereof.
Dated:
____________________________
Assistant Secretary of
AeroMax, Inc.
ByLaws 8
<PAGE> 9
AMENDMENTS OF THE BYLAWS ADOPTED BY THE BOARD OF DIRECTORS
______________, 1997
At a meeting of the Board of Directors of AeroMax, Inc. (the
"corporation") on _________, 1997, the Board voted unanimously to amend Article
I- Section 5 and Section 7.3, Article II-Section 2, Section 3 and Section 5 and
Article VI, in their entirety, and Article I- Section 6 in part, to read as
follows:
ARTICLE I
5. RECORD DATE FOR STOCKHOLDERS. In order that the corporation may
determine the stockholders entitled to notice or to vote at any
meeting of stockholders or any adjournment thereof, the Board of
Directors may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted
by the Board of Directors, and which record date shall not be more
than sixty nor less than ten days before the date of such meeting. If
no record date is fixed by the Board of Directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived,
at the close of business on the day next preceding the day on which
the meeting is held. A determination of stockholders or record
entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of the meeting; provided, however, that the
Board of Directors may fix a new record date for the adjourned
meeting. In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or
allotment of any rights or the stockholders entitled to exercise any
rights in respect of any change, conversion, or exchange of stock, or
for the purpose of any other lawful action, the Board of Directors may
fix a record date, which record date shall not precede the date upon
which the resolution fixing the record date is adopted, and which
record date shall not be more than sixty days prior to such action. If
no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on
which the Board of Directors adopts the resolution relating thereto.
7.3. CALL. Annual meetings and special meetings, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate
of incorporation, may be called by the directors or by any officers
instructed by the directors to call the meeting. The stockholders of
the corporation shall not be vested with the power to call a special
meeting of the stockholders.
ARTICLE II
2. QUALIFICATIONS AND NUMBER. The total number of directors constituting
the entire Board shall be not less than ___ nor more than ___, with
the then authorized number of directors being fixed from time to time
by the Board. The number of the directors may be increased or
decreased by action of the directors.
<PAGE> 10
3. ELECTION AND TERM. The first Board of Directors, unless the member
thereof shall have been named in the certificate of incorporation,
shall be elected by the incorporator and shall hold office until the
first annual meeting of stockholders and until their successors are
elected and qualified or until their earlier resignation or removal.
Any director may resign at any time upon written notice to the
corporation. Thereafter, directors who are elected at an annual
meeting of stockholders, and directors, who are elected in the interim
to fill vacancies and newly created directorships, shall hold office
until the next annual meeting of stockholders and until their
successors are elected and qualified or until their earlier
resignation or removal. Except as the General Corporation Law may
otherwise require, in the interim between annual meetings of
stockholders or of special meetings of stockholders called for the
election of directors and/or for the removal of one or more directors
and for the filling of any vacancy in that connection, newly created
directorships and any vacancies in the Board of Directors, including
unfilled vacancies resulting from the removal of directors for cause,
may be filled by the vote of a majority of the remaining directors
then in office, although less than a quorum, or by the sole remaining
director.
The Board shall be divided into three classes, as nearly equal in
number as possible, designated Class I, Class II and Class III. Class
I directors shall initially serve until the 1998 meeting of
stockholders; Class II directors shall initially serve until the 1999
meeting of stockholders; and Class III directors shall initially serve
until the 2000 meeting of stockholders. Commencing with the annual
meeting of stockholders in 1998, directors of each class of which
shall then expire shall be elected to hold office for a three-year
term and until the election and qualification of their respective
successors in office. In case of any increase or decrease, from time
to time, in the number of directors, the number of directors in each
class shall be apportioned as nearly equal as possible. Newly created
directorships resulting from any increase in the authorized number of
directors or any vacancies in the Board resulting from death,
resignation, retirement, disqualification, removal from office or
other cause shall be filled solely by the affirmative vote of a
majority of the remaining directors then in office, even though less
than a quorum of the Board. Any director so chosen shall hold office
until the next election of the class for which such directors shall
have been chosen and until his successor shall be elected and
qualified. No decrease in the number of directors shall shorten the
term of any incumbent director.
5. REMOVAL OF DIRECTORS. Subject to the rights of the holders of any
series of Preferred Stock to elect additional directors under
specified circumstances, any director, or the entire Board of
Directors, may be removed from to office at any time, with cause, but
only by the affirmative vote of the holders of at least 66 2/3 percent
of the voting power of the then outstanding shares, voting together as
a single class.
<PAGE> 11
ARTICLE VI
CONTROL OVER BYLAWS
The Bylaws may be amended, altered, added to, rescinded or repealed at
any meeting of the Board of Directors or of the stockholders, provided notice
of the proposed change was given in the notice of the meeting and, in the case
of a meeting of the Board of Directors, in a notice given no less than
twenty-four hours prior to the meeting; provided, however, that,
notwithstanding any other provisions of these Bylaws or any provisions of law
which might otherwise permit a lesser vote or no vote, but in addition to any
affirmative vote of the holders of any particular class or series of the stock
required by law, the Certificate of Incorporation or these Bylaws, the
affirmative vote of the holders of at least 66 2/3 percent of the voting power
of the then shares, voting together as a single class, shall be required in
order for stockholders to adopt, alter, amend or repeal any bylaw.
ARTICLE VII
INDEMNIFICATION
The corporation shall, to the fullest extent permitted by Delaware
law, as in effect from time to time, indemnify any persons against all
liability and expense (including attorneys' fees) incurred by reason of the
fact that he is or was a director or officer of the corporation or, while
serving as a director or officer of the corporation, he is or was serving at
the request of the corporation as a director, officer, partner or trustee of,
or in any similar managerial or fiduciary position of, or as an employee or
agent of, another corporation, partnership, joint venture, trust, association
or other entity. Expenses (including attorneys' fees) incurred in defending an
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding to the full extent and
under the circumstances permitted by Delaware law. The corporation may purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee, fiduciary, or agent of the corporation against any liability
asserted against and incurred by such person in any such capacity or arising
out of such person's position, whether or not the corporation would have the
power to indemnify against such liability under the provisions of this Article
VII. The indemnification provided by this Article VII shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
this Bylaw, the Amended and Restated Certificate of Incorporation, agreement,
vote of stockholders or disinterested directors, statute or otherwise and shall
inure to the benefit of their heirs, executors, and administrators. The
provisions of this Article VII shall not be deemed to preclude the corporation
from indemnifying other persons from similar or other expense and liabilities
as the Board of Directors or the stockholder may determine in a specific
instance or by resolution of general applications.
<PAGE> 12
ARTICLE I
6. MEANING OF CERTAIN TERMS. As used herein in respect of the right to
notice of a meeting of stockholders or a waiver thereof or to
participate or vote thereat, as the case may be ....
<PAGE> 1
EXHIBIT 3.03
JETFLEET AIRCRAFT, L.P.
AMENDED AND RESTATED LIMITED PARTNERSHIP
AGREEMENT
<PAGE> 2
JETFLEET AIRCRAFT, L.P.
LIMITED PARTNERSHIP AGREEMENT
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
ARTICLE I DEFINED TERMS...........................................................................................1
ARTICLE II ORGANIZATION..........................................................................................12
2.1 Formation......................................................................................12
2.2 Name, Place of Business and Office.............................................................12
2.3 Purpose........................................................................................12
2.4 Term...........................................................................................12
ARTICLE III. PARTNERS AND CAPITAL...............................................................................13
3.1 General Partners...............................................................................13
3.2 Assignor Limited Partner.......................................................................13
3.3 Unitholders....................................................................................13
3.4 Capital Contributions..........................................................................15
3.5 Application of Capital Contributions...........................................................15
3.6 Partnership Capital............................................................................15
3.7 Liability of Partners and Unitholders..........................................................15
ARTICLE IV DISTRIBUTIONS, PROFITS AND LOSSES.....................................................................17
4.1 Distributions..................................................................................17
4.2 Allocation of Profits and Losses...............................................................17
4.3 Special Allocations............................................................................18
4.4 Curative Allocations...........................................................................19
4.5 Allocation Among Partners......................................................................19
4.6 Acknowledgment of Tax Consequences.............................................................20
ARTICLE V RIGHTS, POWERS AND DUTIES OF THE GENERAL PARTNERS......................................................20
5.1 Management and Control of the Partnership......................................................20
5.2 Authority of the Managing General Partner......................................................21
5.3 Authority of Partners to Deal with Partnership.................................................24
</TABLE>
<PAGE> 3
TABLE OF CONTENTS
(continued)
<TABLE>
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<S> <C>
5.4 Restrictions on the Authority of a General Partner.............................................25
5.5 Duties and Obligations of the General Partners.................................................26
5.6 Compensation of the General Partners...........................................................27
5.7 Other Businesses of Partners...................................................................31
ARTICLE VI GENERAL PARTNER WITHDRAWAL, REMOVAL, AUTOMATIC CESSATION AND SUBSTITUTION; TRANSFER
OF A GENERAL PARTNERS INTEREST..........................................................................32
6.1 Withdrawal of the General Partners.............................................................32
6.2 Removal of the General Partners................................................................32
6.3 Substitute and Additional General Partners; Assignment of Economic Interest....................32
6.4 Automatic Cessation of General Partners........................................................33
6.5 Purchase of a Terminated General Partner's Interest............................................34
6.6 Effect on Fees of Termination of Managing General Partner......................................34
6.7 Notes and Interest.............................................................................34
6.8 Liability of a Terminated General Partner......................................................35
6.9 Amounts Payable to S.P.L.C.....................................................................35
ARTICLE VII TRANSFERABILITY OF LIMITED PARTNERSHIP INTERESTS OR UNITS............................................35
7.1 Restrictions on Transfers of Units.............................................................35
7.2 Incapacity of Unitholders......................................................................38
7.3 Change In Record Ownership.....................................................................38
7.4 Substituted Limited Partner....................................................................38
7.5 Citizenship Status.............................................................................39
ARTICLE VIII DISSOLUTION, LIQUIDATION AND TERMINATION OF THE PARTNERSHIP.........................................40
8.1 Events Causing Dissolution.....................................................................40
8.2 Liquidation....................................................................................40
</TABLE>
<PAGE> 4
TABLE OF CONTENTS
(continued)
<TABLE>
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<S> <C> <C>
ARTICLE IX BOOKS AND RECORDS; ACCOUNTING, TAX RECORDS............................................................42
9.1 Books and Records..............................................................................42
9.2 Accounting Basis for Tax and Reporting Purposes................................................42
9.3 Bank Accounts..................................................................................42
9.4 Reports........................................................................................42
9.5 Elections......................................................................................44
9.6 Designation of Tax Matters Partner.............................................................44
9.7 Expenses of Tax Matters Partner................................................................44
ARTICLE X AMENDMENTS.............................................................................................44
10.1 Proposal and Adoption of Amendments Generally..................................................44
10.2 Amendments on Admission or Withdrawal of Partners and Unitholders..............................46
ARTICLE XI CONSENTS, VOTING AND MEETINGS.........................................................................46
11.1 Method of Giving Consent.......................................................................47
11.2 Voting Rights..................................................................................47
11.3 Meetings.......................................................................................47
11.4 Submissions to Unitholders.....................................................................47
11.5 Record Dates...................................................................................48
ARTICLE XII POWERS OF ATTORNEY...................................................................................48
12.1 Appointment of the Managing General Partner and the Assignor Limited Partner
as Attorney-in-Fact............................................................................48
ARTICLE XIII MISCELLANEOUS.......................................................................................49
13.1 Notification to the Partnership or the General Partners........................................49
13.2 Binding Provisions.............................................................................49
13.3 Applicable Law.................................................................................49
13.4 Counterparts...................................................................................49
13.5 Severability of Provisions.....................................................................49
13.6 Entire Agreement...............................................................................49
13.7 Section Titles.................................................................................50
13.8 Legal Fees.....................................................................................50
</TABLE>
<PAGE> 5
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR
ANY INTEREST THEREIN OR TO RECEIVE ANY CONSIDERATION THEREFOR WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
JETFLEET AIRCRAFT, L.P.
AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
This Amended and Restated Limited Partnership Agreement is made and
executed as of May 19, 1989, by and among CMA Capital Group, a California
corporation (the "Managing General Partner"), Neal D. Crispin and Richard D.
Koehler as General Partners (collectively, the "General Partners"), and
JetFleet Assignor L.P.A., Inc., a California corporation, as the Assignor
Limited Partner and initial Limited Partner in accordance with the provisions
of the California Revised Limited Partnership Act and is intended to amend and
restate that certain Limited Partnership Agreement made and entered into by and
among such parties as of February 16, 1989. In consideration of the mutual
promises made herein, the parties, intending to be legally bound, hereby agree
as follows:
ARTICLE I
DEFINED TERMS
The definitions used in this Agreement shall, unless the context
otherwise requires, have the meanings specified in this Article I. The singular
shall include the plural, and any reference to gender shall include the other
genders (whether masculine, feminine or neuter), as the context requires.
"Acquisition Expenses": Expenses (including, but not limited to, legal
fees and expenses, travel and communication expenses, costs of appraisals,
accounting fees and expenses and miscellaneous expenses) relating to selection
and acquisition of Aircraft, whether or not acquired. Acquisition Expenses
include both chargeable Acquisition Expenses and General Partner Acquisition
Expenses.
"Acquisition Fee": The total of all fees and commissions paid by any
party in connection with the initial purchase of Aircraft acquired by the
Partnership. Included in the computation of such fees or commissions are any
commission, selection fee, financing fee, non-recurring management fee, or any
fee of a similar nature, however designated. Other examples of Acquisition Fees
include brokers' fees and commissions, trustee fees, commitment fees and
prepayment fees. The principal Acquisition Fee to be paid by the Partnership is
a fee, equal to 1.5% of the Purchase Price of Aircraft purchased by the
Partnership, for services rendered in identifying the availability of such
Aircraft for purchase. Under the S.P.L.C. Agreement, S.P.L.C. will be retained
to perform such services and will receive that Acquisition Fee. The amount of
this Acquisition Fee shall be limited to 1.5% of the Purchase Price regardless
of who performs the services in question (thus, any Acquisition Fee payable to
any substitute for S.P.L.C. will be limited to 1.5% of the Purchase Price). The
only other Acquisition Fee which it
1
<PAGE> 6
is anticipated that the Partnership will incur are the trustee fees. In certain
circumstances, the Partnership may become obligated to pay fees or commissions
to third-party brokers other than S.P.L.C. (or any substitute) for services
rendered in connection with the acquisition of Aircraft. Such fees and
commissions, if any, will be included in the Purchase Price of the Aircraft
acquired by the Partnership; accordingly, the amount of such fees together with
the other amounts included in the Purchase Price will not exceed the fair
market value of the Aircraft as determined by the Appraiser.
Additional Aircraft": Any Aircraft selected for purchase by the
Partnership other than the Specified Aircraft.
"Additional Closing": Any Closing after the Initial Closing.
"Adjusted Capital Account Deficit": With respect to any General
Partner or Unitholder, the deficit balance, if any, in such General Partner's
or Unitholder's Capital Account as of the end of the relevant fiscal year,
after giving effect to the following adjustments:
a) Crediting to such Capital Account any amounts which such
Partner or Unitholder is obligated to restore following the
liquidation of such Partner's or Unitholder's interest in the
Partnership;
b) Crediting to such Capital Account the amount of such
Partner's or Unitholder's share of the Partnership Minimum Gain (which
share shall be determined in accordance with Section 1.704-1(b)(4)
(iv)(f) of the Regulations); and
c) Debiting to such Capital Account the items described in
regulations Sections 1.7041(b)(2)(ii)(d)(4), (5), and (6).
This definition is intended to comply with the provisions of Section
1.704-1(b)(2)(ii)(d) of the Regulations, and shall be interpreted consistently
therewith.
"Adjusted Capital Contributions": The Unitholders' Capital
Contributions reduced to not less than zero by cash distributions from any
source (including liquidating distributions) to the Unitholders which exceed a
cumulative, noncompounded 8% annual return on such Unitholders' Adjusted
Capital Contributions (excluding any distributions previously reducing such
Adjusted Capital Contributions), with such calculation to be based on the
Adjusted Capital Contributions outstanding on the last day of the preceding
calendar quarter.
"Affiliate": 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
general partner of such Person and (d) if such Person is an officer, director
or general partner, any company for which such Person acts in such capacity.
"Agreement": This Limited Partnership Agreement, as originally
executed and as amended or restated, as the context requires.
2
<PAGE> 7
"Aircraft": An aircraft identified or selected for purchase or
purchased or otherwise held by or on behalf of the Partnership, or a joint
venture interest in such aircraft identified or selected for acquisition or
acquired or otherwise held by or on behalf of the Partnership, together with
all appliances, parts, instruments, appurtenances, accessories, furnishings or
other equipment included therein (including any and all engines originally
installed thereon), and all substitutions, renewals or replacements of, and all
additions, improvements and accessions to, such aircraft. Aircraft subject to
Initial Leases will be used aircraft; Aircraft acquired with Sales Proceeds may
be new or used aircraft.
"Appraiser": BK Associates, Inc. or such other nationally recognized
independent appraiser selected by the Managing General Partner in its
discretion.
"Assignor Limited Partner": JetFleet Assignor L.P.A., Inc., a
California corporation, or any successor.
"Aviation Act": The Federal Aviation Act of 1958, as amended.
"Base Management Fee": The fee payable to the Managing General Partner
pursuant to Section 5.6(d).
"Business Day": Any day that is not a Saturday, a Sunday, or a day on
which banking institutions in the City of San Francisco, California are
authorized or required to close by law, executive order or regulation.
"California Act": The California Revised Limited Partnership Act or
the corresponding provisions of any succeeding law.
"Capital Account': A separate capital account established for each
Partner (including the Assignor Limited Partner, on behalf of each Unitholder)
by the Partnership maintained in accordance with the following provisions:
a) To each Partner's Capital Account there shall be credited
such Partner's Capital Contributions, such Partner's distributive
share of Profits and any items in the nature of income or gain which
are specially allocated pursuant to Article IV hereof, and the amount
of any Partnership liabilities assumed by such Partner or which are
secured by any Partnership property distributed to such Partner.
b) To each Partner's Capital Account there shall be debited the
amount of cash and the fair market value of any Partnership property
distributed to such Partner pursuant to any provision of the
Agreement, such Partner's distributive share of Losses and any items
in the nature of expenses or losses that are specially allocated
pursuant to Article IV hereof, and the amount of any liabilities of
such Partner assumed by the Partnership or which are secured by any
property contributed by such Partner to the Partnership.
3
<PAGE> 8
The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Section 1.704-1(b) of the Regulations and shall be interpreted and applied in a
manner consistent with such Regulations.
"Capital Contribution": The gross amount of investment in the
Partnership by the holder of an Interest in the Partnership or by all such
holders. Since Capital Contributions to the Partnership are to be made in cash,
the Partnership's Capital Contributions will be the total amount of cash
contributed to the Partnership by any Partner or by the predecessor holder of
the Interest of such Partner (including the Assignor Limited Partner on behalf
of a Unitholder or the Unitholder's predecessor in Interest), as the context
requires, without reduction for any Sales Commissions or other expense. As used
with respect to a Unitholder, the term "Capital Contribution" refers to the
Capital Contribution made in respect of the purchase price paid by or on behalf
of the Unitholder or the Unitholder's predecessor upon the issuance and sale by
the Partnership of the Unitholder's Units pursuant to the applicable
Subscription Agreement.
"Cash Available for Distribution": Cash Flow plus funds available for
distribution from reserves less amounts set aside for restoration or creation
of reserves.
"Cash Flow": Partnership cash funds provided from operations, without
deduction for depreciation, but after deducting cash funds used to pay all
other expenses, debt payments, capital improvements and replacements (other
than cash funds withdrawn from Working Capital Reserves or Gross Offering
Proceeds). Cash Flow does not include Sales Proceeds.
"Chargeable Acquisition Expenses": Acquisition Expenses that are to be
paid by the Partnership, as distinguished from General Partner Acquisition
Expenses which are to be paid by the General Partner. Chargeable Acquisition
Expenses include, without limitation, title insurance costs, and any
reimbursement that might be payable by the Partnership to S.P.L.C. for any
out-of-pocket costs which are incurred by S.P.L.C. in rendering acquisition
services for the Partnership (the S.P.L.C. Agreement provides that the
Partnership will pay such reimbursement only for costs that are incurred with
the Partnership's prior approval) and any other direct out-of-pocket costs
incurred in connection with the purchase of Aircraft and not included in
General Partner Acquisition Expenses.
"Citizen of the United States": (a) An individual who is a citizen of
the United States or one of the possessions, (b) a partnership in which each
member is a citizen of the United States, or (c) 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 of such corporation is owned
or controlled by citizens of the United States.
"Closing": The sale of Units by the Partnership pursuant to the
Offering, at which time the subscription proceeds with respect to the Units are
released from escrow and delivered to the Partnership, and the subscribers who
deposited those funds become Unitholders.
"Closing Date": The date on which a Closing takes place.
4
<PAGE> 9
"Code": The Internal Revenue Code of 1986, as amended, or the
corresponding provisions of any succeeding law.
"Commission": The Securities and Exchange Commission.
"Consent": The approval of a Person, given as provided in Section
11.1, to do the act or thing for which the approval is solicited, or the act of
granting such approval, as the context may require. Reference to the Consent of
a specified percentage in Interest of the Unitholders means the Consent of
Unitholders who own Units representing at least such specified percentage of
the Units owned by all Unitholders.
"Constructive Ownership Rules": The constructive ownership rules of
Section 318 of the Code which require an individual to be treated as owning the
corporate stock owned directly or indirectly by the individual, the
individual's spouse, children, grandchildren and parents and the individual's
proportionate share of stock held by S corporations of which the individual is
a shareholder, partnerships of which the individual is a partner, trusts of
which is a beneficiary of more than 5% of the value thereof and C corporations
of which the individual is a 50% or more shareholder by value. A Person is also
treated as owning any stock with respect to which the Person holds options to
purchase. In general, corporations, partnerships and trusts are treated as
owning stock held by their shareholders, partners and beneficiaries
respectively.
"Due Diligence Costs": Reimbursement payable to the Sales Agent
pursuant to Section 5.6(b) for the accountable, bona fide due diligence costs
actually incurred by the Sales Agent (or, if the reimbursement is reallowed by
the Sales Agent to a member of the Selling Group, actually incurred by such
Selling Group member) in connection with the Offering.
"Equipment Management": Personnel and services necessary to the
leasing activities of the Partnership including, but not limited to, leasing
and re-leasing of Partnership Aircraft, arranging for any necessary maintenance
and repair of the Aircraft (although the lessees will assume the responsibility
for maintenance and repair under Triple Net Leases), collecting revenues,
paying operating expenses (again, a responsibility of lessees under Triple Net
Leases), determining that the Aircraft is used in accordance with all
contractual arrangements and providing clerical and bookkeeping services
necessary to the operation of Partnership Aircraft and leasing activities.
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended.
"FAA": The Federal Aviation Administration.
"Final Closing Date": The date on which the last Closing takes place.
"Fiscal Year": The fiscal year of the Partnership, which shall
initially be the calendar year.
"Front-End Fees": Fees and expenses paid by any party for any services
rendered during the Partnership's organizational or acquisition phase including
Organizational and Offering
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Expenses, Acquisition Fees, Acquisition Expenses, the total of all fees and
commissions paid by any party in connection with the Initial Lease of Aircraft
acquired by the Partnership and any similar fees, however designated.
"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 price paid upon the purchase of the subject Aircraft, including the
amount of Acquisition Fees and all liens and mortgages, if any, but excluding
points and prepaid interest. (The Partnership intends to purchase its Aircraft
without financing; accordingly, it is not anticipated that the purchase will
involve liens, mortgages or interest.)
"GAAP": Generally accepted accounting principles, consistently
applied.
"General Partner Acquisition Expenses": Those Acquisition Expenses
which are incurred in the selection or acquisition of Aircraft that are
purchased out of Gross Offering and which are to be paid by the General Partner
under the terms of the Non-Accountable Organizational and Offering Expense
Allowance. General Partner Acquisition Expenses are out-of-pocket Acquisition
Expenses incurred by the Partnership in connection with the selection or
acquisition of Aircraft out of Gross Offering Proceeds (whether or not actually
acquired) to the extent such Expenses constitute legal and accounting expenses
(other than the cost of obtaining legal opinions with respect to the
applicability of Section 1110 of the Bankruptcy Code), travel costs or
communication costs and the like.
"General Partners": CMA Capital Group, a California corporation, Neal
D. Crispin and Richard D. Koehler or any other Person that becomes an
additional or successor General Partner as provided under this Agreement.
"Gross Offering Proceeds": The Capital Contributions of all
Unitholders upon the purchase of Units pursuant to the Offering.
"Gross Rentals": The gross amount received by the Partnership as
rental payments for the use of Aircraft beneficially owned in whole or in part
by the Partnership.
"Guidelines": The Equipment Program Guidelines of the North American
Securities Administrators Association, Inc.
"Incentive Management Fee": The fee payable to the Managing General
Partner pursuant to Section 5.6(f).
"Initial Closing": The first Closing.
"Initial Leases": The initial leases to which the Aircraft identified
or selected for purchase or purchased by the Partnership out of Gross Offering
Proceeds are subject.
"Interest": The entire ownership interest of a Partner or Unitholder
in the Partnership at any particular time, including the right of such Partner
or Unitholder to any and all benefits and obligations which a Partner or
Unitholder may be entitled or subject as provided in the California Act and in
this Agreement.
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"Investment Banking Fee": The fee payable to the Sales Agent pursuant
to Section 5.6(b).
"Investment Grade Lessee": A lessee of Aircraft, or if the lessee is a
principal operating subsidiary, the parent of such lessee, having a credit
rating of "Baa" or higher, as assigned by Moody's Investor Service (or its
equivalent, as assigned by a nationally recognized credit rating agency).
"Investment in Aircraft": The amount of Capital Contributions actually
paid or allocated to the purchase or renovation of Aircraft acquired by the
Partnership, including the purchase of Aircraft, Working Capital Reserves
allocable thereto (except that Working Capital Reserves in excess of 3% of
Capital Contributions will not be included), and other cash payments such as
interest and taxes but excluding Front-End Fees.
"IRAs": Individual retirement accounts qualifying under Section 408 of
the Code.
"Limited Partner": Any Person who is admitted to the Partnership as a
limited partner (including the Assignor Limited Partner on behalf of any
Unitholder) and who is shown as such on the books and records of the
Partnership.
"Limited Partnership Interests": The interest of a Limited Partner in
the Partnership attributable to a Capital Contribution of $50. The benefits and
obligations of a Limited Partnership Interest acquired with the Capital
Contribution made by a Unitholder will be assigned by the Assignor Limited
Partner to that Unitholder.
"Losses": See. "Profits" and "Losses."
"Majority Vote": The affirmative vote of holders of more than 50% of
the outstanding Limited Partnership Interests (including those Interests voted
by the Assignor Limited Partner on behalf of Unitholders pursuant to the
Unitholders' instructions).
"Managing General Partner": CMA Capital Group, a California
corporation or its successor.
"NASDAQ": The National Association of Securities Dealers Automated
Quotations System, as constituted from time to time.
"National Securities Exchange": A stock or securities exchange
registered with the Commission under the provisions of the Securities Exchange
Act of 1934, as amended.
"Non-Accountable Organizational and Offering Expense Allowance": An
amount payable to the Managing General Partner pursuant to Section 5.6(c).
"Notification": A writing, containing the information required by this
Agreement to be communicated to any Person, sent by mail, postage prepaid, to
such Person at the address of such
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Person as shown by the records of the Partnership on the date of the giving of
Notification or personally delivered to such Person; provided, however, that
any communication containing such information sent to such Person and actually
received by such Person shall constitute Notification for all purposes under
this Agreement. Notification shall be deemed to have been given either five
days after deposited in the United States mail, postage prepaid, or as of
delivery, if personally delivered.
"Offering": The offering of Units pursuant to the Prospectus.
"Operating Lease": A lease which will return to the lessor less than
the price paid upon the purchase of the subject Aircraft (as that price is
described in the definition of "Full Payout Lease" above) from rentals payable
during the initial term of the lease.
"Organizational and Offering Expenses": Expenses incurred in
connection with the formation of the Partnership and preparing the Offering for
registration and subsequently offering and distributing Units to the public,
including Sales Commissions and other amounts paid to broker-dealers in
connection with the distribution of Units and all advertising expenses except
advertising expenses related to the leasing of the Partnership's Aircraft.
"Partner": Any General Partner or Limited Partner.
"Partnership": JetFleet Aircraft, L.P., a California limited
partnership, as such limited partnership may from time to time be constituted.
"Partnership Minimum Gain": The sum for all Partnership assets of the
amounts of income or gain that would be recognized if each asset were disposed
of for the amount of non-recourse liabilities secured by such assets, which
shall be determined in accordance with the principles set forth in Section
1.704-1 (b) (4) (iv) (c) of the Regulations.
"Person": An individual, partnership, limited partnership,
corporation, trust or other entity.
"Preferred Payout": Distributions from any source (including
liquidating distributions) to the Unitholders equal to the Unitholders' Capital
Contributions, plus a cumulative, noncompounded 8% annual return on the
Unitholders' Adjusted Capital Contributions (computed from the respective
Closing Dates with respect to the Unitholders' respective subscriptions).
"Preferred Return": Distributions from any source (including
liquidating distributions) to the Unitholders equal to a cumulative,
noncompounded 8% annual return on the Unitholders Unreturned Capital
Contributions (computed from the respective Closing Dates with respect to the
Unitholders' respective subscriptions), with a deficiency in any year added to
the Preferred Return for the following year, but excess distributions in any
year not reducing the Preferred Return for subsequent years.
"Profits" and "Losses": For any taxable year or other period, an
amount equal to the Partnership's taxable income or loss for such year or
period, determined in accordance with
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Section 703(a) of the Code, including all items of income, gain, loss or
deduction required to be stated separately pursuant to Section 703(a) (1) of
the Code, with the following adjustments: (a) any income of the Partnership
that is exempt from federal income tax and not otherwise taken into account in
computing Profits and Losses pursuant to this definition shall be added to such
taxable income or shall reduce such taxable loss; and (b) any expenditures of
the Partnership described in Code Section 705(a) (2) (B) or treated as Code
Section 705(a) (2) (B) expenditures pursuant to Regulations Section 1.704-1 (b)
(2) (iv) (i) and not otherwise taken into account in computing Profits or
Losses pursuant to this definition shall be subtracted from such taxable income
or loss.
"Prospectus": The prospectus contained in the Registration Statement
related to the Partnership's offering of Units, as it may be supplemented.
"Purchase Price": The purchase price paid by the Partnership in
purchasing Aircraft. The Purchase Price will be the sum of the amount agreed to
be paid to the seller of the Aircraft plus all Chargeable Acquisition Expenses
and all Acquisition Fees other than the Acquisition Fee equal to 1.5% of the
Purchase Price and payable to S.P.L.C. or its substitute, if any. In no event
will the Purchase Price exceed the fair market value of the Aircraft at the
time of purchase as determined by an appraisal by the Appraiser.
"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.
"Registered Owner": As applied to a Unit, the Person in whose name a
Unit is registered on the books of the Partnership.
"Registration Statement": The registration statement for the initial
offering of Units by the Partnership, to be 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).
"Release Fee": The fee payable to the Managing General Partner
pursuant to Section 5.6(e).
"Resale Fee": The fee payable to the Managing General Partner pursuant
to Section 5.6(g).
"Sales Agency Agreement": The sales agency agreement entered into by
and among the Sales Agent, the Partnership and the Managing General Partner
with respect to the Offering.
"Sales Agent": CKS Securities, Incorporated, a member of the National
Association of Securities Dealers, Inc.
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"Sales Commissions": The commissions payable to the Sales Agent
pursuant to Section 5.6(b).
"Sales Proceeds": The proceeds realized by JetFleet from the sale,
refinancing or other disposition of Partnership Aircraft, including insurance
proceeds or lessee indemnity payments arising from the loss or destruction of
the Aircraft, less all related Partnership liabilities.
"Selling Group": The group of brokers authorized by the Sales Agent to
sell Units. Each such broker must be a member of the National Association of
Securities Dealers, Inc.
"Service": The United States Internal Revenue Service or its
successor.
"Specified Aircraft": The Aircraft specified in the Prospectus as
available for purchase by the Partnership with Gross Offering Proceeds.
"S.P.L.C.": Security Pacific Leasing Corporation.
"S.P.L.C. Agreement": The Aircraft Acquisition, Administration and
Remarketing Agreement among the Partnership, the Managing General Partner and
S.P.L.C. whereby among other things, S.P.L.C. agrees to perform certain
acquisition, administrative and remarketing services for the Partnership.
"Sponsor": Any person directly or indirectly instrumental in
organizing, wholly or in part, the Partnership or any person who will manage or
participate in the management of a program, and any Affiliate of any such
person. The term "Sponsor" does not include (a) a person whose only relation
with the Partnership is that of an independent equipment manager and whose only
compensation is as such or (b) wholly independent third parties, such as
attorneys, accountants and underwriters, whose only compensation is for
professional services rendered in connection with the offering of Partnership
interests. The Sponsors of the Partnership and this Offering are the General
Partners and the Assignor Limited Partner.
"Substantially All of the Assets" shall mean Aircraft the Purchase
Price for which represents 66-2/3% or more of the Partnership's Aircraft based
on the then fair market value of the Aircraft.
"Subscription Agreement": The Subscription Agreement to be executed
and delivered by each subscriber for Units pursuant to the Offering. The form
of the Subscription Agreement is included as an exhibit to the Prospectus.
"Syndication Expenses": All expenditure classified as syndication
expenses pursuant to Section 1.709-2(b) of the Regulations. Syndication
Expenses shall be taken into account under the Partnership's methods of
accounting as if they were deductible expenses.
"Terminated General Partner": Any General Partner who ceases to be a
General Partner pursuant to Article VI.
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"Transfer Agent": The Assignor Limited Partner in its capacity as
transfer agent pursuant to the Transfer Agent Agreement, or any successor
transfer agent appointed by the Managing General Partner.
"Transfer Agent Agreement": The Transfer Agent Agreement to be entered
into among the Partnership, the Managing General Partner and the Transfer
Agent.
"Triple Net Lease": A lease in which the lessee assumes responsibility
for, and bears the cost of, insurance (other than excess hull insurance),
taxes, maintenance, repair and operation of the leased asset (but excluding in
certain cases all or part of the cost of complying with airworthiness
directives issued by the FAA or any other government agency having jurisdiction
and with other regulatory requirements).
"Unit": The Interest of a Unitholder attributable to a Capital
Contribution of $50, constituting the rights and obligations which are
originally assigned by the Assignor Limited Partner to a subscriber for a Unit
pursuant to the Offering upon the acceptance of the subscriber's subscription
and Capital Contribution pursuant to the subscriber's Subscription Agreement.
In the event that any Person other than the Assignor Limited Partner is
admitted as a Limited Partner pursuant to this Agreement, the term Unit shall
also refer to any Limited Partnership Interest of such Limited Partner, as the
context hereof may require.
"Unitholder": Until the Initial Closing, the term "Unitholder" or
"Unitholders" refers to the Assignor Limited Partner. Upon the Initial Closing
and upon any Additional Closings, the Partnership will sell Units in return for
a subscription price equal to $50 per Unit, and the Assignor Limited Partner
will be deemed to make, with respect to each Unit sold and on behalf of the
Person who purchased such Unit pursuant to such Closing, a Capital Contribution
equal to $50. At the same time, the Initial Limited Partner will receive a
Limited Partnership Interest for each such $50 Capital Contribution and will
assign the benefits and obligations of that Limited Partnership Interest to the
Person who purchased the Unit in question, as provided in this Agreement. The
Initial Limited Partner will no longer own any Limited Partnership Interests on
its own account. Accordingly, commencing with the Initial Closing, the Initial
Limited Partner as the holder of the Limited Partnership Interests issued in
respect of the Units will assign the rights and obligations of those Limited
Partnership Units, as provided herein, to the Registered Owners of those Units.
Thus, as of the Initial Closing, the term "Unitholder" shall refer to the
Assignor Limited Partner as the holder of a Limited Partnership Interest on
behalf of the Registered Owner of the Unit to whom the rights and obligations
with respect to such Limited Partnership Interest will have been assigned. If,
however, any Person other than the Initial Limited Partner is admitted as a
Limited Partner, then the term "Unitholder" shall, as the context may require,
refer to such Limited Partner as well.
"Unreturned Capital Contributions": The Unitholders' Capital
Contributions reduced to not less than zero by cash distributions from Sales
Proceeds (including liquidating distributions) to the Unitholders.
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"Working Capital Reserves": Those reserves established by the Managing
General Partner for the Partnership from Gross Offering Proceeds and,
thereafter, from Partnership revenues, including Cash Flow and Sales Proceeds.
ARTICLE II
ORGANIZATION
2.1 Formation. The General Partners and the Assignor
Limited Partner hereby form this limited partnership in accordance with and
pursuant to the provisions of the California Act and this Agreement. The
General Partners and the Assignor Limited Partner are the Sponsors of the
Partnership and the Offering. The rights and liabilities of the Partners are as
provided in the California Act and in this Agreement.
2.2 Name, Place of Business and Office.
(a) The name of the Partnership is JetFleet Aircraft,
L.P.
(b) The principal offices of the Partnership shall be at 433
California Street, Suite 910, San Francisco, California 94104. The Managing
General Partner may at any time change the location of such offices and may
establish such additional offices as it shall deem advisable. Notification of
any change in location shall be given to the Unitholders as soon as practicable
after such change. The parties hereto shall immediately execute all such
certificates and other documents conforming hereto and do all such filing,
recording, publishing and other acts as in the judgment of the Managing General
Partner may be appropriate to comply with all requirements for the formation of
a limited partnership under the laws of the State of California. The business
of the Partnership may be carried on in states in addition to California, and,
accordingly, the parties hereto shall execute all such certificates and other
documents conforming hereto and to do all such filing, recording, publishing
and other acts as in the judgment of the Managing General Partner may be
necessary or appropriate for the formation or qualification and operation of
the Partnership as a limited partnership in such additional states.
2.3 Purpose. The purpose and character of the business
of the Partnership is:
(a) to acquire, on an all-cash basis with Gross Offering
Proceeds, used commercial Aircraft subject to Triple Net Leases with commercial
air carriers or to acquire with Sales Proceeds new or used Aircraft for lease
pursuant to Triple Net Leases with commercial air carriers;
(b) to engage in any and all business activities
permitted under the California Act; and
(c) to perform any acts necessary or incidental to the
accomplishment of the foregoing purposes.
2.4 Term. The Partnership is formed upon the execution
and delivery of this Agreement and upon the filing of the Partnership's
Certificate of Limited Partnership in
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accordance with the provisions of the California Act, and the Partnership shall
continue in full force and effect until December 31, 2014, or until dissolution
prior thereto pursuant to the provisions hereof.
ARTICLE III.
PARTNERS AND CAPITAL
3.1 General Partners.
(a) The General Partners of the Partnership are CMA Capital
Group, a California corporation with its principal office at 433 California
Street, Suite 910, San Francisco, CA 94104, Neal D.
Crispin and Richard D. Koehler, each of the same address.
(b) The General Partners, or any of them, shall make a
Capital Contribution in cash in the aggregate amount of $750.
(c) Any General Partners or Affiliates of any General
Partners also may be Unitholders to the extent they separately purchase any
Units, and the Consent or approval of any Unitholder to such transfer to the
General Partners need not be obtained. If any General Partners or Affiliates of
any General Partners purchase any Units, they shall have all the rights and
liabilities of Unitholders (in addition to, in the case of any General
Partners, such General Partners' rights and liabilities as General Partners),
as provided in the California Act and this Agreement, except as provided
otherwise in Section 6.2.
3.2 Assignor Limited Partner. The Assignor Limited Partner is
a California corporation, whose business address is 433 California Street,
Suite 910, San Francisco, California 94104. The Assignor Limited Partner's
initial Capital Contribution shall be $250. Upon the Initial Closing, the five
Limited Partnership Interests issued to the Assignor Limited Partner in respect
of such initial Capital Contribution shall be redeemed and canceled by the
Partnership, and such initial Capital Contribution shall be returned to the
Assignor Limited Partner. Notwithstanding the foregoing, the Assignor Limited
Partner shall continue to be and remain at all times a Limited Partner of the
Partnership as provided herein until a successor is admitted to the Partnership
as the Assignor Limited Partner. The Assignor Limited Partner has no business
purpose other than serving as Assignor Limited Partner in accordance with this
Agreement and as Transfer Agent in accordance with the Transfer Agent
Agreement, and the Assignor Limited Partner shall not engage in any other
activity or incur any debts.
3.3 Unitholders.
(a) Upon the Initial Closing, the Partnership shall issue and
sell those Units which have been fully paid for pursuant to Subscription
Agreements duly accepted by the Managing General Partner, provided that the
issuance and sale are in accordance with the terms of the Offering. Upon each
Additional Closing, the Partnership shall issue and sell any additional Units
which have been fully paid for pursuant to Subscription Agreements duly
accepted by the Managing General Partner, provided that the issuance and sale
are in accordance with the terms of the Offering. At each such Closing, the $50
purchase price paid for each Unit then being
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issued and sold shall be contributed to the Partnership, which Capital
Contribution shall be deemed to be made by the Assignor Limited Partner,
whereupon the Assignor Limited Partner shall become the holder of each Limited
Partner Interest issued in respect of each such Capital Contribution and shall
be the Limited Partner with respect to each such Limited Partnership Interest.
The Assignor Limited Partner shall receive from the Partnership a certificate
or certificates representing such Limited Partnership Interests. Immediately
upon such Closing, the Assignor Limited Partner shall irrevocably assign to the
Unitholders purchasing Units on such Closing, pursuant to an assignment in form
and substance satisfactory to the Managing General Partner, substantially all
of the Assignor Limited Partner's rights and interest in and to the underlying
Limited Partnership Interests, including, without limitation, the following
rights and powers attributable to such Limited Partnership Interest:
(i) all rights to receive distributions of uninvested
Capital Contributions pursuant to this Agreement;
(ii) all rights to receive distributions of Cash
Available for Distribution and Sale Proceeds (including liquidating
distributions) pursuant to this Agreement,
(iii) all rights in respect of allocations of Profits
and Losses for tax and accounting purposes pursuant to this Agreement;
(iv) all rights to inspect books and records and to
receive reports pursuant to this Agreement;
(v) all voting rights and rights to attend or call
meetings (which rights must be exercised through the Assignor Limited Partner);
and
(vi) the right to institute legal actions.
The Assignor Limited Partner expressly agrees to exercise any residual
rights and benefits for the sole and exclusive benefit of the Unitholders.
Notwithstanding the foregoing transfer and assignment, the General
Partners and the Unitholders expressly agree that the Assignor Limited Partner
is and shall remain a Limited Partner of the Partnership.
(b) Pursuant to the Transfer Agent Agreement, the Partnership
shall cause the Transfer Agent to register on its books the name of each
Registered Owner of Units as the Unitholder thereof.
(c) Pursuant to the assignment referred to in Section 3.3(a)
above, pursuant to the applicable Subscription Agreement and by accepting the
benefits of such assignment, each purchaser of Units issued at any Closing (and
each transferee of the rights of any such purchaser) shall be bound by the
terms and conditions of this Agreement as if such Person had executed this
Agreement as a party hereto.
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3.4 Capital Contributions. Capital Contributions shall be
made only in cash or cash equivalents. No Unitholder shall be required to make
any Capital Contribution to the Partnership other than the Capital
Contributions made as provided in the Subscription Agreement(s) pursuant to
which the Unitholder's Units are issued.
3.5 Application of Capital Contributions.
(a) Upon the Partnership's receipt of the Capital
Contributions, the Managing General Partner shall deposit such funds in the
Partnership's bank account and shall then apply such Capital Contributions in
the manner and for the purposes provided in Articles IV and V.
(b) The Partnership shall apply at least 84.5% of the Gross
Offering Proceeds
(c) Any Capital Contributions attributable to the Unitholders
and available for Investment in Aircraft but not committed for investment
within 12 months after the date of commencement of the Offering shall be
distributed pro rata to the Unitholders as a return of capital.
3.6 Partnership Capital.
(a) No Partner or Unitholder shall be entitled to any
interest on any Capital Contribution.
(b) Except as provided in Section 3.5 or 4.5, or upon
dissolution of the Partnership pursuant to Article VIII, no General Partner or
Unitholder shall have the right to withdraw, or to receive any return of any
portion of, such Partner's or Unitholder's Capital Contribution. No specific
time has been agreed upon for the repayment of Capital Contributions.
(c) No Unitholder shall have the right to receive any
distribution from the Partnership in property other than cash. Except as
expressly provided in this Agreement, no Unitholder shall have priority over
any other Partner or Unitholder with respect to a return of such Person's
Capital Contribution or with respect to distributions of Cash Available for
Distribution or Sales Proceeds.
3.7 Liability of Partners and Unitholders.
(a) No Unitholder shall have any personal liability as a
Unitholder, whether to the Partnership, to any Partners, to any Unitholders or
to any creditors of the Partnership, for the debts, liabilities, contracts or
any other obligations of the Partnership or for any losses of the Partnership.
Except for payment of the purchase price for Units purchased pursuant to
Subscription Agreement, no Unitholder shall be required to make any Capital
Contribution to the Partnership or to repay to the Partnership, any Partner,
any Unitholder or any creditor of the Partnership all or any fraction of any
negative amount of such Unitholder's Capital Account.
(b) Notwithstanding Section 3.7(a), in accordance with the
California Act, a Unitholder may, under certain circumstances, be required to
return to the Partnership or to
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creditors of the Partnership, amounts previously distributed to such Unitholder
in violation of the California Act. It is the intent of the parties hereto that
no Unitholder shall be obligated to pay any such amount to or for the account
of the Partnership or any creditor of the Partnership. However, if any court of
competent jurisdiction holds that, notwithstanding the provisions of this
Agreement, the Assignor Limited Partner or Unitholders are obligated to repay
any such amount, such obligation shall be the responsibility of the Unitholders
who received such distributions in proportion to the distributions received
which are to be returned. In lieu of requiring return of such distributions
from Unitholders, the Managing General Partner may withhold future
distributions to the Unitholders until the amount so withheld equals the amount
of the distributions which are required to be repaid or returned, regardless of
whether the Unitholders entitled to receive such distributions were the same
Persons as those who actually received the distributions required to be
returned. In the event that the Assignor Limited Partner is determined to have
any other liability for losses, debts, liabilities or obligations of the
Partnership, nothing set forth in this Section 3.7 shall be construed to
require the Unitholders to assume any portion of such liability.
(c) The Partnership shall indemnify the Unitholders, to the
extent of Partnership assets but without recourse to the assets of the General
Partners, against any claim of liability asserted against them solely because
they are Unitholders.
(d) None of the General Partners, the Assignor Limited
Partner, their respective Affiliates, officers, directors, employees or agents
shall be liable to the Partnership or any Unitholder for any loss suffered by
the Partnership or any Unitholder which arises out of any action or inaction of
the General Partners, or their Affiliates, officers, directors, employees,
partners or trustees if such General Partner or other Person (i) determined in
good faith that such course of conduct or inaction was in the best interests of
the Partnership, (ii) was acting on behalf of or performing services for the
Partnership and acting within the scope of the General Partner's or Assignor
Limited Partner's, as the case may be, authority, and (iii) such course of
conduct or inaction did not constitute negligence or misconduct.
(e) Except as otherwise provided in Section 8.2(d), none of
the General Partners or any of their Affiliates shall have any personal
liability to any Unitholder for the repayment of any amounts outstanding in the
Capital Account of any Unitholder. The General Partners shall not be liable to
any Unitholder by reason of any change in the federal income tax laws as they
apply to the Partnership and the Unitholders, whether such change occurs
through legislative, judicial or administrative action, so long as the General
Partners have acted in good faith and in a manner reasonably believed to be in
the best interests of the Unitholders.
(f) None of the General Partners or their Affiliates shall
have any personal liability to repay to the Partnership all or any portion of
any negative amount of any Partner's or Unitholder's Capital Account, except as
otherwise provided in Section 8.2(d).
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ARTICLE IV
DISTRIBUTIONS, PROFITS AND LOSSES
4.1 Distributions.
(a) Distributions, if any, whether out of Cash Available for
Distribution or Sales Proceeds, will be made from time to time at the
discretion of the Managing General Partner. The Managing General Partner shall
establish the amount of Working Capital Reserves from time to time at such
levels as the Managing General Partner deems necessary and appropriate to serve
the best interests of the Partnership, which levels shall be taken into account
by the Managing General Partner from time to time in determining the amount, if
any, of Partnership distributions. Except in the event of liquidation of the
Partnership under Section 8.2, distributions shall be made 99% to the
Unitholders and 1% to the General Partners.
(b) To the extent deemed feasible by the Managing General
Partner, any distributions that are made out of Cash Available for Distribution
will be made within 45 days after the end of each fiscal quarter.
(c) Distributions (other than those referred to in Section
8.2) to the Unitholders shall be apportioned among the Unitholders in the ratio
in which the number of Units held by each of them bears to the total number of
Units held by all Unitholders as of the last day of the fiscal quarter with
respect to which such distributions are made; provided, however, that, with
respect to distributions made during the offering period of the Units
(including the full quarter in which the offering terminates), such
distributions shall be apportioned among the Unitholders in the ratio in which
(i) the number of Units held by each Unitholder multiplied by the number of
days during such period that such Unitholder was the owner of such Units bears
to (ii) the sum of the number of Units outstanding on each day during such
period.
(d) Distributions to the General Partners as a group shall be
divided among the General Partners in such manner as they shall agree upon.
4.2 Allocation of Profits and Losses.
(a) Profits. After giving effect to the special allocations
set forth in Sections 4.3 and 4.4 hereof, Profits for any Fiscal Year shall be
allocated 99% to the Unitholders and 1% to the General Partners.
(b) Losses. After giving effect to the special allocations
set forth in Sections 4.3 and 4.4 hereof, and except as provided in Section
4.2(c) hereof, Losses for any Fiscal Year shall be allocated 99% to the
Unitholders and 1% to the General Partners.
(c) Losses allocated pursuant to Section 4.6(b) hereof shall
not exceed the maximum amount of Losses that can be so allocated without
causing a Unitholder who is not a General Partner to have an Adjusted Capital
Account Deficit at the end of any Fiscal Year. In the event some but not all of
the Unitholders who are not General Partners would have Adjusted
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Capital Account Deficits as a consequence of an allocation of Losses pursuant
to Section 4.2(b) hereof, the limitation set forth in this Section 4.2(c) shall
be applied on a Unitholder by Unitholder basis so as to allocate the maximum
permissible Loss under Section 1.704-1 (b) (2) (ii) (d) of the Regulations to
each Unitholder who is not a General Partner. All Losses in excess of the
limitation set forth in this Section 4.2(c) shall be allocated to the General
Partners.
4.3 Special Allocations. The following special
allocations shall be made in the following order:
(a) Minimum Gain Chargeback. Notwithstanding any other
provision of this Article 4, if there is a net decrease in Partnership Minimum
Gain during any Partnership fiscal year, and if any Unitholders who are not
General Partners would otherwise have an Adjusted Capital Account Deficit at
the end of such year, each such Unitholder shall be specially allocated items
of Partnership income and gain for such year (and, if necessary, subsequent
years) in an amount and manner sufficient to eliminate such Adjusted Capital
Account Deficit as quickly as possible. The items so allocated shall be
determined in accordance with Section 1.704-1 (b) (4) (iv) (e) of the
Regulations. This Section 4.3(a) is intended to comply with the minimum gain
chargeback requirements in such Section of the Regulations and shall be
interpreted consistently therewith.
(b) Qualified Income Offset In the event any Unitholder who
is not a General Partner unexpectedly receives any adjustments, allocations or
distributions described in Section 1.704-1 (b) (2) (ii) (d) (4), (5) or (6) of
the Regulations, items of Partnership income and gain for such year (and, if
necessary, subsequent years) shall be specially allocated in an amount and
manner sufficient to eliminate, to the extent required by such Regulations, the
Adjusted Capital Account Deficits created by such adjustments, allocations or
distributions as quickly as possible, provided that an allocation pursuant to
this Section 4.3(b) shall be made only if and to the extent that such
Unitholder would have Adjusted Capital Account Deficits after all other
allocations provided for in this Article 4 have been tentatively made as if
this Section 4.3(b) were not in the Agreement. This Section 4.3(b) is intended
to comply with the qualified income offset requirements in Section 1.704-l(b)
(2) (ii) (d) (3) of the Regulations and shall be interpreted consistently
therewith.
(c) Gross Income Allocation. In the event any Unitholder who
is not a General Partner has a deficit Capital Account at the end of any
Partnership fiscal year in excess of the amount such Unitholder is deemed to be
obligated to restore pursuant to the penultimate sentence of Section 1.704-l(b)
(iv) (f) of the Regulations, each such Unitholder shall be specially allocated
items of Partnership income and gain for such year (and, if necessary,
subsequent years) in the amount of such excess as quickly as possible, provided
that an allocation pursuant to this Section 4.3(c) shall be made only if and to
the extent that such Partner would have such a deficit Capital Account after
all other allocations provided for in this Article 4 have been tentatively made
as if Section 4.7(b) hereof, and this Section 4.3(c) was not in the Agreement.
(d) Gain from Disposition of Aircraft. Gain from the
disposition of Aircraft shall be specially allocated to the General Partners in
a manner, and to the extent necessary, to bring the sum of the Capital Accounts
of the General Partners into a ratio of one to ninety-nine to the sum of the
Capital Accounts of the Unitholders.
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(e) Syndication Expenses. Except as provided in Section
4.3(f) hereof, Syndication Expenses for any Fiscal Year shall be specially
allocated to the Unitholders in proportion to their Units, provided that if
Unitholders are admitted to the Partnership on different dates, all Syndication
Expenses shall be divided among the Unitholders so that, to the extent
possible, the cumulative Syndication Expenses allocated with respect to each
Unit at any time is the same amount. In the event that the General Partners
determine that such allocation of Syndication Expenses is not likely to be
achieved through future allocations of Syndication Expenses, the General
Partners may allocate a portion of Profits or Losses so as to achieve the same
effect on the Capital Accounts of the Unitholders.
(f) Sales Commissions. Items of Loss arising out of the
Partnership's payment of Sales Commissions with respect to each Unit shall be
specially allocated to the Unitholder who acquires such Unit.
(g) Adjustment to Basis.
To the extent an adjustment to the adjusted tax basis of any Partnership
asset is required, pursuant to Section 1.704-1(b)(2)(iv)(m) of the
Regulations, to be taken into account in determining Capital Accounts, the
amount of such adjustment to the Capital Accounts shall be treated as an item
of gain (if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases such basis) and such gain or loss shall be specially
allocated to the Partners in a manner consistent with the manner in which their
Capital Accounts are required to be adjusted pursuant to such Section of the
Regulations.
(h) Recharacterized Fees.
If the Base Management Fee, Re-lease Fee, Incentive Management Fee or Re-Sale
Fee is treated as a distributive share of Partnership income by the Service, a
special allocation of Partnership gross income shall be made annually to the
General Partners in an amount equal to the General Partners share of any such
recharacterized fee for that taxable year.
4.4 Curative Allocations. The allocations set forth in
Sections 4.3(a), (b) and (e) hereof (the "Regulatory Allocations") are intended
to comply with the requirements of Section 1.704-1 (b) of the Regulations.
Notwithstanding any other provision of this Article 4 (other than the
Regulatory Allocations), the Regulatory Allocations shall be taken into account
in allocating other Profits, Losses and items of income, gain, loss and
deduction among the Partners so that, to the extent possible, the net amount of
such allocations of other Profits, Losses and other items and the Regulatory
Allocations to each Partner shall be equal to the net amount that would have
been allocated to each such Partner if the Regulatory Allocations had not
occurred.
4.5 Allocation Among Partners.
(a) Allocation Among Unitholders. Except as provided in
Section 4.5(b) hereof, any allocations to the Unitholders pursuant to this
Article 4 shall be allocated among the
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Unitholders, to the extent possible, in order to equalize the Capital Account
balances per Unit of each Unitholder, and then in the proportion that the
number of Units held by each Unitholder bears to the total number of Units held
by all of the Unitholders.
(b) Effect of Different Admission Dates and Transfers of
Units With respect to any fiscal year during which the Initial Closing or any
Additional Closing occurs, Profits and Losses (and all items thereof allocated
to the Unitholders shall be apportioned among the Unitholders in the ratio in
which (i) the number of Units held by each Unitholders multiplied by the number
of days during such fiscal year that such Unitholder was the owner of such
Units bears to (ii) the sum of number of Units outstanding on each day during
such fiscal year. For the purposes of this Section 4.5(b), Unitholders admitted
on the Initial Closing or on any Additional Closing will be deemed admitted as
of the first day of the month in which the Closing occurs if such closing
actually occurs on or before the 15th day of that month. If the Closing
actually occurs after the 15th day of the month, Unitholders admitted on such
Closing will be deemed admitted, for purposes of this Section 4.5(b), on the
first day of the subsequent month. With respect to any transfer of Units, any
Profits and Losses (and items thereof) attributable to a Unit transferred
during a particular fiscal year shall be allocated between the transferor and
the transferee in proportion to the number of days that each such holder was
the Registered Owner of such Unit during such fiscal year, without regard to
the results of Partnership operations during the period in which each such
holder was the owner thereof and without regard to the date, amount or
recipient of any distributions which may have been made with respect to such
Units.
(c) Allocation Among General Partners. All items of Profits
and Losses that are allocated to the General Partners as a group shall be
allocated among the General Partners in such manner as they shall agree upon;
provided that any such allocations shall be in compliance with the Code.
4.6 Acknowledgment of Tax Consequences. The Partners are
aware of the income tax consequences of the allocations made by this Article 4
and hereby agree to be bound by the provisions of the Partnership Agreement in
reporting their share of Partnership income, gain, deduction and loss for
income tax purposes.
ARTICLE V
RIGHTS, POWERS AND DUTIES OF THE GENERAL PARTNERS
5.1 Management and Control of the Partnership.
(a) Subject to the Consent of the Unitholders where required
by this Agreement, the General Partners within the authority granted to them by
this Agreement, shall have the full and exclusive right to manage and control
the business and affairs of the Partnership and to make all decisions regarding
the business of the Partnership. Except as limited herein, the General Partners
shall have all of the rights and powers of general partners of a limited
partnership under the California Act and any other applicable laws.
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(b) Except as expressly provided herein, the authority of the
General Partners to manage the business of the Partnership shall be exercised
only by the Managing General Partner and, except as expressly provided herein,
no General Partner other than the Managing General Partner shall have any
control over the Partnership's business.
(c) No General Partner other than the Managing General
Partner (except one who may also be an officer or employee of the Managing
General Partner, and then only in his capacity as such officer or employee of
the Managing General Partner within the scope of its authority hereunder) shall
participate in or have any control over the Partnership's business or have any
authority or right to act for or on behalf of the Partnership.
(d) In order to expedite the handling of the Partnership's
business, any document executed by the Managing General Partner while acting in
the name and on behalf of the Partnership shall be deemed to be the action of
the Partnership as to any third parties.
(e) The Unitholders shall not participate in the management
of, or have any control over, the Partnership's business. The Unitholders shall
not have the power to represent, act for, sign for or bind the General Partners
or the Partnership.
(f) Subject to Section 5.4(k), the Managing General Partner
shall have the authority to borrow money in the name of the Partnership from
any bank or other lending institution located in the United States and, in
connection with any such borrowing, to pledge, encumber or hypothecate the
assets of the Partnership. The General Partners may only advance money to the
Partnership 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, any such lending not to be for a term in excess of twelve months.
5.2 Authority of the Managing General Partner.
(a) In addition to any other rights and powers which the
Managing General Partner may possess under this Agreement and the California
Act, the Managing General Partner shall have all specific rights and powers
required or appropriate to its management of the Partnership business which, by
way of illustration but not by way of limitation, may include the following:
(i) to acquire, hold, manage, repair, reconfigure,
maintain, lease, sell and dispose of Aircraft and interests therein at such
purchase prices, lease or rental rates, costs or sale prices and upon such
other terms as the Managing General Partner deems, in its discretion, to be in
the best interest of the Partnership it is provided, however, that the
Partnership shall not (A) pay a Purchase Price for any Aircraft which is in
excess of the fair market value of the Aircraft at the time of purchase as
determined by an appraisal by an Appraiser or (B) pay an Acquisition Fee to
S.P.L.C. or any substitute which is in excess of 1.5% of the Purchase Price; it
is further provided that the Managing General Partner shall cause the
Partnership, to the extent feasible, to purchase out of Gross Offering Proceeds
any Specified Aircraft which is then available in preference over any other
Aircraft; and it is further provided that (A) the Aircraft (or the Initial
Lease thereof) purchased by the Partnership out of Gross Offerings Proceeds
must
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meet one of the three mandatory alternative criteria referred to in the
Prospectus under the caption "Business of JetFleet--Partnership Lessees" and
(B) that such Aircraft must at the time of acquisition by the Partnership be
subject to Initial Leases which provide for Gross Rentals that, on average,
equal at least 12.4 of Capital Contributions.
(ii) to execute, deliver and perform (A) agreements
relating to and consistent with the terms of the Offering, including, without
limitation, the Transfer Agent Agreement, the Sales Agency Agreement, an escrow
agreement, an agreement among Selling Group members and other agreements and
instruments; and (B) the S.P.L.C. Agreement, any other aircraft acquisition,
management, operation or remarketing agreements and all other agreements,
contracts, documents, certifications, leases (including Full Payout Leases and
Operating Leases), bills of sale and other instruments, and all amendments to
any of the foregoing, which may be deemed by the Managing General Partner to be
necessary or convenient in connection with the business of the Partnership;
(iii) to protect and preserve the title and interest of
the Partnership with respect to the assets of the Partnership, to collect all
amounts due the Partnership, to enforce all rights of the Partnership and, in
that connection, to retain counsel and institute such suits or proceedings, in
the name and on behalf of the Partnership, or, if the Managing General Partner
shall so determine, in the name of the General Partners and the Unitholders;
(iv) to the extent that funds of the Partnership are
available, to pay all debts and obligations of the Partnership and to make all
distributions periodically to the Unitholders out of the Partnership account
and in accordance with the provisions of this Agreement;
(v) to advance funds or to borrow funds on behalf of the
Partnership for maintaining Partnership operations or for other Partnership
purposes and to guarantee the repayment of such borrowed funds;
(vi) to purchase, at the expense of the Partnership,
liability and other insurance to protect the Partnership's assets and business;
(vii) on behalf of the Partnership, to engage such firm
of independent certified public accountants, such attorneys, such Appraisers
and such consultants and others as may be selected by the Managing General
Partner in its discretion;
(viii) to open and maintain Partnership accounts on
behalf of the Partnership with any bank in the United States having assets in
excess of $50,000,000 and to designate and change signatories on such accounts,
provided that the funds of the Partnership may not be commingled with funds
owned by or held on behalf of the General Partners or any partnership or other
entity in which they have an interest;
(ix) until the eighth anniversary date of the Final
Closing Date, to reinvest Sales Proceeds in additional Aircraft, provided that
no reinvestment will take place unless sufficient cash will be distributed to
the Unitholders to pay any state income tax (at a rate
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reasonably assumed by the Managing General Partner) and federal income tax
(assuming the Unitholders are subject to marginal rates applicable to the
highest levels of income) created by such disposition; after such eighth
anniversary date, such Sales Proceeds shall be distributed to the General
Partners and Unitholders in accordance with Section 4.5;
(x) to invest such funds as are temporarily not required
for investment in Aircraft, including the Working Capital Reserves, in bank
accounts as provided in subsection (viii) above, in short-term highly liquid
investments where there is appropriate safety of principal, such as United
States treasury bills, investment grade commercial paper and certificates of
deposit of banks which have a net worth of $50,000,000 or more;
(xi) to lease, sell, refinance and/or otherwise manage
and operate the Aircraft;
(xii) to enter into participation, co-tenancy and other
agreements with non-affiliates of the General Partners for the purpose of
participating on a joint basis in the purchase, ownership, management,
operation or lease of Aircraft, but only if (A) the Partnership acquires a
controlling interest in such venture; (B) the joint venture agreement does not
authorize the Partnership to do anything as a co-venturer with respect to the
Aircraft which the Partnership or the General Partners would not be permitted
to do under this Agreement; and (C) there are no duplicative fees. For the
purposes of this Section, a controlling interest shall include: (1) ownership
of more than 50% of the venture's capital or profits; or (2) provisions in the
venture agreement giving the Partnership effective control. The Partnership
shall be permitted to invest in joint venture arrangements with a partnership
or other program which is an Affiliate of any General Partner if the following
conditions are met: (A) the General Partner or Affiliate has investment
objectives substantially identical to those of the Partnership; (B) there are
no duplicative fees; (C) the controlling persons of each co-investor have a
compensation structure that is substantially identical; (D) the investments of
the Partnership and the Affiliate in the venture are on substantially the same
terms and conditions; (E) the investment is entered into by the Partnership in
order to obtain diversification; and (F) the Partnership has a right of first
refusal should an Affiliated co-venturer decided to sell the property owned by
the venture;
(xiii) to duly place record title to Aircraft in the
name or names of a nominee or nominees or a trustee or trustees for any
purposes convenient or beneficial to the Partnership, such as to meet ownership
registration requirements under the Aviation Act;
(xiv) if the tax laws change and the Managing General
Partner determines that such action will not cause the Partnership to be
treated as a "publicly traded partnership" or result in any other adverse tax
consequences for Unitholders, to cause the Units (or any instruments
representing Units) to be listed for trading on a National Securities Exchange
or to be authorized for quotation in NASDAQ or in any similar national
automated quotations system, and, in connection with such listing or quotation,
to modify the Transfer Agent Agreement (giving notice to the Unitholders of any
modification which materially affects them, but without obtaining the Consent
of any Unitholder) and to take such other steps as the Managing General Partner
determines advisable or necessary to effect such listing or quotation; and
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(xv) to sell all or any portion of the assets of the
Partnership not constituting Substantially All of the Assets, without approval
of the Unitholders.
(b) Any Person dealing with the Partnership or the Managing
General Partner may rely upon a certificate signed by the Managing General
Partner, "hereunto duly authorized, as to:
(i) the identity of the General Partners or any
Unitholder;
(ii) the existence or nonexistence of any fact or facts
which constitute conditions precedent to acts by the General Partners or which
are in any other manner germane to the affairs of the Partnership;
(iii) the Persons who are authorized to execute and
deliver any instrument or document on behalf of the Partnership;
(iv) any act or failure to act by the Partnership; or
(v) any other matter whatsoever involving the
Partnership, any Partner or any Unitholder.
5.3 Authority of Partners to Deal with Partnership.
(a) In addition to other specific provisions set forth
elsewhere in this Agreement, the General Partners and their Affiliates may
provide other goods and services to the Partnership, provided: (i)
compensation. price or fee charged for providing such services must be the
lesser of (x) the General Partner's or Affiliate's cost of providing the goods
or services or (y) 90% of the compensation, price or fee of any third party who
is rendering comparable services or selling or leasing comparable goods and
materials in the same geographic area; (ii) a written agreement describes the
goods or services and the compensation therefor, and such written agreement is
terminable by Majority Vote, without penalty to the Partnership upon 60 days'
prior written notice and may be amended only by Majority Vote; (iii) the
General Partner or its Affiliates must be independently engaged in the business
of providing such services to Persons other than Affiliates of the General
Partners; and (iv) such agreement is disclosed to the Unitholders.
(b) The following transactions expressly are prohibited:
(i) the Partnership shall not make any loans to a
General Partner or its Affiliates;
(ii) the Partnership shall not purchase or lease
Aircraft from or with, or sell or lease Aircraft to, the General Partner or an
Affiliate of a General Partner, except as provided in Section 5.2 (a) (xii);
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(iii) except as provided in Section 5.6, no rebates or
brokerage commissions in connection with the reinvestment of the proceeds of
the sale, exchange or refinancing of any Aircraft may be received by a General
Partner or its Affiliates, nor may a General Partner or any Affiliate
participate in any reciprocal business arrangement which would circumvent any
of the provisions of this Agreement;
(iv) except as provided in Section 5.3(a) or Section
5.6, a General Partner and its Affiliates will not sell insurance, supplies,
goods or services to the Partnership;
(v) the Partnership will not give a General Partner or
any Affiliate of a General Partner an exclusive right to sell or exclusive
employment or sell Aircraft;
(vi) except for Sales Commissions, the Investment
Banking Fee and Due Diligence Costs payable to registered broker-dealers, the
General Partner and its Affiliates will not pay or award any 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 Units;
(vii) the Partnership will not purchase limited
partnership interests in other partnerships;
(viii) the Partnership will not acquire Aircraft with
borrowed funds; and
(ix) although the Managing General Partner is authorized
to cause the Partnership to pay an Acquisition Fee upon the Partnership's
purchase of an Aircraft, the amount of the Acquisition Fee shall not exceed
1.5% of the Purchase Price of the Aircraft.
5.4 Restrictions on the Authority of a General Partner.
The General Partners and their Affiliates shall not, without the Consent of a
Majority Vote:
(a) do any act in contravention of this Agreement;
(b) do any act which would make it impossible to carry on the
ordinary business of the Partnership;
(c) possess Partnership property or assign the Partnership's
rights in specific Partnership property for other than a Partnership purpose;
(d) operate the Partnership as an investment company subject
to the requirements of the Investment Company Act of 1940, as amended;
(e) acquire Aircraft on behalf of the Partnership in exchange
for Units or Interests;
(f) provide financing to the Partnership with a term in
excess of 12 months;
(g) make any distributions in kind to a Unitholder;
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(h) cause the Partnership to underwrite the securities of
other issuers;
(i) make any changes in the investment objectives of the
Partnership described in the Prospectus;
(j) cause the Partnership to issue equity securities senior
to the Units;
(k) cause the Partnership to incur indebtedness (excluding
deferred and accrued fees to THE Managing General Partner) in excess of 35% in
the aggregate of the Gross Offering Proceeds;
(l) acquire Aircraft with Cash Flow or, after the eighth
anniversary of the Final Closing Date, with Sales Proceeds;
(m) admit an additional or successor General Partner other
than in accordance with Section 6.3; or
(n) sell Substantially All of the Assets in a single sale, or
in multiple sales in the same twelve month period.
5.5 Duties and Obligations of the General Partners.
(a) The General Partners shall devote to the Partnership such
time as the General Partners shall deem to be necessary for the proper
performance of their duties hereunder.
(b) The Managing General Partner shall have a fiduciary
responsibility to demand payment pursuant to any promissory note contributed to
its capital by its parent (if any) in order to satisfy any liabilities of such
Managing General Partner to the Partnership or its creditors.
(c) The Managing General Partner shall prepare and file, or
cause to be prepared and filed, on or before the due date (or any extension
thereof) all federal, state, local and foreign tax returns required to be filed
by the Partnership and shall provide, or cause to be provided, all accounting
and record keeping (including, without limitation, the maintenance of Capital
Accounts on behalf of each of the Partners, including the Assignor Limited
Partner on behalf of the Unitholders) necessary for the preparation and filing
of such returns. The Managing General Partner shall, to the extent that
Partnership funds are available, cause the Partnership to pay any taxes payable
by the Partnership.
(d) The Managing General Partner shall determine when and
upon what terms the Partnership shall incur indebtedness.
(e) The Managing General Partner shall manage the
Partnership's Aircraft and the acquisition, leasing, sale or other disposition
thereof.
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(f) The Managing General Partner shall manage the cash of the
Partnership, determine the amount of Working Capital Reserves and determine the
amount of distributions to be made to Partners and Unitholders.
(g) The Managing General Partner shall communicate with the
Unitholders and submit or file on behalf of the Partnership with the Commission
and any appropriate state securities authorities all documents, papers,
statistics and reports required to be filed with or submitted to the Commission
or such securities authorities, as the case may be.
(h) The Managing General Partner shall prepare and file all
certificates (or amendments thereto) and other similar documents which are
required by law to be filed and recorded under the California Act or under any
other laws of the State of California or of any other state in which the
Partnership is then qualified to do business, or in which it owns property or
transacts business.
(i) The Managing General Partner shall have fiduciary
responsibility for the safekeeping and use of all funds and assets of the
Partnership, whether or not in the Partnership's immediate possession or
control, and shall not employ or permit another to employ such funds or assets
in any manner except for the exclusive benefit of the Partnership. The Managing
General Partner shall open and maintain all Partnership bank accounts. The
Partnership's funds shall not be commingled with the funds of any other Person.
The Managing General Partner shall manage and operate the Partnership in a
prudent and businesslike manner and for the best interests of the Partnership
and the Unitholders.
(j) If any General Partner or any of its Affiliates (other
than private or public investor programs) intends to acquire or lease Aircraft
for their own account, such opportunity must first be presented to the
Partnership if the Partnership is in a position to purchase such Aircraft, to
the extent such opportunity is consistent with the investment objectives and
policies of the Partnership.
(k) If two or more private or public investor programs
(including the Partnership) sponsored by a General Partner or any of its
Affiliates are in a position to acquire the same aircraft, the Managing General
Partner shall determine which program, including the Partnership. will purchase
the aircraft based upon (i) the amount of cash available in each program, and
the length of time such cash has been available for investment, (ii) the
liabilities of each program and (iii) the suitability of the acquisition in the
light of each program's objectives. If two or more such investor programs,
including the Partnership, are both in a position to enter into a lease for
different aircraft with the same lessee or to sell aircraft to the same
purchaser, the Managing General Partner generally will afford priority to the
aircraft which has been available for lease or sale for the longest period of
time.
(l) The Managing General Partner shall duly file for
registration all Aircraft of the Partnership with the FAA as required by the
Aviation Act (to the extent applicable) in accordance with all rules and
regulations promulgated thereunder.
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5.6 Compensation of the General Partners.
(a) Except as expressly provided or permitted in this
Agreement, the General Partners and their Affiliates shall not receive any
compensation or reimbursement from the Partnership.
(b) The Sales Agent shall receive, on the Initial Closing and
on each Additional Closing, Sales Commissions in an amount equal to 8% of the
Gross Offering Proceeds received by the Partnership upon such Closing, the
Investment Banking Fee in an amount equal to 2% of such Gross Offering Proceeds
and Due Diligence Costs in an amount not to exceed .25% of such Gross Offering
Proceeds. The Sales Agent will be permitted to reallow such fees and costs as
provided in the Prospectus and the Sales Agent Agreement.
(c) The Managing General Partner shall receive, on the
Initial Closing and on each Additional Closing, a Non-Accountable
Organizational and Offering Expense Allowance in an amount equal to 39 %of
Gross Offering Proceeds received by the Partnership upon such Closing.
(d) The Managing General Partner shall receive a Base
Management Fee, payable quarterly in arrears, in an amount equal to 1.5% of
Gross Rentals from Initial Leases and 1.5% of Gross Rentals from re-leases and
renewals of Aircraft leases (which Gross Rentals from re-leases and renewals
shall be net of the Re-lease Fee, whether or not paid), provided that the Base
Management Fee shall be paid only after payment of the Preferred Return.
(e) The Managing General Partner shall receive a Re-lease
Fee, payable quarterly in arrears, in an amount equal to 3.5% of the Gross
Rental from re-leases or renewals of leases with respect to the Partnership's
Aircraft (a portion of which fee shall be payable by the Managing General
Partner to S.P.L.C. pursuant to the S.P.L.C. Agreement), provided that such fee
shall be paid only after payment of the Preferred Return. The Re-lease fee will
be reduced (but not below zero) to the extent that any release or renewal fees
or commission are payable to independent third parties (other than S.P.L.C. or
its Affiliates) who, with the consent of the Managing General Partner and
S.P.L.C., render re-leasing or renewal services.
(f) For rendering Equipment Management, the Managing General
Partner shall receive an Incentive Management Fee, payable quarterly in
arrears, in an amount equal to 2.5% of Cash Flow and Sales Proceeds (net of
Resale Fees) for the first four years after the Initial Closing (a portion of
which fee shall be payable by the Managing General Partner to S.P.L.C. pursuant
to the S.P.L.C. Agreement) and thereafter in an amount equal to 3.0% of Cash
Flow and Sales Proceeds (net of Resale Fees) (a portion of which fee shall be
payable by the Managing General Partner to S.P.L.C. pursuant to the S.P.L.C.
Agreement), provided that such Incentive Management Fee shall be paid only
after payment of the Preferred Return.
(g) The Managing General Partner shall receive a Resale Fee
with respect to each Aircraft sold by the Partnership (a portion of which fee
shall be payable by the Managing General Partner to S.P.L.C. pursuant to the
S.P.L.C. Agreement) in an amount equal to the lesser of (i) 3% of the contract
sale price of the Aircraft or (ii) an amount which would be charged by
non-Affiliates rendering comparable services, provided that such fee shall be
paid only after Preferred Payout. Such fee will be reduced (but not below zero)
for any resale commissions or
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fees payable to independent third parties other than S.P.L.C. or its Affiliates
who, with the consent of the Managing General Partner and S.P.L.C., render
services in connection with the sale. To the extent that such Resale Fee is not
paid to the Managing General Partner as earned, such amount shall be deferred
and accrued without interest until Preferred Payout has occurred.
(h) Calculation of the Preferred Return for determining
payment of the Base Management Fee, the Incentive Management Fee and the
Re-lease Fee will be made on an annual basis at the end of each year. To the
extent the Managing General Partner has received fees in excess of those fees
permitted in such year as a result of the application of the Preferred Return
test, such excess will be refunded to the Partnership. If, at any time, the
Preferred Return test either precludes payment of such fees that would
otherwise be due or requires a refund to the Partnership of such fees, the
payment of such fees will be deferred and accrued, without interest, until that
requirement has been satisfied, at which time such fees shall be paid from the
first available proceeds. Failure to achieve the Preferred Return in any year
will not affect any fees paid in prior years.
(i) When any fees payable to the Managing General Partner
which become deferred and accrued pursuant to Sections 5.6(g) and 5.6(h) become
payable, if the Partnership does not have sufficient cash resources prudently
to pay the full amount of such fees, any payments made will be paid pro rata to
the Managing General Partner in proportion to the amount of deferred and
accrued fees, and the Managing General Partner will forebear collection of the
full amount of such fees, so long as distributions are not made to Unitholders
until cash resources permit payment.
(j) The aggregate amount of all Front-End Fees shall not,
over the life of the Partnership, exceed 15.5% of the Gross Offering Proceeds.
(k) The Managing General Partner shall be responsible for the
payment of all Organizational and Offering Expenses (other than those referred
to in Section 5.6(b) above) and all General Partner Acquisition Expenses and
shall not be entitled to reimbursement for payment of such Organizational and
Offering Expenses or General Partner Acquisition Expenses. Subject to the
foregoing limitation, all of the Partnership's general and administrative
expenses which are payable to third parties for legal, auditing and accounting
expenses, for the renewal of Aircraft leases or the re-lease or sale of
Aircraft (other than those fees which are payable to S.P.L.C. or any successor
out of the Managing General Partner's Incentive Management Fee, Re-lease Fee or
Resale Fee, as provided in the S.P.L.C. Agreement or as indicated in the
Prospectus), for preparing and distributing reports and for other general and
administrative expenses shall be billed directly to and paid by the
Partnership. Each General Partner or Affiliate of a General Partner shall be
reimbursed by the Partnership for the general and administrative expenses which
the General Partner or Affiliate incurs on behalf of the Partnership,
including, without limitation, (i) the actual cost to the General Partner or
Affiliates of goods, materials and services used for or by the Partnership and
obtained from third parties; (ii) general and administrative expenses for
services performed by such General Partner or Affiliate directly for the
Partnership, including, but not limited to, legal, accounting, transfer agent,
data processing, duplicating and other similar services; (iii) expenses for
services performed by the General Partner or Affiliate in connection
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with reports and communications to investors; and (iv) expenses for
administrative services performed by the General Partner or Affiliate which are
necessary for the prudent operation of the Partnership. Reimbursement for any
item referred to in clauses (ii) through (iv) of this Section 5.6(k) shall be
at the lower of the General Partners or Affiliate cost or the amount which the
Partnership would have had to pay to third parties for comparable services in
the same geographic location. No reimbursement under clauses (ii) through (iv)
of this Section 5.6(k) shall be permitted for services for which the General
Partner or Affiliate receives a separate fee pursuant to this Agreement.
Expenses incurred by any General Partner or any Affiliate for rent,
depreciation or utility expenses shall not be charged to the Partnership.
Expenses incurred by any General Partner or any Affiliate of a General Partner
for salaries, fringe benefits, general travel expenses or similar expenses of
any "Controlling Person" shall not be charged to the Partnership. For the
purposes of this Section 5.6(k), "Controlling Person" shall refer to the
following; (i) any director, president, vice president or other officer of the
Managing General Partner or any of its Affiliates having the authority to make
policy decisions concerning the Partnership, or (ii) any Person holding 5% or
more equity interest in the Managing General Partner or (iii) a Person having
the power to direct or cause the direction of the Managing General Partner,
whether through the ownership of voting securities, by contract or otherwise.
(l) If the Partnership borrows funds or the General Partners
advance funds, the Partnership shall repay such borrowed funds or advances and
any interest thereon in accordance with the terms thereof from the cash
receipts of the Partnership.
(m) The Assignor Limited Partner, as transfer agent pursuant
to the Transfer Agent Agreement, shall receive a fee, expected to equal to
$150, in connection with each transfer of Units (although such a fee may be
greater to the extent actual legal fees and other costs exceed such amount).
The Assignor Limited Partner shall, subject to certain limitations set forth in
the Transfer Agent Agreement, be reimbursed for all expenses (to the extent
such expenses are not paid for by the transferees or transferors of Units)
incurred by it in connection with the performance of all other duties
thereunder.
(n) Notwithstanding anything contained herein to the
contrary, neither the General Partners nor their Affiliates shall receive
aggregate compensation, however designated by the General Partners, which
exceeds the amount of compensation they would be permitted to receive pursuant
to the Guidelines. The compensation which the General Partners and their
Affiliates are permitted to receive under the Guidelines includes a promotional
interest equal to 5% of all distributions from Cash Available for Distribution
and 1% of all distributions from Sales Proceeds before Preferred Payout and a
15% interest in all such distributions thereafter, a 2% fully participating
carried working interest (or greater interest if the Partnership's Investment
in Aircraft exceeds 84.5% of total Capital Contributions), a resale fee equal
to the amount indicated in subsection (g) above, a re-lease fee on the release
of Aircraft as a result of the efforts of the Sponsor to Persons other than
previous lessees of the Aircraft or their Affiliates equal to the lesser of the
competitive rate for comparable services for similar equipment or 2% of the
gross rental payments derived from the re-lease of the Aircraft (except that,
if the Sponsor receives a re-lease fee, the Sponsor may not receive a 7% fee
for Equipment Management as described in (iv) below), and a fee for Equipment
Management equal to the lesser (i) 1% of gross
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rental payments derived from the Aircraft, (ii) 5% of gross rental payments
derived from Operating Leases (less the amount of such fee paid to Persons who
are not Affiliates), (iii) 2% of gross rental payments derived from Full Payout
Leases which contain Triple Net Lease provisions (less the amount of such fee
paid to Persons who are not Affiliates or (iv) 7% of gross rental payments
derived from the Aircraft in the event the Sponsor provides both Equipment
Management and additional services relating to the continued and active
operation of the Aircraft (less the amount of such fee paid to Persons who are
not Affiliates). If the compensation received by the General Partners or their
Affiliates exceeds the amount of compensation permitted under the Guidelines,
the General Partners shall promptly return the amount of such overage to the
Partnership.
5.7 Other Businesses of Partners. Subject to Sections 5.5(j)
and 5.5(k), the General Partners and their Affiliates may engage in or possess
any interest in other business ventures of any kind, nature or description,
independently or with others, including, but not limited to, the acquisition,
financing, ownership, leasing, operation, management and syndication of
equipment, including aircraft, for their own account or for the account of
others. Neither the Partnership nor any Unitholders, by virtue of their status
as Unitholders, shall have any rights or obligations in or to such independent
ventures or the revenues, profits or losses derived therefrom. Subject to the
provisions of this Agreement defining the rights and duties of the General
Partners, nothing in this Section 5.7 shall be deemed to diminish the General
Partners' overriding fiduciary obligations to the Partnership the Unitholders.
5.8 Liability and Indemnification of the General Partners
and their Affiliates.
(a) The General Partner and their Affiliates shall not be
liable to the Partnership or the Unitholders and the Partnership shall
indemnify and hold harmless the General Partners and their Affiliates from any
loss suffered by the Partnership, the General Partners and their Affiliates,
(including reasonable attorney's fees and other costs of defense, which may bee
paid as incurred) which arises out of any action or inaction of any such
Persons if (i) the General Partners, or any of them, determined in good faith
that such course of conduct was in the best interest of the Partnership, (ii)
such Person was acting on behalf of or performing services for the Partnership,
(iii) such course of conduct did not constitute negligence or misconduct and
(iv) any amounts payable pursuant to the foregoing are recoverable only out of
the assets of the Partnership.
(b) Notwithstanding the above, the General Partners and their
Affiliates shall not be indemnified for losses, liabilities, or expense 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 and
a court of competent jurisdiction approves indemnification of the litigation
costs, (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 the court the
position of the Commission and any other applicable regulatory authority with
respect to the issue of indemnification for securities law violations.
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(c) The Partnership shall not incur the cost of that portion
of liability insurance which insures any General Partners or their Affiliates
for any liability as to which any such Person is prohibited from being
indemnified.
(d) The General Partners and their Affiliates may receive
advances from the Partnership for payment of their costs and attorneys' fees as
incurred only if each of the following three conditions are satisfied: (i) the
legal action is related to the performance of duties or services by such Person
on behalf of the Partnership (ii) the legal action is initiated by a third
party who is not a General Partner or Unitholder; and (iii) such person
undertakes to repay the advanced funds with interest to the Partnership in
cases in which it is not entitled to indemnification.
(e) For purposes of this Section 5.8 only, the term
"Affiliate" shall mean any person performing services on behalf of a General
Partner and acting within the scope of the General Partners' authority as set
forth in this Agreement, who or which: (1) directly or indirectly controls, or
is controlled by, or is under common control with a General Partner; (2) owns
or controls 10% or more of the outstanding voting securities of a General
Partner; (3) is an officer, director, employee, partner or trustee of a General
Partner; or (4) is a company in which a General Partner acts as an officer,
director, partner or trustee.
ARTICLE VI
GENERAL PARTNER WITHDRAWAL, REMOVAL,
AUTOMATIC CESSATION AND SUBSTITUTION;
TRANSFER OF A GENERAL PARTNERS
INTEREST
6.1 Withdrawal of the General Partners. A General
Partner may withdraw as a General Partner of the Partnership at any time,
provided that such withdrawal is approved by a Majority Vote of the
Unitholders.
6.2 Removal of the General Partners. Any or all of the
General Partners may be removed as a General Partner for any reason by Majority
Vote. Interests beneficially owned by the affected General Partner or its
Affiliates shall not be voted on any such question and shall not be counted as
outstanding in calculating whether a Majority Vote has been obtained.
6.3 Substitute and Additional General Partners; Assignment of
Economic Interest. Notwithstanding anything to the contrary in this Agreement,
a General Partner may substitute in its stead as General Partner any entity
which has, by merger, consolidation or otherwise, acquired substantially all of
the assets or stock of the General Partner and continued its business. In the
event that the Managing General Partner is removed and no successor Managing
General Partner is appointed by the Unitholders, the remaining General
Partner(s) may appoint a successor Managing General Partner. In the event of
the withdrawal of the Managing General Partner or the cessation of the Managing
General Partner as a General Partner pursuant to Section 6.4, a remaining
General Partner may elect to become the successor Managing General Partner. In
addition, the existing General Partner(s) may, in its or their sole discretion,
admit one or more successor or additional General Partners to the Partnership
provided that such
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successor or additional General Partner shall not be a Managing General
Partner. Each Unitholder hereby gives the Unitholder's Consent to the admission
of any successor or additional General Partner pursuant to this Section 6.3,
and no further Consent shall be required. A General Partner may, without the
permission of the Unitholders, assign all or any portion of its economic
interest in the Partnership. The Unitholders shall have no right to remove such
General Partner. and shall have no other rights against the General Partner, as
a result of any such assignment. To the extent indicated in such assignment or
to the extent necessary to effectuate such assignment (but not otherwise), the
assignee shall (i) be permitted to receive directly from the Partnership any
distributions or other consideration which would otherwise be received by the
General Partner and (ii) be treated as an assignee of a General Partner with
respect to the interest assigned. Any such assignment shall not affect the
obligations or liabilities of such General Partner hereunder.
6.4 Automatic Cessation of General Partners. A General
Partner shall automatically cease being a General Partner upon the occurrence
of any of the following:
(a) An order for relief against the General Partner is
entered under Chapter, of the federal bankruptcy law;
(b) The General Partner (i) makes a general assignment for
the benefit of creditors, (ii) files a voluntary petition under the federal
bankruptcy law, (iii) files a petition or answer seeking for that General
Partner any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any statute, law or
regulation, (iv) files an answer or other pleading admitting or failing to
contest the material allegations of a petition filed against the General
Partner in any proceeding of the nature described in (ii) or (iii) above or (v)
seeks, consents to or acquiesces in the appointment of a trustee, receiver or
liquidator of the General Partner or of all or any substantial part of the
General Partner's assets;
(c) In the case of a General Partner who is an individual,
either the death of that General Partner or the entry by a court of competent
jurisdiction of an order adjudicating the General Partner incompetent to manage
the General Partner's person or estate; or
(d) In the case of a General Partner that is a corporation or
partnership, the dissolution of such General Partner.
The occurrence of any of the following events, among others, will not
by itself cause a dissolution; of the Partnership and, notwithstanding the
occurrence of any of the following events, the affected General Partner will
continue to be a General Partner of the Partnership:
(a) The commencement of any proceeding against a General
Partner seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any
state, law or regulation;
(b) The appointment, without the General Partner's consent
or acquiescence, of a trustee, receiver or liquidator of the General
Partner or of all or any substantial part of the General Partner's
assets; or
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(c) In the case of a General Partner which is an entity, the
consolidation, merger or reorganization of the General Partner with
any other entity, whether or not the General Partner is the surviving
entity, or any change of control of the General Partner.
6.5 Purchase of a Terminated General Partner's Interest.
Subject to Section 6.7(a), upon a General Partner ceasing to be a General
Partner pursuant to this Article VI, such General Partner's Interest as a
general partner in the Partnership shall be repurchased by the Partnership (if
the Partnership continues) for an amount equal to the fair market value of the
Terminated General Partner's Interest at the time of removal, as determined by
agreement among the Terminated General Partner and the remaining or successor
General Partner(s). In the event of any dispute as to such fair market value
determination, the fair market value will be determined by binding arbitration
in accordance with the then current rules of the American Arbitration
Association, with the expenses of the arbitration borne equally by the
Partnership and the Terminated General Partner.
6.6 Effect on Fees of Termination of Managing General
Partner. Upon the Managing General Partner ceasing to be a General Partner
pursuant to this Article VI, such Terminated General Partner shall be entitled
to receive all earned and unpaid fees and other amounts described in Section 5.6
which have accrued or been earned through the effective date of the termination
or which are attributable to any transactions arranged by the Terminated
General Partner prior to the effective date of such termination (including fees
to be paid on account of options for renewal, re-lease or sale that are in
place prior to such termination and are exercised after such termination), such
fees and other amounts to be paid when otherwise required to be paid pursuant
to Section 5.6.
6.7 Notes and Interest.
(a) If the Terminated General Partner s termination is
voluntary, the remaining General Partner(s) may, with the approval of a
Majority Vote of the Limited Partners, cause the Partnership to declare that
the Terminated General Partner shall continue to retain the same Interest in
the capital, Profits, Losses and distributions of the Partnership (and such
Interest shall not be reduced to provide compensation, or an interest in the
Partnership, or both, to a new General Partner), but such Interest shall be
that of a Limited Partner. Any Terminated General Partner whose Interest is
converted to that of a Limited Partner hereunder shall continue to be subject
to the prohibitions against voting upon certain matters by the General Partners
and their Affiliates contained in Section 11.2.
(b) If the Terminated General Partner's termination is
voluntary and the Terminated General Partner's Interest is not converted to
that of a Limited Partner pursuant to Section 6.7(a) above, the Partnership
shall deliver to the Terminated General Partner the Partnership's non-interest
bearing promissory note, with principal payable, if at all, from amounts which
the Terminated General Partner otherwise would have received as distributions
under this Agreement.
(c) If the Terminated General Partner's termination is
involuntary, the Partnership shall deliver to the Terminated General Partner
the Partnership's promissory note,
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bearing interest at a rate equal to the rate provided for in Section 6.7(d)
below, payable in equal annual installments over five years and in preference
to distributions or payments of any other kind to any Partners or Unitholders.
(d) As to amounts required to be paid pursuant to Section
6.6, amounts unpaid when due shall accrue interest at a rate equal to 2% above
the "prime rate" (or any comparable rate) as announced from time to time by the
Bank of San Francisco (but not in excess of the maximum rate permitted under
applicable law), and such amounts and interest shall be paid out of fees that
would have been paid to the Terminated General Partner had it not been
terminated.
6.8 Liability of a Terminated General Partner. Any Terminated
General Partner shall remain liable for its portion of any obligations and
liabilities incurred by it as General Partner prior to the time such
withdrawal, removal or incapacity shall have become effective. The Terminated
General Partner shall be free of any obligation or liability incurred on
account of the activities of the Partnership occurring from and after the time
such withdrawal or removal shall have become effective, and shall be
indemnified and held harmless by the Partnership from and against any such
obligations and liabilities.
6.9 Amounts Payable to S.P.L.C. Termination of a General
Partner shall not reduce any amounts otherwise payable to S.P.L.C.
ARTICLE VII
TRANSFERABILITY OF LIMITED PARTNERSHIP
INTERESTS OR UNITS
7.1 Restrictions on Transfers of Units.
(a) A Unitholder may not assign or transfer all or part of
the Unitholder's legal and equitable interest in the Unitholder's Units without
the consent of the Managing General Partner, which consent may be withheld in
the Managing General Partner's sole discretion. Further, the Managing General
Partner may condition its consent on representations, warranties, opinions of
counsel (who may be counsel to the Partnership) and other assurances as to:
(i) such assignments or transfers not resulting, when
added to the total of all other assignments or transfers within the preceding
12 months, in the Partnership being considered to have terminated within the
meaning of Section 708 of the Code;
(ii) the assignee or transferee not being a minor or an
incompetent;
(iii) the transfer or assignment not violating federal
or state securities laws (including any investor suitability standards);
(iv) the transferor or the assignee or transferee not
holding less than 50 Units (40 Units in the case of IRAs and Qualified Plans);
(v) the assignee or transferee being a Citizen of the
United States;
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(vi) such assignment or transfer not constituting a
transfer "on a secondary market (or the substantial equivalent thereof)" within
the meaning of Section 7704 of the Code, not causing the Partnership to lose
its status as a partnership for federal income tax purposes or not causing the
Partnership to be a publicly traded partnership within the meaning of Section
7704 of the Code or otherwise adversely affecting the tax status of the
Partnership;
(vii) such assignment or transfer not causing
Partnership assets to be deemed plan assets under ERISA;
(viii) the transferor filing with the Partnership a duly
executed and acknowledged counterpart of the instrument effecting such
assignment or transfer, which instrument evidences the written acceptance by
the assignee or transferee of all of the terms and provisions of this
Agreement, contains a representation that such assignment or transfer was made
in accordance with all applicable laws and regulations (including any investor
suitability requirements) and in all other respects being satisfactory in form
and substance to the Managing General Partner; and
(ix) such other matters as the Managing General Partner
shall request in its sole discretion.
(b) In no event shall any Units be assigned or transferred to
a minor or an incompetent except in trust, pursuant to the Uniform Gifts to
Minors Act or the Uniform Transfers to Minors Act, or by will or intestate
succession.
(c) Except for transfers or assignments (in trust or
otherwise), whether on death or inter vivos, to or for the benefit of (i) the
transferor's spouse, parents, children, other descendants, spouses of children,
heirs or legatees or (ii) a charitable, religious, scientific, literary, or
educational organization, and except as consented to by the Managing General
Partner in its sole discretion, no sale, exchange, transfer, or assignment of a
Unit may be made to any Person unless such Person (i) meets the suitability
requirements to become a Unitholder in accordance with the terms of the
offering of the Units contained in the Prospectus or (ii) is a Partner or
Unitholder.
(d) No purported sale, exchange, assignment or transfer of
any fractional Unit will be permitted or recognized for any purpose without the
consent of the Managing General Partner, in its sole discretion.
(e) Each Unitholder agrees, upon request of the Managing
General Partner, to execute such certificates or other documents and perform
such acts as the Managing General Partner deems appropriate after an assignment
or transfer of a Unit by that Unitholder to preserve the limited liability of
the Unitholders under the laws of any jurisdiction in which the Partnership is
doing business. For purpose of this Section 7.1 (e), any transfer of a Unit,
whether voluntary or by operation of law, shall be considered an assignment.
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(f) In no event shall any Units be assigned or transferred to
a person who makes a market in securities unless such person shall certify to
the Managing General Partner that it has acquired such Units solely for
investment purposes and not for purpose of resale.
(g) No purported sale, exchange, transfer or assignment of
any Units will be permitted or recognized for any purpose unless (i) the
transferor shall have represented that such transfer (A) was effected through a
broker-dealer or matching agent whose procedures with respect to the transfer
of Units, have been approved by the Managing General Partner as not being
incident to a public trading market and not through any other broker-dealer or
matching agent or (B) otherwise was not effected through a broker-dealer or
matching agent which makes a market in Units or that provides a readily
available, regular and ongoing opportunity to Unitholders to sell or exchange
their Units through a public means of obtaining or providing information of
offers to buy, sell or exchange Units and (ii) the Managing General Partner
determines that such sale, assignment, or transfer would not, by itself or
together with any other sales, exchanges, transfers or assignments, likely
result in, as determined by the Managing General Partner in its sole
discretion, the Partnership's being classified as a publicly traded
partnership.
(h) No purported sale, exchange, assignment or transfer of
any Units will be permitted or recognized for any purpose if such sale,
exchange, transfer or assignment would, by itself or together with any other
sales, exchanges, transfers or assignments, likely result in the Partnership's
failing to satisfy the safe harbors contained in Internal Revenue Service
Advance Notice 88-75 (the "Notice"). Without limiting the foregoing, no
purported sale, exchange, transfer or assignment of any Units will be
recognized if such sale, exchange, transfer or assignment, together with all
other such dispositions (including repurchases by the Partnership of its own
Units) during the same taxable year of the Partnership would result in both (i)
the transfer of more than 5% of the total interests in Partnership capital or
profits (excluding transfers described in clauses (i) through (vi) of the next
succeeding sentence); and (ii) (A) the transfer of more than 2% of the total
interests in Partnership capital or profits (excluding transfers described in
clauses (i) through (vi) of the next succeeding sentence and sales through a
matching service that meets the requirements of the Notice, Part II, Section D)
or (B) the transfer of more than 10% of the total interests in Partnership
capital or profits (excluding transfers described in clauses (i) through (vi)
of the next succeeding sentence). For purposes of the 5% and the 2% limitations
described in the preceding sentence, the following transfers will be
disregarded: (i) transfers in which the basis of the Units in the hands of the
transferee is determined, in whole or in part by reference to its basis in the
lands the transferor or is determined under Code Section 732; (ii) transfers at
death: (iii) transfers between members of a family (as defined in Code Section
267 (c) (4); (iv) the issuance of Units by or on behalf of the Partnership in
exchange for cash. property, or services: (v) distributions from a retirement
plan qualified under Code Section 401(a); and (vi) block transfers. The term
'block transfer" means the transfer by a Partner in one or more transactions
during any 30 calendar day period of Partnership Interests representing in the
aggregate more than 5% of the total interest in Partnership capital or profits.
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(i) Any attempted assignment or transfer which does not
comply with subparagraphs (a) through (h) of this Section 7.1 shall be null
and void, unless otherwise determined by the Managing General Partner in its
sole discretion.
(j) The elective date of any assignment or transfer of Units
shall be the first day of the calendar quarter following the calendar quarter
in which the requirements set forth in subparagraphs (a) through (h) of this
Section 7.1 have been satisfied. Until such elective deed the Managing General
Partner shall be entitled to treat the assignee or transferor as the absolute
owner of the Unit, and shall incur no liability for allocations, distributions,
reports or notices made or given in good faith to such assignee or transferor.
(k) A Unitholder may not contract away the common law
fiduciary duty owed to the Unitholders by the General Partners.
7.2 Incapacity of Unitholders. If a Unitholder dies (or, in
the case of an entity, dissolves or terminates), the Unitholder's executor,
administrator or trustee or, if the Unitholder is adjudicated incompetent or
insane, the Unitholder's guardian or conservator, or if the Unitholder becomes
bankrupt, the trustee or receiver of the Unitholder's estate, shall have all
the rights and obligations of a Unitholder for the purpose of settling or
managing the Unitholder's estate and such power as the Unitholder possessed to
assign the Unitholder's Units. The death, dissolution, termination,
incompetency, insolvency or bankruptcy of a Unitholder shall not dissolve the
Partnership.
7.3 Change In Record Ownership. Subject to the terms and
conditions of this Agreement, title to a Unit shall be transferable by delivery
of an instrument of transfer, in a form satisfactory to the Transfer Agent and
the Managing General Partner, properly executed by the Registered Owner, in
accordance with the laws governing transfers of investment securities;
provided. however, that, until a Unit has been transferred on the register of
the Transfer Agent as provided in the Transfer Agent Agreement, the
Partnership, notwithstanding any notice to the contrary. shall treat the
Registered Owner thereof as the absolute owner thereof for all purposes
(including, without limitation, the economic benefits and other rights of
Unitholders). Changes in the record ownership of Units will be recognized only
four times each year at 12:01 a m., San Francisco, California local time, on
the first business day of each calendar quarter or such other period as shall
be established by the Managing General Partner.
7.4 Substituted Limited Partner.
(a) It is not the present intention of the General Partners
that the Partnership have any Limited Partner other than the Assignor Limited
Partner. No Person shall have the right to become a Substituted Limited Partner
unless each of the following condition, is satisfied:
(i) in the case of an assignment or transfer of the
Limited Partnership Interest of a Limited Partner, (A) the instrument of
assignment or transfer sets forth the intentions of the assignor or transferor
that the assignee or transferee succeed to the assignor's or transferor's Unit
as a Limited Partner in the assignee or transferee Limited Partner's place; and
(B) the assignee or transferee shall have fulfilled the requirements of this
Article VII and Section 10.2(a) and (c); and
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(ii) the Managing General Partner shall have consented
to such Person's admission as a Substituted Limited Partner.
(b) This Agreement shall be amended as necessary to recognize
the admission of any Unitholder as a Limited Partner.
(c) Any Limited Partner who shall assign or transfer all of
the Unitholder's Limited Partnership Interest shall cease to be a Limited
Partner upon a Substituted Limited Partner being admitted in the assigning or
transferring Limited Partner's stead as a Limited Partner with respect to the
Interest assigned or transferred.
(d) An assignee or transferee of Units who does not become a
Substituted Limited Partner and desires to make a further assignment or
transfer of the Units, shall be subject to all the provisions of this Article
VII to the same extent and in the same manner as any Unitholder desiring to
make an assignment or transfer of his Units.
(e) Notwithstanding anything to the contrary in this
Agreement, the Managing General Partner may at any time, without obtaining the
consent of any Unitholders, cause any Unitholder to become a Limited Partner
and may take such other action with respect to the manner in which Units of
Limited Partnership Interests are being or may be transferred or such other
steps as the Managing General Partner may deem necessary or appropriate in
order to preserve the status of the Partnership as a partnership rather than an
association taxable as a corporation for federal income tax purposes or to
insure that Unitholders will be treated as limited partners of the Partnership
for federal income tax purposes.
(f) For all purposes hereunder and under the California Act,
each Limited Partner, including the Assignor Limited Partner on behalf of the
Unitholders, hereby Consents to the admission of any Person as a Substituted
Limited Partner if the provisions of this Article VII are satisfied.
7.5 Citizenship Status. Subject to the discretion of the
Managing General Partner, in the event a Unitholder who originally obtained
Units in the Partnership's offering misrepresented that such Unitholder was a
Citizen of the United States, such person fails to remain a Citizen of the
United States or a subsequent assignee or transferee of Units is not or fails
to remain a Citizen of the United States, such Person shall forfeit to the
Partnership and no longer be entitled to the cash distributions, allocations of
Profits, Losses or credits of the Partnership, receipt of Partnership reports
or voting privileges, although such Person may transfer or assign such Person's
Units to a Citizen of the United States, which subsequent transferee would be
entitled to the full economic benefits and other privileges attributable to
such Units.
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ARTICLE VIII
DISSOLUTION, LIQUIDATION AND
TERMINATION OF THE PARTNERSHIP
8.1 Events Causing Dissolution. The Partnership shall
dissolve and its affairs shall be wound up upon the earliest to occur of any of
the following events:
(a) the expiration of its term;
(b) the withdrawal, removal or automatic cessation pursuant
to Section 6.4 of a General Partner unless (i) there remains at least one
General Partner and, within 60 days after the date of such event, the remaining
General Partner(s) elect to continue the business of the Partnership or (ii) if
there is no remaining General Partner, the Unitholders, within 90 days after
the date of such event, elect to continue the business of the Partnership, in a
reconstituted form if necessary, and elect a successor Managing General Partner
effective as of the date of such event. In the event of the removal of a
General Partner and there is no remaining General Partner, then a Majority Vote
of the Unitholders may elect to continue the Partnership and elect a new
Managing General Partner. If, however, the dissolution is caused by a General
Partner ceasing to be a General Partner for any reason other than removal, and
if there is no remaining General Partner, then the right of the Unitholders to
continue the business of the Partnership and to elect one or more General
Partners may only be exercised by the unanimous vote of the Unitholders and the
Assignor Limited Partner;
(c) the election to dissolve the Partnership by the Majority
Vote of the Unitholders;
(d) the entry of a decree of judicial dissolution by a court
of competent jurisdiction; and
(e) upon the disposition of the Partnership's last interest
in Aircraft, including any debt obligation taken as consideration in the
disposition of Aircraft.
8.2 Liquidation.
(a) Upon dissolution and liquidation of the Partnership, its
liabilities shall be paid in the order provided herein. The Managing General
Partner shall cause Partnership property to be sold in such manner as the
Managing General Partner, in its sole discretion, shall determine in an effort
to obtain the best prices for such property. The Managing General Partner shall
cause the cancellation of the Partnership's Certificate of Limited Partnership
upon completion of the dissolution and liquidation of the Partnership. Pending
such sales and cancellation, the Managing General Partner shall have the right
to continue to operate the business of the Partnership and otherwise deal with
Partnership property. In the event that a General Partner withdraws, is removed
or otherwise ceases to be a General Partner and there is no remaining or
successor General Partner, a Person shall be elected by Majority Vote of the
Unitholders as a liquidating trustee to perform the functions of a general
partner in liquidating the assets of the Partnership and winding up its
affairs.
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(b) The proceeds from the liquidation of the Partnership's
property shall be paid out in the following order:
(i) First, the Partnership shall pay or make reasonable
provision to pay all claims and obligations, including all contingent,
conditional or unmatured claims and obligations, known to the Partnership but
for which the identity of the claimant is unknown, in accordance with the
California Act, excluding claims of the General Partners but including claims
of the Unitholders who are creditors, to the extent permitted by the California
Act;
(ii) Second, to the General Partners for any loans or
advances made by them to the Partnership;
(iii) Third, to the extent permitted by the limitations
set forth in Section 5.6, to the Managing General Partner for any fees due
hereunder; and
(iv) The balance if any, to the General Partners and
Unitholders having positive balances in their Capital Accounts (after giving
effect to all contributions, distributions and allocations for all periods,
including the period during which such distribution occurs) in the proportion
that the positive balance in each General Partner's and Unitholder's Capital
Account bears to the sum of all Capital Accounts having positive balances;
provided, however, that any remaining amount of fees due to the Managing
General Partner hereunder shall first be paid to the Managing General Partner
in accordance with, at the time prescribed by, and subject to the limitations
of Section 5.6.
(c) Distributions in liquidation shall be made by the end of
the taxable year in which the liquidation occurs or, if later, within 90 days
after the liquidating event and shall otherwise comply with Regulations Section
1.704-1(b).
(d) If upon liquidation of the Partnership (or the
liquidation of a General Partner's interest in the Partnership within the
meaning of Section 1.704-1 (b) (2) (ii) (g) of the Regulations), a General
Partner has a deficit balance in its Capital Account (after taking into account
all Capital Account adjustments for the Partnership's taxable year in which the
liquidation occurs), such General Partner shall contribute in cash to the
Partnership by the end of such taxable year (or, if later, within 90 days after
the date of such liquidation) an amount equal to such deficit Capital Account
balance.
(e) If any Unitholder has a deficit balance in the
Unitholder's Capital Account (after taking into account all Capital Account
adjustments for the Partnership's taxable year in which the liquidation
occurs), such Unitholder shall have no obligation to make any contribution to
the capital of the Partnership with respect to such deficit, and such deficit
shall not be considered a debt owed to the Partnership or to any other person
for any purpose whatsoever.
(f) The provisions of Section 8.2(d) shall be enforceable
directly, indirectly, derivatively or otherwise, only by the Unitholders, or
the General Partners, as applicable, and no third party may enforce any rights
provided hereby.
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ARTICLE IX
BOOKS AND RECORDS; ACCOUNTING, TAX
RECORDS
9.1 Books and Records. The books and records of the
Partnership, including the Partnership's Certificate of Limited Partnership and
amendments thereto, copies of this Agreement, copies of the Partnership's
federal, state and local tax or information returns, the Partnership's
financial records, the books and records relating to the Partnership's internal
affairs, the appraisals of the Partnership's Aircraft and information regarding
the suitability of Limited Partners and Unitholders, shall be maintained by the
Managing General Partner at a principal office of the Partnership. The books
and records shall include information relating to the sale by the General
Partners, or by their Affiliates, of goods or services to the Partnership, and
an alphabetical list of the names and addresses and Units of all Unitholders.
The books and records shall be available for examination by any Unitholder or
the Unitholder's duly authorized representative at any reasonable time and upon
payment of reasonable costs. Any Unitholder or the Unitholder's duly authorized
representative, upon paying the reasonable costs of collection, duplication and
mailing and for any purpose reasonably related to the interest of the
Unitholder, shall be entitled to a copy of property appraisals and the list of
names, addresses and Interests of the Unitholders. The Partnership may maintain
such other books and records and may provide such other statements as the
Corporate General Partner in its discretion deems advisable. The Partnership
shall maintain its financial statements for at least six years and its other
books and records relating to its internal affairs for at least three years.
9.2 Accounting Basis for Tax and Reporting Purposes. The
books and records of the Partnership for financial reporting purposes and for
the purpose of reports to the Partners will be kept on an accrual basis in a
manner consistent with generally accepted accounting principles. The Managing
General Partner will cause the income tax returns of the Partnership to be
prepared on the accrual basis of accounting by the application of memorandum
entries to the accrual basis books of account.
9.3 Bank Accounts. The Managing General Partner shall
maintain the Partnership bank accounts, and withdrawals shall be made only in
the regular course of the Partnership business on such signature or signatures
as the Managing General Partner may determine. All deposits and other funds not
needed in the operation of the business may be deposited in interest-bearing
accounts or invested in securities as described in Section 5.2(a)(x).
9.4 Reports.
(a) On or before May 15, August 15 and November 15 of each
year in which the Partnership is in existence, the Managing General Partner
shall cause the Partnership to send each Person who was a Partner or a
Unitholder at any time during the immediately preceding fiscal quarter the
following information:
(i) A detailed statement of any fees paid to the General
Partners or their Affiliates and the services rendered therefor;
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(ii) A report describing the Partnership's business, the
receipt and disbursement of revenues and an accounting of all Aircraft
purchased during the quarter; and
(iii) A quarterly report containing substantially all
the information required for the Form 10-Q most recently filed by the
Partnership with the Commission, or a copy of the Form 10-Q (or such lesser
information as may hereafter be permitted by the rules and regulations of the
Commission).
(b) On or before March 31 of each year, the Managing General
Partner shall cause the Partnership to send to each Person who was a Partner or
a Unitholder at any time during the prior Fiscal Year, a report containing the
following information:
(i) A balance sheet, statement of Partner's equity,
statement of income, statement of changes in financial condition and cash flow
statement (which shall include a statement as to the use of Working Capital
Reserves from the Gross Offering Proceeds) in respect of such Fiscal Year, all
of which (except the cash flow statement) shall be prepared in accordance with
generally accepted accounting principles.
(ii) An annual report consolidating the activities of
the Partnership during such Fiscal Year, including (A) a detailed statement of
any transactions with the General Partners or their Affiliates and of fees,
commissions, compensation, reimbursement and other benefits paid or accrued to
the General Partners or their Affiliates for such Fiscal Year, showing the
amount paid or accrued to each recipient and the services performed, and (B) a
breakdown of distributions made by the Partnership for such Fiscal Year
separately identifying the source of such distributions, including: (1) Cash
Flow during the period, (2) Cash Flow during a prior period which had been held
as Working Capital Reserves, (3) Sales Proceeds and (4) Working Capital
Reserves from the Gross Offering Proceeds;
(iii) A report containing a reconciliation between the
financial information contained in the annual report and the information
received for federal tax returns; and
(iv) A status report with respect to each Aircraft owned
by the Partnership setting forth the condition of the Aircraft, the appraised
value of each Aircraft as of the end of such Fiscal Year (as well as a
description of' the method or basis used for such valuation) and indicating
whether the Aircraft is leased, operated or held for lease, repair or sale, the
remaining term of any existing lease, the projected use of the Aircraft for the
next year (whether the lease is expected to continue or to be renewed, or
whether the Aircraft is expected to be re-leased or sold) and any other
information relevant to the value or utilization of the Aircraft as deemed
appropriate by the Managing General Partner.
(c) The financial statements described in Section 9.4(b) (i),
other than the cash flow statement, shall be audited by a firm of independent
certified public accountants and shall be accompanied by the opinion of such
independent certified public accountants.
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(d) Within the scope of the annual audit of the General
Partners' or their Affiliates financial statements, the independent certified
public accountants shall verify the allocation of the cost of services, goods
or materials provided by the General Partner or Affiliate to the Partnership.
The method of verification shall, at a minimum, provide (i) a review of the
time records of individual employees, the cost of whose services were
reimbursed, and (ii) a review of the specific nature of the work performed by
each such employee. The methods of verification shall be in accordance with
generally accepted auditing standards. The cost of such verification will be
itemized by such accountants and may be reimbursed to the General Partners or
their Affiliates by the Partnership only to the extent that such reimbursement,
when added to the cost of the services rendered, does not exceed the allowable
rate for such services as determined in Section 5.6 of this Agreement.
(e) Not later than March 15 next following the end of each
Fiscal Year, the Managing General Partner will send to each Person who was a
Unitholder at any time during that Fiscal Year such tax information as shall be
necessary for the preparation of federal and state income tax returns.
9.5 Elections. The Managing General Partner may cause the
Partnership to make all elections required or permitted to be made by the
Partnership under the Code or deemed appropriate by the Managing General
Partner and not otherwise expressly provided for in this Agreement or the
Prospectus.
9.6 Designation of Tax Matters Partner. The Managing General
Partner shall be the Tax Matters Partner of the Partnership, as provided in
Section 6231 of the Code and the Regulations promulgated thereunder. Each
Partner and Unitholder approves of such designation of the Tax Matters Partner
and agrees to execute, certify, acknowledge, deliver, swear to, file and record
at the appropriate public offices such documents as may be necessary or
appropriate to evidence such approval.
9.7 Expenses of Tax Matters Partner. The Partnership shall
indemnify and reimburse the Tax Matters Partner for expenses, including legal
and accounting fees, claims, liabilities, losses and damages incurred in
connection with any administrative or judicial proceeding with respect to the
tax liability of the Partnership, the Partners and the Unitholders. The payment
of such expenses shall be made before any distributions are made from Cash
Available for Distribution. Neither of the General Partners, nor any of their
respective Affiliates, nor any other Person shall have any obligation to
provide funds for such purposes. The taking of any action and the incurring of
any expense by the Tax Matters Partner in connection with any such proceeding,
except to the extent required by law, is a matter in the sole discretion of the
Tax Matters Partner, and the limitations of liability and indemnification of
the General Partner set forth in Section 5.8 shall be fully applicable to the
Tax Matters Partner in its capacity as such.
ARTICLE X
AMENDMENTS
10.1 Proposal and Adoption of Amendments Generally.
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(a) Amendments to this Agreement which do not, in the opinion
of the Managing General Partner, have a material adverse effect upon the
Unitholders or which are necessary or desirable, in the reasonable
determination of the Managing General Partner, to satisfy any requirements,
conditions or guidelines contained in any regulation, ruling, order, directive
or opinion of any federal or state agency or judicial authority or contained in
any federal or state statute or to preserve the status of the Partnership as a
partnership for federal income tax purposes or to ensure that Unitholders will
be treated as limited partners for federal income tax purposes, may be made by
the Managing General Partner through the use of the Power of Attorney granted
in Section 12.1, without the approval of any Unitholder. Amendments which shall
be deemed to be of an inconsequential nature not adversely affecting the rights
of the Unitholders in any material respect include, without limitation, the
following:
(i) Amendments made to this Agreement to prevent the
Reregistration or Recertification of the Aircraft by the FAA or by third
parties, or to reduce the risk of Reregistration or decertification of
Aircraft;
(ii) Changing the name or the location of a principal
office of the Partnership;
(iii) Changing the name, address or Capital Account of a
Partner or Unitholder to reflect changes through transfer, assignment or
withdrawal from the Partnership, change of address or reduction in capital (to
the extent permitted by the California Act);
(iv) To the extent this Agreement is inconsistent with
the California Act, the Code or other applicable law, making any change
necessary to conform this Agreement to law;
(v) To the extent any provisions of this Agreement are
ambiguous or inconsistent with other provisions in this Agreement or in the
Prospectus, making any change necessary to clarify this Agreement in order to
conform it to the intentions of the Partners as reflected in this Agreement and
the Prospectus.
(vi) Making any changes necessary or convenient to the
orderly administration of the Partnership s affairs which do not adversely
effect the rights of the Unitholders in any material respect;
(vii) Making any changes necessary to prevent the
Partnership or any General Partner or Unitholder (or any principal thereof)
from being subject to the provisions of the Investment Company Act of 1940, as
amended, or "plan asset" regulations adopted under ERISA; and
(viii) Making any change relating to the allocation of
income, gain, losses, deductions and credits as may be required under the Code
and the Regulations.
(b) Any other amendment to this Agreement may be proposed by
the General Partners or by holders of 10% of the Interests of the Unitholders.
The Persons proposing such
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amendment shall submit (i) the text of such amendment and (ii) a statement of
the purpose of such amendment. Within ten days after receipt of any proposal
under this Section 10.1.1(b)' the Managing General Partner or Assignor Limited
Partner shall give written Notification of such proposed amendment to all
Partners and Unitholders either in person or by mail, together with the
statement of purpose and the views if any, of the Managing General Partner with
respect to such proposed amendment. In order to be adopted, any such amendment
will require the approval of a Majority Vote.
(c) The Managing General Partner shall, within a reasonable
time after the adoption of any amendment to this Agreement, make any filings or
publications required or desirable to reflect such amendment.
(d) Notwithstanding the provisions of this Section 10.1, this
Agreement shall in no event be amended to change the limited liability of the
Unitholders without the vote or consent of all of the Unitholders.
10.2 Amendments on Admission or Withdrawal of Partners and
Unitholders.
(a) If this Agreement shall be amended to reflect the
admission or substitution of a Unitholder or Limited Partner other than the
Assignor Limited Partner, the amendment to this Agreement shall be signed by
the General Partners and the Person to be substituted or added or such Person's
attorney-in-fact. Such amendments shall occur as often as appropriate, in the
opinion of the Managing General Partner.
(b) Except as provided in Section 6.3, no successor or
additional General Partner will be admitted to the Partnership without an
amendment hereof approved by a Majority Vote. If this Agreement shall be
amended to reflect the admission of an additional or successor General Partner,
such amendment shall be signed by such additional or successor General Partner.
(c) No Person shall become a Partner or Unitholder unless
such Person shall have:
(i) become a party to, and adopted all the terms and
conditions of this Agreement by the execution and delivery of all documents as
required by the Managing General Partner;
(ii) if such Person is a corporation, provided the
Managing General Partner with evidence satisfactory to the Managing General
Partner of such Person's authority to become a Partner or Unitholder under the
terms and conditions of this Agreement; and
(iii) paid all reasonable expenses and legal fees of the
Partnership in connection with such Person becoming a Partner or Unitholder.
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ARTICLE XI
CONSENTS, VOTING AND MEETINGS
11.1 Method of Giving Consent Any Consent required by this
Agreement may be given as follows:
a) by a written Consent given by the approving Partner or
Unitholder (it being understood that the Assignor Limited Partner may
indicate approval at the direction of the Unitholders) at or prior to
the doing of the act for which the Consent is solicited.
b) by the affirmative vote of the approving Partner or
Unitholder to the doing of the act for which the approval is solicited
at any meeting called and held pursuant to Section 11.3 to consider
the doing of such act.
Such Consent may be given to the Managing General Partner or to any
third party by proxy and, in either case, may be voted in favor of or against
any proposal, provided the party acting on behalf of the Partner who granted
the Consent or proxy acts in accordance with the terms of such Consent or
proxy.
11.2 Voting Rights. A Unitholder shall be entitled to direct
the Assignor Limited Partner to cast one vote for each Unit which he owns: (a)
at a meeting, in person or by written proxy, or (b) without a meeting, by a
signed writing directing the manner in which the Unitholder desires that the
Unitholder's vote be cast, which writing must be received by the Managing
General Partner prior to the date upon which the votes of Unitholders are to be
counted. The Assignor Limited Partner shall vote in accordance with the
directions of the Unitholders, but will not vote as to those Units for which it
receives no instructions. The General Partners and their Affiliates shall not
be permitted to vote any Units held by them with respect to (u) any proposed
amendment to this Agreement, (v) the dissolution of the Partnership, (w)
removal of a General Partner and election of a new General Partner, and (x) the
approval or disapproval of the sale of all or Substantially All of the Assets
of the Partnership.
11.3 Meetings. The termination of the Partnership, the
removal of a General Partner and any other matter requiring the Consent of the
Unitholders pursuant to this Agreement may be considered at a meeting of the
General Partners and Unitholders. Such a meeting shall be called for any
purpose either by the Managing General Partner or by Unitholders holding 10% or
more of the Interests held by all Unitholders. Within ten days after receipt of
any such call for a meeting, the Managing General Partner or the Assignor
Limited Partner shall give written notification of such meeting to all Partners
and Unitholders. The meeting shall be held not less than 15 nor more than 60
days after Notification thereof shall have been distributed to the Unitholders.
In its discretion, the Managing General Partner may cause such Notification to
be given by the Transfer Agent pursuant to the Transfer Agent Agreement. Any
such Notification shall state briefly the purpose, time and place of the
meeting. Such meeting shall be held at the time and place specified in the
request for the meeting or, if none, at a time and place in the City and County
of San Francisco as designated by the Managing General Partner. Annual meetings
of the Partnership are not contemplated. A majority of the Interests entitled
to vote, represented in person or by proxy, shall constitute a quorum at a
meeting of the Partnership.
11.4 Submissions to Unitholders. The Managing General Partner
(or, in its absence or upon its removal or withdrawal, the Assignor Limited
Partner) shall give all the
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Unitholders Notification of any proposal or other matter required to be
submitted for the consideration and approval of the Unitholders, or shall cause
such Notification to be given by the Transfer Agent. Such Notification shall
include any information required by the relevant provision of this Agreement,
by the California Act or pursuant to applicable federal and state securities
laws.
11.5 Record Dates. The Managing General Partner may set in
advance a date for determining the Unitholders entitled to Notification and
entitled to vote at any meeting. All record dates shall not be more than 60 nor
less than 10 days prior to the date of the meeting.
ARTICLE XII
POWERS OF ATTORNEY
12.1 Appointment of the Managing General Partner and the
Assignor Limited Partner as Attorney-in-Fact.
(a) The Assignor Limited Partner, on behalf of itself and
each Unitholder, irrevocably constitutes and appoints the Managing General
Partner as the Assignor Limited Partner's and each Unitholder's true and lawful
attorney-in-fact, with full power and authority in the Assignor Limited
Partner's and Unitholder's name, place and stead, to execute, acknowledge,
deliver, swear to, file and/or record at the appropriate public offices, such
documents, instruments and conveyances as may be necessary or appropriate to
carry out the provisions or purposes of this Agreement and the Transfer Agent
Agreement, including, without limitation:
(i) all certificates and other instruments (including
counterparts of this Agreement), the Transfer Agent Agreement, the assignment
to the Unitholders of the rights and obligations to which the Unitholders are
entitled and subject under this Agreement and the Transfer Agent Agreement and
any amendment to any of the foregoing which the Managing General Partner deems
appropriate to qualify or continue the Partnership as a limited partnership (or
a partnership in which the Unitholders will have limited liability comparable
to that provided by the California Act) or which is otherwise adopted in
accordance with this Agreement, and to execute, acknowledge, deliver, swear to,
file and record at the appropriate public offices all such other agreements,
documents, instruments or conveyances as the Managing General Partner may deem
necessary or appropriate to carry out the provisions or purposes of this
Agreement, the Transfer Agent Agreement, such assignment or the business of the
Partnership;
(ii) all instruments which the Managing General Partner
deems appropriate to reflect a change or modification of the Partnership in
accordance with the terms of this Agreement;
(iii) all conveyances and other instruments which the
Managing General Partner deems appropriate to reflect the dissolution and
termination of the Partnership (including a certificate of cancellation); and
(iv) all consents, instruments and documents which may
be necessary or desirable in order to effectuate and comply with the provisions
of Article VI.
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(b) This appointment of the Managing General Partner as
attorney-in-fact is irrevocable and shall be deemed to be a power coupled with
an interest in recognition of the fact that the Assignor Limited Partner and
each of the Unitholders under this Agreement will be relying upon the power of
the Managing General Partner to act as contemplated by this Agreement in any
filing and other action by it on behalf of the Partnership, and shall survive
and not be affected by the subsequent death, incapacity, insanity, dissolution
or termination of any Person hereby giving such power and the transfer or
assignment of all or any part of the Interest of such Person; provided,
however, that in the event a Unitholder transfers all of the Unitholder's
Units, the foregoing power of attorney of a transferor Unitholder shall survive
such transfer only until such time as the transferee shall have been recognized
by the Partnership as a Unitholder and all required documents and instruments
shall have been duly executed, filed an recorded to effect such substitution.
(c) This appointment of the Managing General Partner as
attorney-in-fact be exercised by the Managing General Partner or the Assignor
Limited Partner by signing separately as attorney-in-fact for each Unitholder
or by a single signature of the Managing General Partner as attorney-in-fact
for all the Unitholders.
ARTICLE XIII
MISCELLANEOUS
13.1 Notification to the Partnership or the General Partners.
Any Notification to the Partnership or the General Partners shall be delivered
to them at one of the principal offices of the Partnership as set forth in this
Agreement or as revised in any subsequent Notification to all the Partners and
Unitholders.
13.2 Binding Provisions. The covenants, agreements and
provisions contained herein shall be binding upon and inure to the benefit of
the heirs, executors, administrators, successors and assigns of the respective
parties hereto.
13.3 Applicable Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of California without giving
effect to the principles thereof relating to the conflict of laws.
13.4 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 or such counterparts have been signed at different times.
13.5 Severability of Provisions. If for any reason any
provision hereof is determined to be invalid, such invalidity shall not impair
the operation of or affect those portions of this Agreement which are valid.
13.6 Entire Agreement. This Agreement constitutes the entire
agreement among the parties. This Agreement supersedes any prior agreement or
understanding among the parties and may not be modified or amended in any
manner other than as set forth herein.
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13.7 Section Titles. Section titles are for descriptive
purposes only and shall not control or alter the meaning of this Agreement as
set forth in the text.
13.8 Legal Fees. Subject to the provisions of Section 5.8, in
the event of any litigation or other legal dispute between any of the General
Partners hereto to enforce any provision of this Agreement or any right of any
party hereto, the unsuccessful party to such litigation or legal dispute shall
pay the successful party all costs, including reasonable attorneys' fees,
incurred therein by the successful party, all of which may be included in and
as part of the judgment or other resolution of such litigation or legal
dispute.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
GENERAL PARTNERS:
CMA CAPITAL GROUP
By: /s/ NEAL D. CRISPIN
----------------------------
Neal D. Crispin, President
/s/ RICHARD D. KOEHLER
----------------------------
Richard D. Koehler
/s/ NEAL D. CRISPIN
----------------------------
Neal D. Crispin
ASSIGNOR LIMITED PARTNER:
JETFLEET ASSIGNOR L.P.A., INC.
By: /s/ NEAL D. CRISPIN
-------------------------------
Neal D. Crispin, President
51
<PAGE> 1
EXHIBIT 3.04
AMENDMENT TO
AMENDED AND RESTATED PARTNERSHIP AGREEMENT
This Amendment to Amended and Restated Partnership Agreement is entered
into as of __________, 1997, by and among CMA Capital Group, Inc., a California
corporation ("Managing General Partner"), Neal D. Crispin and Richard D.
Koehler as individual general partners (the Managing General Partner and the
individual general partners collectively, the "General Partners"), and CMA
Capital Group, Inc, as attorney-in-fact for the limited partners listed on
Appendix A, who constitute holders of a majority of the outstanding Units, to
amend that certain Amended and Restated Partnership Agreement of JetFleet
Aircraft, L.P. ("JetFleet I"), made and executed as of May 19, 1989 between the
parties hereto (the "Partnership Agreement"). Capitalized terms not otherwise
defined herein, shall have the meaning as set forth in the Partnership
Agreement.
RECITALS
Pursuant to the Partnership Agreement, JetFleet I was organized under
California law in May 1989.
The General Partner has proposed a consolidation (the "Consolidation")
of JetFleet I and its affiliated partnership, JetFleet Aircraft II, L.P.
("JetFleet II") with and into a newly-formed successor Delaware corporation,
AeroMax, Inc., pursuant to the terms and conditions of a certain Merger
Agreement by and between AeroMax, JetFleet I and JetFleet II. The General
Partner has solicited the requisite approval of the limited partners of
JetFleet I to participate in the Consolidation as more fully described in that
certain Prospectus/Consent Solicitation Statement, dated _____, 1997 (the
"Prospectus"). As part of the approval, the limited partners approved
amendments to the Partnership Agreement to enable the Consolidation.
NOW, THEREFORE, the parties hereto agree as follows:
1. Approval of the Consolidation. Upon receipt of the approval of
holders of a majority of the outstanding Units of limited partnership interest
of JetFleet I, the General Partner is authorized to executed, deliver and
perform all obligations of the Partnership under the Merger Agreement and all
other documents and agreements required to be delivered by the Partnership in
connection therewith. Any inconsistent provisions of the Partnership Agreement
are hereby amended to permit the Consolidation to be consummated.
2. Dissenters' Rights. Notwithstanding anything to the contrary
contained in the Partnership Agreement, limited partners that did not vote in
favor of the Consolidation and follow certain procedures set forth in the
Prospectus shall have the dissenters' rights as set forth in the Prospectus,
which dissenters' rights shall comply with the requirements of the California
Partnership Act.
3. Termination of the Partnership. Upon the effectiveness of the
Consolidation, the separate existence of the JetFleet I shall cease, and the
limited partners of the Partnership shall have the right to receive Common
Stock of AeroMax, Inc., all as set forth in the Prospectus.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first-above written:
CMA CAPITAL GROUP, INC.
------------------------------
Neal D. Crispin
By:
---------------------------------- ------------------------------
Richard D. Koehler
Richard D. Koehler
LIMITED PARTNERS listed on
Appendix A
By: CMA Capital Group, Inc.
Attorney-in-fact
- -------------------------------------
Richard D. Koehler, President
<PAGE> 3
APPENDIX A
<TABLE>
<CAPTION>
List of Approving Limited Partners No. of Units Held
- ---------------------------------- -----------------
<S> <C>
Total Units:
--------------
</TABLE>
<PAGE> 1
EXHIBIT 3.05
JETFLEET AIRCRAFT II, L.P.
LIMITED PARTNERSHIP AGREEMENT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II. ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.1 Formation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.2 Name, Place of Business and Office. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.3 Purpose. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.4 Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE III. PARTNERS AND CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.1 General Partners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2 Initial Limited Partner; Unitholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.3 Capital Contributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.4 Application of Capital Contributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.5 JetFleet II Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.6 Liability of Partners and Unitholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE IV. DISTRIBUTIONS, PROFITS AND LOSSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.1 Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.2 Allocation of Profits and Losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.3 Special Allocations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.4 Curative Allocations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.5 Allocation Among Partners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.6 Acknowledgment of Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE V. RIGHTS, POWERS AND DUTIES OF THE GENERAL
PARTNERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.1 Management and Control of JetFleet II. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
5.2 Authority of the Managing General Partner. . . . . . . . . . . . . . . . . . . . . . . . . 19
5.3 Authority of Partners to Deal with JetFleet II. . . . . . . . . . . . . . . . . . . . . . 22
5.4 Restrictions on the Authority of a General Partner . . . . . . . . . . . . . . . . . . . . 23
5.5 Duties and Obligations of the General Partners. . . . . . . . . . . . . . . . . . . . . . 24
5.6 Compensation of the General Partners. . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.7 Other Businesses of Partners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.8 Indemnification of the General Partners and their Affiliates. . . . . . . . . . . . . . . 28
ARTICLE VI. GENERAL PARTNER WITHDRAWAL, REMOVAL, AUTOMATIC CESSATION AND SUBSTITUTION;
TRANSFER OF A GENERAL PARTNER'S INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.1 Withdrawal of the General Partners. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.2 Removal of the General Partners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.3 Substitute and Additional General Partners; Assignment of Economic Interest. . . . . . . . 29
6.4 Automatic Cessation of General Partners . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.5 Purchase of a Terminated General Partner's Interest. . . . . . . . . . . . . . . . . . . . 30
6.6 Amounts Accrued and Owing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.7 Notes and Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.8 Liability of a Terminated General Partner. . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE VII. TRANSFERABILITY OF LIMITED PARTNERSHIP
INTERESTS OR UNITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.1 Restrictions on Transfers of Units. . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.2 Incapacity of Unitholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.3 Change in Record Ownership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
ii
<PAGE> 4
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
7.4 Substituted Unitholder. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE VIII. DISSOLUTION, LIQUIDATION AND TERMINATION OF
JETFLEET II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.1 Events Causing Dissolution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.2 Liquidation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE IX. BOOKS AND RECORDS; ACCOUNTING, TAX RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.1 Books and Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.2 Accounting Basis for Tax and Reporting Purposes. . . . . . . . . . . . . . . . . . . . . . 38
9.3 Bank Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.4 Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.5 Elections. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.6 Designation of Tax Matters Partner. . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.7 Expenses of Tax Matters Partner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE X. AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
10.1 Proposal and Adoption of Amendments Generally. . . . . . . . . . . . . . . . . . . . . . . 41
10.2 Amendments on Admission or Withdrawal of Partners and Unitholders. . . . . . . . . . . . . 42
ARTICLE XI. CONSENTS, VOTING AND MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
11.1 Method of Giving Consent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
11.2 Voting Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
11.3 Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
11.4 Submissions to Unitholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
11.5 Record Dates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
</TABLE>
iii
<PAGE> 5
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE XII. POWERS OF ATTORNEY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
ARTICLE XIII. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.1 Notification to JetFleet II or the General Partners. . . . . . . . . . . . . . . . . . . . 45
13.2 Binding Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.3 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.5 Severability of Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.6 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.7 Section Titles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.8 Legal Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
</TABLE>
iv
<PAGE> 6
JETFLEET AIRCRAFT II, L.P.
LIMITED PARTNERSHIP AGREEMENT
This Limited Partnership Agreement is made and executed as of June 21,
1991, by and among CMA Capital Group, a California corporation (the "Managing
General Partner"), Neal D. Crispin and Richard D. Koehler as General Partners
(collectively, the "General Partners"), and each person who is admitted to the
Partnership as a limited partner (a "Limited Partner"). Each Limited Partner
who has entered into and executed a Subscription Agreement, as a condition to
the offer and sale of the Units under the Subscription Agreement, will be
deemed to have entered into and properly executed this Agreement, which shall
then become fully binding on each such Limited Partner. In consideration of the
mutual promises made herein, the parties, intending to be legally bound, hereby
agree as follows:
ARTICLE I.
DEFINED TERMS
The definitions used in this Agreement shall, unless the context
otherwise requires, have the meanings specified in this Article I. The singular
shall include the plural, and any reference to gender shall include the other
genders (whether masculine, feminine or neuter), as the context requires.
"Acquisition Expenses": Expenses including, but not limited to, legal
fees and expenses, travel and communication expenses, costs of appraisals,
accounting fees and expenses and miscellaneous expenses relating to selection
and acquisition of Aircraft, whether or not acquired. Acquisition Expenses
include both Chargeable Acquisition Expenses and General Partner Acquisition
Expenses.
"Acquisition Fee": The total of all fees and commissions paid by any
party in connection with the initial purchase of Aircraft acquired by JetFleet
II. Included in the computation of such fees or commissions are any commission,
selection fee, financing fee, non-recurring management fee, or any fee of a
similar nature, however designated. Other examples of Acquisition Fees include
brokers' fees and commissions, trustee fees, commitment fees and prepayment
fees. The principal Acquisition Fee to be paid by JetFleet II is a fee, equal
to 1.5% of the Adjusted Purchase Price of Aircraft purchased by JetFleet II
(excluding any amount of the Adjusted Purchase Price borrowed by JetFleet II),
for services rendered in identifying the availability of such Aircraft for
purchase. The Managing General Partner will be retained to perform such
services and will receive that Acquisition Fee. Other Acquisition Fees which it
is anticipated that JetFleet II will incur are loan fees and trustee fees. In
certain circumstances, JetFleet II may become obligated to pay fees or
commissions to third-party brokers (other than the Managing General Partner or
any substitute) for services rendered in connection with the acquisition of
Aircraft. Such fees and commissions, if any, will be included in the Purchase
Price of the Aircraft acquired by JetFleet II; accordingly, the amount of such
fees together with the other amounts included in the Purchase Price will not
exceed the fair market value of the Aircraft as determined by the Appraiser.
"Additional Closing": Any Closing after the Initial Closing.
1
<PAGE> 7
"Adjusted Capital Account Deficit": With respect to any General
Partner or Unitholder, the deficit balance, if any, in such General Partner's
or Unitholder's Capital Account as of the end of the relevant Fiscal Year,
after giving effect to the following adjustments:
a) Crediting to such Capital Account the amount of such General
Partner's or Unitholder's share of JetFleet II Minimum Gain (which
share shall be determined in accordance with Section
1.704lT(b)(4)(iv)(f) of the Regulations); and
b) Debiting to such Capital Account the amount of such
Unitholder's share of items described in Sections
1.704-l(b)(2)(ii)(d)(4), (5), and (6) of the Regulations.
This definition is intended to comply with the provisions of Section
1.704-1 (b) (2) (ii) (d) of the Regulations, and shall be interpreted
consistently therewith.
"Adjusted Capital Contributions": The Unitholders' Capital
Contributions reduced to not less than zero by cash distributions from any
source (including liquidating distributions) to the Unitholders which exceed a
cumulative, noncompounded 8% annual return on such Unitholders' Adjusted
Capital Contributions (excluding any distributions previously reducing such
Adjusted Capital Contributions), with such calculation to be based on the
Adjusted Capital Contributions outstanding on the last day of the preceding
calendar quarter.
"Adjusted Purchase Price": The Purchase Price of Aircraft, plus all
Chargeable Acquisition Expenses but not including (a) any loan fees or similar
charges or (b) the Acquisition Fee equal to 1.5% of the Adjusted Purchase Price
(excluding any amount of the Adjusted Purchase Price borrowed by JetFleet II)
and payable to the Managing General Partner or its substitute, if any. In no
Event will the Adjusted Purchase Price exceed the fair market value of the
Aircraft at the time of purchase as determined by an appraisal by the
Appraiser.
"Affiliate": 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
general partner of such Person and (d) if such other Person is an officer,
director or general partner, any company for which such Person acts in such
capacity.
"Agreement": This Limited Partnership Agreement, as originally
executed and as amended or restated, as the context requires.
"Aircraft": An aircraft, or aircraft engine separate from an aircraft,
identified or selected for purchase or purchased or otherwise held by or on
behalf of JetFleet II, or an interest in such aircraft or separate engine
identified or selected for acquisition or acquired or otherwise held by or on
behalf of JetFleet II, together with all appliances, pans, instruments,
appurtenances, accessories, furnishings or other equipment included therein
(including any and all engines originally installed thereon) or included in the
aircraft engine if acquired separately from an aircraft, and all substitutions,
renewals or replacements of, and all additions, improvements and accessions to,
such aircraft or separate aircraft engine.
2
<PAGE> 8
"Appraiser": Such other nationally recognized independent appraiser
selected by the Managing General Partner in its discretion.
"Aviation Act": The Federal Aviation Act of 1958, as amended.
"Business Day": Any day that is not a Saturday, a Sunday, or a day on
which banking institutions in the City of San Francisco, California are
authorized or required to close by law, executive order or regulation.
"California Act": The California Revised Limited Partnership Act or
the corresponding provisions of any succeeding law.
"Capital Account": A separate capital account established for each
Partner by JetFleet II maintained in accordance with the following provisions:
a)To each Partner's Capital Account there shall be credited such
Partner's Capital Contributions, such Partner's distributive share of
Profits and any items in the nature of income or gain which are
specially allocated pursuant to Article IV hereof, and the amount of
any JetFleet II liabilities assumed by such Partner or which are
secured by any JetFleet II property distributed to such Partner.
b)To each Partner's Capital Account there shall be debited the amount
of cash and the fair market value of any JetFleet II property
distributed to such Partner pursuant to any provision of the
Agreement, such Partner's distributive share of Losses and any items
in the nature of expenses or losses that are specially allocated
pursuant to Article IV hereof, and the amount of any liabilities of
such Partner assumed by JetFleet II or which are secured by any
property contributed by such Partner to JetFleet II.
The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Section 1.704-1 (b) of the Regulations and shall be interpreted and applied in a
manner consistent with such Regulations.
"Capital Contribution": The gross amount of investment in JetFleet II
by a Partner or by all such Partners, as the case may be. Since Capital
Contributions to JetFleet II are to be made in cash, JetFleet II's Capital
Contributions will be the total amount of cash contributed to JetFleet II by
any Partner or by the predecessor holder of the Interest of such Partner, as
the context requires, without reduction for any Sales Commissions or other
expense. As used with respect to a Unitholder, the term "Capital Contribution"
refers to the Capital Contribution made in respect of the purchase price paid
by or on behalf of the Unitholder or the Unitholder's predecessor upon the
issuance and sale by JetFleet II of the Unitholder's Units pursuant to the
applicable Subscription Agreement.
"Cash Available for Distribution": Cash Flow plus cash funds available
for distribution from reserves less amounts set aside for restoration or
creation of reserves.
3
<PAGE> 9
"Cash Flow": JetFleet 1I cash funds provided from operations, without
deduction for depreciation, but after deducting cash funds used to pay all
other expenses, debt payments, capital improvements and replacements (other
than cash funds withdrawn from Working Capital Reserves or Gross Offering
Proceeds). Cash Flow does not include Net Disposition Proceeds.
"Cash Reserves": Those reserves established by the Managing General
Partner for JetFleet II from Gross Offering Proceeds and thereafter, from
JetFleet 1I revenues, including Cash Flow and Net Disposition Proceeds.
"Chargeable Acquisition Expenses": Acquisition Expenses that are
incurred in connection with the selection and acquisition of Aircraft and that
are to be paid by JetFleet II. Chargeable Acquisition Expenses include, without
limitation, legal and accounting expenses incurred in connection with the
acquisition of Aircraft, appraisal costs, title insurance costs, any
reimbursement that might be payable by JetFleet 1I to the Managing General
Partner for any out-of-pocket costs which are incurred by the Managing General
Partner in rendering acquisition services for JetFleet II and any other direct
out-of-pocket costs incurred in connection with the selection and purchase of
Aircraft.
"Closing": The sale of Units by JetFleet II pursuant to the Offering,
at which time the subscription proceeds with respect to the Units are released
from escrow and delivered to JetFleet II, and the subscribers who deposited
those funds become Unitholders. It is anticipated that, on the Closing Date or
shortly thereafter, JetFleet II will purchase one or more Aircraft with 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, or the
corresponding provisions of any succeeding law.
"Commission": The Securities and Exchange Commission.
"Competitive Equipment Sales Commission": That brokerage fee paid for
services rendered in connection with the purchase or sale of equipment, which
is reasonable, customary and competitive in light of the size, type and
location of the equipment.
"Consent": The approval of a Person, given as provided in Section
11.1, to do the act or thing for which the approval is solicited, or the act of
granting such approval, as the context may require. Reference to the Consent of
a specified percentage in Interest of the Unitholders means the Consent of
Unitholders who own Units representing at least such specified percentage of
the Units owned by all Unitholders.
"Constructive Ownership Rules": The constructive ownership rules of
Section 318 of the Code which require an individual to be treated as owning the
corporate stock owned directly or indirectly by the individual the individual's
spouse, children, grandchildren and parents and the individual's proportionate
share of stock held by S corporations of which the individual is a shareholder,
partnerships of which the individual is a partner, trusts of which is a
beneficiary of
4
<PAGE> 10
more than 5% of the value thereof and C corporations of which the individual is
a 50% or more shareholder by value. A Person is also treated as owning any
stock with respect to which the Person holds options to purchase. In general,
corporations, partnerships and trusts arc treated as owning stock held by their
shareholders, partners and beneficiaries respectively.
"Due Diligence Costs": Reimbursement payable to the Sales Agent
pursuant to Section 5.6(b) for the accountable, bona fide due diligence costs
actually incurred by the Sales Agent (or, if the reimbursement is reallowed by
the Sales Agent to a member of the Selling Group, actually incurred by such
Selling Group member) in connection with the Offering.
"Equipment Management": Personnel and services necessary to the
leasing activities of JetFleet II including, but not limited to, leasing and
re-leasing of JetFleet II Aircraft, arranging for any necessary: maintenance
and repair of the Aircraft, collecting revenues, paying operating expenses,
determining that the Aircraft is used in accordance with all contractual
arrangements and providing clerical and bookkeeping services necessary to the
operation of JetFleet II Aircraft. Under Triple Net Leases, the lessees will
assume the responsibility for Aircraft maintenance and repair and for paying
operating expenses.
"Equipment Management Fee": The fee payable to the Managing General
Partner pursuant to Section 5.6(d).
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent": The Bank of San Francisco, 555 Montgomery Street, San
Francisco, California.
"FAA": The Federal Aviation Administration.
"Final Closing Date": The date on which the last Closing takes place.
"Fiscal Period": The fiscal year of JetFleet II, which shall initially
be the calendar year or any interim accounting period established by the
Corporate General Partner within a fiscal year.
"Front-End Fees": Fees and; expenses paid by any party for any
services rendered during JetFleet II's organizational or acquisition phase
including Organizational and Offering Expenses, Leasing Fees, Acquisition Fees,
Acquisition Expenses and any similar fees, however designated by JetFleet II
(including the Non-Accountable Organizational and Expense Allowance). Front-End
Fees shall not include any Acquisition Fees or Acquisition Expenses paid by a
manufacturer of Aircraft to any of its employees unless such Persons are
Affiliates of any of the Sponsors.
"Full Payout Lease": A lease under which the noncancellable rental
payments due during the initial term of the lease are sufficient to recover the
Purchase Price of the Aircraft.
"GAAP": Generally accepted accounting principles, consistently
applied.
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"Gain from Sale" and "Loss from Sale": For any Fiscal Year or other
period, an amount equal to JetFleet II's gain or loss for such year or period
from the sale, exchange, refinancing or other disposition of the Aircraft.
Gross Income specially allocated to the General Partners pursuant to Sections
4.3(c) and (g) shall be excluded from the calculation of Gain and Loss from
Sale.
"General Partners": CMA Capital Group, a California corporation, Neal
D. Crispin and Richard D. Koehler or any other Person that becomes an
additional or successor General Partner as provided under this Agreement.
"Gross Income": The gross income of the Partnership within the meaning
of Section 61 (a) of the Code.
"Gross Offering Proceeds": The Capital Contributions of all
Unitholders upon the purchase of Units pursuant to the Offering.
"Guidelines": The Equipment Program Guidelines of the North American
Securities Administrators Association, Inc.
"Initial Closing": The first Closing.
"Initial Leases": The initial leases to which the Aircraft identified
or selected for purchase or purchased by JetFleet II out of Gross Offering
Proceeds are subject.
"Initial Limited Partner": Neal D. Crispin or his successor in
interest.
"Investment Banking Fee": The fee payable to the Sales Agent pursuant
to Section 5.6(b).
"Investment in Aircraft": The amount of Capital Contributions actually
paid or allocated to the purchase or renovation of Aircraft acquired by
JetFleet II, including the purchase of Aircraft, Working Capital Reserves
allocable thereto (except that Working Capital Reserves in excess of 3% of
Capital Contributions will not be included), and other cash payments such as
interest and taxes but excluding Front-End Fees.
"IRAs": Individual retirement accounts qualifying under Section 408 of
the Code.
"IRS": The United States Internal Revenue Service or its successor.
"JetFleet II": JetFleet Aircraft II, L.P., a California limited
partnership, as such partnership may from time to time be constituted.
"JetFleet II Minimum Gain": The sum for all JetFleet II assets of the
amounts of income or gain that would be recognized if each asset were disposed
of for the amount of non-recourse liabilities secured by such assets, which
shall be determined in accordance with the principles set forth in Section
1.704-1 (b) (4) (iv) (c) of the Regulations.
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"Leasing Fees": The total of all fees and commissions paid by any
party in connection with the Initial Lease of the Aircraft acquired by JetFleet
II.
"Limited Partner": Initially, the Initial Limited Partner. Upon the
Initial Closing, the term "Limited Partner" shall refer to a Unitholder.
"Losses": See "Profits" and "Losses."
"Majority Vote": The affirmative vote of holders of more than 50% of
the outstanding Units.
"Managing General Partner": CMA Capital Group, a California
corporation or its successor.
"NASDAQ": The National Association of Securities Dealers Automated
Quotations System, as constituted from time to time.
"National Securities Exchange": A stock or securities exchange
registered with the Commission under the provisions of the Securities Exchange
Act of 1934, as amended.
"Net Disposition Proceeds": The proceeds realized by JetFleet II from
sale, refinancing or other disposition of the Aircraft, including insurance
proceeds or lessee indemnity payments arising from the loss or destruction of
the Aircraft, less all JetFleet II liabilities.
"Non-Accountable Organizational and Offering Expense Allowance": An
amount payable to the Managing General Partner pursuant to Section 5.6(c).
"Notification": A writing, containing the information required by this
Agreement to be communicated to any Person, sent by mail, postage prepaid, to
such Person at the address of such Person as shown by the records of JetFleet
II on the date of the giving of Notification or personally delivered to such
Person; provided, however, that any communication containing such information
sent to such Person and actually received by such Person shall constitute
Notification for all purposes under this Agreement. Notification shall be
deemed to have been given either five days after deposited in the United States
mail, postage prepaid, or as of delivery, if personally delivered.
"Offering": The offering of Units pursuant to the Prospectus For the
Offering.
"Operating Lease": A lease which will return to the lessor less than
the Purchase Price of the Aircraft from rentals payable during the initial term
of the lease.
"Organizational and Offering Expenses": Expenses incurred in
connection with preparing JetFleet II for registration and subsequently
offering and distributing Units to the public, including sales commissions paid
to broker-dealers in connection with the distribution of Units and all
advertising expenses except advertising expenses related to the leasing of
JetFleet II's Aircraft. Such expenses include those expenses incurred in
connection with the formation of JetFleet II and other amounts paid to
broker-dealers in connection with the distribution of Units (including, without
limitation, Sales Commissions, Investment Banking Fee and Due Diligence Costs).
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"Partner": Any General Partner or Limited Partner.
"Person": Any natural person, partnership, corporation, association or
other legal entity, including a trust.
"Profits from Operations" and "Losses from Operations": For any Fiscal
Year or other period, an amount equal to JetFleet II's taxable income or loss
from operations for such year or period, determined in accordance with Section
703(a) of the Code, including all items of income, gain, loss or deduction
required to be stated separately pursuant to Section 703(a)(1) of the Code,
with the following adjustments: (a) any income of JetFleet II that is exempt
from federal income tax and not otherwise taken into account in computing
Profits from Operations and Losses from Operations pursuant to this definition
shall be added to such taxable income or shall reduce such taxable loss; (b)
any expenditures of JetFleet II described in Code Section 705(a)(2)(B) or
treated as Code Section 705(a)(2)(B) expenditures pursuant to Regulations
Section 1.704-l(b)(2)(iv)(i) and not otherwise taken into account in computing
Profits from Operations or Losses from Operations pursuant to this definition
shall be subtracted from such taxable income or loss; and (c) any Gain from
Sale or Loss from Sale shall not be included in such taxable income or loss.
Gross Income specially allocated to the General Partners pursuant to Sections
4.3(c) and (g) shall be excluded from the calculation of Profits from
Operations and Losses from Operations.
"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. "Prospectus
For the Offering" 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
Aircraft, including the amount of Acquisition Fees and all liens and mortgages
on the Aircraft, but excluding points and prepaid interest.
"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.
"Registered Owner": As applied to a Unit, the Person in whose name a
Unit is registered on the books of JetFleet II.
"Registration Statement": The registration statement for the initial
offering of Units by JetFleet II, to be 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.
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"Resale Fee": The fee payable to the Managing General Partner pursuant
o Section 5.6(f').
"Sales Agency Agreement": The sales agency agreement entered into by
and among the Sales Agent, JetFleet II and the Managing General Partner with
respect to the Offering.
"Sales Agent": CKS Securities, Incorporated, a member of the National
Association of Securities Dealers, Inc.
"Sales Commissions": The commissions payable to the Sales Agent
pursuant to Section 5.6(b).
"Selling Group": The group of brokers authorized by the Sales Agent to
sell Units. Each such broker must be a member of the National Association of
Securities Dealers, Inc.
"Sponsor": Any person directly or indirectly instrumental in
organizing, wholly or in part, JetFleet II or any person who will manage or
participate in the management of a program, and any Affiliate of any such
person. The term "Sponsor" does not include a Person whose only relation with
JetFleet II is that of an independent equipment manager and whose only
compensation is as such. Sponsor does not include wholly independent third
parties, such as attorneys, accountants and underwriters, whose only
compensation is for professional services rendered in connection with the
offering of JetFleet II interests.
"Substantially All of the Assets" shall mean Aircraft, the Purchase
Price for which represents 66-2/3% or more of JetFleet II's Aircraft based on
the then fair market value of the Aircraft.
"Subscription Agreement": The Subscription Agreement to be executed
and delivered by each subscriber for Units pursuant to the Offering. The form
of the Subscription Agreement is included as an exhibit to the Prospectus For
the Offering.
"Syndication Expenses": All expenditure classified as syndication
expenses pursuant to Section 1.709-2(b) of the Regulations. Syndication
Expenses shall be taken into account under JetFleet It's methods of accounting
as if they were deductible expenses.
"Terminated General Partner": Any General Partner who ceases to be a
General Partner pursuant to Article VI.
"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 non-cancellable 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 Aircraft manufacturer, the FAA or
any other government agency having jurisdiction and with other regulatory
requirements.
"Unit": The limited partnership Unit or other indicia of ownership in
JetFleet II. Such Unit represents the interest of a Unitholder attributable to
a Capital Contribution of $50 (except in the case of certain volume discounts
described in the Prospectus), constituting the rights and
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<PAGE> 15
obligations of a subscriber for a Unit pursuant to the Offering upon the
acceptance of the subscriber's subscription and Capital Contribution pursuant
to the subscriber's Subscription Agreement.
"Unitholder": The holder of a Unit. Any Person recognized as a holder
of a Unit shall be a Person who is admitted to JetFleet II as a Limited Partner
and who is a Registered Owner of one or more Units.
"Unitholder Payout": Distributions to the Unitholders, from Cash
Available for Distribution as well as Net Disposition Proceeds, equal to the
Unitholders' Capital Contributions, plus a cumulative, noncompounded 8% annual
return on the Unitholders' Adjusted Capital Contributions (computed from the
respective Closing Dates with respect to the Unitholders' respective
subscriptions).
ARTICLE II.
ORGANIZATION
2.1 Formation. The General Partners and the Initial Limited
Partner hereby form this limited partnership in accordance with and pursuant to
the provisions of the California Act and this Agreement. The General Partners
are the Sponsors of JetFleet II and the Offering. The rights and liabilities of
the Partners are as provided in the California Act and in this Agreement.
2.2 Name. Place of Business and Office.
(a) The name of the Partnership is JetFleet Aircraft II,
L.P.
(b) The principal offices of JetFleet II shall be at 433
California Street, Suite 910, San Francisco, California 94104. The Managing
General Partner may at any time change the location of such offices and may
establish such additional offices as it shall deem advisable. Notification of
any change in location shall be given to the Unitholders as soon as practicable
after such change. The parties hereto shall immediately execute all such
certificates and other documents conforming hereto and do all such filing,
recording, publishing and other acts as in the judgment of the Managing General
Partner may be appropriate to comply with all requirements for the formation of
a limited partnership under the California Act. The business of JetFleet II may
be carried on in states in addition to California and, accordingly, the parties
hereto shall execute all such certificates and other documents conforming
hereto and to do all such filing, recording, publishing and other acts as in
the judgment of the Managing General Partner may be necessary or appropriate
for the formation or qualification and operation of JetFleet II as a limited
partnership in such additional states.
2.3 Purpose. The purpose and character of the business of JetFleet
II is:
(a) to acquire new or used Aircraft for lease pursuant to
Triple Net Leases (which may be Full Payout Leases or Operating Leases) with
the primary objective of generating cash from operations and distributing as
much of the cash as is not required for operating expenses and Cash Reserves;
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(b) to preserve and protect the value of JetFleet II's
assets;
(c) to maximize returns through distributions of cash
received upon the ultimate sale of Aircraft;
(d) to engage in any and all business activities
permitted under the California Act; and
(e) to perform any acts necessary or incidental to the
accomplishment of the foregoing purposes.
2.4 Term. JetFleet II is formed upon the execution and delivery
of this Agreement and upon the filing of JetFleet II's Certificate of Limited
Partnership in accordance with the provisions of the California Act, and
JetFleet II shall continue in full force and effect until December 31, 2010, or
until dissolution prior thereto pursuant to the provisions hereof.
ARTICLE III.
PARTNERS AND CAPITAL
3.1 General Partners.
(a) The Managing General Partner of JetFleet II is CMA
Capital Group, a California corporation with its principal office at 433
California Street, Suite 910, San Francisco, California 94104. The individual
General Partners are the founding principals of the Managing General Partner,
Neal D. Crispin (whose principal office is located at 433 California Street,
Suite 910, San Francisco, California 94104) and Richard D. Koehler (whose
principal office is located at 167 W. Main Street, Suite 510, Lexington,
Kentucky 40507).
(b) The General Partners, or any of them, shall make a
Capital Contribution in cash in the aggregate amount of $750.
(c) Any General Partners or Affiliates of any General
Partners also may be Unitholders to the extent they separately purchase any
Units, and the Consent or approval of any Unitholder to such transfer to the
General Partners need not be obtained. If any General Partners or Affiliates of
any General Partners purchase any Units, they shall have all the rights and
liabilities of Unitholders (in addition to, in the case of any General
Partners, such General Partners' rights and liabilities as General Partners),
as provided in the California Act and this Agreement, except as provided
otherwise in Sections 6.1, 6.2 and 11.2.
3.2 Initial Limited Partner; Unitholders.
(a) The Initial Limited Partner shall make a Capital
Contribution of $250 and shall receive five Units. Upon the Initial Closing,
the five Units issued to the Initial Limited Partner in respect of such Capital
Contribution shall be redeemed and cancelled by JetFleet II, and such Capital
Contribution shall be returned to the Initial Limited Partner, whereupon his
status as the Initial Limited Partner shall terminate.
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(b) Upon the Initial Closing, JetFleet II shall issue and
sell those Units which have been fully paid for pursuant to Subscription
Agreements duly accepted by the Managing General Partner, provided that the
issuance and sale are in accordance with the terms of the Offering. Upon each
Additional Closing, JetFleet II shall issue and sell any additional Units which
have been fully paid for pursuant to Subscription Agreements duly accepted by
the Managing General Partner, provided that the issuance and sale are in
accordance with the terms of the Offering. At each such Closing, the $50
purchase price paid for each Unit then being issued and sold shall be
contributed to JetFleet II. Purchasers of Units shall be admitted as
Unitholders not later than 15 days after the release from escrow of the
purchaser's funds to JetFleet II.
(c) JetFleet II shall cause the Managing General Partner
to register on its books the name of each Registered Owner of Units as the
Unitholder thereof.
(d) Pursuant to the applicable Subscription Agreement,
each purchaser of Units issued at any Closing (and each transferee of the
rights of any such purchaser) shall be bound by the terms and conditions of
this Agreement as if such Person had executed this Agreement as a party hereto.
3.3 Capital Contributions. Capital Contributions shall be made
only in cash or cash equivalents. No Unitholder shall be required to make any
Capital Contribution to JetFleet II other than the Capital Contributions made
as provided in the Subscription Agreement(s) pursuant to which the Unitholder's
Units are issued.
3.4 Application of Capital Contributions.
(a) Upon JetFleet II's receipt of the Capital
Contributions, the Managing General Partner shall deposit such funds in
JetFleet II's bank account and shall then apply such Capital Contributions in
the manner and for the purposes provided in Articles IV and V.
(b) JetFleet II shall apply at least 82% of the Gross
Offering Proceeds for Investment in Aircraft.
(c) Any Capital Contributions of the Unitholders not
committed for Investment in Equipment within two years after the date of
commencement of the Offering (except for necessary working capital) shall be
distributed pro rata to the Unitholders as a return of capital.
3.5 JetFleet II Capital.
(a) No Partner or Unitholder shall be entitled to any
interest on any Capital Contribution.
(b) Except as provided in Section 3.4 or 4.5, or upon
dissolution of JetFleet II pursuant to Article VIII, no General Partner or
Unitholder shall have the right to withdraw, or to
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receive any return of any portion of, such Partner's or Unitholder's Capital
Contribution. No specific time has been agreed upon for the repayment of
Capital Contributions.
(c) No Unitholder shall have the right to receive any
distribution from JetFleet II in property other than cash. Except as expressly
provided in this Agreement, no Unitholder shall have priority over any other
Partner or Unitholder with respect to a return of such Person's Capital
Contribution or with respect to distributions of Cash Available for
Distribution or Net Disposition Proceeds.
3.6 Liability of Partners and Unitholders.
(a) No Unitholder shall have any personal liability as a
Unitholder, whether to JetFleet II, to any Partners, to any Unitholders or to
any creditors of JetFleet II, for the debts, liabilities, contracts or any
other obligations of JetFleet II or for any losses of JetFleet II. Except for
payment of the purchase price for Units purchased pursuant to Subscription
Agreement, no Unitholder shall be required to make any Capital Contribution to
JetFleet II or to repay to JetFleet II, any Partner, any Unitholder or any
creditor of JetFleet II all or any fraction of any negative amount of such
Unitholder's Capital Account.
(b) Notwithstanding Section 3.6(a), in accordance with
the California Act, a Unitholder may, under certain circumstances, be required
to return to JetFleet II or to creditors of JetFleet II, amounts previously
distributed to such Unitholder in violation of the California Act. It is the
intent of the parties hereto that no Unitholder shall be obligated to pay any
such amount to or for the account of JetFleet II or any creditor of JetFleet
II. However, if any court of competent jurisdiction holds that, notwithstanding
the provisions of this Agreement, the Unitholders are obligated to repay any
such amount, such obligation shall be the responsibility of the Unitholders who
received such distributions in proportion to the distributions received which
are to be returned. In lieu of requiring return of such distributions from
Unitholders, the Managing General Partner may withhold future distributions to
the Unitholders until the amount so withheld equals the amount of the
distributions which are required to be repaid or returned, regardless of
whether the Unitholders entitled to receive such distributions were the same
Persons as those who actually received the required to be returned.
(c) JetFleet II shall indemnify the Unitholders, to the
extent of JetFleet II's assets but without recourse to the assets of the
General Partners, against any claim of liability asserted against them solely
because they are Unitholders.
(d) None of the General Partners, their respective
Affiliates, officers, directors, employees or agents shall be liable to
JetFleet II or any Unitholder for any loss suffered by JetFleet II or any
Unitholder which arises out of any action or inaction of the General Partners,
or their Affiliates, officers, directors, employees, partners or trustees, if
such General Partner or other Person (i) determined in good faith that such
course of conduct or inaction was in the best interests of JetFleet II, (ii)
was acting on behalf of or performing services for JetFleet II and acting
within the scope of the General Partner's authority, and (iii) such course of
conduct or inaction did not constitute negligence or misconduct.
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(e) Except as otherwise provided in Section 8.2(e), none
of the General Partners or any of their Affiliates shall have any personal
liability to any Unitholder for the repayment of any amounts outstanding in the
Capital Account of any Unitholder. The General Partners shall not be liable to
any Unitholder by reason of any change in the federal income tax laws as they
apply to JetFleet II and the Unitholders, whether such change occurs through
legislative, judicial or administrative action, so long as the General Partners
have acted in good faith and in a manner reasonably believed to be in the best
interests of the Unitholders.
(f) None of the General Partners or their Affiliates
shall have any personal liability to repay to JetFleet II all or any portion of
any negative amount of any Partner's or Unitholder's Capital Account, except as
otherwise provided in Section 8.25(e).
ARTICLE IV.
DISTRIBUTIONS, PROFITS AND LOSSES
4.1 Distributions.
(a) Distributions, if any, whether out of Cash Available
for Distribution or Net Disposition Proceeds, will be made from time to time at
the discretion of the Managing General Partner. The Managing General Partner
shall establish the amount of Cash Reserves from time to time at such levels as
the Managing General Partner deems necessary and appropriate to serve the best
interests of JetFleet II, which levels shall be taken into account by the
Managing General Partner from time to time in determining the amount, if any,
of JetFleet II distributions. Such Cash Reserves shall be at least 1% of Gross
Offering Proceeds. Except in the event of liquidation of JetFleet II under
Section 8.2, (i) all distributions from Cash Available for Distribution will be
made 95% to the Unitholders and 5% to the General Partners; and (ii) all
distributions from Net Disposition Proceeds will be made 99% to the Unitholders
and 1% to the General Partners until such time as the Unitholders have received
distributions equal to the Unitholder Payout; thereafter, cash distributions
from Net Disposition Proceeds will be made 95% to the Unitholders and 5% to the
General Partners.
(b) To the extent deemed feasible by the Managing General
Partner, any distributions that are made out of Cash Available for Distribution
will be made on a monthly or quarterly basis, as designated by the individual
Unitholders in their Subscription Agreements or otherwise in writing to the
Managing General Partner. The Managing General Partner will cause distributions
to be made, to the extent feasible, within 30 days after the end of the month,
or within 45 days after the end of the fiscal quarter, as the case may be, to
Unitholders of record on the last day of such month or quarter, as the case may
be.
(c) Distributions (other than those referred to in
Section 8.2) to the Unitholders shall be apportioned among the Unitholders in
the ratio in which the number of Units held by each of them bears to the total
number of Units held by all Unitholders as of the last day of the month with
respect to which such distributions are made; provided, however, that, with
respect to distributions made for any month during the Offering period of the
Units (including the month in which the Offering terminates), such
distributions shall be apportioned among the Unitholders in the ratio in which
(i) the number of Units held by each Unitholder
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multiplied by the number of days during such month that such Unitholder was the
owner of such Units bears to (ii) the sum of the number of Units outstanding on
each day during such month.
(d) Distributions to the General Partners as a group
shall be divided among the General Partners in such manner as they shall agree
upon.
(e) Distributions in kind shall not be permitted except
as provided in 8.2(a).
4.2 Allocation of Profits and Losses.
(a) Profits and Losses from Operations. Except as
otherwise provided, in Sections 4.2(c), 4.3, 4.4 and 8.2(d), Profits and Losses
from Operations for any Fiscal Period shall be allocated 95% to the Unitholders
and 5% to the General Partners.
(b) Gains and Losses from Sales. Except as provided in
Sections 4.2(c), 4.3, 4.4 and 8.2(d), Gain or Loss from Sale for any Fiscal
Period shall be allocated 99% to the Unitholders and 1% to the General Partners
until the Unitholders have received distributions equal to the Unitholder
Payout; thereafter, Gain or Loss from Sale shall be allocated 95% to the
Unitholders and 5% to the General Partners.
(c) Unitholder Excess Losses. Notwithstanding any
provision of this Article IV to the contrary, Losses from Operations and Losses
from Sales allocated to the Unitholders pursuant to this Article IV shall not
exceed the maximum amount of losses that can be so allocated without causing a
Unitholder who is not a General Partner to have an Adjusted Capital Account
Deficit at the end of any Fiscal Year. In the event some but not all of the
Unitholders who are not General Partners would have Adjusted Capital Account
Deficits as a consequence of an allocation of Losses from Operations or Losses
from Sales pursuant to this Article IV, the limitation set forth in this
Section 4.2(c) shall be applied on a Unitholder by Unitholder basis so as to
allocate the maximum permissible Loss under Section 1.704-1 (b) (2) (ii) (d) of
the Regulations to each Unitholder who is not a General Partner. All losses in
excess of the limitation set forth in this Section 4.2(c) shall be allocated to
the General Partners.
4.3 Special Allocations. The following special allocations shall
be made in the following order
(a) Minimum Gain Chargeback. If, in any fiscal year,
there is a net decrease in Minimum Gain, the Partners shall be allocated items
of Partnership income and gain for such year (and, if necessary, for subsequent
years) in proportion to, and to the extent of, an amount equal to the greater
of:
(i) The portion of such Partner's share of the
net decrease in Minimum Gain during such year determined under Temporary
Treasury Regulation Section 1.704-lT(b) (4) (iv) (f) that is allocable under
Temporary Treasury Regulation Section 1.704-lT(b) (4) (iv) (e) to the
disposition of Partnership property subject to one or more Nonrecourse
Liabilities of the Partnership; or
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(ii) The deficit balance in such Partner's Capital
Account at the end of such year (determined before any allocation of
Partnership income, gain, loss, deduction, or Section 705(a)(2)(B) expenditure
for such year and excluding from such deficit Capital Account balance any
amount that such Partner is obligated to restore under Temporary Regulation
Section 1.704-lT(b)(2)(ii)(c), as well as any addition thereto pursuant to the
penultimate sentences of paragraphs (f) and (h) (5) of Temporary Treasury
Regulation Section 1.704-lT(b)(4)(iv) after taking into account thereunder any
changes during such year in Minimum Gain and in Minimum Gain attributable to
any "Partner Nonrecourse Debt" as defined in Temporary Treasury Regulation
Section 1.704-lT(b)(4)(iv)(k)(4).
For purposes of this Section 4.3(a) the Partner's Capital Accounts
shall be reduced by the items described in Treasury Regulation Section
1.704-l(b)(2)(ii)(d)(4), (5), and (6). This Section 4.3(a) is intended to
constitute a "minimum gain chargeback" within the meaning of Temporary Treasury
Regulation Section 1.704-lT(b)(4)(iv)(e).
(b) Qualified Income Offset. In the event any Unitholder
who is not a General Partner unexpectedly receives in any fiscal year any
adjustments, allocations or distributions described in Section 1.704-1
(b)(2)(ii)(d)(4), (5) or (6) of the Regulations, items of JetFleet II income
and gain for such year (and, if necessary, subsequent years) shall be specially
allocated in an amount and manner sufficient to eliminate, to the extent
required by such Regulations, the Adjusted Capital Account Deficits created by
such adjustments, allocations or distributions as quickly as possible, provided
that an allocation pursuant of this Section 4.3(b) shall be made only if and to
the extent that such Unitholder would have Adjusted Capital Account Deficits
after all other allocations provided for in this Article 4 have been
tentatively made as if this Section 4.3(b) were not in the Agreement. This
Section 4.3(b) is intended to comply with the qualified income offset
requirements in Section 1.704-l(b)(2)(ii)(d)(3) of the Regulations and shall be
interpreted consistently therewith.
(c) Gross Income Allocation to General Partners. If,
after first giving effect to the distribution provisions of Section 4.1, and
the allocations provisions of Section 4.2, the General Partners would have an
Adjusted Capital Account Deficit, Gross Income shall be specially allocated to
the General Partners in such an amount as, when taken together with
distributions in accordance with Section 4.1 and allocations pursuant to
Section 4.2, such Adjusted Capital Account Deficit would be eliminated;
provided, however, that any allocation pursuant to this Section 4.3(c) shall be
subject to the restrictions set forth in Section 4.2(c).
(d) Syndication Expenses. Except as provided in Section
4.3(e) hereof, Syndication Expenses for any Fiscal Period shall be specially
allocated to the Unitholders in proportion to their Units, provided that if
Unitholders are admitted to JetFleet II on different dates, all Syndication
Expenses shall be divided among the Unitholders so that, to the extent
possible, the cumulative Syndication Expenses allocated with respect to each
Unit at any time is the same amount. In the event that the General Partners
determine that such allocation of Syndication Expenses is not likely to be
achieved through future allocations of Syndication Expenses, the General
Partners may allocate a portion of Profits or Losses so as to achieve the same
effect on the Capital Accounts of the Unitholders.
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(e) Sales Commissions and Investment Banking Fee. Items
of Loss arising out of JetFleet II's payment of Sales Commissions and
Investment Banking Fee with respect to each Unit shall be specially allocated
to the Unitholder who acquires such Unit.
(f) Adjustment to Basis. To the extent an adjustment to
the adjusted tax basis of any JetFleet II asset is required, pursuant to
Section 1.704-1(b)(2)(iv)(m) of the Regulations, to be taken into account in
determining Capital Accounts, the amount of such adjustment to the Capital
Accounts shall be treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases such basis) and such
gain or loss shall be specially allocated to the Partners in a manner
consistent with the manner in which their Capital Accounts are required to be
adjusted pursuant to such Section of the Regulations.
(g) Recharacterized Fees. If the Equipment Management Fee
or Resale Fee is treated as a distributive share of JetFleet II income by the
Service, a special allocation of JetFleet II Gross Income shall be made
annually to the General Partners in an amount equal to the General Partners'
share of any such recharacterized fee for that Fiscal Period.
(h) General Partners' One Percent Interest. In no event
shall the interest of all the General Partners, taken together, in each
material item of partnership income, gain, loss, deduction or credit for any
fiscal year be less than 1% of each such item.
4.4 Curative Allocations. The allocations set forth in Sections
4.3 (a), (b) and (d) hereof (the "Regulatory Allocations") are intended to
comply with the requirements of Section 1.704-l(b) of the Regulations.
Notwithstanding any other provision of this Article 4 (other than the
Regulatory Allocations), the Regulatory Allocations shall be taken into account
in allocating other profits, losses and items of income, gain, loss and
deduction among the Partners so that, to the extent possible, the net amount of
such allocations of other profits, losses and other items and the Regulatory
Allocations to each Partner shall be equal to the net amount that would have
been allocated to each such Partner if the Regulator Allocations had not
occurred.
4.5 Allocation Among Partners.
(a) Allocation Among Unitholders. Except as provided in
Section 4.5(b) hereof, any allocations to the Unitholders pursuant to this
Article 4 for a Fiscal Period shall be allocated among the Unitholders, to the
extent possible, in order to equalize the Capital Account balances per Unit of
each Unitholder, and then in the proportion that the number of Units held by
each Unitholder bears to the total number of Units held by all of the
Unitholders.
(b) Effect of Different Admission Dates and Transfers of
Units. With respect to any Fiscal Period during which the Initial Closing or
any Additional Closing occurs, income and loss (and all items thereof)
allocated to the Unitholders shall be apportioned among the Unitholders in the
ratio in which (i) the number of Units held by each Unitholder multiplied by
the number of days during such Fiscal Period that such Unitholder was the owner
of such Units bears to (ii) the sum of number of Units outstanding on each day
during such Fiscal Period. With respect to any transfer of Units, any income
and loss (and items thereof) attributable to a Unit transferred during a
particular Fiscal Period shall be allocated between the transferor and the
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transferee in proportion to the number of days that each such holder was the
Registered Owner of such Unit during such Fiscal Period, without regard to the
results of JetFleet II operations during the period in which each such holder
was the owner thereof and without regard to the date, amount or recipient of
any distributions which may have been made with respect to such Units.
(c) Allocation Among General Partners. All items of
income and loss that are allocated to the General Partners as a group shall be
allocated among the General Partners in such manner as they shall agree upon;
provided that any such allocations shall be in compliance with the code and the
Regulations.
4.6 Acknowledgment of Tax Consequences. The Partners are aware of
the income tax consequences of the allocations made by this Article 4 and
hereby agree to be bound by the provisions of the Partnership Agreement in
reporting their share of JetFleet II income, gain, deduction and loss for
income tax purposes.
ARTICLE V.
RIGHTS, POWERS AND DUTIES OF THE GENERAL PARTNERS
5.1 Management and Control of JetFleet II.
(a) Subject to the Consent of the Unitholders when
required by this Agreement, the General Partners, within the authority granted
to them by this Agreement, shall have the full and exclusive right to manage
and control the business and affairs of JetFleet II and to make all decisions
regarding the business of JetFleet II. Except as limited herein, the General
Partners shall have all of the rights and powers of general partners of a
limited partnership under the California Act and any other applicable laws.
(b) Except as expressly provided herein, the authority of
the General Partners to manage the business of JetFleet II shall be exercised
only by the Managing General Partner and, except as expressly provided herein,
no General Partner other than the Managing General Partner shall have any
control over JetFleet II's business.
(c) No General Partner other than the Managing General
Partner (except one who may also be an officer or employee of the Managing
General Partner, and then only in his capacity as such officer or employee of
the Managing General Partner within the scope of its authority hereunder) shall
participate in or have any control over JetFleet II's business or have any
authority or right to act for or on behalf of JetFleet II.
(d) In order to expedite the handling of JetFleet II's
business, any document executed by the Managing General Partner while acting in
the name and on behalf of JetFleet II shall be deemed to be the action of
JetFleet II as to any third parties.
(e) The Unitholders shall not participate in the
management of, or have any control over, JetFleet II's business. The
Unitholders shall not have the power to represent, act for, sign for or bind
the General Partners or JetFleet II.
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(f) Subject to Section 5.4(d), the Managing General
Partner shall have the authority to borrow money in the name of JetFleet II
from any bank or other lending institution located in the United States and, in
connection with any such borrowing, to pledge, encumber or hypothecate the
assets of JetFleet II.
5.2 Authority of the Managing General Partner.
(a) In addition to any other rights and powers which the
Managing General Partner may possess under this Agreement and the California
Act, the Managing General Partner shall have all specific rights and powers
required or appropriate to its management of JetFleet II business which, by way
of illustration but not by way of limitation, may include to cause JetFleet II
to do the following,:
(i) to acquire, hold, manage, repair,
reconfigure, maintain, lease, sell and dispose of Aircraft and interests
therein at such purchase prices, lease or rental rates, costs or sale prices
and upon such other terms as the Managing General Partner deems, in its
discretion, to be in the best interest of JetFleet II; it is provided, however,
that JetFleet II shall not (A) pay an Adjusted Purchase Price for any Aircraft
which is in excess of the fair market value of the Aircraft at the time of
purchase as determined by an appraisal by an Appraiser or (B) pay an
Acquisition Fee to the Managing General Partner or any substitute which is in
excess of 1.5% of the Adjusted Purchase Price (excluding any amount of the
Adjusted Purchase Price borrowed by JetFleet II); it is further provided that
the Managing General Partner shall cause JetFleet II to purchase Aircraft out
of Gross Offerings Proceeds which meet the criteria referred to in the
Prospectus For the Offering under the captions "Business of JetFleet--
Acquisition Policies--Certain Criteria."
(ii) to execute, deliver and perform (A)
agreements relating to and consistent with the terms of the Offering,
including, without limitation, the Sales Agency Agreement, an escrow agreement,
an agreement among Selling Group members and other agreements and instruments;
and (B) any aircraft acquisition, management, operation or remarketing
agreements and all other agreements, contracts, documents, certifications,
leases (including Full Payout Leases and Operating Leases), bills of sale and
other instruments, and all amendments to any of the foregoing, which may be
deemed by the Managing General Partner to be necessary or convenient in
connection with the business of JetFleet II;
(iii) to protect and preserve the title and
interest of JetFleet II with respect to the assets of JetFleet II, to collect
all amounts due JetFleet II, to enforce all rights of JetFleet II and, in that
connection, to retain counsel and institute such suits or proceedings, in the
name and on behalf of JetFleet II, or, if the Managing General Partner shall so
determine, in the name of the General Partners and the Unitholders;
(iv) to the extent that funds of JetFleet II are
available, to pay all debts and obligations of JetFleet 11 and to make all
distributions periodically to the Unitholders out of JetFleet II accounts and
in accordance with the provisions of this Agreement;
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(v) within the limitations provided for in this
Agreement, to advance funds or to borrow funds on behalf of JetFleet II for
maintaining JetFleet II operations or for other JetFleet II purposes and to
guarantee the repayment of such borrowed funds;
(vi) to purchase, at the expense of JetFleet 11,
liability and other insurance to protect JetFleet II's assets and business;
(vii) on behalf of JetFleet II, to engage such firm
of independent certified public accountants, such attorneys, such Appraisers
and such consultants and others as may be selected by the Managing General
Partner in its discretion;
(viii) to open and maintain JetFleet II accounts on
behalf of JetFleet II with any bank in the United States having assets in
excess of $50,000,000 and to designate and change signatories on such accounts;
(ix) until the fifth anniversary date of the Final
Closing Date, to reinvest Net Disposition Proceeds in additional Aircraft,
provided that no reinvestment will take place unless sufficient cash will be
distributed to the Unitholders to pay any state income tax (at a rate
reasonably assumed by the Managing General Partner) and federal income tax
(assuming the Unitholders are subject to marginal rates applicable to the
highest levels created by such disposition; after such fifth anniversary date,
such Net Disposition Proceeds shall be distributed to the General Partners and
Unitholders in accordance with Section 4.1; except for the placement of funds
provided in Section 5.2(a) (x), Cash Available for Distribution will not be
reinvested;
(x) to place such funds as are temporarily not
required for investment in Aircraft, including the Cash Reserves, in bank
accounts as provided in subsection (viii) above, in short-term highly liquid
investments where there is appropriate safety of principal, such as United
States treasury bonds or bills, investment grade commercial paper and
certificates of deposit of banks which have a net worth of $50,000,000 or more;
(xi) to lease, sell (except as provided otherwise
in (xv) below), refinance and/or otherwise manage and operate the Aircraft;
(xii) to invest with non-Affiliates of the General
Partners in general partnerships or ventures which own and operate specific
equipment provided that (A) JetFleet II acquires a controlling interest in such
general partnership or venture; (B) the agreement between the co-investors does
not authorize JetFleet II to do anything as a co-investor with respect to the
Aircraft which JetFleet II or the General Partners would not be permitted to do
under this Agreement; and (C) the investment does not result in the payment of
duplicative fees. For the purposes of this Section, a controlling interest
shall exist if the provisions in the venture or co-ownership agreement give
JetFleet II the right to make or veto decisions for the sale, refinancing or
remarketing of the equipment. JetFleet II shall be permitted to invest in joint
venture arrangements with a Program which is an Affiliate of any General
Partner if such action is in the best interests of both Programs and if the
following conditions are met: (A) the Affiliated Program has investment
objectives substantially identical to those of JetFleet II; (B) there are no
duplicative fees; (C) the controlling persons of each co-investor have a
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compensation structure that is substantially identical; (D) the investments of
JetFleet II and the Affiliated Program are on substantially the same terms and
conditions; (E) the investment is entered into in order to obtain
diversification for JetFleet II and such Affiliated Program or for the purpose
of relieving the General Partners or their Affiliates from the commitment
referred to in Section 5.2(a) (xvii); and (F) JetFleet II has a right of first
refusal should an Affiliated co-venturer decide to sell equipment held in the
venture;
(xiii) to duly place record title to Aircraft in the
name or names of a nominee or nominees or a trustee or trustees for any
purposes convenient or beneficial to JetFleet II, such as to meet ownership
registration requirements under the Aviation Act;
(xiv) if the tax laws change and the Managing
General Partner determines that such action will not cause JetFleet II to be
treated as a "publicly traded partnership" or result in any other adverse tax
consequences for Unitholders, to cause the Units (or any instruments
representing Units) to be listed for trading on a National Securities Exchange
or to be authorized for quotation in NASDAQ or in any similar national
automated quotations system, and, in connection with such listing or quotation,
to take such other steps as the Managing General Partner determines advisable
or necessary to effect such listing or quotation;
(xv) to sell all or Substantially All of the
Assets, with the approval of the Unitholders as provided in Section
5.4(a)(viii);
(xvi) to approve the transfer of, and transfer on
its books and on the register of JetFleet II, any Units of a Unitholder of
JetFleet II as provided in Article VII; and
(xvii) to purchase Aircraft in any of the General
Partners' or their Affiliates' own names (and assume loans in connection
therewith) and hold title thereto on a temporary or interim basis (generally
not in excess of six months) for the purpose of facilitating the acquisition of
such Aircraft or the borrowing of money or obtaining of financing for JetFleet
II, or any other purpose related to the business of JetFleet II, provided (A)
it is in the best interest of JetFleet II; (B) such Aircraft is purchased by
JetFleet II for a price no greater than the cost of the Aircraft to the General
Partners or their Affiliates, except compensation in accordance with this
Agreement; (C) there is no difference in interest terms of the loans secured by
the Aircraft at the time acquired by the General Partners or their Affiliates
and the time acquired by JetFleet II; (D) no other benefit arises out of such
transaction to the General Partners or their Affiliates apart from compensation
otherwise permitted by this Agreement; and (E) all profits and losses of the
General Partners and their Affiliates during the interim period relating to the
purchase or holding of Aircraft by the General Partners or their Affiliates
will accrue to JetFleet II. In accordance with Section 5.3(b)(iii) below, an
Affiliated Program will not temporarily hold the Aircraft.
(b) Any Person dealing with JetFleet II or the Managing
General Partner may rely upon a certificate signed by the Managing General
Partner, "hereunto duly authorized, as to:
(i) the identity of the General Partners or any
Unitholder,
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(ii) the existence or nonexistence of any fact or
facts which constitute conditions precedent to acts by the General Partners or
which are in any other manner germane to the affairs of JetFleet II;
(iii) the Persons who are authorized to execute and
deliver any instrument or document on behalf of JetFleet II;
(iv) any act or failure to act by JetFleet II; or
(v) any other matter whatsoever involving
JetFleet II, any Partner or any Unitholder.
5.3 Authority of Partners to Deal with JetFleet II.
(a) All services or goods for which any of the General
Partners or their Affiliates are to receive compensation from JetFleet II shall
be embodied in a written contract which precisely describes the services to be
rendered and compensation to be paid; the contract may only be modified by
Majority Vote; the contract shall contain a clause allowing termination without
penalty on 60 days' notice. In addition to other specific provisions set forth
elsewhere in this Agreement, the General Partners and their Affiliates may
provide other services to JetFleet II only if the following criteria are met:
(i) the compensation, price or fee charged for providing such services must be
comparable and competitive with the compensation, price or fee of any other
Person who is rendering comparable services or selling or leasing comparable
goods and materials which could reasonably be made available to JetFleet II;
(ii) the fees and other terms of the contract for such services shall be fully
disclosed in the Prospectus at the time the Registration Statement becomes
effective with the Commission; (iii) the General Partner or its Affiliates must
be independently engaged in the business of providing such services to Persons
other than Affiliates of the General Partners; and (iv) at least 75% of the
General Partner's or Affiliate's gross revenue from providing such services
must be derived from other than the General Partner or their Affiliates.
(b) The following transactions expressly are prohibited:
(i) JetFleet II shall not sell or lease Aircraft
to, the General Partners or an Affiliate of a General Partner. Except as
provided in Section 5.2(a) (xvii), JetFleet II shall not purchase or lease
Aircraft from the General Partners or an Affiliate of a General Partner;
(ii) JetFleet II shall not make any loans to a
General Partner or its Affiliates;
(iii) JetFleet II shall not acquire equipment from
a Program in which the General Partners or their Affiliates have an interest;
(iv) JetFleet II shall not acquire equipment in
exchange for Units;
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(v) JetFleet II shall not give a General Partner
or any Affiliate of a General Partner an exclusive right to sell or exclusive
employment to sell equipment for JetFleet II;
(vi) JetFleet II shall not purchase limited
partnership interests in other partnerships; and
(vii) JetFleet II shall not permit a Unitholder to
contract away the fiduciary duty owed to the Unitholder by the General Partners
and their Affiliates under the California law.
5.4 Restrictions on the Authority of a General Partner.
(a) The General Partners and their Affiliates shall not,
without the Consent of a Majority Vote:
(i) do any act in contravention of this
Agreement;
(ii) do any act which would make it impossible to
carry on the ordinary business of JetFleet II;
(iii) operate JetFleet It as an investment company
subject to the requirements of the Investment Company Act of 1940, as amended;
(iv) make any changes in the investment objectives
of JetFleet II described in the Prospectus For the Offering;
(v) cause JetFleet II to issue equity securities
senior to the Units;
(vi) acquire Aircraft with Cash Flow or, after the
fifth anniversary of the Final Closing Date, with Net Disposition Proceeds;
(vii) admit an additional or successor General
Partner other than in accordance with Section 6.3;
(viii) sell Substantially All of the Assets in a
single sale, or in multiple sales in the same 12-month period; or
(ix) incur indebtedness on behalf of JetFleet II
for the acquisition of Aircraft, unless such indebtedness is nonrecourse to the
Unitholders and unless (A) the amount of any such indebtedness does not exceed
35% of the aggregate Adjusted Purchase Price of all the Aircraft then acquired
or owned by JetFleet II and (B) the terms of the indebtedness are such that the
maturity date of the indebtedness occurs after the expiration of the existing
lease on the Aircraft acquired and the interest and other carrying charges on
the indebtedness must be payable entirely out of a proportionate share of the
gross rentals from such lease; the indebtedness of JetFleet II in the aggregate
for all Aircraft may not exceed 35% of Gross Offering Proceeds without the
consent of a Majority Vote. JetFleet II may refinance Aircraft for the purpose
of
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distributing the net refinancing proceeds to the Unitholders and the General
Partners only if (A) the refinancing loan is nonrecourse to JetFleet II and the
Unitholders and (B) the Aircraft refinanced is subject to a Full Payout Lease
and the noncancellable rental payments under that lease are sufficient to repay
the refinancing loan entirely.
(b) No rebates or give-ups may be received by a General
Partner or its Affiliates; nor may a General Partner or Affiliate participate
in reciprocal business arrangements which would circumvent the Guidelines; nor
may a General Partner or any Affiliate participate in any reciprocal business
arrangement which would circumvent the restrictions of this Agreement or the
Guidelines against dealing with Affiliates;
(c) The General Partner and their Affiliates shall not
directly or indirectly pay or award any commissions or other compensation to
any Person engaged by a potential investor for investment advice as an
inducement to such advisor to advise the purchaser of interests in JetFleet II;
provided, however, that Sales Commissions, the Investment Banking Fee and Due
Diligence Costs may be paid for the sale of Units; or
(d) The General Partners and their Affiliates shall not
(i) provide financing, or receive interest or other financing charges or fees
on such financing, from JetFleet II in excess of the amounts which would be
charged by an unrelated lending institution on comparable loans for the same
purpose, or (ii) provide financing with a term in excess of 12 months.
5.5 Duties and Obligations of the General Partners.
(a) The General Partners shall devote to JetFleet II such
time as the General Partners shall deem to be necessary for the proper
performance of their duties hereunder.
(b) The Managing General Partner shall have a fiduciary
responsibility to demand payment pursuant to any promissory note contributed to
its capital by its parent (if any) in order to satisfy any liabilities of such
Managing General Partner to JetFleet II or its creditors.
(c) The Managing General Partner shall prepare and file,
or cause to be prepared and filed, on or before the due date (or any extension
thereof) all federal, state, local and foreign tax returns required to be filed
by JetFleet II and shall provide, or cause to be provided, all accounting and
record-keeping (including, without limitation, the maintenance of Capital
Accounts on behalf of each of the Partners) necessary for the preparation and
filing of such returns. The Managing General Partner shall, to the extent that
JetFleet II funds are available, cause JetFleet 1I to pay any taxes payable by
JetFleet II.
(d) Within the restrictions of this Agreement, the
Managing General Partner shall determine when and upon what terms JetFleet 1I
shall incur indebtedness.
(e) Within the restrictions of this Agreement, the
Managing General Partner shall manage JetFleet II's Aircraft and the
acquisition, leasing, sale or other disposition thereof.
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(f) The Managing General Partner shall manage the cash of
JetFleet II, determine (within the restrictions of this Agreement) the amount
of Cash Reserves and determine the amount of distributions to be made to
Partners and Unitholders.
(g) The Managing General Partner shall submit on behalf
of JetFleet II to the Commission and any appropriate state securities
authorities such information as the Commission or such authorities require, as
the case may be, including, but not limited to, reports and statements required
to be distributed to Unitholders.
(h) The Managing General Partner shall prepare and file
all certificates (or amendments thereto) and other similar documents which are
required by law to be filed and recorded under the California Act or under any
other laws of the State of California or of any other state in which JetFleet
II is then qualified to do business, or in which it owns property or transacts
business.
(i) The Managing General Partner shall have fiduciary
responsibility for the safekeeping and use of all funds and assets of JetFleet
II, whether or not in JetFleet II's immediate possession or control, and shall
not employ or permit another to employ such funds or assets in any manner
except for the exclusive benefit of JetFleet II. The Managing General Partner
shall open and maintain all JetFleet II bank accounts. JetFleet II's funds
shall not be commingled with the funds of any other Person except to the extent
necessary for investments meeting the criteria of Section 5.2(a) (xii). Nothing
contained in this Section shall prohibit the Managing General Partner from
establishing a master fiduciary account pursuant to which separate subtrust
accounts are established for the benefit of affiliated limited partnerships,
provided that Program funds are protected from claims of other partnerships and
for creditors. The Managing General Partner shall manage and operate JetFleet
II in a prudent and businesslike manner and for the best interests of JetFleet
II and the Unitholders. Nothing in this Agreement will relieve the General
Partner or any of its Affiliates from their general fiduciary obligations to
JetFleet II.
(j) If any General Partner or any of its Affiliates
(other than private or public investor programs) intends to acquire or lease
Aircraft for their own account, such opportunity must first be presented to
JetFleet II if JetFleet II is in a position to purchase such Aircraft, to the
extent such opportunity is consistent with the investment objectives and
policies of JetFleet II.
(k) If two or more Programs (including JetFleet II)
sponsored by a General Partner or any of its Affiliates are in a position to
acquire the same aircraft, the Managing General Partner shall determine which
Program, including JetFleet II, will purchase the aircraft based upon (i) the
amount of cash available in each Program, and the length of time such cash has
been available for investment, (ii) the liabilities of each Program and (iii)
the suitability of the acquisition in the light of each Program's objectives.
If two or more such Programs, including JetFleet II, are both in a position to
enter into a lease for different aircraft with the same lessee or to sell
aircraft to the same purchaser, the Managing General Partner generally will
afford priority to the aircraft which has been available for lease or sale for
the longest period of time.
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(l) The Managing General Partner shall duly file for
registration all Aircraft of JetFleet 1I with the FAA as required by the
Aviation Act (to the extent applicable) in accordance with all rules and
regulations promulgated thereunder.
5.6 Compensation of the General Partners.
(a) Except as expressly provided or permitted in this
Agreement, the General Partners and their Affiliates shall not receive any
compensation or reimbursement from JetFleet II.
(b) The Sales Agent shall receive, on the Initial Closing
and on each Additional Closing, Sales Commissions in an amount equal to 8% of
the Gross Offering Proceeds received by JetFleet II upon such Closing, the
Investment Banking Fee in an amount equal to 2% of such Gross Offering Proceeds
(subject in both cases to certain volume discounts, as described in the
Prospectus) and Due Diligence Costs in an amount not to exceed 0.5% of such
Gross Offering Proceeds. The Sales Agent will be permitted to reallow such fees
and costs as provided in the Prospectus For the' Offering' and the Sales Agent
Agreement
(c) The Managing General Partner shall receive, on the
Initial Closing and on each Additional Closing, a Non-Accountable
Organizational and Offering Expense Allowance in an amount equal to 3% of Gross
Offering Proceeds received by JetFleet II upon such Closing, out of which the
Managing General Partner will pay all Organizational and Offering Expenses
other than Sales Commissions, the Investment Banking Fee and Due Diligence
Costs. If the Organizational and Offering Expenses are less than this
allowance, then the Managing General Partner will retain the difference. If
such Expenses are greater than the allowance, then the Managing General Partner
shall be required to pay the excess.
(d) The Managing General Partner shall receive an
Equipment Management Fee, payable quarterly in arrears, in an amount equal to
3% of the gross rental payments from Operating Leases and 2% of the gross
rental payments from Full Payout Leases. This Equipment Management Fee will be
reduced (but not below zero) to the extent that any fees are payable to third
panics who, with the consent of the Managing General Partner, provide Equipment
Management services.
(e) The Managing General Partner shall receive an
Acquisition Fee equal to 1.5% of the Adjusted Purchase Price of Aircraft
purchased by JetFleet II (excluding any amount of the Adjusted Purchase Price
borrowed by JetFleet II), for services provided by the Managing General Partner
in identifying the availability of such Aircraft for purchase.
(f) The Managing General Partner shall receive a Resale
Fee with respect to each Aircraft sold by JetFleet II in an amount equal to
one-half of the Competitive Equipment Sales Commission, not to exceed 3% of the
contract sales price of the Aircraft. The Resale Fee will be subordinated to
the Preferred Payout.
(g) Calculation of the Preferred Payout for determining
payment of the Resale Fee will be made on an annual basis at the end of each
year. To the extent the Managing General
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Partner has received fees in excess of those fees permitted in such year as a
result of the application of the Preferred Payout test, such excess will be
refunded to JetFleet II. If, at any time, the Preferred Payout test either
precludes payment of such fees that would otherwise be due or requires a refund
to JetFleet II of such fees, the payment of such fees will be deferred and
accrued, without interest, until that requirement has been satisfied, at which
time such fees shall be paid from the first available proceeds. Failure to
achieve the Preferred Payout in any year will not affect any fees paid in prior
years.
(h) The aggregate amount of all Front-End Fees paid by
JetFleet II shall not, over the life of JetFleet II, exceed 18% of the Gross
Offering Proceeds.
(i) The Managing General Partner shall be responsible for
the payment of all General Partner Acquisition Expenses and shall not be
entitled to reimbursement for payment of such expenses. Subject to the
foregoing limitation, all expenses of JetFleet II, including all of JetFleet
II's general and administrative expenses which are payable to third panics for
legal, auditing and accounting expenses, for the renewal of Aircraft leases or
the re-lease or sale of Aircraft, for preparing and distributing reports and
for other general and administrative expenses, shall be billed directly to and
paid by JetFleet II. Each General Partner or Affiliate of a General Partner
shall be reimbursed by JetFleet II for the actual cost of goods and materials
used for or by JetFleet II and obtained from entities unaffiliated with such
General Partner or Affiliate, including all expenses for administrative
services performed by the General Partner or Affiliate which are necessary for
the prudent operation of JetFleet II. Reimbursement for any item referred to
this Section 5.6(i) shall be at the lower of the General Partner's or
Affiliate's actual cost or the amount which JetFleet II would have had to pay
to third panics for comparable services in the same geographic location. No
reimbursement under this Section 5.6(i) shall be permitted for services for
which the General Partner or Affiliate receives a separate fee pursuant to this
Agreement. Expenses incurred by any General Partner or any Affiliate for rent,
depreciation or utilities, for the cost of capital equipment not purchased by
JetFleet II as provided in this Agreement or for administrative items (except
as provided herein) shall not be charged to JetFleet II. Salaries, fringe
benefits, general travel expenses and other administrative items of any
"Controlling Person" shall not be charged to JetFleet II. For the purposes of
this Section 5.6(i), "Controlling Person" shall refer to Persons, whatever
their titles, who perform functions for the General Partners similar to those
of: (i) any director, (ii) executive management such as the (A) president, (B)
vice president or senior vice president, (C) corporate secretary, (D)
treasurer, (iii) senior management such as the vice president of an operating
division who reports directly to executive management; or (iv) any Person
holding 5% or more equity interest in the Managing General Partner or a Person
having the power to direct or cause the direction of the Managing General
Partner, whether through the ownership of voting securities, by contract or
otherwise.
(j) If JetFleet II borrows funds or the General Partners
advance funds, JetFleet II shall repay such borrowed funds or advances and any
interest thereon in accordance with the terms thereof from the cash receipts of
JetFleet II.
(k) JetFleet II shall not pay to the General Partners or
their Affiliates, directly or indirectly, except as permitted otherwise in this
Section 5.6, a commission or fee in connection with the reinvestment or
distribution of Cash Available for Distribution or out of the proceeds of the
resale, exchange or refinancing of Aircraft.
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5.7 Other Businesses of Partners. Subject to Sections 5.5(j) and
5.5(k), the General Partners and their Affiliates may engage in or possess any
interest in other business ventures of any kind, nature or description,
independently or with others, including, but not limited to, the acquisition,
financing, ownership, leasing, operation, management and syndication of
equipment, including aircraft, for their own account or for the account of
others. Neither JetFleet II nor any Unitholders, by virtue of their status as
Unitholders, shall have any rights or obligations in or to such independent
ventures or the revenues, profits or losses derived therefrom. Subject to the
provisions of this Agreement defining the rights and duties of the General
Partners, nothing in this Section 5.7 shall be deemed to diminish the General
Partners' overriding fiduciary obligation to JetFleet II and the Unitholders.
5.8 Indemnification of the General Partners and their Affiliates.
(a) JetFleet II shall indemnify and hold harmless the
General Partners and their Affiliates from any liability or loss suffered by
JetFleet II, the General Partners and their Affiliates (including reasonable
attorney's fees and other costs of defense, which may be paid as incurred)
which arises out of any action or inaction of any such Persons if (i) the
General Partners have determined in good faith that such course of conduct was
in the best interest of JetFleet II, (ii) such Person was acting on behalf of
or performing services for JetFleet II, (iii) such liability or loss was not
the result of negligence or misconduct by such Person and (iv) any amounts
payable pursuant to the foregoing are recoverable only out the assets of
JetFleet II and not out of the assets of any Limited Partner.
(b) Notwithstanding the above, the General Partners,
their Affiliates and any person acting as a broker dealer shall not be
indemnified for any liability by judgment, and costs associated therewith,
including attorneys' fees, arising from or out of a violation of federal or
state securities laws. Indemnification will be allowed for settlements and
related expenses of lawsuits alleging securities law violations, and for
expenses incurred in successfully defending such lawsuits, provided that a
court either (i) approves the settlement and finds that indemnification of the
settlement and related costs should be made, or (ii) approves indemnification
of litigation costs if a successful defense is made. In any claim for
indemnification for federal or state securities law violations, the party
seeking indemnification shall place before the court the position of the
Commission and any other applicable regulatory authority with respect to the
issue of indemnification for securities law violations, before seeking court
approval for indemnification.
(c) JetFleet II shall not incur the cost of that portion
of liability insurance which insures any General Partners or their Affiliates
for any liability as to which any such Person is prohibited from being
indemnified.
(d) The General Partners and their Affiliates may receive
advances from JetFleet II for payment of their costs and attorneys' fees as
incurred only if each of the following three conditions arc satisfied: (i) the
legal action is related to the performance of duties or
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services by such Person on behalf of JetFleet II; (ii) the legal action is
initiated by a third party who is not a General Partner or Unitholder, and
(iii) such person undertakes to repay the advanced funds with interest to
JetFleet II in cases in which it is not entitled to indemnification.
(e) For purposes of this Section 5.8 only, the term
"Affiliate" shall mean any person performing services on behalf of a General
Partner and acting within the scope of the General Partners' authority as set
forth in this Agreement, who or which: (1) directly or indirectly controls, or
is controlled by, or is under common control with a General Partner, (2) owns
or controls 10% or more of the outstanding voting securities of a General
Partner, (3) is an officer, director, employee, partner or trustee of a General
Partner, or (4) is a company in which a General Partner acts as an officer,
director, partner or trustee.
ARTICLE VI.
GENERAL PARTNER WITHDRAWAL, REMOVAL, AUTOMATIC CESSATION
AND SUBSTITUTION; TRANSFER OF A GENERAL PARTNER'S INTEREST
6.1 Withdrawal of the General Partners. A General Partner may
withdraw as a General Partner of JetFleet II at any time, provided that such
withdrawal is approved by a Majority Vote of the Unitholders. Units
beneficially owned by the affected General Partner or its Affiliates shall not
be voted on any such question and shall not be counted as outstanding in
calculating whether a Majority Vote has been obtained.
6.2 Removal of the General Partners. Any or all of the General
Partners may be removed as a General Partner for any reason by Majority Vote.
Units beneficially owned by the affected General Partner or its Affiliates
shall not be voted on any such question and shall not be counted as outstanding
in calculating whether a Majority Vote has been obtained.
6.3 Substitute and Additional General Partners; Assignment of
Economic Interest. Notwithstanding anything to the contrary in this Agreement,
a corporate General Partner may substitute in its stead as General Partner any
entity which has, by merger, consolidation or otherwise, acquired substantially
all of the assets or stock of the General Partner and continued its business.
In the event that the Managing General Partner is removed and no successor
Managing General Partner is appointed by the Unitholders, the remaining General
Partner(s) may appoint a successor Managing General Partner. In the event of
the withdrawal of the Managing General Partner or the cessation of the Managing
General Partner as a General Partner pursuant to Section 6.4, a remaining
General Partner may elect to become the successor Managing General Partner. In
addition, the existing General Partner(s) may, in its or their sole discretion,
admit one or more successor or additional General Partners to JetFleet II
provided that such successor or additional General Partner shall not be a
Managing General Partner. A General Partner may, without the permission of the
Unitholders, assign all or any portion of its economic interest in JetFleet II.
To the extent indicated in such assignment or to the extent necessary to
effectuate such assignment (but not otherwise), the assignee shall (i) be
permitted to receive directly from JetFleet II any distributions or other
consideration which would otherwise be received by the General Partner and (ii)
be treated as an assignee of a General Partner with respect to the interest
assigned. Any such assignment shall not affect the obligations or liabilities
of such General Partner hereunder.
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6.4 Automatic Cessation of General Partners. A General Partner
shall automatically cease being a General Partner upon the occurrence of any of
the following:
(a) An order for relief against the General Partner is
entered under Chapter 7 of the federal bankruptcy law;
(b) The General Partner (i) makes a general assignment
for the benefit of creditors, (ii) files a voluntary petition under the federal
bankruptcy law, (iii) files a petition or answer seeking for that General
Partner any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any statute, law or
regulation, (iv) files an answer or other pleading admitting or failing to
contest the material allegations of a petition filed against the General
Partner in any proceeding of the nature described in (ii) or (iii) above or (v)
seeks, consents to or acquiesces in the appointment of a trustee, receiver or
liquidator of the General Partner or of all or any substantial pan of the
General Partner's assets;
(c) In the case of a General Partner who is an
individual, either the death of that General Partner or the entry by a court of
competent jurisdiction of an order adjudicating the General Partner incompetent
to manage the General Partner's person or estate; or
(d) In the case of a General Partner that is a
corporation or JetFleet II, the dissolution of such General Partner.
The occurrence of any of the following events, among others, will not by itself
cause a dissolution of JetFleet II and, notwithstanding the occurrence of any
of the following events, the affected General Partner will continue to be a
General Partner of JetFleet II:
a)The commencement of any proceeding against a General Partner seeking
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any state, law or regulation;
b)The appointment, without the General Partner's consent or
acquiescence, of a trustee, receiver or liquidator of the General
Partner or of all or any substantial pan of the General Partner's
assets; or
c)In the case of a General Partner which is an entity, the
consolidation, merger or reorganization of the General Partner with
any other entity, whether or not the General Partner is the surviving
entity, or any change of control of the General Partner.
6.5 Purchase of a Terminated General Partner's Interest. Subject
to Section 6.7(a), upon a General Partner ceasing to be a General Partner
pursuant to this Article VI, such General Partner's interest as a general
partner in JetFleet II's income, losses, distributions and capital shall be
repurchased by JetFleet II (if JetFleet II continues) for an amount equal to
the fair market value of the Terminated General Partner's interest at the time
of removal, as determined by
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agreement among the Terminated General Partner and the remaining or
successor General Partner(s). In the event of any dispute as to such fair
market value determination, the fair market value will be determined by binding
arbitration in San Francisco, California in accordance with the then current
rules of the American Arbitration Association, with the expenses of the
arbitration borne equally by JetFleet II and the Terminated General Partner.
6.6 Amounts Accrued and Owing. Upon a General Partner ceasing to
be a General Partner pursuant to this Article VI, JetFleet II shall pay to the
Terminated General Partner all amounts then accrued and owing to the Terminated
General Partner.
6.7 Notes and Interest.
(a) If the Terminated General Partner's termination is
voluntary, JetFleet II shall deliver to the Terminated General Partner JetFleet
II's noninterest bearing promissory note, with principal payable, if at all,
from amounts which the Terminated General Partner otherwise would have received
as distributions under this Agreement.
(b) If the Terminated General Partner's termination is
involuntary, JetFleet II shall deliver to the Terminated General Partner
JetFleet II's promissory note, bearing interest at the "prime rate" as defined
in Section 6.7(c) below, payable in not less than five years with equal annual
installments.
(c) As to amounts required to be paid pursuant to Section
6.6, amounts unpaid when due shall accrue interest at a rate equal to 2% above
the "prime rate" (or any comparable rate) as announced from time to time by the
Bank of San Francisco (but not in excess of the maximum rate permitted under
applicable law), and such amounts and interest shall be paid out of fees that
would have been paid to the Terminated General Partner had it not been
terminated.
6.8 Liability of a Terminated General Partner. Any Terminated
General Partner shall remain liable for its portion of any obligations and
liabilities incurred by it as General Partner prior to the time such
withdrawal, removal or incapacity shall have become effective. The Terminated
General Partner shall be free of any obligation or liability incurred on
account of the activities of JetFleet II occurring from and after the time such
withdrawal or removal shall have become effective, and shall be indemnified and
held harmless by JetFleet II from and against any such obligations and
liabilities.
ARTICLE VII.
TRANSFERABILITY OF LIMITED PARTNERSHIP INTERESTS OR UNITS
7.1 Restrictions on Transfers of Units.
(a) A Unitholder may not assign or transfer all or pan of
the Unitholder's legal and equitable interest in the Unitholder's Units without
the consent of the Managing General Partner, which consent may be withheld in
the Managing General Partner's sole discretion. Further, the Managing General
Partner may condition its consent on representations, warranties, opinions of
counsel (who may be counsel to JetFleet II) and other assurances as to:
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(i) such assignments or transfers not resulting,
when added to the total of all other assignments or transfers within the
preceding 12 months, in JetFleet II being considered to have terminated within
the meaning of Section 708 of the Code;
(ii) the assignee or transferee not being a minor
or an incompetent;
(iii) the transfer or assignment not violating
federal or state securities laws (including any investor suitability
standards);
(iv) the transferor or the assignee or transferee
not holding less than 50 Units (40 Units in the case of IRAs and Qualified
Plans);
(v) such assignment or transfer not constituting
a transfer "on a secondary market (or the substantial equivalent thereof)"
within the meaning of Section 7704 of the Code, not causing JetFleet II to lose
its status as a partnership for federal income tax purposes or not causing
JetFleet II to be a publicly traded partnership within the meaning of Section
7704 of the Code or otherwise adversely affecting the tax status of JetFleet
II;
(vi) such assignment or transfer not causing
JetFleet II assets to be deemed plan assets under ERISA;
(vii) the transferor filing with JetFleet II a duly
executed and acknowledged counterpart of the instrument effecting such
assignment or transfer, which instrument evidences the written acceptance by
the assignee or transferee of all of the terms and provisions of this
Agreement, contains a representation that such assignment or transfer was made
in accordance with all applicable laws and regulations (including any investor
suitability requirements) and in all other respects being satisfactory in form
and substance to the Managing General Partner;
(viii) such transfer or assignment not causing
JetFleet II to be in violation of applicable FAA regulations or law; and
(ix) such other matters as the Managing General
Partner shall reasonably request in its sole discretion.
(b) In no event shall any Units be assigned or
transferred to a minor or an incompetent except in trust, pursuant to the
Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act, or by will
or intestate succession.
(c) Except for transfers or assignments (in trust or
otherwise), whether on death or inter vivos, to or for the benefit of (i) the
transferor's spouse, parents, children, other descendants, spouses of children,
heirs or legatees or (ii) a charitable, religious, scientific, literary, or
educational organization, and except as consented to by the Managing General
Partner in its sole discretion, no sale, exchange, transfer, or assignment of a
Unit may be made to any Person unless such Person (i) meets the suitability
requirements to become a Unitholder in
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accordance with the terms of the offering of the Units contained in the
Prospectus For the Offering or (ii) is a Partner or Unitholder.
(d) No purported sale, exchange, assignment or transfer
of any fractional Unit will be permitted or recognized for any purpose without
the consent of the Managing General Partner, in its sole discretion.
(e) Each Unitholder agrees, upon request of the Managing
General Partner, to execute such certificates or other documents and perform
such acts as the Managing General Partner deems appropriate after an assignment
or transfer of a Unit by that Unitholder to preserve the limited liability of
the Unitholders under the laws of any jurisdiction in which JetFleet II is
doing business. For purpose of this Section 7.1(e), any transfer of a Unit,
whether voluntary or by operation of law, shall be considered an assignment.
(f) In no event shall any Units be assigned or
transferred to a person who makes a market in securities unless such person
shall certify to the Managing General Partner that it has acquired such Units
solely for investment purposes and not for purpose of resale.
(g) No purported sale, exchange, transfer or assignment
of any Units will be permitted or recognized for any purpose unless (i) the
transferor shall have represented that such transfer (A) was effected through a
broker-dealer or matching agent whose procedures with respect to the transfer
of Units, have been approved by the Managing General Partner as not being
incident to a public trading market and not through any other broker-dealer or
matching agent or (B) otherwise was not effected through a broker-dealer or
matching agent which makes a market in Units or that provides a readily
available, regular and ongoing opportunity to Unitholders to sell or exchange
their Units through a public means of obtaining or providing information of
offers to buy, sell or exchange Units and (ii) the Managing General Partner
determines that such sale, assignment, or transfer would not, by itself or
together with any offer sales, exchanges, transfers or assignments, likely
result in, as determined by the Managing General Partner in its sole
discretion, JetFleet II's being classified as a publicly traded partnership.
(h) No purported sale, exchange, assignment or transfer
of any Units will be permitted or recognized for any purpose if such sale,
exchange, transfer or assignment would, by itself or together with any other
sales, exchanges, transfers or assignments, likely result in JetFleet II's
failing to satisfy the safe harbors contained in Internal Revenue Service
Advance Notice 88-75 (the "Notice"). Without limiting the foregoing, no
purported sale, exchange, transfer or assignment of any Units will be
recognized if such sale, exchange, transfer or assignment, together with all
other such dispositions (including repurchases by JetFleet II of its own Units)
during the same taxable year of JetFleet II would result in both (i) the
transfer of more than 5% of the total interests in JetFleet II capital or
profits (excluding transfers described in clauses (i) through (vi) of the next
succeeding sentence); and (ii) (A) the transfer of more than 2% of the total
interests in JetFleet II capital or profits (excluding transfers described in
clauses (i) through (vi) of the next succeeding sentence and sales through a
matching service that meets the requirements of the Notice, Part II, Section D)
or (B) the transfer of more than 10% of the
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total interests in JetFleet II capital or profits (excluding transfers
described in clauses (i) through (vi) of the next succeeding sentence). For
purposes of the 5% and the 2% limitations described in the preceding sentence,
the following transfers will be disregarded: (i) transfers in which the basis
of the Units in the hands of the transferee is determined, in whole or in part,
by reference to its basis in the hands of the transferor or is determined under
Code Section 732; (ii) transfers at death; (iii) transfers between members of a
family (as defined in Code Section 267(c) (4); (iv) the issuance of Units by or
on behalf of JetFleet II in exchange for cash, property, or services; (v)
distributions from a retirement plan qualified under Code Section 401(a); and
(vi) block transfers. The term "block transfer" means the transfer by a Partner
in one or more transactions during any 30 calendar day period of JetFleet 1I
Interests representing in the aggregate more than 5% of the total interest in
JetFleet II capital or profits.
(i) Any attempted assignment or transfer which does not
comply with subparagraphs (a) through (h) of this Section 7.1 shall be null and
void, unless otherwise determined by the Managing General Partner in its sole
discretion.
(j) The effective date of any assignment or transfer of
Units shall be no later than the last day of the calendar month following the
calendar month in which the requirements set forth in subparagraphs (a) through
(h) of this Section 7.1 have been satisfied. Until such effective date, the
Managing General Partner shall be entitled to treat the assignee or transferor
as the absolute owner of the Units, and shall incur no liability for
allocations, distributions, reports or notices made or given in good faith to
such assignee or transferor.
(k) A Unitholder may not contract away the common law
fiduciary duty owed to the Unitholders by the General Partners.
(l) JetFleet II is entitled to be reimbursed for the
reasonable expenses (expected to be $150 per transfer) and legal fees it incurs
in connection with any assignment or transfer.
7.2 Incapacity of Unitholders. If a Unitholder dies (or, in the
case of an entity, dissolves or terminates), the Unitholder's executor,
administrator or trustee or, if the Unitholder is adjudicated incompetent or
insane, the Unitholder's guardian or conservator, or, if the Unitholder becomes
bankrupt, the trustee or receiver of the Unitholder's estate shall have all the
rights and obligations of a Unitholder for the purpose of settling or managing
the Unitholder's estate and such power as the Unitholder possessed to assign
the Unitholder's Units. The death, dissolution, termination, incompetency,
insolvency or bankruptcy of a Unitholder shall not dissolve JetFleet II.
7.3 Change in Record Ownership. Subject to the terms and
conditions of this Agreement, title to a Unit shall be transferable by delivery
of an instrument of transfer, in a form satisfactory to the Managing General
Partner, properly executed by the Registered Owner, in accordance with the laws
governing transfers of investment securities; provided, however, that, until a
Unit has been transferred on the register of the Managing General Partner,
JetFleet II, notwithstanding any notice to the contrary, shall treat the
Registered Owner thereof as the absolute owner thereof for all purposes
(including, without limitation, the economic benefits and other rights of
Unitholders). Changes in the record ownership of Units will be recognized only
as provided in Section 7.1(j).
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7.4 Substituted Unitholder.
(a) No Person shall have the right to become a
substituted Unitholder unless each of the following conditions is satisfied:
(i) in the case of an assignment or transfer of
Units of a Unitholder, (A) the instrument of assignment or transfer sets forth
the intention of the assignor or transferor that the assignee or transferee
succeed to the assignor's or transferor's Unit as a Unitholder in place of the
assignee or transferee Unitholder, (B) the assignee or transferee shall have
fulfilled the requirements of this Article VII and shall have become a party
to, and adopted all the terms and conditions of, this Agreement by the
execution and delivery of all documents as required by the Managing General
Partner, (C) if such Person is a corporation, the Managing General Partner, may
require evidence satisfactory to the Managing General Partner of such Person's
authority to become a Partner or Unitholder under the terms and conditions of
this Agreement; and (D) JetFleet II shall have received all reasonable expenses
and legal fees incurred by JetFleet II in connection with such assignment,
transfer and substitution (expected to be $150 per transaction; and
(ii) the Managing General Partner shall have
consented to such Person's admission as a substituted Unitholder.
(b) This Agreement shall be amended as necessary to
recognize the admission of any substituted Unitholder no later than the last
day of the month following the month in which the requirements for transfer
have been satisfied.
(c) Any Unitholder who shall assign or transfer all of
the Unitholder's Units shall cease to be a Unitholder upon a substituted
Unitholder being admitted in the assigning or transferring Unitholder's stead
as a Unitholder with respect to the Units assigned or transferred.
(d) An assignee or transferee of Units who does not
become a substituted Unitholder and desires to make a further assignment or
transfer of the Units, shall be subject to all the provisions of this Article
VII to the same extent and in the same manner as any Unitholder desiring to
make an assignment or transfer of his Units.
(e) Notwithstanding anything to the contrary in this
Agreement, the Managing General Partner may at any time, without obtaining the
consent of any Unitholders, take such action with respect to the manner in
which Units are being or may be transferred or such other steps as the Managing
General Partner may deem necessary or appropriate in order to preserve the
status of JetFleet II as a partnership rather than an association taxable as a
corporation for federal income tax purposes or to insure that Unitholders will
be treated as limited partners of JetFleet II for federal income tax purposes.
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(f) For all purposes hereunder and under the California
Act, each Limited Partner hereby Consents to the admission of any Person as a
Substituted Limited Partner if the provisions of this Article VII are
satisfied.
ARTICLE VIII.
DISSOLUTION, LIQUIDATION AND TERMINATION OF JETFLEET II
8.1 Events Causing Dissolution. JetFleet II shall dissolve and its
affairs shall be wound up upon the earliest to occur of any of the following
events:
(a) the expiration of its term;
(b) the withdrawal, removal or automatic cessation
pursuant to Section 6.4 of a General Partner unless (i) there remains at least
one General Partner and, within 60 days after the date of such event, the
remaining General Partner(s) elect to continue the business of JetFleet II or
(ii) if there is no remaining General Partner, the Unitholders, within 90 days
after the date of such event, elect to continue the business of JetFleet II, in
a reconstituted form if necessary, and elect a successor Managing General
Partner effective as of the date of such event. In the event of the removal or
withdrawal of a General Partner where there is no remaining General Partner,
then a Majority Vote of the Unitholders may elect to continue JetFleet II and
elect a new Managing General Partner. If, however, the dissolution is caused by
a General Partner ceasing to be a General Partner for any reason other than
removal or withdrawal, and if there is no remaining General Partner, then the
right of the Unitholders to continue the business of JetFleet II and to elect
one or more General Partners may only be exercised by the unanimous vote of the
Unitholders;
(c) the election to dissolve JetFleet II by the Majority
Vote of the Unitholders;
(d) the entry of a decree of judicial dissolution by a
court of competent jurisdiction; and
(e) upon the disposition of JetFleet II's last interest
in Aircraft, including any debt obligation taken as consideration in the
disposition of Aircraft.
8.2 Liquidation.
(a) Upon dissolution and liquidation of JetFleet II, its
liabilities shall be paid in the order provided herein. The Managing General
Partner shall cause JetFleet II property to be sold in such manner as the
Managing General Partner, in its sole discretion, shall determine in an effort
to obtain the best prices for such property. The Managing General Partner shall
cause the cancellation of JetFleet II's Certificate of Limited Partnership upon
completion of the dissolution and liquidation of JetFleet II. Pending such
sales and cancellation, the Managing General Partner shall have the right to
continue to operate the business of JetFleet II and otherwise deal with
JetFleet II property. In the event that a General Partner withdraws, is removed
or otherwise ceases to be a General Partner and there is no remaining or
successor General Partner, a Person shall be elected by Majority Vote of the
Unitholders as a liquidating trustee to perform the
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functions of a general partner in liquidating the assets of JetFleet II and
winding up its affairs. Distributions in kind shall not be permitted except to
a liquidating trust which is established for the purpose of the liquidation of
the assets of JetFleet II and the distribution of cash in accordance with this
Agreement.
(b) The proceeds from the liquidation of JetFleet II's
property shall be paid out in the following order:
(i) First, JetFleet II shall pay or make
reasonable provision to pay all claims and obligations, including all
contingent, conditional or unmatured claims and obligations, known to JetFleet
II but for which the identity of the claimant is unknown, in accordance with
the California Act, excluding claims of the General Partners but including
claims of the Unitholders who are creditors, to the extent permitted by the
California Act;
(ii) Second, to the General Partners for any loans
or advances made by them to JetFleet II;
(iii) Third, to the extent permitted by the
limitations set forth in Section 5.6, to the Managing General Partner for any
fees due hereunder, and
(iv) The balance if any, to the General Partners
and Unitholders having positive balances in their Capital Accounts (after
giving effect to all contributions, distributions and allocations for all
periods, including the period during which such distribution occurs) in the
proportion that the positive balance in each General Partner's and Unitholder's
Capital Account bears to the sum of all Capital Accounts having positive
balances; provided, however, that any remaining amount of fees due to the
Managing General Partner hereunder shall first be paid to the Managing General
Partner in accordance with, at the time prescribed by, and subject to the
limitations of Section 5.6.
(c) Distributions in liquidation shall be made by the end
of the taxable year in which the liquidation occurs or, if later, within 90
days after the liquidating event and shall otherwise comply with Regulations
Section 1.704-l(b).
(d) Profits and Losses from Operations, Gross Income and
Gain from Sale and Loss from Sale for the fiscal year in which the liquidation
of JetFleet II occurs shall be allocated among the Unitholders and the General
Partners in such a manner as to first eliminate any deficit balances in the
Capital Accounts of the Unitholders or the General Partners, and thereafter, to
bring the Capital Accounts balances of the Unitholders and the General Partners
into such proportion that the distribution of liquidation proceeds in
accordance with Section 8.2(b)(iv) will produce, as nearly as possible, the
same result as a distribution of such proceeds in accordance with Section
4.1(a).
(e) If upon liquidation of JetFleet II (or the
liquidation of a General Partner's interest in JetFleet II within the meaning
of Section 1.704-l(b)(2)(ii)(g) of the Regulations), a General Partner has a
deficit balance in its Capital Account (after taking into account all Capital
Account adjustments for JetFleet It's taxable year in which the liquidation
occurs), such General
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Partner shall contribute in cash to JetFleet II by the end of such taxable year
(or, if later, within 90 days after the date of such liquidation) an amount
equal to such deficit Capital Account balance. Each of the General Partners
shall be jointly and severally liable with respect to the obligations of the
General Partners under this Section 8.2(e); provided, however that each General
Partner's aggregate liability to contribute cash to JetFleet II pursuant to
this Section 8.2(e) shall be limited to the greater of the deficit balance in
its own Capital Account or 1.01% of the Capital Contributions made by the
Unitholders.
(f) If any Unitholder has a deficit balance in the
Unitholder's Capital Account (after taking into account all Capital Account
adjustments for JetFleet II's taxable year in which the liquidation occurs),
such Unitholder shall have no obligation to make any contribution to the
capital of JetFleet II with respect to such deficit, and such deficit shall not
be considered a debt owed to JetFleet II or to any other person for any purpose
whatsoever.
(g) The provisions of Section 8.2(e) shall be enforceable
directly, indirectly, derivatively or otherwise, only by the Unitholders, or
the General Partners, as applicable, and no third party may enforce any rights
provided hereby.
ARTICLE IX.
BOOKS AND RECORDS; ACCOUNTING, TAX RECORDS
9.1 Books and Records. The books and records of JetFleet II,
including JetFleet II's Certificate of Limited Partnership and amendments
thereto, copies of this Agreement, copies of JetFleet II's federal, state and
local tax or information returns, JetFleet II's financial records, the books
and records relating to JetFleet II's internal affairs and the appraisals of
JetFleet II's Aircraft shall be maintained by the Managing General Partner at a
principal office of JetFleet II. The books and records shall include
information relating to the sale by the General Partners, or by their
Affiliates, of goods or services to JetFleet II, and an alphabetical list of
the names and addresses and Units of all Unitholders. The books and records
shall be available for examination by any Unitholder or the Unitholder's duly
authorized representative at any reasonable time and upon payment of reasonable
costs. Any Unitholder or the Unitholder's duly authorized representative, upon
paying the reasonable costs of duplication and mailing, shall be entitled to a
copy of property appraisals and the list of names, addresses and Units of the
Unitholders. JetFleet II may maintain such other books and records and may
provide such other statements as the Managing General Partner in its discretion
deems advisable. JetFleet II shall maintain its financial statements for at
least six years and its other books and records relating to its internal
affairs for at least three years.
9.2 Accounting Basis for Tax and Reporting Purposes. The books and
records of JetFleet II for financial reporting purposes and for the purpose of
reports to the Partners will be kept on an accrual basis in a manner consistent
with generally accepted accounting principles. The Managing General Partner
will cause the income tax returns of JetFleet II to be prepared on the accrual
basis of accounting by the application of memorandum entries to the accrual
basis books of account.
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9.3 Bank Accounts. The Managing General Partner shall maintain
JetFleet II bank accounts, and withdrawals shall be made only in the regular
course of JetFleet II business on such signature or signatures as the Managing
General Partner may determine. All deposits and other funds not needed in the
operation of the business may be deposited in interest-bearing accounts or
invested in securities as described in Section 5.2(a)(x).
9.4 Reports.
(a) Within 60 days after the end of each fiscal quarter
in which JetFleet II is in existence, the Managing General Partner shall cause
JetFleet II to prepare and distribute to the Unitholders the following
information:
(i) A detailed statement of any fees paid to the
General Partners or their Affiliates and the services rendered therefor;
(ii) Until the proceeds of the Offering are fully
invested or returned as provided in Section 3.4(c), a report of all Aircraft
purchased during the quarter, the amount of cash expended by JetFleet II to
acquire such Aircraft (itemizing the commissions, fees, expenses and payees)
and a statement of the amount of proceeds which remain unexpended or
uncommitted; and
(iii) While JetFleet II is registered under Section
12(g) of the Securities Exchange Act of 1934, the same financial information
contained in JetFleet II's report for the quarter on Form 10-Q filed with the
Commission. While JetFleet II is not so registered, within 60 days after the
end of the first six months of each Fiscal Year, JetFleet II will distribute to
the Unitholders a report, prepared on the same accounting basis to be utilized
as JetFleet II's annual reports, containing a condensed, unaudited balance
sheet, a condensed, unaudited statement of income for the six-month period, an
unaudited cash flow statement for the six-month period and other pertinent
information.
(b) Within 120 days after the end of each Fiscal Year,
the Managing General Partner shall cause JetFleet II to send to the
Unitholders, a report containing the following information:
(i) A balance sheet as of the end of such Fiscal
Year and statements of income and Partner's equity and a Cash Flow statement in
respect of such Fiscal Year, all of which (except the Cash Flow statement)
shall be prepared in accordance with generally accepted accounting principles.
(ii) An annual report consolidating the activities
of JetFleet II during such Fiscal Year, including (A) a detailed statement of
any transactions with the General Partners or their Affiliates and of fees,
commissions, compensation, reimbursement and other benefits paid or accrued to
the General Partners their Affiliates for such Fiscal Year, showing the amount
paid or accrued to each recipient and the services performed, and (B) a
breakdown of distributions made by JetFleet II for such Fiscal Year separately
identifying the source of such distributions, including: (1) Cash Flow during
the period, (2) Cash Flow from operations during
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a prior period which had been held as Cash Reserves, (3) Net Disposition
Proceeds and (4) Cash Reserves from the Gross Offering Proceeds;
(iii) A status report with respect to each Aircraft
owned by JetFleet II setting forth the condition of the Aircraft and indicating
whether the Aircraft is leased, operated or held for lease, repair or sale, the
remaining term of any existing lease, the projected use of the Aircraft for the
next year (whether the lease is expected to continue or to be renewed, or
whether the Aircraft is expected to be re-leased or sold) and any other
information relevant to the value or utilization of the Aircraft as deemed
appropriate by the Managing General Partner. The status report shall describe
the method used or basis for any valuation.
(c) The financial statements described in Section
9.4(b)(i), other than the Cash Flow statement, shall be audited by a firm of
independent certified public accountants and shall be prepared in accordance
with generally accepted accounting principles and accompanied by the opinion of
such independent certified public accountants.
(d) Within the scope of the annual audit of the General
Partners' or their Affiliates' financial statements, the independent certified
public accountants shall issue a special report on the allocation of the cost
of services, goods or materials provided by the General Partner or Affiliate to
JetFleet II. The special report shall, at a minimum, provide (i) a review of
the time records of individual employees, the cost of whose services were
reimbursed, and (ii) a review of the specific nature of the work performed by
each such employee. The special report shall be in accordance with generally
accepted auditing standards. The cost of such special report will be itemized
by such accountants and may be reimbursed to the General Partners or their
Affiliates by JetFleet II only to the extent that such reimbursement, when
added to the cost of the services rendered, does not exceed the allowable rate
for such services as determined in Section 5.6 of this Agreement.
(e) Not later than March 15 next following the end of
each Fiscal Year, the Managing General Partner will send to each Person who was
a Unitholder at any time during that Fiscal Year such tax information as shall
be necessary for the preparation of federal and state income tax returns.
(f) The Managing General Partner shall make any of the
foregoing reports available to the Commission and any state securities
administrators upon request.
9.5 Elections. The Managing General Partner may cause JetFleet II
to make all elections required or permitted to be made by JetFleet II under the
Code or deemed appropriate by the Managing General Partner and not otherwise
expressly provided for in this Agreement or the Prospectus For the Offering.
9.6 Designation of Tax Matters Partner. The Managing General
Partner shall be the Tax Matters Partner of JetFleet II, as provided in Section
6231 of the Code and the Regulations promulgated thereunder. Each Partner and
Unitholder approves of such designation of the Tax Matters Partner and agrees
to execute, certify, acknowledge, deliver, swear to, file and record at the
appropriate public offices such documents as may be necessary or appropriate to
evidence such approval.
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9.7 Expenses of Tax Matters Partner. JetFleet II shall indemnify
and reimburse the Tax Matters Partner for expenses, including legal and
accounting fees, claims, liabilities, losses and damages incurred in connection
with any administrative or judicial proceeding with respect to the tax
liability of JetFleet II, the Partners and the Unitholders. The payment of such
expenses shall be made before any distributions are made from Cash Available
for Distribution. Neither of the General Partners, nor any of their respective
Affiliates, nor any other Person shall have any obligation to provide funds for
such purposes. The taking of any action and the incurring of any expense by the
Tax Matters Partner in connection with any such proceeding, except to the
extent required by law, is a matter in the sole discretion of the Tax Matters
Partner, and the limitations of liability and indemnification of the General
Partner set forth Section 5.8 shall be fully applicable to the Tax Makers
Partner in its capacity as such.
ARTICLE X.
AMENDMENTS
10.1 Proposal and Adoption of Amendments Generally.
(a) Amendments to this Agreement which do not, in the
opinion of the Managing General Partner, have a material adverse effect upon
the Unitholders or which are necessary or desirable, in the reasonable
determination of the Managing General Partner, to satisfy any requirements,
conditions or guidelines contained in any regulation, ruling, order, directive
or opinion of any federal or state agency or judicial authority or contained in
any federal or state statute or to preserve the status of JetFleet II as a
partnership for federal income tax purposes or to ensure that Unitholders will
be treated as limited partners for federal income tax purposes, may be made by
the Managing General Partner through the use of the Power of Attorney granted
in Section 12.1, without the approval of any Unitholder. Amendments which
shall be deemed to be of an inconsequential nature not adversely affecting the
rights of the Unitholders in any material respect include, without limitation,
the following:
(i) Amendments made to this Agreement to prevent
the Reregistration or decertification of the Aircraft by the FAA or by third
parties, or to reduce the risk of Reregistration or decenification of Aircraft;
(ii) Changing the name or the location of a
principal office of JetFleet II;
(iii) Changing the name, address or Capital Account
of a Partner or Unitholder to reflect changes through transfer, assignment or
withdrawal from JetFleet II, change of address or reduction in capital (to the
extent permitted by the California Act);
(iv) To the extent this Agreement is inconsistent
with the California Act, the Code or other applicable law, making any change
necessary to conform this Agreement to law;
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(v) To the extent any provisions of this
Agreement are ambiguous or inconsistent with other provisions in this Agreement
or in the Prospectus For the Offering, making any change necessary to clarify
this Agreement in order to conform it to the intentions of the Partners as
reflected in this Agreement and the Prospectus For the Offering.
(vi) Making any changes necessary or convenient to
the orderly administration of JetFleet II's affairs which do not adversely
effect the rights of the Unitholders in any material respect;
(vii) Making any changes necessary to prevent
JetFleet II or any General Partner or Unitholder (or any principal thereof)
from being subject to the provisions of the Investment Company Act of 1940, as
amended, or "plan asset" regulations adopted under ERISA; and
(viii) Making any change relating to the allocation
of income, gain, losses, deductions and credits as may be required under the
Code and the Regulations.
(b) Any other amendment to this Agreement may be proposed
by the General Partners or by holders of 10% of the Interests of the
Unitholders. The Persons proposing such amendment shall submit (i) the text of
such amendment and (ii) a statement of the purpose of such amendment. Within
ten days after receipt of any proposal under this Section 10.1(b), the Managing
General Partner shall give written Notification of such proposed amendment to
all Partners and Unitholders either in person or by mail, together with the
statement of purpose and the views if any, of the Managing Partner with respect
to such proposed amendment. In order to be adopted, any such amendment will
require the approval of a Majority Vote.
(c) The Managing General Partner shall, within a
reasonable time after the adoption of any amendment to this Agreement, make any
filings or publications required or desirable to reflect such amendment.
(d) Notwithstanding the provisions of this Section 10.1,
this Agreement shall in no event be amended to change the limited liability of
the Unitholders without the vote or consent of all of the Unitholders.
10.2 Amendments on Admission or Withdrawal of Partners and
Unitholders.
(a) If this Agreement shall be amended to reflect the
admission for substitution of a Unitholder or Limited Partner, the amendment to
this Agreement shall be signed by the General Partners and the Person to be
substituted or added or such Person's attorney-in-fact. Such amendments shall
occur as often as appropriate, in the opinion of the Managing General Partner.
(b) Except as provided in Section 6.3, no successor or
additional General Partner will be admitted to JetFleet II without an amendment
hereof approved by a Majority Vote.
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ARTICLE XI.
CONSENTS, VOTING AND MEETINGS
11.1 Method of Giving Consent. Any Consent required by this
Agreement may be given as follows:
(a) by a written Consent given by the approving Partner
or Unitholder at or prior to the doing of the act for which the Consent is
solicited.
(b) by the affirmative vote of the approving Partner or
Unitholder to the doing of the act for which the approval is solicited at any
meeting called and held pursuant to Section 11.3 to consider the doing of such
act.
Such Consent may be given to the Managing General Partner or to any
third party by proxy and, in either case, may be voted in favor of or against
any proposal, provided the party acting on behalf of the Partner who granted
the Consent or proxy acts in accordance with the terms of such Consent or
proxy.
11.2 Voting Rights. A Unitholder shall be entitled to cast one vote
for each Unit which the Unitholder owns: (a) at a meeting, in person or by
written proxy, or (b) without a meeting, by a signed writing directing the
manner in which the Unitholder desires that the Unitholder's vote be cast,
which writing must be received by the Managing General Partner prior to the
date upon which the votes of Unitholders are to be counted. The Unitholders
may, by Majority Vote, without the necessity for concurrence by any General
Partners, (w) amend this Agreement, (x) dissolve JetFleet II, (y) remove a
General Partner and elect a new General Partner and (z) approve or disapprove
the sale of all or Substantially All of the Assets of JetFleet II. Units
beneficially owned by the General Partners above or on any other matter which
involves a conflict of interest on the part of the General Partners, and such
Units shall not be counted as outstanding in calculating whether a Majority
Vote on these matters has been obtained.
11.3 Meetings. Meetings of the Partners may be called for any
matters for which Unitholders may vote as set forth in this Agreement by any
General Partner or by Unitholders holding 10% or more of the Outstanding Units.
A list of names and addresses of all Unitholders shall be maintained as part of
the books and records of JetFleet II and shall be made available by mail on
request to any Unitholder or a designated representative thereof at their cost.
Upon a written request, either in person or by registered mail, stating the
purpose(s) of the meeting, the Managing General Partner shall provide all
Unitholders, within ten days after each request, Notification of a meeting. The
meeting shall be held not less than 15 nor more than 60 days after Notification
thereof shall have been distributed to the Unitholders. Any such Notification
shall state briefly the purpose, time and place of the meeting. Such meeting
shall be held at the time and place specified in the request for the meeting
or, if none, at a time and place in the City and County of San Francisco as
designated by the Managing General Partner. Annual meetings of JetFleet II are
not contemplated. A majority of the Units entitled to vote, represented in
person or by proxy, shall constitute a quorum at a meeting of JetFleet II.
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11.4 Submissions to Unitholders. The Managing General Partner shall
give all the Unitholders Notification of any proposal or other matter required
to be submitted for the consideration and approval of the Unitholders, or shall
cause such Notification to be given by JetFleet II. Such Notification shall
include any information required by the relevant provision of this Agreement,
by the California Act or pursuant to applicable federal and state securities
laws.
11.5 Record Dates. The Managing General Partner may set in advance
a date for determining the Unitholders entitled to Notification and entitled to
vote at any meeting. All record dates shall not be more than 60 nor less than
10 days prior to the date of the meeting.
ARTICLE XII.
POWERS OF ATTORNEY
(a) Each Unitholder irrevocably constitutes and appoints
the Managing General Partner as such Unitholder's true and lawful
attorney-in-fact, with full power and authority in the Unitholder's name, place
and stead, to execute, acknowledge, deliver, swear to, file and/or record at
the appropriate public offices, such documents, instruments and conveyances as
may be necessary or appropriate to carry out the provisions or purposes of this
Agreement, including, without limitation:
(i) all certificates and other instruments
(including counterparts of this Agreement), and any amendment to any of the
foregoing which the Managing General Partner deems appropriate to qualify or
continue JetFleet II as a limited partnership (or a partnership in which the
Unitholders will have limited liability comparable to that provided by the
California Act) or which is otherwise adopted in accordance with this
agreement, and to execute, acknowledge, deliver, swear to, file and record at
the appropriate public offices all such other agreements, documents,
instruments or conveyances as the Managing General Partner may deem necessary
or appropriate to carry out the provisions or purposes of this Agreement or the
business of JetFleet II;
(ii) all instruments which the Managing General
Partner deems appropriate to reflect a change or modification of JetFleet II in
accordance with the terms of this Agreement;
(iii) all conveyances and other instruments which
the Managing General Partner deems appropriate to reflect the dissolution and
termination of JetFleet II (including a certificate of cancellation); and
(iv) all consents, instruments and documents which
may be necessary or desirable in order to effectuate and comply with the
provisions of Article VI.
(b) This appointment of the Managing General Partner as
attorney-in-fact is irrevocable and shall be deemed to be a power coupled with
an interest in recognition of the fact that each of the Unitholders under this
Agreement will be relying upon the power of the Managing General Partner to act
as contemplated by this Agreement in any filing and other action by it on
behalf of JetFleet II, and shall survive and not be affected by the subsequent
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death, incapacity, insanity, dissolution or termination of any Person hereby
giving such power and the transfer or assignment of all or any pan of the
Interest of such Person; provided, however, that in the event a Unitholder
transfers all of the Unitholder's units, the foregoing power of attorney of a
transferor Unitholder shall survive such transfer only until such time as the
transferee shall have been recognized by JetFleet II as a Unitholder and all
required documents and instruments shall have been duly executed, filed and
recorded to effect such substitution.
(c) this appointment of the Managing General Partner as
attorney-in-fact may be exercised by the Managing General Partner by signing
separately as attorney-in-fact for each Unitholder or by a single signature of
the Managing General Partner as attorney-in-fact for all the Unitholders.
ARTICLE XIII.
MISCELLANEOUS
13.1 Notification to JetFleet II or the General Partners. Any
Notification to JetFleet II or the General Partners shall be delivered to them
at the principal offices of JetFleet II as set forth in this Agreement or as
revised in any subsequent Notification to all the Partners and Unitholders.
13.2 Binding Provisions. The covenants, agreements and provisions
contained herein shall be binding upon and inure to the benefit of the heirs,
executors, administrators, successors and assigns of the respective parties
hereto.
13.3 Applicable Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of California without giving
effect to the principles thereof relating to the conflict of laws.
13.4 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 or such counterparts have been signed at different times.
13.5 Severability of Provisions. If for any reason any provision
hereof is determined to be invalid, such invalidity shall not impair the
operation of or affect those portions of this Agreement which are valid.
13.6 Entire Agreement. This Agreement constitutes the entire
agreement among the parties. This Agreement supersedes any prior agreement or
understanding among the parties and may not be modified or amended in any
manner other than as set forth herein.
13.7 Section Titles. Section titles are for descriptive purposes
only and shall not control or alter the meaning of this Agreement as set forth
in the text.
13.8 Legal Fee. Subject to the provisions of Section 5.8, in the
event of any litigation or other legal dispute between any of the General
Partners hereto to enforce any provision of this
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Agreement or any right of any party hereto, the unsuccessful party to such
litigation or legal dispute shall pay the successful party all costs, including
reasonable attorneys' fees, incurred therein by the successful party, all of
which may be included in and as part of the judgment or other resolution of
such litigation or legal dispute.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first above written.
GENERAL PARTNERS:
CMA CAPITAL GROUP
By: /s/ NEAL D. CRISPIN
----------------------------------
Neal D. Crispin, President
/s/ RICHARD D. KOEHLER
----------------------------------
Richard D. Koehler
/s/ NEAL D. CRISPIN
----------------------------------
Neal D. Crispin
INITIAL LIMITED PARTNER:
/s/ NEAL D. CRISPIN
----------------------------------
Neal D. Crispin
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<PAGE> 52
AMENDMENT TO JETFLEET AIRCRAFT II, L.P.
LIMITED PARTNERSHIP AGREEMENT
Pursuant to Section 10.1(a) of the Limited Partnership Agreement of
JetFleet Aircraft II, L.P., a California limited partnership ("JetFleet II"),
dated as of June 21, 1991 (the "Agreement"), the Partnership hereby amends the
Agreement as of March 15, 1993 as follows:
1. Except as indicated otherwise in this amendment, capitalized
terms used in this amendment have the same meanings that such terms have in the
Agreement.
2. The second sentence of Section 3.6(e) (stating that the
General Partners shall not be liable to any Unitholder, in certain
circumstances by reason of changes in the federal income tax laws) is hereby
deleted.
3. Section 9.1 of the Agreement is hereby amended by adding the
following at the end of such section:
Notwithstanding the foregoing, any Unitholder and any designated
representative thereof shall be permitted access to all records of
JetFleet II at all reasonable times, and may inspect and copy any of
them. An alphabetical list of the names, addresses and business
telephone numbers of the Unitholders along with the number of Units
held by each of them (the "Unitholder List") shall be maintained as
part of the books and records of JetFleet II and shall be available
for inspection by any Unitholder or any designated agent thereof at
the home office of JetFleet II upon the request of the Unitholder.
The Unitholder List shall be updated at least quarterly to reflect
changes in the information contained therein. A copy of the
Unitholder List shall be mailed to any Unitholder requesting the
Unitholder List within ten days of the request. A copy of the
Unitholder List shall be printed in alphabetical order, on white
paper, and in readily readable type size (in no event smaller than
10-point type). A reasonable charge for any copy work may be charged
by JetFleet II. The purposes for which a Unitholder may request a
copy of the Unitholder List include, without limitation, matters
relating to Unitholders' voting rights under this Agreement, and the
exercise of Unitholders' rights under federal proxy laws. If any
Sponsor of JetFleet II neglects or refuses to exhibit, produce or mail
a copy of the Unitholder List as requested, the Sponsor may be liable
to any Unitholder requesting the list for the costs, including
attorneys' fees incurred by that Unitholder for compelling production
of the Unitholder List, and for actual damages suffered by any
Unitholder by reason of such refusal or neglect. It shall be a
defense that the actual purpose and reason for the requests for
inspection or for a copy of the Unitholder List is to secure such list
of Unitholders or other information for the purpose of selling such
list or copies thereof, or of using the same for a commercial purpose
other than in the interest of the applicant as a Unitholder relative
to the affairs of JetFleet II. The Sponsor may require the Unitholder
requesting the Unitholder List to represent that the list is not
requested for a commercial purpose unrelated to the Unitholder's
interest in JetFleet II. The remedies provided hereunder to
Unitholder requesting copies of the Unitholder List are in addition
to, and shall not in any way limit, other remedies available to
Unitholders under federal law, or the laws of any state.
4. The following Section 13.9 is added to the Agreement:
13.9 Rollup. (a) For the purposes of this Section 13.9, the term
"Roll-Up" shall refer to a transaction involving the acquisition,
merger, conversion or consolidation either directly or indirectly of
JetFleet II and the issuance of securities of a Roll-Up Entity. Such
term does not include:
<PAGE> 53
(i) a transaction involving securities of JetFleet II if those
securities have been for at least 12 months listed on a national
securities exchange or traded through the National Association of
Securities Dealers Automated Quotation National Market System; or
(ii) a transaction involving the conversion to corporate, trust or
association form of only JetFleet II if, as a consequence of the
transaction, there will be no significant change in any of the
following:
(A) the Unitholder's voting rights;
(B) the term of existence of JetFleet II;
(C) Sponsor compensation; or
(D) JetFleet II's investment objectives.
For purposes of this Section 13.9, the term "Roll-Up Entity" refers to
the partnership, corporation, trust or other entity that would be
created or would survive after the successful completion of a proposed
Roll-Up transaction.
(b) In connection with a proposed Roll-Up, an appraisal of all
JetFleet II assets shall be obtained from a competent, independent
expert (such expert shall be a person with no current material or
prior business or personal relationship with any Sponsor, who is
engaged to a substantial event in the business of rendering opinions
regarding the value of assets of the type held by JetFleet II and who
is qualified to perform such work). If the appraisal will be included
in a Prospectus used to offer the securities of a Roll-Up Entity, the
appraisal shall be filed with the Commission and the states as an
exhibit to the registration statement for the offering. Accordingly,
an issuer using the appraisal shall be subject to liability for
violation of Section 11 of the Securities Act of 1933, as amended, and
comparable provisions under state laws for any material
misrepresentations or material omissions in the appraisal. JetFleet
II's assets shall be appraised on a consistent basis. The appraisal
shall be based on an evaluation of all relevant information, and shall
indicate the value of JetFleet II's assets as of a date immediately
prior to the announcement of the proposed transaction. The appraisal
shall assume an orderly liquidation of the assets over a 12 month
period. The terms of the engagement of the independent expert shall
clearly state that the engagement is for the benefit of JetFleet II
and its Unitholders. A summary of the independent appraisal,
including all material assumptions underlying the appraisal, shall be
included in a report to the Unitholders in connection with a proposed
Roll- Up.
(c) In connection with a proposed Roll-Up, the Person sponsoring
the Roll-Up shall offer to the Unitholders who vote "no" on the
proposal the choice of:
(i) accepting the securities of the Roll-Up Entity
offered in the proposed Roll-Up; or
(ii) one of the following:
(A) remaining as Unitholders in JetFleet II, and
preserving their interests therein on the
same terms and conditions as existed
previously; or
(B) receiving cash in an amount equal to the
Unitholder's pro-rata share of the appraised
value of the net assets of JetFleet II.
(d) JetFleet II shall not participate in any proposed Roll-Up
which would result in Unitholders having democracy rights in the
Roll-Up Entity which are less than those provided for under Sections
VI.A and VI.B of the Guidelines. If the Roll-Up Entity is a
corporation, the voting rights of Unitholders shall correspond to the
voting rights provided for in these Guidelines to the greatest extent
possible.
(e) JetFleet II shall not participate in any proposed Roll-Up
which includes provisions which would operate to materially impede or
frustrate the accumulation of shares by any
<PAGE> 54
purchaser of the securities of the Roll-Up Entity (except to the
minimum extent necessary to preserve the tax status of the Roll-Up
Entity). JetFleet II shall not participate in any proposed Roll-Up
which would limit the ability of a Unitholder to exercise the voting
rights of its securities of the Roll-Up Entity on the basis of the
number of Units held by that Unitholder.
(f) JetFleet II shall not participate in any proposed Roll-Up in
which Unitholders' rights of access to the records of the Roll-Up
Entity will be less than those provided for under Section VI.D of the
Guidelines.
(g) JetFleet II shall not participate in any proposed Roll-Up in
which any of the costs of the transaction would be borne by JetFleet
II if the Roll-Up is not approved by the Unitholders.
IN WITNESS WHEREOF, the undersigned have executed this amendment as of
March 15, 1993
GENERAL PARTNERS
CMA Capital Group
By: /s/ Neal D. Crispin
-------------------
Neal D. Crispin, President
/s/ Neal D. Crispin
- -------------------
Neal D. Crispin
/s/ Richard D. Koehler
- ----------------------
Richard D. Koehler
CMA Capital Group, L.P.
By: /s/ Neal D. Crispin
-------------------
Neal D. Crispin, General Partner
LIMITED PARTNERS
Each Limited Partner of JetFleet II
By: CMA Capital Group, as Attorney-in-Fact
By: /s/Neal D. Crispin
------------------
Neal D. Crispin
<PAGE> 55
IN WITNESS WHEREOF, the undersigned have executed this amendment as of
March 15, 1993.
GENERAL PARTNERS:
CMA Capital Group
By: /s/ NEAL D. CRISPIN
-----------------------------------------
Neal D. Crispin, President
/s/ NEAL D. CRISPIN
-------------------------------------------
Neal D. Crispin
/s/ RICHARD D. KOEHLER
-------------------------------------------
Richard D. Koehler
CMA Capital Group, L.P.
By: /s/ Neal D. Crispin
-----------------------------------------
Neal D. Crispin, General Partner
LIMITED PARTNERS:
Each Limited Partner of JetFleet II
By: CMA Capital Group, as Attorney-in-Fact
/s/ NEAL D. CRISPIN
-------------------------------------------
Neal D. Crispin
4
<PAGE> 1
EXHIBIT 3.06
AMENDMENT TO
LIMITED PARTNERSHIP AGREEMENT
This Amendment to Limited Partnership Agreement is entered into as of
__________, 1997, by and among CMA Capital Group, Inc., a California
corporation ("Managing General Partner"), Neal D. Crispin and Richard D.
Koehler as individual general partners (the Managing General Partner and the
individual general partners collectively, the "General Partners"), and CMA
Capital Group, Inc, as attorney-in-fact for the limited partners listed on
Appendix A, who constitute holders of a majority of the outstanding Units, to
amend that certain Amended and Restated Partnership Agreement of JetFleet
Aircraft II, L.P. ("JetFleet II"), made and executed as of June 21, 1991,
between the parties hereto (the "Partnership Agreement"). Capitalized terms
not otherwise defined herein, shall have the meaning as set forth in the
Partnership Agreement.
RECITALS
Pursuant to the Partnership Agreement, JetFleet II was organized under
California law in May 1991.
The General Partner has proposed a consolidation (the "Consolidation")
of JetFleet II and its affiliated partnership, JetFleet Aircraft, L.P.
("JetFleet I") with and into a newly-formed successor Delaware corporation,
AeroMax, Inc., pursuant to the terms and conditions of a certain Merger
Agreement by and between AeroMax, JetFleet I and JetFleet II. The General
Partner has solicited the requisite approval of the limited partners of
JetFleet I to participate in the Consolidation as more fully described in that
certain Prospectus/Consent Solicitation Statement, dated _____, 1997 (the
"Prospectus"). As part of the approval, the limited partners approved
amendments to the Partnership Agreement to enable the Consolidation.
NOW, THEREFORE, the parties hereto agree as follows:
1. Approval of the Consolidation. Upon receipt of the approval
of holders of a majority of the outstanding Units of limited partnership
interest of JetFleet II, the General Partner is authorized to executed, deliver
and perform all obligations of the Partnership under the Merger Agreement and
all other documents and agreements required to be delivered by the Partnership
in connection therewith. Any inconsistent provisions of the Partnership
Agreement are hereby amended to permit the Consolidation to be consummated.
2. Dissenters' Rights. Notwithstanding anything to the contrary
contained in the Partnership Agreement, limited partners that did not vote in
favor of the Consolidation and follow certain procedures set forth in the
Prospectus shall have the dissenters' rights as set forth in the Prospectus,
which dissenters' rights shall comply with the requirements of the California
Partnership Act. Section 13.9 of the Partnership Agreement is hereby deleted
in its entirety.
3. Waiver of Resale Fee. General Partner hereby waives the fee
set forth in 5.6(f) with respect to the Consolidation transactions.
4. Termination of the Partnership. Upon the effectiveness of the
Consolidation, the separate existence of the JetFleet II shall cease, and the
limited partners of the Partnership shall have the right to receive Common
Stock of AeroMax, Inc., all as set forth in the Prospectus.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first-above written:
CMA CAPITAL GROUP, INC. ____________________________
Neal D. Crispin
By:_____________________________
Richard D. Koehler ____________________________
Richard D. Koehler
LIMITED PARTNERS listed on
Appendix A
By: CMA Capital Group, Inc.
Attorney-in-fact
__________________________________
Richard D. Koehler, President
<PAGE> 2
APPENDIX A
List of Approving Limited Partners No. of Units Held
- ---------------------------------- -----------------
Total Units:
------------ --------------
<PAGE> 1
EXHIBIT 5.01
[LETTERHEAD OF GRAHAM & JAMES LLP]
OPINION OF LEGAL COUNSEL
April 7, 1997
Board of Directors
AeroMax, Inc.
1440 Chapin Avenue, Suite 310
Burlingame, California 94010
RE: AGREEMENT AND PLAN OF MERGER AMONG AEROMAX, INC.,
JETFLEET AIRCRAFT, L.P. AND JETFLEET AIRCRAFT II, L.P.
Ladies and Gentlemen:
We have acted as counsel to AeroMax, Inc., a Delaware corporation ("AeroMax"),
in connection with the preparation, execution and delivery of the Agreement and
Plan of Merger (the "Agreement"), among AeroMax, JetFleet Aircraft, L.P., a
California limited partnership ("JetFleet I"), and JetFleet Aircraft II, L.P.,
a California limited partnership ("JetFleet II"). All capitalized terms used
herein shall, unless otherwise defined herein or the context otherwise
requires, have the meanings assigned to them in the Agreement.
In our capacity as counsel to AeroMax in connection with the Agreement, we have
examined such corporate instruments, documents, proceedings and certificates of
corporate officers as we have deemed appropriate in rendering the opinion set
forth below. We have assumed the authenticity of all documents submitted to us
as originals and the conformity to original documents of all documents
submitted to us as copies. We have also assumed, without investigation, the
accuracy of the representations, warranties and covenants as to factual matters
made by AeroMax in the Agreement, and the accuracy of representations and
statements as to factual matters made by the officers and employees of AeroMax
and by government officials.
Whenever a statement herein is qualified by the phrase "to our knowledge,"
"known to us," or similar phrase, it indicates that in the course of our
representation of AeroMax in connection with the Agreement no information that
would give us current actual knowledge of the inaccuracy of such statement has
come to the attention of the attorneys in this firm who have rendered legal
services in connection therewith. We have not made any independent
investigation to determine the accuracy of such statement (including any search
of litigation filings in any court). No inference as to our knowledge of any
matters bearing on the accuracy of such statement should be drawn from the fact
of our representation of AeroMax in other matters.
Our opinion is subject to the following qualifications and limitations:
<PAGE> 2
a. Our opinion is limited to the effect of the laws of the State of
California, and we express no opinion as to matters governed by other laws.
b. In making our examination of documents and instruments executed by
persons or entities other than AeroMax, we have assumed, without investigation,
the power and legal capacity of each such person or other entity to enter into
and perform all its obligations under such documents and instruments, the due
authorization by each such other person or entity of such documents and
instruments.
c. Our opinion is subject to and qualified by the information in the
AeroMax Form S-4 Registration Statement ("Registration Statement") and all
other information delivered by AeroMax or its representatives pursuant to, or
as part of, the Agreement, including all updates and amendments thereof. We
express no opinion regarding the accuracy, completeness or correctness of any
matter contained or described in such Registration Statement or in the
Agreement or the effect thereof, individually and/or in the aggregate, upon the
transactions contemplated by the Agreement.
d. Our opinion is limited to the matters expressly set forth in this
opinion letter, and no opinion is to be implied or may be inferred beyond the
matters expressly so stated.
e. This opinion letter is dated as of the Effective Time and,
therefore, relates only to events that exist as of that time. We disclaim any
obligation to update this opinion letter for any events, and any changes in law
or the interpretation thereof, occurring after such date.
f. Our opinion assumes that the AeroMax Common Stock issued pursuant
to the Merger will be evidenced by appropriate certificates that have been
properly executed and delivered.
Based upon and subject to the foregoing, we are of the opinion that at the
Effective Time, AeroMax Common Stock issued pursuant to the Merger will be duly
authorized, and, upon issuance in accordance with the provisions of the
Agreement, will be validly issued, fully paid and nonassessable.
This opinion letter is rendered solely for the benefit of JetFleet I and
JetFleet II in connection with the above transaction. Without our prior written
consent, this opinion letter may not be: (i) relied upon by any other party or
for any other purpose; (ii) quoted in whole or in part or otherwise referred to
in any report or document other than a closing memorandum relating to the
subject transactions; or (iii) furnished (the original or copies thereof) to
any party except in connection with the enforcement of the Agreement.
Very truly yours,
/s/ GRAHAM & JAMES LLP
2
<PAGE> 1
EXHIBIT 8.01
[LETTERHEAD OF GRAHAM & JAMES LLP]
OPINION OF LEGAL COUNSEL
April 1, 1997
AeroMax, Inc.
1440 Chapin Avenue, Suite 310
Burlingame, CA 94010
RE: ERISA OPINION
Ladies/Gentlemen:
We have acted as legal counsel to AeroMax, Inc. ("AeroMax"), in connection with
the filing of a Registration Statement under the Securities Act of 1933 with
the Securities and Exchange Commission. After consummation of the transactions
described in the Registration Statement, the common stock of AeroMax would be
publicly traded. We have reviewed the Registration Statement and the exhibits
hereto.
In our review of documents, we have assumed the authenticity of original
documents, the conformity to original documents of all documents submitted to
us as photostatic copies, and the genuineness of signatures. We have not made
any independent review or investigation of the facts set forth in the
Registration Statement. For the purpose of the opinions contained herein, we
have relied on the accuracy of all the facts set forth in the Registration
Statement and of the representations by all of the parties contained in the
Registration Statement. We have expressly assumed that all parties to the
Registration Statement have acted and will act in accordance with the
agreements, representations and warranties contained in the Registration
Statement and the exhibits thereto.
In addition, for purposes of this opinion, we have expressly assumed and relied
upon the following as facts:
1. The common stock of AeroMax is the only outstanding class of stock of
AeroMax.
<PAGE> 2
Aeromac, Inc.
April 2, 1997
Page 2
2. After the transactions described in the Registration Statement, the common
stock of AeroMax will be owned by more than 100 persons independent of AeroMax
and of one another.
3. AeroMax will impose no restrictions of any kind on the transfer of
AeroMax common stock.
4. Either (a) AeroMax common stock will be registered under Section 12(b) or
12(g) of the Securities Exchange Act of 1934 prior to the effective time of the
Consolidation, as described in the Registration Statement, or (b) AeroMax
common stock will be offered to the public pursuant to an effective
registration statement under the Securities Act of 1933, and the common stock
of AeroMax will be registered under the Securities Exchange Act of 1934 within
120 days (or such later time as may be allowed by the Securities and Exchange
Commission) after the end of the fiscal year of AeroMax during which the first
offering of common stock of AeroMax to the public occurs.
Based upon the foregoing, and in reliance thereon, we are of the opinion that
shares of the Common Stock of AeroMax should be "publicly-offered securities"
for purposes of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and that, consequently, the assets of AeroMax should not be deemed
"plan assets" of an ERISA plan, individual retirement account, or other
non-ERISA plan which invests in the Common Stock of AeroMax.
No opinion is expressed as to any matter under ERISA, except as expressly set
forth above. Furthermore, this opinion of counsel represents only this firm's
best judgment as to the probable status of AeroMax Common Stock under ERISA and
is not binding on the Department of Labor, the Internal Revenue Service or the
courts. The conclusions made herein are based on ERISA itself (as amended to
date), and existing judicial decisions, administrative regulations and
published rulings. There is no assurance, however, that there will not be
future legislative, judicial or administrative changes in the law which would
affect the accuracy of the conclusions stated herein. Nevertheless, we
undertake no responsibility to advise you of any such change.
Very truly yours,
/s/ GRAHAM & JAMES LLP
<PAGE> 3
(Second part
of 8.01)
[LETTERHEAD OF GRAHAM & JAMES LLP]
OPINION OF LEGAL COUNSEL
April 1, 1997
AeroMax, Inc.
1440 Chapin Avenue, Suite 310
Burlingame, CA 94010
RE: TAX OPINION
Ladies/Gentlemen:
We have acted as tax counsel to AeroMax, Inc. in connection with the proposed
consolidation by merger (the "Consolidation") of JetFleet Aircraft L.P.
("JetFleet I") and JetFleet Aircraft II, L.P. ("JetFleet II") (collectively,
the "Partnerships") into AeroMax, Inc. ("AeroMax"). We have reviewed the
Registration Statement filed by AeroMax in connection with the Consolidation,
as well as the exhibits thereto.
In our review of documents, we have assumed the authenticity of original
documents, the conformity to original documents of all documents submitted to
us as photostatic copies, and the genuineness of signatures. We have not made
any independent review or investigation of the facts set forth in the
Registration Statement. For the purpose of the opinions contained herein, we
have relied on the accuracy of all the facts set forth in the Registration
Statement and of the representations contained in the Registration Statement.
We have expressly assumed that all parties to the Consolidation have acted and
will act in accordance with the agreements, representations and warranties
contained in the Registration Statements and the exhibits thereto.
In addition, for purposes of this opinion, we have expressly assumed and relied
upon the facts and assumptions set forth at pages 93, et seq. of the
Registration Statement in the section of that statement captioned "Federal
Income Tax Considerations". In particular, this opinion is expressly based upon
the assumptions that, immediately after the effective time of the
Consolidation, current partners in the Partnerships will own at least 80% of
the Common Stock of AeroMax (which is the only outstanding class of stock in
AeroMax), and that no party to the Consolidation will have made any commitment
to sell any Common Stock of AeroMax received in connection with the
Consolidation.
Based upon the foregoing, and in reliance thereon, we are of the opinion that
the material federal income tax consequences of the Consolidation should be as
set forth in the segment
<PAGE> 4
Aeromax, Inc.
April 2, 1997
Page 2
of the Registration Statement captioned "Federal Income Tax Considerations",
which appears at pages 93 through 96 of the Registration Statement.
No opinion is expressed as to any tax consequence of the Consolidation, except
for the opinions as to material tax consequences of the Consolidation set forth
in the segment of the Registration Statement captioned "Federal Income Tax
Considerations". Furthermore, this opinion of counsel represents only this
firm's best judgment as to the probable federal income tax consequences of the
Consolidation, and is not binding on the Internal Revenue Service or the
courts. The conclusions made herein are based on the present Internal Revenue
Code and existing judicial decisions, administrative regulations and published
rulings. There is no assurance, however, that there will not be future
legislative, judicial or administrative changes in the law which would affect
the accuracy of the conclusions stated herein. Nevertheless, we undertake no
responsibility to advise you of any such change.
Very truly yours,
/s/ GRAHAM & JAMES LLP
<PAGE> 1
EXHIBIT 10.01
RESTRICTED STOCK PURCHASE AGREEMENT
This Agreement is made this ______ day of _________________, 199__
between AeroMax, Inc. (the "Company"), a Delaware corporation, and JetFleet
Management Corp. ("Purchaser").
RECITALS
A. The Company desires to engage Purchaser as management company pursuant
to a Management Agreement dated of even date herewith.
B. In connection with the engagement by the Company of Purchaser as
Management Company, as additional compensation to Purchaser, pursuant to a
compensation plan adopted by the Board of Directors, the Company desires to
purchase 150,000 shares of Common Stock.
C. The issuance of such shares of Common Stock is intended to be exempt
from registration under the Securities Act of 1933 pursuant to Rule 701
thereunder.
The Company and Purchaser hereby agree as follows:
1. Purchase of Shares. On this date and subject to the terms and
conditions of this Agreement, Purchaser hereby purchases from the Company, and
the Company hereby sells to Purchaser, an aggregate of 150,000 shares of the
Company's common stock (the "Shares") at an aggregate purchase price of
$150,000 (the "Purchase Price") or $1.00 per Share (the "Purchase Price Per
Share"). The term "Shares" refers to the Shares purchased under this Agreement
and includes all securities received (a) in replacement of the Shares, (b) as a
result of stock dividends or stock splits in respect of the Shares, and (c) all
securities received in replacement of the Shares in a recapitalization, merger,
reorganization or the like.
2. Representations of Purchaser. Purchaser represents and
warrants to the Company that:
(a) Purchaser is purchasing the Shares for Purchaser's
own account for investment purposes only and not with a view to, or for sale in
connection with, a distribution of the Shares within the meaning of the
Securities Act of 1933, as amended (the "1933 Act").
(b) Purchaser has no present intention of selling or
otherwise disposing of all or any portion of the Shares.
(c) Purchaser has had access to all information regarding
the Company and its present and prospective business, assets, liabilities and
financial condition that Purchaser reasonably considers important in making the
decision to purchase the Shares, and Purchaser has had ample opportunity to ask
questions of the Company's representatives concerning such matters and this
investment.
(d) Purchaser is fully aware of (i) the highly
speculative nature of the investment in the Shares; (ii) the financial hazards
involved; (iii) the lack of liquidity of the Shares and the restrictions on
transferability of the Shares (e.q. that Purchaser may not be able to sell or
dispose of the Shares or use them as collateral for loans); and (iv) the
qualifications and backgrounds of the principals of the Company.
Restricted Stock Purchase Agreement 1
<PAGE> 2
(e) Purchaser is capable of evaluating the merits and
risks of this investment, has the ability to protect Purchaser's own interests
in this transaction and is financially capable of bearing a total loss of this
investment.
(f) At no time was Purchaser presented with or solicited
by any publicly issued or circulated newspaper, mail, radio or television, or
any other form of general advertising in connection with the sale and purchase
of the Shares.
3. Compliance with Federal Securities Laws. Purchaser
understands and acknowledges that, in reliance upon the representations and
warranties made by Purchaser herein, the Shares have not been registered with
the Securities and Exchange Commission ("SEC") under the 1933 Act, but have
been issued under an exemption or exemptions from the registration requirements
of the 1933 Act which impose certain restrictions on Purchaser's ability to
transfer the Shares.
(a) Restrictions on Transfer. Purchaser understands that
Purchaser may not transfer any Shares unless such Shares are registered under
the 1933 Act or unless, in the opinion of counsel to the Company, an exemption
from such registration is available. Purchaser understands that only the
Company may file a registration statement with the SEC and that the Company is
under no obligation to do so with respect to the Shares. Purchaser has also
been advised that an exemption from registration may not be available or may
not permit Purchaser to transfer all or any of the Shares in the amounts or at
the times proposed by Purchaser.
(b) Rule 144. In addition, Purchaser has been advised
that SEC Rule 144 promulgated under the 1933 Act, which permits certain limited
sales of unregistered securities, is not presently available with respect to
the Shares and, in any event, requires that the Shares be held for a minimum of
two years, and in certain cases three years, after they have been purchased and
paid for (within the meaning of Rule 144), before they may be resold under Rule
144.
(c) Rule 701. Purchaser understands that the exemption
relied upon for the purchase and sale of the Shares is Rule 701, and that the
Shares will become freely transferrable, subject to limited conditions
regarding the method of sale, by nonaffilitates 90 days after the first sale of
common stock of the Company to the general public pursuant to a registration
statement filed with and declared effective by the Securities and Exchange
Commission, subject to any lengthier market standoff agreement entered into by
Purchaser. Affiliates must comply with the provisions (other than the holding
period requirements) of Rule 144 for such resales.
5. Company's Repurchase Option. The Company shall have the
option to repurchase all or a portion of the Shares on the terms and conditions
set forth in this Section (the "Repurchase Option") if Purchaser should cease
to be engaged by the Company as management Company pursuant to that certain
Management Agreement, to be entered into between the Company and Purchaser
contemporaneously with this Agreement.
(a) Right of Termination Unaffected. Nothing in this
Agreement shall be construed to limit or otherwise affect in any manner
whatsoever the right or power of the Company to terminate Purchaser's
engagement. In case of any dispute, the Board of Directors of the Company
shall have discretion to determine whether Purchaser has ceased to be engaged
by the Company or any parent, subsidiary or affiliate of the Company and the
effective date on which Purchaser's engagement terminated (the "Termination
Date").
Restricted Stock Purchase Agreement 2
<PAGE> 3
(b) Vested and Unvested Shares. The percentage of the
Shares that are considered "Vested Shares" shall be determined as follows:
If Purchaser has been
continuously engaged
by the Company from
_____________, 1997, Then the Percentage of
(the "Start Date") until the Shares that
the Termination Date For: are Vested Shares is:
------------------------ --------------------
Less than 6 months None
6 months or more 40% plus 5% for each
additional full month
that the Purchaser has
been continuously em-
ployed by the Company
after 6 months after
the Start Date
18 months or more 100%
Shares that are not Vested Shares are "Unvested Shares". Unvested Shares may
not be sold or otherwise transferred by Purchaser without the Company's prior
written consent.
(c) Exercise of Repurchase Option. At any time within 60
days after the Termination Date, the Company may elect to repurchase any or all
of the Unvested Shares, by giving Purchaser written notice of exercise of the
Repurchase Option.
(d) Repurchase of Unvested Shares. The Company or its
assignee(s) shall have the option to repurchase from Purchaser (or from
Purchaser's personal representative as the case may be) any or all of the
Unvested Shares at the current full market value of the Shares as determined in
good faith by the Company's Board of Directors.
(e) Payment of Repurchase Price. The repurchase price
shall be payable, at the option of the Company or its assignee(s), by check or
by cancellation of all or a portion of any outstanding indebtness of Purchaser
to the Company or by any combination thereof. The repurchase price shall be
paid without interest within 60 days after the Termination Date
6. Rights as Shareholder. Subject to the terms and conditions of
this Agreement, Purchaser shall have all of the rights of a shareholder of the
Company with respect to the Shares from and after the date that Purchaser
disposes of the Shares or the Company and/or its assignee(s) exercises the
Right of First Refusal hereunder. Upon such exercise, Purchaser shall have no
further rights as a holder of the Shares so purchased except the right to
receive payment for the Shares so purchased in accordance with the provisions
of this Agreement, and Purchaser shall forthwith cause the certificate(s)
evidencing the Shares so purchased to be surrendered to the Company for
transfer or cancellation.
7. Escrow. As security for the faithful performance of this
Agreement, Purchaser agrees, immediately upon receipt of the certificate(s)
evidencing the Shares, to deliver such certificate(s), together with a stock
power in the form of Exhibit A attached hereto, executed by
Restricted Stock Purchase Agreement 3
<PAGE> 4
Purchaser and by Purchaser's spouse, if any (with the date and number of Shares
left blank), to the Secretary of the Company or its designee ("Escrow Holder"),
who is hereby appointed to hold such certificate(s) and stock power in escrow
and to take all such actions and to effectuate all such transfers and/or
releases of such Purchaser and the Company agree that Escrow Holder shall not
be for any actions or omissions unless Escrow Holder shall not be for any
actions or omissions unless Escrow Holder is grossly negligent relative
thereto. The Escrow Holder may rely upon purported to be genuine and may rely
on advice of counsel and obey any order of any court with respect to the
transactions upon termination of the Right of First Refusal; provided, however,
that such release shall not affect the rights of the Company with respect to
any pledge of Shares to the Company.
8. Tax Consequences. Purchaser hereby acknowledges that
Purchaser has been informed that, unless an election is filed by the Purchaser
with the Internal Revenue Service and, if necessary, the proper state taxing
authorities, within 30 days of the purchase of the Shares, electing pursuant to
Section 83(b) of the Internal Revenue Code (and similar state tax provisions if
applicable) to be taxed currently on any difference between the purchase price
of the Shares and their fair market value on the date of purchase, there will
be a recognition of taxable income to the Purchaser, measured by the excess, if
any, of the fair market value of the Vested Shares, at the time they cease to
be Unvested Shares, over the purchase price for such Shares. Purchaser
represents that Purchaser has consulted any tax consultant(s) Purchaser deems
advisable in connection with the purchase of the Shares or the filing of the
election under Section 83(b) and similar tax provisions. A form of Election
under Section 83(b) is attached hereto as Exhibit B for reference. PURCHASER
HEREBY ASSUMES ALL RESPONSIBILITY FOR FILING SUCH ELECTION AND PAYING ANY TAXES
RESULTING FROM SUCH ELECTION OR THE LAPSE OF THE REPURCHASE RESTRICTIONS ON THE
UNVESTED SHARES.
9. Restrictive Legends and Stop-Transfer Orders.
(a) Legends. Purchaser understands and agrees that the
Company shall cause the legends set forth below or legends substantially
equivalent thereto, to be placed upon any certificate(s) evidencing ownership
of the Shares, together with any other legends that may be required by state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER THE SECURITIES ACT OR, IN THE OPINION OF
COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE
SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS
IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON PUBLIC RESALE, TRANSFER, AND A RIGHT OF REPURCHASE
OPTION HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN A
RESTRICTED STOCK PURCHASE AGREEMENT BETWEEN THE ISSUER AND THE
ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT
THE PRINCIPAL OFFICE OF THE ISSUER. SUCH PUBLIC SALE AND TRANSFER
RESTRICTIONS AND THE RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREE
OF THESE SHARES.
Restricted Stock Purchase Agreement 4
<PAGE> 5
(b) Stop-Transfer Instructions. Purchaser agrees that,
in order to ensure compliance with the restrictions referred to herein, the
Company may issue appropriate "stop-transfer" instructions to its transfer
agent, if any, and that, if the Company transfers its own securities, it may
make appropriate notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be
required (i) to transfer on its books any Shares that have been sold or
otherwise transferred in violation of any of the provisions of this Agreement
or (ii) to treat as owner of such Shares or to accord the right to vote or pay
dividends to any purchaser or other transferee to whom such Shares shall have
been so transferred.
(d) Market Standoff Agreement. Purchaser agrees in
connection with any registration of the Company's securities that, upon the
request of the Company or the underwriters managing any public offering of the
Company's securities, Purchaser will not sell or otherwise dispose of any
Shares without the prior written consent of the Company or such underwriters,
as the case may be, for a period of time (not to exceed 90 days) from the
effective date of such registration as the Company or the underwriters may
specify.
10. Compliance with Laws and Regulations. The issuance and
transfer of the Shares hereunder shall be subject to and conditioned upon
compliance by the Company and Purchaser with all applicable state and federal
laws and regulations and with all applicable requirements of any stock exchange
on which the Company common stock may be listed at the time of such issuance
and transfer.
11. Successors and Assigns. The Company may assign any of its
rights under this Agreement, including its rights to repurchase Shares under
the Repurchase Option. However, if the Company assigns its right to repurchase
Shares under the Repurchase Option to a holder of more than 10% of the
Company's outstanding voting securities, the assignee shall pay to the Company,
in addition to the purchase price it pays to Purchaser, the difference between
the cost of the Shares purchased under the Repurchase Option and the current
fair market value of the Shares, as determined by the Company's Board of
Directors. This Agreement will inure to the benefit of the successors and
assigns of the Company. Subject to the restrictions on transfer herein set
forth, this Agreement will be binding upon Purchaser and Purchaser's heirs,
executors, administrators, successors and assigns.
12. Interpretation. Any dispute regarding the interpretation of
this Agreement shall be submitted by Purchaser or by the Company forthwith to
the Company's Board of Directors or the committee thereof that administers
employee stock plans, which shall review such dispute at its next regular
meeting. The resolution of such a dispute by the Board or committee shall be
final and binding on the Company and on Purchaser.
13. Governing Law; Severability. This Agreement shall be governed
by and construed in accordance with the laws of the State of California,
excluding that body of laws pertaining to conflict of laws. Should any
provision of this Agreement be determined by a court of law to be illegal or
unenforceable, the other provisions shall nevertheless remain effective and
shall remain enforceable.
14. Notices. Any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given upon personal delivery
or upon deposit in the United States mail
Restricted Stock Purchase Agreement 5
<PAGE> 6
by certified or registered mail, return receipt requested, with postage and
fees prepaid, addressed to the other party at its address as shown below
beneath its signature, or to such other address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
15. Further Instruments. The parties agree to execute such
further instruments and to take such further action as may be reasonably
necessary to carry out the purposes and intent of this Agreement.
16. Entire Agreement. This Agreement, together with the Exhibits
hereto and the Plan, constitutes the entire agreement of the parties and
supersedes all prior understandings and agreements with respect to the subject
matter hereof.
17. Delivery of Payment. Purchaser hereby delivers to the Company
the full Purchase Price as follows: (in cash in the amount of $150,000, receipt
of which is acknowledged by the Company.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed in duplicate by its duly authorized representative and Purchaser has
executed this Agreement in duplicate as of the date set forth above.
AEROMAX, INC. JETFLEET MANAGEMENT CORP.
By: ______________________ By: ___________________________
Its:______________________ Its:___________________________
Address: _________________ Address: ______________________
__________________________ _______________________________
Restricted Stock Purchase Agreement 6
<PAGE> 7
EXHIBIT A
STOCK POWER AND ASSIGNMENT
SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Restricted Stock Purchase
Agreement dated as of __________________, 199__, the undersigned hereby sells,
assigns and transfers unto ____________________, __________ shares of the
common stock of ___________________, a California corporation, standing in the
undersigned's name on the books of said corporation represented by Certificate
No. ____ delivered herewith, and does hereby irrevocably constitute the
Secretary of said corporation as attorney-in-fact, with full power of
substitution, to transfer said stock on the books of said corporation.
Dated: __________________. 199__
______________________________
(Signature)
______________________________
(Please Print Name)
Restricted Stock Purchase Agreement 7
<PAGE> 8
EXHIBIT B
ELECTION UNDER SECTION 83(b) OF THE
INTERNAL REVENUE CODE
The undersigned Taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code, to include in gross income for the Taxpayers's current
taxable year the excess, if any, of the fair market value of the property
described below at the time of transfer over the amount paid for such property,
as compensation for services.
1. TAXPAYER'S NAME: ____________________________
TAXPAYER'S ADDRESS: ____________________________
____________________________
SOCIAL SECURITY NUMBER: ____________________________
2. The property with respect to which the election is made is described
as follows: ___________ shares of Common Stock of
____________________________, a California corporation (the "
Company"), which is Taxpayers's employer or the corporation for whom
the Taxpayer performs services.
3. The date on which the shares were transferred was ____________,
199___, and this election is made for calendar year 199_______.
4. The shares are subject to the following restrictions: The Company may
repurchase all or a portion of the shares at the Taxpayer's original
purchase price under certain conditions at the time of Taxpayers's
termination of employment or services.
5. The fair market value of the shares (without regard to restrictions
other than restrictions which by their terms will never lapse) was
$_______ per share at the time of transfer.
6. The amount paid for such shares was $__________ per share.
7. The Taxpayer has submitted a copy of this statement to the Company.
THIS ELECTION MUST BE FILED WITH THE INTERNAL REVENUE SERVICE ("IRS"), AT THE
OFFICE WHERE THE TAXPAYER FILES ANNUAL INCOME TAX RETURNS, WITHIN 30 DAYS AFTER
THE DATE OF TRANSFER OF THE PROPERTY, AND MUST ALSO BE FILED WITH THE
TAXPAYER'S INCOME TAX RETURNS FOR THE CALENDAR YEAR. THE ELECTION CANNOT BE
REVOKED WITHOUT THE CONSENT OF THE IRS.
Dated: ___________________, 19___ _________________________
Taxpayer's Signature
Restricted Stock Purchase Agreement 8
<PAGE> 1
EXHIBIT 10.02
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT, dated as _____, 1997, is entered by and
among AEROMAX, INC., a Delaware 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) the identification
and selection of income producing assets ("Assets") for acquisition by the
Company with the proceeds of the Offering; (ii) administration of the leases
for such Assets; (iii) management of remarketing and resale of the Assets; and
(iv) 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 INDEMNIFICATION. 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.
Mgmt. Agmt.
Aeromax, Inc.
3/6/97
<PAGE> 2
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE MANAGEMENT COMPANY
2.1 The Management Company hereby makes the following
representations and warranties 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 and authority 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 may 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 WITHDRAWAL OF THE MANAGEMENT COMPANY. The Management Company
Mgmt. Agmt.
Aeromax, Inc.
3/6/97 2
<PAGE> 3
may withdraw as management company upon 180 days prior notice, at any time,
upon which withdrawal this Agreement shall terminate; provided, however that
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 TERMINATION. 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 month, monthly 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 a management fee payable monthly on the last day of each
calendar month equal to 0.25% of the Net Asset Value of the Company as of the
last day of such calendar month. In addition, the Management Company shall
receive reimbursement of expenses paid to third parties incurred by the
Management Company in connection with the administration and management of the
Company. For purposes of this Agreement, Net Asset Value shall mean the
original costs of the assets recorded on the books of the Company less
depreciation, calculated in accordance with generally accepted accounting
principles.
3.6 TERM OF MANAGEMENT AGREEMENT. This Agreement shall have a
term of fifteen years subject to termination rights under Section 3.7 below.
3.7 TERMINATION. This Agreement may be terminated by a party upon
six months prior notice upon the material breach by the other party of any its
respective material agreements and obligations under this Agreement which
remains uncured for a period of after 90 days after written notice of such
breach. In the event the Company breaches this Agreement, then as liquidated
damages for such breach, and not as a penalty therefor, the Company shall pay
liquidated damages in the amount set forth on Schedule 1 hereto. The Company
and the Management Company hereby acknowledge that the damages suffered as a
result of the breach by the Company of this Agreement are difficult to
ascertain, but that such amounts are reasonable in light of the actual
anticipated damages.
ARTICLE 4
OPTION TO PURCHASE MANAGEMENT COMPANY
4.1 OPTION TO ACQUIRE MANAGEMENT COMPANY. In consideration of the
Company entering into this Agreement, the Management Company hereby grants to
the Company, the exclusive right to acquire all of its outstanding capital
stock for payable in the form of freely tradeable securities of the Company.
The purchase price would be set at 90% of the product of (i) the earnings of
the Management Company as of the most recent 12-month period prior to the
Mgmt. Agmt.
Aeromax, Inc.
3/6/97 3
<PAGE> 4
acquisition, multiplied by (ii) the average price to earnings ratio of the
Management Company over the same 12-month period, each as determined according
to generally accepted accounting principles; provided, however, that if the
purchase price is less than $12 million, Management Company would have the
right to decline the acquisition. The purchase shall be conditioned upon the
approval of the respective boards of directors and shareholders of both the
Company and the Management Company, as required by law, and shall expire on
December 31, 2000.
ARTICLE 5
MISCELLANEOUS PROVISIONS
5.1 APPLICABLE LAW. This Agreement shall by governed by and
construed and enforced in accordance with the laws of the State of California
without regard to principles of conflicts of law.
5.2 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.
5.3 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.
5.4 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.
5.5 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.
5.6 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.
5.7 AMENDMENTS. This Agreement may only be amended in writing
executed by the parties hereto.
5.8 CONFLICTS. In the event a conflict exists or arises between
this Agreement and the Prospectus, the terms and provisions of the Prospectus
shall control.
Mgmt. Agmt.
Aeromax, Inc.
3/6/97 4
<PAGE> 5
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
COMPANY: MANAGEMENT COMPANY:
AEROMAX, INC. JETFLEET MANAGEMENT CORP.,
a Delaware corporation a California corporation
By:_____________________________ By:_____________________________
Neal D. Crispin, President Neal D. Crispin, President
Mgmt. Agmt.
Aeromax, Inc.
3/6/97 5
<PAGE> 6
SCHEDULE A
LIQUIDATED DAMAGES FOR TERMINATION
From July 1, 1997 until ______, 199_.
$__________ for each year or portion thereof remaining in the term of the
Agreement.
From ________, 199_ to ______
$__________ for each year or portion thereof remaining in the term of the
Agreement.
Mgmt. Agmt.
Aeromax, Inc.
3/6/97
<PAGE> 1
EXHIBIT 10.03
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT ("Agreement") is made as of __________,
1997 by and between AeroMax, Inc., a Delaware corporation (the "Company"), and
___________ ("Indemnitee").
WHEREAS, the Company and Indemnitee recognize the increasing
difficulty n obtaining directors' and officers' liability insurance, the
significant increases in the cost of such insurance and the general reductions
in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting officers and directors
to expensive litigation risks at the same time as the availability and coverage
of liability insurance has been severely limited;
WHEREAS, Indemnitee does not regard the current protection available
as adequate under the present circumstances, and Indemnitee and other officers
and directors of the Company may not be willing to continue to serve as
officers and directors without additional protection; and
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve as officers and
directors of the Company and to indemnify its officers and directors so as to
provide them with the maximum protection permitted by law.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
(a) THIRD PARTY PROCEEDINGS. The Company shall indemnify
Indemnitee if Indemnitee is or was a party or is threatened to be made a party
to any threatened, pending or completed action or proceeding, whether civil,
criminal, administrative or investigative, formal or informal (other than an
action by or in the right of the Company), or any subsidiary of the Company, by
reason of any action or inaction on the part of Indemnitee while an officer or
director or by reason of the fact that Indemnitee is or was serving at the
request of the Company as a director, officer, employee, fiduciary or agent of
another corporation, partnership, joint venture, trust or other enterprise,
whether or not for profit, against expenses (including attorneys' fees),
judgments, (including punitive and compensatory damages) fines and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) (collectively, "Indemnified
Amounts") actually and reasonably incurred by Indemnitee in connection with
such action or proceeding if Indemnitee acted in good faith and in a manner
Indemnitee believed to be in the best interest of the Company, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe Indemnitee's conduct was unlawful. The termination of any
<PAGE> 2
action or proceeding by judgment or fine, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
i) Indemnitee did not act in good faith and in a manner which Indemnitee
reasonably believed to be in the best interests of the Company, or (ii) with
respect to any criminal action or proceeding, Indemnitee had reasonable cause
to believe that Indemnitee's conduct was unlawful.
(b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company
shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to
be made a party to any threatened, pending or completed action or proceeding by
or in the right of the Company or any subsidiary of the Company to procure a
judgment in its favor by reason of the fact that Indemnitee is or was a
director, officer, employee, fiduciary or agent of the Company, or any
subsidiary of the Company, by reason of any actin or inaction on the part of
Indemnitee while an officer or director or by reason of the fact that
Indemnitee is or was serving at the request of the Company as a director,
officer, employee, fiduciary or agent of another corporation, partnership,
joint venture, trust or other enterprise, whether or not for profit, against
the Indemnified Amounts (including attorney's fees), in each case to the extent
actually and reasonably incurred by Indemnitee in connection with the defense
or settlement of such actin or proceeding if Indemnitee acted in good faith and
in a manner Indemnitee believed to be in the best interests of the Company and
its stockholders.
2. EXPENSES: INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. The Company shall advance all
expenses and other Indemnified Amounts (including attorney's fees) incurred by
Indemnitee in connection with the investigation, defense, settlement or appeal
of any civil or criminal action or proceeding referenced in Section 1(a) or (b)
hereof. Indemnitee hereby undertakes to repay such amounts advanced only if,
and to the extent that, it shall ultimately be determined by a court of last
resort that Indemnitee is not entitled to be indemnified by the Company as
authorized hereby. The advances to be made hereunder shall be paid by the
Company to Indemnitee within twenty (20) days following delivery of a written
request therefor by Indemnitee to the Company. The Company will pay Indemnified
Amounts directly without requiring Indemnitee to make any prior payment.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a
condition precedent to his right to be indemnified under this Agreement, give
the Company notice in writing as soon as practicable of any claim made against
Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company at the address shown on the signature page of this
Agreement (or such other address as the Company shall designate in writing to
Indemnitee). Notice shall be deemed received three business days after the date
postmarked if sent by domestic certified or registered mail, properly
addressed; otherwise notice shall be deemed received when such notice shall
actually be received by the Company. In addition, Indemnitee shall give the
Company such information and cooperation as it may reasonably require and as
shall be within
2
<PAGE> 3
Indemnitee's power. If Indemnitee is required to testify (in court proceedings,
depositions, informal interviews or otherwise) consult with counsel, furnish
documents or take any other action in connection with a matter covered under
this Agreement, the Company will pay Indemnitee a reasonable rate plus
reimbursement for all reasonable expenses related thereto.
(c) PROCEDURE. Any indemnification provided for in Section 1
shall be made no later than forty-five (45) days after receipt of the written
request of Indemnitee. If a claim under this Agreement, under any statute, or
under any provision of the Company's Certificate of Incorporation or Bylaws
providing for indemnification, is not paid in full by the Company within
forty-five (45) days after a written request for payment thereof has first been
received by the Company, Indemnitee may, but need not, at any time thereafter
bring an action against the Company to recover the unpaid amount of the claim
and, subjection to Section 13 of this Agreement, Indemnitee shall also be
entitled to be paid for the expenses (including attorneys' fees) of bringing
such action. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in connection with any action
or proceeding in advance of its final disposition) that Indemnitee has not met
the standards of conduct which make it permissible under applicable law for the
Company to indemnify Indemnitee for the amount claimed, and Indemnitee shall be
entitled to receive interim payments of expenses and Indemnified Amounts
pursuant to Subsection 2(a) unless and until such defense may be finally
adjudicated by court order or judgment from which no further right of appeal
exists. It is the parties' intention that if the Company contests Indemnitee's
right to indemnification, the question of Indemnitee's right to indemnification
shall be for the court to decide, and neither the failure of the Company
(including its Board of Directors, any committee or subgroup of the Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination that indemnification of Indemnitee is proper in the circumstances
because Indemnitee has met the applicable standard of conduct required by
applicable law, nor an actual determination by the Company (including its Board
of Directors, any committee or subgroup of the Board of Directors, independent
leal counsel, or its stockholders) that Indemnitee has not met such applicable
standard of conduct, shall create a presumption that Indemnitee has or has not
met the applicable standard of conduct.
(d) NOTICE TO INSURERS. If, at the time of the receipt of a
notice of a claim pursuant to Section 2(b) hereof, the Company has director and
officer liability insurance in effect, the Company shall give prompt notice of
the commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be
obligated under Section 2(a) hereof to pay the expenses of any proceeding
against Indemnitee, the Company, if appropriate, shall be entitled to assume
the defense of such proceeding,
3
<PAGE> 4
which counsel approved by Indemnitee, which approval shall not be unreasonably
withheld, upon the delivery to Indemnitee of written notice of its election so
to do. After delivery of such notice, approval of such counsel by Indemnitee
and the retention of such counsel by the Company, the Company will not be
liable to Indemnitee under this Agreement for any fees of counsel subsequently
incurred by Indemnitee with respect to the same proceeding, provided that (i)
Indemnitee shall have the right to employ his counsel in any such proceeding at
Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee
has been previously authorized by the Company, (B) Indemnitee shall have
reasonably concluded hat there may be a conflict of interest between the
Company and Indemnitee in the conduct of any such defense or (C) the Company
shall not, in fact, have employed counsel to assume the defense of such
proceeding, then the fees and expenses of Indemnitee's counsel shall be at the
expense of the Company. With respect to indemnification pursuant to Section
2(e)(ii)(B) hereof, Indemnitee shall be entitled to select counsel of its
choice.
3. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. Notwithstanding any other provision of this
Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest
extent permitted by law, notwithstanding that such indemnification is not
specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute. In
the event of any change, after the date of this Agreement, in any applicable
law, statute or rule which expands the right of a Delaware corporation to
indemnify a member of its board of directors, an officer or other corporate
agent, such changes shall be, ipso facto, within the purview of Indemnitee's
rights and Company's obligations, under this Agreement. Neither the Company's
Certificate of Incorporation or bylaws will be changed to increase liability of
directors or limit indemnification of directors except as required by
applicable law. Any repeal or modification of the Company's Certificate of
Incorporation or Bylaws, or any relevant provision of applicable law, will not
in any way diminish any of Indemnitee's rights or Company's obligations
hereunder except as required by applicable law.
(b) NONEXCLUSIVITY. The indemnification provided by this
Agreement shall not be deemed exclusive of any rights to which Indemnitee may
be entitled under the Company's Certificate of Incorporation, its Bylaws, any
agreement, any vote of stockholders or disinterested directors, the Delaware
General Corporation Law, or otherwise, both as to action in Indemnitee's
official capacity and as to action in another capacity while holding such
office. The indemnification provided under this Agreement shall continue as to
Indemnitee for any action taken or not taken while serving in an indemnified
capacity even though he may have ceased to serve in such capacity at the time
of any action or other covered proceeding.
4. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the expenses, judgments, fines or penalties actually or reasonably
incurred by him in the
4
<PAGE> 5
investigation, defense, appeal or settlement of any civil or criminal action or
proceeding, but not, however, for the total amount thereof, the Company shall
nevertheless indemnify Indemnitee for the portion of such expenses, judgments,
fines or penalties to which Indemnitee is entitled.
5. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors and officers under this Agreement
or otherwise. Indemnitee understands and acknowledges that the Company has
undertaken or may be required in the future to undertake with the Securities
and Exchange Commission to submit the question of indemnification to a court in
certain circumstances for a determination of the Company's right under public
policy to indemnify Indemnitee.
6. DIRECTORS' AND OFFICERS' LIABILITY INSURANCE. The Company shall,
from time to time, make the good faith determination whether or not it is
practicable for the Company to obtain and maintain a policy or policies of
insurance with reputable insurance companies providing the officers and
directors of the company with coverage for losses from wrongful acts, or to
ensure the Company's performance of its indemnification obligations under this
Agreement. Among other considerations, the Company will weigh the costs of
obtaining such insurance coverage against the protection afforded by such
coverage. In all policies of directors' and officers' liability insurance,
Indemnitee shall be named as an insured in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if Indemnitee is a director, or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, if Indemnitee is not an officer or
director but is a key employee. Notwithstanding the foregoing, the Company
shall have no obligation to obtain or maintain such insurance if the Company
determines in good faith that such insurance is not reasonably available, if
the premium costs for such insurance are disproportionate to the amount of
coverage provided, if the coverage provided by such insurance is limited by
exclusions so as to provide an insufficient benefit, or if Indemnitee is
covered by similar insurance maintained by a subsidiary or parent of the
Company.
7. SEVERABILITY. Nothing in this Agreement is intended to require or
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach
of this Agreement. The provisions of this Agreement shall be severable as
provided in this Section 7. If this Agreement or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Company shall nevertheless indemnify Indemnitee to the full extent permitted by
any applicable portion of this Agreement that shall not have been invalidated,
and the balance of this Agreement not so invalidated shall e enforceable in
accordance with its terms.
5
<PAGE> 6
8. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) EXCLUDED ACTS. To indemnify Indemnitee for any acts or
omissions or transactions from which a director may not be relieved of
liability under the Delaware General Corporation Law.
(b) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance
expenses to Indemnitee with respect to proceedings or claims initiated or
brought voluntarily the Indemnitee and not by way of defense, except with
respect to proceedings brought to establish or enforce a right to
indemnification under this Agreement, the Company's Certificate of
Incorporation or Bylaws, or any other statute or law or otherwise as required
under Section 317 of the Delaware General Corporation Law, but such
indemnification or advancement of expenses may be provided by the Company in
specific cases if the Board of Directors has approved the initiation or
bringing of such suit; or
(c) LACK OF GOOD FAITH. To indemnify Indemnitee for any
expenses incurred by the Indemnitee with respect to any proceeding instituted
by Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or
(d) INSURED CLAIMS. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) which
have been paid directly to Indemnitee by an insurance carrier under a policy of
directors' and officers' liability insurance maintained by the Company; or
(e) CLAIMS UNDER SECTION 16(b). To indemnify Indemnitee for
expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
9. EFFECTIVENESS OF AGREEMENT. This Agreement shall be effective as
of the date set forth on the first page and may apply to acts or omissions of
Indemnitee which occurred prior to such date if Indemnitee was an officer,
director, employee, fiduciary or other agent of the company, or was serving at
the request of the Company director, officer, employee, fiduciary or agent of
another corporation, partnership, joint venture, trust or other enterprise, at
the time such act or omission occurred.
10. LIMITATION OF ACTIONS. No action will be brought by or on behalf
of the Company against Indemnitee or Indemnitee's heirs or personal
representatives relating to Indemnitee's services as director or officer of
Company, after the expiration of one year from the date Indemnitee ceases (for
any reason) to serve as director or officer of
6
<PAGE> 7
the Company, any claim or cause of action will be extinguished and deemed
released unless asserted by the filing of a legal action prior to the
expiration of such period.
11. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to the
"Company" shall also include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed
in a consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
employees, fiduciaries or agents, so that if Indemnitee is or was a director,
officer, employee, fiduciary or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee, fiduciary or agent of another corporation, partnership,
joint venture, trust or other enterprise, Indemnitee shall stand in the same
position under the provisions of this Agreement with respect to the resulting
or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee, fiduciary or agent of the
company which imposes duties on, or involves services by such director,
officer, employee, fiduciary or agent with respect to an employee benefit plan,
its participants, or beneficiaries.
12. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
13. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon the Company and its successors and assigns, and shall inure to the benefit
of Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.
14. ATTORNEYS' FEES. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms
hereof, Indemnitee shall be entitled to be paid all costs and expenses,
including reasonable attorneys' fees, incurred by Indemnitee with respect to
such action, unless as a part of such action, a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee as a basis
for such action were not made in good faith or were frivolous. In the event of
an action instituted by or in the name of the Company under this Agreement or
to enforce or interpret any of the terms of this Agreement, Indemnitee shall be
entitled to be paid all costs and expenses, including reasonable attorneys'
fees, incurred by Indemnitee in defense of such action (including with respect
to Indemnitee's counterclaims and cross-claims made in such action), unless as
a part of such action were made in bad faith or were frivolous.
7
<PAGE> 8
15. NOTICE. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed
duly given (i) if delivered by hand and receipted for by the party addressee,
on the date of such receipt, or (ii) if mailed by domestic certified or
registered mail with postage prepaid, on the third business day after the date
postmarked. Addresses for notice to either party are as shown on the signature
page of this Agreement, or as subsequently modified by written notice.
16. CONSENT TO JURISDICTION. The Company and Indemnitee each
hereby irrevocably consent to the jurisdiction of the courts of the State of
Delaware for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement and agree that any action instituted
under this Agreement shall be brought only in the state courts of the State of
Delaware.
17. CHOICE OF LAW. This Agreement shall be governed by and its
provisions construed in accordance with the laws of the State of Delaware as
applied to contracts between Delaware residents entered into and to be
performed entirely within Delaware.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
AEROMAX, INC.
By:
-----------------------------------
Title:
--------------------------------
Address: 1440 Chapin Avenue, Suite 310
Burlingame, California 94010
AGREED TO AND ACCEPTED:
INDEMNITEE:
- ----------------------------------
(Signature)
- ----------------------------------
(Name printed)
- ----------------------------------
(Address)
- ----------------------------------
<PAGE> 1
EXHIBIT 23.01
CONSENT OF GRAHAM & JAMES LLP
The undersigned hereby consents to the reference to it under the
caption "Legal Opinions" and "Federal Income Tax Considerations" in the
Prospectus/Consent Solicitation Statement which constitutes a part of the Form
S-4 Registration Statement for AeroMax, Inc. The undersigned also consent to
the inclusion in the Registration Statement of its opinions as Exhibit 5.01 and
8.01 thereto.
/s/ Graham & James LLP
---------------------------------------
GRAHAM & JAMES LLP
April 7, 1997
<PAGE> 1
EXHIBIT 23.02
CONSENT OF VOCKER KRISTOFFERSON AND CO.
We hereby consent to the use of our reports, with respect to the audited
balance sheet of AeroMax, Inc., dated March 6, 1997, and with respect to the
audited financial statements of each of JetFleet Aircraft, L.P., and JetFleet
Aircraft II, L.P., dated February 6, 1997, in the Form S-4 Registration
Statement filed for AeroMax, Inc. We also consent to the reference to our
firm under the caption "EXPERTS" in the Prospectus.
/s/ Vocker Kristofferson and Co.
--------------------------------
VOCKER KRISTOFFERSON AND CO.
April 7, 1997
<PAGE> 1
EXHIBIT 23.03
CONSENT OF APPRAISER
The undersigned hereby consents to the use of our reports, AISI Report No.
A7D008BVO and A7D005BVO, each dated 14 January 1997, in the Prospectus/Consent
Solicitation Statement filed on Form S-4 for AeroMax, Inc. We also consent to
the reference to our firm under the reference "EXPERTS" in the
Prospectus/Consent Solicitation Statement.
/s/ Aircraft Information Services, Inc.
---------------------------------------
Aircraft Information Services, Inc.
Dated: April 2, 1997
<PAGE> 1
EXHIBIT 99.01
AIRCRAFT INFORMATION SERVICES, INC.
04 February 1997
Mr. Frank Duckstein
CMA Capital Group, Inc.
JetFleet Aircraft, L.P.
JetFleet Aircraft II, L.P.
1440 Chapin Avenue, Suite 310
Burlingame, CA 94010
Subject: AISI Report No. A7D008BVO
AISI Short Form Sight Unseen Base Value Appraisal
Fleet of Seven Selected Aircraft and Seven Engine Types
Reference: Jetfleet Fax Message, 14 January 1997
Dear Mr. Duckstein:
As requested, Aircraft Information Services, Inc. (AISI) is pleased to offer
Jetfleet Management Corporation our opinion of the sight unseen half-life
current market value of your seven aircraft and the 'zero time since
overhauled' current market value of your seven bare engine types as identified
in Table I of this report.
1. METHODOLOGY AND DEFINITIONS
The historical standard term of reference for commercial aircraft or engine
value has been 'half-life fair market value' of an 'average' aircraft or
engine. However, 'fair market value' could mean a fair value in the given
market or a value in a hypothetical 'fair' or balanced market, and the two
definitions are not equivalent. Recently, the term 'base value' has been
created to describe the theoretical balanced market condition and to avoid the
potentially misleading term 'fair market value' which has now become synonymous
with the term 'current market value' or a 'fair' value in the actual current
market. AISI value definitions are consistent with those of the International
Society of Transport Aircraft Trading (ISTAT) of 01 January 1994; AISI is a
member of that organization and employs an ISTAT Certified Senior Aircraft
Appraiser.
AISI defines a 'base value' as that of a transaction between equally willing
and informed buyer and seller, neither under compulsion to buy or sell, for a
single unit cash transaction with no hidden value or liability, and with supply
and demand of the sale item roughly in balance. Base values are typically
given for aircraft or engines in 'new' condition, 'average half-life'
condition, or in a specifically described condition unique to a single aircraft
or engine at a specific time. An 'average' aircraft or engine is an operable
airworthy aircraft or engine in average physical condition and with average
accumulated flight hours and cycles, with clear title and, for aircraft, a
standard unrestricted certificate of airworthiness and registered in an
authority which does not represent a penalty to aircraft value or liquidity;
with no damage history and with inventory configuration and level of
modification which is normal for the aircraft or engine's intended use and age.
AISI assumes average condition unless otherwise specified in this report.
'Half-life' condition assumes that every component or maintenance service which
has a prescribed interval that determines its service life, overhaul interval
or interval between maintenance services, is at a condition which is one-half
of the total interval. AISI defines engine 'zero time since overhaul'
condition to be that of an engine fresh from an engine heavy maintenance shop
visit which overhauled all engine modules or all engine compressor and
combustor/turbine stages as appropriate, with all life-limited components at
half-life.
<PAGE> 2
AISI defines a 'current market value' or 'fair market value' as that value
which reflects the real market conditions, whether at, above or below the base
value conditions. Definitions of aircraft or engine condition, buyer/seller
qualifications and type of transaction remain unchanged from that of base
value. Current market value takes into consideration the status of the economy
in which the aircraft or engine is used, the status of supply and demand for
the particular aircraft or engine type, the value of recent transactions and
the opinions of informed buyers and sellers. Current market value assumes that
there is no short term time constraint to buy or sell.
AISI encourages the use of base values only to consider historical trends, as a
basis for long term future value considerations, or to consider how actual
market values vary from theoretical base values. Base values are inappropriate
to determine near term values. AISI encourages the use of current market
values to consider the probable near term value of an aircraft or engine.
AISI determines an 'adjusted market value' by determining the value of known
deviations from half-life condition, which may be better or worse than
half-life condition, and to account for better or worse than average physical
condition, and the inclusion of additional equipment, or absence of standard
equipment.
Given the relatively thin used engine market and the relatively broad range of
values for transactions for an engine type, the meaning of 'base value' for
used engines is open to broad interpretation. Normally base value is derived
from historical normalized current market values with manufacturer's list price
as a start point, while current market value is deduced directly from recent
transactions. For used engines there are seldom sufficient historical
transactions to permit the same derivation of engine base values as is possible
for aircraft base values. In our opinion the used engine market is currently a
relatively hard market, and base value will be close to current market values
for most engine types.
AISI defines a BARE ENGINE as an engine without accessories, but complete with
all air, hydraulic and electrical lines which are not directly part of
accessories. For turboprop engines, a bare engine includes the gas generator
and power or gearbox sections but not the propellor.
AISI defines a BASIC QEC engine as the bare engine plus all accessories,
connecting lines and engine mounts but not including engine inlet cowl, fan
cowl or thrust reverser.
AISI defines a FULL QEC engine as a basic QEC engine plus inlet cowl, fan cowl
and thrust reverser. There will be some variation in full QEC inventory from
engine type to type, and from position to position.
2. VALUATION
The aircraft half-life base values and bare engine zero time since overhaul
base values are presented below in Table I subject to the assumptions,
definitions and disclaimers herein.
<PAGE> 3
Table I
<TABLE>
<CAPTION>
============================================================================================================
AIRCRAFT/ S/N DATE OF CONFIGURATION AIRCRAFT ENGINE ZERO
ENGINE MANUFACTURE HALF LIFE TIME SINCE OVERHAUL
TYPE CURRENT CURRENT MARKET
MARKET VALUE
VALUE 1997 1997 MUSD
MUSD
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DHC-7-103 11 1979 Combi 1.86 -
- ------------------------------------------------------------------------------------------------------------
DHC-7-102 44 1981 Passenger 1.35 -
- ------------------------------------------------------------------------------------------------------------
DHC-7-102 57 1981 Passenger 1.35 -
- ------------------------------------------------------------------------------------------------------------
DHC-7-103 72 1982 Combi 1.92 -
- ------------------------------------------------------------------------------------------------------------
DHC-6-300 666 1980 Passenger 0.95 -
- ------------------------------------------------------------------------------------------------------------
Metro III AC576 1983 Passenger 0.83 -
- ------------------------------------------------------------------------------------------------------------
Metro II TC370 1980 Passenger 0.44 -
- ------------------------------------------------------------------------------------------------------------
PT6A-28 - - Bare - 0.20
- ------------------------------------------------------------------------------------------------------------
PT6A-41 - - Bare - 0.29
- ------------------------------------------------------------------------------------------------------------
PT6A-42 - - Bare - 0.30
- ------------------------------------------------------------------------------------------------------------
PT6A-45R - - Bare - 0.29
- ------------------------------------------------------------------------------------------------------------
PT6A-50 - - Bare - 0.33
- ------------------------------------------------------------------------------------------------------------
PT6A-65R - - Bare - 0.34
- ------------------------------------------------------------------------------------------------------------
A250-C30P - - Bare - 0.27
============================================================================================================
</TABLE>
This report is offered as a fair and impartial assessment of subject aircraft
and engines based on data supplied by others, with no physical inspection or
verification by AISI. AISI has no past, present nor contemplated future
interest in subject aircraft and engines. This report is an opinion and is for
the sole use of the client/addressee and AISI shall not be liable to any party
for damages arising out of reliance or alleged reliance on it, or for any
parties action or failure to act as a result of reliance or alleged reliance on
this report.
Sincerely,
AIRCRAFT INFORMATION SERVICES, INC.
/s/ Fred E. Bearden
Fred E. Bearden
President
<PAGE> 4
AIRCRAFT INFORMATION SERVICES, INC.
04 February 1997
Mr. Frank Duckstein
CMA Capital Group, Inc.
JetFleet Aircraft, L.P.
JetFleet Aircraft II, L.P.
1440 Chapin Avenue, Suite 310
Burlingame, CA 94010
Subject: AISI Report No. A7D005BVO
AISI Short Form Sight Unseen Base Value Appraisal
Fleet of Seven Selected Aircraft and Seven Engine Types
Reference: Jetfleet Fax Message, 14 January 1997
Dear Mr. Duckstein:
As requested, Aircraft Information Services, Inc. (AISI) is pleased to offer
Jetfleet Management Corporation our opinion of the sight unseen half-life base
value of your seven aircraft and the 'zero time since overhauled' base value of
your seven bare engine types as identified in Table I of this report.
1. METHODOLOGY AND DEFINITIONS
The historical standard term of reference for commercial aircraft or engine
value has been 'half-life fair market value' of an 'average' aircraft or
engine. However, 'fair market value' could mean a fair value in the given
market or a value in a hypothetical 'fair' or balanced market, and the two
definitions are not equivalent. Recently, the term 'base value' has been
created to describe the theoretical balanced market condition and to avoid the
potentially misleading term 'fair market value' which has now become synonymous
with the term 'current market value' or a 'fair' value in the actual current
market. AISI value definitions are consistent with those of the International
Society of Transport Aircraft Trading (ISTAT) of 01 January 1994; AISI is a
member of that organization and employs an ISTAT Certified Senior Aircraft
Appraiser.
AISI defines a 'base value' as that of a transaction between equally willing
and informed buyer and seller, neither under compulsion to buy or sell, for a
single unit cash transaction with no hidden value or liability, and with supply
and demand of the sale item roughly in balance. Base value are typically given
for aircraft or engines in 'new' condition, 'average half-life' condition, or
in a specifically described condition unique to a single aircraft or engine at
a specific time. An 'average' aircraft or engine is an operable airworthy
aircraft or engine in average physical condition and with average accumulated
flight hours and cycles, with clear title and, for aircraft, a standard
unrestricted certificate of airworthiness and registered in an authority which
does not represent a penalty to aircraft value or liquidity; with no damage
history and with inventory configuration and level of modification which is
normal for the aircraft or engine's intended use and age. AISI assumes average
condition unless otherwise specified in this report. 'Half-life' condition
assumes that every component or maintenance service which has a prescribed
interval that determines its service life, overhaul interval or interval
between maintenance services, is at a condition which is one-half of the total
interval. AISI defines engine 'zero time since overhaul' condition to be that
of an engine fresh from an engine heavy maintenance shop visit which overhauled
all engine modules or all engine compressor and combustor/turbine stages as
appropriate, with all life-limited components at half-life.
<PAGE> 5
AISI defines a 'current market value' or 'fair market value' as that value
which reflects the real market conditions, whether at, above or below the base
value conditions. Definitions of aircraft or engine condition, buyer/seller
qualifications and type of transaction remain unchanged from that of base
value. Current market value takes into consideration the status of the economy
in which the aircraft or engine is used, the status of supply and demand for
the particular aircraft or engine type, the value of recent transactions and
the opinions of informed buyers and sellers. Current market value assumes that
there is no short term time constraint to buy or sell.
AISI encourages the use of base values only to consider historical trends, as a
basis for long term future value considerations, or to consider how actual
market values vary from theoretical base values. Base values are inappropriate
to determine near term values. AISI encourages the use of current market
values to consider the probable near term value of an aircraft or engine.
AISI determines an 'adjusted market value' by determining the value of known
deviations from half-life condition, which may be better or worse than
half-life condition, and to account for better or worse than average physical
condition, and the inclusion of additional equipment, or absence of standard
equipment.
Given the relatively thin used engine market and the relatively broad range of
values for transactions for an engine type, the meaning of 'base value' for
used engines is open to broad interpretation. Normally base value is derived
from historical normalized current market values with manufacturer's list price
as a start point, while current market value is deduced directly from recent
transactions. For used engines there are seldom sufficient historical
transactions to permit the same derivation of engine base values as is possible
for aircraft base values. In our opinion the used engine market is currently a
relatively hard market, and base value will be close to current market values
for most engine types.
AISI defines a BARE ENGINE as an engine without accessories, but complete with
all air, hydraulic and electrical lines which are not directly part of
accessories. For turboprop engines, a bare engine includes the gas generator
and power or gearbox sections but not the propellor.
AISI defines a BASIC QEC engine as the bare engine plus all accessories,
connecting lines and engine mounts but not including engine inlet cowl, fan
cowl or thrust reverser.
AISI defines a FULL QEC engine as a basic QEC engine plus inlet cowl, fan cowl
and thrust reverser. There will be some variation in full QEC inventory from
engine type to type, and from position to position.
2. VALUATION
The aircraft half-life base values and bare engine zero time since overhaul
base values are presented below in Table I subject to the assumptions,
definitions and disclaimers herein.
<PAGE> 6
Table I
<TABLE>
<CAPTION>
========================================================================================================
AIRCRAFT/ S/N DATE OF CONFIGURATION AIRCRAFT ENGINE ZERO
ENGINE MANUFACTURE HALF LIFE TIME SINCE
TYPE BASE VALUE OVERHAUL
1997 MUSD BASE VALUE
1997 MUSD
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DHC-7-103 11 1979 Combi 3.10 -
- --------------------------------------------------------------------------------------------------------
DHC-7-102 44 1981 Passenger 2.25 -
- --------------------------------------------------------------------------------------------------------
DHC-7-102 57 1981 Passenger 2.25 -
- --------------------------------------------------------------------------------------------------------
DHC-7-103 72 1982 Combi 3.10 -
- --------------------------------------------------------------------------------------------------------
DHC-6-300 666 1980 Passenger 1.00 -
- --------------------------------------------------------------------------------------------------------
Metro III AC576 1983 Passenger 0.98 -
- --------------------------------------------------------------------------------------------------------
Metro II TC370 1980 Passenger 0.63 -
- --------------------------------------------------------------------------------------------------------
PT6A-28 - - Bare - 0.22
- --------------------------------------------------------------------------------------------------------
PT6A-41 - - Bare - 0.32
- --------------------------------------------------------------------------------------------------------
PT6A-42 - - Bare - 0.33
- --------------------------------------------------------------------------------------------------------
PT6A-45R - - Bare - 0.31
- --------------------------------------------------------------------------------------------------------
PT6A-50 - - Bare - 0.35
- --------------------------------------------------------------------------------------------------------
PT6A-65R - - Bare - 0.38
- --------------------------------------------------------------------------------------------------------
A250-C30P - - Bare - 0.30
========================================================================================================
</TABLE>
This report is offered as a fair and impartial assessment of subject aircraft
and engines based on data supplied by others, with no physical inspection or
verification by AISI. AISI has no past, present nor contemplated future
interest in subject aircraft and engines. This report is an opinion and is for
the sole use of the client/addressee and AISI shall not be liable to any party
for damages arising out of reliance or alleged reliance on it, or for any
parties action or failure to act as a result of reliance or alleged reliance on
this report.
Sincerely,
AIRCRAFT INFORMATION SERVICES, INC.
/s/ Fred E. Bearden
Fred E. Bearden
President
