SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
(Mark One)
[ X ] Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934 For the fiscal year ended December 31, 1998
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the transition period from ____________ to ____________
Commission File Number: 001-13387
AeroCentury Corp.
(Name of small business issuer in its charter)
Delaware 94-3263974
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1440 Chapin Avenue, Suite 310
Burlingame, California 94010
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (650) 340-1888
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Exchange on Which Registered
Common Stock, $0.001 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Check whether the Issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes XNo
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained herein, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
Revenues for the issuer's most recent fiscal year: $3,777,580
On March 19, 1999 the aggregate market value of the voting and non-voting Common
equity held by non-affiliates (based on an average of the bid and asked price of
$8.0625 on March 19, 1999) was $11,182,881.
As of March 19, 1999 the Issuer has 1,606,557 Shares of Common Stock, of which
17,800 are held as Treasury Stock.
Transitional Small Business Disclosure Format
(check one): Yes _ No __X__
Documents Incorporated by Reference: The following documents filed with the
Securities Exchange Commission contain information incorporated by reference
herein: 1) Definitive Proxy Statement filed on March 22, 1999; 2) Form 8-A/A
filed with the Securities and Exchange Commission on February 4, 1999; 2)
Reports on Form 8-K filed March 16, 1998, May 18, 1998, May 19, 1998 and July 2,
1998.
<PAGE>
PART I
Item 1. Business.
Business of the Company
AeroCentury Corp. (the "Company") was incorporated in the state of Delaware on
February 28, 1997 ("Inception"). The Company was formed solely for the purpose
of acquiring JetFleet Aircraft, L.P. ("JetFleet I") and JetFleet Aircraft II,
L.P. ("JetFleet II"), California limited partnerships (collectively, the
"Partnerships") in a statutory merger (the "Consolidation"). JetFleet I and
JetFleet II were organized in October 1989 and October 1991, respectively. Prior
to the Consolidation, the Partnerships engaged in the business of ownership,
management, leasing and acquisition of a portfolio of aircraft equipment. Upon
completion of the Consolidation, which occurred on January 1, 1998, the Company
succeeded to the Partnerships' business.
At December 31, 1997 all of the Company's outstanding common stock was owned by
JetFleet Management Corp. ("JMC"). JMC is an integrated aircraft management,
marketing and financing business. JMC also managed, on behalf of their general
partners and limited partners, the aircraft assets of the Partnerships. JMC is
the management company for the Company pursuant to the Management Agreement
between JMC and the Company.
In connection with the Consolidation, the Company issued 1,456,557 shares of
Common Stock of the Company, $0.001 par value, to the limited and general
partners of the Partnerships in exchange for their respective partnership
interests in the Partnerships. In the Consolidation 99.5% of the total
outstanding limited partnership units of the Partnerships were exchanged for
Common Stock of the Company. The acquisition of the Partnerships by the Company
was treated as a "pooling-of-interests" under generally accepted accounting
principles, with the assets and liabilities of the combining entities recorded
at historical cost on the Consolidation date.
The Company is engaged in the business of ownership, management, leasing and
acquisition of aircraft, focused on used turboprop aircraft equipment for lease
to domestic and foreign regional air carriers. By assuming the business of the
Partnerships in January 1998, the Company became owner of a portfolio of
unleveraged aircraft and engines on lease and generating positive cash flow. The
Company's principal business objective is to increase shareholder value by
acquiring additional aircraft assets that will provide a return on investment
through lease revenue from creditworthy lessees, and eventually resale proceeds.
The Company intends to achieve its business objective by reinvesting cash flow
and obtaining short-term and long-term financing and/or equity financing.
The Company's success in achieving its objective will depend in large part on
its success in two areas, asset selection and lessee selection.
The Company acquires additional assets in one of three ways. The most common
situation is when the Company purchases an asset, usually from an air carrier,
and leases it back to the seller. In addition the Company may purchase an asset
already subject to a lease and assume the rights of the seller, as lessor under
the existing Lease. Finally, the Company may purchase an asset from a seller and
then immediately enter into a new lease for the aircraft with a third party
lessee. In this last case, the Company would not purchase an asset unless a
potential lessee had been identified and had committed to lease the aircraft.
The Company generally targets used turboprop aircraft and engines with purchase
prices between $1 million and $10 million, and lease terms of three to five
years. In determining assets for acquisition, the Company evaluates among other
things, the type of asset, its current price and projected future value, its
versatility or specialized uses, the current and projected future availability
of and demand for that asset, and the type and number of future potential
lessees. Because the Company's management has extensive experience in
purchasing, leasing and selling used turboprop aircraft, the Company believes it
can purchase these assets at an appropriate price and keep the assets on lease.
Furthermore, the Company believes that its industry knowledge enables it to
purchase assets that are likely to retain their value through and after the end
of the initial lease of the asset.
<PAGE>
In order to improve the remarketability of an aircraft after expiration of the
lease, the Company focuses on having lease provisions for its aircraft that
provide for good maintenance and return conditions, so that when the lessee
returns the aircraft, the Company receives the aircraft back in a condition good
enough to immediately re-lease or re-sell the aircraft at an attractive rate, or
receives sufficient payments from the lessee to cover any maintenance or
overhaul of the aircraft required to bring the aircraft to such a state.
When considering whether to accept transactions with a lessee, the Company
examines the creditworthiness of the lessee, its short- and long-term growth
prospects, its financial status and backing, the impact of pending governmental
regulation or de-regulation of the lessee's market, all weighed against the
lease rate that is offered by the lessee. In addition, where applicable, it is
the Company's policy to monitor the lessee's business and financial performance
closely throughout the term of the lease, and if requested, provide assistance
drawn from the experience of Company's management in many areas of the air
carrier industry. Because of its "hands-on" approach to portfolio management,
the Company believes it is able and willing to enter into transactions with a
wider range of lessees than would be possible for traditional, large lending
institutions and leasing companies.
Working Capital Needs
The Company's portfolio of assets is currently generating revenues which more
than cover its expenses. During 1998, the Company's expenses consisted mainly of
management fees, which are based upon the size of the asset pool, and
professional fees paid to third parties not covered by JMC under the Management
Agreement. Expenses were more than covered by lease revenues. As the Company
begins to use acquisition debt financing under its revolving credit line,
interest expense will become an increasingly larger portion of the Company's
expenses. However, each advance on the credit line is accompanied by the
acquisition of an asset subject to a lease providing for lease payments that
should be greater than payments required to repay the increased loan payment
obligations arising from such advance. So long as the Company continues to be
successful in keeping its assets on lease and interest rates remain stable, the
Company's cash flow should be sufficient to cover the management fees,
professional fees and interest expense, and provide extra cash flow that can be
applied with equity or debt financings to acquire additional assets.
Competition
The Company competes for customers, generally regional commercial aircraft
operators, that are seeking to lease aircraft under an operating lease. The
Company faces competition from other companies providing financing, including
leasing companies, banks and other financial institutions and aircraft leasing
partnerships. Management believes that competition may increase if competitors
who have traditionally neglected the regional air carrier market begin to focus
on that growing market. Because competition is largely based on price and lease
terms, the entry of new competitors into the market, particularly those with
greater access to capital markets than the Company, could lead to fewer
financing opportunities for the Company and/or financing terms less favorable to
the Company on new financing transactions and renewals of existing leases. This
could lead to lower revenues for the Company.
The Company, however, believes that its competitive advantage is due to its
experience and operational efficiency in financing the transaction sizes that
are desired by the regional air carrier market. Management believes that the
Company also has a competitive advantage due to its relationship with JMC, which
has developed a reputation as a global participant in the aircraft leasing
market.
<PAGE>
Dependence on Significant Customers
For the year ended December 31, 1998, the Company had three significant
customers, which accounted for 40%, 24% and 15%, respectively, of lease revenue.
Concentrations of credit risk with respect to lease receivables should diminish
in the future, as the number of customers comprising the Company's customer base
increases, and their dispersion across different geographic areas becomes
greater.
Employees
Pursuant to the Company's management contract with JMC, JMC is responsible for
all administration and management of the Company. Consequently, the Company does
not have any employees.
Item 2. Properties.
As of December 31, 1998, the Company did not own or lease any real property,
plant or materially important physical properties. The Company maintains its
principal office at 1440 Chapin Avenue, Suite 310, Burlingame, California,
94010. All office facilities are provided by JMC without reimbursement by the
Company.
At December 31, 1998, the Company owned four de Havilland DHC-7, three de
Havilland DHC-6, one Fairchild Metro III, one Shorts SD 3-60 and one Fokker 50
aircraft, and 24 turboprop engines.
On January 29, 1999, the Company acquired a second Fokker 50 aircraft.
Item 3. Legal Proceedings.
The Company is not involved in any legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
<PAGE>
PART II
Item 5. Market for the Common Equity and Related Stockholder Matters.
The shares of the Company's Common Stock are traded on the American Stock
Exchange ("AMEX") under the symbol "ACY."
Market Information
The Company's Common Stock has been traded on the AMEX since January 16, 1998.
The following is price information from January 16, 1998 until March 1, 1999:
<TABLE>
<S> <C> <C> <C>
Period High Low
1/16/98 to 3/31/98 9-3/4 5-5/8
4/1/98 to 6/30/98 6- 9/16 4-1/4
7/1/98 to 9/30/98 6-3/4 4-1/2
9/30/98 to 12/31/98 8-7/8 4
</TABLE>
On March 1, 1999, the closing stock sales price on the AMEX was $9-1/4 per
share.
Number of Security Holders
The approximate number of holders of record of the shares of the Company's
Common Stock was 1,700 as of March 1, 1999.
Dividends
No dividends have been declared or paid to date. The Company does not intend to
declare or pay dividends in the foreseeable future, and intends to re-invest any
earnings into acquisition of additional revenue generating aircraft equipment.
Shareholder Rights Plan
On April 17, 1998, in connection with the adoption of a shareholder rights plan,
the Company filed a Certificate of Designation designating the rights,
preferences and privileges of a new Series A Preferred Stock. Pursuant to the
plan, the Company issued rights to its shareholders of record as of April 23,
1998, entitling each shareholder to the right to purchase one one-hundredth of a
share of Series A Preferred Stock for each share of Common Stock held by the
shareholder. Such rights are exercisable only under certain circumstances in
connection with a proposed acquisition or merger of the Company.
Stock Repurchase Plan
On October 23, 1998, the Company's Board of Directors adopted a stock repurchase
plan, granting management the authority to purchase up to 100,000 shares of the
Company's common stock, in privately negotiated transactions or on the market,
at such price and on such terms and conditions deemed satisfactory to
management. As of December 31, 1998, the Company had purchased 9,200 shares of
its common stock.
<PAGE>
Item 6. Management's Discussion and Analysis or Plan of Operation.
Forward-Looking Statements
Certain statements contained in this report and, in particular, the discussion
regarding the Company's beliefs, plans, objectives, expectations and intentions
regarding: the Company's objective of increasing shareholder value by acquiring
additional assets; reinvesting cash flow and obtaining financing for
acquisitions; the Company's ability to purchase assets at appropriate prices,
keep such assets on lease, and have those assets retain value through and after
the initial lease term; the Company's ability to obtain lease provisions for
maintenance and return that permit remarketing of the aircraft; the Company's
acquisition of assets using credit line financing that produce revenue greater
than the financing costs for such assets; the Company's competitive advantage
through its experience and operational efficiency and its relationship with JMC;
the Company's reduction of credit risk concentration of lease receivables
through broadening of customer base and geographic dispersion; the Company's
achieving cash flow adequate to meet increases in the interest rate applicable
to the credit line and ongoing operational needs; the possibility of entering
into an interest rate hedge transaction; the Company's intention to monitor
lessees to reduce the potential that an asset will be off-lease following
expiration of a lease; the Company's intention to repay the revolving credit
loans from subsequent financings; the Company's belief that the current market
provides a good supply of suitable transactions; and the Company's ability to
reduce the impact of regional or global economic downturns contained in "Item 1
- -- Business" and this "Item 6 -- Management's Discussion and Analysis or Plan of
Operation" section are forward-looking statements. While the Company believes
that such statements are accurate, the Company's business is dependent upon
general economic conditions, particularly those that affect the demand for
turboprop aircraft and engines, including competition for turboprop and other
aircraft, and future trends and results cannot be predicted with certainty. The
Company's actual results could differ materially from those discussed in such
forward looking statements. The cautionary statements made in this Report should
be read as being applicable to all related forward-looking statements wherever
they appear in this Report. Factors that could cause or contribute to such
differences include those discussed below in the section entitled "Factors that
May Affect Future Results."
Business
The Company is engaged in the business of ownership, management, leasing and
acquisition of aircraft, focused on used commercial turboprop aircraft equipment
for lease to domestic and foreign regional air carriers. By assuming the
business of the Partnerships in January 1998, the Company became owner of a
portfolio of unleveraged aircraft and engines on lease and generating positive
cash flow. The Company's principal business objective is to increase shareholder
value by acquiring additional aircraft assets that will provide a return on
investment through lease revenue from creditworthy lessees, and eventually
resale proceeds. The Company intends to achieve its business objective by
reinvesting cash flow and obtaining short-term and long-term financing and/or
equity financing.
<PAGE>
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997 (Combined)
Financial information for 1997 has been restated on a combined basis. There was
no provision for income taxes for the Partnerships during 1997.
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997
(Combined)
<S>
<C> <C> <C> <C> <C>
Amount % Amount %
Operating lease revenue $ 3,494,330 92.5 $ 3,198,200 96.6
Gain on disposal of assets 228,230 6.0 - -
Other income 55,020 1.5 113,670 3.4
Total $ 3,777,580 100.0 $ 3,311,870 100.0
</TABLE>
<PAGE>
On a combined basis, the Company had revenues of $3,777,580 and net income of
$1,181,650 for the year ended December 31, 1998 versus $3,311,870 and net income
of $988,030 for the year ended December 31, 1997.
Rent income is approximately $296,000 higher in 1998 versus combined 1997 due to
the purchases of additional aircraft on lease during the first and fourth
quarters of 1998. Other income for the year ended December 31, 1998 is lower by
approximately $58,000 versus combined 1997 because of two finance leases which
expired in December 1997 and June 1998. The Company also recorded gains during
1998 in connection with insurance proceeds received for one of its aircraft
engines, which failed during testing at a maintenance facility, and the sale of
an aircraft.
Management fees are approximately $500,000 higher in 1998 versus combined 1997
because of the Management Agreement entered into in January 1998. Depreciation
is approximately $88,000 higher in 1998 versus combined 1997 because of the 1998
aircraft acquisitions. Interest expense is approximately $84,000 in 1998 and
zero in combined 1997 because its $15 million credit facility was not obtained
or used until 1998. Professional fees and general administrative expense are
approximately $74,000 lower in 1998 because, under the Management Agreement, JMC
no longer bills for overhead reimbursement as it had done in 1997. This decrease
is somewhat offset by higher professional fees in 1998 related to the Company's
status as an exchange-listed, "reporting company" under the federal securities
laws. These fees include directors and officers insurance, stock exchange
listing fees, and transfer agent fees. During combined 1997, the Partnerships
increased maintenance deposits and accrued costs and recognized a related
one-time charge of approximately $742,000 for estimated maintenance expense
related to one aircraft. Consolidation costs of approximately $502,000 during
combined 1997 reflect all expenses of third parties in connection with the
Consolidation.
Liquidity and Capital Resources
The Company is currently financing its asset growth through borrowings secured
by its lease portfolio and excess cash flow. The Company has a $15 million
credit facility which expires on June 30, 2000 and which is renewable annually
thereafter. The facility bears interest at either prime or LIBOR plus 200 basis
points, at the Company's option. The facility may be expanded to $30 million
with participation of additional banks. As of December 31, 1998, $6.4 million
was outstanding under the credit facility and interest of $39,780 was accrued,
using a prime rate of 7.75%.
The prime rate has been stable since November 1998. The Company believes it has
adequate cash flow to meet increases in the interest rate applicable to its
credit line obligations. Any increase in such interest rates is likely to be the
result of increased prevailing interest rates. Increased prevailing interest
rates generally result in higher lease rates as well, and so an increase in
credit line payments may be offset at least partially by higher revenues on new
leases and renewals of leases entered into by the Company. The Company is
studying whether it is advisable to enter into an interest rate hedge
transaction, which for a fee would act to lock in current interest rates on its
credit line obligations. In making its decision, the Company is analyzing
interest rate trends, the ongoing costs of maintaining the hedge and the
magnitude of the impact of any interest rate swing.
The Company's aircraft are subject to leases with varying expiration dates
between April 18, 1999 and November 23, 2003. Under this scenario, management
believes that the Company will have adequate cash flow to meet any on-going
operational needs. It is the Company's policy to monitor lessee's needs in
periods before leases are due to expire. If it appears possible that a lessee
will not be renewing its lease, the Company immediately initiates marketing
efforts to locate a potential new lessee or purchaser for the aircraft. This
procedure helps the Company reduce any potential that an asset will be
"off-lease" for a significant time following the expiration of a lease.
<PAGE>
Factors that May Affect Future Results
Risks of Debt Financing. The Company's use of acquisition financing under its
revolving credit agreement will subject the Company to increased risks of
leveraging. The revolving loans are secured by the Company's existing assets as
well as the assets to be acquired with the financing. Any default under the
revolving credit agreement could result in foreclosure upon not only the asset
acquired using such financing, but also the existing assets of the Company
securing the revolving loan.
In order to achieve optimal benefit from the revolving credit facility, the
Company intends to repay the revolving loans from proceeds of subsequent term
debt or equity financings. Such replacement financing would provide the Company
with more favorable long-term repayment terms and also would permit the Company
to make further draws under the revolving credit line equal to the amount of
revolving debt refinanced. There can be no assurance that the Company will be
able to obtain the necessary amount of replacement term debt or equity financing
on favorable terms so as to permit multiple draws on the revolving line of
credit. The Company has requested an increase in the revolving credit facility
to $30 million. Such an increase is dependent upon the ability of the current
revolving credit lender ("Lender") to find additional loan participants, and
there is no assurance that such participants will be located by the Lender.
The revolving line of credit has an initial term of two years expiring in June
2000, and is renewable at the sole discretion of Lender and its participants, if
any. There is no assurance that the line of credit will be renewed. If the
revolving loan is not renewed by the Lender and its participants, then all
indebtedness under the revolving loan agreement will become immediately due and
payable. There is no assurance that the Company will have adequate replacement
financing in place in order to meet such accelerated repayment obligations.
All of the Company's current credit line indebtedness carries a floating
interest rate based on the lender's prime rate. The Company has the ability to
convert the prime rate loans to loans based on a floating LIBOR rate. If the
applicable index rate increases, then the Company's payment obligations under
the line of credit would increase and could result in lower net revenues for the
Company.
Acquisition of Additional Assets. The Company intends to use the proceeds of its
revolving credit facility to acquire additional assets for the purpose of
generating income for the Company. The Company anticipates that it will be able
to expend the entire net financing proceeds on the acquisition of additional
assets on terms favorable to the Company, but the Company has not entered into
any contracts for acquisition of any assets, and there is no assurance that the
Company will be able to purchase assets or lease such assets on favorable terms.
General Economic Conditions. The market for used aircraft has been cyclical, and
usually reflects economic conditions and the strength of the travel and
transportation industry. The Company believes that the air transport industry is
currently stable, with demand for aircraft, asset prices and lease rates level,
and in some cases, increasing. Nonetheless at any time, the market for used
aircraft may be adversely affected by such factors as airline financial
difficulties, higher fuel costs, and improved availability and economics of new
replacement aircraft.
The Company believes that the current aircraft market provides a good supply of
suitable transaction opportunities for the Company, primarily in overseas
markets, as well as domestically. There are currently some disparities between
geographic regions with respect to the condition of the air transport industry,
with the Pacific Rim, in particular, not currently experiencing the growth that
is taking place in the U.S. and other foreign markets. This economic slowdown
has not had a significant effect on the Company's business, as it does not
currently have any assets placed with Pacific Rim lessees.
<PAGE>
An adverse change in the global air travel industry, however, could result in
reduced carrier revenue and excess capacity and increase the risk of failure of
some weaker regional air carriers. While the Company believes that with proper
asset and lessee selection in the current climate, as well as during such
downturns, the impact of such changes on the Company can be reduced, there is no
assurance that the Company's business will escape the effects of such a global
downturn, or a regional downturn in an area where the Company has placed a
significant amount of its assets.
Reliance on JMC. All management of the Company is performed by JMC pursuant to a
Management Agreement between JMC and the Company which has a 20-year term and
provides for an asset-based management fee. JMC is not a fiduciary to the
Company or its stockholders. The Board of Directors does, however, have ultimate
control and supervisory responsibility over all aspects of the Company and does
owe fiduciary duties to the Company and its stockholders. 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 stockholders by virtue of
holding such offices. Although the Company has taken steps to prevent such
conflicts, such conflicts of interest arising from such dual roles may still
occur.
The Management Agreement may be terminated upon a default in the obligations of
JMC to the Company, and provides for liquidated damages in the event of a
wrongful termination of the agreement by the Company. Many of the officers of
JMC are also officers of the Company, and certain directors of the Company are
also directors of JMC. Consequently, the directors and officers of JMC may have
a conflict of interest in the event of a dispute over obligations between the
Company and JMC.
Ownership Risks. Most of the Company's portfolio is leased under operating
leases, where the terms of the leases do not take up the entire useful life of
an asset. The Company's ability to recover its purchase investment in an asset
subject to an operating lease is dependent upon the Company's ability to
profitably re-lease or resell the asset after the expiration of the initial
lease term. Some of the factors that have an impact on the Company's ability to
release or re-sell include worldwide economic conditions, general aircraft
market conditions, regulatory changes that may make an asset's use more
expensive or preclude use unless the asset is modified, changes in the supply or
cost of aircraft equipment and technological developments which cause the asset
to become obsolete. In addition, a successful investment in an asset subject to
an operating lease depends in part upon having the asset returned by the lessee
in serviceable condition as required under the lease. If the Company is unable
to remarket or sell its aircraft equipment on favorable terms when the operating
lease for such equipment expires, the Company's business, financial condition,
cash flow, ability to service debt and results of operation could be adversely
affected.
<PAGE>
Raytheon Lease Renewal. Raytheon has exercised its two-year renewal option for
the three Dash-7 aircraft. Raytheon has received government funding for the full
two year term on two of the aircraft, and government funding through March 31,
1999 on the third aircraft. The government funding for full renewal term of the
third aircraft has been requested and is subject to the federal budget process.
If funding is not received, then Raytheon may return the third Dash-7 aircraft.
If the aircraft is returned, then the Company will be required to remarket it.
Any re-lease may require some refurbishment, which may be at the Company's
expense even if the aircraft is returned by lessee in complete compliance with
the lease. While such refurbishment is being performed and until the aircraft is
delivered to a new lessee, the Company may experience a loss of revenue.
Lessee Credit Risk. If a lessee defaults upon his obligations under a lease, the
Company may be limited in its ability to enforce remedies. Most of the Company's
lessees are small domestic and foreign regional passenger airlines, which may be
even more sensitive to airline industry market conditions than the major
airlines. As a result, the Company's inability to collect rent under a
significant lease or to repossess equipment in the event of a default by a
lessee could have a material adverse effect on the Company's revenue. If a
lessee that is a certified U.S. airline is in default under the lease and seeks
protection under Chapter 11 of the United States Bankruptcy Code, under Section
1110 of the Bankruptcy Code, the Company would be automatically prevented from
exercising any remedies for a period of 60 days. By the end of the 60 day
period, the lessee must agree to perform the obligations and cure any defaults,
or the Company would have the right to repossess the equipment. This procedure
under the Bankruptcy Code has been subject to significant recent litigation,
however, and it is possible that the Company's enforcement rights may still be
further adversely affected by a declaration of bankruptcy by a defaulting
lessee.
International Risks. The Company may focus in the near term on leases in
overseas markets, which markets are currently dynamic and present attractive
opportunities. Leases with foreign lessees, however, may present somewhat
different credit risks than those with domestic lessees.
Foreign laws, regulations and judicial procedures may be more or less protective
of lessor rights as those which apply in the United States. The Company could
experience collection problems related to the enforcement of its lease
agreements under foreign local laws and the attendant remedies in foreign
jurisdictions. The protections potentially offered by Section 1110 of the
Bankruptcy Code would not apply to non-U.S. carriers, and applicable local law
may not offer similar protections. Certain countries do not have a central
registration or recording system with which to locally establish the Company's
interest in equipment, and related leases. This could add difficulty in
recovering an engine in the event that a foreign lessee defaults.
Leases with foreign lessees are subject to risks related to the economy of the
country or region that such lessee is located even if the U.S. economy remains
strong. On the other hand, a foreign economy may remain strong even though the
domestic U.S. economy is not. A foreign economic downturn may occur and impact a
foreign lessee's ability to make lease payments, even though the U.S. and other
economies remain stable. Furthermore, foreign lessees are subject to risks
related currency conversion fluctuations. Although the Company's current leases
are all payable in U.S. dollars, in the future, the Company may agree to leases
that permit payment in foreign currency, which would subject such lease revenue
to monetary risk due to currency fluctuations. Even with dollar-denominated
lease payment provisions, the Company could still be affected by a devaluation
of the lessee's local currency which makes it more difficult for a lessee to
meet its dollar-denominated lease payments, increasing the risk of default of
that lessee, particularly if that carrier's revenue is primarily derived in the
local currency.
Government Regulation. 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.
<PAGE>
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 is competitive because of its experience and operational efficiency in
financing the transaction types desired by the regional air carriers. This
market segment, which is characterized by transaction sizes of less than $10
million and lessee credits that are strong, but generally unrated and more
speculative than that of the major air carriers, is not well served by the
Company's larger competitors in the aircraft industry. 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.
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 and such act may not
apply to aircraft operated in foreign countries. 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.
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
which is in turn highly sensitive to general economic conditions. 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,
increased fuel costs, the number of new aircraft on order and the number of
older aircraft coming off lease. 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. The recent introduction of "regional jets" to serve on
short routes previously thought to be economical only for turboprop aircraft
operation could decrease the demand for turboprop aircraft, while at the same
increasing the supply of used turboprop aircraft. This could result in lower
lease rates and values for the Company's existing turboprop aircraft.
Risks Related to Regional Air Carriers. Because the Company has concentrated its
existing leases and intends to concentrate on leases to regional air carriers,
it will be subject to certain risks. First, lessees in the regional air carrier
market include a number of companies that are start-up, low capital, 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 may entail
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. Second, a significant area of
growth of this market is in areas outside of the United States, where collection
and enforcement are often more difficult and complicated than the United States.
<PAGE>
Possible Volatility of Stock Price. The market price of the Company's Common
Stock could be subject to fluctuations in response to operating results of the
Company, changes in general conditions in the economy, the financial markets,
the airline industry, changes in accounting principles or tax laws applicable to
the Company or its lessees, or other developments affecting the Company, its
customers or its competitors, some of which may be unrelated to the Company's
performance. Also, because the Company has a relatively small capitalization of
approximately 1.6 million shares, there is a correspondingly limited amount of
trading of the shares. Consequently, a single or small number of trades could
result in a market fluctuation not related to any business or financial
development relating to the Company.
Year 2000 Considerations. Management of the Company has directed its information
technology ("IT") manager to require any software or hardware purchased for use
by the Company to have a warranty of Year 2000 compliance. It has also directed
its IT manager to study any systems that may require Year 2000 remediation. The
IT manager has determined that, because the Company's IT system is based on a
"MacOS" system, the Company's internal technology systems are ready for Year
2000, and there should not be any material costs associated with such
remediation. Furthermore, the phone and internet systems have been warranted by
their vendors for Year 2000 compliance. The Company's internal and
administrative operations are not highly dependent on any other advanced
technology system, and, consequently, management believes that the Company's
exposure to loss as a result of Year 2000 issues in its internal and
administrative operations is not significant.
Management believes that the electronic systems used in the equipment leased by
the Company to lessees will not be materially affected by the Year 2000 and that
any remediation of the technology systems embedded in the aircraft that it
leases will not be a material expense to the Company. The Company has notified
all lessees of the Year 2000 problem and has requested information on the status
of each lessee's study and remediation plans. The Company believes that there
should not be any material costs in connection with such a study. The Company
will be consulting with all the manufacturers of its leased equipment to confirm
Year 2000 compliance. Since the Company's leases generally place all maintenance
and repair obligations on the lessees, to the extent that the aircraft are on
lease when the Year 2000 problem is identified, it would generally be the
lessee's and not the Company's responsibility to remediate any Year 2000 problem
with the leased aircraft.
To the extent that a lessee has Year 2000 problems that significantly adversely
affect its overall financial status, such material problems may affect the
lessee's operations and increase the risk of default by a lessee under its lease
with the Company. Furthermore, Year 2000 issues may have a material impact on
FAA operations and the operations of certain air carriers, which in turn would
negatively affect the aircraft industry in general.
The Company's essential functions are not dependent upon any key third party
vendors or service providers related to the leasing or finance business, and
consequently, the interruption of goods and services from any such
industry-specific third party vendor or service provider to the Company is not
likely to cause a material loss to the Company. Of course, the Company's
ordinary business operation is dependent upon vendors that provide basic
services to businesses generally, such as utility companies, phone and long
distance companies, courier services, banking institutions. The Company is in
the process of inquiring with such providers regarding their respective Year
2000 readiness. The state of Year 2000 readiness of these third parties cannot
be assessed by the Company; however, management believes that a temporary
interruption in services to the Company by these types of service providers
caused by Year 2000 problems would not cause material losses to the Company. An
extended loss of these services, however, could adversely affect the Company's
business and financial performance. The Company has not yet made any contingency
plans for the extended loss of these basic services.
Item 7. Financial Statements.
(a) Financial Statements and Schedules
(1) Financial statements for AeroCentury Corp.:
Report of Independent Auditors, Arthur Andersen LLP
Report of Independent Auditors, Vocker Kristofferson and Co.
Balance Sheet as of December 31, 1998
Statements of Operations for the Years Ended December 31, 1998 and 1997
(Combined)
Statements of Changes in Shareholders' Equity for the Years Ended December 31,
1998 and 1997 (Combined)
Statements of Cash Flows for the Years Ended December 31, 1998 and 1997
(Combined)
Notes to Financial Statements
(2) Schedules:
All schedules have been omitted since the required information is presented in
the financial statements or is not applicable.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of AeroCentury Corp.:
We have audited the accompanying balance sheet of AeroCentury Corp. (a Delaware
corporation) as of December 31, 1998 and the related statements of operations,
changes in shareholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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 provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AeroCentury Corp. as of
December 31, 1998 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
San Francisco, California
January 22, 1999
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of AeroCentury Corp.
We have audited the accompanying combined balance sheet of AeroCentury Corp.,
JetFleet Aircraft, L.P. and JetFleet Aircraft II, L.P., as of December 31, 1997
and the related combined statements of operations, shareholder's equity and cash
flow for the year then ended. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined financial statements 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 combined financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the combined 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 provides a reasonable basis for our
opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of AeroCentury Corp.,
JetFleet Aircraft, L.P. and JetFleet Aircraft II, L.P., on a combined basis, at
December 31, 1997 and the related statements of operations, shareholder's equity
and cash flow for the year then ended in conformity with generally accepted
accounting principles.
VOCKER KRISTOFFERSON AND CO.
/s/ Vocker Kristofferson and Co.
March 16, 1998
San Mateo, California
<PAGE>
<TABLE>
<CAPTION>
AeroCentury Corp.
Balance Sheet
ASSETS
<S>
<C> <C>
December 31,
1998
Cash and cash equivalents $ 1,852,010
Deposits 1,584,260
Accounts receivable 165,550
Aircraft and aircraft engines on operating leases,
net of accumulated depreciation of $15,711,600 22,812,600
Prepaid expenses and other 147,470
Total assets $ 26,561,890
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 249,400
Notes payable and accrued interest 6,439,780
Maintenance deposits and accrued costs 1,661,330
Security deposits 479,100
Prepaid rent 60,450
Deferred taxes 3,160,030
Total liabilities 12,050,090
Shareholders' Equity:
Preferred stock, $.001 par value, 2,000,000 shares
authorized, no shares issued and outstanding -
Common stock, $.001 par value, 3,000,000 shares
authorized, 1,606,557 shares issued and outstanding 1,610
Paid in capital 13,821,200
Retained earnings 767,180
14,589,990
Treasury stock at cost, 9,200 shares (78,190)
Total shareholders' equity 14,511,800
Total liabilities and shareholders' equity $ 26,561,890
The accompanying notes are an integral part of this statement.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AeroCentury Corp.
Statements of Operations
For the Years Ended December 31,
1998 1997
(Combined)
<S> <C> <C> <C>
Revenues:
Rent income $ 3,494,330 $ 3,198,200
Gain on disposal of aircraft and aircraft engines 228,230 -
Other income 55,020 113,660
3,777,580 3,311,860
Expenses:
Management fees 596,450 96,520
Depreciation 713,930 626,000
Interest 83,690 -
Professional fees and general and administrative 347,440 443,540
Maintenance - 742,280
Consolidation costs - 502,380
1,741,510 2,410,720
Income before taxes 2,036,070 901,140
Tax provision/(benefit) 854,420 (86,890)
Net income $ 1,181,650 $ 988,030
Weighted average common
shares outstanding 1,606,505
Basic earnings per share $ 0.74
The accompanying notes are an integral part of this statement.
</TABLE>
<PAGE>
AeroCentury Corp.
Statements of Changes in Shareholders' Equity
For the Years Ended December 31, 1998 and 1997
<TABLE>
<S>
<C> <C> <C> <C> <C> <C> <C> <C>
Partnership Preferred Common Paid-in Retained Treasury
Interests Stock Stock Capital Earnings Stock Total
Balance,
December 31,
1996 $ 18,005,230 $ - $ - $ - $ - $ - $18,005,230
Distributions
to partners (3,187,010) - - - - - (3,187,010)
Issued on
February 28, 1997
150,000 shares at
par value of $.00 - - 150 149,850 - - 150,000
Net income/(loss),
year ended
December 31
1997 1,402,500 - - - (414,470) - 988,030
Balance,
December 31, 1997 16,220,720 - 150 149,850 (414,470) - 15,956,250
Dissolution of
partnerships on
January 1, 1998 (16,220,720) - - - - - (16,220,720)
Issued on
January 1, 1998
1,456,557 shares at
par value of $.001 - - 1,460 13,671,350 - - 13,672,810
Purchase of treasury
stock, 9,200 shares - - - - - (78,190) (78,190)
Net income,
year ended
December 31,
1998 - - - - 1,181,650 - 1,181,650
Balance,
December 31, 1998
$ - $ - $ 1,610 $ 13,821,200 $ 767,180 $ (78,190) $14,511,800
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
<TABLE>
<CAPTION>
AeroCentury Corp.
Statements of Cash Flows
For the Years Ended December 31,
1998 1997
(Combined)
<S>
<C> <C> <C>
Operating activities:
Net income $ 1,181,650 $ 988,030
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 713,930 626,000
Amortization - 21,900
Gain on disposal of aircraft and aircraft engines (228,230) -
Change in operating assets and liabilities:
Deposits (678,500) (379,410)
Accounts receivable (137,540) 6,010
Prepaid expenses and other (142,020) (5,000)
Deferred taxes 759,790 (87,770)
Accounts payable and accrued expenses (253,870) 260,310
Prepaid rent (175,080) 199,100
Security deposits 336,000 -
Maintenance deposits and accrued costs (61,570) 1,196,550
Net cash provided by operating activities 1,314,560 2,825,720
Investing activities:
Proceeds from disposal of assets 684,320 -
Purchase of aircraft (7,844,570) -
Payments received on capital leases 150,000 750,000
Net cash (used)/provided by investing activities (7,010,250) 750,000
Financing activities:
Issuance of common stock - 150,000
Issuance of secured note 866,700 -
Repayment of secured note (866,700) -
Issuance of notes payable 6,400,000 -
Accrued interest on notes payable 39,780 -
Purchase of treasury stock (78,190) -
Limited partner distributions (48,890) (3,187,010)
Net cash provided/(used) by financing activities 6,312,700 (3,037,010)
Net increase in cash and cash equivalents 617,010 538,710
Cash and cash equivalents, beginning of period 1,235,000 696,290
Cash and cash equivalents, end of period $ 1,852,010 $ 1,235,000
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
AeroCentury Corp.
Notes to Financial Statements
December 31, 1998
1. Organization and Summary of Significant Accounting Policies
(a) Basis of Presentation
AeroCentury Corp. (the "Company") was incorporated in the state of Delaware on
February 28, 1997. The Company was formed solely for the purpose of acquiring
JetFleet Aircraft, L.P. and JetFleet Aircraft II, L.P., partnerships formed
under California law for the purpose of investing in leased aircraft equipment,
(collectively, the "Partnerships") in a statutory merger (the "Consolidation"),
which was effective January 1, 1998. The Company is continuing in the aircraft
leasing business in which the Partnerships engaged and plans to use leveraged
financing to acquire additional aircraft assets on lease.
Because greater than 90% of the limited partnership units of each of the
Partnerships agreed to the Consolidation, it has been treated as a
pooling-of-interests under generally accepted accounting principles with the
assets and liabilities of the combining entities recorded at historical cost on
the Consolidation date. On January 16, 1998, the Company was listed on the
American Stock Exchange under the symbol ACY.
Financial information for 1997 has been restated on a combined basis. There was
no provision for income taxes for the Partnerships during 1997.
(b) Organization and Capitalization
At December 31, 1997, all of the Company's outstanding stock was owned by
JetFleet Holding Corp. ("JHC"), a California corporation. On January 1, 1998,
1,456,557 additional common shares were issued as a result of the Consolidation.
JetFleet Management Corp. ("JMC"), a wholly owned subsidiary of JHC, is an
integrated aircraft management, marketing and financing business. Prior to the
Consolidation, JMC managed the aircraft assets of the Partnerships on behalf of
their general partners and limited partners. JMC also manages the aircraft
assets of JetFleet III and AeroCentury IV, Inc., California corporations which
are affiliates of JMC.
On April 17, 1998, in connection with the adoption of a shareholder rights plan,
the Company filed a Certificate of Designation designating the rights,
preferences and privileges of a new Series A Preferred Stock. Pursuant to the
plan, the Company issued rights to its shareholders of record as of April 23,
1998, entitling each shareholder to the right to purchase one one-hundredth of a
share of Series A Preferred Stock for each share of Common Stock held by the
shareholder. Such rights are exercisable only under certain circumstances
concerning a proposed acquisition or merger of the Company.
On October 23, 1998, the Company's Board of Directors adopted a stock repurchase
plan, granting management the authority to purchase up to 100,000 shares of the
Company's common stock, in privately negotiated transactions or on the market,
at such price and on such terms and conditions deemed satisfactory to
management. During the quarter ended December 31, 1998, the Company purchased
9,200 shares of its common stock.
(c) Revenue Recognition
Revenue from leasing of aircraft assets is recognized as operating lease revenue
on a straight-line basis over the terms of the applicable lease agreements.
Interest income includes interest earned from two finance leases which expired
in December 1997 and June 1998.
<PAGE>
AeroCentury Corp.
Notes to Financial Statements
December 31, 1998
1. Organization and Summary of Significant Accounting Policies (continued)
(d) Aircraft and Aircraft Engines On Operating Leases
The Company's interests in aircraft and aircraft engines are recorded at cost,
which includes acquisition costs. Depreciation is computed using the
straight-line method over the aircraft's estimated economic life (generally
assumed to be twelve years), to an estimated residual value. The depreciable
base of the assets acquired by the Company in the Consolidation was equal to the
net book value of the assets at December 31, 1997.
(e) Loan Commitment and Related Fees
To the extent that the Company is required to pay loan commitment fees and legal
fees in order to secure debt, such fees are amortized over the life of the
related loan.
(f) Maintenance Deposits and Accrued Costs
Maintenance costs under the Company's triple net leases are generally the
responsibility of the lessees. Maintenance deposits and accrued costs in the
accompanying balance sheet include refundable and non-refundable maintenance
payments received from lessees as well as amounts accrued by the Company for
future work to be performed on one of its aircraft.
(g) Income Taxes
The Company follows the liability method of accounting for income taxes as
required by the provisions of SFAS No. 109 - Accounting for Income Taxes. Under
the liability method, deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. The
effect on deferred taxes of a change in the tax rates is recognized in income in
the period that includes the enactment date.
(h) Cash and Cash Equivalents/Deposits
The Company considers highly liquid investments readily convertible into known
amounts of cash, with original maturities of 90 days or less, as cash
equivalents. Deposits represent cash balances held related to maintenance and
security deposits and are subject to withdrawal restrictions.
(i) 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. Aircraft and Aircraft Engines On Operating Leases
At December 31, 1998, the Company owned four de Havilland DHC-7, three de
Havilland DHC-6, one Fairchild Metro III, one Shorts SD 3-60 and one Fokker 50
aircraft, and 24 turboprop engines. During 1998, the Company purchased the
Shorts SD 3-60, two of the de Havilland DHC-6 and the Fokker 50, leased to
carriers in the United Kingdom, Colombia and Belgium, respectively, for a total
of $7,844,570, including acquisition costs. The Company also disposed of one
aircraft engine and one aircraft and recognized gains in connection with both
disposals during the year.
<PAGE>
AeroCentury Corp.
Notes to Financial Statements
December 31, 1998
2. Aircraft and Aircraft Engines On Operating Leases (continued)
Certain of the Company's aircraft are leased and operated internationally. All
leases relating to these aircraft are denominated and payable in U.S. dollars.
The Company leases its aircraft to lessees domiciled in four geographic areas.
The tables below set forth geographic information about the Company's operating
leased aircraft equipment grouped by domicile of the lessee:
<TABLE>
For the Years Ended December 31,
<S>
<C> <C> <C>
Region 1998 1997
(Combined)
Operating lease revenue:
United States $ 2,478,890 $ 2,482,910
Canada 522,260 535,290
Europe 441,930 180,000
South America 51,250 -
Total $ 3,494,330 $ 3,198,200
Operating lease revenue less depreciation and applicable interest:
United States $ 2,021,810 $ 2,023,470
Canada 382,890 396,060
Europe 270,480 152,580
South America 21,530 -
Total $ 2,696,710 $ 2,572,110
Net book value of operating leased assets:
United States $ 11,617,200
Canada 2,788,700
Europe 5,828,410
South America 2,578,290
Total $ 22,812,600
</TABLE>
As of December 31, 1998, minimum future lease rent payments receivable under
noncancelable leases were as follows:
Year
1999 $ 4,297,400
2000 3,114,100
2001 1,649,800
2002 1,374,900
2003 521,000
$ 10,957,200
3. Notes Payable and Accrued Interest
On June 30, 1998 the Company obtained a $15 million revolving credit facility to
acquire turboprop aircraft and engines under lease. The facility, which expires
on June 30, 2000 and which may be renewed annually thereafter, bears interest,
payable monthly, at either prime or LIBOR plus 200 basis points, at the
Company's option. The facility may be expanded to $30 million with participation
of additional banks. The Company's aircraft and aircraft engines serve as
collateral under the facility and, in accordance with the credit agreement, the
Company must maintain compliance with certain financial covenants. As of
December 31, 1998, the Company was in compliance with all such covenants. As of
December 31, 1998, $6.4 million was outstanding under the credit facility and
interest of $39,780 was accrued, using a prime rate of 7.75%.
<PAGE>
AeroCentury Corp.
Notes to Financial Statements
December 31, 1998
4. Income Taxes
The items comprising income tax expense are as follows:
<TABLE>
For the Years Ended December 31,
1998 1997
(Combined)
<S> <C> <C> <C>
Current tax provision:
Federal $ 74,260 $ 80
State 20,380 800
Current tax provision 94,640 880
Deferred tax provision:
Federal 648,500 (74,910)
State 111,280 (12,860)
Deferred tax provision 759,780 (87,770)
Total provision for income taxes $ 854,420 $ (86,890)
</TABLE>
Total income tax expense differs from the amount which would be provided by
applying the statutory federal income tax rate to pretax earnings as illustrated
below:
<TABLE>
<S> <C> <C> <C>
Income tax expense at
statutory federal income tax rate $ 692,090 $ 306,390
State taxes net of federal benefit 118,800 52,580
Partnership income not subject to tax - (558,210)
Other adjustments 43,530 -
Non-deductible consolidation costs - 112,350
Total income tax expense $ 854,420 $ (86,890)
</TABLE>
Temporary differences and carryforwards which gave rise to a significant portion
of deferred tax assets and liabilities as of December 31, 1998 are as follows:
December 31,
1998
Deferred tax assets:
Amortization of organizational costs $ 70,540
Maintenance reserves 91,790
Prepaid rent 24,080
Net deferred tax assets 186,410
Deferred tax liabilities:
Depreciation on aircraft and engines (3,346,440)
Net deferred tax liability $ (3,160,030)
<PAGE>
AeroCentury Corp.
Notes to Financial Statements
December 31, 1998
5. Supplementary Disclosures of Cash Flow Information
During the year ended December 31, 1998, the Company paid interest totaling
$43,910 and income taxes totaling $111,430. During the year ended December 31,
1997 (combined), the Company paid no interest and no income taxes.
6. Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash deposits and receivables. The Company
places its deposits with financial institutions and other creditworthy issuers
and limits the amount of credit exposure to any one party.
For the year ended December 31, 1998, the Company had three significant
customers, which accounted for 40%, 24% and 15%, respectively, of lease revenue.
7. Related Party Transactions
Since the Company has no employees, the Company's portfolio of leased aircraft
assets is managed and administered under the terms of a management agreement
with JMC. Under this agreement, JMC receives a monthly management fee based on
the net asset value of the assets under management. During 1998, the Company
paid JMC $520,280 of management fees. In addition, JMC may receive a brokerage
fee for locating assets for the Company, provided that the aggregate purchase
price including chargeable acquisition costs and any brokerage fee does not
exceed the fair market value of the asset based on appraisal, and a remarketing
fee in connection with the sale or re-lease of the Company's assets. The
management fees, brokerage fees and remarketing fees may not exceed the
customary and usual fees that would be paid to an unaffiliated party for such
services.
In March 1998, the Company acquired an aircraft on lease using cash and a loan
in the amount of $866,700 from an affiliate. The Company paid $43,910 of
interest during the term of the loan. The loan was repaid during August 1998.
Certain employees of JMC participate in an employee stock incentive plan which
grants options to purchase shares of the Company held by JHC. As of December 31,
1998, 2,333 such options had been exercised.
8. Subsequent Events
Purchase of Aircraft
On January 29, 1999, the Company purchased a Fokker 50 aircraft on lease to a
regional carrier in Brazil. The aircraft is subject to a lease which expires in
March 2001.
<PAGE>
Item 8. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure.
On May 13, 1998, Vocker Kristofferson & Co. ("Vocker") resigned as auditors of
the Company in anticipation of its replacement by Arthur Andersen LLP as
auditors. The resignation was not the result of any adverse opinion or
disclaimer of an opinion or qualification or modification as to uncertainty,
audit scope or accounting principles, and their replacement with Arthur Andersen
LLP was approved by the Board of Directors.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act.
The information contained in the section entitled "Current Board of Directors"
and "Officers and Key Employees" of the Company's Annual Meeting Proxy
Statement, dated March 22, 1999 is hereby incorporated by reference.
Item 10. Executive Compensation.
The information contained in the section entitled "Employment Contracts" of the
Company's Annual Meeting Proxy Statement, dated March 22, 1999 is hereby
incorporated by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The information contained in the section entitled "Security Ownership of Certain
Beneficial Owners and Management" of the Company's Annual Meeting Proxy
Statement, dated March 22, 1999 is hereby incorporated by reference.
Item 12. Certain Relationships and Related Transactions.
The information contained in the section entitled "Related Party Transactions"
of the Company's Annual Meeting Proxy Statement, dated March 22, 1999 is hereby
incorporated by reference.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
<TABLE>
<S> <C> <C>
3.1 Amended and Restated Bylaws of the Company dated January 22, 1999
3.2 Certificate of Designation of the Company dated April 15, 1998
3.3 Amended and Restated Shareholder Rights Agreement, dated January 22, 1999,
incorporated by reference to Exhibit 1 to Form 8-A/A filed with the Securities and
Exchange Commission on February 4, 1999
10.1 Employment Agreement between the Company and Neal D. Crispin, dated April 29, 1998
10.2 Employment Agreement between the Company and Marc J. Anderson, dated April 28, 1998
10.3 Credit Agreement between First Union National Bank and the Company, dated June 30,
1998, incorporated by reference to Exhibit 10.1 of the Report on Form 8-K filed with
the Securities and Exchange Commission on July 2, 1998.
16.1 Letter on Change in Certifying Accountant, incorporated by reference
to Exhibit 16.1 to Report on Form 8-K filed with the Securities and
Exchange Commission on May 18, 1998.
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K Filed in Last Quarter
None.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized on March 22, 1999.
AEROCENTURY CORP.
By: /s/ Neal D. Crispin
------------------------
Neal D. Crispin
Title: President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities indicated on
March 22, 1999.
Signature Title
/s/ Neal D. Crispin Director, President and Chairman of the
------------------------------- Board of Directors of the Registrant
Neal D. Crispin (Principal Executive Officer)
/s/ Toni M. Perazzo Director, Vice President - Finance
---------------------- and Secretary of the Registrant
Toni M. Perazzo Principal Financial and Accounting
Officer)
/s/ Marc J. Anderson Director, Chief Operating Officer,
------------------------ Senior Vice President
Marc J. Anderson
/s/ Maurice J. Averay Director
--------------------------------
Maurice J. Averay
/s/ Thomas W. Orr Director
--------------------------------
Thomas W. Orr
/s/ Evan M. Wallach Director
--------------------------------
Evan M. Wallach
BYLAWS
OF
AEROCENTURY CORP.
(a Delaware corporation)
January 22, 1999
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.
<PAGE>
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 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.
<PAGE>
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, 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.
<PAGE>
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 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. 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 not 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.
<PAGE>
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 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.
<PAGE>
7.11 STOCKHOLDER PROPOSALS AT ANNUAL MEETINGS. At an annual meeting of
the stockholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an
annual meeting, business must be specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors,
otherwise properly brought before the meeting by or at the direction of the
Board of Directors or otherwise properly brought before the meeting by a
stockholder. In addition to any other applicable requirements, for business
to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the
Secretary of the corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of
the corporation, not less than 45 days nor more than 75 days prior to the
date on which the corporation first mailed its proxy materials for the
previous year's annual meeting of shareholders (or the date on which the
corporation mails its proxy materials for the current year if during the
prior year the corporation did not hold an annual meeting or if the date of
the annual meeting was changed more than 30 days from the prior year). A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the annual meeting
and the reasons for conducting such business at the annual meeting, (ii)
the name and record address of the stockholder proposing such business,
(iii) the class and number of shares of the corporation which are
beneficially owned by the stockholder, and (iv) any material interest of
the stockholder in such business.
Notwithstanding anything in the Bylaws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 7.11, provided, however, that nothing
in this Section 7.11 shall be deemed to preclude discussion by any
stockholder of any business properly brought before the annual meeting in
accordance with said procedure. The Chairman of an annual meeting shall, if
the facts warrant, determine and declare to the meeting that business was
not properly brought before the meeting in accordance with the provisions
of this Section 7.11, and if he should so determine he shall so declare to
the meeting, and any such business not properly brought before the meeting
shall not be transacted.
<PAGE>
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. The total number of directors
constituting the entire Board shall be not less than 6 nor more than 9,
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.
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 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.
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 1999 meeting of stockholders;
Class II directors shall initially serve until the 2000 meeting of
stockholders; and Class III directors shall initially serve until the 2001
meeting of stockholders. Commencing with the annual meeting of stockholders
in 1999, 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 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.
<PAGE>
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
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.
<PAGE>
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. 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 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.
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.
<PAGE>
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 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
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 lease 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.
<PAGE>
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 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 insure 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.
I HEREBY CERTIFY that the foregoing is a full, true and correct copy of the
Bylaws of AeroCentury Corp., a Delaware corporation, as in effect on the date
hereof.
Dated: 1-22-99
/s/ Christopher B. Tigno
- ----------------------------------------
Assistant Secretary of AeroCentury Corp.
AEROCENTURY CORP.
CERTIFICATE OF DESIGNATION
OF THE
SERIES A PREFERRED STOCK
_____________________________________
Pursuant to Section 151 of the General Corporation Law of the State of Delaware
_____________________________________
The undersigned officers of AeroCentury Corp., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), in accordance with the provisions of Section 103 thereof, DO
HEREBY CERTIFY:
That, pursuant to the authority conferred upon the Board of Directors of the
Corporation by its Restated Certificate of Incorporation (the "Certificate"),
the said Board of Directors, at a duly called meeting held on April 8, 1998, at
which a quorum was present and acted throughout, adopted the following
resolution, which resolution remains in full force and effect on the date hereof
creating a series of 100,000 shares of Preferred Stock having a par value of
$.001 per share, designated as Series A Preferred Stock (the "Series A Preferred
Stock") out of the class of 2,000,000 shares of preferred stock of the par value
of $.001 per share (the "Preferred Stock"):
RESOLVED, that pursuant to the authority vested in the Board of Directors in
accordance with the provisions of its Certificate, the Board of Directors does
hereby create, authorize and provide for 100,000 shares of its authorized
Preferred Stock to be designated and issued as the Series A Preferred Stock,
having the voting powers, designation, relative, participating, optional and
other special rights, preferences and qualifications, limitations and
restrictions that are set forth as follows:
1. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of any
shares of any other series of Preferred Stock or any other shares of
stock of the Corporation ranking prior and superior to the shares of
Series A Preferred Stock with respect to dividends, each holder of one
one-hundredth (1/100) of a share (a "Unit") of Series A Preferred
Stock shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for that purpose,
(i) quarterly dividends payable in cash on the last day of March,
June, September and December in each year (each such date being a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly
Dividend Payment Date after the first issuance of such Unit of Series
A Preferred Stock, in an amount per Unit (rounded to the nearest cent)
equal to the greater of (a) $.01 or (b) subject to the provision for
adjustment hereinafter set forth, the aggregate per share amount of
all cash dividends declared on shares of the Common Stock since the
immediately preceding Quarterly Dividend Payment Date, or, with
respect to the first Quarterly Dividend Payment Date, since the first
issuance of a Unit of Series A Preferred Stock, and (ii) subject to
the provision for adjustment hereinafter set forth, quarterly
<PAGE>
distributions (payable in kind) on each Quarterly Dividend Payment
Date in an amount per Unit equal to the aggregate per share amount of
all non-cash dividends or other distributions (other than a dividend
payable in shares of Common Stock or a subdivision of the outstanding
shares of Common Stock, by reclassification or otherwise) declared on
shares of Common Stock since the immediately preceding Quarterly
Dividend Payment Date, or with respect to the first Quarterly Dividend
Payment Date, since the first issuance of a Unit of Series A Preferred
Stock. In the event that the Corporation shall at any time after
April 8, 1998 (the "Rights Declaration Date") (i) declare any dividend
on outstanding shares of Common Stock payable in shares of Common
Stock, (ii) subdivide outstanding shares of Common Stock or (iii)
combine outstanding shares of Common Stock into a smaller number of
shares, then in each such case the amount to which the holder of a
Unit of Series A Preferred Stock was entitled immediately prior to
such event under clause (b) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of
which shall be the number of shares of Common Stock that are
outstanding immediately after such event and the denominator of which
shall be the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on Units
of Series A Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the shares
of Common Stock (other than a dividend payable in shares of Common
Stock); provided, however, that, in the event no dividend or
distribution shall have been declared on the Common Stock during the
period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $.01 per
Unit on the Series A Preferred Stock shall nevertheless be payable on
such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and shall be cumulative on each
outstanding Unit of Series A Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issuance of such Unit
of Series A Preferred Stock, unless the date of issuance of such Unit
is prior to the record date for the first Quarterly Dividend Payment
Date, in which case, dividends on such Unit shall begin to accrue from
the date of issuance of such Unit, or unless the date of issuance is a
Quarterly Dividend Payment Date or is a date after the record date for
the determination of holders of Units of Series A Preferred Stock
entitled to receive a quarterly dividend and before such Quarterly
Dividend Payment Date, in either of which events such dividends shall
begin to accrue and be cumulative from such Quarterly Dividend Payment
Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on Units of Series A Preferred Stock in an amount less than the
aggregate amount of all such dividends at the time accrued and payable
on such Units shall be allocated pro rata on a unit-by-unit basis
among all Units of Series A Preferred Stock at the time outstanding.
The Board of Directors may fix a record date for the determination of
holders of Units of Series A Preferred Stock entitled to receive
payment of a dividend or distribution declared thereon, which record
date shall be no more than 30 days prior to the date fixed for the
payment thereof.
<PAGE>
2. Voting Rights. The holders of Units of Series A Preferred Stock shall have
the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each Unit of Series A Preferred Stock shall entitle the holder thereof
to one vote on all matters submitted to a vote of the stockholders of
the Corporation. In the event the Corporation shall at any time after
the Rights Declaration Date (i) declare any dividend on outstanding
shares of Common Stock payable in shares of Common Stock, (ii)
subdivide outstanding shares of Common Stock or (iii) combine the
outstanding shares of Common Stock into a smaller number of shares,
then in each such case the number of votes per Unit to which holders
of Units of Series A Preferred Stock were entitled immediately prior
to such event shall be adjusted by multiplying such number by a
fraction the numerator of which shall be the number of shares of
Common Stock outstanding immediately after such event and the
denominator of which shall be the number of shares of Common Stock
that were outstanding immediately prior to such event; and
(B) Except as otherwise provided herein, in the Certificate or
the Bylaws of the Corporation or as required by law, the holders of
Units of Series A Preferred Stock and the holders of shares of Common
Stock shall vote together as one class on all matters submitted to a
vote of stockholders of the Corporation, and such holders shall have
no special voting rights and their consents shall not be required for
taking any corporate action.
3. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on Units of Series A Preferred Stock as provided herein are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on outstanding Units of Series A
Preferred Stock shall have been paid in full, the Corporation shall not (i)
declare or pay dividends on, make any other distributions on, or redeem or
purchase or otherwise acquire for consideration any shares of junior stock;
(ii) declare or pay dividends on or make any other distributions on any
shares of parity stock, except dividends paid ratably on Units of Series A
Preferred Stock and shares of all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of such Units and all such shares are then entitled; (iii) redeem
or purchase or otherwise acquire for consideration shares of any parity
stock, provided, however, that the Corporation may at any time redeem,
purchase or otherwise acquire shares of any such parity stock in exchange
for shares of any junior stock; (iv) purchase or otherwise acquire for
consideration any Units of Series A Preferred Stock, except in accordance
with a purchase offer made in writing or by publication (as determined by
the Board of Directors) to all holders of such Units.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this
Section 3, purchase or otherwise acquire such shares at such time and in
such manner.
<PAGE>
4. Reacquired Shares.
Any Units of Series A Preferred Stock purchased or otherwise acquired by the
Corporation in any manner whatsoever shall be retired and cancelled promptly
after the acquisition thereof. All such Units shall, upon their cancellation,
become authorized but unissued shares (or fractions of shares) of Preferred
Stock and may be reissued as part of a new series of Preferred Stock to be
created by resolution or resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth herein.
5. Liquidation, Dissolution or Winding Up.
(A) Upon any voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, no distribution shall be made (i) to the holders of shares of
junior stock unless the holders of Units of Series A Preferred Stock shall have
received, subject to adjustment as hereinafter provided in paragraph (B), the
greater of either (a) $.01 per Unit plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not earned or declared, to the
date of such payment, or (b) the amount equal to the aggregate per share amount
to be distributed to holders of shares of Common Stock, or (ii) to the holders
of shares of parity stock, unless simultaneously therewith distributions are
made ratably on Units of Series A Preferred Stock and all other shares of such
parity stock in proportion to the total amounts to which the holders of Units of
Series A Preferred Stock are entitled under clause (i)(a) of this sentence and
to which the holders of shares of such parity stock are entitled, in each case
upon such liquidation, dissolution or winding up.
(B) In the event the Corporation shall at any time after the Rights Declaration
Date (i) declare any dividend on outstanding shares of Common Stock payable in
shares of Common Stock, (ii) subdivide outstanding shares of Common Stock, or
(iii) combine outstanding shares of Common Stock into a smaller number of
shares, then in each such case the aggregate amount to which holders of Units of
Series A Preferred Stock were entitled immediately prior to such event pursuant
to clause (i)(b) of paragraph (A) of this Section 5 shall be adjusted by
multiplying such amount by a fraction the numerator of which shall be the number
of shares of Common Stock that are outstanding immediately after such event and
the denominator of which shall be the number of shares of Common Stock that were
outstanding immediately prior to such event.
6. Consolidation, Merger, etc. In case the Corporation shall enter into any
consolidation, merger, combination or other transaction in which the shares of
Common Stock are exchanged for or converted into other stock or securities, cash
and/or any other property, then in any such case Units of Series A Preferred
Stock shall at the same time be similarly exchanged for or converted into an
amount per Unit (subject to the provision for adjustment hereinafter set forth)
equal to the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which each
share of Common Stock is converted or exchanged. In the event the Corporation
shall at any time after the Rights Declaration Date (i) declare any dividend on
outstanding shares of Common Stock payable in shares of Common Stock,
(ii) subdivide outstanding shares of Common Stock, or (iii) combine outstanding
Common Stock into a smaller number of shares, then in each such case the amount
set forth in the immediately preceding sentence with respect to the exchange or
conversion of Units of Series A Preferred Stock shall be adjusted by multiplying
such amount by a fraction the numerator of which shall be the number of shares
of Common Stock that are outstanding immediately after such event and the
denominator of which shall be the number of shares of Common Stock that were
outstanding immediately prior to such event.
7. Redemption. The Units of Series A Preferred Stock and shares of
Series A Preferred Stock shall not be redeemable.
<PAGE>
8. Ranking. The Units of Series A Preferred Stock and shares of Series
A Preferred Stock shall rank junior to all other series of the
Preferred Stock and to any other class of Preferred Stock that
hereafter may be issued by the Corporation as to the payment of
dividends and the distribution of assets, unless the terms of any such
series or class shall provide otherwise.
9. Fractional Shares. The Series A Preferred Stock may be issued in
Units or other fractions of a share, which Units or fractions shall
entitle the holder, in proportion to such holder's units or fractional
shares, to exercise voting rights, receive dividends, participate in
distributions and to have the benefit of all other rights of holders
of Series A Preferred Stock.
10. Certain Definitions. As used in this resolution with respect to
the Series A Preferred Stock, the following terms shall have the
following meanings:
(A) The term "Common Stock" shall mean the class of stock designated
as the common stock, par value $.001 per share, of the Corporation at
the date hereof or any other class of stock resulting from successive
changes or reclassification of the common stock.
(B) The term "junior stock" (i) as used in Section 3 shall mean the
Common Stock and any other class or series of capital stock of the
Corporation hereafter authorized or issued over which the Series A
Preferred Stock has preference or priority as to the payment of
dividends and (ii) as used in Section 5, shall mean the Common Stock
and any other class or series of capital stock of the Corporation over
which the Series A Preferred Stock has preference or priority in the
distribution of assets on any liquidation, dissolution or winding up
of the Corporation.
(C) The term "parity stock" (i) as used in Section 3 shall mean any
class or series of stock of the Corporation hereafter authorized or
issued ranking pari passu with the Series A Preferred Stock as to
dividends and (ii) as used in Section 5, shall mean any class or
series of capital stock ranking pari passu with the Series A Preferred
Stock in the distribution of assets on any liquidation, dissolution or
winding up.
<PAGE>
IN WITNESS WHEREOF, AeroCentury Corp. has caused this Certificate to
be signed by its President and its Secretary this 15th day of April,
1998.
AEROCENTURY CORPORATION
By:/s/ Neal D. Crispin
- ----------------------------
Neal D. Crispin
President
By:/s/Toni M. Perazzo
- ---------------------------
Toni M. Perazzo
Secretary
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of the 29th day of April, 1998,
by and between NEAL CRISPIN (the "Employee or CRISPIN") and
AeroCentury Corp., a Delaware Corporation (the "Company" or
"ACY").
For ease of reference, this Agreement is divided into the
following parts, which begin on the pages indicated:
FIRST PART: TERM OF EMPLOYMENT, DUTIES AND SCOPE, COMPENSATION
AND BENEFITS DURING EMPLOYMENT (Sections 1-5, beginning on page
2)
SECOND PART: COMPENSATION AND BENEFITS IN CASE OF ACTUAL OR
CONSTRUCTIVE TERMINATION (Section 6, beginning on page 5)
THIRD PART: PARACHUTE PAYMENTS (Sections 7-8, beginning on page
6)
FOURTH PART: SUCCESSORS, MISCELLANEOUS PROVISIONS, SIGNATURE PAGE
(Sections 9-10, beginning on page 8)
<PAGE>
FIRST PART: TERM OF EMPLOYMENT, DUTIES AND SCOPE, COMPENSATION
AND BENEFITS DURING EMPLOYMENT
Section 1. Term of Employment
(a) Basic Rule. The Company agrees to employ the Employee in the
capacity of President in the event either of the following occur:
(1) the Company terminates the Management Agreement currently in
effect between the Company and JetFleet Management Corporation
("JMC") (hereinafter the"Management Agreement"); or (2) there is
a "Change in Control" (as defined below) in the Company.
Employee's employment with the Company shall begin on the date of
the termination of the Management Agreement, or the date that the
Change in Control is completed (hereinafter "Effective Date of
Employment"). Employee shall have the option, at his sole
discretion, to decline employment if (i) there is a Change in
Control or (ii) the termination of the Management Agreement
described in clause (1) above is not in connection with the
acquisition of JMC by the Company. However, if Employee declines
employment in following a given Change in Control, he shall not
forfeit his employment rights with respect to any subsequent
Change in Control.
"Change in Control" shall mean the occurrence of any of the
following events, after the date on which this Agreement is
executed:
(i) Any person or entity other than Employee is or becomes the
beneficial owner, directly or indirectly, of securities of the
company representing 25% or more of the combined voting power of
the Company's then-outstanding securities other than in
connection with additional issuances of the Company's securities
for capital-raising purposes;
(ii) There occurs a merger or consolidation of the Company with
any other corporation or entity, other than 1) a merger or
consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than 85% of
the combined voting power of the voting securities of the Company
or such surviving entity outstanding immediately after such
merger or consolidation or 2) a merger or consolidation effected
to implement a recapitalization of the Company (or similar
transaction) in which no person or entity acquires more than 85%
or more of the combined voting power of the Company's then
outstanding securities; or
<PAGE>
(iii) The Company sells or disposes of substantially all or a
significant portion of its assets in a series of transactions not
recommmende by JMC. For purposes of this subsection, a sale of a
"significant portion" of the assets of the Company shall mean a
sale or other disposition in a single transaction or a series of
related transactions of 25% or more of the assets (based on fair
market value) of the Company.
(b) Initial Term. The Company agrees to continue the Employee's
employment, and the Employee agrees to remain in employment with
the Company, from the effective date of employment, until the
earliest of:
(1) December 31 of the fifth year following the effective date of
employment; or
(2) The date of the Employee's death or when the Employee's
employment terminates pursuant to Subsections (b), (c), (d) or
(e), below.
(c) Automatic Extensions. The term and provisions of this
Agreement shall automatically extend for additional one-year
periods if Employee remains employed on and after December 31 of
the fifth year following the effective date of employment, unless
either party notifies the other in writing to the contrary at
least 180 days prior to the applicable December 31 that it, or
he, does not want the term to so extend.
(d) Termination By Company for Cause. The Company may terminate
the Employee's employment at any time for Cause shown. For all
purposes under this Agreement, "Cause" shall mean (1) a willful
failure by the Employee to substantially perform the Employee's
duties under this Agreement, other than a failure resulting from
the Employee's complete or partial incapacity due to physical or
mental illness or impairment, (2) a willful act by the Employee
that constitutes gross misconduct and that is materially
injurious to the Company, (3) a willful breach by the Employee of
a material provision of this Agreement or (4) a material and
willful violation of a federal or state law or regulation
applicable to the business of the Company that is materially and
demonstrably injurious to the Company. No act, or failure to act,
by the Employee shall be considered "willful" unless committed
without good faith and without a reasonable belief that the act
or omission was in the Company's best interest.
However, if such Cause is reasonably curable, the Company shall
not terminate the Employee's employment hereunder unless the
Company first gives notice of its intention to terminate and of
the grounds for such termination, and the Employee has not,
within sixty (60) days following receipt of notice, cured such
Cause.
<PAGE>
(e) Termination Company for Disability. The Company may terminate
the Employee's employment for Disability by giving the Employee
written notice. For all purposes under this Agreement,
"Disability" shall mean that the Employee, at the time the notice
is given, has been unable to perform the Employee's duties under
this Agreement for a period of not less than twelve (12)
consecutive months as a result of the Employee's incapacity due
to physical or mental illness. In the event that the Employee
resumes the performance of substantially all of the Employee's
duties under this Agreement before the termination of the
Employee's employment under this Section becomes effective, the
notice of termination shall automatically be deemed to have been
revoked.
(f) Termination by Employee For Good Reason. The Employee may
terminate his employment with the Company for Good Reason.
Termination shall be for "Good Reason" if: (1) there is a
material and adverse change in Employee's position, duties,
responsibilities, or status with Company; (2) there is a
reduction in Employee's salary then in effect, other than a
reduction comparable to reductions generally applicable to
similarly situated employees of the Company; (3) there is a
material reduction in Employee's benefits, other than a reduction
comparable to reductions generally applicable to similarly
situated employees of the Company; or (4) the Company materially
breaches this Agreement.
Section 2. Duties and Scope of Employment
(a) Position. The Company agrees to employ the Employee for the
term of employment under this Agreement in the position of
President. Employee shall be given such duties, responsibilities
and authorities as are appropriate to his position.
(b) Obligations. During the term of employment under this
Agreement, the Employee shall devote such business efforts and
time to the business and affairs of the Company as are needed to
carry out his duties and responsibilities hereunder, subject to
the overall supervision of the Company's Board of Directors. The
foregoing shall not preclude the Employee from engaging in
appropriate civic, charitable or religious activities or from
devoting a reasonable amount of time to private investments or
from serving on the boards of directors of other entities, as
long as such activities and service do not interfere or conflict
with the Employee's responsibilities to the Company. Nor shall
the foregoing preclude the Employee from engaging in any business
activities related to any business in which Employee held a
management position within thirty (30) days prior to the
effective date of employment with the Company.
<PAGE>
Section 3. Signing Bonus and Compensation
(a) Signing Bonus. Company agrees to pay the Employee, as a
signing bonus, a lump sum payment of $500,000, plus 5% of the
outstanding capitalization of the Company. The exercise price of
the stock options shall be one dollar ($1.00). Company agrees to
pay the signing bonus and to transfer the stock within thirty
(30) days after the effective date of employment.
(b) Base Salary. During the term of employment under this
Agreement, the Company agrees to pay the Employee as compensation
for services a Base Salary at the annual rate of $250,000, or at
such higher rate as the Company may determine from time to time.
Such salary shall be payable in accordance with the standard
payroll procedures of the Company. Once the Company has increased
such salary, it thereafter shall not be reduced; provided,
however, that such salary (including any increases) may be
reduced by the Company if the Employee commits an act or omission
that meets the definition of Cause, as defined in Section 1(b).
(c) Annual Bonus. Each year during the term of employment under
this Agreement, the Company agrees to pay the Employee an Annual
Bonus, based on the Employee's performance and the overall
performance of the Company. The amount of the Annual Bonus shall
be set each year by the Company, and shall be a multiple of the
Employee's base salary. However, in no event shall the Annual
Bonus in any year be less than two hundred percent (200%) of the
Employee' base salary.
The Base Salary and Annual Bonus specified in this Section 3,
together with any increases in such compensation that the Company
may grant from time to time, and together with any reductions
made in accordance with this Section 3, is referred to in this
Agreement as "Base Compensation."
Section 4. Employee Benefits
During the term of employment under this Agreement, the Employee
shall be eligible to participate in the employee benefit plans
and executive compensation and fringe benefit programs maintained
by the Company, including (without limitation) savings, pension
or profit-sharing plans, deferred compensation plans, stock
option, incentive or other bonus plans, life, disability, health,
accident and other insurance programs, paid vacations, automobile
and similar plans or programs, subject in each case to the
generally applicable terms and conditions of the plan or program
in question and to the discretion and determinations of any
person, committee or entity administering such plan or program.
<PAGE>
Section 5. Business Expenses and Travel
During the term of employment under this Agreement, the Employee
shall be authorized to incur necessary and reasonable travel,
entertainment and other business expenses in connection with the
Employee's duties hereunder. The Company shall reimburse the
Employee for such expenses upon presentation of an itemized
account and appropriate supporting documentation, all in
accordance with generally applicable policies.
SECOND PART: COMPENSATION AND BENEFITS IN CASE OF ACTUAL OR
CONSTRUCTIVE TERMINATION
Section 6. Termination By Company Without Cause, Or By Employee
For Good Reason
In the event that, during the term of this Agreement the
Employee's employment terminates in a Qualifying Termination, as
defined in Subsection (a), the Employee shall be entitled to
receive the payments and benefits described in Subsections (b),
(c) and (d).
(a) Qualifying Termination. A Qualifying Termination occurs if:
(1) The Company terminates the Employee's employment (i) prior
to a Change in Control, for any reason other than Cause or
Disability; or (ii) on or subsequent to a Change in Control, for
any reason.
(2) The Employee terminates his employment with the Company (i)
prior to a Change in Control, for Good Reason or (ii) on or
subsequent to a Change in Control, for any reason.
(b) Severance (2.99x payment). The Company shall pay to the
Employee in a lump sum, not less than 31 days nor more than 60
days following the date of the employment termination, an amount
equal to the following:
(1) Two hundred ninety-nine percent (299%) of the Employee's Base
Salary in effect on the date of the employment termination; plus
(2) One million five hundred thousand dollars ($1,500,000.00).
(c) Three Years of Life Insurance and Health Plan Coverage. The
coverage described in this Subsection (c) shall be provided for a
"Continuation Period" beginning on the date when the employment
termination is effective and ending on the earlier of (1) the
third anniversary of the date when the employment termination is
effective or (2) the date of the Employee's death. During the
Continuation Period, the Employee (and, where applicable, the
Employee's dependents) shall be entitled to continue
participation in the group term life insurance plan and in the
health care plan for employees maintained by the Company as if
the Employee were still an employee of the Company. The coverage
provided under this Subsection (c) shall run concurrently with
and shall be offset against any continuation coverage under
Part 6 of Title I of the Employee Retirement Income Security Act
of 1974, as amended. Where applicable, the Employee's
compensation for purposes of such plans shall be deemed to be
equal to the Employee's compensation (as defined in such plans)
in effect on the date of the employment termination. To the
extent that the Company finds it undesirable to cover the
Employee under the group life insurance and health plans of the
Company, the Company shall provide the Employee (at its own
expense) with the same level of coverage under individual
policies.
<PAGE>
(d) Incentive Programs. All stock options or equity awards
granted by the Company shall vest 100% upon the effective date of
termination. Any stock options or equity awards granted to
Employee may be exercised within the time frames, and in a
manner, consistent with the original grant of the stock options
or equity awards.
(e) No Mitigation. The Employee shall not be required to mitigate
the amount of any payment or benefit contemplated by this
Section 6, nor shall any such payment or benefit be reduced by
any earnings or benefits that the Employee may receive from any
other source.
THIRD PART: PARACHUTE PAYMENTS
Section 7. Gross-Up Payment
In the event it is determined that any payment or distribution of
any type to or for the benefit of the Employee, pursuant to this
Agreement or otherwise, by the Company, any Person who acquires
ownership or effective control of the Company, or ownership of a
substantial portion of the assets of the Company (within the
meaning of section 260G of the Code and the regulations
thereunder) or any affiliate of such Person (the "Total
Payments") would be subject to the excise tax imposed by
section 4999 of the Code or any interest or penalties with
respect to such excise tax (such excise tax, together with any
such interest and penalties, are collectively referred to as the
"Excise Tax"), then the Employee shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that,
after payment by the Employee of all taxes (including any
interest or penalties imposed with respect to such taxes),
including any Excise Tax, imposed upon the Gross-Up Payment, the
Employee retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Total Payments.
<PAGE>
Section 8. Determination by Accountant
All mathematical determinations and determinations as to whether
any of the Total Payments are "parachute payments" (within the
meaning of section 280G of the Code), in each case which
determinations are required to be made under this Section 8,
including whether a Gross-Up Payment is required, the amount of
such Gross-Up Payment, and amounts relevant to the last sentence
of this Section 8, shall be made by an independent accounting
firm selected by the Employee from amount the largest four
accounting firms in the United States (the "Accounting Firm").
The Accounting Firm shall provide to the Company and to the
Employee its determination (the "Determination"), together with
detailed supporting calculations regarding the amount of any
Gross-Up Payment and any other relevant matter, within ten (10)
days after termination of the Employee's employment, if
applicable, or at such earlier time following termination of
employment as is requested by the Employee (if the Employee
reasonably believes that any of the Total Payments may be subject
to the Excise Tax). If the Accounting Firm determines that no
Excise Tax is payable by the Employee, it shall furnish the
Employee with a written statement that such Accounting Firm has
concluded that no Excise Tax is payable (including the reasons
therefor) and that the Employee has substantial authority not to
report any Excise Tax on the Employee's federal income tax
return. If a Gross-Up Payment is determined to be payable, it
shall be paid to the Employee within ten (10) days after the
Determination is delivered to the Company or the Employee. Any
determination by the Accounting Firm shall be binding upon the
Company and the Employee, absent manifest error.
As a result of uncertainty in the application of section 4999 of
the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments
not made by the Company and members of the Company should have
been made ("Underpayment"), or that Gross-Up Payments will have
been made by the Company and members of the Company that should
not have been made ("Overpayments"). In either such event, the
Accounting Firm shall determine the amount of the Underpayment or
Overpayment that has occurred. In the case of an Underpayment,
the Company promptly shall pay, or cause to be paid, the amount
of such Underpayment to or for the benefit of the Employee. In
the case of an Overpayment, the Employee shall, at the direction
and expense of the Company, take such steps as are reasonably
necessary (including the filing of returns and claims for
refund), follow reasonable instructions from, and procedures
established by, the Company, and otherwise reasonably cooperate
with the Company to correct such Overpayment; provided, however,
that (1) Employee shall not in any event be obligated to return
to the Company an amount greater than the net after-tax portion
of the Overpayment that he has retained or recovered as a refund
from the applicable taxing authorities and (2) this provision
shall be interpreted in a manner consistent with the intent of
Section 7, which is to make the Employee whole, on an after-tax
basis, from the application of the Excise Tax, it being
understood that the correction of an Overpayment may result in
the Employee repaying to the Company an amount that is less than
the Overpayment.
<PAGE>
FOURTH PART: SUCCESSORS, MISCELLANEOUS PROVISIONS, SIGNATURE PAGE
Section 9. Successors
(a) Company's Successors. The Company shall require any successor
(whether direct or indirect and whether by purchase, lease,
merger, consolidation, liquidation or otherwise) to all or
substantially all of the Company's business and/or assets, by an
agreement in substance and form satisfactory to the Employee, to
assume this Agreement and to agree expressly to perform this
Agreement in the same manner and to the same extent as the
Company would be required to perform it in the absence of a
succession. The Company's failure to obtain such agreement prior
to the effectiveness of a succession shall be a breach of this
Agreement and shall entitle the Employee to all of the
compensation and benefits to which the Employee would have been
entitled hereunder if the Company had involuntarily terminated
the Employee's employment without Cause or Disability, on the
date when such succession becomes effective. For all purposes
under this Agreement, the term "Company" shall include any
successor to the Company's business and/or assets that executes
and delivers the assumption agreement described in this
Subsection (a) or that becomes bound by this Agreement by
operation of law.
(b) Employee's Successors. This Agreement and all rights of the
Employee hereunder shall inure to the benefit of, and be
enforceable by, the Employee's personal or legal representatives,
executors, administrators, successors, heirs, distributees,
devisees, and legatees.
Section 10. Miscellaneous Provisions
(a) Waiver. No provision of this Agreement shall be modified,
waived, or discharged unless the modification, waiver or
discharge is agreed to in writing and signed by the Employee and
by an authorized officer of the Company (other than the
Employee). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by
the other party shall be considered a waiver or any other
condition or provision or of the same condition or provision at
another time.
(b) Whole Agreement. No agreements, representations, or
understandings (whether oral or written and whether express or
implied) that are not expressly set forth in this Agreement have
been made or entered into by either party with respect to the
subject matter hereof.
(c) Choice of Law. The validity, interpretation, construction,
and performance of this Agreement shall be governed by the laws
of the State of California.
(d) Severability. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the
validity or enforceability of any other provision hereof, which
shall remain in full force and effect.
<PAGE>
(e) Arbitration. Except as otherwise provided in this Agreement,
any dispute or controversy arising out of the Employee's
employment or the termination thereof, including, but not limited
to, any claim of discrimination under state or federal law, shall
be settled exclusively by arbitration in the San Francisco Bay
Area, California, in accordance with the then applicable
Employment Dispute Resolution rules of the American Arbitration
Association. Judgment may be entered on the arbitrator's award in
any court having jurisdiction.
(f) Attorneys Fees. If any action is brought to enforce the
rights and obligations set forth herein, the prevailing party
shall be entitled to receive all of the fees and costs, including
reasonable attorneys fees, incurred in the action. Any fees and
costs awarded under this provision shall be in addition to any
other relief awarded to the prevailing party.
(g) No Assignment of Benefits. The rights of any person to
payments or benefits under this Agreement shall not be made
subject to option or assignment, either by voluntary or
involuntary assignment or by operation of law, including (without
limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this
Subsection (g) shall be void.
(h) Employment Taxes. All payments made pursuant to this
Agreement shall be subject to withholding of applicable taxes.
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this
Agreement, in the case of the Company by its duly authorized
officer, as of the day and year first above written. Employee has
consulted (or has had the opportunity to consult) with his own
counsel prior to execution of this Agreement.
___________________
NEAL CRISPIN
/s/ Neal D. Crispin
---------------------------
AEROCENTURY CORP.
By /s/ Toni M. Perazzo
----------------------
Its Vice President -
Finance
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of the 28th day of April, 1998, by and between
MARC J. ANDERSON (the "Employee") and AeroCentury Corp., a Delaware Corporation
(the "Company" or "ACY").
For ease of reference, this Agreement is divided into the following parts, which
begin on the pages indicated:
FIRST PART: TERM OF EMPLOYMENT, DUTIES AND SCOPE, COMPENSATION AND BENEFITS
DURING EMPLOYMENT (Sections 1-5, beginning on page 2)
SECOND PART: COMPENSATION AND BENEFITS IN CASE OF ACTUAL OR CONSTRUCTIVE
TERMINATION (Section 6, beginning on page 5)
THIRD PART: PARACHUTE PAYMENTS (Sections 7-8, beginning on page 6)
FOURTH PART: SUCCESSORS, MISCELLANEOUS PROVISIONS, SIGNATURE PAGE (Sections
9-10, beginning on page 8)
<PAGE>
FIRST PART: TERM OF EMPLOYMENT, DUTIES AND SCOPE, COMPENSATION AND BENEFITS
DURING EMPLOYMENT
Section 1. Term of Employment
(a) Basic Rule. The Company agrees to employ the Employee in the capacity of
Chief Operating Officer and Senior Vice President in the event either of the
following occur: (1) the Company terminates the Management Agreement currently
in effect between the Company and JetFleet Management Corp. ("JMC") (hereinafter
the "Management Agreement"); or (2) there is a "Change in Control" (as defined
below) in the Company. Employee's employment with the Company shall begin on the
date of the termination of the Management Agreement, or the date that the Change
in Control is completed (hereinafter "Effective Date of Employment"). Employee
shall have the option, at his sole discretion, to decline employment if (i)
there is a Change in Control or (ii) the termination of the Management Agreement
described in clause (1) above is not in connection with the acquisition of JMC
by the Company. However, if Employee declines employment in following a given
Change in Control, he shall not forfeit his employment rights with respect to
any subsequent Change in Control.
"Change in Control" shall mean the occurrence of any of the following events,
after the date on which this Agreement is executed:
(i) Any person or entity other than Employee or Neal D. Crispin is or
becomes the beneficial owner, directly or indirectly, of securities of the
company representing 25% or more of the combined voting power of the Company's
then-outstanding securities other than in connection with the issuance of
additional securities by the Compnay for capital-raising purposes;
(ii) There occurs a merger or consolidation of the Company with any other
corporation or entity, other than 1) a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more than 85% of the
combined voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation or 2) a merger
or consolidation effected to implement a recapitalization of the Company (or
similar transaction) in which no person or entity acquires more than 85% or more
of the combined voting power of the Company's then outstanding securities; or
(iii) The Company sells or disposes of substantially all or a significant
portion of its assets in a series of transactions not recommended by JMC. For
purposes of this subsection, a sale of a "significant portion" of the assets of
the Company shall mean a sale or other disposition in a single transaction or a
series of related transactions of 25% or more of the assets (based on fair
market value) of the Company.
(b) Initial Term. The Company agrees to continue the Employee's employment, and
the Employee agrees to remain in employment with the Company, from the effective
date of employment, until the earliest of:
(1) December 31 of the fifth year following the effective date of employment; or
(2) The date of the Employee's death or when the Employee's employment
terminates pursuant to Subsections (b), (c), (d) or (e) below.
<PAGE>
(c) Automatic Extensions. The term and provisions of this Agreement shall
automatically extend for additional one-year periods if Employee remains
employed on and after December 31 of the fifth year following the effective date
of employment, unless either party notifies the other in writing to the contrary
at least 180 days prior to the applicable December 31 that it, or he, does not
want the term to so extend.
(d) Termination By Company for Cause. The Company may terminate the Employee's
employment at any time for Cause shown. For all purposes under this Agreement,
"Cause" shall mean (1) a willful failure by the Employee to substantially
perform the Employee's duties under this Agreement, other than a failure
resulting from the Employee's complete or partial incapacity due to physical or
mental illness or impairment, (2) a willful act by the Employee that constitutes
gross misconduct and that is materially injurious to the Company, (3) a willful
breach by the Employee of a material provision of this Agreement or (4) a
material and willful violation of a federal or state law or regulation
applicable to the business of the Company that is materially and demonstrably
injurious to the Company. No act, or failure to act, by the Employee shall be
considered "willful" unless committed without good faith and without a
reasonable belief that the act or omission was in the Company's best interest.
However, if such Cause is reasonably curable, the Company shall not terminate
the Employee's employment hereunder unless the Company first gives notice of its
intention to terminate and of the grounds for such termination, and the Employee
has not, within sixty (60) days following receipt of notice, cured such Cause.
(e) Termination Company for Disability. The Company may terminate the Employee's
employment for Disability by giving the Employee written notice. For all
purposes under this Agreement, "Disability" shall mean that the Employee, at the
time the notice is given, has been unable to perform the Employee's duties under
this Agreement for a period of not less than twelve (12) consecutive months as a
result of the Employee's incapacity due to physical or mental illness. In the
event that the Employee resumes the performance of substantially all of the
Employee's duties under this Agreement before the termination of the Employee's
employment under this Section becomes effective, the notice of termination shall
automatically be deemed to have been revoked.
(f) Termination by Employee For Good Reason. The Employee may terminate his
employment with the Company for Good Reason. Termination shall be for "Good
Reason" if: (1) there is a material and adverse change in Employee's position,
duties, responsibilities, or status with Company; (2) there is a reduction in
Employee's salary or benefits then in effect, other than a reduction comparable
to reductions generally applicable to similarly situated employees of the
Company; or (3) the Company materially breaches this Agreement.
Section 2. Duties and Scope of Employment
(a) Position. The Company agrees to employ the Employee for the term of
employment under this Agreement in the position of Chief Operating Officer and
Senior Vice President. Employee shall be given such duties, responsibilities and
authorities as are appropriate to his position.
(b) Obligations. During the term of employment under this Agreement, the
Employee shall devote such business efforts and time to the business and affairs
of the Company as are needed to carry out his duties and responsibilities
hereunder, subject to the overall supervision of the Company's Board of
Directors. The foregoing shall not preclude the Employee from engaging in
appropriate civic, charitable or religious activities or from devoting a
reasonable amount of time to private investments or from serving on the boards
of directors of other entities, as long as such activities and service do not
interfere or conflict with the Employee's responsibilities to the Company. Nor
shall the foregoing preclude the Employee from engaging in any business
activities related to any business in which Employee held a management position
within thirty (30) days prior to the effective date of employment with the
Company.
<PAGE>
Section 3. Compensation
(a) Base Salary. During the term of employment under this Agreement, the Company
agrees to pay the Employee as compensation for services a Base Salary at the
annual rate of $120,000, or at such higher rate as the Company may determine
from time to time. Such salary shall be payable in accordance with the standard
payroll procedures of the Company. Once the Company has increased such salary,
it thereafter shall not be reduced; provided, however, that such salary
(including any increases) may be reduced by the Company if the Employee commits
an act or omission that meets the definition of Cause, as defined in
Section 1(b).
The Base Salary specified in this Section 3, together with any increases in such
compensation that the Company may grant from time to time, and together with any
reductions made in accordance with this Section 3, is referred to in this
Agreement as "Base Compensation."
(b) Upon effectiveness of this Agreement under Section 1(a), the Company shall
pay ANDERSON a one-time cash bonus of $50,000.
Section 4. Employee Benefits
During the term of employment under this Agreement, the Employee shall be
eligible to participate in the employee benefit plans and executive compensation
and fringe benefit programs maintained by the Company, including (without
limitation) savings, pension or profit-sharing plans, deferred compensation
plans, stock option, incentive or other bonus plans, life, disability, health,
accident and other insurance programs, paid vacations, automobile and similar
plans or programs, subject in each case to the generally applicable terms and
conditions of the plan or program in question and to the discretion and
determinations of any person, committee or entity administering such plan or
program.
Section 5. Business Expenses and Travel
During the term of employment under this Agreement, the Employee shall be
authorized to incur necessary and reasonable travel, entertainment and other
business expenses in connection with the Employee's duties hereunder. The
Company shall reimburse the Employee for such expenses upon presentation of an
itemized account and appropriate supporting documentation, all in accordance
with generally applicable policies.
SECOND PART: COMPENSATION AND BENEFITS IN CASE OF ACTUAL OR CONSTRUCTIVE
TERMINATION
Section 6. Termination By Company Without Cause, Or By Employee For Good Reason
In the event that, during the term of this Agreement the Employee's employment
terminates in a Qualifying Termination, as defined in Subsection (a), the
Employee shall be entitled to receive the payments and benefits described in
Subsections (b), (c) and (d).
<PAGE>
(a) Qualifying Termination. A Qualifying Termination occurs if:
(1) The Company terminates the Employee's employment (i) prior to a Change in
Control, for any reason other than Cause or Disability; or (ii) on or subsequent
to a Change in Control, for any reason; or
(2) The Employee terminates his employment with the Company (i) prior to a
Change in Control, for Good Reason or (ii) on or after a Change in Control, for
any reason.
(b) Severance (2 x payment). The Company shall pay to the Employee in a lump
sum, not less than 31 days nor more than 60 days following the date of the
employment termination, an amount equal to the following:
(1) Two hundred percent (200%) of the Employee's Base Salary in effect on the
date of the employment termination; plus
(2) Two hundred fifty thousand dollars ($250,000.00).
(c) Two Years of Life Insurance and Health Plan Coverage. The coverage described
in this Subsection (c) shall be provided for a "Continuation Period" beginning
on the date when the employment termination is effective and ending on the
earlier of (1) the second anniversary of the date when the employment
termination is effective or (2) the date of the Employee's death. During the
Continuation Period, the Employee (and, where applicable, the Employee's
dependents) shall be entitled to continue participation in the group term life
insurance plan and in the health care plan for employees maintained by the
Company as if the Employee were still an employee of the Company. The coverage
provided under this Subsection (c) shall run concurrently with and shall be
offset against any continuation coverage under Part 6 of Title I of the Employee
Retirement Income Security Act of 1974, as amended. Where applicable, the
Employee's compensation for purposes of such plans shall be deemed to be equal
to the Employee's compensation (as defined in such plans) in effect on the date
of the employment termination. To the extent that the Company finds it
undesirable to cover the Employee under the group life insurance and health
plans of the Company, the Company shall provide the Employee (at its own
expense) with the same level of coverage under individual policies.
(e) No Mitigation. The Employee shall not be required to mitigate the amount of
any payment or benefit contemplated by this Section 6, nor shall any such
payment or benefit be reduced by any earnings or benefits that the Employee may
receive from any other source.
THIRD PART: PARACHUTE PAYMENTS
Section 7. Gross-Up Payment
In the event it is determined that any payment or distribution of any type to or
for the benefit of the Employee, pursuant to this Agreement or otherwise, by the
Company, any Person who acquires ownership or effective control of the Company,
or ownership of a substantial portion of the assets of the Company (within the
meaning of section 260G of the Code and the regulations thereunder) or any
affiliate of such Person (the "Total Payments") would be subject to the excise
tax imposed by section 4999 of the Code or any interest or penalties with
respect to such excise tax (such excise tax, together with any such interest and
penalties, are collectively referred to as the "Excise Tax"), then the Employee
shall be entitled to receive an additional payment (a "Gross-Up Payment") in an
amount such that, after payment by the Employee of all taxes (including any
interest or penalties imposed with respect to such taxes), including any Excise
Tax, imposed upon the Gross-Up Payment, the Employee retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments.
<PAGE>
Section 8. Determination by Accountant
All mathematical determinations and determinations as to whether any of the
Total Payments are "parachute payments" (within the meaning of section 280G of
the Code), in each case which determinations are required to be made under this
Section 8, including whether a Gross-Up Payment is required, the amount of such
Gross-Up Payment, and amounts relevant to the last sentence of this Section 8,
shall be made by an independent accounting firm selected by the Employee from
among the largest four accounting firms in the United States (the "Accounting
Firm"). The Accounting Firm shall provide to the Company and to the Employee its
determination (the "Determination"), together with detailed supporting
calculations regarding the amount of any Gross-Up Payment and any other relevant
matter, within ten (10) days after termination of the Employee's employment, if
applicable, or at such earlier time following termination of employment as is
requested by the Employee (if the Employee reasonably believes that any of the
Total Payments may be subject to the Excise Tax). If the Accounting Firm
determines that no Excise Tax is payable by the Employee, it shall furnish the
Employee with a written statement that such Accounting Firm has concluded that
no Excise Tax is payable (including the reasons therefor) and that the Employee
has substantial authority not to report any Excise Tax on the Employee's federal
income tax return. If a Gross-Up Payment is determined to be payable, it shall
be paid to the Employee within ten (10) days after the Determination is
delivered to the Company or the Employee. Any determination by the Accounting
Firm shall be binding upon the Company and the Employee, absent manifest error.
As a result of uncertainty in the application of section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments not made by the Company and members of the
Company should have been made ("Underpayment"), or that Gross-Up Payments will
have been made by the Company and members of the Company that should not have
been made ("Overpayments"). In either such event, the Accounting Firm shall
determine the amount of the Underpayment or Overpayment that has occurred. In
the case of an Underpayment, the Company promptly shall pay, or cause to be
paid, the amount of such Underpayment to or for the benefit of the Employee. In
the case of an Overpayment, the Employee shall, at the direction and expense of
the Company, take such steps as are reasonably necessary (including the filing
of returns and claims for refund), follow reasonable instructions from, and
procedures established by, the Company, and otherwise reasonably cooperate with
the Company to correct such Overpayment; provided, however, that (1) Employee
shall not in any event be obligated to return to the Company an amount greater
than the net after-tax portion of the Overpayment that he has retained or
recovered as a refund from the applicable taxing authorities and (2) this
provision shall be interpreted in a manner consistent with the intent of
Section 7, which is to make the Employee whole, on an after-tax basis, from the
application of the Excise Tax, it being understood that the correction of an
Overpayment may result in the Employee repaying to the Company an amount that is
less than the Overpayment.
<PAGE>
FOURTH PART: SUCCESSORS, MISCELLANEOUS PROVISIONS, SIGNATURE PAGE
Section 9. Successors
(a) Company's Successors. The Company shall require any successor (whether
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets, by an agreement in substance and form satisfactory to the
Employee, to assume this Agreement and to agree expressly to perform this
Agreement in the same manner and to the same extent as the Company would be
required to perform it in the absence of a succession. The Company's failure to
obtain such agreement prior to the effectiveness of a succession shall be a
breach of this Agreement and shall entitle the Employee to all of the
compensation and benefits to which the Employee would have been entitled
hereunder if the Company had involuntarily terminated the Employee's employment
without Cause or Disability, on the date when such succession becomes effective.
For all purposes under this Agreement, the term "Company" shall include any
successor to the Company's business and/or assets that executes and delivers the
assumption agreement described in this Subsection (a) or that becomes bound by
this Agreement by operation of law.
(b) Employee's Successors. This Agreement and all rights of the Employee
hereunder shall inure to the benefit of, and be enforceable by, the Employee's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees, and legatees.
Section 10. Miscellaneous Provisions
(a) Waiver. No provision of this Agreement shall be modified, waived, or
discharged unless the modification, waiver or discharge is agreed to in writing
and signed by the Employee and by an authorized officer of the Company (other
than the Employee). No waiver by either party of any breach of, or of compliance
with, any condition or provision of this Agreement by the other party shall be
considered a waiver or any other condition or provision or of the same condition
or provision at another time.
(b) Whole Agreement. No agreements, representations, or understandings (whether
oral or written and whether express or implied) that are not expressly set forth
in this Agreement have been made or entered into by either party with respect to
the subject matter hereof.
(c) Choice of Law. The validity, interpretation, construction, and performance
of this Agreement shall be governed by the laws of the State of California.
(d) Severability. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision hereof, which shall remain in full force and effect.
(e) Arbitration. Except as otherwise provided in this Agreement, any dispute or
controversy arising out of the Employee's employment or the termination thereof,
including, but not limited to, any claim of discrimination under state or
federal law, shall be settled exclusively by arbitration in the San Francisco
Bay Area, California, in accordance with the then applicable Employment Dispute
Resolution rules of the American Arbitration Association. Judgment may be
entered on the arbitrator's award in any court having jurisdiction.
(f) Attorneys Fees. If any action is brought to enforce the rights and
obligations set forth herein, the prevailing party shall be entitled to receive
all of the fees and costs, including reasonable attorneys fees, incurred in the
action. Any fees and costs awarded under this provision shall be in addition to
any other relief awarded to the prevailing party.
<PAGE>
(g) No Assignment of Benefits. The rights of any person to payments or benefits
under this Agreement shall not be made subject to option or assignment, either
by voluntary or involuntary assignment or by operation of law, including
(without limitation) bankruptcy, garnishment, attachment or other creditor's
process, and any action in violation of this Subsection (g) shall be void.
(h) Employment Taxes. All payments made pursuant to this Agreement shall be
subject to withholding of applicable taxes.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case
of the Company by its duly authorized officer, as of the day and year first
above written. Employee has consulted (or has had the opportunity to consult)
with his own counsel prior to execution of this Agreement.
MARC J. ANDERSON
/s/ Marc J. Anderson
AEROCENTURY CORP.
By /s/ Neal D. Crispin
Its: President
<TABLE> <S> <C>
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 3,436,270
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<PP&E> 38,524,200
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0
0
<COMMON> 1,610
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<TOTAL-LIABILITY-AND-EQUITY> 26,561,870
<SALES> 0
<TOTAL-REVENUES> 3,577,580
<CGS> 0
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<OTHER-EXPENSES> 1,657,820
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<INTEREST-EXPENSE> 83,690
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