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, 1999
[ ] 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 X
No
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: $7,380,140
On March 9, 2000 the aggregate market value of the voting and non-voting Common
equity held by non-affiliates (based upon the average of bid and asked price as
of March 9, 2000) was $8,985,400.
As of March 9, 2000 the Issuer has 1,606,557 Shares of Common Stock, of which
63,300 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 to
Part III herein: Form S-4/A filed with the Securities and Exchange Commission on
July 24, 1997; Form S-4/A filed with the Securities and Exchange Commission on
June 10, 1997; Form 10-KSB for the fiscal year ended December 31, 1998; Form
8-A/A filed with the Securities and Exchange Commission on February 4, 1999;
Form 8-K filed with the Securities and Exchange Commission on July 2, 1998; Form
10-KSB for the fiscal year ended December 31, 1997.
<PAGE>
PART I
Item 1. Business.
Business of the Company
AeroCentury Corp. ("AeroCentury") was incorporated in the state of Delaware on
February 28, 1997 ("Inception"). AeroCentury 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, AeroCentury
succeeded to the Partnerships' business.
During November 1999, AeroCentury Corp. formed a wholly-owned subsidiary,
AeroCentury Investments LLC ("AeroCentury LLC"), for the purpose of acquiring
two aircraft using a combination of cash and bank financing separate from its
credit facility. Financial information for 1999 for AeroCentury and AeroCentury
LLC (collectively, the "Company") is presented on a consolidated basis.
At December 31, 1997 all of the Company's outstanding common stock, consisting
of 150,000 shares, was owned by JetFleet Holding Corp. ("JHC"). JHC is the
parent corporation of JetFleet Management Corp. ("JMC"), which is an integrated
aircraft management, marketing and financing business. 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 investing in primarily used regional
aircraft equipment leased 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 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 already subject to a lease and
assumes the rights of the seller, as lessor under the existing lease. In
addition the Company may purchase an asset, usually from an air carrier, and
lease it back to the seller. 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 regional 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 JMC has extensive experience in purchasing, leasing and selling
used regional aircraft, the Company believes it can purchase these assets at an
appropriate price and keep the assets on lease. Furthermore, the Company
believes that JMC's 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.
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 maintenance and return conditions, such that when the lessee returns
the aircraft, the Company receives the aircraft back in a condition which allows
it 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 the 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 1999, 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. As the Company continues to use acquisition debt financing under its
revolving credit facility, interest expense has become an increasingly larger
portion of the Company's expenses. However, each advance on the credit facility
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 succeeds 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 excess cash flow that
can be used with equity or debt financings to acquire additional assets.
The Company's credit facility expires on June 30, 2000. The Company is currently
negotiating for a replacement for this credit facility and anticipates such will
be finalized on or before June 30, 2000. See "Factors that May Affect Future
Results Replacement of Credit Facility", below.
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
acquisition opportunities for the Company and/or lease terms less favorable to
the Company on new acquisitions as well as renewals of existing leases. This
could lead to lower revenues for the Company.
The Company, however, believes that it has a competitive advantage 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 because JMC has developed a reputation
as a global participant in the aircraft leasing market.
Dependence on Significant Customers
For the year ended December 31, 1999, the Company had four significant
customers, which accounted for 20%, 16%, 12% and 12%, 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
Under 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, 1999, 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, 1999, the Company owned four deHavilland DHC-7, three
deHavilland DHC-6, two Fairchild Metro III, three Shorts SD 3-60, six Fokker 50
aircraft, two Saab 340A aircraft and 26 turboprop engines, one of which is held
in inventory as a spare and is not subject to a lease or to depreciation.
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.
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 9, 2000:
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
1/1/99 to 3/31/99 9-1/4 7-1/2
4/1/99 to 6/30/99 8 7-1/4
7/1/99 to 9/30/99 7-7/8 6-1/2
10/1/99 to 12/31/99 6-3/8 5-1/2
On March 9, 2000, the closing stock sales price on the AMEX was $7.00 per share.
Number of Security Holders
The approximate number of holders of record of the shares of the Company's
Common Stock was 1,500 as of March 6, 2000.
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, 1999, the Company had purchased 63,300 shares of
its common stock.
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 facility financing that produce revenue
greater than the financing costs for such assets; the Company's ability to
maintain cash flow in excess of management and professional fees and interest
expenses; 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 ability to finalize a replacement
credit facility; the Company's achieving cash flow adequate to meet increases in
the interest rate applicable to the credit facility and ongoing operational
needs; 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 belief
that it has adequate cash flow to meet ongoing operational needs, even if S/N 72
remains off-lease and notwithstanding certain events related to a U.K. lessee in
reorganization; 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 ; and the Company's belief that
JMC's global reputation will benefit the Company; 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
regional aircraft and engines, including competition for regional 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."
<PAGE>
Business
The Company is engaged in the business of investing in primarily used regional
aircraft equipment leased 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.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Year Ended December 31,
1999 1998
Amount % Amount %
Operating lease revenue $ 7,128,690 96.6 $ 3,494,330 92.5
Gain on disposal of assets 98,400 1.3 228,230 6.0
Other income 153,050 2.1 55,020 1.5
Total $ 7,380,140 100.0 $ 3,777,580 100.0
The Company had revenues of $7,380,140 and net income of $1,405,420 for the year
ended December 31, 1999 versus revenues of $3,777,580 and net income of
$1,181,650 for the year ended December 31, 1998.
Rent income is approximately $3,634,000 higher in 1999 versus 1998 due to the
purchases of additional aircraft on lease during 1999 and the effect of a full
year of rent from aircraft purchased throughout 1998. Other income for the year
ended December 31, 1999 is higher by approximately $98,000 versus 1998 because
of interest earned on higher cash balances maintained during 1999.
Management fees are approximately $629,000 higher in 1999 versus 1998 because
the Management Agreement, entered into in January 1998, stipulates that
management fees are based on the net book value of the aircraft owned by the
Company and because the Company purchased additional aircraft during 1999.
Depreciation is approximately $986,000 higher in 1999 versus 1998 because of the
aircraft acquisitions during both years. Interest expense is approximately
$1,451,000 higher in 1999 versus 1998 because of the Company's use of its credit
facility beginning in November 1998 and throughout 1999. Professional fees and
general administrative expense are approximately $158,000 higher in 1999
primarily due to an increase in legal expenses associated with increasing the
Company's credit facility. During 1999, the Company increased maintenance
reserves and accrued costs and recognized a related one-time charge of
approximately $365,000 for estimated maintenance expense related to an off-lease
aircraft. The Company's effective tax rate in 1999 was approximately 31% versus
approximately 42% in 1998. The lower rate in 1999 is due to an adjustment
related to state taxes. The Company's tax rate is subject to change based on
changes in the mix of domestic and foreign leased assets, the proportions of
revenue generated within and outside of California and numerous other factors,
including changes in tax laws.
Liquidity and Capital Resources
The Company is currently financing its asset growth through credit facility
borrowings and excess cash flow. On June 30, 1998 the Company obtained a $15
million revolving credit facility to acquire regional aircraft and engines under
lease. The facility bears interest, payable monthly, at either prime or LIBOR
plus 200 basis points, at the Company's option. The Company signed agreements
increasing its facility to $22.5 million, to $30 million, then to $35 million on
April 1, 1999, July 16, 1999 and February 22, 2000, respectively. 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, 1999, the Company was in
compliance with all such covenants. As of December 31, 1999, $27,990,000 was
outstanding under the credit facility, and interest of $223,740 was accrued,
using a combination of prime and LIBOR rates.
The facility expires on June 30, 2000. The Company is currently negotiating for
a replacement for this credit facility and anticipates such will be finalized on
or before June 30, 2000. See "Factors that May Affect Future Results Replacement
of Credit Facility", below.
The prime rate was stable from November 1998 through June 1999. It increased by
25 basis points in each of July, late August and mid-November 1999. The prime
rate increased another 25 basis points in February 2000. The majority of the
Company's borrowings are financed using one-month or six-month LIBOR rates, both
of which have increased modestly since the Company began financing pursuant to
such rates during June 1999. The Company believes it has adequate cash flow to
meet increases in the interest rate applicable to its credit facility
obligations. Increased prevailing interest rates generally result in higher
lease rates as well, and so an increase in credit facility payments may be
offset at least partially by higher revenues on new leases and renewals of
leases entered into by the Company. The Company has evaluated 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 facility obligations.
The Company has determined that such a transaction is not advisable at this
time. In making its decision, the Company analyzed interest rate trends, the
ongoing costs of maintaining the hedge and the magnitude of the impact of any
interest rate swing.
During November 1999, the Company acquired two aircraft using cash and bank
financing separate from its credit facility. The financing consists of a note in
the amount of $9,061,000, due February 15, 2002 and which bears fixed interest
at 8.04%. Payments due under the note consist of monthly principal and interest
and a balloon principal payment due on the maturity date.
It is the Company's policy to monitor lessee's needs in periods before leases
are due to expire. If it appears 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. The
lease for the Company's deHavilland Dash-7, serial number 72 ("S/N 72"), expired
in April 1999. The Company has been seeking re-lease opportunities for S/N 72
since the lessee provided notice that it would not renew the lease, and the
Company is discussing lease terms with interested parties. The Company's other
aircraft are subject to leases with varying expiration dates between April 30,
2000 and November 23, 2003. Given the varying lease terms and expiration dates
for the aircraft in the Company's portfolio, management believes that the
Company will have adequate cash flow to meet any on-going operational needs,
even if S/N 72 remains off-lease for an extended period of time.
The Company has received notice that one of its lessees, which has leased one
19-seat aircraft, has filed for reorganization in the United Kingdom courts
under the U.K.'s "administration" statutes. The lessee is continuing to operate,
but the status of the aircraft in the reorganization has yet to be determined.
If the aircraft is returned, or the Company and the administrator for the lessee
agree to a reduced rental, the Company's revenues could be adversely affected.
In any event, the Company believes that it will have adequate cash flow to meet
any ongoing operational needs notwithstanding any rental reduction or off-lease
period if the aircraft is returned.
The Company's cash flow from operations for the year ended December 31, 1999
versus 1998 increased by approximately $2,644,000. The increase from year to
year was partially due to the Company's acquisition of several aircraft during
1999 and the second half of 1998 which resulted in increased net income and
higher depreciation expense in 1999. The change in cash flow from operations
from year to year also included the positive effect of the change in accounts
payable and accrued expenses, accrued interest on notes payable, prepaid rent,
security deposits and maintenance deposits and accrued costs during 1999 versus
1998, which changes were only partially offset by the change in deposits,
accounts receivable, prepaid expenses and other assets, and deferred taxes.
Specifically, the Company's cash flow from operations for the year ended
December 31, 1999 consisted of net income of $1,405,420 and adjustments
consisting primarily of depreciation of $1,700,000, increases in deposits,
accounts receivable, and prepaid expenses and other assets of $3,834,900,
$142,210 and $211,660, respectively, an increase in accounts payable and accrued
expenses of $657,570, an increase in accrued interest on notes payable of
$184,700, and increases in prepaid rent, security deposits, maintenance
reserves, and deferred taxes of $235,330, $1,306,040, $2,728,370 and $67,840,
respectively.
The Company's cash flow from operations for the year ended December 31, 1998
consisted of net income of $1,181,650 and adjustments consisting primarily of
depreciation of $713,930, increases in deposits, accounts receivable, and
prepaid expenses and other assets of $678,500, $137,540 and $142,020,
respectively, a decrease in accounts payable and accrued expenses of $253,870,
an increase in accrued interest on notes payable of $39,780, a decrease in
prepaid rent of $175,080, an increase of $336,000 in security deposits, a
decrease of $61,570 in maintenance reserves and accrued costs and a net increase
in deferred taxes of $759,790.
During 1999, the increase in cash flow provided by financing activities and the
decrease in cash flow used by investing activities were both a result of the
Company's borrowings on its credit facility, which borrowings were used to
purchase additional aircraft. The Company did not use its credit facility until
the fourth quarter of 1998.
Factors that May Affect Future Results
Replacement of Credit Facility. The revolving credit facility has an initial
term of two years expiring in June 2000, and is renewable at the sole discretion
of First Union National Bank (the "Agent Bank") and its participants, if any.
Although the other two participating banks indicated their willingness to renew
the credit facility, the Agent Bank has informed the Company that it will not be
continuing as agent and, therefore, the credit facility will not be renewed on
June 30, 2000. Although the Company has always been and continues to be in
compliance with all covenants under its credit facility, the Agent Bank has
decided that the Company's financing needs are not consistent with the Agent
Bank's revised business focus. The Company is currently in negotiations
regarding a replacement credit facility. Although the Company anticipates that a
replacement credit facility will be found, if none is found, then all
indebtedness under the revolving credit facility will become due and payable on
June 30, 2000. There is no assurance that the Company will have adequate
replacement financing in place in order to meet such repayment obligations. If
the Company is unable to find replacement financing, the Company may have to
liquidate a significant portion of its assets in order to repay the credit
facility.
Risks of Debt Financing. The Company's use of acquisition financing under its
revolving credit facility subjects the Company to increased risks of leveraging.
The revolving loans are secured by the Company's existing assets as well as the
assets acquired with each financing. Any default under the revolving credit
facility 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 likely provide the
Company with more favorable long-term repayment terms and also would permit the
Company to make further draws under the revolving credit facility 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
credit facility.
All of the Company's current credit facility indebtedness carries a floating
interest rate based upon either the lender's prime rate or a floating LIBOR
rate. If the applicable index rate increases, and the Company has not entered
into a mitigating hedge transaction, then the Company's payment obligations
under the credit facility would increase and could result in lower net revenues
for the Company.
Expansion or Repayment of Credit Facility. The Company has used nearly all of
its revolving credit facility to acquire additional assets for the purpose of
generating income for the Company. When negotiating a replacement credit
facility, the Company will also be seeking, and certain banks have expressed an
interest in, an increase in its credit facility. There is no assurance such
increase will be received. If such increase is not received, the Company will
need to refinance a portion of its existing revolving credit facility debt
before it can make further draws on the line; however, the Company has not yet
entered into any such arrangement. Even if an increase in the credit facility is
received, there is no assurance that the Company will be able to expend the
entire net financing proceeds on the acquisition of additional assets on terms
favorable to the Company.
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
generally 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 certain areas of South America and the Pacific Rim, in particular,
experiencing economic difficulties. There have also been disruptions in the
currency markets in certain geographic areas. To the extent that such
disruptions adversely affect a region's economic growth, suitable transactions
may be more difficult for the Company to find in that region and the Company's
lessees in that area may be adversely affected.
An adverse change in the global air travel industry 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 under a
Management Agreement 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, however, has ultimate control and supervisory responsibility
over all aspects of the Company and owes 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, certain 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 with the Company.
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. Although the Company has taken steps to prevent conflicts of
interest arising from such dual roles, such conflicts may still occur.
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 sell 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 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 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.
Lessee Credit Risk. If a lessee defaults upon its obligations under a lease, the
Company may be limited in its ability to enforce remedies. Most of the Company's
lessees are small 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. During 1999, the Company focused on leases in overseas
markets, which markets are currently dynamic and which the Company believes
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 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 aircraft 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 in which 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 U.S. economy does not. A foreign economic downturn may 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 to 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 would make 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 decline substantially.
Competition. The aircraft leasing industry is highly competitive. The Company
competes 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 JMC's 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 the major air carriers, is not well served by the Company's
larger competitors in the aircraft industry. JMC 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 involves 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
remarket equipment at acceptable rates may depend on the demand and market
values at the time of remarketing. 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 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 airframe or engine types should decline in
value. If "regional jets" were to be used on short routes previously served by
turboprops, even though regional jets are more expensive to operate than
turboprops, the demand for turboprops could be decreased. 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 is 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. Leasing transactions with these types of lessees result
in a generally higher lease rate on aircraft, but may entail higher risk of
default or lessee bankruptcy. The Company evaluates the credit risk of each
lessee carefully, and attempts 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 in the United States.
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 1.5 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. Because all administrative and management functions of
the Company are carried out by its management company, JMC, JMC's readiness for
Year 2000 has determined the Company's status. JMC has reported to the Company
that it did not experience any problems with the Year 2000 event, and does not
anticipate any in the coming year. Lessees of the Company have not appeared to
be materially affected by the Year 2000, and, to date, the Company's business
with all lessees appears unaffected by Year 2000. The Company has not incurred
and does not anticipate any costs related to the Year 2000 issue.
<PAGE>
Item 7. Financial Statements.
(a) Financial Statements and Schedules
(1) Financial statements for AeroCentury Corp.:
Report of Independent Public Accountants, Arthur Andersen LLP
Consolidated Balance Sheet as of December 31, 1999
Consolidated Statements of Operations for the Years Ended
December 31, 1999 and 1998
Consolidated Statements of Changes in Shareholders' Equity for the Years
Ended December 31, 1999 and 1998
Consolidated Statements of Cash Flows for the Years Ended December 31,
1999 and 1998
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 consolidated balance sheet of AeroCentury Corp.
(a Delaware corporation) and its subsidiary as of December 31, 1999 and the
related consolidated statements of operations, changes in shareholders' equity,
and cash flows for the years ended December 31, 1999 and 1998. 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. and its
subsidiary as of December 31, 1999 and the results of their operations and their
cash flows for the years ended December 31, 1999 and 1998 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
/s/ ARTHUR ANDERSEN LLP
San Francisco, California,
January 7, 2000
(except with respect to the matters discussed in
Note 8, as to which the date is February 24, 2000)
<PAGE>
AeroCentury Corp.
Consolidated Balance Sheet
<TABLE>
<CAPTION>
ASSETS
<S> <C>
December 31,
1999
Assets:
Cash and cash equivalents $ 1,251,730
Deposits 5,419,160
Accounts receivable 307,760
Aircraft and aircraft engines on operating leases,
net of accumulated depreciation of $17,411,620 55,853,940
Prepaid expenses and other 359,130
Total assets $ 63,191,720
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 906,970
Notes payable and accrued interest 37,094,920
Maintenance reserves and accrued costs 4,389,700
Security deposits 1,785,140
Prepaid rent 295,780
Deferred taxes 3,227,870
Total liabilities 47,700,380
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 1,610
Paid in capital 13,821,200
Retained earnings 2,172,600
15,995,410
Treasury stock at cost, 63,300 shares (504,070)
Total shareholders' equity 15,491,340
Total liabilities and shareholders' equity $63,191,720
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
AeroCentury Corp.
Consolidated Statements of Operations
<TABLE>
For the Years Ended December 31,
<S> <C> <C>
1999 1998
Revenues:
Rent income $ 7,128,690 $ 3,494,330
Gain on disposal of aircraft and aircraft engines 98,400 228,230
Other income 153,050 55,020
7,380,140 3,777,580
Expenses:
Management fees 1,148,800 520,280
Depreciation 1,700,000 713,930
Interest 1,534,310 83,690
Professional fees and general and administrative 581,690 423,610
Maintenance 374,240 -
5,339,040 1,741,510
Income before taxes 2,041,100 2,036,070
Tax provision 635,680 854,420
Net income $ 1,405,420 $ 1,181,650
Weighted average common
shares outstanding 1,563,591 1,605,505
Basic earnings per share $ 0.90 $ 0.74
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
<TABLE>
AeroCentury Corp.
Consolidated Statements of Changes in Shareholders' Equity
For the Years Ended December 31, 1999 and 1998
<S> <C> <C> <C> <C> <C> <C>
Partnership Common Paid-in Retained Treasury
Interests Stock Capital Earnings Stock Total
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 - - - 1,181,650 - 1,181,650
Balance,
December 31, 1998 - 1,610 13,821,200 767,180 (78,190) 14,511,800
Purchase of treasury
stock, 54,100 shares - - - - (425,880) (425,880)
Net income - - - 1,405,420 - 1,405,420
Balance,
December 31, 1999 $ - $ 1,610 $ 13,821,200 $ 2,172,600 $ (504,070) $ 15,491,340
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
<TABLE>
AeroCentury Corp.
Consolidated Statements of Cash Flows
For the Years Ended December 31,
<S> <C> <C>
1999 1998
Operating activities:
Net income $ 1,405,420 $ 1,181,650
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 1,700,000 713,930
Gain on disposal of aircraft and aircraft engines (98,400) (228,230)
Change in operating assets and liabilities:
Deposits (3,834,900) (678,500)
Accounts receivable (142,210) (137,540)
Prepaid expenses and other (211,660) (142,020)
Accounts payable and accrued expenses 657,570 (253,870)
Accrued interest on notes payable 184,700 39,780
Prepaid rent 235,330 (175,080)
Security deposits 1,306,040 336,000
Maintenance reserves and accrued costs 2,728,370 (61,570)
Deferred taxes 67,840 759,790
Net cash provided by operating activities 3,998,100 1,354,340
Investing activities:
Proceeds from disposal of assets 98,400 684,320
Purchase of aircraft and aircraft engines (25,680,340) (7,844,570)
Payments received on capital leases - 150,000
Net cash used by investing activities (25,581,940) (7,010,250)
Financing activities:
Issuance of secured note - 866,700
Repayment of secured note - (866,700)
Issuance of notes payable 21,409,440 6,400,000
Purchase of treasury stock (425,880) (78,190)
Limited partner distributions - (48,890)
Net cash provided by financing activities 20,983,560 6,272,920
Net (decrease)/increase in cash and cash equivalents (600,280) 617,010
Cash and cash equivalents, beginning of period 1,852,010 1,235,000
Cash and cash equivalents, end of period $ 1,251,730 $ 1,852,010
</TABLE>
Note: During 1999, $9,061,000 of the purchase price of two aircraft acquired by
the Company was financed by a note payable to the seller.
During the years ended December 31, 1999 and 1998, the Company paid interest
totaling $1,349,600 and $43,910, respectively, and income taxes totaling
$148,920 and $111,430, respectively.
The accompanying notes are an integral part of this statement.
<PAGE>
AeroCentury Corp.
Notes to Consolidated Financial Statements
December 31, 1999
1. Organization and Summary of Significant Accounting Policies
(a) Basis of Presentation
AeroCentury Corp. ("AeroCentury") was incorporated in the state of
Delaware on February 28, 1997. AeroCentury 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. AeroCentury is continuing
in the aircraft leasing business in which the Partnerships engaged and is using
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 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. On January 16, 1998, AeroCentury was listed on the
American Stock Exchange under the symbol ACY.
During November 1999, AeroCentury Corp. formed a wholly-owned
subsidiary, AeroCentury Investments LLC ("AeroCentury LLC"), for the purpose of
acquiring two aircraft using a combination of cash and bank financing separate
from AeroCentury Corp.'s credit facility. Financial information for 1999 for
AeroCentury and AeroCentury LLC (collectively, the "Company") is presented on a
consolidated basis. All intercompany balances and transactions have been
eliminated in consolidation.
(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 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 years ended December 31, 1999 and 1998, the Company
purchased 54,100 shares and 9,200 shares, respectively, of its common stock.
As discussed above, AeroCentury is the sole member of AeroCentury
Investments LLC.
<PAGE>
AeroCentury Corp.
Notes to Consolidated Financial Statements
December 31, 1999
1. Organization and Summary of Significant Accounting Policies (continued)
(c) 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
reserves and security deposits and generally are subject to withdrawal
restrictions.
At December 31, 1999, the Company held security deposits of $1,785,140,
refundable maintenance reserves received from lessees of $2,623,080 and
non-refundable maintenance reserves of $1,010,940.
The Company's leases are typically structured so that if any event of
default occurs under the lease, the Company may apply all or a portion of the
lessee's security deposit to cure such default. If such an application of the
security deposit is made, the lessee typically is required to replenish and
maintain the full amount of the deposit during the remaining term of the lease.
All of the security deposits currently held by the Company are refundable to the
lessee at the end of the lease.
Maintenance reserves which are refundable to the lessee at the end of
the lease may be retained by the Company if such amounts are necessary to meet
the return conditions specified in the lease and, in some cases, to satisfy any
other payments due under the lease.
Non-refundable maintenance reserves held by the Company are accounted
for as a liability until the aircraft has been returned at the end of the lease,
at which time the Company evaluates the adequacy of the remaining reserves in
light of maintenance to be performed as a result of hours flown. At that time,
any excess is recorded as income and any deficiency is recorded as expense. When
an aircraft is sold, any excess non-refundable maintenance reserves are recorded
as income.
(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 Reserves and Accrued Costs
Maintenance costs under the Company's triple net leases are generally
the responsibility of the lessees. Maintenance reserves and accrued costs in the
accompanying balance sheet include refundable and non-refundable maintenance
payments received from lessees. The Company periodically reviews maintenance
reserves for adequacy in light of the number of hours flown, airworthiness
directives issued by the manufacturer or government authority, and the return
conditions specified in the lease. As a result of such review, when it is
probable that the Company has incurred costs for maintenance in excess of
amounts received from lessees, the Company accrues its share of costs for work
to be performed as a result of hours flown. At December 31, 1999, the Company
had accrued costs of approximately $609,000 related to one of its aircraft.
<PAGE>
AeroCentury Corp.
Notes to Consolidated Financial Statements
December 31, 1999
1. Organization and Summary of Significant Accounting Policies (continued)
(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) 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. Other income includes interest earned from one finance lease which
expired in June 1998.
(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.
(j) Comprehensive Income
The Company does not have any comprehensive income other than the
revenue and expense items included in the consolidated statements of income. As
a result, comprehensive income equals net income for the years ended December
31, 1999 and 1998.
2. Aircraft and Aircraft Engines On Operating Leases
At December 31, 1999, the Company owned four deHavilland DHC-7, three
deHavilland DHC-6, two Fairchild Metro III, three Shorts SD 3-60, six Fokker 50
aircraft, two Saab 340A aircraft and 26 turboprop engines, one of which is held
in inventory as a spare and is not subject to a lease or to depreciation.
During 1999, the Company acquired one of the Fairchild Metro III, two
of the Shorts SD 3-60, five of the Fokker 50, the two Saab 340A aircraft and one
turboprop engine, for a total of $34,741,340, including acquisition costs. The
Metro III, Saab 340A aircraft and turboprop engine are leased to regional
carriers in the United States. The Shorts SD-360 aircraft are leased to a
regional carrier in Germany and, of the five Fokker 50 aircraft, one is leased
in Brazil, two in Sweden and two in Spain. During 1999, the Company also made a
short-term investment in a deHavilland DHC-7 aircraft which was not subject to a
lease. The Company subsequently sold the aircraft and recognized a gain in
connection with the sale.
The lease for one of the Company's DHC-7 aircraft, serial number 72
("S/N 72") expired in April 1999. The Company has been seeking re-lease
opportunities for S/N 72 and is discussing lease terms with interested parties.
The lease for another of the Company's Metro III aircraft, serial number 576,
("S/N 576") was extended by the lessee from its original expiration date on July
19, 1999 to August 31, 2000.
<PAGE>
AeroCentury Corp.
Notes to Consolidated Financial Statements
December 31, 1999
3. Operating Segments
The Company operates in one business segment, aircraft leasing, and
therefore does not present separate segment information for lines of business.
Approximately 41% and 71% of the Company's operating lease revenue was
derived from lessees domiciled in the United States during 1999 and 1998,
respectively. All leases relating to aircraft leased and operated
internationally are denominated and payable in U.S. dollars.
The tables below set forth geographic information about the Company's
operating leased aircraft equipment, grouped by domicile of the lessee:
<TABLE>
<CAPTION>
For the year ended December 31, 1999
<S> <C> <C> <C>
Operating Net
Region lease revenue book value
United States $ 2,940,890 $ 17,236,150
Brazil 1,134,110 6,378,800
Belgium 840,000 3,910,190
Sweden 666,960 7,371,640
Spain 247,340 11,114,450
Other 1,299,390 9,842,710
$ 7,128,690 $ 55,853,940
For the year ended December 31, 1998
Operating Net
Region lease revenue book value
United States $ 2,478,890 $ 11,617,200
Canada 522,260 2,788,700
United Kingdom 389,430 1,714,210
Belgium 52,500 4,114,200
Colombia 51,250 2,578,290
$ 3,494,330 $ 22,812,600
</TABLE>
For the year ended December 31, 1999, the Company had four significant
customers, which accounted for 20%, 16%, 12% and 12%, respectively of lease
revenue. For the year ended December 31, 1998, the Company had three significant
customers, which accounted for 40%, 24% and 15%, respectively, of lease revenue.
As of December 31, 1999, minimum future lease rent payments receivable
under noncancelable leases were as follows:
<TABLE>
<S> <C> <C>
Year
2000 $ 9,442,530
2001 6,726,600
2002 2,786,150
2003 528,250
2004 -
$ 19,483,530
</TABLE>
<PAGE>
AeroCentury Corp.
Notes to Consolidated Financial Statements
December 31, 1999
4. 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.
5. Notes Payable and Accrued Interest
On June 30, 1998 the Company obtained a $15 million revolving credit
facility to acquire regional 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 Company signed agreements increasing its facility
to $22.5 million, then $30 million, on April 1, 1999 and July 16, 1999,
respectively. 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,
1999, the Company was in compliance with all such covenants. As of December 31,
1999, $27,990,000 was outstanding under the credit facility, and interest of
$223,740 was accrued, using a combination of prime and LIBOR rates.
The Company has been informed that the agent for the credit facility,
First Union National Bank (the "Agent Bank"), will not be continuing as agent
and, therefore, the credit facility will not be renewed when it expires on June
30, 2000. Although the Company has always been and continues to be in compliance
with all covenants under its credit facility, the Bank has decided that the
Company's long-term profile is not consistent with the Bank's revised business
focus. The Company is currently in negotiations regarding a replacement credit
facility.
As discussed in Note 1, during November 1999, the Company acquired two
aircraft using cash and bank financing separate from its credit facility. The
financing consisted of a note in the amount of $9,061,000, due February 15, 2002
and which bears fixed interest at 8.04%. Payments due under the note consist of
monthly principal and interest and a balloon principal payment due on the
maturity date. The balance of the note payable at December 31, 1999 was
$8,880,440 and interest of $740 was accrued.
6. Income Taxes
The items comprising income tax expense are as follows:
<TABLE>
For the Years Ended December 31,
<S> <C> <C> <C>
1999 1998
Current tax provision:
Federal $ 538,070 $ 74,260
State 13,280 20,380
Foreign 16,490 -
Current tax provision 567,840 94,640
Deferred tax provision:
Federal 135,060 648,500
State (67,220) 111,280
Deferred tax provision 67,840 759,780
Total provision for income taxes $ 635,680 $ 854,420
</TABLE>
<PAGE>
AeroCentury Corp.
Notes to Consolidated Financial Statements
December 31, 1999
6. Income Taxes (continued)
Total income tax expense differs from the amount that would be provided
by applying the statutory federal income tax rate to pretax earnings as
illustrated below: <TABLE>
For the Years Ended December 31,
<S> <C> <C> <C>
1999 1998
Income tax expense at
statutory federal income tax rate $ 693,970 $ 692,090
State taxes net of federal benefit 16,260 118,800
Tax rate differences (74,550) 43,530
Total income tax expense $ 635,680 $ 854,420
</TABLE>
Tax rate differences result from a decrease in the Company's effective
state tax rates. During 1999, the Company acquired substantial foreign assets,
which resulted in a significantly higher apportionment of income to foreign
sources rather than to U.S. states, subjecting the Company's income to lower
tax.
Temporary differences and carryforwards that gave rise to a significant
portion of deferred tax assets and liabilities as of December 31, 1999 are as
follows:
<TABLE>
<S> <C> <C>
Deferred tax assets:
Amortization of organizational costs $ 46,110
Maintenance reserves 362,710
Prepaid rent 102,950
Deferred maintenance 84,000
Net deferred tax assets 595,770
Deferred tax liabilities:
Depreciation on aircraft and engines (3,481,600)
Other (342,040)
Net deferred tax liability $ (3,227,870)
</TABLE>
No valuation allowance is deemed necessary, as the Company anticipates
generating adequate future taxable income to realize the benefits of all
deferred tax assets on the balance sheet.
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. JMC may also
receive an acquisition fee for locating assets for the Company, provided that
the aggregate purchase price including chargeable acquisition costs and any
acquisition 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, acquisition fees and remarketing fees may
not exceed the customary and usual fees that would be paid to an unaffiliated
party for such
<PAGE>
AeroCentury Corp.
Notes to Consolidated Financial Statements
December 31, 1999
7. Related Party Transactions (continued)
services. During 1999 and 1998, the Company recognized as expense $1,148,800 and
$520,280, respectively, of management fees payable to JMC. In connection with
the purchases of aircraft during 1999 and 1998, the Company paid JMC a total of
$1,080,100 and $397,230, respectively, in acquisition fees, which are included
in the capitalized cost of the aircraft. No remarketing fees were paid to JMC
during 1999 or 1998.
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, 1999, 2,833 such options had been exercised.
8. Subsequent Events
On February 22, 2000, the Company signed an agreement, increasing its
$30 million revolving credit facility to $35 million.
On February 24, 2000, the lessee of one of the Company's 19-seat
aircraft filed for reorganization. The lessee is continuing to operate, and,
under the reorganization plan, an agreement will be reached regarding the status
of that aircraft.
33
Item 8. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure.
None
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.
Current Board Of Directors
The following directors have terms expiring at the Company's 2002 Annual
Stockholder Meeting:
Mr. Maurice J. Averay, age 69. Mr. Averay has been an aviation
consultant since 1996 and has served on the Board since 1997.
From 1995 to 1996 he was a full-time consultant to Saab Aircraft
of America and its parent with respect to marketing and new
aircraft development. From 1990 - 1995, he was Senior Vice
President of the Sales and Marketing team of Saab Aircraft of
America responsible for North and South American turboprop
airliner sales. Prior to that Mr. Averay was Vice President of
Sales Support for Saab Aircraft International, Ltd.; Sales
Engineering Manager for Fairchild Aircraft, Inc., San Antonio,
Texas; Vice President, Planning, for Chautauqua Airlines,
Jamestown, New York, a U.S. Airways commuter associate; and Vice
President of Shorts Aircraft USA, Inc., Mr. Averay holds a
Bachelor of Science in Aero Engineering from the University of
Bristol, United Kingdom.
Ms. Toni M. Perazzo, age 52. Ms. Perazzo is a member of the Audit and
Executive Committees of the Board of Directors and has served on the
Board since its inception in 1997. She is the Company's Vice
President-Finance and Secretary and has held these same positions with
JetFleet Management Corp. ("JMC"), the management company for the
Company since 1994, and CMA Consolidated, Inc. ("CMA") since 1990.
Prior to joining CMA in 1990, she was Assistant Vice President for a
savings and loan, controller of an oil and gas syndicator and a senior
auditor with Arthur Young & Co., Certified Public Accountants. Ms.
Perazzo is the wife of Neal D. Crispin, a director and officer of JMC
and the Company. She received her Bachelor's Degree from the
University of California at Berkeley, and her Master's Degree in
Business Administration from the University of Southern California.
Ms. Perazzo, a CPA, is a member of the California Society of Certified
Public Accountants and the American Institute of Certified Public
Accountants.
The following directors have terms expiring at the Company's 2001 Annual
Stockholder Meeting:
Mr. Neal D. Crispin, age 54. Mr. Crispin, is Chairman of the Board and
President of the Company. He is a member of the Executive committee of
the Board and has served on the Board since its inception in 1997. He
is also President and a Chairman of CMA Consolidated, Inc. ("CMA") and
JetFleet Management Corp. Prior to forming CMA in 1983, Mr. Crispin
spent 2 years as vice President-Finance of an oil and gas company.
Previously, Mr. Crispin was a manager with Arthur Young & Co.,
Certified Public Accountants. Prior to joining Arthur Young & Co., Mr.
Crispin served as a management consultant, specializing in financial
consulting. Mr. Crispin is the husband of Toni M. Perazzo, a Director
and Officer of JMC and the Company. He received a Bachelor's Degree in
Economics from the University of California at Santa Barbara and a
Master's Degree in Business Administration (specializing in Finance)
from the University of California at Berkeley. Mr. Crispin, a CPA, is
a member of the American Institute of Certified Public Accountants and
the California Society of Certified Public Accountants.
<PAGE>
Mr. Evan J. Wallach, age 45. Mr. Wallach is Vice President, Finance of
C-S Aviation. He is a member of the Audit Committee and has served on
the Board since 1997. From 1996 to 1998, he was President and Chief
Executive Officer of Global Airfinance Corporation. He has specialized
in aircraft and airline financing over the past seventeen years,
having held senior level positions with The CIT Group (1994 to 1996),
Bankers Trust Company (1992 to 1994), Kendall Capital Partners (1990
to 1992), Drexel Burnham Lambert (1987 to 1990), American Express
Aircraft Leasing (1985 to 1987). Mr. Wallach received a Bachelor's
Degree in Political Science from State University of New York at Stony
Brook and a Master's Degree in Business Administration from the
University of Michigan.
The following directors have terms expiring at the Company's 2000 annual
meeting:
Mr. Marc J. Anderson, age 63. Mr. Anderson has been a member of the
Company's Board of Directors since its inception in 1997. Mr. Anderson
is the Company's Chief Operating Officer and Senior Vice President. He
holds the same officer positions with JMC. Prior to joining JMC in
1994, Mr. Anderson was an aviation consultant (1992 to 1994) and prior
to that spent seven years (1985 to 1992) as Senior Vice
President-Marketing for PLM International, a transportation equipment
leasing company. He was responsible for the acquisition, modification,
leasing and remarketing of all aircraft. Prior to PLM, Mr. Anderson
served as Director-Contracts for Fairchild Aircraft Corp.; Director of
Aircraft Sales for Fairchild SAAB Joint Venture; and Vice President,
Contracts for SHORTS Aircraft USA, Inc. Prior to that, Mr. Anderson
was employed with several airlines in various roles of increasing
responsibility beginning in 1959.
Mr. Thomas W. Orr, age 66. Mr. Orr has served on the Company's Board
of Directors since 1997, and was also, during that time, a member of
the Audit Committee of the Board of Directors. Mr. Orr is currently a
partner at the accounting firm of Bregante + Company LLP, where he has
been a partner since joining that firm in 1992. Prior to that,
beginning in 1986, Mr. Orr was Vice President, Finance, at Scripps
League Newspapers, Inc. Beginning in 1958, Mr. Orr was in the audit
department of Arthur Young & Company, where he retired as a partner in
1986. Mr. Orr received his Bachelor's degree in Business
Administration, with distinction, (Accounting major) from the
University of Minnesota. He is a member of the American Institute of
Certified Public Accountants, the California Society of Certified
Public Accountants, and a former member of the California State Board
of Accountancy.
Officers And Key Employees
For biographies of Neal D. Crispin, President & Chairman of the Board, Marc J.
Anderson, Chief Operating Officer & Senior Vice President, and Toni M. Perazzo,
Vice President - Finance & Secretary, see " Board of Directors" above.
Listed below are officers and key employees of JetFleet Management Corp., the
Company's management company, who in their capacity as officers and/or employees
of JMC are responsible for the management of various aspects of the Company's
business:
Mr. Andre Berenfeld, Vice President, Contracts, age 46. Mr. Berenfeld
is responsible for the administration of aircraft leases, marketing
agreements and vendor agreements for the Company and JMC. Mr.
Berenfeld has 19 years of aviation industry experience in a variety of
assignments in the engineering, technical management and finance
fields. Prior to joining the Company, he held various positions of
increasing responsibility with Citicorp (1992-1995), and before that
with PLM International, United Airlines, and the General Electric
Company. Mr. Berenfeld has Bachelor of Science degrees in Electrical
Engineering and Mechanical Engineering from the University of
Brussels, and a Master's Degree in Business Administration from the
University of Pennsylvania, Wharton School of Business.
Mr. Frank Duckstein, Vice President, Remarketing, age 45. Mr.
Duckstein has been in charge of market development for JMC since
joining JMC in 1995. From 1989 to 1995, Mr. Duckstein served as
Director of Marketing for PLM International, a transportation
equipment leasing company. While at PLM, he was responsible for sales
and remarketing, market research and development, both domestically
and internationally, of PLM's corporate and commuter aircraft, as well
as their helicopter fleet. Previously, he was with the following
international and regional airlines operating within Europe and the
U.S. with responsibility for operation, market development and sales:
Direct Air (Berlin, Germany); Air Berlin (Berlin, Germany); and
Aeroamerica (Berlin, Germany). Mr. Duckstein attended the Technical
University of Berlin, majoring in Economics.
Ms. Polly Prelinger, Vice President, Marketing, age 42. Ms. Prelinger
is in charge of research and market development for the Company and
JMC. Prior to joining JMC in 1998, Ms. Prelinger was Vice
President-Sales and Marketing for 2 years with Fairchild Aircraft
Incorporated, a major commuter aircraft manufacturer. During the
period 1987 - 1996, Ms. Prelinger was at PLM International, a
diversified equipment leasing company where she held positions of
Director, Research and Market Development and Vice President, Aircraft
Marketing. Ms. Prelinger holds a Bachelor of Arts degree in Russian
Studies from the University of Michigan.
Christopher B. Tigno, General Counsel, age 38. Mr. Tigno is
responsible for all legal matters of the Company and JMC and its
related companies, including supervision of outside counsel,
documentation of aircraft asset acquisition transactions, and
corporate and securities matters. He is also General Counsel for CMA.
He joined JMC and CMA in 1996. He was most recently employed as Senior
Counsel with the firm of Wilson, Ryan & Campilongo (1992 to 1996), and
prior to that was associated with Fenwick & West and Morrison &
Foerster. Mr. Tigno received his Juris Doctor degree from the
University of California, Boalt Hall School of Law and was admitted to
the California Bar in 1986. He also holds a Bachelor's Degree in
Chemical Engineering from Stanford University.
Item 10. Executive Compensation.
No compensation was paid by the Company to its officers in 1998, as the Company
had engaged JetFleet Management Corp. as the management company under the
Management Agreement in effect since 1997. The officers of the Company are
officers of JMC, and received their compensation from JMC. The cash compensation
received by Neal Crispin from JMC including bonuses, for 1999 was $63,000 and is
expected to be $100,000 in 2000. The cash compensation received by Ms. Perazzo
from JMC including bonuses for 1999 was $32,000 and is expected to be $85,000 in
2000. The only executive officer of JMC whose compensation exceeds $100,000 is
Marc J. Anderson, Sr. Vice President & Chief Operating Officer, whose salary and
bonus was $155,000 in 1999 and is expected to be $192,600 in 2000.
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information regarding the beneficial ownership of
the Company's Common Stock as of March 1, 2000 by: (i) each person who is known
to the Company to own beneficially more than five percent of the outstanding
shares of the Company's Common Stock; (ii) each director; and (iii) all
directors and executive officers as a group. <TABLE> <S> <C> <C>
Percentage of
Ownership of
Name, Position, & Address No of. Shares(1) Common Stock(2)
Neal D. Crispin 256,661 16.20%
Chairman of the Board,
President and Principal
Shareholder (3)(4)
Toni M. Perazzo 256,661 16.20%
Director, Vice President - Finance,
Secretary and Principal
Shareholder (3)(4)(5)
Marc J. Anderson 6,392 *
Director, Senior Vice President
and Chief Operating Officer (1)(3)(6)
Maurice J. Averay, 300 *
Director (3)
Thomas W. Orr, 600 *
Director (3)
Evan J. Wallach, 175 *
Director (3)
Pine Capital Management, Incorporated; 183,300 11.8%
Hoefer & Arnett (7)
JetFleet Holding Corp. 199,267 11.3%
Principal Shareholder (3)(8)
All directors and executive
officers as a group (6 persons)(9) 259,628 16.82%
------------------------------------------------
* Less than 1%
</TABLE>
(1) Except as indicated in the footnotes to this table, the stockholders named
in the table are known to the Company to have sole voting and investment power
with respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws where applicable. The number of shares
beneficially owned includes Common Stock of which such individual has the right
to acquire beneficial ownership either currently or within 60 days after March
1, 1999, including, but not limited to, upon the exercise of an option.
(2) For purposes of calculating percentages, total outstanding shares consists
of 1,543,257 shares of outstanding Common Stock, which excludes shares held by
the Company as treasury stock.
(3) The mailing address is c/o AeroCentury Corp., 1440 Chapin Avenue Suite 310,
Burlingame, California 94010.
(4) Includes 250,661 shares owned by corporations of which Mr. Crispin is an
officer, director and/or principal shareholder. To avoid double counting the
same shares, does not include 20,000 shares issuable upon exercise of options
granted to Mr. Crispin by JetFleet Holding Corp. ("JHC") to purchase AeroCentury
Common Stock owned by JHC. (The shares issuable upon exercise of these options
would come from the 199,267 shares already counted as beneficially owned by Mr.
Crispin and Ms. Perazzo indirectly through JHC.)
(5) Includes 250,661 shares owned by corporations, of which Ms. Perazzo is an
officer, director and/or principal shareholder, plus all other shares owned
beneficially by Mr. Crispin, spouse of Ms. Perazzo.
(6) Includes shares issuable upon exercise of options to purchase 4,500 shares
issuable upon exercise of options granted by JHC to purchase AeroCentury Common
Stock owned by JHC.
(7) Disclosure based on a copy of a form 13-G received by the Company. Shares
are held for the account of clients of Pine Capital Management, Incorporated
("Pine"), a registered investment adviser, and Hoefer & Arnett, a registered
broker-dealer. The address of both is 353 Sacramento Street, 10th Floor, San
Francisco, CA 94111. Pine holds the shares in a fiduciary capacity and Hoefer &
Arnett holds the shares pursuant to discretionary authority. The Company is
informed that no client is known by Pine and Hoefer & Arnett to have the right
or power with respect to more than 5% of the outstanding shares. Hoefer & Arnett
does not have power to vote or to direct the voting of the shares held in its
capacity as broker.
(8) In May 1998, the original holder of the shares of the Company, JetFleet
Management Corp., was renamed "JetFleet Holding Corp." The rights and
obligations under the Management Agreement were then assigned by JetFleet
Holding Corp. to a newly-created wholly-owned subsidiary named "JetFleet
Management Corp."
(9) Consists of shares beneficially owned by officers and directors, but
excludes option shares described in footnote (4) and (6), since the shares
issuable upon exercise of these options are already counted in the 199,267
shares beneficially owned by Mr. Crispin and Ms. Perazzo indirectly through JHC,
and therefore included in the shares counted as beneficially owned by officers
and directors.
Item 12. Certain Relationships and Related Transactions.
Management Agreement. JMC acts as the management company for the Company under
the Management Agreement, dated December 31, 1997, as amended on February 3,
1998, between JMC and the Company. The officers of the Company are also officers
of JMC and two members of the JMC's Board of Directors are on the Board of
Directors of the Company.
Under the Management Agreement, the Company pays a monthly management fee to JMC
equal to 0.25% of the net book value of the Company's assets as of the end of
the month for which the fee is due. In addition, JMC may receive an acquisition
fee for locating assets for the Company, provided that the aggregate purchase
price including chargeable acquisition costs and any acquisition 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, acquisition fees and remarketing fees may not exceed the
customary and usual fees that would be paid to an unaffiliated party for such
services. The Company paid JMC $1,148,800 of management fees and $1,080,100 in
acquisition fees during 1999 and $520,280 and $397,280 in management fees and
acquisition fees, respectively, in 1998.
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
(9) Exhibits
10.8 Certificate of Incorporation of the Company,
incorporated by reference to Exhibit 3.08 to the
registration statement on Form S-4/A filed with the
Securities and Exchange Commission on July 24, 1997
10.9 Form of Certificate of Amendment of Certificate of
Incorporation of the Company, incorporated by
reference to Exhibit 3.07 to the registration
statement on Form S-4/A filed with the Securities and
Exchange Commission on June 10, 1997
10.10 Amended and Restated Bylaws of the Company dated
January 22, 1999, incorporated by reference to
Exhibit 3.1 to Form 10-KSB for the fiscal year ended
December 31, 1998
10.11 Certificate of Designation of the Company dated April
15, 1998, incorporated by reference to exhibit 3.2
to Form 10-KSB for the fiscal year ended December 31,
1998
10.12 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, incorporated by
reference to Exhibit 10.1 to Form 10-KSB for the
fiscal year ended December 31, 1998
10.2 Employment Agreement between the Company and Marc J.
Anderson, dated April 28, 1998, incorporated by
reference to Exhibit 10.2 to Form 10-KSB for the
fiscal year ended December 31, 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
10.4 Form of Indemnity Agreement between the Company and
each of its directors and officers, incorporated by
reference to Exhibit 10.03 to Form 10-KSB for the
fiscal year ended December 31, 1997
10.5 Amended and Restated Management Agreement, dated
April 23, 1998, between the Company and JetFleet
Management Corp.
10.6 Amendment No. 1 to Credit Agreement, dated March
30, 1999 between AeroCentury Corp. and First Union
National Bank, as agent, and California Bank & Trust
10.7 Amendment No. 2 to Credit Agreement, dated July 16,
1999 between AeroCentury Corp. and First Union
National Bank, as agent, and California Bank & Trust
and Sanwa Bank California
<PAGE>
10.13 Amendment No. 3 to Credit Agreement, dated February
22, 2000, between the Company and First Union
National Bank, as agent, and California Bank & Trust
and Sanwa Bank California
21 Subsidiaries of the Company
27 Financial Data Schedule
(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 9, 2000.
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 9, 2000.
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 (Principal
Toni M. Perazzo 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
AMENDED AND RESTATED MANAGEMENT AGREEMENT
THIS AMENDED AND RESTATED MANAGEMENT AGREEMENT, dated as April 23,
1998, is entered by and among AEROCENTURY CORP., a Delaware corporation (the
"Company"), and JETFLEET MANAGEMENT CORP., a California corporation (the
"Management Company").
WITNESSETH
WHEREAS, pursuant to a Management Agreement, dated December 31, 1997
(the "Management Agreement") the Company hired the Management Company to perform
management services for the Company.
WHEREAS, the parties hereto desire to amend and restate such Management
Agreement.
NOW THEREFORE, in consideration of the mutual covenants contained
herein, and other good and valuable consideration, the receipt and adequacy of
which is hereby acknowledged, the parties hereto agree as follows.
ARTICLE 1
DELEGATION TO THE MANAGEMENT COMPANY
1.1 Powers, Rights and Obligations of the Management Company. The
Management Company shall conduct all aspects of the business affairs of the
Company including, without limitation, management of; (i) the identification and
selection of income producing assets ("Assets") for acquisition by the Company
with the proceeds of the Offering; (ii) administration of the leases for such
Assets; (iii) management of remarketing and resale of the Assets; and (iv)
general administrative and day-to-day operations of the Company. The Management
shall devote such time as may be necessary for the proper performance of its
duties and shall use its best efforts to carry out the purposes of the Company
and shall manage the affairs of the Company to the best of its abilities. The
Company agrees and acknowledges that the Management Company may, in the future,
act as management company for other investment entities sponsored by the
Management Company, which entities may engage in the same line of business as
the Company.
1.2 Indemnification. The Company shall indemnify and hold the
Management Company, its directions, officers, shareholders, employees and agents
harmless from and against any and all liability, demands, claims, actions,
losses, interest, cost of defense, and expenses (including reasonable attorney's
fees) which arise out of or in connection with the acceptance or appointment as
management company and the performance of its duties hereunder except such acts
or omissions as may result from the willful misconduct or gross negligence of
the Management Company. Promptly after receipt by the Management Company of
notice of any demand or claim or the commencement of any action, suit or
proceeding relating to this Management Agreement, the Management Company shall
notify the Company in writing. IT IS EXPRESSLY THE INTENT OF THE COMPANY TO
INDEMNIFY THE MANAGEMENT COMPANY, AND ITS DIRECTORS, OFFICERS, SHAREHOLDERS AND
EMPLOYEES AND AGENTS FROM ERRORS IN JUDGMENT OR OTHER ACTS OR OMISSIONS NOT
AMOUNTING TO WILFUL MISCONDUCT OR GROSS NEGLIGENCE.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE MANAGEMENT
COMPANY
2.1 The Management Company hereby makes the following representations
and warranties on which the Company has relied in making the delegation set
forth in Section 1.1:
(a) Organization. The Management Company is a California
corporation duly organized, validly existing and in a good standing under the
laws of the States of California and is duly qualified as a foreign corporation
in each jurisdiction in which the nature of its business makes such
qualification necessary.
(b) Authorization. The Management Company has all requisite
power and authority to execute, deliver and perform this Agreement, and the
execution, delivery and performance of this Agreement have been duly authorized
by all necessary action on the part of the Management Company.
(c) Binding Obligation. The Agreement constitutes a legal,
valid and binding obligation of the Management Company, enforceable against the
Management Company in accordance with its terms.
(d) No Violations. The execution, delivery and performance by
the Management Company of this Agreement does not (i) violate any provision of
the corporate charter or by-laws of the Management Company, (ii) violate any
statue or regulation or any order, writ, judgment or decree of any court,
arbitrator or governmental authority applicable to the Management Company or any
of its assets, or (iii) violate or constitute, with or without notice or lapse
of time, a default under, or result in the creation or imposition of any lien on
the assets of the Management Company pursuant to the provisions of, any
mortgage, indenture, contract, agreement or other undertaking to which the
Management Company is a party.
ARTICLE 3
AGENTS; CHANGES IN THE MANAGEMENT COMPANY; COMPENSATION
3.1 Agents.
(a) The Management Company may delegate any or all of the
powers, rights and obligations under this Agreement and may appoint, employ,
contract or otherwise deal with any person or entity (each, an "Agent") in
respect of the conduct of the business and affairs of the Company. Without
limitation, the Management Company may assign to any such Agent the right to
receive any fee or reimbursement of expenses as the Management Company would be
entitled to receive under this Agreement.
(b) The Management Company shall supervise the activities of
its Agents, and notwithstanding the designation of or delegation to any Agent,
the Management Company shall remain obligated to the Company for the proper
performance of the obligations of its obligations as Management Company;
provided, however, that the Management Company may enter into any agreement for
indemnification pursuant to which an Agent may indemnify and hold harmless the
Management Company from any liability to the Company arising by reason of the
act or omission of such Agent.
3.2 Effect of Termination. In the event of the bankruptcy or
dissolution of Management Company, such Management Company shall cease to
participate in the conduct of the business affairs of the Company.
3.3 Successor by Merger or Acquisition of Business. Any entity
resulting from any merger or consolidation to which the Management Company shall
be a party or succeeding to the business of the Management Company will be the
successor to the Management Company hereunder without the execution or filing of
any paper or any further act on the part of any the parties hereto. The
Management Company shall provide prompt written notice of any such event to the
Company.
3.4 Compensation. As full and exclusive compensation for all duties
assumed and services provided hereunder, the Management Company shall entitled
to receive a management fee payable monthly on the last day of each calendar
month equal to 0.25% of the Asset Value of the Company as of the last day of
such calendar month. In addition, the Management Company shall receive
reimbursement of expenses paid to third parties incurred by the Management
Company in connection with the administration and management of the Company. For
purposes of this Agreement, Asset Value shall mean the original costs of the
assets recorded on the books of the Company less depreciation not offset by
liabilities, calculated in accordance with generally accepted accounting
principles.
3.5 Term of Management Agreement. This Agreement shall have a term of
twenty years subject to termination rights under Section 3.6 below.
3.6 Termination.
(a) This Agreement may be terminated by a party upon six
months prior notice upon the material breach by the other party of any its
respective material agreements and obligations under this Agreement which
remains uncured for a period of after 90 days after written notice of such
breach. In the event the Company breaches this Agreement, then as liquidated
damages for such breach, and not as a penalty therefor, the Company shall pay
liquidated damages in the amount set forth on Schedule 1 hereto. The Company and
the Management Company hereby acknowledge that the damages suffered as a result
of the breach by the Company of this Agreement are difficult to ascertain, but
that such liquidated damage amounts are reasonable in light of the actual
anticipated damages.
(b) A sale or disposition by the Company of substantially all
or a significant portion of the assets of the Company in a single transaction or
series of transactions not recommended by the Management Company shall be deemed
to be a termination by the Company in breach of this Agreement. For purposes of
this subsection, a sale of a "significant portion" of the assets of the Company
shall mean a sale, disposition or transfer of 25% or more of the assets (based
on fair market value).
ARTICLE 4
OPTION TO PURCHASE MANAGEMENT COMPANY
4.1 Option to Acquire Management Company. In consideration of the
Company entering into this Agreement, the Management Company hereby grants to
the Company, the exclusive right to acquire all of the outstanding capital stock
of the Management Company. The purchase price would be set at 90% of the product
of (i) the Earnings (as defined below) of the Management Company as of the most
recent 12-month period prior to the acquisition, multiplied by (ii) the average
price to earnings ratio of the Company over the same 12 month period, each as
determined according to generally accepted accounting principles; provided,
however, that if the purchase price is less than $12 million, Management Company
would have the right to decline the acquisition. The purchase price would be
payable in the form of freely tradeable securities of the Company and the
closing of the purchase shall be conditioned upon the approval of the respective
boards of directors and shareholders of both the Company and the Management
Company, as required by law, and shall expire on December 31, 2003. For purposes
of this Section 4.1, the term "Earnings" shall mean Earnings before cumulative
equity in earnings/losses of subsidiaries.
ARTICLE 5
MISCELLANEOUS PROVISIONS
5.1 Applicable Law. This Agreement shall by governed by and construed
and enforced in accordance with the laws of the State of California without
regard to principles of conflicts of law.
5.2 Counterparts. This Agreement may be executed in several
counterparts, all of which together shall constitute one agreement binding on
all parties hereto, notwithstanding that all the parties have not signed the
same counterpart.
5.3 Separability of Provisions. If any provision of this Agreement is
determined by a court of competent jurisdiction to be unenforceable, such
provision shall be automatically reformed and construed so as to be valid and
enforceable to the maximum extent permitted by law while most nearly preserving
its original intent. The invalidity of all or any part of this Agreement shall
not render invalid the remainder of this Agreement.
5.4 Captions. Article and Section titles and any table of contents are
for convenience of reference only and shall not control or alter the meaning of
this Agreement as set forth in this text.
5.5 No Benefit to Third Parties. The provisions of this Agreement shall
not be construed for the benefit of or enforceable by a person not a party
hereto.
5.6 Successors and Assigns. The covenants and agreements contained
herein shall be binding upon, and inure to the benefit of, the successors and
permitted assigns of the respective parties hereto.
5.7 Amendments. This Agreement may only be amended in writing executed
by the parties hereto.
5.8 Prior Management Agreement Superseded. This Amended and Restated
Management Agreement supersedes and replaces that certain Management Agreement
between the parties hereto, dated December 31, 1997.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
COMPANY: MANAGEMENT COMPANY:
AEROCENTURY CORP. JETFLEET MANAGEMENT CORP.,
a Delaware corporation a California corporation
By:_____________________________ By:_____________________________
Neal D. Crispin, President Neal D. Crispin, President
<PAGE>
SCHEDULE A
Liquidated Damages For Termination
From September 1, 1997 to October 31, 2007: $12,000,000*.
From September 1, 2007 to October 31, 2017: $12,000,000* less
$1,000,000 for each year or portion
thereof remaining in the term of this Agreement.
* This $12,000,000 amount shall be adjusted to reflect changes in the Consumer
Price Index (as published by the United States Department of Labor) from the
date of this Agreement to the termination date. If the Consumer Price Index is
or becomes unavailable, then a comparable index will be mutually agreed upon by
the Company and the Management Company.
AMENDMENT NO. 1
TO
CREDIT AGREEMENT
Amendment No. 1, dated March 30, 1999 (the "Amendment"), to Credit
Agreement dated June 30, 1998 (as amended, the "Agreement") by and between
AeroCentury Corp., a Delaware corporation ("AeroCentury"), the banking
institutions signatories hereto and named in Exhibit A attached hereto and such
other institutions that hereafter become a "Bank" pursuant to '10.4 hereof
(collectively the "Banks" and individually a "Bank") and FIRST UNION NATIONAL
BANK, a national banking association, as agent for the Banks under this
Agreement ("First Union" which shall mean in its capacity as agent unless
specifically stated otherwise). All capitalized terms used herein and not
otherwise defined shall have the respective meanings ascribed to them in the
Agreement.
Preliminary Statement
WHEREAS, First Union and AeroCentury, together with the other Banks,
desire to amend the Agreement in the manner hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and promises
hereinafter set forth and intending to be legally bound hereby, the parties
hereto agree as follows:
1. Section 1.1 of the Agreement. The definition of "Required Banks" as
set forth in Section 1.1 of the Agreement is hereby amended and restated in its
entirety to be as follows:
"Required Banks" at any time shall mean Banks whose Revolving Loan
Commitments equal or exceed 70% of the total of such Revolving Loan
Commitments if no Loans are outstanding or, if Loans are outstanding,
Banks whose outstanding Loans equal or exceed 70% of the Loans.
2. Section 2.3(c) of the Agreement. The time A12:00 p.m. EST as set
forth in the first line of Section 2.3(c) of the Agreement shall be and hereby
is amended to be 2:00 p.m. EST.
3. Amended and Restated Exhibit A to Agreement. Exhibit A to the
Agreement shall be and is hereby amended and restated in its entirety as
attached hereto.
4. Representations and Warranties. AeroCentury hereby restates the
representations and warranties made in the Agreement, including but not limited
to Article 3 thereof, on and as of the date hereof as if originally given on
this date.
5. Covenants. AeroCentury hereby represents and warrants that it is in
compliance and has complied with each and every covenant set forth in the
Agreement (including this amendment), including but not limited to Articles 5
and 6 thereof, on and as of the date hereof.
<PAGE>
6. Affirmation. AeroCentury hereby affirms its absolute and
unconditional promise to pay to the Banks the Loans and all other amounts due
under the Agreement and any other Loan Document on the maturity date(s) provided
in the Agreement or any other Loan Document, as such documents may be amended
hereby.
7. Effect of Amendment. This Amendment amends the Agreement only to the
extent and in the manner herein set forth, and in all other respects the
Agreement is ratified and confirmed.
8. Counterparts. This Amendment may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have each caused this Amendment
to be duly executed by their duly authorized representatives as of the date
first above written.
AEROCENTURY CORP.
By _______________________
FIRST UNION NATIONAL BANK
By _____________________
Hugh W. Connelly
Vice President
CALIFORNIA BANK & TRUST
By ________________________
Thomas C. Paton, Jr.
Vice President &
Senior Relationship
Manager
<PAGE>
EXHIBIT A
BANKS' COMMITMENTS AND PERCENTAGES
<TABLE>
<S> <C> <C>
Bank Commitment Percentage
First Union National Bank $15,000,000 66.67%
Transportation and Leasing Division
FC 1-8-11-24
1339 Chestnut Street
Philadelphia, PA 19107
FAX No. (215) 786-7704
California Bank & Trust $ 7,500,000 33.33%
320 California Street
Suite 600
San Francisco, CA 94104
FAX No. (415) 296-9617
</TABLE>
AMENDMENT NO. 2
TO
CREDIT AGREEMENT
Amendment No. 2, dated July 16, 1999 (the "Amendment"), to Credit
Agreement dated June 30, 1998 (as amended, the "Agreement") by and between
AeroCentury Corp., a Delaware corporation ("AeroCentury"), the banking
institutions signatories hereto and named in Exhibit A attached hereto and such
other institutions that hereafter become a "Bank" pursuant to '10.4 hereof
(collectively the "Banks" and individually a "Bank") and FIRST UNION NATIONAL
BANK, a national banking association, as agent for the Banks under the Agreement
("First Union" which shall mean in its capacity as agent unless specifically
stated otherwise). All capitalized terms used herein and not otherwise defined
shall have the respective meanings ascribed to them in the Agreement.
Preliminary Statement
WHEREAS, First Union and AeroCentury, together with the other Banks,
desire to amend the Agreement in the manner hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and promises
hereinafter set forth and intending to be legally bound hereby, the parties
hereto agree as follows:
1. Section 1.1 of the Agreement. The following definitions set forth in
Section 1.1 of the Agreement are hereby added, or amended and restated in their
entireties, as applicable, to be as follows:
"Collateral" shall mean those assets defined as "Collateral" in the
Security Agreement (including but not limited to the Equipment and the
related leases therefor)."
"Eligible Collateral" shall mean the sum of (1) Equipment included in
the Collateral which is subject to an Eligible Lease, and (2) Equipment
included in the Collateral which is not subject to a lease, provided
that (a) the aggregate of such Equipment shall not at any time exceed
10% of the Aggregate Revolving Loan Commitment, and (b) the maximum
period for which any item of such Equipment shall not have been subject
to an Eligible Lease does not exceed four months. In order to be
Eligible Collateral, First Union as Agent shall possess a first
priority security interest in said Collateral to secure the payment,
promptly when due, and the punctual performance of all of the
"Liabilities" as defined in the Security Agreement."
"Loan Documents" shall mean this Agreement, the Notes, the Security
Agreement, and all other documents directly related or incidental to
said documents, the Loans or the Collateral, but shall not include any
Swap Agreement."
<PAGE>
"Obligations" shall mean all now existing or hereafter arising debts,
obligations, covenants, and duties of payment or performance of every
kind, matured or unmatured, direct or contingent, owing, arising, due,
or payable to the Banks or First Union, as Agent, by or from
AeroCentury arising out of this Agreement or any other Loan Document,
including, without limitation, all obligations to repay principal of
and interest on the Loans, and to pay interest, fees, costs, charges,
expenses, professional fees, and all sums chargeable to AeroCentury or
for which AeroCentury is liable as indemnitor under the Loan Documents,
whether or not evidenced by any note or other instrument as well as
well as any and all existing and future obligations of AeroCentury
under or in connection with Swap Agreements with any one or more of the
Banks, including but not limited to First Union, pertaining to the
Loans hereunder."
"Security Agreement" shall mean all writings, agreements, and documents
in any jurisdiction, whether within the United States or outside of the
United States, the intended purpose of which is to grant a security
interest in property, whether then owned by AeroCentury or thereafter
acquired, and all replacements of said property, as collateral security
for the payment and performance of the Obligations, including but not
limited to (1) the Mortgage and Security Agreement, dated August 11,
1998 by First Security Bank, N.A. trustee under Trust Agreement
(N272EP) dated as of October 31, 1991 in favor of First Union National
Bank, as Agent, (2) the Mortgage and Security Agreement, dated August
11, 1998 by First Security Bank, N.A. trustee under Trust Agreement
(N272EP) dated as of October 31, 1991 and trustee under Trust Agreement
(N12303) dated as of November 15, 1989, in favor of First Union
National Bank, as Agent, (3) the Mortgage and Security Agreement, dated
March 31, 1999 by AeroCentury in favor of First Union National Bank, as
Agent, (4) the Security Agreement, dated December 21, 1998, between
AeroCentury Corp., as debtor, and First Union, as Agent, and (5) all
amendments, modifications, supplements, amendments and restatements,
replacements and substitutions of each of the foregoing."
"Swap Agreement" shall have the meaning set forth in 11 U.S.C. '101 and
shall include but not be limited to interest rate swap agreements,
interest rate cap agreements, interest collar agreements, interest rate
hedging agreements, interest rate floor agreements or other similar
agreements or arrangements.
2. Section 2.7(b) of the Agreement. The reference to "'2.1(f)" as set
forth in the last line of Section 2.7(b) of the Agreement shall be and hereby is
amended to be "2.1(i)".
3. Section 8.1(e) of the Agreement. Section 8.1 (e) of the Agreement shall
be and hereby is amended and restated to be as follows:
<PAGE>
"(e) Certain Other Defaults. (1) AeroCentury shall fail to pay when due
any Indebtedness for Borrowed Money which singularly exceeds $250,000,
or in the aggregate exceeds $250,000, and such failure shall continue
beyond any applicable cure period, or (2) AeroCentury shall suffer to
exist any default or event of default in the performance or observance,
subject to any applicable grace period, of any agreement, term,
condition or covenant with respect to any agreement or document
relating to Indebtedness for Borrowed Money if the effect of such
default is to permit, with the giving of notice or passage of time or
both, the holders thereof, or any trustee or agent for said holders, to
terminate or suspend any commitment (which is equal to or in excess of
$250,000 in any individual case or $250,000 in the aggregate) to lend
money or to cause or declare any portion of any borrowings thereunder
to become due and payable prior to the date on which it would otherwise
be due and payable, or (3) any default shall exist under any Swap
Agreement; provided that during any applicable cure period the Banks'
obligations hereunder to make further Loans shall be suspended."
4. Section 8.1(i) of the Agreement. The reference to "6.2, 6.3" as set
forth in the last line of Section 8.1(i) of the Agreement shall be and hereby is
amended to be "6.3".
5. Section 8.1 of the Agreement. The paragraph at the end of Section
8.1 of the Agreement which begins with the phrase "THEN and in every such event"
shall be and hereby is amended to be as follows:
"THEN and in every such event other than that specified in 8.1(d),
First Union as Agent may, or at the written request of the Required
Banks shall, immediately terminate the Revolving Loan Commitments and
declare the Notes and all other Obligations, including without
limitation accrued interest but excluding any obligation under any Swap
Agreement then in existence, to be, and they shall thereupon forthwith
become due and payable without presentment, demand, or notice of any
kind, all of which are hereby expressly waived by AeroCentury. Upon the
occurrence of any event specified in 8.1(d), the Revolving Loan
Commitments shall automatically terminate and the Notes and all other
Obligations, including without limitation accrued interest but
excluding any obligation under any Swap Agreement then in existence,
shall immediately be due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby expressly
waived by AeroCentury. Any date on which the Notes and such other
obligations are declared due and payable pursuant to this 8.1 shall be
Revolver Termination Date for purposes of this Agreement. From and
after the date an Event of Default shall have occurred and for so long
as an Event of Default shall be continuing, the Loans shall bear
interest at the Default Rate whether or not a Revolver Termination Date
shall have occurred."
6. Section 9.7 of the Agreement. Section 9.7 of the Agreement shall be
and hereby is deleted in its entirety.
7. Section 10.2 of the Agreement. The phrase "modify the definition of
"Required Banks"" as set forth in Section 10.2 of the Agreement shall be and
hereby is amended to be "modify the definitions of "Borrowing Base", "Eligible
Collateral", "Eligible Lease" or "Required Banks"."
8. Section 10.7(b) of the Agreement. Section 10.7(b) of the Agreement
shall be and hereby is amended and restated to be as follows:
" (b) If an Event of Default or Potential Default shall have
occurred and be continuing the Agent and each Bank and AeroCentury
agree that all payments on account of the Loans shall be applied by the
Agent and the Banks as follows:
First, to the Agent for any Agent fees then due and payable under
this Agreement until such fees are paid in full;
<PAGE>
Second, to the Agent for any fees, costs or expenses (including
expenses described in '10.8) incurred by the Agent under any of
the Loan Documents or this Agreement, then due and payable and not
reimbursed by AeroCentury or the Banks until such fees, costs and
expenses are paid in full;
Third, to the Banks for their percentage shares of the Commitment
Fee then due and payable under this Agreement until such fee is
paid in full;
Fourth, to the Banks for their respective shares of all costs,
expenses and fees then due and payable from AeroCentury until such
costs, expenses and fees are paid in full;
Fifth, to the Banks for their percentage shares of all interest
then due and payable from AeroCentury until such interest is paid
in full, which percentage shares shall be calculated by
determining each Bank's percentage share of the amounts allocated
in (a) above determined as set forth in said clause (a);
Sixth, to the Banks for their percentage shares of the principal
amount of the Loans then due and payable from AeroCentury until
such principal is paid in full, which percentage shares shall be
calculated by determining each Bank's percentage share of the
amounts allocated in (a) above determined as set forth in said
clause (a); and
Seventh, tothe Banks in respect of any Obligations of AeroCentury
under or in connection with any Swap Agreements pro rata, it being
understood and agreed that any benefits or income received by the
Banks or any of them under or in connection with any Swap
Agreement shall belong strictly to the applicable Bank and shall
not be considered as benefits or income to be shared by all of the
Banks pursuant to this Agreement."
9. Section 10.8 of the Agreement. The reference to "Bank" as set forth
in the first sentence of Section 10.8 of the Agreement shall be and hereby is
amended to be "Banks".
10. Section 10.9 of the Agreement. The reference to "2.10" as set forth
in Section 10.9 of the Agreement shall be and hereby is amended to be "2.9".
11. Section 10.19 of the Agreement. A new section "'10.19" shall be and
hereby is added to the Agreement which shall be as follows:
"10.19. Swap Agreements. Notwithstanding any to the contrary contained
in this Agreement, AeroCentury and any Bank may enter into a swap
agreement or swap agreements at any time and from time to time or amend
or otherwise modify any such agreement and such entry, amendment,
modification and/or the existence of any such agreement shall not
constitute a breach of any provision of this Agreement or any other
Loan Document, or be in any manner restricted by this Agreement or any
other Loan Document."
<PAGE>
12. Amended and Restated Exhibit A to Agreement. Exhibit A to the
Agreement shall be and is hereby amended and restated in its entirety as
attached hereto.
13. Exhibit D to Agreement. Exhibit D to the Agreement shall be and is
hereby deleted.
14. Amended and Restated Schedule 1 to Agreement. Schedule 1 to the
Agreement shall be and is hereby amended and restated in its entirety as
attached hereto.
15. Conditions Precedent. Simultaneous with the execution and delivery
of this Amendment, AeroCentury shall provide to each Bank all items referred to
Section 4.1(b) of the Agreement to the extent no heretofore provided to each
Bank, including but not limited to the execution and delivery to Sanwa Bank of
California of its Revolving Credit Note in the principal amount of $7,500,000.
Further, AeroCentury shall provide to each Bank (a) a Secretary's Certificate
dated the date of this Amendment certifying and attaching copies of its Articles
of Incorporation and Bylaws as currently in effect, evidence of corporate
authorization of this Amendment and the Agreement as amended, and the signatures
of the officer or officers authorized to execute and deliver this Amendment and
the Note to Sanwa Bank of California, (b) good standing certificates for
AeroCentury Corp. in California and Delaware, (c) the legal opinion of
Christopher B. Tigno, Esq., General Counsel to AeroCentury, in form and
substance satisfactory to each Bank, and (d) such other documents and agreements
as any Bank shall reasonably request.
16. Representations and Warranties. AeroCentury hereby restates the
representations and warranties made in the Agreement, including but not limited
to Article 3 thereof, on and as of the date hereof as if originally given on
this date.
17. Covenants. AeroCentury hereby represents and warrants that it is in
compliance and has complied with each and every covenant set forth in the
Agreement (including this amendment), including but not limited to Articles 5
and 6 thereof, on and as of the date hereof.
18. Affirmation. AeroCentury hereby affirms its absolute and
unconditional promise to pay to the Banks the Loans and all other amounts due
under the Agreement and any other Loan Document on the maturity date(s) provided
in the Agreement or any other Loan Document, as such documents may be amended
hereby.
19. Effect of Amendment. This Amendment amends the Agreement only to
the extent and in the manner herein set forth, and in all other respects the
Agreement is ratified and confirmed.
20. Amendment of Rio Sul Lease. AeroCentury has amended the Aircraft
Operating Lease Agreement No. AOLA 1364.007 with Rio Sul Servicos Aereos
Regionais S.A., copies of which have been furnished to each of the Banks. The
Lease Agreement as amended shall be deemed to be an Eligible Lease for purposes
of the Agreement notwithstanding the amendment if the Lease as amended otherwise
qualifies as an Eligible Lease.
<PAGE>
21. Re-Funding of Loans. Promptly following the effectiveness of this
Amendment including but not limited to the delivery to Sanwa Bank of California
of its Note as contemplated above, the Agent shall coordinate with each of the
Banks (a) to provide for funding by Sanwa Bank of California of Loans to
AeroCentury under the Credit Agreement, as amended, equal to its proportionate
share of the aggregate principal amount of Loans then outstanding to AeroCentury
based on its Revolving Loan Commitment Percentage and (b) application of the
proceeds of such Loans to repayment to California Bank & Trust and First Union
National Bank, in its individual capacity, of Loans by each of them then in
effect such that the aggregate Loans of each Bank shall not exceed the
proportionate share of each Bank based on its Revolving Loan Commitment
Percentage applied to the aggregate principal amount of outstanding Loans by the
Banks to AeroCentury on such date.
22. Counterparts. This Amendment may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have each caused this Amendment
to be duly executed by their duly authorized representatives as of the date
first above written.
AEROCENTURY CORP.
By ______________________________
FIRST UNION NATIONAL BANK
By ______________________________
Hugh W. Connelly
Vice President
CALIFORNIA BANK & TRUST
By ______________________________
Thomas C. Paton, Jr.
Vice President &
Senior Relationship Manager
<PAGE>
SANWA BANK CALIFORNIA
By ______________________________
Michael Sullivan
Vice President
<PAGE>
EXHIBIT A
BANKS' COMMITMENTS AND PERCENTAGES
<TABLE>
<S> <C> <C>
Bank Commitment Percentage
First Union National Bank $15,000,000 50.00%
Transportation and Leasing Division
FC 1-8-11-24
1339 Chestnut Street
Philadelphia, PA 19107
FAX No. (215) 786-7704
California Bank & Trust $7,500,000 25.00%
320 California Street
Suite 600
San Francisco, CA 94104
FAX No. (415) 296-9617
Sanwa Bank of California $ 7,500,000 25.00%
444 Market Street, 23rd Floor
San Francisco, CA 94111
FAX No. (415)
</TABLE>
<PAGE>
SCHEDULE I
DISCLOSURE SCHEDULE
Section 3.2 Stock Ownership
AeroCentury Corp.: Principal Stockholders
Class Total Authorized Total Issued
Common 3,000,000 1,606,557
Preferred Stock 2,000,000 -0-
Series A 100,000 -0-
undesignated 1,900,000 -0-
In connection with the adoption of a shareholders rights plan, AeroCentury
issued rights to its shareholders as of April 23, 1998, entitling each such
shareholder the right to purchase 1/100th of a share of Series A Preferred Stock
for each share of Common Stock held by the shareholder.
Principal Shareholders
To AeroCentury=s best knowledge, the only shareholder of AeroCentury that holds
5% or more of the Common Stock of AeroCentury is JetFleet Holding Corp., which
holds 147, 667 shares of Common Stock or approximately 9.2% of that class.
Section 3.3 Litigation
None
Section 3.5 Material Adverse Changes
None
Section 3.7 Taxes
None
Section 3.12 Subsidiaries
None
Section 3.13 Liens
None
AMENDMENT NO. 3
TO
CREDIT AGREEMENT
Amendment No. 3, dated February 22, 2000 (the "Amendment"), to Credit
Agreement dated June 30, 1998 (as amended, the "Agreement") by and between
AeroCentury Corp., a Delaware corporation ("AeroCentury"), the banking
institutions signatories hereto and named in Exhibit A attached hereto and such
other institutions that hereafter become a "Bank" pursuant to ss.10.4 hereof
(collectively the "Banks" and individually a "Bank") and FIRST UNION NATIONAL
BANK, a national banking association, as agent for the Banks under the Agreement
("First Union" which shall mean in its capacity as agent unless specifically
stated otherwise). All capitalized terms used herein and not otherwise defined
shall have the respective meanings ascribed to them in the Agreement.
Preliminary Statement
WHEREAS, First Union and AeroCentury, together with the other Banks,
desire to amend the Agreement to increase the Aggregate Revolving Loan
Commitment to $35,000,000.
NOW, THEREFORE, in consideration of the premises and promises
hereinafter set forth and intending to be legally bound hereby, the parties
hereto agree as follows:
1. Amended and Restated Exhibit A to Agreement. Exhibit A to the
Agreement shall be and is hereby amended and restated in its entirety as
attached hereto.
2. Amended and Restated Schedule 1 to Agreement. Schedule 1 to the
Agreement shall be and is hereby amended and restated in its entirety as
attached hereto.
3. Conditions Precedent. Simultaneous with the execution and delivery
of this Amendment, AeroCentury shall provide to each Bank all items referred to
Section 4.1(b) of the Agreement to the extent not heretofore provided to each
Bank, including but not limited to the execution and delivery to California Bank
& Trust and Sanwa Bank California of amended and restated Revolving Credit Notes
in the principal amount of $10,000,000 and execution and delivery to First Union
National Bank of an amended and restated Revolving Credit Note in the principal
amount of $15,000,000. Further, AeroCentury shall provide to each Bank (a) a
Secretary's Certificate dated the date of this Amendment certifying and
attaching copies of its Articles of Incorporation and Bylaws as currently in
effect, evidence of corporate authorization of this Amendment and the Agreement
as amended, and the signatures of the officer or officers authorized to execute
and deliver this Amendment and the Notes to California Bank & Trust and Sanwa
Bank California, (b) good standing certificates for AeroCentury Corp. in
California and Delaware, (c) the legal opinion of Christopher B. Tigno, Esq.,
General Counsel to AeroCentury, in form and substance satisfactory to each Bank,
and (d) such other documents and agreements as any Bank shall reasonably
request.
4. Representations and Warranties. AeroCentury hereby restates the
representations and warranties made in the Agreement, including but not limited
to Article 3 thereof, on and as of the date hereof as if originally given on
this date.
<PAGE>
5. Covenants. AeroCentury hereby represents and warrants that it is in
compliance and has complied with each and every covenant set forth in the
Agreement (including this amendment), including but not limited to Articles 5
and 6 thereof, on and as of the date hereof.
6. Affirmation. AeroCentury hereby affirms its absolute and
unconditional promise to pay to the Banks the Loans and all other amounts due
under the Agreement and any other Loan Document on the maturity date(s) provided
in the Agreement or any other Loan Document, as such documents may be amended
hereby.
7. Effect of Amendment. This Amendment amends the Agreement only to the
extent and in the manner herein set forth, and in all other respects the
Agreement is ratified and confirmed.
8. Counterparts. This Amendment may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have each caused this Amendment
to be duly executed by their duly authorized representatives as of the date
first above written.
AEROCENTURY CORP.
By ______________________________
FIRST UNION NATIONAL BANK
By ______________________________
Helen Wessling
Vice President
CALIFORNIA BANK & TRUST
By ______________________________
Thomas C. Paton, Jr.
Vice President & Senior
Relationship Manager
<PAGE>
SANWA BANK CALIFORNIA
By ______________________________
J. Michael Sullivan
Vice President
<PAGE>
EXHIBIT A
BANKS' COMMITMENTS AND PERCENTAGES
<TABLE>
<S> <C> <C>
Bank Commitment Percentage
First Union National Bank $15,000,000 42.86%
Asset Securitization Division
PA4831
1339 Chestnut Street
Philadelphia, PA 19107
FAX No. (215) 786-8304
California Bank & Trust $10,000,000 28.57%
San Francisco Regional Corporate Banking
465 California Street, First Floor
San Francisco, CA 94104
FAX: (415) 875-1456
Sanwa Bank California $10,000,000 28.57%
444 Market Street, 23rd Floor
San Francisco, CA 94111
FAX No. (415) 597-5435
</TABLE>
<PAGE>
DISCLOSURE SCHEDULE
Section 3.2 Stock Ownership
AeroCentury Corp.: Principal Stockholders
Class Total Authorized Total Issued
Common 3,000,000 1,606,557
Preferred Stock 2,000,000 -0-
Series A 100,000 -0-
undesignated 1,900,000 -0-
In connection with the adoption of a shareholders rights plan, AeroCentury
issued rights to its shareholders as of April 23, 1998, entitling each such
shareholder the right to purchase 1/100th of a share of Series A Preferred Stock
for each share of Common Stock held by the shareholder.
Of the 1,606,557 shares outstanding, 63,300 are held as treasury stock by
AeroCentury, representing shares repurchased by AeroCentury pursuant to its
stock repurchase plan.
Principal Shareholders
To AeroCentury's best knowledge, the only shareholders of AeroCentury that hold
5% or more of the Common Stock of AeroCentury:
Holder Shares Percent
JetFleet Holding Corp. 199,267 12.9%
Pine Capital Management, 183,300 11.8%
Incorporated/Hofer & Arnett
Section 3.3 Litigation
None
Section 3.5 Material Adverse Changes
None
Section 3.7 Taxes
None
<PAGE>
Section 3.12 Subsidiaries
AeroCentury holds the entire membership interest of AeroCentury Investments LLC,
a Delaware limited liability company (the "LLC"). The LLC owns two Fokker-50
aircraft on lease to Air Nostrum. The acquisition was financed through seller
financing, which financing was non recourse to AeroCentury Corp.
Section 3.13 Liens
None
Exhibit 21
Subsidiaries of the Company
1. AeroCentury Investments LLC, a Delaware limited liability company
<TABLE> <S> <C>
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<CIK> 0001036848
<NAME> AEROCENTURY CORP.
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 6,670,890
<SECURITIES> 0
<RECEIVABLES> 307,760
<ALLOWANCES> 0
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<CURRENT-ASSETS> 63,191,720
<PP&E> 73,265,560
<DEPRECIATION> 17,411,620
<TOTAL-ASSETS> 63,191,720
<CURRENT-LIABILITIES> 47,700,380
<BONDS> 0
0
0
<COMMON> 1,610
<OTHER-SE> 15,993,800
<TOTAL-LIABILITY-AND-EQUITY> 63,191,720
<SALES> 0
<TOTAL-REVENUES> 7,380,140
<CGS> 0
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<OTHER-EXPENSES> 3,804,730
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,534,310
<INCOME-PRETAX> 2,041,100
<INCOME-TAX> 635,680
<INCOME-CONTINUING> 1,405,420
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 1,405,420
<EPS-BASIC> 0.90
<EPS-DILUTED> 0.90
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