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REGISTRATION STATEMENT NO.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
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MORGAN STANLEY AIRCRAFT FINANCE
(Exact name of Registrant as specified in its charter)
DELAWARE
(Jurisdiction of organization)
7359
(Primary Standard Industrial Classification Code Number)
13-3375162
(I.R.S. Employer Identification Number)
MORGAN STANLEY AIRCRAFT FINANCE
C/O WILMINGTON TRUST COMPANY
1100 NORTH MARKET STREET
RODNEY SQUARE NORTH
WILMINGTON, DELAWARE 19890-1000
ATTENTION: CORPORATE TRUST ADMINISTRATION
(302) 651-1000
(Address and telephone number of Registrant's principal executive offices)
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WILMINGTON TRUST COMPANY
1100 NORTH MARKET STREET
RODNEY SQUARE NORTH
WILMINGTON, DELAWARE 19890-1000
ATTENTION: CORPORATE TRUST ADMINISTRATION
(302) 651-1000
(Name, address and telephone number of agent for service)
Copy to:
THOMAS J. REID, ESQ.
DAVIS POLK & WARDWELL
1 FREDERICK'S PLACE
LONDON EC2R 8AB
ENGLAND
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the Registration Statement becomes effective.
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CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PER NOTE (1) OFFERING PRICE (1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------
Notes due March 15, 2023............... $1,050,000,000 100% $1,050,000,000 $309,750
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f) under the Securities Act of 1933.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to the registration or qualification under the securities laws of such State.
PROSPECTUS (Subject to Completion)
Issued June 11, 1998
$1,050,000,000
Offer to Exchange Notes due March 15, 2023
for Any and All Outstanding Notes due March 15, 2023
of
Morgan Stanley Aircraft Finance
The Exchange Offer will expire at 5:00 P.M., New York City time, on the 21st
business day following the commencement of the Offer, 1998, unless extended
------------------------
Morgan Stanley Aircraft Finance ("MSAF" and, together with its subsidiaries,
"MSAF Group") hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying Letter of Transmittal (the "Letter
of Transmittal", which together with this Prospectus constitutes the "Exchange
Offer") to exchange five subclasses of Notes due March 15, 2023 (collectively
the "New Notes") for each subclass of the issued and outstanding Notes due March
15, 2023 (the "Old Notes" and together with the New Notes, the "Notes") of MSAF
from the holders ("Holders") thereof. As of the date of this Prospectus there
were outstanding $1,050,000,000 initial principal amount of Old Notes. The terms
of the New Notes are identical in all material respects to the Old Notes, except
that the offer of the New Notes will have been registered under the Securities
Act of 1933, as amended (the "Securities Act") and therefore, the New Notes will
not be subject to certain transfer restrictions, registration rights and certain
provisions providing for an increase in the interest rate on each subclass of
the Old Notes under certain circumstances relating to the Registration Agreement
(as defined).
The Subclass A-1 Notes bear interest at the London interbank offered rate for
one month U.S. dollar deposits ("LIBOR") + 0.21%, have an expected final payment
date of March 15, 2000 and a final maturity date of March 15, 2023. The Subclass
A-2 Notes bear interest at a rate of LIBOR + 0.35%, have an expected final
payment date of September 15, 2005 and a final maturity date of March 15, 2023.
The Subclass B-1 Notes bear interest at a rate of LIBOR + 0.65%, have an
expected final payment date of March 15, 2013 and a final maturity date of March
15, 2023. The Subclass C-1 Notes bear interest at a rate of 6.90%, have an
expected final payment date of March 15, 2013 and a final maturity date of March
15, 2023. The Subclass D-1 Notes bear interest at a rate of 8.70%, have an
expected final payment date of March 15, 2014 and a final maturity date of March
15, 2023.
The New Notes are being offered hereunder in order to satisfy certain
obligations of MSAF under the Registration Rights Agreement dated March 3, 1998,
among MSAF and the other signatories thereto (the "Registration Agreement").
Based upon interpretations contained in letters to third parties by the staff of
the Securities and Exchange Commission (the "Commission"), MSAF believes that
the New Notes issued pursuant to the Exchange Offer in exchange for Old Notes
may be offered for resale, resold and otherwise transferred by Holders thereof
(other than a broker-dealer, as set forth below, or any such Holder which is an
"affiliate" of MSAF within the meaning of Rule 405 under the Securities Act),
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such New Notes are acquired in the ordinary
course of such Holders' business and such Holders have no arrangement or
understanding with any person to participate in the distribution of such New
Notes. Eligible Holders wishing to accept the Exchange Offer must represent to
MSAF in the Letter of Transmittal that such conditions have been met and must
represent, if such Holder is not a broker-dealer, or is a broker-dealer but will
not receive New Notes for its own account in exchange for Old Notes, that
neither such Holder nor the person receiving such New Notes, if other than the
Holder, is engaged in or intends to participate in the distribution of such New
Notes. Each broker-dealer that receives New Notes for its own account pursuant
to the Exchange Offer must represent that the Old Notes tendered in exchange
therefor were acquired as a result of market-making activities or other trading
activities and must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
The Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. MSAF has
agreed that, starting on the Expiration Date (as defined herein) and ending on
the close of business on the 180th day following the Expiration Date, it will
make this Prospectus available to any broker-dealer for use in connection with
any such resale. See "Plan of Distribution."
MSAF will not receive any proceeds from the Exchange Offer. MSAF will pay all
the expenses incident to the Exchange Offer. Tenders of Old Notes pursuant to
the Exchange Offer may be withdrawn at any time prior to the Expiration Date. In
the event MSAF terminates the Exchange Offer and does not accept for exchange
any Old Notes, MSAF will promptly return all previously tendered Old Notes to
the Holders thereof. See "The Exchange Offer."
Prior to this Exchange Offer, there has been no public market for the Notes.
MSAF does not intend to apply for listing of the New Notes on any securities
exchange (other than the Luxembourg Stock Exchange) or to seek approval for
quotation through any automated quotation system. There can be no assurance that
an active public market for the New Notes will develop.
------------------------
ALL OF THE BENEFICIAL INTEREST IN MSAF IS INDIRECTLY OWNED BY MORGAN STANLEY BUT
THE NOTES ARE NOT OBLIGATIONS OF, OR GUARANTEED BY, MORGAN STANLEY OR ANY PERSON
OTHER THAN MSAF GROUP. THE NOTES ARE NOT OBLIGATIONS OF, OR GUARANTEED BY,
BANKERS TRUST COMPANY, AS TRUSTEE, SECURITY TRUSTEE OR CASH MANAGER, OR ILFC OR
ANY OF THEIR AFFILIATES.
------------------------
THE OLD NOTES WERE LISTED ON THE LUXEMBOURG STOCK EXCHANGE ON MARCH 3, 1998. THE
NEW NOTES WILL BE LISTED THEREON UPON ISSUANCE, SUBJECT ONLY TO NOTICE OF
ISSUANCE.
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SEE "RISK FACTORS" BEGINNING ON PAGE 21 HEREOF FOR A DISCUSSION OF CERTAIN
FACTORS ASSOCIATED WITH THE EXCHANGE OFFER AND THE NEW NOTES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
, 1998
<PAGE> 3
MSAF WILL PROVIDE THE TRUSTEE FOR DISTRIBUTION TO NOTEHOLDERS ON THE SECOND
BUSINESS DAY BEFORE EACH PAYMENT DATE A STATEMENT WITH RESPECT TO ANY PAYMENT TO
BE MADE ON SUCH PAYMENT DATE SETTING FORTH THE INFORMATION SPECIFIED UNDER
"REPORTS TO NOTEHOLDERS" (EACH, A "MONTHLY REPORT"). FOLLOWING EFFECTIVENESS OF
THE REGISTRATION STATEMENT, EACH MONTHLY REPORT WILL BE FILED BY MSAF WITH THE
COMMISSION IN A REPORT ON FORM 8-K. THE MONTHLY REPORTS FOR EACH APRIL 15, JULY
15 AND OCTOBER 15, BEGINNING ON JULY 15, 1998 WILL BE ACCOMPANIED BY A STATEMENT
SETTING FORTH AN ANALYSIS OF COLLECTION ACCOUNT ACTIVITY FOR THE PRECEDING
FISCAL QUARTER ENDED FEBRUARY 28, MAY 31 AND AUGUST 31, RESPECTIVELY, TOGETHER
WITH A DISCUSSION AND ANALYSIS OF SUCH ACTIVITY AND OF ANY SIGNIFICANT
DEVELOPMENTS AFFECTING MSAF GROUP IN SUCH QUARTER (EACH, A "QUARTERLY REPORT").
EACH QUARTERLY REPORT WILL ALSO INCLUDE AN UPDATED DESCRIPTION OF THE AIRCRAFT
THEN IN THE PORTFOLIO AND THE RELATED LESSEES IN SUBSTANTIALLY SIMILAR FORMAT TO
THE DESCRIPTION SET FORTH UNDER "THE INITIAL AIRCRAFT AND LEASES -- MSAF GROUP
PORTFOLIO ANALYSIS". FOLLOWING EFFECTIVENESS OF THE REGISTRATION STATEMENT, EACH
SUCH QUARTERLY REPORT WILL BE FILED WITH THE COMMISSION IN A REPORT ON FORM
10-Q. FINALLY, THE MONTHLY REPORT FOR EACH FEBRUARY 15 WILL BE ACCOMPANIED BY A
STATEMENT SETTING FORTH AN ANALYSIS OF COLLECTION ACCOUNT ACTIVITY FOR THE
PRECEDING FISCAL YEAR ENDED NOVEMBER 30, TOGETHER WITH A DISCUSSION AND ANALYSIS
OF SUCH ACTIVITY AND OF ANY SIGNIFICANT DEVELOPMENTS AFFECTING MSAF GROUP IN
SUCH YEAR (EACH, AN "ANNUAL REPORT"). EACH ANNUAL REPORT WILL ALSO INCLUDE
UPDATED INFORMATION REGARDING THE AIRCRAFT THEN IN THE PORTFOLIO (INCLUDING
ADDITIONAL AIRCRAFT), THE THEN CURRENT LEASES AND THEN CURRENT LESSEES TO
SUBSTANTIALLY THE SAME EFFECT AS THE INFORMATION SET FORTH UNDER "THE INITIAL
AIRCRAFT AND LEASES". FOLLOWING EFFECTIVENESS OF THE REGISTRATION STATEMENT,
EACH ANNUAL REPORT WILL BE FILED WITH THE COMMISSION IN A REPORT ON FORM 10-K
AND THE FINANCIAL DATA RELATING TO ANNUAL COLLECTION ACCOUNT ACTIVITY IN SUCH
ANNUAL REPORTS WILL BE AUDITED BY DELOITTE & TOUCHE LLP. MONTHLY REPORTS,
QUARTERLY REPORTS AND ANNUAL REPORTS ARE REFERRED TO HEREIN AS "CASH REPORTS".
PRIOR TO EFFECTIVENESS OF THE REGISTRATION STATEMENT, MSAF WILL MAKE SUFFICIENT
COPIES OF ANY QUARTERLY REPORTS AND ANNUAL REPORTS AVAILABLE TO THE TRUSTEE FOR
DELIVERY TO NOTEHOLDERS UPON REQUEST. SEE "REPORTS TO NOTEHOLDERS".
INVESTORS SHOULD NOTE THAT MSAF WILL NOT PREPARE ANY CONSOLIDATED INCOME
STATEMENTS OR BALANCE SHEETS WITH RESPECT TO MSAF GROUP OR ANY FINANCIAL
INFORMATION OTHER THAN THAT DESCRIBED ABOVE FOR CASH REPORTS.
UNLESS OTHERWISE STATED, ALL MONETARY AMOUNTS ARE EXPRESSED HEREIN IN
UNITED STATES DOLLARS ("$"). VARIOUS NUMBERS AND PERCENTAGES SET OUT IN THIS
PROSPECTUS HAVE BEEN ROUNDED AND ACCORDINGLY MAY NOT TOTAL EXACTLY.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. MSAF'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS.
MARKET DATA AND CERTAIN INDUSTRY FORECASTS USED THROUGHOUT THIS PROSPECTUS
WERE OBTAINED FROM PUBLICLY AVAILABLE INFORMATION AND INDUSTRY PUBLICATIONS.
INDUSTRY PUBLICATIONS GENERALLY STATE THAT THE INFORMATION CONTAINED THEREIN HAS
BEEN OBTAINED FROM SOURCES BELIEVED TO BE RELIABLE, BUT THAT THE ACCURACY AND
COMPLETENESS OF SUCH INFORMATION IS NOT GUARANTEED. SIMILARLY, SUCH INFORMATION,
WHILE BELIEVED TO BE RELIABLE, HAS NOT BEEN INDEPENDENTLY VERIFIED, AND MSAF
MAKES NO REPRESENTATION AS TO THE ACCURACY OF SUCH INFORMATION.
UNTIL , 1998 (90 DAYS AFTER COMMENCEMENT OF THE EXCHANGE OFFER)
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
No person has been authorized to give any information or to make any
representations other than as contained herein, and, if given or made, such
information or representation must not be relied upon as having been authorized
by MSAF. This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy by any Person in any jurisdiction in which it is unlawful for
such Person to make such an offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create any
implication that the information contained herein is correct as of any time
subsequent to its date.
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EXPLANATORY NOTE
THIS REGISTRATION STATEMENT CONTAINS A PROSPECTUS RELATING TO THE EXCHANGE
OFFER OF UP TO $400,000,000 AGGREGATE INITIAL PRINCIPAL AMOUNT OF SUBCLASS A-1
NOTES DUE MARCH 15, 2023, $340,000,000 AGGREGATE INITIAL PRINCIPAL AMOUNT OF
SUBCLASS A-2 NOTES DUE MARCH 15, 2023, $100,000,000 AGGREGATE INITIAL PRINCIPAL
AMOUNT OF SUBCLASS B-1 NOTES DUE MARCH 15, 2023, $100,000,000 AGGREGATE INITIAL
PRINCIPAL AMOUNT OF SUBCLASS C-1 NOTES DUE MARCH 15, 2023 AND $110,000,000
AGGREGATE INITIAL PRINCIPAL AMOUNT OF SUBCLASS D-1 NOTES DUE MARCH 15, 2023
(COLLECTIVELY THE "NOTES") OF MSAF TOGETHER WITH SEPARATE PROSPECTUS PAGES
RELATING TO CERTAIN MARKET-MAKING TRANSACTIONS IN THE NOTES. THE COMPLETE
PROSPECTUS FOR THE EXCHANGE OFFER FOLLOWS IMMEDIATELY AFTER THIS EXPLANATORY
NOTE. FOLLOWING SUCH PROSPECTUS ARE CERTAIN PAGES OF THE PROSPECTUS RELATING TO
SUCH MARKET-MAKING TRANSACTIONS, INCLUDING AN ALTERNATE COVER PAGE, ALTERNATE
PAGE INCLUDING THE "TABLE OF CONTENTS", A SECTION ENTITLED "CERTAIN RISK FACTORS
- -- TRADING MARKET FOR THE NOTES" TO BE USED IN LIEU OF "CERTAIN RISK FACTORS --
RISKS RELATING TO THE CAPITAL MARKETS -- ABSENCE OF PUBLIC MARKET" SECTION AND
AN ADDITIONAL SECTION ENTITLED "MARKET-MAKING ACTIVITIES OF MS&CO.".
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TABLE OF CONTENTS
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Prospectus Summary.............................. 1
Summary Description of the New Notes............ 10
Risk Factors.................................... 20
Consequences of Failure to Exchange........... 20
Exchange Offer Procedures..................... 21
Risks Relating to MSAF Group and
Certain Third Parties....................... 21
Risks Relating to the Aircraft................ 23
Year 2000 Risk................................ 25
Risks Relating to the Leases.................. 28
Risks Relating to the Lessees................. 30
Lease Termination and Aircraft Repossession... 32
Risks Relating to Payments on the Notes....... 33
Risks Relating to the Capital Markets......... 33
Certain Bankruptcy Considerations............. 34
Risks Relating to Tax......................... 34
The Exchange Offer.............................. 35
Terms of the Exchange Offer; Period for
Tendering Old Notes......................... 35
Procedures for Tendering Old Notes............ 35
Acceptance of Old Notes for Exchange; Delivery
of New Notes................................ 37
Interest on the New Notes..................... 37
Book-Entry Transfer........................... 37
Guaranteed Delivery Procedures................ 37
Withdrawal Rights............................. 38
Certain Conditions to the Exchange Offer...... 38
Exchange Agent................................ 39
Fees and Expenses............................. 39
Transfer Taxes................................ 39
Consequences of Failure to Exchange........... 39
The Parties..................................... 41
MSAF Group.................................... 41
Servicer...................................... 41
Administrative Agent.......................... 43
Cash Manager, Trustee, Security Trustee and
Reference Agent............................. 43
Financial Advisor............................. 43
The Initial Aircraft and Leases................. 44
MSAF's Ownership of the Aircraft.............. 44
Appraisers' Reports........................... 44
Portfolio Information......................... 44
MSAF Group Portfolio Analysis................. 49
Acquisition of Additional Aircraft............ 49
Initial Leases................................ 50
Indemnification and Insurance of the
Aircraft.................................... 52
The Lessees................................... 54
The Commercial Aircraft Industry................ 58
Introduction.................................. 58
Demand for Aircraft........................... 58
The World Fleet of Commercial Jet Aircraft
(Excluding Aircraft Manufactured in the
CIS)........................................ 59
Supply of Aircraft............................ 60
</TABLE>
<TABLE>
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Operating Leasing............................. 61
Management of MSAF Group........................ 62
Trustees...................................... 62
Beneficial Ownership of MSAF.................. 63
Servicer...................................... 64
Corporate Management.......................... 68
Management's Discussion and Analysis of Results
of Operations and Financial Condition......... 71
Introduction.................................. 71
Recent Developments........................... 71
Liquidity..................................... 71
Interest Rate Management...................... 74
Description of the Notes........................ 76
General....................................... 76
Registration Requirements..................... 77
Payments...................................... 78
Assumptions................................... 79
Payment of Principal and Interest............. 89
Priority of Payments.......................... 98
Indenture Covenants........................... 101
Operating Covenants........................... 109
Events of Default and Remedies................ 112
Intercreditor Rights.......................... 114
Modification and Waiver....................... 114
Notices to Noteholders........................ 115
Governing Law and Jurisdiction................ 116
Beneficial Interest........................... 116
Cash Management Agreement..................... 116
Accounts...................................... 116
Reports to Noteholders.......................... 120
Book-Entry Registration, Global Clearance and
Settlement.................................... 123
Book-Entry Registration....................... 123
Definitive Notes.............................. 125
CUSIP, ISIN and Common Code Numbers........... 126
Taxation........................................ 127
U.S. Federal Income Tax Considerations........ 127
Plan of Distribution............................ 129
ERISA Considerations............................ 130
Legal Matters................................... 131
Experts......................................... 131
Appendix 1. Index of Defined Terms.............. A-1
Appendix 2. Aircraft Types Data................. A-4
Appendix 3. Monthly Gross Revenues Based on the
Assumptions................................... A-5
Appendix 4. Assumed Portfolio Values for the
Initial Portfolio............................. A-7
Appendix 5. Class A Class Percentages........... A-9
Appendix 6. Class B Class Percentages........... A-12
Appendix 7. Class C Target Principal Balances... A-14
Appendix 8. Class D Target Principal Balances... A-17
Appendix 9. Pool Factors........................ A-20
Appendix 10. Extended Pool Factors.............. A-22
</TABLE>
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AVAILABLE INFORMATION
MSAF is not currently subject to the information reporting requirements of
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") . MSAF will
become subject to such requirements upon the effectiveness of the Registration
Statement, and in accordance therewith will file reports, proxy statements and
other information with the Commission. Any reports and other information filed
by MSAF with the Commission may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and will also be available for inspection
and copying at the regional offices of the Commission located at 7 World Trade
Center, New York, New York 10048 and at Northwestern Atrium Center, 500 West
Madison Street (Suite 1400), Chicago, Illinois 60661 at prescribed rates. The
Commission maintains a Web site (http://www.sec.gov) that contains reports and
other information, including the Registration Statement (of which this
Prospectus is a part) filed by MSAF.
MSAF has filed with the Commission a Registration Statement on Form S-4
(herein together with all amendments and exhibits thereto, called the
"REGISTRATION STATEMENT") under the Securities Act with respect to the New Notes
being offered by this Prospectus. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto, certain portions of which have been omitted as permitted by
the rules and regulations of the Commission. For further information with
respect to MSAF and the securities offered by this Prospectus, reference is made
to the Registration Statement and the exhibits filed or incorporated as a part
thereof, which are on file at the offices of the Commission and may be obtained
upon payment of the fee prescribed by the Commission, or may be examined without
charge at the offices of the Commission. Statements contained in this Prospectus
as to the contents of any documents referred to are not necessarily complete,
and, in each such instance, are qualified in all respects by reference to the
applicable documents filed with the Commission.
The Old Notes were listed on the Luxembourg Stock Exchange on March 3,
1998, and the New Notes will be listed upon issuance, subject only to notice of
issuance. The constitutive documents of MSAF and the legal notice relating to
the issuance of the Notes have been deposited with the Registrar of the District
Court in Luxembourg (Greffier en Chef du Tribunal d'Arrondissement de et a
Luxembourg) where such documents will be available for inspection and where such
documents will be obtainable upon request. Copies of the Prospectus, the annual
report of independent public accountants and the reports to Noteholders referred
to under "Reports to Noteholders" are available at the office of the listing
agent (the "LISTING AGENT") in Luxembourg: Banque Internationale a Luxembourg,
69, route d'Esch, L-1470 Luxembourg. Financial information regarding MSAF will
be included in MSAF's Quarterly Reports on Form 10-Q and Annual Reports on Form
10-K and will be available at the office of the Listing Agent in Luxembourg
after the respective reports are filed with the Commission.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. Capitalized terms
used in this Summary without definition have the meanings assigned in the text
of this Prospectus. Unless the context otherwise requires, the terms Initial
Aircraft and Aircraft include any spare engine, the terms Initial Leases and
Leases include any conditional sale agreement and the terms Initial Lessees and
Lessees include the lessee of any spare engine. An Index referencing defined
terms is attached as Appendix 1 hereto. Investors should thoroughly consider
this Prospectus in its entirety, including the information set forth herein
under "Risk Factors", prior to accepting the Exchange Offer.
TRANSACTION OVERVIEW
MSAF. MSAF is a special-purpose vehicle established to purchase and own a
portfolio of aircraft assets and related leases (such portfolio at any time, the
"PORTFOLIO"). MSAF's initial portfolio of aircraft assets consists of 32
aircraft and one spare engine purchased from ILFC (the "INITIAL AIRCRAFT") and
the related leases (the "INITIAL LEASES").
MSAF Assets. MSAF Group agreed to acquire the Initial Aircraft pursuant to
an Asset Purchase Agreement between MSAF and ILFC dated as of November 10, 1997.
As of May 31, 1998, MSAF Group had acquired all of the Initial Aircraft and
their related existing Leases. The Initial Aircraft had an aggregate Initial
Appraised Value of $1,086.69 million at September 30, 1997. As of May 31, 1998,
all the Initial Aircraft were subject to lease contracts (or in one case, a
conditional sale agreement) with 29 lessees based in 20 countries. See "The
Initial Aircraft and Leases".
MSAF Notes. MSAF issued $1,050 million in aggregate principal amount of
the Old Notes in four classes: Class A, composed of two subclasses, and Class B,
Class C and Class D, each composed of one subclass. The terms of the New Notes
and the Old Notes are identical in all material respects, except for certain
transfer restrictions and registration rights relating to the Old Notes and
except for certain special interest provisions relating to the Old Notes
summarized below under "-- Summary Description of the New Notes."
Servicer. International Lease Finance Corporation ("ILFC") acts as
Servicer with respect to the Initial Aircraft (the "SERVICER") pursuant to an
incentive fee based servicing agreement among MSAF, Bankers Trust Company, as
Cash Manager, Cabot Aircraft Services Limited ("CABOT"), an indirect
wholly-owned subsidiary of Morgan Stanley Dean Witter & Co. ("MORGAN STANLEY"),
as Administrative Agent, and ILFC dated as of November 10, 1997 (the "SERVICING
AGREEMENT"). ILFC will perform certain aircraft-related services with respect to
the Initial Aircraft including marketing the Initial Aircraft for lease or sale
and monitoring lessee compliance with lease terms including terms relating to
payment, maintenance and insurance. The Servicer agrees to perform its services
pursuant to the Servicing Agreement with a view towards maximizing the present
value of the cash flows over the life of the Initial Aircraft, subject to
certain conditions.
Additional Aircraft. MSAF intends to acquire additional aircraft assets
(the "ADDITIONAL AIRCRAFT" and, together with the Initial Aircraft, the
"AIRCRAFT") and any related existing leases or similar arrangements (the
"ADDITIONAL LEASES" and, together with the Initial Leases and any future leases
or similar arrangements (the "FUTURE LEASES"), the "LEASES") from various
sellers. Additional Aircraft may include, among other things, aircraft, engines
and entities with an ownership or leasehold interest in aircraft or engines.
Additional Aircraft may be subject to different aircraft servicing arrangements
than those in place for the Initial Aircraft. MSAF will finance acquisitions of
Additional Aircraft with external funds, including issuing debt securities in up
to four classes (Class A, Class B, Class C and Class D, each of which may
consist of one or more subclasses) that will rank pari passu in right of payment
of principal and interest with the corresponding classes of the Notes (the
"ADDITIONAL NOTES" and, together with the Notes, the "MSAF NOTES"). Any
acquisition of Additional Aircraft and issuance of Additional Notes and other
debt securities in connection therewith will be subject to various conditions
under the Indenture, including rating agency confirmation that such acquisition
and related issuance of Additional Notes will not result in the lowering or
withdrawal by them of their current rating of the MSAF Notes then outstanding.
1
<PAGE> 8
Subordination and Ranking. After the payment of amounts due and owing in
respect of, inter alia, taxes and obligations to Lessees and various service
providers (including, without limitation, the Servicer, the Administrative
Agent, the Cash Manager, the Financial Advisor and the Swap Providers), the cash
flows derived from the Initial Leases and the Initial Aircraft will be applied,
indirectly, towards the payment of amounts due to Noteholders. Payments of
interest on the Class A, Class B, Class C and Class D Notes will be made in
alphabetical order. However, certain amounts of principal on the Class A Notes
will be paid in priority to interest payments on the Class B, C and D Notes,
certain amounts of principal on the Class B Notes will be paid in priority to
interest payments on the Class C and D Notes and certain amounts of principal on
the Class C Notes will be paid in priority to interest on the Class D Notes. See
"-- Overview of Priority of Payments" and "Description of the Notes -- Priority
of Payments".
Ownership of MSAF. 100% of the beneficial interest in MSAF (the
"BENEFICIAL INTEREST") is held indirectly by Morgan Stanley. The transactions
described herein are intended to establish MSAF and its subsidiaries as legal
entities distinct from Morgan Stanley which would be unaffected by the
bankruptcy or insolvency of Morgan Stanley or any of its affiliates. If such
steps are not successful and such entities were to be consolidated with Morgan
Stanley or otherwise affected by any bankruptcy or insolvency of Morgan Stanley
and its affiliates, payments to Noteholders could be materially adversely
affected. See "Risk Factors -- Certain Bankruptcy Considerations".
Governance of MSAF. Three of the six trustees of MSAF and one alternate
trustee (the "CONTROLLING TRUSTEES") are officers of affiliates of Morgan
Stanley. Two trustees (the "INDEPENDENT TRUSTEES") are independent from Morgan
Stanley and are only permitted to vote in trustee meetings on certain
significant decisions relating to insolvency proceedings. Such decisions may
only be approved by a unanimous vote of all the Controlling Trustees and
Independent Trustees. The remaining trustee of MSAF is Wilmington Trust Company,
the Delaware trustee (the "DELAWARE TRUSTEE"). MSAF Group has no employees or
executive officers. Accordingly, MSAF Group will rely upon the Servicer, the
Administrative Agent, the Cash Manager, the Financial Advisor and other service
providers for all asset servicing, executive and administrative functions
pursuant to the respective service provider agreements. See "Management of MSAF
Group".
Insurance. The Lessees are required under the Leases to obtain customary
insurance coverage for any liabilities arising out of the operation of their
respective Aircraft. The Lessees are also required to obtain customary coverage
for damage to, and replacement of spare parts for, the Aircraft. The Servicer is
required to monitor Lessees' compliance with the insurance provisions of the
Leases. In addition, MSAF Group also has in place its own contingent liability
insurance program to cover liability both in excess of the coverage provided by
a Lessee's policy and where a Lessee's policy lapses for any reason. See "The
Initial Aircraft and Leases -- Indemnification and Insurance of the Aircraft".
THE EXCHANGE OFFER
Securities Offered......... Up to $1,050,000,000 principal amount at maturity
of New Notes. The terms of the New Notes and the
Old Notes are identical in all material respects,
except for certain transfer restrictions and
registration rights relating to the Old Notes and
except for certain special interest provisions
relating to the Old Notes summarized below under
"-- Summary Description of the New Notes."
The Exchange Offer......... MSAF is offering, upon the terms and subject to the
conditions of the Exchange Offer, to exchange
$1,000 principal amount of New Notes for each
$1,000 principal amount of Old Notes. See "The
Exchange Offer" for a description of the procedures
for tendering the Old Notes. The issuance of the
New Notes is intended to satisfy obligations of
MSAF contained in the Registration Agreement.
Tenders, Expiration Date;
Withdrawal................. The Exchange Offer will expire at 5:00p.m., New
York City time, on , , 1998, or
such later date and time to which it is
2
<PAGE> 9
extended. The tender of Old Notes pursuant to the
Exchange Offer may be withdrawn at any time prior
to the Expiration Date. Any Old Notes not accepted
for exchange for any reason will be returned
without expense to the tendering Holder thereof as
promptly as practicable after the expiration or
termination of the Exchange Offer.
Federal Income Tax
Consequences............... The exchange pursuant to the Exchange Offer will
not result in any income, gain or loss to the
Holders or MSAF for federal income tax purposes,
See "Certain U.S. Federal Income Tax
Considerations."
Exchange Agent............. Bankers Trust Company is serving as Exchange Agent
("EXCHANGE AGENT") in connection with the Exchange
Offer.
Shelf Registration
Statement.................. Under certain circumstances, certain holders of
Notes (including holders who may not participate in
the Exchange Offer, or who may not freely resell
New Notes received in the Exchange Offer) may
require MSAF to file, and cause to become
effective, a shelf registration statement under the
Securities Act, which would cover resales of Notes
by such holders. See "Description of Notes --
Registration Rights".
CONSEQUENCES OF EXCHANGING OLD NOTES PURSUANT TO THE EXCHANGE OFFER
Based upon interpretations contained in letters issued to third parties by
the staff of the Commission, MSAF believes that any Holder of Old Notes (other
than a broker-dealer, as set forth below, or any Holder who is an "affiliate" of
MSAF within the meaning of Rule 405 under the Securities Act) who exchanges its
Old Notes for New Notes pursuant to the Exchange Offer may offer such New Notes
for resale, resell such New Notes, or otherwise transfer such New Notes without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided such New Notes are acquired in the ordinary course of
the Holder's business and such Holder has no arrangement or understanding with
any person to participate in a distribution of such New Notes. Eligible Holders
wishing to accept the Exchange Offer must represent to MSAF in the Letter of
Transmittal that such conditions have been met and must represent, if such
Holder is not a broker-dealer, or is a broker-dealer but will not receive New
Notes for its own account in exchange for Old Notes, that neither such Holder
nor the person receiving such new Notes, if other than the Holder, is engaged in
or intends to participate in the distribution of such New Notes. Each
broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must represent that the Old Notes tendered in exchange therefor
were acquired as a result of market-making activities or other trading
activities and must acknowledge that it will deliver a prospectus in connection
with any release of such New Notes; however, by so acknowledging and by delivery
of a prospectus, the broker dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. See "Plan of
Distribution". To comply with the securities laws of certain jurisdictions, it
may be necessary to qualify for sale or register the New Notes prior to offering
or selling such New Notes. MSAF has agreed, pursuant to the Registration
Agreement and subject to certain specified limitations therein, to register or
qualify the New Notes held by broker-dealers for offer or sale under the
securities or blue sky laws of such jurisdictions as any such Holder reasonably
requests in writing. Unless MSAF is so requested, MSAF does not intend to take
any action to register or qualify the New Notes for resale in any such
jurisdictions. If a Holder of Old Notes does not exchange such Old Notes for New
Notes pursuant to the Exchange Offer, such Old Notes will continue to be subject
to the restrictions on transfer contained in the legend thereon. In general, the
Old Notes may not be offered or sold, unless registered under the Securities
Act, except pursuant to an exemption from, or in a transaction not subject to,
the Securities Act and applicable state securities laws. Any Holder who tenders
in the Exchange Offer with the intention to participate, or for the purpose of
participating, in a distribution of New Notes will not be able to rely on the
position of the staff of the Commission enunciated in Exxon Capital Holdings
Corporation (available May 13, 1988) or similar no-action letters and, in the
absence of an exemption therefrom, must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. Failure to comply with such requirements in such
instance may result in such
3
<PAGE> 10
Holder incurring liability under the Securities Act for which the Holder is not
indemnified by MSAF. See "The Exchange Offer -- Consequences of Failure to
Exchange" and "Description of Notes -- Registration Rights."
THE NOTES
The following table summarizes certain of the principal terms of the Notes.
<TABLE>
<CAPTION>
SUBCLASS A-1 SUBCLASS A-2 SUBCLASS B-1 SUBCLASS C-1 SUBCLASS D-1
NOTES NOTES NOTES NOTES NOTES
------------- ------------------ ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Aggregate Principal Amount.............. $400,000,000 $340,000,000 $100,000,000 $100,000,000 $110,000,000
Ratings
DCR.................................... AA AA A BBB BB
Moody's................................ Aa2 Aa2 A2 Baa2 Ba2
Standard & Poor's...................... AA AA A BBB BB
Interest Rate........................... LIBOR + 0.21% LIBOR + 0.35% LIBOR + 0.65% 6.90% 8.70%
Initial Loan to Value(1)................ 63.8% 63.8% 72.4% 81.0% 90.5%
Initial Loan to Assumed First Year's Net
Revenue(1)(2).......................... 5.81x 5.81x 6.60x 7.38x 8.25x
Assumed Interest Coverage Ratio(2)(3)... 2.81x 2.81x 2.32x 1.93x 1.68x
Assumed Debt Service Coverage
Ratio(2)(4)............................ 1.68x 1.68x 1.68x 1.68x 1.68x
Expected Weighted Average Life
(Years)................................ 2.0 3.8 8.6 10.6 12.1
March 15, March 15,
Expected Final Payment Date............. 2000 September 15, 2005 2013 March 15, 2013 March 15, 2014
March 15, March 15,
Final Maturity Date..................... 2023 March 15, 2023 2023 March 15, 2023 March 15, 2023
</TABLE>
- ---------------
(1) "INITIAL LOAN TO VALUE" represents the initial aggregate principal amount
of each subclass of Notes, plus the initial aggregate principal amount of
any other subclass of Notes that ranks equally or senior in priority of
payment ("INITIAL LOAN"), expressed as a percentage of the aggregate
Initial Appraised Value (as of September 30, 1997) of the Initial Aircraft
plus the sum of (i) $25 million, the amount of cash held on the date of
issuance of the Old Notes, plus (ii) $20 million, the amount available to
be drawn under Eligible Credit Facilities, excluding the amount of security
deposits reimbursable to Lessees on March 3, 1998. After March 3, 1998, the
loan to value ratio will fluctuate and may be higher or lower than the
Initial Loan to Value ratio. Furthermore, acquisitions of Additional
Aircraft and related issuances of Additional Notes are not subject to loan
to value ratio conditions and, accordingly, an acquisition of Additional
Aircraft may result in an increase in loan to value ratios to levels in
excess of the Initial Loan to Value percentages set forth above.
(2) "ASSUMED FIRST YEAR'S NET REVENUE" means MSAF Group's assumed Gross Revenue
for the 12 months ending February 28, 1999 less MSAF's assumed leasing
costs, Servicer fees, Administrative Agent fees, Cash Manager fees,
Financial Advisor fees and other general and administrative costs assumed
to be incurred by MSAF in the 12 months ending February 28, 1999 in
accordance with the applicable Assumptions. See "Description of the Notes
-- Assumptions". In calculating Assumed First Year's Net Revenue, it has
been assumed that MSAF Group's maintenance expenditures will exactly equal
MSAF Group's maintenance reserve receipts from the Initial Lessees.
However, actual net revenues may be significantly lower than assumed net
revenues because, among other things, the amounts payable under the Leases
may not be paid, and MSAF Group's expenses may be higher than assumed
(including as a result of maintenance expenditures being greater than
anticipated). Accordingly, the ratios presented above may be significantly
lower.
(3) "ASSUMED INTEREST COVERAGE RATIO" means Assumed First Year's Net Revenue
expressed as a ratio of First Year's Interest. "FIRST YEAR'S INTEREST"
means (i) the interest assumed to be payable on each subclass of Notes and
each subclass that ranks equally with such subclass in accordance with the
Assumptions for the 12 months ending February 28, 1999, plus (ii) the
interest and minimum principal payments assumed to be payable on each
subclass of Notes that ranks senior in priority of payment to the relevant
subclass of Notes in accordance with the Assumptions for the 12 months
ending
4
<PAGE> 11
February 28, 1999. For the same reasons as discussed above in Note 2, the
ratios presented above may be significantly lower. See "Description of the
Notes -- Assumptions".
(4) "ASSUMED DEBT SERVICE COVERAGE RATIO" means Assumed First Year's Net
Revenue expressed as a percentage of First Year's Interest and Minimum and
Scheduled Principal. "FIRST YEAR'S INTEREST AND MINIMUM AND SCHEDULED
PRINCIPAL" means (i) the interest and minimum and scheduled principal
payments on each subclass of Notes in accordance with the Assumptions for
the 12 months ending February 28, 1999 plus (ii) the interest and minimum
and scheduled principal payments assumed to be payable on each subclass of
Notes that ranks equally or senior in priority of payment with or to the
relevant subclass of Notes in accordance with the Assumptions for the 12
months ending February 28, 1999. For the same reasons as discussed above in
Note 2, the ratios presented above may be significantly lower. See
"Description of the Notes -- Assumptions".
RATINGS OF THE NOTES
The ratings of the Notes address the likelihood of the timely payment of
interest and the ultimate payment of principal and premium, if any, on the Notes
as described herein. Payments of principal and interest on all subclasses of the
Notes will be payable only after any Expenses and certain other amounts have
been paid or provided for in full and only to the extent that Available
Collections are sufficient therefor in accordance with the priority of payments
established for the Notes. In addition, MSAF's ability to pay Step-Up Interest
or principal in full on the Subclass A-1 Notes on the Expected Final Payment
Date (as indicated in the table above for each subclass of Notes, the "EXPECTED
FINAL PAYMENT DATE") or on any other date prior to the Final Maturity Date (as
indicated in the table above, the "FINAL MATURITY DATE") has not been rated by
any of the Rating Agencies. The ratings assigned to the Notes do not address the
effect of any imposition of any withholding tax on any payments under the
Leases, the Notes or otherwise. See "Risk Factors -- Risks Relating to Tax".
A rating is not a recommendation to buy, sell or hold Notes inasmuch as
ratings do not comment as to market price or suitability for a particular
investor and may be subject to revision, suspension or withdrawal at any time by
the assigning Rating Agency. In the event that a rating initially assigned to
any subclass of the Notes is subsequently lowered, suspended or withdrawn for
any reason, no person or entity is obliged to provide any additional support or
credit enhancement with respect to the Notes.
5
<PAGE> 12
THE INITIAL AIRCRAFT AND LESSEES
The following pie charts summarize MSAF Group's exposure as of May 31, 1998
to various types of Initial Aircraft, Lessees, ages of Initial Aircraft, noise
restrictions applying to Initial Aircraft and the regions and countries in which
Lessees are based. All percentages have been calculated by reference to the
Initial Appraised Value (as of September 30, 1997) of the Initial Aircraft.
<TABLE>
<S> <C>
LOGO LOGO
LOGO LOGO
LOGO LOGO
</TABLE>
6
<PAGE> 13
PAYMENT FLOWS(1)
LOGO
- ---------------
(1) Assumes that MSAF Group does not acquire any Additional Aircraft. See "--
Summary Description of the New Notes -- Acquisition of Additional
Aircraft".
(2) MSAF may also establish additional direct and indirect subsidiaries from
time to time for the purpose of directly or indirectly leasing Aircraft
from other MSAF subsidiaries and sub-leasing them to operators where
commercial, tax or other reasons make it desirable to do so.
(3) MSAF may from time to time establish or acquire additional subsidiaries in
connection with the acquisition of Additional Aircraft from various
sellers. The acquisition of Additional Aircraft may take the form of (i)
the acquisition of individual Additional Aircraft directly by MSAF or
indirectly by one or more existing or newly-formed subsidiaries or (ii) the
acquisition by MSAF or one of its subsidiaries of the shares or other
beneficial ownership interests in one or more aircraft-owning subsidiaries
of various sellers.
7
<PAGE> 14
OVERVIEW OF PRIORITY OF PAYMENTS
The following chart summarizes the order of priority of payments on the
Notes, the Beneficial Interest and other obligations of MSAF Group as described
in more detail in "Description of the Notes -- Priority of Payments".
LOGO
8
<PAGE> 15
OWNERSHIP STRUCTURE(1)
LOGO
- ---------------
(1) MSAF may also establish additional direct and indirect subsidiaries from
time to time for the purpose of directly or indirectly leasing Aircraft
from other MSAF subsidiaries and sub-leasing them to operators where
commercial, tax or other reasons make it desirable to do so.
(2) The 100% Beneficial Interest is currently held by a subsidiary of Morgan
Stanley. Such subsidiary may dispose of all or a portion of such Beneficial
Interest in the future to related or unrelated persons.
(3) MSAF may from time to time establish or acquire additional subsidiaries in
connection with the acquisition of Additional Aircraft from various
sellers. The acquisition of Additional Aircraft may take the form of (i)
the acquisition of individual Additional Aircraft directly by MSAF or
indirectly by one or more existing or newly-formed subsidiaries or (ii) the
acquisition by MSAF or one of its subsidiaries of the shares or other
beneficial ownership interests in one or more aircraft-owning subsidiaries
of various sellers.
9
<PAGE> 16
SUMMARY DESCRIPTION OF THE NEW NOTES
MSAF....................... Morgan Stanley Aircraft Finance is a statutory
business trust organized under the laws of the
State of Delaware pursuant to an amended and
restated trust agreement among MS Financing Inc.,
as depositor, the Controlling Trustees, the
Independent Trustees and the Delaware Trustee,
dated as of March 3, 1998 (the "AMENDED AND
RESTATED TRUST AGREEMENT"). MSAF's principal office
is located care of the Delaware Trustee at 1100
North Market Street, Rodney Square North,
Wilmington, Delaware 19890. See "The Parties --
MSAF Group".
Payment Dates.............. Interest will be payable monthly in arrears on the
15th day of each month, commencing April 15, 1998
(each a "PAYMENT DATE"); provided that if any
Payment Date would otherwise fall on a day which is
not a Business Day, the relevant Payment Date will
be the first following day which is a Business Day.
For the purposes of the Notes, "BUSINESS DAY" means
a day on which (i) U.S. dollar deposits may be
dealt in on the London inter-bank market and (ii)
commercial banks and foreign exchange markets are
open in New York, New York and London, England. See
"Description of the Notes -- Payments".
Record Date................ The record date (the "RECORD DATE") with respect to
each Payment Date will be the close of business on
the day that is 15 days prior to such Payment Date,
whether or not such day is a Business Day. See
"Description of the Notes -- Payments".
Reference Date............. The reference date (the "REFERENCE DATE") with
respect to each Payment Date will be the day that
is two Business Days before the Payment Date on
which such Interest Accrual Period commences. See
"Description of the Notes -- Payment of Principal
and Interest -- Reference Agency Agreement".
Calculation Date........... The calculation date (the "CALCULATION DATE") with
respect to each Payment Date will be the fourth
Business Day immediately preceding each Payment
Date.
Interest Accrual Period.... The period beginning on (and including) March 3,
1998 and ending on (but excluding) the first
Payment Date and each successive period beginning
on (and including) a Payment Date and ending on
(but excluding) the next succeeding Payment Date is
called an "INTEREST ACCRUAL PERIOD"; provided that
the final Interest Accrual Period will end on but
exclude the Final Maturity Date (or, if earlier
with respect to any subclass of Notes, the date on
which such subclass of Notes is paid in full).
Account balances with respect to each Interest
Accrual Period shall be determined by reference to
the balance of funds on deposit in Accounts on the
Calculation Date immediately preceding each Payment
Date. See "Description of the Notes -- Payments".
Accrued Interest........... Accrued interest that, as a result of the
allocation of Available Collections, is not paid on
any Payment Date will bear interest at the then
current stated rate of the Notes to which such
accrued and unpaid interest relates.
Sources of Note Payments... The only source of payment for the Notes and the
other obligations of MSAF Group will be the
payments made by the Lessees under the Leases,
amounts drawn under any available credit or
liquidity enhancement facility, proceeds from
dispositions, if any, of the assets of
10
<PAGE> 17
MSAF Group, net payments, if any, under the Swap
Agreements and other hedging instruments, interest
earned on investments of cash in the Accounts and
net cash proceeds received from the sale of
Refinancing Notes. Payments of interest, principal
and premium, if any, on each subclass of Notes will
be made on each Payment Date to holders of such
subclass of Notes on the Record Date for such
Payment Date (the "NOTEHOLDERS" and, together with
the holders of the Additional Notes, the "MSAF
NOTEHOLDERS") and only to the extent of amounts on
deposit in the Collection Account on the
Calculation Date relating to each Payment Date net
of Expenses (other than Permitted Accruals in
respect of Modification Payments) then due and
payable or reasonably anticipated to become due and
payable during the next six months (the "REQUIRED
EXPENSE AMOUNT") and other amounts set forth in
"Description of the Notes -- Priority of Payments"
(the "AVAILABLE COLLECTIONS"). See "Description of
the Notes -- Priority of Payments", "Risk Factors
-- Risks Relating to Payments on the Notes" and "--
Risks Relating to the Capital Markets".
Ratings of the Notes....... Each subclass of Notes has received ratings from
Duff & Phelps Credit Rating Co. ("DCR"), Moody's
Investors Service, Inc. ("MOODY'S") and Standard &
Poor's Ratings Group, a division of The McGraw-Hill
Companies, Inc. ("STANDARD & POOR'S" and, together
with DCR and Moody's, the "RATING AGENCIES"), as
set forth above. See "Description of the Notes --
General -- Ratings".
Listing.................... The Notes were listed on the Luxembourg Stock
Exchange on March 3, 1998, in the case of the New
Notes, subject only to issuance of a Global Note
(as defined) and notice of issuance. See "Listing
and General Information".
Denominations.............. The Notes of each subclass will be available for
purchase in minimum denominations of $100,000 and
integral multiples of $1,000 in excess thereof. See
"Description of the Notes -- General".
MSAF Group................. MSAF and its subsidiaries on a combined basis. See
"The Parties -- MSAF Group".
Notes...................... MSAF will issue the New Notes pursuant to an
indenture between MSAF and Bankers Trust Company,
as trustee (the "TRUSTEE"), dated as of March 3,
1998 (the "INDENTURE"). The Class A Notes are
initially subdivided into two subclasses, the
Subclass A-1 and A-2 Notes. The Class B, C and D
Notes will initially be subdivided into one
subclass each, the Subclass B-1, C-1 and D-1 Notes.
Each of the Subclass A-1, A-2 and B-1 Notes will be
entitled to receive interest from March 3, 1998 at
a rate per annum equal to one month LIBOR on the
applicable Reference Date plus the applicable
margin set forth on the cover page of this
Prospectus. The interest rates on the Subclass A-1,
A-2 and B-1 Notes will be determined for the
initial Interest Accrual Period two Business Days
prior to the scheduled delivery thereof. The
Subclass C-1 and D-1 Notes will be entitled to
receive interest at the fixed rate per annum set
forth on the cover page of this Prospectus.
Additional subclasses of Class A and B Notes may be
issued on a fixed rate basis and additional
subclasses of Class C and D Notes may be issued on
a floating rate basis.
11
<PAGE> 18
Status of Notes;
Security................... The Notes will constitute direct obligations of
MSAF. None of the Trustee, the Security Trustee or
any Noteholder has any security interest, mortgage,
charge or other similar interest in any of the
Aircraft. The Security Trustee has been granted a
security interest in 100% of the beneficial
interest in MSA I, a Delaware statutory business
trust ("MSA I"), and in all of the issued and
outstanding capital stock of Aircraft SPC-5, Inc.,
a California corporation ("SPC-5"), and the other
subsidiaries, direct or indirect, of MSAF. The
Security Trustee has been granted a security
interest in the respective interests of each MSAF
Group member in the Leases and in leases within
MSAF Group relating to the Aircraft, in any loans
extended by MSAF to MSA I, SPC-5 and its other
subsidiaries and in any cash contained in the
Accounts. MSAF Group's ability to incur
indebtedness is limited to indebtedness required in
connection with refinancings and acquisitions of
Additional Aircraft and under credit and liquidity
enhancement facilities. See "Description of the
Notes -- Indenture Covenants -- Limitation on
Indebtedness".
MSAF will have the ability, in certain
circumstances, to refinance the Notes through the
issuance by MSAF of new notes (the "REFINANCING
NOTES"). Such Refinancing Notes will rank pari
passu with the applicable subclasses of refinanced
Notes and will never rank higher in priority than
the Class A Notes. MSAF will also have the ability
to finance the acquisition of Additional Aircraft
in part through the issuance of Additional Notes
under the Indenture. The Additional Notes may be
issued in up to four classes (Class A, Class B,
Class C and Class D, each of which may consist of
one or more subclasses) that will rank pari passu
in right of payment of principal and interest with
the corresponding classes of the Notes. See
"Description of the Notes".
Payments on the Notes...... Interest, principal and premium, if any, on each
subclass of Notes will be paid only out of
Available Collections with respect to any Interest
Accrual Period received on or prior to the
Calculation Date relating to such Interest Accrual
Period. On each Payment Date, principal will be
payable in respect of each subclass of Notes to the
extent of Available Collections, if any, on such
Payment Date but only to the extent that funds are
available for such purpose after having made the
payments ranking in priority thereto. The expected
principal payments of the Notes have been
determined on the basis of certain assumptions as
set forth under "Description of the Notes" (the
"ASSUMPTIONS"), including, inter alia, assumptions
regarding the timing and amount of payments under
the Initial Leases, assumptions regarding the terms
of and payments under Future Leases and assumptions
regarding the ability of MSAF to refinance maturing
Subclass A-1 Notes with Refinancing Notes. It is
highly likely that the Assumptions will not
correspond to actual experience and as a result the
actual principal payments received are likely to
vary from the expected principal payments in
respect of such subclass of Notes, and the actual
maturity of any subclass of Notes is likely to
occur earlier or later than its Expected Final
Payment Date. See "Description of the Notes --
Priority of Payments", "Risk Factors -- Risks
Relating to Payments on the Notes" and "-- Risks
Relating to the Capital Markets".
Step-Up Interest........... If the Subclass A-1 Notes are not repaid on or
before the Expected Final Payment Date for such
subclass, such subclass of Notes will accrue
12
<PAGE> 19
interest thereafter at a rate equal to the stated
interest rate therefor, plus 0.50% per annum
("STEP-UP INTEREST"). MSAF may also issue certain
subclasses of Additional Notes in connection with
the acquisition of Additional Aircraft and may
issue Refinancing Notes that by their terms provide
they will bear Step-Up Interest after their
Expected Final Payment Date. Payments of Step-Up
Interest will be subordinated to certain other
obligations of MSAF Group, including payment of
Scheduled Principal Payment Amounts with respect to
the Notes and will not be rated by the Rating
Agencies. See "Description of the Notes -- Payment
of Principal and Interest -- Interest".
Priority of Payments....... On each Payment Date, distributions from Available
Collections will be made in accordance with the
priority of payments set forth in "Description of
the Notes -- Priority of Payments". Payments on the
Notes will be subordinated to all fees, costs, or
expenses incurred by any MSAF Group member in the
course of the business activities permitted to be
conducted by it under the Indenture (the
"EXPENSES") and (other than interest payments on
the Class A Notes with respect to which such
amounts are ranked pari passu) certain amounts due
to parties providing interest rate swaps and other
hedging instruments (the "SWAP PROVIDERS").
Furthermore, payments of interest and principal on
the Class D Notes will be effectively subordinated
in priority of payment to payments of interest and
certain principal, respectively, on the Class A, B
and C Notes and payments of interest and principal
on the Class C Notes will be effectively
subordinated in priority of payment to payments of
interest and certain principal, respectively, on
the Class A and B Notes, and payments of interest
and principal on the Class B Notes will be
effectively subordinated in priority of payment to
payments of interest and certain principal on the
Class A Notes.
Redemption of the Notes.... Subject to certain conditions described in
"Description of the Notes -- Payment of Principal
and Interest -- Redemption", each subclass of the
Notes may be redeemed on any Payment Date (after
giving effect to Available Collections) in whole or
in part, at the "REDEMPTION PRICE" plus accrued but
unpaid interest. Within any subclass of Notes being
redeemed in part, the Redemption Price will be
applied pro rata among all such Notes.
The Redemption Price of the Subclass A-1, A-2 and
B-1 Notes redeemed (i) with the application of
funds other than Available Collections (including
proceeds from Refinancing Notes and proceeds from
third parties), will equal the product of the
applicable Redemption Premium set out below and the
principal balance of such subclass (the
"OUTSTANDING PRINCIPAL BALANCE") of Notes being
redeemed and (ii) with the application of Available
Collections, will equal the Outstanding Principal
Balance of the amount of such subclass of Notes
being redeemed, without premium.
The Redemption Price of the Subclass C-1 Notes will
equal the higher of (i) the discounted present
value of Scheduled Principal Payment Amounts and
interest on such subclass from the Redemption Date
to and including the Expected Final Payment Date
for the Subclass C-1 Notes computed by discounting
such payments at a discount rate equal
13
<PAGE> 20
to the applicable Treasury Yield plus 0.50% and
(ii) the Outstanding Principal Balance of such
subclass being redeemed.
The Redemption Price of the Subclass D-1 Notes will
equal (i) if such redemption occurs prior to March
15, 2003, the higher of (A) the discounted present
value of Scheduled Principal Payment Amounts and
interest from the Redemption Date through, but not
including, March 15, 2003, plus the product of the
applicable Redemption Premium set out below and the
assumed Outstanding Principal Balance for March 15,
2003, discounted at a rate equal to the applicable
Treasury Yield plus 1.00% and (B) the Outstanding
Principal Balance of the Notes of such subclass
being redeemed or (ii) if such redemption occurs on
or after March 15, 2003, the product of the
applicable Redemption Premium set out below and the
Outstanding Principal Balance of such subclass
being redeemed.
<TABLE>
<CAPTION>
REDEMPTION DATE REDEMPTION PREMIUM
--------------- ---------------------------------------------
SUBCLASS SUBCLASS SUBCLASS SUBCLASS
A-1 NOTES A-2 NOTES B-1 NOTES D-1 NOTES
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
After March 3, 1998.......... 101.00% 102.00% 103.00% --
On or after March 15, 1999... 100.50% 101.50% 102.50% --
On or after March 15, 2000... 100.00% 101.00% 102.00% --
On or after March 15, 2001... -- 100.50% 101.50% --
On or after March 15, 2002... -- 100.00% 101.00% --
On or after March 15, 2003... -- 100.00% 100.50% 105.25%
On or after March 15, 2004... -- 100.00% 100.00% 104.50%
On or after March 15, 2005... -- 100.00% 100.00% 103.75%
On or after March 15, 2006... -- -- 100.00% 103.00%
On or after March 15, 2007... -- -- 100.00% 102.25%
On or after March 15, 2008... -- -- 100.00% 101.50%
On or after March 15, 2009... -- -- 100.00% 100.75%
On or after March 15, 2010... -- -- 100.00% 100.00%
On or after March 15, 2011... -- -- 100.00% 100.00%
On or after March 15, 2012... -- -- 100.00% 100.00%
On or after March 15, 2013... -- -- 100.00% 100.00%
On or after March 15, 2014... -- -- -- 100.00%
</TABLE>
The Notes may be redeemed on any Payment Date, in
whole, but not in part, without premium, upon the
occurrence of certain adverse tax events affecting
MSAF Group, at a Redemption Price equal to the
Outstanding Principal Balance thereof, plus accrued
and unpaid interest thereon. See "Description of
the Notes -- Payment of Principal and Interest --
Redemption".
Appraised Value............ MSAF Group has obtained from Aircraft Information
Services, Inc., BK Associates, Inc. and Airclaims
Limited (the "APPRAISERS") three desktop appraisals
(the "APPRAISALS") of the value of each of the
Initial Aircraft as of September 30, 1997. The
Appraisers ascertained the value of each Aircraft
on the basis of an open, unrestricted, stable
market environment with a reasonable balance of
supply and demand, and with full consideration of
the Aircraft's "highest and best use", presuming an
arm's-length, cash transaction between willing,
able and knowledgeable parties, acting prudently,
with an absence of duress and with a reasonable
period of time available for marketing, adjusted to
account for the maintenance status of each Aircraft
(with certain assumptions as to use since the last
reported status) (each value so ascertained for the
Aircraft, a "BASE VALUE"). None of the Appraisals
attribute any value to the Lease, the maintenance
reserves, the security deposits or the related
collateral, if any, related to the particular
Aircraft. The aggregate Initial Appraised Value of
the Initial Aircraft at
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<PAGE> 21
September 30, 1997 was $1,086.69 million. As used
herein, "INITIAL APPRAISED VALUE" means the average
of the Base Values of each of the Aircraft,
determined, in the case of the Initial Aircraft, as
of September 30, 1997 and, in the case of any
Additional Aircraft, as of a date not more than six
months prior to the closing date for the issue of
the relevant Additional Notes. An appraisal is only
an estimate of value and should not be relied upon
as a measure of realizable value. The proceeds
received upon a sale of any Aircraft are likely to
be less than, and may be significantly less than,
the Initial Appraised Value thereof. See "Risk
Factors -- Risks Relating to the Aircraft --
Cyclicality of Supply of and Demand for Aircraft;
Risk of Decline in Aircraft Values and Rental
Rates".
Leases..................... At May 31, 1998, the average remaining term to
re-lease, weighted by Initial Appraised Value
(without giving effect to Purchase Options, early
termination options or extension options), of the
Initial Aircraft was approximately 45 months. All
of the Initial Leases will expire under their terms
(without giving effect to Purchase Options, early
termination options or extension options) on or
prior to December 23, 2006. Therefore, MSAF Group
must re-lease all of the Initial Aircraft one or
more times prior to the Final Maturity Date except
to the extent that Aircraft are sold prior to the
Final Maturity Date. Other than one A310 Aircraft
which is subject to a Conditional Sale Agreement,
each Initial Lease is an operating lease for a
fixed term pursuant to which MSAF Group will retain
title to the Aircraft and substantially all of the
risks and rewards associated with ownership,
including the residual value of the Aircraft
(although nine of the Initial Leases (including the
Conditional Sale Agreement) contain, and a certain
portion of the Future Leases may contain, Purchase
Options). See "Risk Factors -- Risks Relating to
the Leases -- Re-leasing" and "The Initial Aircraft
and Leases -- The Initial Leases".
Related Collateral......... MSAF Group holds (either directly or through its
agents), (i) security deposits required to be paid
or provided by the Lessee under each Initial Lease
as security for its obligations under such Initial
Lease, both in cash and as letters of credit and
(ii) certain other letters of credit, third-party
guarantees or bank guarantees or the equivalent
thereof required under the relevant Initial Leases.
No cash maintenance reserves will be transferred to
MSAF upon acquisition of any of the Initial
Aircraft. There are no non-cash maintenance
reserves with respect to the Initial Aircraft.
ILFC Facility.............. Under a Custody and Loan Agreement between ILFC and
MSAF Group dated as of March 3, 1998 (the "ILFC
FACILITY"), ILFC holds substantially all of the
cash security deposits paid by Lessees with respect
to the Initial Aircraft and retains the interest
earnings on such security deposits. Under the ILFC
Facility, ILFC also has agreed to make loans to
MSAF for the purpose of providing MSAF with
liquidity to meet its obligations, including
certain of its obligations under the Notes. MSAF
may draw on the ILFC Facility for loans in a
maximum amount equal to $10 million plus the
aggregate amount of cash security deposits then
held by ILFC as custodian. As of May 31, 1998, the
amount available to be drawn under the ILFC
Facility was approximately $31.8 million. Such
loans shall accrue interest at 3% per annum and are
repayable, to the extent that there are Available
Collections sufficient therefor, after
15
<PAGE> 22
payment of all interest and certain principal
amounts with respect to the Notes. As of May 31,
1998, ILFC's short-term unsecured debt was rated
1A-1+1 by Standard & Poor's. See "Management's
Discussion and Analysis of Results of Operations
and Financial Condition -- Liquidity" for a
discussion of the ILFC Facility.
Morgan Stanley Facility.... Under a Loan Agreement dated as of March 3, 1998
between Morgan Stanley and MSAF (the "MORGAN
STANLEY FACILITY"), Morgan Stanley has agreed to
make loans to MSAF for the purpose of providing
MSAF with liquidity to meet its obligations,
including certain of its obligations under the
Notes. MSAF may draw on the Morgan Stanley Facility
for loans in a maximum amount of $10 million. Such
loans shall accrue interest at 3% per annum and are
repayable, to the extent that there are Available
Collections sufficient therefor, after payment of
all interest and certain principal amounts with
respect to the Notes. See "Management's Discussion
and Analysis of Results of Operations and Financial
Condition -- Liquidity" for a discussion of the
Morgan Stanley Facility.
Lessees.................... As of May 31, 1998, there were 28 aircraft lessees
(excluding any sub-lessees operating the Aircraft,
other than pursuant to a sub-lease from a
subsidiary of MSAF) and one engine lessee (the
"INITIAL LESSEES" and, together with the lessees in
respect of the Additional Leases, if any, and the
Future Leases, if any, the "LESSEES") of the
Initial Aircraft pursuant to the Initial Leases in
20 different countries. At May 31, 1998, six of the
Lessees each accounted for more than 5% of the
Initial Aircraft by Initial Appraised Value,
representing in aggregate approximately 34.6% of
the Initial Aircraft by Initial Appraised Value. No
Lessee accounted for more than 7% of the Initial
Aircraft by Initial Appraised Value. Certain of the
Lessees are in a weak financial condition and some
face or have recently faced serious financial
difficulties. As of May 31, 1998, three Initial
Lessees were in arrears. The aggregate amount of
Rental Payments, maintenance reserves and other
miscellaneous amounts (net of default interest and
certain cash in transit) that were in arrears with
respect to these three Lessees was approximately
$0.75 million. The weighted average number of days
past due of such arrears was 43. See "Risk Factors
-- Risks Relating to the Lessees".
Collection Account......... The "COLLECTION ACCOUNT" is the account into which
all Collections received by or on behalf of MSAF
Group in the course of conducting its business,
including payments made by Lessees under the Leases
(including payments by Lessees of Additional
Aircraft) and any amounts drawn under any credit or
liquidity enhancement facility, will be deposited.
Except as noted below, the Collection Account will
be maintained at a balance at least equal to the
Liquidity Reserve Amount. The "LIQUIDITY RESERVE
AMOUNT" may be funded with cash in the Collection
Account and amounts available to be drawn under
Eligible Credit Facilities and, as of March 3, 1998
was approximately $65.5 million and is intended to
provide a source of liquidity for (i) MSAF Group's
maintenance obligations, (ii) MSAF Group's
obligation to repay Lessee security deposits, (iii)
certain other contingencies in respect of the
Aircraft and (iv) payments of interest and
principal on the Notes. The balance of funds in the
Collection Account may fall below the Liquidity
Reserve Amount at any time and MSAF Group may
continue to make all payments which rank prior to
or pari
16
<PAGE> 23
passu with payments of the Minimum Principal
Payment Amount on the Class D Notes under
"Description of the Notes -- Priority of Payments".
See "Description of the Notes -- Accounts". The
"MINIMUM LIQUIDITY RESERVE AMOUNT" may be funded
with cash in the Collection Account and amounts
available to be drawn under Eligible Credit
Facilities and, as of March 3, 1998 was
approximately $15 million. The balance of funds in
the Collection Account may fall below the Minimum
Liquidity Reserve Amount at any time and MSAF may
continue to pay (i) Expenses, (ii) interest on the
most senior class of Notes then Outstanding to
avoid an Event of Default and (iii) Swap Payments.
The ILFC Facility and the Morgan Stanley Facility
represented approximately $30.5 million and $10
million, respectively, of the Liquidity Reserve
Amount as of March 3, 1998. The balance of the
Liquidity Reserve Amount of $25 million is funded
with cash.
Expense Account............ The "EXPENSE ACCOUNT" is the account into which the
Administrative Agent will deposit the Required
Expense Amount (other than certain Expenses
transferred directly to payees from the Collection
Account) on each Payment Date. See "Description of
the Notes -- Accounts".
Servicer................... ILFC is the lease and aircraft manager and the
re-leasing and marketing agent for the Initial
Aircraft under the Servicing Agreement. ILFC
performs certain aircraft-related services with
respect to the Initial Aircraft including marketing
the aircraft for lease or sale and monitoring
lessee compliance with lease terms including terms
relating to payment, maintenance and insurance. The
Servicer agrees to perform its services pursuant to
the Servicing Agreement with a view towards
maximizing the present value of the cash flows over
the life of the Initial Aircraft, subject to
certain conditions. If a conflict of interest
arises regarding ILFC's management of Initial
Aircraft and other assets owned or managed by ILFC,
ILFC agrees to perform the Services in good faith
and without discrimination. See "Risk Factors --
Risks Relating to MSAF Group and Certain Third
Parties -- Conflicts of Interest of ILFC".
Cash Manager............... Bankers Trust Company acts as Cash Manager (the
"CASH MANAGER") pursuant to a Cash Management
Agreement among MSAF Group, the Cash Manager and
the Security Trustee dated as of March 3, 1998 (the
"CASH MANAGEMENT AGREEMENT"). The Cash Manager
invests the funds held by MSAF Group in the
Accounts in certain prescribed investments on
permitted terms.
Administrative Agent....... Cabot acts as Administrative Agent (the
"ADMINISTRATIVE AGENT") pursuant to an
administrative agency agreement among MSAF Group,
the Administrative Agent and the Security Trustee,
dated as of March 3, 1998 (the "ADMINISTRATIVE
AGENCY AGREEMENT"). The Administrative Agent
provides certain corporate administrative, bank
account management, calculation and accounting
services to MSAF Group. See "Management of MSAF
Group -- Corporate Management". In addition, it
monitors the performance of the Servicer (including
the Servicer's compliance with the Servicing
Agreement) and reports on such performance to MSAF
Group.
Financial Advisor.......... Morgan Stanley & Co. Incorporated acts as Financial
Advisor (the "FINANCIAL ADVISOR") pursuant to a
financial advisory agreement between MSAF Group and
the Financial Advisor, dated as of March 3,
17
<PAGE> 24
1998 (the "FINANCIAL ADVISORY AGREEMENT"). The
Financial Advisor assists MSAF Group in developing
and implementing its interest rate risk management
policies and developing models for the purpose of
analyzing the financial impact of aircraft lease,
sale and capital investment decisions.
Acquisition of Additional
Aircraft................. MSAF Group may at any time acquire Additional
Aircraft and related Additional Leases. Cash flows
derived from the Additional Aircraft, if any, and
the related Leases will be available to satisfy
MSAF's payment obligations, including payments of
interest, principal and premium, if any, on the
MSAF Notes.
An acquisition of Additional Aircraft may take the
form of the acquisition of individual Additional
Aircraft and the related Additional Leases or the
acquisition of the shares of one or more
aircraft-owning subsidiaries of the sellers. There
is no limit on the value of Additional Aircraft
that may be acquired. Any acquisition of Additional
Aircraft will be subject to certain conditions
under the Indenture. See "Risk Factors -- Risks
Relating to the Aircraft -- Risks Relating to
Additional Aircraft", "The Parties -- MSAF Group",
"The Initial Aircraft and Leases -- Acquisition of
Additional Aircraft" and "Description of the Notes
-- Indenture Covenants -- Limitation on Aircraft
Acquisitions".
Issuance of Additional
Notes...................... In connection with the acquisition of Additional
Aircraft, Additional Notes may be issued in up to
four classes (Class A, Class B, Class C and Class
D, each of which will consist of one or more
subclasses) that will rank pari passu in right of
payment of principal and interest with the
corresponding class of the Notes. The Additional
Notes may be issued and sold through one or more
public offerings or private placements of
securities or otherwise. The issuance of Additional
Notes will be subject to certain conditions under
the Indenture, including, inter alia, confirmation
by the Rating Agencies that the issuance of such
notes will not result in the lowering or withdrawal
by them of their current ratings on any subclass of
MSAF Notes then outstanding. See "Description of
the Notes -- Indenture Covenants -- Limitation on
Indebtedness".
Aircraft Dispositions...... MSAF Group may sell Aircraft (i) pursuant to the
exercise of Purchase Options held by Lessees
(including the Conditional Sale Agreement), (ii)
within MSAF Group, without limitation, provided
that such sale does not materially adversely affect
the MSAF Noteholders and (iii) in other
circumstances, provided that any such sale does not
result in a default under the Indenture's portfolio
concentration limits and certain other conditions
are met, including conditions with respect to
target prices for the Aircraft. See "Description of
the Notes -- Indenture Covenants -- Limitation on
Aircraft Sales".
Operating Covenants........ MSAF Group may not enter into any Future Lease
(other than a renewal, extension or restructuring
of any Lease) unless after entering into such
Future Lease, MSAF Group is in compliance with
certain criteria in respect of, inter alia,
geographic and other concentration limits (the
"RE-LEASING GUIDELINES"); provided that MSAF Group
may enter into a Future Lease not meeting such
criteria if the Rating Agencies shall have
confirmed in writing that entering into such Lease
will not result in the lowering or withdrawal by
them of their then current ratings
18
<PAGE> 25
on any subclass of the Notes then outstanding. See
"Description of the Notes -- Operating Covenants".
Certain Taxation Matters... Neither MSAF nor any of its subsidiaries will be
obliged to make any additional payments with
respect to the Notes or any inter-company loans,
and thus no payments will be passed through to the
Noteholders, in respect of any withholding or
deduction required to be made under applicable law
from payments on the Notes or the inter-company
loans. If any withholding or deduction is required
with respect to the Notes and the Notes are not
redeemed, the net amount of interest received by
the Noteholders will be reduced by the amount of
such withholding or deduction. See "Risk Factors --
Risks Relating to Tax" and "Taxation".
Certain ERISA Matters...... The Notes are expected to be eligible for purchase
under certain circumstances by an employee benefit
plan or other plan subject to Title I of the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and/or Section 4975 of the
United States Internal Revenue Code of 1986, as
amended (the "CODE"). See "ERISA Considerations".
19
<PAGE> 26
RISK FACTORS
The following summarizes certain risks involved in an investment in the
Notes which may materially affect the ability of MSAF Group to pay the interest,
principal and premium, if any, on the Notes in full at or before their
respective Final Maturity Dates. Investors should read and carefully consider,
among other things, the following factors prior to accepting the Exchange Offer.
There can be no assurance that payments with respect to the Aircraft will
be adequate to pay the interest, principal and premium, if any, on the Notes in
accordance with their terms.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legends thereon. In general,
the Old Notes may not be offered or sold, unless registered under the Securities
Act, except pursuant to an exemption from, or in a transaction not subject to,
the Securities Act and applicable state securities laws. MSAF does not intend to
register the Old Notes under the Securities Act.
MSAF believes that, based upon interpretations contained in letters issued
to third parties by the staff of the Commission, New Notes issued pursuant to
the Exchange Offer in exchange for Old Notes may be offered for resale, resold
or otherwise transferred by each Holder thereof (other than a broker-dealer, as
set forth below, or any such Holder which is an "affiliate" of MSAF within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such New Notes are acquired in the ordinary course of such Holder's
business and such Holder has no arrangement or understanding with any person to
participate in the distribution of such New Notes. Eligible Holders wishing to
accept the Exchange Offer must represent to MSAF in the Letter of Transmittal
that such conditions have been met and must represent, if such Holder is not a
broker-dealer, or is a broker-dealer but will not receive New Notes for its own
account in exchange for Old Notes, that neither such Holder nor the person
receiving such New Notes, if other than the Holder, is engaged in or intends to
participate in the distribution of such New Notes. If any Holder has any
arrangement or understanding with respect to the distribution of the New Notes
to be acquired pursuant to the Exchange Offer, such Holder (i) will not be able
to rely on the applicable interpretations of the staff of the Commission and
(ii) in the absence of an exemption therefrom, must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any resale transaction. Each broker-dealer that receives New Notes for its own
account pursuant to the Exchange Offer must represent that the Old Notes
tendered in exchange therefor were acquired as a result of market-making
activities or other trading activities and must acknowledge that it will deliver
a prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with the resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. MSAF has agreed that, starting on the
Expiration Date, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution". However, to
comply with the securities laws of certain jurisdictions, if applicable, the New
Notes may not be offered or sold unless they have been registered or qualified
for sale in such jurisdictions or an exemption from registration or
qualification is available and is complied with. MSAF has agreed, pursuant to
the Registration Agreement and subject to certain specified limitations therein,
to register or qualify the New Notes for offer or sale under the securities or
blue sky laws of such jurisdictions as any holder of the Notes reasonably
requests in writing. Unless so required, MSAF does not intend to register or
qualify the sale of the New Notes in any such jurisdictions. In addition, the
tender of Old Notes pursuant to the Exchange Offer will reduce the principal
amount of the Old Notes outstanding, which may have an adverse effect upon, and
increase the volatility of, the market price of the Old Notes due to a reduction
in liquidity.
20
<PAGE> 27
EXCHANGE OFFER PROCEDURES
To participate in the Exchange Offer, and avoid the restrictions on Old
Notes, each Holder of Old Notes (which term, for purposes of the Exchange Offer,
includes any participant in the Book-Entry Transfer Facility (as defined) system
whose name appears on a security position listing as a holder of such Old Notes)
who wishes to tender Old Notes for exchange pursuant to the Exchange Offer must
transmit to the Exchange Agent on or prior to the Expiration Date either (i) a
properly completed Letter of Transmittal, or (ii) an Agent's Message (as
defined) transmitted by means of the Book-Entry Transfer Facility's ATOP system
(as defined) and received by the Exchange Agent and forming part of a Book-Entry
Confirmation, in which such Holder acknowledges and agrees to be bound by the
terms of the Letter of Transmittal. In addition, in order to deliver Old Notes
(i) a timely Book-Entry Confirmation of such Old Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the procedure for
book-entry transfer described below, must be received by the Exchange Agent
prior to the Expiration Date or (ii) the Holder must comply with the guaranteed
delivery procedures described below. See "The Exchange Offer."
RISKS RELATING TO MSAF GROUP AND CERTAIN THIRD PARTIES
HOLDING ENTITY RISK
Substantially all of the assets of MSAF are the beneficial interest in MSA
I, which will own 32 Aircraft and the spare engine, and 100% of the share
capital of SPC-5, which owns one Aircraft (collectively, the "AIRCRAFT-OWNING
SUBSIDIARIES"). None of the Trustee, the Security Trustee or any Noteholder has
any security interest in the Aircraft. Accordingly, MSAF's ability to make
payments on the Notes will be affected by the obligations of Aircraft-Owning
Subsidiaries and MSAF Group's other subsidiaries to creditors other than
Noteholders, including Lessees and tax authorities. To the extent that these
obligations to Lessees and other creditors significantly exceed expectations, or
to the extent that unforeseen and significant tax liabilities arise, there may
be a significant adverse impact upon payments on the Notes.
LACK OF SECURITY INTEREST IN AIRCRAFT
As stated above, none of the Trustee, the Security Trustee or any
Noteholder has any security interest, mortgage, charge or other similar interest
in any of the Aircraft. As a result, such parties do not have available to them
certain rights upon an Event of Default which would have been available to them
had their interests in the Aircraft been secured by such assets. MSAF Group
will, however, pledge to the Security Trustee as security for MSAF's obligations
under the Notes, 100% of the beneficial interest in MSA I, 100% of the share
capital of SPC-5, all of MSAF's ownership interest in MSAF's other subsidiaries,
the respective interests of each MSAF Group member in the Leases and in leases
within MSAF Group relating to the Aircraft, any intercompany loans from MSAF to
the Aircraft-Owning Subsidiaries and any cash contained in the Accounts.
DELEGATION OF RESPONSIBILITIES
Except to the limited extent described herein, neither the Trustee nor any
Noteholder has any right to participate in the management or affairs of MSAF
Group. In particular, such parties cannot supervise the functions relating to
the Leases and the re-lease of the Aircraft, which functions have generally been
delegated to the Servicer under the Servicing Agreement. See "Management of MSAF
Group -- Corporate Management", "Description of the Notes -- Indenture
Covenants" and "-- Events of Default and Remedies".
MSAF Group will have no executive management resources of its own (although
MSAF will have a Board of Controlling Trustees) and, as such, MSAF Group will
rely upon the Servicer, the Administrative Agent, the Cash Manager, the
Financial Advisor and other service providers for all asset servicing, executive
and administrative functions pursuant to the respective service provider
agreements. While MSAF Group has retained ILFC as the Servicer, Cabot as the
Administrative Agent, Bankers Trust Company as the Cash Manager and Morgan
Stanley & Co. Incorporated as the Financial Advisor, there can be no assurance
that MSAF Group will continue its arrangements with these organizations until
the Notes are paid in full or that such organizations will continue their
relationship with MSAF Group until such time. Failure of these
21
<PAGE> 28
foregoing organizations to perform their respective contractual obligations to
MSAF Group could have a material adverse effect upon MSAF Group's operations,
which could adversely affect MSAF's ability to make payments on the Notes.
Furthermore, MSAF's ability to terminate the Servicing Agreement is limited. In
the event that the Servicer, the Administrative Agent, the Cash Manager or the
Financial Advisor were to resign or be terminated pursuant to their respective
contractual arrangements with, or on behalf of, MSAF Group, there can be no
assurance that suitable replacement service providers could be found, or found
in a timely manner, and engaged on terms acceptable to MSAF Group or that would
not cause a lowering in or withdrawal of the then current rating relating to the
Notes. The loss of the Servicer, the Administrative Agent, the Cash Manager or
the Financial Advisor under such circumstances could have a material adverse
effect on MSAF's ability to make payments on the Notes.
Accordingly, no investor should accept the Exchange Offer unless such
investor accepts the terms (summarized in this Prospectus) upon which the
various services are to be provided by the Servicer, the Administrative Agent,
the Cash Manager, and the Financial Advisor pursuant to the Servicing Agreement,
the Administrative Agency Agreement, the Cash Management Agreement and the
Financial Advisory Agreement, respectively. See "Management of MSAF Group --
Corporate Management".
CONFLICTS OF INTEREST OF ILFC
In addition to acting as Servicer with respect to the Initial Aircraft for
a term of 25 years, ILFC also participates in the management of certain aircraft
assets owned by itself, its affiliates and other third parties. ILFC will from
time to time have conflicts of interest in performing its obligations to MSAF
Group and the other entities to which it provides management services and with
respect to the aircraft for which it provides such services. Such conflicts may
be particularly acute in situations involving ILFC's or its affiliates' own
aircraft.
As of December 31, 1997, and giving effect to MSAF's acquisition of all the
Initial Aircraft, the portfolio of aircraft managed by ILFC and its affiliates
for third parties (including MSAF Group) comprised 43 aircraft and one spare
engine. The portfolio of aircraft owned by ILFC and its affiliates comprised 297
aircraft. On September 2, 1997, ILFC announced that it had placed new aircraft
orders with both Airbus Industrie G.I.E. ("AIRBUS") and The Boeing Company
("BOEING"). The order with Airbus is for 65 aircraft and the order with Boeing
is for 61 aircraft. ILFC has committed to purchase a total of 335 aircraft from
all aircraft manufacturers, deliverable through 2006.
From time to time, ILFC and its affiliates will acquire ownership or
management interests in additional new and used aircraft. ILFC and its
affiliates may also participate in the formation and operation of vehicles with
similar investment and operational objectives to those of MSAF Group. As a
result of ILFC's various interests in other aircraft assets, it is possible
that, at various times when the Initial Aircraft are being marketed for re-lease
or sale, ILFC's aircraft assets will be in competition with the Initial Aircraft
and ILFC will have conflicts of interest. Particularly acute conflicts of
interest will arise when a lessee in financial distress needs to re-lease some
of its aircraft and its fleet consists of a mixture of ILFC-owned aircraft and
ILFC-managed Initial Aircraft.
Pursuant to the terms of the Servicing Agreement, ILFC has agreed to
perform the services required thereby with reasonable care and diligence at all
times as if it were the owner of the Initial Aircraft (the "ILFC SERVICES
STANDARD"). If a conflict of interest arises regarding ILFC's management of (a)
two particular Initial Aircraft or (b) Initial Aircraft, on the one part, and
other assets then managed by ILFC, on the other part, the Servicer is required
to perform the services in good faith. To the extent that (a) the two particular
Initial Aircraft or (b) the Initial Aircraft and the other assets then managed
by ILFC are substantially similar in terms of objectively identifiable
characteristics that are relevant for purposes of the particular services to be
performed, the Servicer will not discriminate between (a) the Initial Aircraft
or (b) any of the Initial Aircraft and any other assets then managed by ILFC
(the "ILFC CONFLICTS STANDARD").
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<PAGE> 29
LIMITATION OF LIABILITY ON THE PART OF THE SERVICER
Pursuant to the Servicing Agreement, the Servicer will not be liable to
MSAF Group for any damages, losses, liabilities or expenses (including
reasonable legal fees, expenses and related charges and costs of investigation)
("LOSSES") arising (i) as a result of an Initial Aircraft being sold, leased or
purchased on less favorable terms than might have been achieved at any time,
provided such transactions were entered into on the basis of a commercial
decision of the Servicer, or (ii) in respect of the Servicer's obligation to
apply the ILFC Conflicts Standard in respect of its performance of the services,
except, in either situation, in the case of wilful misconduct or fraud on the
part of the Servicer. MSAF Group shall indemnify, reimburse and hold harmless
the Servicer on an after-tax basis for any Loss arising as a result of the
performance of any of the Servicer's obligations as Servicer or as a result of
any action which the Servicer is requested to take or refrain from taking by
MSAF, unless (i) such Loss has arisen as a result of the wilful misconduct of
the Servicer,(ii) such Loss has directly resulted from a breach by the Servicer
of the express terms and conditions of the Servicing Agreement or (iii) such
Loss is a Loss for which the Servicer has indemnified MSAF and its affiliates
and arises as a result of any material misstatements or omissions in any public
filings relating to information on the Initial Aircraft, the services and the
Servicer provided by the Servicer for disclosure in such public filings.
The duties and obligations of the Servicer will be limited to those
expressly set forth in the Servicing Agreement and the Servicer will not have
any fiduciary or other implied duties or obligations to MSAF Group or any other
person, including any Noteholder.
RISKS RELATING TO THE AIRCRAFT
CYCLICALITY OF SUPPLY OF AND DEMAND FOR AIRCRAFT; RISK OF DECLINE IN
AIRCRAFT VALUES AND RENTAL RATES
The aircraft leasing market is affected by various cyclical factors that
are not within the control of MSAF Group such as: interest rates, the
availability of credit, fuel costs and general economic conditions affecting
lessee operations; manufacturer production levels; passenger demand; retirement
and obsolescence of aircraft models; manufacturers merging or exiting the
industry or ceasing to produce aircraft types; re-introduction into service of
aircraft previously in storage; governmental regulation; and air traffic control
infrastructure constraints. The availability of commercial jet aircraft for
lease or sale has periodically experienced cycles of oversupply and undersupply,
producing sharp decreases and increases in aircraft values and lease rates. The
aircraft leasing market may currently be experiencing a cyclical peak but at the
times when Aircraft are being marketed for re-lease or sale, there can be no
assurance that prevailing industry conditions will allow re-lease or, where
applicable, sale, on satisfactory terms. Furthermore, there currently exists an
oversupply of certain types of used Stage 3 aircraft, in particular, certain
widebody aircraft such as the A300 and A310 of which there are four among the
Initial Aircraft, representing in aggregate 12.83% of the Initial Aircraft by
Initial Appraised Value.
In addition to general industry factors that may affect aircraft values and
lease rates, the value of specific aircraft will depend on a number of other
factors that are not within the control of MSAF Group, such as the particular
maintenance and operating history of the aircraft, the number of operators using
the type of aircraft and the supply of such type of aircraft, whether the
aircraft is subject to a Lease and any regulatory and legal requirements that
must be satisfied before the aircraft can be sold. Values of aircraft may be
adversely affected by changes in the competitive and financial position of the
relevant commercial aircraft manufacturer, by the withdrawal of such
manufacturer from that market or by unexpected manufacturing defects that may
surface subsequently. For example, the bankruptcy of Fokker N.V. in 1996 and the
discontinuation of its aircraft manufacturing operations have resulted in
significant reductions of values and lease rates for Fokker aircraft, which
reductions are likely to continue. Three Fokker 70s represent 5.01% of the
Initial Aircraft by Initial Appraised Value. Only 46 Fokker 70s were ever sold
and the potential customer base is very small. Additionally, following the
merger between Boeing and McDonnell Douglas Corporation, Boeing announced on
November 3, 1997 that it will discontinue production of MD-80 aircraft in mid
1999. This is likely to adversely affect the value and rental rates of MSAF
Group's MD-80 Aircraft. One MD-82 and two MD-83s represent in aggregate 5.59% of
the Initial Aircraft by Initial Appraised Value.
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<PAGE> 30
Currently, a significant threat to used commercial aircraft values and
lease rates is the supply effects of the significant numbers of new aircraft
ordered recently from Boeing and Airbus at discounted prices. Despite the
cyclically high demand for aircraft experienced over the last few years and the
significant consolidation in the aircraft manufacturing industry, competition
between Boeing and Airbus has resulted in decreases in the price of new aircraft
when adjusted for inflation, which in turn has led airlines and others to order
increasing quantities of new aircraft. Assuming most of the aircraft currently
on order from Boeing and Airbus are delivered, the displacement effect of such
new aircraft will depress used aircraft values and lease rates, particularly in
geographic regions such as Asia where there is currently perceived to be a
significant excess of commercial aircraft capacity. Since the most recent
cyclical low of 483 new aircraft delivered in 1995, Boeing and Airbus have both
announced and implemented increased production levels. This means that new jet
aircraft production levels are likely to increase to approximately 900 newly
delivered aircraft by 1999. This level of production is above the long-term
requirement implied by industry forecasts, including those published by Boeing
and Airbus and assumes aircraft retirements significantly in excess of those
seen historically to be sustainable. Decreases in the values and rental rates
achievable on used commercial aircraft as a result of the above factors may have
a material adverse effect on MSAF Group's operations and cash flows.
RISKS ASSOCIATED WITH APPRAISED VALUES
The Initial Appraised Value of the Initial Aircraft and the appraised
values expected to be obtained for the Initial Aircraft going forward assume an
"open, unrestricted stable market environment with a reasonable balance of
supply and demand" and certain other factors set out in the definition of Base
Value. As discussed above, at any point in the aircraft leasing market cycle,
there will be imbalances of aircraft supply and demand generally and there may
be particularly pronounced imbalances for specific aircraft types. Accordingly,
given the current peak in the cycle, certain of the Initial Aircraft may have
current market values approximating appraised Base Values while others, such as
Fokker aircraft and older Airbus equipment, have current market values that
remain below, and in certain cases significantly below, appraised Base Values.
At a cyclical low, the current market value of most aircraft types is likely to
be less than, and in many cases significantly less than, appraised Base Values.
Accordingly, investors should not place undue reliance on appraised Base Values
as an accurate representation of market or realizable values at any one point in
time.
The Scheduled Principal Payments payable on the Class A Notes will be
accelerated if there is a significantly greater than expected decline in Base
Values as demonstrated by the appraisals of the Aircraft which MSAF will obtain
at least annually. See "Description of the Notes -- Payment of Principal and
Interest -- Principal Amortization". These accelerated principal payments on the
Class A Notes may have the effect of suspending Scheduled Principal Payments on
more junior Notes and extending the weighted average lives of such junior Notes.
Investors should note that aircraft appraisers have recently been reducing their
appraised values for aircraft, reflecting the supply effects of new aircraft
orders, manufacturers' price discounting and more specific factors for certain
aircraft types such as Fokker aircraft and older widebody aircraft. See "--
Cyclicality of Supply and Demand for Aircraft; Risk of Decline in Aircraft
Values and Rental Rates". There can be no assurance that aircraft appraisers
will not reduce appraised values of the Aircraft significantly in the future
with a material adverse effect on the expected average lives of MSAF's more
junior Notes.
Any reduction in Aircraft values or rental rates may adversely affect MSAF
Group's rental rates and may adversely affect MSAF's ability to make payments on
the Notes.
TECHNOLOGICAL RISKS
MSAF Group's ability to lease or sell the Aircraft may be adversely
affected to the extent that the availability for lease or sale of newer, more
technologically advanced aircraft or the introduction of increasingly stringent
noise or emissions regulations make the Aircraft less competitive. This risk is
particularly significant for MSAF Group given its need to repay principal and
interest on the Notes over a relatively long period, which will require that
many of the Aircraft be leased or sold close to the end of their useful economic
life. Furthermore, the extent to which MSAF Group is able to manage these
technological risks through modifications to Aircraft and sale of the Aircraft
is expected to be limited and any sales of
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<PAGE> 31
Aircraft will depend on MSAF Group's ability to satisfy the criteria set forth
under "Description of the Notes -- Indenture Covenants".
YEAR 2000 RISK
Many existing computer systems use only two digits to identify a year in
the date field. These systems were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results by or at the Year
2000. MSAF has recently begun a process of assessing the potential impact of
this issue on its operations. Because all of its operational functions have been
delegated to the Servicer, Administrative Agent, Cash Manager and other service
providers in accordance with the terms of their respective service agreements,
MSAF has no information systems of its own. MSAF may, however, suffer a material
adverse impact on its business and results of operations if information
technology upon which the Servicer, Administrative Agent, Cash Manager and other
service providers rely is not Year 2000 compliant. The Servicer, Administrative
Agent, Cash Manager and other service providers are in the process of reviewing
their Year 2000 exposure and identifying the steps that will need to be taken to
ensure that their systems are Year 2000 compliant.
MSAF may also suffer an adverse impact on its business and results of
operations if its suppliers, financial institutions, technical advisors, Lessees
and others with which it conducts business are not Year 2000 compliant. The
Servicer is currently contacting the third parties with which it deals on behalf
of MSAF to determine the extent of such third parties' exposure to Year 2000
risks and the status of their Year 2000 compliance efforts.
In addition, aircraft and air traffic control infrastructure depend heavily
upon microprocessors and software technology. Major manufacturers, including
Boeing, have begun a Year 2000 review of the systems employed on their aircraft
and are expected to advise owners, operators and service providers of the steps
to be taken to address any Year 2000 problems that are identified. Among the
aircraft systems that have been identified as being susceptible to Year 2000 are
certain on-board aircraft management and navigation systems. The Servicer is
also contacting aircraft and aircraft parts manufacturers and suppliers to
determine the extent to which their products are Year 2000 compliant. These
efforts are still at a relatively early stage and thus, the nature and the
extent of the risks posed by the potential failure of aircraft and aircraft
control systems as a result of Year 2000 problems has not been fully determined.
Any failure of the systems employed by MSAF's Aircraft to be Year 2000 compliant
could have a material adverse effect on MSAF's business and results of
operations. Moreover, it is currently not clear whether or to what extent
manufacturers, owners or lessees will be responsible for the costs necessary to
bring aircraft systems into Year 2000 compliance.
Because the assessment of the Year 2000 risks relevant to MSAF is still at
an early stage, MSAF is currently not able to make any estimate of the amount,
if any, it may be required to spend to remediate Year 2000 problems. Such
expenditures could, however, have an adverse impact on MSAF's business and
results of operations.
AIRCRAFT TYPE CONCENTRATIONS
The Initial Aircraft include 14 aircraft types, five of which represent
together 60.14% of the Initial Aircraft by Initial Appraised Value: Boeing
767-300s constitute 18.32%, Boeing 737-300s constitute 14.18%, Boeing 757-200s
constitute 10.87%, Boeing 737-400s constitute 7.50% and Airbus A320-200s
constitute 8.43%. Also, narrowbody Aircraft constitute 58.43% of the Initial
Aircraft by Initial Appraised Value. See "The Initial Aircraft and Leases --
Portfolio Information".
RISKS RELATING TO ADDITIONAL AIRCRAFT
MSAF Group may acquire Additional Aircraft and related Additional Leases.
The cash flows derived from Additional Aircraft and Additional Leases are
expected to be, together with the cash flows derived from the Initial Aircraft
and the Initial Leases as well as any Future Leases, the principal source of
payment of interest, principal and premium, if any, on the MSAF Notes. Depending
on the extent to which MSAF Group exercises its ability to acquire Additional
Aircraft under the Indenture, the cash flows derived from Additional
25
<PAGE> 32
Aircraft may become a more important source of payment for the Notes than the
cash flows derived from the Initial Aircraft. However, because the Additional
Aircraft, if any, have not been identified as of the date of this Prospectus,
the statements contained under "-- Risks Relating to the Aircraft", "-- Risks
Relating to the Leases" and "-- Risks Relating to the Lessees" are necessarily
based primarily on risks associated with the Initial Aircraft, the related
Leases and the Lessees thereunder.
The servicing arrangements with the Servicer do not apply to any Additional
Aircraft and additional servicing arrangements will need to be procured upon
acquisition of Additional Aircraft. There can be no assurance that such
additional arrangements will be with an existing servicer or on similar terms to
an existing servicing agreement.
It is expected that most, if not all, of the risks described herein will be
relevant, and may be relevant to a significantly greater extent, to any
Additional Aircraft acquired by MSAF Group. Under the Indenture, the issuance of
Additional Notes to acquire Additional Aircraft is subject to conditions that
are designed to protect the ability of MSAF to meet its obligations under the
Notes. Despite these protections, there can be no assurance that the acquisition
of Additional Aircraft and Additional Leases will not increase some or all of
the risks identified herein or expose MSAF Group to other risks not so
identified and that such increase or additional risks will not adversely affect
MSAF's ability to make payments on the Notes.
COMPETING AIRCRAFT AVAILABLE FOR LEASE; MSAF'S OPERATIONAL AND FINANCIAL
RESTRICTIONS
In connection with re-leasing of the Aircraft, MSAF Group may encounter
competition from, inter alia, other aircraft leasing companies (including ILFC),
airlines, aircraft manufacturers, aircraft owners, financial institutions,
aircraft brokers, special purpose vehicles formed for the purpose of acquiring,
leasing and selling aircraft and public and private limited partnerships and
funds with investment objectives similar to those of MSAF Group. MSAF Group will
be subject to restrictions in the Indenture and the constituent documents of
MSAF Group that will impair MSAF Group's operational flexibility. For instance,
MSAF will not be able to grant privileged rental rates to airlines in return for
equity investments in order to place aircraft on lease and minimize the number
of aircraft on the ground. Certain competing aircraft lessors enter into similar
arrangements with troubled lessees in order to restructure the obligations of
those lessees while maximizing the number of aircraft remaining on viable leases
to such lessees and minimizing the overall cost. In addition, certain competing
aircraft lessors (including ILFC) have, or have access to, financial resources
substantially greater than those of MSAF Group, may have a lower overall cost of
capital and may provide financial services or other inducements to potential
lessees that MSAF Group cannot provide. MSAF Group will also be subject to
certain limitations as to eligible Lessees and geographic diversification of the
Lessees that must be satisfied in order to maintain the ratings of the Notes.
MSAF Group's competitors may not be subject to such limitations.
RISKS RELATING TO AIRCRAFT PURCHASE OPTIONS
Six Lessees with respect to nine Initial Aircraft, representing 27.37% of
the Initial Aircraft by Initial Appraised Value, have options to purchase
(including pursuant to the Conditional Sale Agreement) such Aircraft ("PURCHASE
OPTIONS"). To the extent that the applicable purchase price is less than the
Note Target Price assumed for any such Aircraft on any option exercise date, the
Assumptions have assumed that the applicable Purchase Option will be exercised.
The present value of all amounts payable with respect to the Initial Aircraft
subject to the Conditional Sale Agreement (discounted to March 3, 1998 at 6.7%)
is approximately $8.8 million less than the Note Target Price for such Initial
Aircraft on March 3, 1998. In addition, to the extent that, at the time any
option is exercised, principal of the Notes has not been repaid in line with the
Assumptions, exercise of a Purchase Option may result in proceeds less than the
then applicable Note Target Price being realized from such exercise, which will
affect the amount and timing of principal payments to certain Noteholders and
may extend the average lives of the Notes.
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<PAGE> 33
AIRCRAFT LIENS
Liens which secure the payment of, inter alia, airport taxes, customs
duties, air navigation charges (including charges imposed by Eurocontrol),
landing charges, crew wages, repairer's charges or salvage ("LIENS") are likely,
depending on the jurisdiction in question, to attach to the Aircraft in the
normal course of operation. The sums which such Liens secure may be substantial
and may, in certain jurisdictions or for limited types of Liens (particularly
fleet liens), exceed the value of the Aircraft in respect of which the Lien is
being asserted. In some jurisdictions, aircraft Liens may give the holder
thereof the right to detain or, in limited cases, sell or cause the forfeiture
of the Aircraft, and, until discharged, such Liens could adversely affect the
ability of MSAF Group to repossess, re-lease or sell the Aircraft. There can be
no assurance that the Lessees will comply with their obligations under the
Leases to discharge Liens arising during the terms of the Leases.
REGISTRATION OF AIRCRAFT
All of the Aircraft which are being or will be operated must be duly
registered at all times with the appropriate aviation authority. Generally,
failure to maintain the registration of any Aircraft which is on lease would be
a default under the applicable Initial Lease, entitling MSAF Group to exercise
its rights and remedies thereunder. If an Aircraft were to be operated without a
valid registration, the Lessee operator or, in some cases, the owner or lessor
may be subject to penalties which could constitute or result in a Lien being
placed on such Aircraft. Loss of registration could have other adverse effects,
including inability to operate the Aircraft and loss of insurance, which in turn
could have a material adverse effect on the ability of MSAF Group to pay
interest and principal on the Notes. However, there can be no assurance that
Future Leases will contain such terms or that Lessees will comply with such
terms.
GOVERNMENT REGULATION
In addition to the general requirements regarding maintenance of the
Aircraft, aviation authorities from time to time issue Airworthiness Directives
("ADS") requiring the operators of aircraft to take particular maintenance
actions or make particular modifications with respect to all aircraft of certain
designated types. Certain manufacturer recommendations may also be issued. To
the extent that a Lessee fails to perform ADs required to maintain its
Certificate of Airworthiness or other manufacturer requirements in respect of an
Aircraft (or if the Aircraft is not currently subject to a Lease), MSAF Group
may have to bear (or, to the extent required under the relevant Lease, share)
the cost of compliance. Other governmental regulations relating to noise and
emissions levels may be imposed not only by the jurisdictions in which the
Aircraft are registered, possibly as part of the airworthiness requirements, but
also in other jurisdictions where the Aircraft operate. A number of
jurisdictions have adopted, or are in the process of adopting, noise regulations
which ultimately will require all aircraft to comply with the most restrictive
currently applicable standards. Such regulations restrict the future operation
of aircraft that do not meet Stage 3 noise requirements and ultimately will
prohibit the operation of such aircraft in the relevant jurisdictions early in
the next century (and by December 31, 1999 in the case of the United States).
Although all of the Initial Aircraft meet Stage 3 requirements, certain of the
Additional Aircraft may not meet Stage 3 requirements. There can be no assurance
that no new ADs or more stringent noise or emissions reduction requirements will
not be adopted in the future that could result in significant costs to MSAF
Group or adversely affect the value of, or its ability to re-lease, Aircraft.
Certain organizations and jurisdictions are now considering tightening noise and
emissions certification requirements for newly manufactured aircraft.
Finally, the effects of deregulation of commercial aviation in the United
States and the European Union ("EU") where Lessees currently, or may in the
future, operate aircraft, may contribute to further uncertainty in the
commercial aviation industry.
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<PAGE> 34
RISKS RELATING TO THE LEASES
RE-LEASING
Upon termination of any Lease, the Servicer will be obligated pursuant to
the terms of the Servicing Agreement on behalf of MSAF Group to re-lease the
related Initial Aircraft. There can be no assurance, however, that MSAF Group
will be able to obtain rental payments and lease terms (including maintenance
and redelivery condition agreements) in the future comparable to those contained
in the Initial Leases. MSAF Group's ability to re-lease Initial Aircraft, as
well as its ability to obtain such rental payments and such terms, may be
adversely affected by, among other things, restrictions imposed by the
Indenture, the economic condition of the airline industry, the supply of
competing aircraft, other matters affecting the demand for particular aircraft
types and competition from lessors offering leases on more favorable terms than
MSAF Group.
The number and types of Initial Aircraft that MSAF Group must place with
lessees through December 31, 2002 is presented in the table below, which shows
the years in which the Leases are contracted to expire (including expirations of
Leases that are assumed to result from letters of intent). The table assumes
that no Initial Lease terminates prematurely and that there are no sales of
Initial Aircraft or purchases of Additional Aircraft. See "-- Risks Relating to
the Lessees" and "-- Lease Termination and Aircraft Repossession" below. More
Initial Aircraft will need to be re-leased if any such Initial Aircraft become
available through premature terminations of Leases.
MSAF GROUP LEASE PLACEMENT REQUIREMENT AT DECEMBER 31, 1997(1)
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------------------
AIRCRAFT TYPE 1998 1999 2000 2001 2002
- ------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
A310................................................ -- 2 -- -- --
A320................................................ 1 1 -- -- --
A321................................................ -- -- 1 -- --
B737................................................ -- 1 1 3 2
B757................................................ -- 1 -- 1 --
B767................................................ -- -- 1 1 --
MD82................................................ -- -- -- -- --
MD83................................................ -- -- -- 1 --
Engine.............................................. -- -- -- -- 1
</TABLE>
- ---------------
(1) Assumes that the A320 Aircraft currently contracted for delivery to
Transmeridian Airlines in June 1998 (upon the expiry of the applicable
Initial Lease with Dragon Air) is delivered at the applicable times and is
not available for remarketing before June 2003.
As illustrated by the table above, the terms of the Initial Leases with
respect to 17 Aircraft and the spare engine, representing approximately 51.11%
of the Portfolio by Initial Appraised Value, are scheduled to expire before
December 31, 2002. There can be no assurance that MSAF Group will be able to
re-lease such Initial Aircraft or any other Initial Aircraft upon the expiration
of the Initial Leases or any Future Leases without incurring significant periods
of downtime or without any adverse effect on the rental rates it is able to
obtain, especially during any period of downturn in demand for aircraft on
operating lease, and that the ability of MSAF to make payments of interest,
principal and premium, if any, on the Notes will not be adversely affected
thereby.
FUNDING OF MAINTENANCE RESERVES
The standards of maintenance observed by the various Lessees and the
condition of the Aircraft at the time of sale or lease may affect the future
values and rental rates for the Aircraft. Under the Initial Leases, it is
primarily the responsibility of the relevant Lessee to maintain the Aircraft and
to comply with all governmental requirements applicable to the Lessee and the
Aircraft, including, without limitation,
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<PAGE> 35
operational, maintenance, and registration requirements and in most cases,
manufacturer recommendations or ADs (although in certain cases MSAF Group has
agreed to share the cost of complying with certain ADs and manufacturer service
bulletins). Failure of a Lessee to perform required or recommended maintenance
with respect to an Aircraft during the term of such Lease could result in a
grounding of such Aircraft and is likely to require MSAF Group to incur costs,
which could be substantial, to restore such Aircraft to an acceptable
maintenance condition prior to sale or re-leasing. In most cases, the Initial
Leases impose an associated liability on the Lessor to reimburse the Lessee for
maintenance performed on the related Aircraft, based on formulas tied to the
extent of any maintenance reserve payments made by the Lessees which serve as
security for the Lessee's obligation to maintain the Aircraft. In some cases,
MSAF Group is obliged to contribute to the cost of maintenance work performed by
the Lessee.
There can be no assurance that MSAF Group's operational cash flow and
available liquid resources will be sufficient to fund maintenance requirements,
particularly as the Aircraft age. Actual rental and maintenance payments by
Lessees and other cash received by MSAF Group may be significantly less than
projected as a result of numerous factors including defaults and any inability
of MSAF Group to obtain satisfactory maintenance terms in Leases. An increasing
number of aircraft operators do not provide for any maintenance payments to be
made by Lessees as security for their maintenance obligations. Any significant
variations in such factors may materially adversely affect the ability of MSAF
Group to make payments of interest, principal and premium, if any, on the Notes
because MSAF Group's maintenance obligations are an Expense that ranks senior to
all payments on the Notes.
LIABILITY, LOSS AND INSURANCE
The Lessees are required under the Initial Leases to indemnify the related
lessor for, and insure against, liabilities arising out of use and operation of
the Initial Aircraft, including third party claims for death or injury to
persons and damage to property for which MSAF Group may be deemed liable. Any
insurance proceeds received by MSAF Group in respect of such claims shall be
paid first to the applicable lessor in the event of loss of the Aircraft, to
effect repairs or in the case of liability insurance, for indemnification of
third party liabilities, with the balance, after deduction for all amounts due
and payable by the Lessee under the applicable lease, to be paid to the Lessee.
The Lessees are also required to maintain public liability, property damage and
hull all risks insurance on the Aircraft at agreed levels subject to standard
market hull deductibles based on aircraft type which generally range from
$500,000 to $1,000,000. There can be no assurance that one or more catastrophic
events will not exceed coverage limits. Any inadequate insurance coverage or
default by the Lessees in fulfilling their indemnification or insurance
obligations will affect the proceeds that would be received upon an event of
loss under the respective Leases or claim under the relevant liability
insurance.
MSAF Group may arrange separate political risk repossession insurance for
its own benefit, covering (a) confiscation, nationalization and requisition of
title of the relevant Aircraft by the government of the country of registry and
denegation and deprivation of legal title and rights, and (b) the failure of the
authorities in that country to allow de-registration and export of the Aircraft,
subject to the conditions of the policies.
REQUIREMENT FOR CERTAIN LICENSES AND APPROVALS
A number of Leases require specific licenses, consents or approvals for
different aspects of the Leases. These include consents from governmental or
regulatory authorities to certain payments under the Leases and to the import,
re-export or de-registration of the Aircraft. No assurance can be given that
such requirements may not be increased by subsequent changes in applicable law
or administrative practice or that a consent, once given, will not be withdrawn.
Furthermore, consents needed in connection with future re-leasing or sale of an
Aircraft may not be forthcoming. Any such event could have an adverse impact on
MSAF Group's ability to re-lease or sell Aircraft.
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<PAGE> 36
RISKS RELATING TO THE LESSEES
LESSEE DEFAULTS AND OTHER CREDIT PROBLEMS
The ability of each Lessee to perform its obligations under its Lease will
depend primarily on such Lessee's financial condition. A Lessee's financial
condition may be affected by various factors beyond the control of MSAF Group,
including competition, fare levels, passenger demand, operating costs (including
the price and availability of jet fuel and labor costs), economic conditions in
the countries in which the Lessee operates and environmental and other
governmental regulation of or affecting the air transportation business. Many of
MSAF Group's existing Lessees under the Initial Leases are in a weak financial
position and investors should expect this to be the case with future Lessees of
the Initial Aircraft and any Additional Aircraft. As a result, a large
proportion of Lessees over time may consistently be significantly in arrears in
their Rental Payments or maintenance payments and there can be no assurance as
to the extent to which Lessees will be able to perform their financial and other
obligations under the Leases.
As of May 31, 1998, three Initial Lessees were in arrears. The amounts
outstanding and overdue in respect of Rental Payments, Maintenance Reserves, and
other miscellaneous amounts due under the Initial Leases (net of default
interest and certain cash in transit) with respect to these three Lessees
amounted to approximately $0.75 million. The weighted average number of days
past due of such arrears was 43.
In addition, certain Lessees may experience periodic difficulties in
meeting their maintenance obligations under the Leases. Such difficulties may
arise from, inter alia, the failure of the applicable Lessee to have in place a
sufficiently well established maintenance program, adverse climate and other
environmental conditions in the locations where the related Aircraft are
operated or financial and labor difficulties experienced by the relevant Lessee.
A continuous failure by a Lessee to meet its maintenance obligations under the
relevant Lease (a) could result in a grounding of the Aircraft, (b) in the event
of a re-lease of such Aircraft would likely cause MSAF Group to incur costs,
which may be substantial, in restoring such Aircraft to an acceptable
maintenance condition and (c) would be likely to affect the value of the
Aircraft adversely.
The environment for airlines and freight operators has, in almost all
geographic regions, been extremely favorable in the past few years and the
current level of defaults and Lessee arrears should not be seen as
representative of the level to be expected as economic conditions deteriorate.
There can be no assurance that defaults and amounts in arrears will not
increase, and increase significantly, as the market for aircraft on operating
lease experiences its next cyclical downturn, particularly in regions such as
Asia, where demand for aircraft on operating lease has been high but where there
are soon expected to be acute economic difficulties. Increasing levels of Lessee
defaults and arrears will adversely affect MSAF's ability to make payments on
the Notes.
LESSEE CONCENTRATIONS
European Concentration
At May 31, 1998, the Lessees of 45.37% of the Initial Aircraft by Initial
Appraised Value were operators based in Europe with 35.22% based in "developed"
European markets and 12.75% based in "emerging" European markets (using MSCI
designations). See "Description of the Notes -- Operating Covenants --
Concentration Limits -- Region Covenants".
The commercial aviation industry in European countries, as in the rest of
the world generally, is highly sensitive to general economic conditions. Because
a substantial portion of airline travel (business and especially leisure) is
discretionary, the industry has tended to suffer severe financial difficulties
during economic downturns. Accordingly, the financial prospects for European
Lessees can be expected to depend largely on the level of economic activity in
Europe generally and in the specific countries in which such Lessees operate. A
recession or other worsening of economic conditions in one or more of these
countries may have a material adverse effect on the ability of European Lessees
to meet their financial and other obligations under the Leases. In addition,
commercial airlines in Europe face, and can be expected to continue to face,
increased competitive pressures, in part as a result of the deregulation of the
airline industry by the EU. There can be no assurance that competitive pressures
resulting from such deregulation will not have a material adverse impact on the
operations of such Lessees.
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Asia Pacific Region Concentration
At May 31, 1998, the Lessees of 15.88% of the Initial Aircraft by Initial
Appraised Value were based in the Asia Pacific region, including Hong Kong,
Korea, China and Taiwan, with 2.99% based in "developed" markets and 12.89% in
"emerging" markets (using MSCI designations).
Trading conditions in the civil aviation industry in Asia have been
adversely affected by the severe economic and financial difficulties experienced
recently in the region. The economies of Indonesia, Thailand, Korea and Malaysia
have experienced particularly acute difficulties resulting in many business
failures, significant depreciation of local currencies against the dollar (the
currency in which Initial Lease payments are payable), sovereign and corporate
credit ratings downgrades and internationally organized financial stability
measures. The downturn in the region's economies is likely to undermine business
confidence, reduce demand for air travel and have an adverse impact on the
results of operations of MSAF Group's Lessees in the region, and consequently on
MSAF Group's revenues and cash flows. Several airlines in the region, including
certain Lessees, have recently announced their intention to reschedule their
aircraft purchase obligations, eliminate certain routes and reduce employees.
The downturn in Asia is likely to be exacerbated by the large number of aircraft
currently on order by Asian airlines. Since 1990, the Asian market has
demonstrated the most significant growth rates, albeit from a relatively smaller
base, compared with other regional markets and the recessionary conditions that
are now expected to prevail in large parts of the region for a significant
period of time will have a significant adverse impact on global aircraft demand.
In particular, one Lessee, China Airlines, may experience heightened
difficulties in the short term as a result of the crash of one of its A300
aircraft on February 16, 1998 and the consequent grounding by the Taiwanese
civil aviation authorities of all of its A300 aircraft. China Airlines is likely
to suffer a significant loss of revenue for so long as such aircraft are
grounded and, in the longer term, its business and operations may suffer from,
among other things, the negative impact on consumer confidence caused by the
crash. Among the grounded aircraft is one of the Initial Aircraft, although
under the terms of the relevant Initial Lease the Lessee is obliged to continue
to make all Rental Payments.
Latin American Concentration
At May 31, 1998, the Lessees with respect to 17.67% of the Initial Aircraft
by Initial Appraised Value were based in Latin America. As in Asia, the
prospects for Lessee operations in these countries can be expected to depend in
part on the general level of political stability and economic activity and
policies in those countries. Although certain countries in Latin America have
experienced substantial improvement in their economies in the past several years
which has resulted in increased political stability, overall increased economic
growth, lower inflation rates and revitalized economies, there can be no
assurance that such progress can be maintained or that further progress will be
made.
The economy of the Latin American region as a whole and of particular Latin
American countries may be materially affected by developments in other countries
in Latin America and also by developments in countries in other regions of the
world that are perceived to demonstrate similar "emerging market"
characteristics. For example, in December 1994 a decrease in capital inflow to
Mexico coupled with a large current account deficit led to diminishing foreign
exchange reserves which ultimately forced Mexico to allow the peso to float
freely. The subsequent devaluation of the peso led to a currency crisis in
Mexico which dampened investor confidence and resulted in lower levels of
foreign investment in Latin America in general. More recently, Brazil has
experienced significant downturns in its financial markets, with large decreases
in financial asset prices and considerable pressure for a devaluation of the
Brazilian currency. Three of the Initial Lessees and 11.36% of the Initial
Aircraft by Initial Appraised Value operate in Brazil. The loss of confidence in
the Brazilian markets and currency has been associated with the economic crises
currently affecting "emerging markets" in Asia. The Brazilian government has
responded to these pressures with a series of austerity measures including
increased interest rates, public spending cuts and tax increases. This has led
to widespread expectations that economic growth in Brazil will be significantly
reduced through at least 1998 with the real possibility of a recession that may
adversely affect the operations of MSAF Group's Brazilian Lessees.
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North American Concentration
At May 31, 1998, the Lessees with respect to 6.47% of the Initial Aircraft
by Initial Appraised Value were based in North America. As in Europe, the
commercial aviation industry in North America is highly sensitive to general
economic conditions. Because a substantial portion of airline travel (business
and especially leisure) is discretionary, the industry has tended to suffer
severe financial difficulties during economic downturns. Over the last several
years, nearly half of the major North American passenger airlines have filed
Chapter 11 bankruptcy proceedings and several major U.S. airlines have ceased
operations altogether, including a recent former lessee of MSAF Group. While
airline profitability in the region has improved, increasing competition from
low-cost, low-fare air carriers, in conjunction with an inability to reduce
labor and other costs to sustainable levels, continues to put pressure on North
American airline margins. Of MSAF Group's three North American Initial Lessees,
two have in the past several years emerged from bankruptcy and there can be no
assurance that such Lessees will not re-enter, or that other Lessees in this
region will not enter, bankruptcy, insolvency or other similar proceedings. Such
proceedings may adversely affect the ability of such Lessees to make timely and
full Rental Payments under their respective Leases.
LEASE TERMINATION AND AIRCRAFT REPOSSESSION
MSAF Group's rights and remedies in the event of a default under each Lease
include termination and repossession. If a defaulting Lessee contests such
termination and repossession or is bankrupt or under court protection, however,
it may be difficult, expensive and time-consuming for MSAF Group to enforce its
rights and the relevant Aircraft may be off-lease for a prolonged period. MSAF
Group may incur direct costs associated with repossession of an Aircraft,
including legal and similar costs and the direct costs of returning the Aircraft
to an appropriate jurisdiction and any necessary maintenance to make the
Aircraft available for re-leasing or sale. Maintenance costs with respect to
repossessed aircraft may be significant. Repossession does not necessarily imply
an ability to export or deregister and profitably redeploy the Aircraft. In
cases where a Lessee or other operator flies only domestic routes, repossession
may be more difficult, especially if the jurisdiction permits the Lessee or such
other operator to resist deregistration and the Aircraft is registered in such
jurisdiction. In addition, in connection with the repossession of an aircraft,
the aircraft owner may also find it necessary to pay debts secured by
outstanding Liens or taxes to the extent not paid by the Lessee or other
operator. Significant costs may also be incurred in retrieving or recreating
aircraft records, required for reregistration of the Aircraft and obtaining a
Certificate of Airworthiness for the Aircraft.
MSAF Group may suffer adverse consequences as a result of a Lessee default
and the related termination of the Lease and repossession of the related
Aircraft. MSAF Group's rights upon a Lessee default also may be subject to the
limitations of applicable law, including the need to obtain a court order for
repossession of the Aircraft and/or consents for deregistration or re-export of
the Aircraft. When a defaulting Lessee is in bankruptcy, protective
administration, insolvency or similar event, additional limitations may apply.
Certain jurisdictions will give rights to the trustee in bankruptcy or a similar
officer to assume or reject the Lease or to assign it to a third party, or will
entitle the Lessee or another third party to retain possession of the Aircraft
(without performing the obligations under the relevant Lease). Accordingly, MSAF
Group may be delayed in, or prevented from, enforcing certain of its rights
under a Lease and in re-leasing the affected Aircraft. Further, the premature
termination of Leases may, in certain circumstances, lead MSAF Group to incur
swap breakage costs under its agreements with Swap Providers.
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RISKS RELATING TO PAYMENTS ON THE NOTES
CASH FLOW FROM AIRCRAFT AND LEASES NOT PREDICTABLE; FAILURE OF ACTUAL
EXPERIENCE TO MATCH ASSUMPTIONS
The expected repayment of the Notes described in this Prospectus was
arrived at on the basis of the Assumptions. It is highly unlikely that the
Assumptions will be consistent with MSAF Group's experience for numerous
reasons. Any inability of MSAF Group to find financially able and willing
Lessees of the Aircraft at acceptable rental rates will affect the timing and
amount of proceeds realized from Leases of Aircraft. In addition, other economic
and political factors, such as prevailing interest rates and the availability of
credit and market demand for aircraft, cannot be assured. Rental payments,
insurance recoveries, maintenance reserve payments, expenses and liabilities
will often be dependent upon the actions of third parties, which are difficult
to predict and are generally not within MSAF Group's control. Accordingly,
collections and other realizations with respect to certain Leases and Aircraft
could occur at substantially different times and levels than expected and may
not occur at all. As a result, there can be no assurance that MSAF Group will be
able to repay the initial Outstanding Principal Balance on any subclass of the
Notes.
SUBORDINATION PROVISIONS
The Expenses and certain other payments will be senior in priority of
payment to the Notes and will be paid out of funds on deposit in the Collection
Account before any payments are made on the Notes, as more fully described
below. Under certain circumstances, the rights of the Noteholders, as holders of
each subclass of Notes, to receive payments of principal in respect of such
subclass of Notes and to exercise remedies upon default will be subordinated to
the rights of the Noteholders with respect to the most senior class of Notes
then outstanding. Upon the occurrence of an Event of Default, the security
trustee (the "SECURITY TRUSTEE"), acting on behalf of the Noteholders and each
other secured creditor under a Security Trust Agreement dated as of March 3,
1998 among Bankers Trust Company, in its capacity as Security Trustee, the
Trustee and the service providers described therein (the "SECURITY TRUST
AGREEMENT"), shall have the exclusive right to direct the Administrative Agent
in the exercise of remedies. The Security Trustee will have sole discretion as
to the exercise and enforcement of any and all remedies with respect to the
Collateral. Accordingly, if an Event of Default occurs and is continuing, the
holders of each class of Notes will not be permitted to enforce certain rights
with respect to such default until all amounts owing under any Notes outstanding
("OUTSTANDING") ranking senior thereto and certain other amounts have been paid
in full.
RISKS RELATING TO THE CAPITAL MARKETS
ABSENCE OF PUBLIC MARKET
The New Notes are being offered to the holders of the Old Notes. The Old
Notes were issued to a limited number of institutional investors. The New Notes
are new securities for which there is currently no market. MSAF does not intend
to apply for listing of the New Notes on any securities exchange (other than the
Luxembourg Stock Exchange) or to seek approval for quotation through any
automated quotation system. There can be no assurance that an active public
market for the New Notes will develop. If a market for the New Notes were to
develop, future trading prices of such securities will depend upon many factors,
including general economic conditions and the financial condition, performance
and prospects of MSAF.
REFINANCING OF CERTAIN NOTES
The Subclass A-1 Notes and certain subclasses of Refinancing Notes and
Additional Notes are expected to reach their Expected Final Payment Dates before
MSAF has received sufficient Available Collections to pay all of the principal
on such Notes. MSAF will attempt to refinance the Subclass A-1 Notes and such
subclasses of Refinancing Notes and Additional Notes with the net cash proceeds
realized from public offerings and sales of Refinancing Notes. The Refinancing
Notes will rank pari passu with the remaining outstanding subclasses of Notes
belonging to the same class as the Notes to be refinanced but their interest
rate, average life, principal payment provisions, redemption provisions and
other economic terms will be determined by the Controlling Trustees of MSAF at
the time of issuance and may be substantially different
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from those applicable to the Notes to be refinanced. No assurance can be given,
however, as to MSAF's ability to refinance Notes in this manner. Any attempt to
issue Refinancing Notes may be adversely affected by conditions in the capital
markets generally or the market's then current perception of the commercial
aviation industry, the operating lease business or MSAF Group in particular. Any
failure to sell Refinancing Notes on acceptable terms at the required times will
result in failure to refinance the Subclass A-1 Notes and any similar subclass
of Refinancing Notes and Additional Notes. This may increase the overall cost of
borrowing under Refinancing Notes or Additional Notes, may affect the liquidity
and market prices of the Notes generally and may affect the timing of repayment
of principal on lower ranked Notes as a result of the need to make principal
payments from operational cash flow on the Subclass A-1 Notes and any similar
subclass of Refinancing Notes and Additional Notes earlier than expected.
CERTAIN BANKRUPTCY CONSIDERATIONS
If Morgan Stanley or any of its affiliates were to become a debtor in a
proceeding under the U.S. Bankruptcy Code and a creditor or
trustee-in-bankruptcy of such debtor or such debtor itself were to request a
court to order that the assets and liabilities of Morgan Stanley or any such
affiliate should be substantively consolidated with those of MSAF Group, delays
in payments on the Notes could result. In addition, a creditor of Morgan Stanley
or any of its affiliates may seek to attach MSAF's assets, including the
Aircraft. Should the bankruptcy court rule in favor of any such creditor or
trustee-in-bankruptcy or such debtor, such court could substantively consolidate
MSAF Group with Morgan Stanley or any such affiliate or otherwise consider MSAF
and the Aircraft-Owning Subsidiaries to be part of Morgan Stanley's or such
affiliate's estate or take other actions that would be adverse to the
Noteholders and that could result in reductions in payments on the Notes.
Davis Polk & Wardwell has delivered a reasoned opinion to Morgan Stanley
and MSAF Group to the effect that, based on various assumptions and
qualifications set forth in the opinion, in a proceeding under Chapter 11 of the
Bankruptcy Reform Act of 1978, as amended (the "U.S. BANKRUPTCY CODE") relating
to Morgan Stanley or the subsidiary of Morgan Stanley that owns the Beneficial
Interest, a court properly presented with the facts and exercising reasonable
discretion and applying New York law would not grant an order consolidating the
assets and liabilities of MSAF Group with those of Morgan Stanley or such
subsidiary.
There is no case law directly on point, however, and there can be no
assurance that a court would not decide differently from the views expressed in
counsel's opinion and such opinion represents only the best judgment of counsel
and is not binding in the courts. In particular, such opinion depends on certain
factual assumptions and the occurrence of different facts could lead a court to
reach a different conclusion. The assumptions and qualifications contained in
this opinion include an assumption that the representations and warranties set
forth in the Amended and Restated Trust Agreement and the Administrative Agency
Agreement are and will continue to be accurate and that the parties thereto will
continue to be in compliance with their obligations thereunder.
RISKS RELATING TO TAX
Neither the Trustee nor MSAF will make any additional payments to
Noteholders in respect of any withholding or deduction required to be made by
applicable law with respect to payments made on the Notes. In the event that
MSAF is or will be required to make a withholding or deduction, it will use
reasonable efforts to avoid the application of such withholding taxes and may in
certain circumstances redeem the Notes in the event such withholding taxes
cannot be avoided. In the event any withholding taxes are imposed with respect
to the Notes and MSAF does not redeem the Notes, the net amount of interest
received by Noteholders will be reduced by the amount of the withholding or
deduction.
MSAF believes that it will not become subject to any material taxes in any
of the jurisdictions in which any of the Lessees are organized or operate under
the present tax laws of such jurisdictions. However, there can be no assurance
that other Leases to which MSAF Group may become a party as a result of the
re-leasing of the Aircraft or acquisition of Additional Aircraft will not result
in the imposition of withholding or other taxes.
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), MSAF will accept for exchange Old Notes which are properly
tendered on or prior to the Expiration Date and not withdrawn as permitted
below. As used herein, the term "Expiration Date" means 5:00 p.m., New York City
time, on , 1998; provided, however, that if MSAF, in its sole
discretion, has extended the period of time for which the Exchange Offer is
open, the term "Expiration Date" means the latest time and date to which the
Exchange Offer is extended.
As of the date of this Prospectus, $1,050,000,000 aggregate principal
amount of the Old Notes were outstanding. This Prospectus, together with the
Letter of Transmittal, is first being sent on or about the date set forth on the
cover page hereof to all Holders of Old Notes known to MSAF. MSAF's obligations
to accept Old Notes for exchange pursuant to the Exchange Offer is subject to
certain conditions as set forth under "Certain Conditions to the Exchange Offer"
below.
MSAF expressly reserves the right, at any time or from time to time, to
extend the period of time during which the Exchange Offer is open, and thereby
delay acceptance of any Old Notes, by giving oral or written notice of such
extension to the Exchange Agent and notice of such extension to the Holders as
described below. During any such extension, all Old Notes previously tendered
will remain subject to the Exchange Offer and may be accepted for exchange by
MSAF. Any Old Notes not accepted for exchange for any reason will be credited to
an account maintained with the Book-Entry Transfer Facility without expense to
the tendering Holder thereof as promptly as practicable after the expiration or
termination of the Exchange Offer. Notwithstanding the foregoing, pursuant to
the Registration Agreement, MSAF has agreed to keep the Exchange Offer open for
not less than 20 business days after the date notice thereof is mailed to the
holders of the Old Notes (or longer if required by applicable law).
MSAF expressly reserves the right to amend or terminate the Exchange Offer,
and not to accept for exchange any Old Notes not theretofore accepted for
exchange, upon the occurrence of any of the conditions of the Exchange Offer
specified below under "Certain Conditions to the Exchange Offer." MSAF will give
oral or written notice of any extension, amendment, non-acceptance or
termination to the Holders of the Old Notes as promptly as practicable, such
notice in the case of any extension to be issued by means of a press release or
other public announcement no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the Indenture in connection with the Exchange Offer. MSAF intends to conduct the
Exchange Offer in accordance with the applicable requirements of the Exchange
Act and the rules and regulations of the Commission thereunder.
PROCEDURES FOR TENDERING OLD NOTES
The tender to MSAF of Old Notes by a Holder thereof as set forth below and
the acceptance thereof by MSAF will constitute a binding agreement between the
tendering Holder and MSAF upon the terms and subject to the conditions set forth
in this Prospectus and in the accompanying Letter of Transmittal. Except as set
forth below, a Holder (which term, for purposes of the Exchange Offer, includes
any participant in the Book-Entry Transfer Facility system whose name appears on
a security position listing as a holder of such Old Notes) who wishes to tender
Old Notes for exchange pursuant to the Exchange Offer must transmit to the
Exchange Agent on or prior to the Expiration Date either (i) a properly
completed and duly executed Letter of Transmittal or a facsimile thereof,
including all other documents required by such Letter of Transmittal, to the
Exchange Agent at the address set forth below under "Exchange Agent" or (ii) a
computer-generated message (an "AGENT'S MESSAGE"), transmitted by means of the
Book-Entry Transfer Facility's ATOP (as defined below) system and received by
the Exchange Agent and forming part of a Book-Entry Confirmation, in which such
Holder acknowledges and agrees to be bound by the terms of the Letter of
Transmittal. In addition, in order to deliver Old Notes (i) a timely
confirmation of a book-entry transfer (a "BOOK-ENTRY CONFIRMATION") of such Old
Notes into the Exchange Agent's account at The Depository Trust Company
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<PAGE> 42
(the "BOOK-ENTRY TRANSFER FACILITY") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date or (ii) the Holder must comply with the guaranteed delivery
procedures described below.
THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY
IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, WITH RETURN RECEIPT
REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL SHOULD BE SENT TO MSAF.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a Holder of the Old Notes who has not
completed the box entitled "Special Issuance Instructions" on the Letter of
Transmittal or (ii) for the account of an Eligible Institution (as defined
below). In the event that signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantees
must be by a firm which is a member of a registered national securities exchange
or a member of the National Association of Securities Dealers, Inc. or by a
commercial bank or trust company having an office or correspondent in the United
States (collectively, "ELIGIBLE INSTITUTIONS").
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
MSAF in its sole discretion, which determination shall be final and binding.
MSAF reserves the absolute right to reject any and all tenders of any particular
Old Notes not properly tendered or to not accept any particular Old Notes which
acceptance might, in the judgment of MSAF or its counsel, be unlawful. MSAF also
reserves the absolute right in its sole discretion to waive any defects or
irregularities or conditions of the Exchange Offer as to any particular Old
Notes either before or after the Expiration Date (including the right to waive
the ineligibility of any Holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange Offer as
to any particular Old Notes either before or after the Expiration Date
(including the Letter of Transmittal and the instructions thereto) by MSAF shall
be final and binding on all parties. Unless waived, any defects or
irregularities in connection with the tenders of Old Notes for exchange must be
cured within such reasonable period of time as MSAF shall determine. Neither
MSAF, the Exchange Agent nor any other person shall be under any duty to give
notification of any defect or irregularity with respect to any tender of Old
Notes for exchange, nor shall any of them incur any liability for failure to
give such notification.
If the Letter of Transmittal is signed by a person or persons other than
the Holders of Old Notes, such Letter of Transmittal must be accompanied by
appropriate powers of attorney, in either case signed exactly as the name or
names of the Holders that appear on the security position listing maintained by
DTC.
If the Letter of Transmittal or powers of attorney are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
person should so indicate when signing and, unless waived by MSAF, proper
evidence satisfactory to MSAF of its authority to so act must be submitted.
By tendering (including transmission of an Agent's Message), each Holder of
Old Notes will represent to MSAF that, among other things, (i) the New Notes
acquired pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such New Notes, whether or not such
person is such Holder, (ii) neither the Holder of Old Notes nor any such other
person has an arrangement or understanding with any person to participate in the
distribution of such New Notes, (iii) if the Holder is not a broker-dealer, or
is a broker-dealer but will not receive New Notes for its own account in
exchange for Old Notes, neither the Holder nor any such other person is engaged
in or intends to participate in the distribution of such New Notes and (iv)
neither the Holder nor any such other person is an "affiliate" of MSAF, within
the meaning of Rule 405 under the Securities Act. By tendering (including
transmission of an Agent's Message) each Holder of Old Notes that is a
broker-dealer (whether or not it is also an "affiliate") that will receive New
Notes for its own account pursuant to the Exchange Offer will represent that Old
Notes to be exchanged for New Notes were acquired by it as a result of
market-making activities or other trading activities
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<PAGE> 43
and will acknowledge that it will deliver a prospectus meeting the requirements
of the Securities Act in connection with any resale of such New Notes; however,
by so acknowledging and by delivering a prospectus, it will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
MSAF will accept, promptly after the Expiration Date, all Old Notes properly
tendered and will issue the New Notes promptly after acceptance of the Old
Notes. See "Certain Conditions to the Exchange Offer" below. For purposes of the
Exchange Offer, MSAF shall be deemed to have accepted properly tendered Old
Notes for exchange when, as and if MSAF has given oral or written notice thereof
to the Exchange Agent.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of Book-Entry Confirmation of such Old Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures described below and either (i) a properly
completed and duly executed Letter of Transmittal or facsimile thereof,
including all other documents required by such Letter of Transmittal or (ii) a
properly transmitted Agent's Message. If any tendered Old Notes are not accepted
for any reason set forth in the terms and conditions of the Exchange Offer, such
unaccepted or non-exchanged Old Notes will be credited to an account maintained
with such Book-Entry Transfer Facility as promptly as practicable after the
expiration or termination of the Exchange Offer.
INTEREST ON THE NEW NOTES
Holders of Old Notes that are accepted for exchange will not receive
accrued interest thereon at the time of exchange. However, each New Note will
bear interest from the most recent date to which interest has been paid on the
Old Notes or New Notes, or if no interest has been paid on the Old Notes or New
Notes.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer promptly after the date of this Prospectus. All deliveries of Old
Notes must be made by book-entry transfer to the account maintained by the
Exchange Agent at the Book-Entry Transfer Facility. Any financial institution
that is a participant in the Book-Entry Transfer Facility's systems may make
book-entry delivery of Old Notes by causing the Book-Entry Transfer Facility to
transfer such Old Notes into the Exchange Agent's account in accordance with the
Book-Entry Transfer Facility's Automated Tender Offer Program ("ATOP")
procedures for transfer. Holders of Old Notes who are unable to deliver
confirmation of the book-entry tender of their Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility or all other documents
required by the Letter of Transmittal to the Exchange Agent on or prior to the
Expiration Date, must tender their Old Notes according to the guaranteed
delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
If a Holder of the Old Notes desires to tender such Old Notes and time will
not permit such Holder's required documents to reach the Exchange Agent on or
prior to the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) on or prior to the Expiration Date, the
Exchange Agent receives from such Eligible Institution either a properly
completed and duly executed Letter of Transmittal (or a facsimile thereof) or a
properly transmitted Agent's Message and Notice of Guaranteed Delivery,
substantially in the form provided by MSAF (by telegram, telex, facsimile
transmission, mail or hand delivery), setting forth the name and address of such
Holder of Old Notes and the amount of Old Notes tendered, stating that the
tender is being made thereby and guaranteeing that within five New York Stock
Exchange ("NYSE") trading days after the date of execution of the Notice of
Guaranteed Delivery, a Book-Entry Confirmation and all other documents required
by the Letter of Transmittal will be deposited by the Eligible Institution with
the
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Exchange Agent, and (iii) a Book-Entry Confirmation and all other documents
required by the Letter of Transmittal, are received by the Exchange Agent within
five NYSE trading days after the date of execution of the Notice of Guaranteed
Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, either (i) a written notice of withdrawal
must be received by the Exchange Agent at one of the addresses set forth below
under "Exchange Agent" or (ii) the appropriate procedures of the Book-Entry
Transfer Facility's ATOP system must be complied with. Any such notice of
withdrawal must specify the name of the person having tendered the Old Notes to
be withdrawn and identify the Old Notes to be withdrawn (including the principal
amount of such Old Notes). Any notice of withdrawal must specify the name and
number of the account at the Book-Entry Transfer Facility to be credited with
the withdrawn Old Notes and otherwise comply with the procedures of such
facility. All questions as to the validity, form and eligibility (including time
of receipt) of such notices will be determined by MSAF, whose determination
shall be final and binding on all parties. Any Old Notes so withdrawn will be
deemed not to have been validly tendered for exchange for purposes of the
Exchange Offer. Any Old Notes which have been tendered for exchange but which
are not exchanged for any reason will be credited to an account maintained with
Book-Entry Transfer Facility for the Old Notes as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described under "Procedures for Tendering Old Notes" above at any time on or
prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, MSAF shall not
be required to accept for exchange, or to issue New Notes in exchange for, any
Old Notes and may terminate or amend the Exchange Offer, if at any time before
the acceptance of such Old Notes for exchange or the exchange of the New Notes
for such Old Notes, such acceptance or issuance would violate applicable law or
any interpretation of the staff of the Commission.
The foregoing condition is for the sole benefit of MSAF and may be asserted
by MSAF regardless of the circumstances giving rise to such condition or may be
waived by MSAF in whole or in part at any time and from time to time in its sole
discretion. The failure by MSAF at any time to exercise the foregoing rights
shall not be deemed a waiver of any such right and each such right shall be
deemed an ongoing right which may be asserted at any time and from time to time.
In addition, MSAF will not accept for exchange any Old Notes tendered, and
no New Notes will be issued in exchange for any such Old Notes, if at such time
any stop order shall be threatened or in effect with respect to either the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939, as
amended.
38
<PAGE> 45
EXCHANGE AGENT
Bankers Trust Company has been appointed as the Exchange Agent for the
Exchange Offer. All executed Letters of Transmittal should be delivered to the
Exchange Agent at one of the addresses set forth below. Questions and requests
for assistance, requests for additional copies of this Prospectus or of the
Letter of Transmittal and requests for Notices of Guaranteed Delivery should be
directed to the Exchange Agent, addressed as follows:
Delivery To: Bankers Trust Company, as Exchange Agent
If by Mail, Hand or Overnight Courier:
Bankers Trust Company
Four Albany Street
Mail Stop 5091
New York, New York 10006
Attention: Structured Finance Group
or
If by Facsimile:
(212) 250-6439
Confirm by Telephone:
(212) 250-6549
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT
CONSTITUTE A VALID DELIVERY.
FEES AND EXPENSES
The principal solicitation is being made by mail; however, additional
solicitation may be made by telegraph, telephone or in person by the Financial
Advisor, on behalf of MSAF. No additional compensation will be paid to the
Financial Advisor who engages in soliciting tenders. MSAF will not make any
payment to brokers, dealers, or others soliciting acceptances of the Exchange
Offer. MSAF however, will pay the Exchange Agent reasonable and customary fees
for its services and will reimburse it for its reasonable out-of-pocket expenses
in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by MSAF and are estimated in the aggregate to be $500,000.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith. If, however, a transfer tax is
imposed for any reason other than the transfer of Old Notes to MSAF or its order
pursuant to the Exchange Offer, the amount of any such transfer taxes (whether
imposed on the Holder or any other person) will be payable by the tendering
Holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted, the amount of such transfer taxes will be billed directly to
such tendering Holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legends thereon. In general,
the Old Notes may not be offered or sold, unless registered under the Securities
Act,
39
<PAGE> 46
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. MSAF does not intend to
register the Old Notes under the Securities Act.
MSAF believes that, based upon interpretations contained in letters issued
to third parties by the staff of the Commission, New Notes issued pursuant to
the Exchange Offer in exchange for Old Notes may be offered for resale, resold
or otherwise transferred by each Holder thereof (other than a broker-dealer, as
set forth below, or any such Holder which is an "affiliate" of MSAF within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such New Notes are acquired in the ordinary course of such Holder's
business and such holder has no arrangement or understanding with any person to
participate in the distribution of such New Notes. Eligible Holders wishing to
accept the Exchange Offer must represent to MSAF in the Letter of Transmittal
that such conditions have been met and must represent, if such Holder is not a
broker-dealer, or is a broker-dealer but will not receive New Notes for its own
account in exchange for Old Notes, that neither such Holder nor the person
receiving such New Notes, if other than the Holder, is engaged in or intends to
participate in the distribution of such New Notes. If any Holder has any
arrangement or understanding with respect to the distribution of the New Notes
to be acquired pursuant to the Exchange Offer, such Holder (i) will not be able
to rely on the applicable interpretations of the staff of the Commission and
(ii) must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. Each broker-dealer
that receives New Notes for its own account pursuant to the Exchange Offer must
represent that the Old Notes tendered in exchange therefor were acquired as a
result of market-making activities or other trading activities and must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with the resales of New Notes received in exchange
for Old Notes where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities. MSAF has agreed
that, starting on the Expiration Date and ending on the close of business on the
180th day following the Expiration Date, it will make this Prospectus available
to any broker-dealer for use in connection with any such resale. See "Plan of
Distribution". However, to comply with the securities laws of certain
jurisdictions, if applicable, the New Notes may not be offered or sold unless
they have been registered or qualified for sale in such jurisdictions or an
exemption from registration or qualification is available and is complied with.
MSAF has agreed, pursuant to the Registration Agreement and subject to certain
specified limitations therein, to register or qualify the New Notes for offer or
sale under the securities or blue sky laws of such jurisdictions as any holder
of the Notes reasonably request in writing. Unless so requested, MSAF does not
intend to register or qualify the sale of the New Notes in any such
jurisdictions. In addition, the tender of Old Notes pursuant to the Exchange
Offer will reduce the principal amount of the Old Notes outstanding, which may
have an adverse effect upon, and increase the volatility of, the market price of
the Old Notes due to a reduction in liquidity.
40
<PAGE> 47
THE PARTIES
MSAF GROUP
MSAF is a special-purpose statutory business trust formed on October 30,
1997 under the laws of Delaware for an unlimited duration for certain limited
purposes, including owning all of the beneficial interest in or share capital
of, as applicable, the Aircraft-Owning Subsidiaries and acquiring, financing,
re-financing, owning, leasing, re-leasing, selling, maintaining and modifying
the Initial Aircraft and any Additional Aircraft. MSAF Group may also enter into
certain hedging contracts as described under "Management's Discussion and
Analysis of Results of Operation and Financial Condition -- Interest Rate
Management", and establish and provide loans or guarantees to, or in respect of,
its subsidiaries and any entities that may be established or acquired in the
future in connection with acquisitions of Additional Aircraft ("FUTURE MSAF
GROUP ENTITIES").
MSAF initially has four direct subsidiaries: MSA I (formed on October 30,
1997), in which it holds all of the beneficial interest, and SPC-5 (incorporated
on August 8, 1997), Greenfly (Ireland) Limited (incorporated on September 22,
1997), and Redfly (UK) Limited (incorporated on November 19, 1997), in each of
which it holds 100% of the capital stock.
All of the Beneficial Interest is owned by a wholly-owned subsidiary of
Morgan Stanley although such subsidiary may transfer all or a portion of such
Beneficial Interest to related or unrelated third parties in the future.
There are six trustees of MSAF. The Delaware Trustee is Wilmington Trust
Company. The Controlling Trustees are three individuals appointed by a
subsidiary of Morgan Stanley. The Independent Trustees are two individuals, each
of whom will not be an officer, director, employee or affiliate of Morgan
Stanley. One of the Independent Trustees is a partner of Shearman & Sterling, a
law firm that regularly provides legal services to Morgan Stanley and its
affiliates. The controlling or independent trustees or directors, as applicable,
of each Aircraft-Owning Subsidiary are the same persons as the Controlling
Trustees and the Independent Trustees, unless otherwise required by any
provisions of local law mandating a particular citizenship for trustees or
directors. Neither MSAF nor any of the Aircraft-Owning Subsidiaries has any
employees or executive officers. Accordingly, the Controlling Trustees rely upon
the Servicer, the Administrative Agent, the Cash Manager, the Financial Advisor
and the other service providers for all asset servicing, executive and
administrative functions pursuant to the respective service provider agreements.
Transactions or proceedings relating to certain insolvency proceedings of MSAF
may only be approved by a unanimous vote of all the Controlling Trustees and
Independent Trustees.
Neither MSAF nor any of its subsidiaries is involved in or subject to any
legal or arbitration proceedings relating to claims or amounts which are
material in the context of the issue of the Notes nor is MSAF aware that any
such proceedings are pending or threatened.
MSAF's registered office is located at 1100 North Market Street, Rodney
Square North, Wilmington, Delaware 19890-0001 care of Wilmington Trust Company,
attention: Corporate Trust Administration and its telephone number is
1-302-651-1000.
SERVICER
ILFC provides various aircraft-related services to MSAF Group as Servicer
under the Servicing Agreement.
ILFC is engaged in the leasing and management of commercial jet aircraft
under operating leases for its own portfolio as well as for third party lessors.
As of December 31, 1997, and giving effect to MSAF Group's acquisition of all
the Initial Aircraft, the portfolio of aircraft managed by ILFC (the "ILFC
MANAGED PORTFOLIO") comprised 364 aircraft, of which ILFC and its affiliates
owned 297, valued at greater than $17 billion and operated by approximately 100
airlines in more than 49 countries throughout the world. On September 2, 1997,
ILFC announced that it had placed new aircraft orders with Airbus, for 65
aircraft, and with Boeing, for 61 Aircraft. ILFC has committed to purchase a
total of 335 aircraft from manufacturers,
41
<PAGE> 48
deliverable through 2006. In addition, ILFC is engaged in the remarketing of
commercial jets for its own account, for airlines and for third party lessors.
ILFC is headquartered in Los Angeles, California, from where its staff of
approximately 75 employees handles all of the leasing, management and
remarketing relationships. ILFC's management services include collecting rental
payments, arranging and monitoring aircraft maintenance performed by others,
technical inspection of aircraft, arranging and monitoring insurance, arranging
for aircraft valuations, registration and deregistration of aircraft, monitoring
compliance with lease agreements and enforcement of lease provisions against
lessees, confirming compliance with applicable ADs and facilitating delivery and
redelivery of aircraft. ILFC may also arrange the sale of its customers'
aircraft to third parties. See "Risk Factors -- Risks Relating to MSAF Group and
Certain Third Parties".
The table below sets forth the different aircraft comprising the ILFC
Managed Portfolio as of December 31, 1997 by manufacturer and by whether the
aircraft are owned and managed by affiliates of ILFC or simply managed for third
parties (including MSAF Group), and giving effect to MSAF Group's acquisition of
all the Initial Aircraft as of May 31, 1998.
<TABLE>
<CAPTION>
OTHER MANAGED
AIRCRAFT TYPE AND CLASS MSAF GROUP ILFC FLEET(1) THIRD PARTIES TOTAL
----------------------- ---------- ------------- ------------- -----
<S> <C> <C> <C> <C>
Airbus
A300.................................... 1 7 -- 8
A310.................................... 3 12 -- 15
A319.................................... -- 4 1 5
A320.................................... 3 38 -- 41
A321.................................... 1 13 -- 14
A330.................................... -- 11 -- 11
A340.................................... -- 9 -- 9
Boeing
B737-300/400/500........................ 10 113 8 132
B747-200................................ -- 3 -- 3
B747-300................................ 1 2 -- 3
B747-400................................ -- 9 -- 9
B757-200................................ 3 50 -- 53
B767-200................................ 1 4 -- 5
B767-300................................ 3 32 1 36
McDonnell Douglas Corporation
MD11.................................... -- 6 -- 6
MD82.................................... 1 -- -- 1
MD83.................................... 2 7 -- 9
MD87.................................... -- 1 -- 1
Fokker N.V.
F70..................................... 3 -- -- 3
--- --- --- ---
Total................................... 32 321 10 364
=== === === ===
Body Type:
Widebody................................ 9 95 1 105
Narrowbody.............................. 23 226 9 259
Stage Compliance:
Stage 3................................. 32 321 10 364
</TABLE>
- ---------------
(1) Certain aircraft included in the ILFC fleet are owned by joint ventures or
pursuant to sale leaseback or other arrangements in which unaffiliated
parties have interests.
42
<PAGE> 49
ADMINISTRATIVE AGENT
Cabot, an indirect wholly-owned subsidiary of Morgan Stanley, acts as
Administrative Agent to MSAF Group and will provide administrative services
including monitoring compliance by the Servicer with the Servicing Agreement and
by any servicer of Additional Aircraft under their respective servicing
agreements.
CASH MANAGER, TRUSTEE, SECURITY TRUSTEE AND REFERENCE AGENT
Bankers Trust Company acts as Cash Manager. Subject to certain limitations
and at the direction of MSAF Group, the Cash Manager is authorized to invest the
funds held by MSAF Group in the Collection Account and the Lessee Funded Account
in certain prescribed investments. Bankers Trust Company also acts as Trustee
under the Indenture, as Security Trustee under the Security Trust Agreement and
as initial Reference Agent under the Reference Agency Agreement.
FINANCIAL ADVISOR
Morgan Stanley & Co. Incorporated, a wholly owned subsidiary of Morgan
Stanley, acts as the Financial Advisor. The Financial Advisor is responsible for
assisting MSAF Group in developing and implementing its interest rate risk
management policies and developing models for the purposes of analyzing the
financial impact of Aircraft lease, sale and capital investment decisions.
43
<PAGE> 50
THE INITIAL AIRCRAFT AND LEASES
The following discussion assumes that MSAF Group takes delivery of the
Remaining Aircraft and that there are no failed deliveries or Substitute
Aircraft. See "Risk Factors -- Risks Relating to the Aircraft -- Risks Relating
to Failed Deliveries".
MSAF'S OWNERSHIP OF THE AIRCRAFT
Substantially all of the assets of MSAF consist of 100% of the beneficial
interest in MSA I, 100% of the issued and outstanding capital stock of SPC-5,
Greenfly (Ireland) Limited and Redfly (UK) Limited and certain loans made to MSA
I and SPC-5. Assuming all of the Remaining Aircraft are delivered to MSAF Group,
MSAF will indirectly own (i) the Initial Aircraft, (ii) the rights under the
related Initial Leases and (iii) cash and cash equivalents on deposit in the
Collection Account. As of September 30, 1997, the Initial Aircraft had an
Initial Appraised Value of $1,086.69 million. The Initial Appraised Value is
equal to the average of the opinions of the Appraisers as to the Base Value of
each Initial Aircraft as of September 30, 1997 without taking into account the
value of the Initial Leases, maintenance reserves or security deposits.
APPRAISERS' REPORTS
The Appraisers have provided Appraisals of the value of each of the Initial
Aircraft at normal utilization rates in an open, unrestricted and stable market
as of September 30, 1997, adjusted to account for the reported maintenance
standard of the Initial Aircraft. The Appraisals were not based on a physical
inspection of the Initial Aircraft. The Appraisals explain the methodology used
to determine the values for the Initial Aircraft. See "Risk Factors -- Risks
Relating to the Aircraft -- Risks Associated With Appraised Values". Based on
the Appraisals, the aggregate Base Values calculated by each of the three
Appraisers for the Initial Aircraft are $1,112.06 million in the case of BK
Associates, Inc., $1,128.37 million in the case of Aircraft Information
Services, Inc. and $1,019.64 million in the case of Airclaims Limited. The
Initial Appraised Values for the Initial Aircraft by type and class are set out
below. The Initial Appraised Value should not be relied upon as a measure of the
market or realizable value of any Initial Aircraft. See "Risk Factors -- Risks
Relating to the Aircraft -- Cyclicality of Supply of and Demand for Aircraft;
Risk of Decline in Aircraft Values and Rental Rates" and "-- Risks Associated
With Appraised Values".
PORTFOLIO INFORMATION
THE INITIAL AIRCRAFT
All of the Initial Aircraft hold or are capable of holding a noise
certificate issued under Chapter 3 of Volume 1, Part II of Annex 16 of the
Chicago Convention (the "CHICAGO CONVENTION") or have been shown to comply with
the Stage 3 noise levels set out in Section 36.5 of Appendix C of Part 36 of the
United States Federal Aviation Regulations ("STAGE 3 AIRCRAFT").
44
<PAGE> 51
The following table sets forth the exposure of the Initial Aircraft by type
of aircraft calculated by reference to the number of Initial Aircraft and their
Initial Appraised Value.
<TABLE>
<CAPTION>
% OF CURRENT
NUMBER OF ENGINE PORTFOLIO BY INITIAL
MANUFACTURER TYPE OF AIRCRAFT AIRCRAFT BODY TYPE STAGE APPRAISED VALUE
- ------------ ---------------- ----------- ---------- ------ --------------------
<S> <C> <C> <C> <C> <C>
Boeing (62.74%)................ 767-200ER 1 Widebody 3 3.60%
767-300ER(1) 3 Widebody 3 18.32
757-200ER 3 Narrowbody 3 10.87
747-300B 1 Widebody 3 6.25
737-300 6 Narrowbody 3 14.18
737-400 3 Narrowbody 3 7.50
737-500 1 Narrowbody 3 2.02
Airbus (26.09%)................ A321-100 1 Narrowbody 3 4.33
A320-200 3 Narrowbody 3 8.93
A310-300 3 Widebody 3 7.83
A300-600R 1 Widebody 3 5.00
McDonnell Douglas
Corporation (5.59%).......... MD82 1 Narrowbody 3 1.75
MD83 2 Narrowbody 3 3.84
Fokker N.V.(5.01%)............. F70 3 Narrowbody 3 5.01
General Electric
Company (0.57%).............. CF6-80C2B6F engine -- 3 .57
----------- ------
Total........................ 32 + engine 100.00%
=========== ======
</TABLE>
- ---------------
(1) One of these Aircraft is not currently capable of extended range missions
but ILFC has agreed to pay for the cost of an extended range modification to
such Aircraft upon MSAF's request at any time following the termination or
expiration of the Initial Lease for such Aircraft. The Appraisals of such
Aircraft assume that such extended range modification has been carried out.
45
<PAGE> 52
The following table sets forth the exposure of the Initial Aircraft to the
Initial Lessees calculated by reference to the Initial Appraised Value of the
Initial Aircraft.
<TABLE>
<CAPTION>
% OF CURRENT
NUMBER OF PORTFOLIO BY INITIAL
LESSEE(1) AIRCRAFT APPRAISED VALUE
- --------- ----------- --------------------
<S> <C> <C>
Air Pacific Limited ("AIR PACIFIC")......................... 1 6.60%
Unijet Leisure Limited ("UNIJET")........................... 1 6.42
"VARIG", S.A. (Viacao Aerea Rio-Grandense) ("VARIG")........ 1 6.25
Hong Kong Dragon Airlines Limited ("DRAGON AIR")............ 1 2.99
Asiana Airlines, Inc. ("ASIANA")............................ 1 5.30
Malev Hungarian Airlines, PLC ("MALEV")..................... 3 5.01
China Airlines, Ltd. ("CHINA AIRLINES")..................... 1 5.00
Flightlease AG ("FLIGHTLEASE")(2)........................... 2 4.84
Alaska Airlines, Inc. ("ALASKA AIRLINES")................... 2 2.73
Onur Air Tasimacilik A.S. ("ONUR AIR")...................... 1 4.33
Aerovias de Mexico, S.A. de C.V. ("AERO MEXICO")............ 1 4.14
Britannia Airways Limited ("BRITANNIA")(3).................. 1 3.60
Transaero Airlines ("TRANSAERO")............................ 1 3.41
Guyana Airways Corporation ("GUYANA AIRWAYS")............... 1 3.31
Passaredo, Transportes Aeros ("PASSAREDO")(4)............... 1 2.99
Monarch Airlines Limited ("MONARCH")........................ 1 2.97
Transavia Airlines C.V. ("TRANSAVIA")....................... 1 2.95
China Hainan Airlines ("CHINA HAINAN")...................... 1 2.58
Transportes Aereos Portugueses, S.A. ("TAP")................ 1 2.42
Flugleidir H.F. ("ICELANDAIR")(5)........................... 1 2.09
Societe D'Exploitation Aeropostale S.A. ("AEROPOSTALE")..... 1 2.02
Trans World Airlines, Inc. ("TWA").......................... 1 3.74
Air Liberte, S.A. ("AIR LIBERTE")........................... 1 1.85
Caledonian Airways ("CALEDONIAN")........................... 1 2.97
Olympic Airways ("OLYMPIC")................................. 1 2.60
Transportes Aereos Ejecutivos SA de CV ("TAESA")............ 1 2.16
Viacio Aerea Sao Paulo SA ("VASP").......................... 1 2.11
Braathans SAFE Sverige AB ("TRANSWEDE")..................... 1 2.02
Koninklijke Luchtvaart Maatschappij N.V. ("KLM")............ engine 0.56
----------- ------
Total..................................................... 32 + engine 100.00%
=========== ======
</TABLE>
- ---------------
(1) Total number of Initial Lessees = 29.
(2) As part of the recent restructuring of its business by SAir Group Ltd.
(formerly Swiss Air, Swiss Air Transport Company Ltd.) ("SWISS AIR"), the
leasehold interest in all of the aircraft previously leased by Swiss Air has
been transferred to its wholly-owned subsidiary Flightlease. The applicable
Initial Aircraft will continue to be operated by an airline affiliate of
Swiss Air.
(3) The Initial Aircraft leased to Britannia is subleased to Ansett Australia
Limited ("ANSETT").
(4) Passaredo leases the applicable Initial Aircraft from Navasota, which is
party to the Conditional Sale Agreement with MSAF Group. See "-- Initial
Leases -- Conditional Sale Agreement".
(5) The Initial Aircraft leased to Icelandair is subleased to Falcon Air AB
("FALCON").
46
<PAGE> 53
The following table sets forth the exposure of the Initial Aircraft to
countries in which the Initial Lessees are domiciled calculated by reference to
the Initial Appraised Value of the Initial Aircraft.
<TABLE>
<CAPTION>
% OF CURRENT
NUMBER OF PORTFOLIO BY INITIAL
COUNTRY(1) AIRCRAFT APPRAISED VALUE
- ---------- ----------- --------------------
<S> <C> <C>
United Kingdom.............................................. 4 15.96
United States............................................... 3 6.47
Brazil...................................................... 3 11.36
Turkey...................................................... 1 4.37
Fiji........................................................ 1 6.60
Hong Kong................................................... 1 2.99
Korea....................................................... 1 5.01
Hungary..................................................... 3 5.00
Taiwan...................................................... 1 5.00
Switzerland................................................. 2 4.84
Mexico...................................................... 2 6.31
France...................................................... 2 3.87
The Netherlands............................................. 1 + engine 3.51
Russia...................................................... 1 3.41
Guyana...................................................... 1 3.31
China....................................................... 1 2.98
Portugal.................................................... 1 2.42
Iceland..................................................... 1 2.09
Greece...................................................... 1 2.60
Sweden...................................................... 1 2.02
----------- ------
Total..................................................... 32 + engine 100.00%
=========== ======
</TABLE>
- ---------------
(1) Total number of countries = 20.
The following table sets forth the exposure of the Initial Aircraft by
regions in which the Initial Lessees are domiciled calculated by reference to
number of Initial Aircraft and their Initial Appraised Value.
<TABLE>
<CAPTION>
% OF CURRENT
NUMBER OF PORTFOLIO BY INITIAL
REGION(1) AIRCRAFT APPRAISED VALUE
- --------- ----------- --------------------
<S> <C> <C>
Developed Markets
Europe.................................................... 12 + engine 35.22%
North America............................................. 3 6.47
Pacific................................................... 1 2.99
Emerging Markets
Europe and Middle East.................................... 5 12.75
Latin America............................................. 5 17.67
Asia...................................................... 3 12.89
Other....................................................... 3 12.00
----------- ------
Total..................................................... 32 + engine 100.00%
=========== ======
</TABLE>
- ---------------
(1) Regions are defined according to MSCI designations. See "Description of the
Notes -- Operating Covenants -- Concentration Limits -- Region Covenants".
47
<PAGE> 54
The following table sets forth the exposure of the Initial Aircraft by year
of aircraft manufacture calculated by reference to the Initial Appraised Value
of the Initial Aircraft. The weighted average age of the fleet as of May 31,
1998 is approximately 7.0 years.
<TABLE>
<CAPTION>
% OF CURRENT
NUMBER OF PORTFOLIO BY INITIAL
YEAR OF MANUFACTURE AIRCRAFT APPRAISED VALUE
- ------------------- ----------- --------------------
<S> <C> <C>
1985........................................................ 2 4.84%
1986........................................................ 1 3.00
1987........................................................ 3 7.71
1988........................................................ 5 15.70
1989........................................................ 3 7.15
1990........................................................ 2 10.31
1992........................................................ 3 8.00
1993........................................................ 6 19.73
1994........................................................ 2 10.74
1995........................................................ 2 + engine 5.12
1996........................................................ 3 7.73
----------- ------
Total..................................................... 32 + engine 100.00%
=========== ======
</TABLE>
The following table sets forth the exposure of the Initial Aircraft by seat
category calculated by reference to the Initial Appraised Value of the Initial
Aircraft, excluding the spare engine and one Aircraft which is a freighter
aircraft. Passenger Aircraft are assumed to be configured with the typical
number of seats as set forth in Appendix 2.
<TABLE>
<CAPTION>
% OF CURRENT
NUMBER OF PORTFOLIO BY INITIAL
SEAT CATEGORY AIRCRAFT TYPES AIRCRAFT APPRAISED VALUE
- ------------- -------------- --------- --------------------
<S> <C> <C> <C>
51-120 F-70, B737-500 4 7.04%
121-170 B737-300/300QC/400, A320-200, MD82/83 14 34.11
171-240 B757-200, A321-100, B767-200ER, B767-300ER,
A300-600R, A310-300 12 49.95
351+ B747-300 1 6.25
-- -----
Total 31 97.35%
== =====
</TABLE>
48
<PAGE> 55
MSAF GROUP PORTFOLIO ANALYSIS
Further particulars of the Initial Aircraft as of May 31, 1998 (except for
Initial Appraised Values, which are as of September 30, 1997) are contained in
the table below.
<TABLE>
<CAPTION>
COUNTRY ENGINE SERIAL DATE OF
REGION(1) OF INITIAL LESSEE INITIAL LESSEE TYPE CONFIGURATION NUMBER MANUFACTURE
--------- ----------------- -------------- ---- ------------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Europe.................. France Aeropostale B737-300QC CFM 56-3C1 23788 5/87
(Developed) France Air Liberte MD83 JT8D-219 49822 12/88
Greece Olympic B737-400 CFM 56-3C1 25371 1/92
Portugal TAP B737-300 CFM 56-3B2 25161 2/92
Sweden Transwede B737-500 CFM 56-3B1 25165 4/93
Switzerland Swiss Air A310-300 JT9D-7R4E1 410 11/85
Switzerland Swiss Air A310-300 JT9D-7R4E1 409 11/85
The Netherlands Transavia B737-300 CFM 56-3C1 27635 5/95
The Netherlands KLM engine CF6-80C2B6F 704279 6/95
United Kingdom Britannia B767-200ER CF6-80A 23807 8/87
United Kingdom Monarch A320-200 CFM 56-5A3 279 2/92
United Kingdom Unijet B767-300ER CF6-80C2B6F 28258 4/93
North America........... United States Alaska Airlines B737-400 CFM 56-3C1 25104 5/93
(Developed) United States TWA MD-83 JT8D-219 49824 3/89
United States TWA MD-82 JT8D-217C 49825 3/89
Pacific................. Hong Kong Dragon Air A320-200 V2500-A1 414 5/93
(Developed)
Europe and
Middle East............. Hungary Malev F-70 TAY MK620-15 11569 3/96
(Emerging) Hungary Malev F-70 TAY MK620-15 11565 2/96
Hungary Malev F-70 TAY MK620-15 11564 12/95
Russia Transaero B757-200ER RB211-535-E4-37 24367 2/89
Turkey Onur Air A321-100 V2530-A5 597 5/96
Asia.................... China China Hainan B737-300 CFM 56-3C1 26295 12/93
(Emerging) Korea Asiana B767-300 CF6-80C2B6F 24798 10/90
Taiwan China Airlines A300-600R PW 4158 555 3/90
Latin America........... Brazil Varig B747-300B CF6-80C2 24106 4/88
(Emerging) Brazil Passaredo A310-300 JT9D-7R4E1 437 11/86
Brazil VASP B737-300 CFM 56-3B2 24299 11/88
Mexico Aero Mexico B757-200ER PW 2037 26272 3/94
Mexico TAESA B737-400 CFM 56-3B2 24234 10/88
Other................... Fiji Air Pacific B767-300ER CF6-80C2B4 26260 9/94
Iceland Icelandair B737-300F CFM 56-3B2 23811 10/87
Guyana Guyana Airways B757-200ER RB211-535-E4 24260 12/88
Total
<CAPTION>
INITIAL
APPRAISED
VALUE AT
SEPTEMBER 30,
1997
REGION(1) ($000'S)
--------- -------------
<S> <C>
Europe.................. $ 21,973
(Developed) 20,097
28,263
26,310
21,973
26,273
26,310
32,053
6,037
39,067
32,260
69,780
North America........... 29,713
(Developed) 21,627
19,010
Pacific................. 32,520
(Developed)
Europe and
Middle East............. 18,533
(Emerging) 18,423
17,530
37,090
47,030
Asia.................... 28,073
(Emerging) 57,627
54,377
Latin America........... 67,953
(Emerging) 32,543
22,973
44,993
23,527
Other................... 71,727
22,697
36,017
----------
$1,115,510
==========
</TABLE>
- ---------------
(1) Regions are defined according to MSCI designations. See "Description of the
Notes -- Operating Covenants -- Concentration Limits -- Region Covenants".
ACQUISITION OF ADDITIONAL AIRCRAFT
MSAF Group may acquire additional commercial passenger or freight aircraft
from various sellers. Cash flows derived from the Additional Aircraft, if any,
and the related Leases will be available to satisfy MSAF's payment obligations,
including payments of interest, principal and premium, if any, on the Notes and
any Additional Notes. See "Risk Factors -- Risks Relating to the Aircraft --
Risks Relating to Additional Aircraft". There is no limit on the aggregate value
of Additional Aircraft that may be acquired or on the period in which such
Additional Aircraft must be acquired. Any acquisition of Additional Aircraft and
related issuance of Additional Notes will be subject to certain conditions under
the Indenture. See "Description of the Notes -- Indenture Covenants --
Limitation on Indebtedness" and "-- Limitation on Aircraft Acquisitions".
49
<PAGE> 56
INITIAL LEASES
GENERAL
All Leases of the Initial Aircraft will be managed by the Servicer pursuant
to the Servicing Agreement. References in this Prospectus to "LESSOR" will mean
the relevant subsidiary of MSAF which leases the Aircraft to the operator.
The following description relates only to the leases (the "CONTRACT
LEASES") related to the aircraft MSAF agreed to acquire pursuant to the Asset
Purchase Agreement (the "CONTRACT AIRCRAFT") (other than the Conditional Sale
Agreement with respect to one A310 Aircraft. See "-- Conditional Sale Agreement"
below). MSAF believes that the following description of the Contract Leases is
representative of the Initial Leases.
Any Additional Leases acquired in connection with the acquisition of
Additional Aircraft and any Future Leases entered into in connection with the
re-lease of any Aircraft may differ from the description of the Initial Leases
set forth below. However, any Additional Leases or Future Leases will be
required to comply with the Operating Covenants. See "Description of the Notes
- -- Operating Covenants".
Except for the Conditional Sale Agreement, the Contract Leases are all
operating leases under which MSAF generally will retain the benefit, and bear
the risk, of the residual value of the Contract Aircraft upon expiry or early
termination of the Contract Lease (although in the case of certain Contract
Aircraft MSAF has granted an option to purchase such Aircraft to the Lessee or
an affiliate and/or to extend or shorten the term of the related Lease. See "--
Lessees' Options" below). Under the Contract Leases, the Lessees have agreed to
lease the Contract Aircraft for a fixed term (but subject, in some cases, to the
aforementioned right to terminate the Lease early and/or to extend the Lease
term. See "-- Lessees' Options" below). Although the Contract Lease
documentation is fairly standardized in many respects, significant variations do
exist as a result of Lessee negotiation.
LEASE PAYMENTS AND SECURITY
Each Contract Lease requires the Lessee to pay periodic rentals during the
Lease term. Certain of the Contract Leases require the Lessee to pay periodic
amounts by way of maintenance reserves. See "-- Maintenance and Maintenance
Reserves" below.
The Lessees are required to make payments to the Lessor without set-off or
counterclaim, and each Lease includes an obligation of the Lessee to gross-up
payments under the Lease where payments are subject to certain withholding and
other taxes, although, in certain cases, such amount will be limited to the
extent of the amount that would have been payable, if any, if the Lease had
never been transferred from ILFC to MSAF Group. The Contract Leases also contain
indemnification of the Lessor for certain taxation liabilities (including, in
some Leases, value added tax and stamp duties, but generally excluding net
income tax or its equivalent imposed on the Lessor) and taxation of indemnity
payments. The Lessees also are obliged to pay default interest on any overdue
amounts. In some cases, the Lessee may exercise certain remedies if the Lessor
breaches its covenant of quiet enjoyment.
Under the Contract Leases, the Lessees are liable through various
operational indemnities for operating expenses accrued or payable during the
term of the respective Lease, which would normally include maintenance,
operating, overhaul, airport and navigation charges, certain taxes, licenses,
consents and approvals, Aircraft registration and hull all risks and public
liability insurance premiums. The Lessees are obliged to remove liens on the
Aircraft other than certain liens permitted under the Initial Leases.
Under all but three of the Contract Leases, the Lessee has provided
security for its obligations in the nature of security deposits. In the case of
29 of such Leases, the Lessee has provided cash security deposits and in the
case of the other Lease, the Lessee has provided a letter of credit. Under one
of the Leases, the Lessee has also provided a letter of credit to secure
payments to certain aviation authorities and Eurocontrol. Under one Lease, the
Lessee has procured the issuance to the Lessor of a general guarantee by its
parent company in respect of the Lessee's payment and performance obligations.
50
<PAGE> 57
RENTALS
All of the rental payments are payable on a fixed rate basis and are not
adjustable by reference to market interest rate changes. Rentals under most of
the Leases are payable monthly in advance. Rentals under the balance of the
Leases are payable quarterly in advance. One Lease requires a base rental to be
paid monthly in advance and a separate payment for flight hours flown and
revenue sector passenger flown rent to be paid monthly in arrears, subject to a
guaranteed minimum rental payable.
OPERATION OF THE CONTRACT AIRCRAFT
The Contract Leases require the Lessees to operate the Aircraft in
compliance with all laws and regulations applicable to the Aircraft. The
Aircraft generally must remain in the possession of the Lessees, and any
subleases of the Aircraft generally must be approved by the Lessor. Under most
of the Leases, the Lessees may enter into charter or "wet lease" arrangements in
respect of the Aircraft (i.e., a lease with crew and services provided by the
Lessee), provided the Lessee does not part with operational control of the
Aircraft. Under certain Leases, the Lessee is permitted to enter into subleases
to specified operators without the Lessor's consent, provided certain conditions
are met. As of the date of this Prospectus, Britannia subleases its Aircraft to
Ansett and Icelandair subleases its Aircraft to Falcon.
All of the Contract Leases permit the Lessees to subject the engines, and
other equipment or components in certain cases, to removal or replacement and,
in certain cases, to pooling arrangements (temporary borrowing of equipment), in
some cases with permitted entities (which may include certain manufacturers,
suppliers, other airlines or aircraft operators) without the Lessor's consent
but subject to conditions and criteria set forth in the Lease. Under all of the
Contract Leases, the Lessees may deliver possession of the Aircraft, engines and
other equipment or components to the manufacturer thereof for testing or similar
purposes, or to a third party for service, maintenance, repair or other work
required or permitted under the Lease. The Lessor's ability to repossess the
Aircraft or engines, equipment or components from any such sublessee,
transferee, manufacturer, or other person may be restricted by liens or similar
rights of detention and by applicable bankruptcy and insolvency laws.
MAINTENANCE AND MAINTENANCE RESERVES
The Contract Leases contain detailed provisions specifying maintenance
standards and the required condition of the Aircraft upon redelivery. In
addition, under certain of the Leases, depending upon the specific maintenance
condition of the Aircraft or specified items (airframe, engines, certain
components, auxiliary power unit or landing gear) at redelivery, the Lessee may
be required to make certain adjustment payments to the Lessor. During the term
of each Lease, the Lessee is required to ensure that the Aircraft is maintained
in accordance with an agreed maintenance program designed to ensure that the
Aircraft meets applicable airworthiness and other regulatory requirements in the
jurisdiction in which the Aircraft is registered or, in the case of the Contract
Lease for the spare engine (the "ENGINE LEASE"), the jurisdiction of the Lessee.
Under the Contract Leases, the agreed maintenance program is generally performed
by the Lessee. Under most of the Leases, the Lessee is required to provide
monthly maintenance reserves. In cases where the Lessee has paid maintenance
reserves, such payments are used to reimburse the Lessee for significant
maintenance charges, including major airframe and engine overhauls.
Under the balance of the Contract Leases there is no provision for the
payment of maintenance reserves. In these cases the Lessor must rely on the
credit of the Lessee or, if available, any credit support, and the ability of
the Lessee to return the Aircraft in the condition required by the Lease upon
termination, to make any required payments based on the Aircraft's return
condition upon termination of the related Lease and to perform scheduled
maintenance throughout the Lease term.
The Lessees are required under the Contract Leases to comply with ADs of
the applicable aviation authorities specified in the Leases and with
manufacturer's service bulletins and the Lessees primarily bear the cost of
compliance. However, under some of the Leases, the Lessor may be required by the
Lease to contribute to the cost of certain ADs or manufacturer's service
bulletins or to the cost above a specified threshold.
51
<PAGE> 58
LESSEES' OPTIONS
Purchase Options with respect to nine of the Contract Aircraft have been
granted to Lessees (or affiliates) pursuant to either the applicable Lease or a
separate purchase option agreement. Five of the Purchase Options are presently
exercisable. The duration of some Purchase Options depends on whether the Lessee
exercises a separate option to extend the Lease. Assuming that all Lease
extension options are exercised, the latest date on which a Purchase Option may
be exercised is June 8, 2008 for a purchase on March 8, 2009. Under the
Assumptions, none of the Contract Aircraft (other than the Aircraft subject to
the Conditional Sale Agreement) is subject to a Purchase Option where the
purchase price is less than the Note Target Price for such Contract Aircraft on
the earliest exercise date. Upon the exercise of a Purchase Option, in two cases
the Lessor is relieved of an obligation to contribute to the costs of complying
with ADs and, conversely, in seven cases the Leases provide that the Lessor
refund unused maintenance reserves and/or security deposits to the Lessee.
Fifteen of the Contract Leases include options for the Lessee to extend the
term of the Lease (including in one Lease an extension which could accommodate a
D-check) and one other Lease allows the Lessee to extend the term solely to
accommodate a D-check. The rent payable during the extension period under these
Leases varies from Lease to Lease. Seven of the Leases contain provisions under
which the relevant Lessee may terminate its Lease prior to its scheduled
expiration date, subject, in certain instances, to specified conditions and the
payment of a fee.
The Engine Lease has no purchase option. The term of the Engine Lease may
be extended by five successive one-year terms which have not yet been exercised.
At the end of the fifth and sixth years of the term, the Lessee may terminate
the Engine Lease with 12 months' notice and payment of a fee.
CONDITIONAL SALE AGREEMENT
MSAF Group has entered into a conditional sale agreement (the "CONDITIONAL
SALE AGREEMENT") with Navasota Holdings Inc., a British Virgin Islands
corporation ("NAVASOTA"), pursuant to which MSAF Group will be obliged, assuming
that Navasota complies with its payment and other obligations, to transfer title
to an A310 Aircraft on December 15, 2003, although Navasota may prepay all
purchase price instalments under the Conditional Sale Agreement at any time.
Navasota has entered into an operating lease (the "PASSAREDO LEASE") with
Passaredo. All payments under both the Conditional Sale Agreement and the
Passaredo Lease are unconditionally guaranteed by six Brazilian tour operators
for whose benefit Passaredo will use the Aircraft to operate charter flights.
The present value of all amounts payable with respect to the A310 Aircraft
(discounted to March 3, 1998 at 6.7%) is $8.8 million less than the Note Target
Price for such Contract Aircraft on March 3, 1998.
INDEMNIFICATION AND INSURANCE OF THE AIRCRAFT
GENERAL
The Lessees are required under the Initial Leases to bear responsibility
(through an operational indemnity) and carry insurance for any liabilities
arising out of the operation of the Aircraft, including any liabilities for
death or injury to persons and damage to property that ordinarily would attach
to the operator of the Aircraft, subject to customary exclusions. In addition,
the Lessees are required to carry other types of insurance that are customary in
the air transportation industry, including all risks aircraft hull and hull war
risks insurance (in each case at a value stipulated in the relevant Lease,
subject to adjustment in certain circumstances) and aircraft spares insurance
(on a replacement cost basis), in each case subject to customary deductibles.
The Servicer is required to monitor the performance of the obligations of the
Lessees with the insurance provisions of the Initial Leases. In addition, MSAF
Group also has in place its own contingent liability coverage. This operates
both to cover a liability that is in excess of the coverage provided by a
Lessee's policy and where a Lessee's policy lapses for any reason (including an
early termination of a Lease and repossession of an Aircraft). MSAF's contingent
third-party liability insurance covers all of the Aircraft and its contingent
hull and hull war risks insurance covers certain of the Aircraft. The amount of
such contingent liability policies may or may not be the same as required under
the relevant Lease. The amount of third-party contingent liability insurance is
subject to certain limitations imposed by the air transportation insurance
industry.
52
<PAGE> 59
In the event that any of the existing insurance policies are canceled or
terminated and in the case of the re-lease of an Aircraft, MSAF may from time to
time engage insurance experts, to advise and recommend to ILFC, as Servicer, the
appropriate amount of insurance coverage MSAF should procure.
LIABILITY INSURANCE
Third party liability insurance is required under the Initial Leases for a
combined single limit for bodily injury and property damage in minimum amounts
ranging between $250 million and $1.25 billion for each Initial Aircraft. In
general, liability coverage on each Initial Aircraft includes third party legal
liability, passenger legal liability, baggage legal liability, cargo legal
liability, mail and aviation general third party (including products) legal
liability.
In some jurisdictions liabilities for risks that are insured against by the
Lessees also may attach to MSAF Group as owner of the Initial Aircraft
irrespective of whether it is in any way responsible for the loss for which
liability is asserted. In addition, claimants may assert claims against MSAF
Group on the basis of alleged responsibility for a loss, even if such claim is
not ultimately sustained. Under the Initial Leases, the Lessees are currently
obligated to indemnify the Lessor against claims, including the costs of
defending against such claims, by third parties against them for such
liabilities while the Initial Aircraft are owned by MSAF and under lease to the
Lessees.
The indemnified losses include both operating costs relating to the actual
operation of the Initial Aircraft as well as losses to persons and property
resulting from the operation of the Initial Aircraft. The latter types of losses
are generally covered by the Lessees' liability insurance.
AIRCRAFT PROPERTY INSURANCE
In addition to liability insurance, the Lessees are obligated under the
Initial Leases to carry other types of insurance that are customary in the air
transportation industry, including all risks aircraft hull and hull war risks
insurance (in each case at a value stipulated in the relevant Lease, subject to
adjustment in certain circumstances) and aircraft spares insurance (on a
replacement cost basis), in each case subject to customary deductibles. In
addition to such stipulated lease value coverage obtained by the Lessees, MSAF
Group has also purchased declining "total loss only" coverage with respect to
certain Initial Aircraft. As of January 10, 1998, in no case was the sum of the
stipulated lease value and MSAF Group's additional coverage in place for all
risks aircraft hull and hull war risks insurances less than 96% of the Initial
Appraised Value of the applicable Initial Aircraft, and on average the sum of
such coverages in place for each Initial Aircraft was approximately 118% of the
Initial Appraised Value of the applicable Initial Aircraft. In most cases, the
Lessor is permitted to increase the insured value above the stipulated lease
value consistent with industry practice with the Lessee being responsible for
any increased premium that results. Permitted deductibles range from $500,000 to
$1,000,000; however, the deductible generally applies only in the case of a
partial loss. In the case of a total loss of an Initial Aircraft, no deductible
would be applied against the insurance proceeds received.
The Initial Leases include provisions defining an event of loss or a
casualty occurrence such that where a total loss of the airframe occurs, with or
without loss of the engines installed on the airframe, the agreed value is
payable by the Lessee. This payment is generally funded with insurance proceeds.
However, the air transportation insurance industry practice is to treat only a
loss of greater than 75% of the value of the Aircraft, including the engines, as
a total loss. In such a case, the Lessee would be responsible for the payment of
the difference between the insurance proceeds and the stipulated Lease value.
Where insurance proceeds do cover a total loss, most Leases require the Lessor
to pay to the Lessee the balance of the insurance proceeds received under the
hull all risks or war risks policy after deduction of all amounts payable by the
Lessee to the Lessor under the Lease.
All insurance certificates contain a breach of warranty endorsement so that
the additional insureds continue to be protected even if the Lessee violates one
or more of the terms, conditions or warranties of the insurance policies,
provided that such additional insured has not caused, contributed to or
knowingly condoned such breach.
The insurance advisor will confirm to MSAF Group, inter alia, that the
insurance requirements currently detailed in the insurance certificates meet
customary practices.
53
<PAGE> 60
The Leases require the Lessee to maintain as part of its hull war and
allied perils insurance coverage for confiscation or requisition of the
applicable Initial Aircraft (including confiscation or requisition by the
relevant state of registration), although in certain countries (including France
and the People's Republic of China) such insurance may not be obtainable.
THE LESSEES
As of May 31, 1998, there were 29 Initial Lessees in 20 different
countries.
PAYMENT HISTORY
As a general matter, weakly capitalized airlines are more likely than well
capitalized airlines to seek operating leases and at any point in time,
investors should expect varying numbers of Lessees to be experiencing payment
difficulties.
As of May 31, 1998, three Initial Lessees were in arrears. The amounts
outstanding and overdue in respect of Rental Payments, Maintenance Reserves and
other miscellaneous amounts due under the Initial Leases (net of default
interest and certain cash in transit) with respect to these two Lessees amounted
to approximately $0.75 million. The weighted average number of days past due of
such arrears was 43.
In certain cases, MSAF Group may respond to the needs of Lessees in
financial difficulty including, in certain instances, restructuring the
applicable Leases. Such restructurings may involve reduced rental payments for a
specified period (which may be several months). In addition, certain
restructurings may involve the voluntary termination of a Lease prior to its
expiration and the arrangement of subleases from the Lessee to another aircraft
operator.
DESCRIPTION OF THE INITIAL LESSEES
The table below sets forth certain available information with respect to
the country of domicile, first year of operation, service type, nature of
ownership and fleet size and composition of each Initial Lessee. See "--
Portfolio Information" above for additional tables setting forth the exposure of
the Initial Aircraft (as a percentage of Initial Appraised Value) to each
Initial Lessee and the countries in which the Initial Lessees are domiciled.
<TABLE>
<CAPTION>
BEGAN SERVICE OPERATING
LESSEE DOMICILE OPERATION TYPE OWNERSHIP FLEET(1)
- ------ -------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Aero Mexico Mexico 1934 Scheduled Cintra (90%) 7 B757-200
Staff (10%) 2 B767-200ER
2 B767-300ER
2 DC-9-31
15 DC-9-32
10 MD-82
8 MD-83
3 MD-87
10 MD-88
Aeropostale France 1986 Scheduled, Groupe Air France (50%) 2 B727-200F
Chartered and Groupe La Poste (50%) 4 B737-200C
Postal 15 B737-300QC
Air Pacific Fiji 1951 Scheduled Government of Fiji (72%) 1 B737-300
Qantas (18%) 1 B737-500
Air New Zealand (2%) 1 B747-200B
Others (including 1 B767-300ER
EIE Corp.) (3%)
Pacific Islands
governments (5%)
Air Liberte France 1987 Scheduled and British Airways (67%) 3 B737-200
Chartered Banque Rivaud (33%) 2 DC-10-30
1 DC-10-30ER
8 MD-83
</TABLE>
54
<PAGE> 61
<TABLE>
<CAPTION>
BEGAN SERVICE OPERATING
LESSEE DOMICILE OPERATION TYPE OWNERSHIP FLEET(1)
- ------ -------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Alaska Airlines United States 1932 Scheduled Public (100%) 28 B737-400
4 B737-200C
4 B737-200QC
10 MD-82
31 MD-83
Asiana Republic of Korea 1988 Scheduled and Kumho Group (62%) 19 B737-400
Chartered Korean Development Bank 4 B737-500
(13%) 8 B747-400
Korea Long Term Credit 3 B747-400F
Bank (6%) 8 B767-300
Pacific Investment Capital 8 B767-300ER
(19%)
Britannia United Kingdom 1961 Chartered Thomson Travel Holdings 19 B757-200
(100%) 4 B767-200EM
2 B767-200ER
3 B767-300ER
Caledonian United Kingdom 1969 Chartered Inspirations plc (100%) 1 DC-10-30
5 A320-230
1 TriStar-1
4 TriStar-100
1 DC-10-30
1 TriStar-50
China Airlines Republic of China 1959 Scheduled and China Civil Aviation 10 A300-620R
(Taiwan) Chartered Development Foundation 6 A300-B4-220
(82%) 6 B737-400
Other (18%) 8 B747-200
6 B747-400
1 B747-SP
1 MD-11
2 Beechjet 400
China Hainan People's Republic 1991 Scheduled and Corporate (including 6 B737-300
of China Executive China Southern Airlines, 4 B737-400
Charters American Aviation 9 Fairchild-23
Investment and 1 Learjet-55
Hainan Island) (75%) 1 Learjet-60
Individuals (20%)
People's Republic of China
(5%)
Dragon Air Hong Kong 1985 Scheduled and Cathay Pacific/Swire Pacific 7 A320-230
Chartered (20%) 5 A330-340
China National Air Corp.
(43%)
China International Trust
and
Investment Corp. (25%)
KP Chao (5%)
Others (7%)
Guyana Airways Guyana 1939 Scheduled and Government of Guyana 1 B757-200
Chartered (100%) 2 DHC-6 Twin Otter
Icelandair Iceland 1937 Scheduled and Public (100%) 1 B737-300F
Chartered 4 B737-400
5 B757-200
KLM The Netherlands 1919 Scheduled Dutch Government (25%) 19 B737-300
Public (75%) 19 B737-400
10 B747-200B
1 B747-200SF
3 B747-300
19 B747-400
10 B767-300ER
9 MD-11
</TABLE>
55
<PAGE> 62
<TABLE>
<CAPTION>
BEGAN SERVICE OPERATING
LESSEE DOMICILE OPERATION TYPE OWNERSHIP FLEET(1)
- ------ -------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Malev Hungary 1946 Scheduled and Government of Hungary (64%) 6 B737-200A
Chartered Alitalia (30%) 4 B737-300
SIMEST (5%) 2 B737-400
Employees (1%) 2 B767-200ER
5 F70
3 TV-134
7 TV-154
Monarch United Kingdom 1967 Scheduled and Cosmos Guide Holding 4 A300-600R
Chartered International NV (100%) 7 A320-210
6 B757-200
1 DC10-30
1 A321-230
Olympic Greece 1957 Scheduled Government (100%) 2 A300-600R
11 B737-200
4 B747-200B
7 B737-400
1 A300-B4-200
2 B727-200
1 B737-300
5 A300-B4-100
Onur Air Turkey 1992 Scheduled Ten Tour International and 4 A300-B4-100
Marmara (100%) 1 A320-210
2 A320-230
3 A321-130
5 MD-88
Passaredo Brazil 1995 Scheduled Passaredo Group (100%) 3 EMB-120-QC
Flightlease Switzerland 1931 Scheduled Swiss Air (100%) 8 A310-320
8 A319-110
18 A320-210
8 A321-110
2 B747-200F
5 B747-300
1 DC-10
15 MD-11
TAESA Mexico 1987 Scheduled and Alberto Abed (60%) 1 B727-100C
Chartered Abed family (10%) 1 B727-100
Others (10%) 1 Falcon-900
2 Learjet 25-B
1 Learjet 31-A
1 Learjet 35-A
2 Gulfstream II
1 Gulfstream IV
3 Jetstar-8
1 Jetstar-731
2 B737-200
2 DC-9-14
2 DC-9-15
1 Jetstar-II
1 Challenger-601-3A
1 C550&C551-550
1 B727-200
2 B737-300
1 B757-200
1 Learjet-24D
Transaero Russia 1990 Scheduled and Aeroflot (5%) 1 An-124
Chartered Employees (15%) 3 B737-200A
Other (including 5 B757-200
Moscow City Government, 1 I1-86
Ilyushin and Yakovlev 3 DC-10-30
Design Bureaux,
State Property
Committee, Aeronavigatsiya
State Research Institute
and Aerotrans Dispatcher
Service Centre) (80%)
</TABLE>
56
<PAGE> 63
<TABLE>
<CAPTION>
BEGAN SERVICE OPERATING
LESSEE DOMICILE OPERATION TYPE OWNERSHIP FLEET(1)
- ------ -------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Transavia The Netherlands 1965 Scheduled and KLM (80%) 12 B737-300
Chartered PARNIB Holding NV (20%) 4 B757-200
Transwede SAFE Sverige Sweden 1985 Scheduled Braathens (100%) 4 Fokker 100
AB 1 B737-300
TWA United States 1930 Scheduled Public (50%) 15 B727-200
Employees (45%) 18 B727-200A
Prince Al-Waleed bin Talal 9 B747-100
(5%) 3 B747-200B
15 B757-200
12 B767-200EM
2 B767-300ER
7 DC-9-15
18 DC-9-31
14 DC-9-32
1 DC-9-33CF
3 DC-9-34
3 DC-9-41
12 DC-9-51
1 MD-81
37 MD-82
31 MD-83
Unijet United Kingdom 1992 Charter British Air Transport 2 A320-200
Holdings Ltd. (100%) 1 A321-200
2 B767-300ER
Varig Brazil 1927 Scheduled Rio Grande do Sul 1 B727-100C
State Government (1%) 2 B727-100F
Ruben Berta Foundation 2 B727-100QC
(55%) 30 B737-300
Public (44%) 19 B737-200A
1 B747-200SF
5 B747-300
6 B767-200ER
6 B767-300ER
7 DC-10-30
2 DC-10-30F
9 MD-11
VASP Brazil 1933 Scheduled Canhedo Group (60%) 3 A300-B2-200FF
Varig (12.75) 6 B737-200
1 B737-200F
1 B737-200C
12 B737-200
1 B737-200C
3 B737-300
1 B727-200
3 B727-200F
9 MD-11GE
1 MD-11-73CF
</TABLE>
- ---------------
(1) Source: Airclaims Limited.
57
<PAGE> 64
THE COMMERCIAL AIRCRAFT INDUSTRY
INTRODUCTION
The demand for air travel as measured by the number of fare paying
passengers carried multiplied by the distance flown in miles (revenue passenger
miles ("RPMS")) has increased since 1970 in every year but one, 1991, in which
there was a decline of 3.1% principally due to a worldwide economic slowdown
exacerbated by the Gulf War.
As shown below on the table entitled "WORLD TRAFFIC GROWTH" (excluding
domestic CIS), the compound annual growth rate in RPMs from 1970 to 1997 was
approximately 6.8%. However, the rate of increase varies regionally. In the
period since 1990 the highest rates of annual increase in RPMs have been on
certain routes in Asia, although these growth rates are expected to suffer as a
result of the economic crises that have recently affected many of the Asian
economies. The lowest rates of annual increase in RPMs have been on domestic
routes within the United States and Europe. Asia constitutes 23.8% of the world
market, as measured by RPMs in 1996, and the United States and Europe represent
37.1% and 25.8%, respectively.
WORLD TRAFFIC GROWTH
<TABLE>
<CAPTION>
ANNUAL GROWTH
WORLD TRAFFIC WORLD TRAFFIC
YEAR IN RPMS IN RPMS
- ---- ------------- -------------
(BILLIONS) (%)
<S> <C> <C>
1970........................................................ 287 --
1980........................................................ 645 8.4
1990........................................................ 1,154 6.0
1991........................................................ 1,118 (3.1)
1992........................................................ 1,236 10.6
1993........................................................ 1,282 3.7
1994........................................................ 1,398 9.0
1995........................................................ 1,494 6.9
1996........................................................ 1,605 7.4
1997........................................................ 1,716 6.9
</TABLE>
- ---------------
Source: Airline Monitor.
Demand for air travel has been cyclical as the rate of growth has
historically been most influenced by global and regional economic growth and a
decline in the real cost of air travel. However, other factors can also have an
impact on demand such as global and regional political instability or a sharp
rise in the cost of jet fuel for example. In the long term, technological
developments in the field of transport and communications like high-speed rail
travel and video-conferencing may also have an adverse impact on growth.
DEMAND FOR AIRCRAFT
The demand for air travel as evidenced by the growth in RPMs is met by the
availability of aircraft capacity (as measured typically by available seat miles
("ASMS")). Over time, an increase in RPMs will lead to an increase in ASMs as
new aircraft capacity is added to the world fleet to meet the increased demand.
The other primary factor contributing to the demand for aircraft is the need to
replace aircraft that are retired at the end of their useful economic lives or
are written off for other reasons, including casualties or technical
obsolescence as a result of noise or emission legislation such as the Stage 2
bans introduced in the United States and the European Union.
Over the last four years, new capacity grew at a slower rate than demand,
which has led to a significant reduction in the number of used aircraft
available for lease or sale and ultimately to an increase in the number of new
aircraft ordered from the manufacturers. However, higher load factors and to a
lesser extent, utilization rates over the last five years have resulted in a
lower increase in demand than the change in RPMs would have
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historically indicated. In addition, the number of aircraft retired has remained
low over this period as aircraft have continued in service longer than
previously expected.
The cyclicality of aircraft supply and demand can be illustrated by
reference to the number of aircraft in the world fleet that are available for
sale or lease ("AOG"), as shown in the following table.
PERCENTAGE OF WORLD FLEET
AIRCRAFT AVAILABLE FOR SALE OR LEASE (WESTERN-BUILT AIRCRAFT)
<TABLE>
<CAPTION>
TOTAL AIRCRAFT
IN WORLD AIRCRAFT AVAILABLE % OF
AIRLINE FLEET(1) FOR SALE OR LEASE TOTAL
---------------- ------------------- -----
<S> <C> <C> <C>
1990................................................ 8,912 545 6.1
1991................................................ 9,326 727 7.8
1992................................................ 9,992 661 6.6
1993................................................ 10,514 705 6.7
1994................................................ 10,991 534 4.9
1995................................................ 11,377 473 4.2
1996................................................ 11,803 279 2.4
1997................................................ 12,271 333 2.7
</TABLE>
- ---------------
Source: Airline Monitor.
(1) Excludes aircraft owned privately, by governments, brokers or manufacturers
There are three basic categories of passenger jet aircraft; regional jets,
narrowbody aircraft, which have a single aisle, and widebody aircraft, with twin
aisles.
Regional jets typically have a seating capacity of 35-100 seats and are
used in service to replace turbo-props on very short-haul, domestic routes.
These routes average less than 500 nautical miles. An example of a regional jet
is the Fokker 70.
Narrowbody aircraft currently have a seating capacity of approximately 100
to 250 and typically are used to service short and medium-haul routes. While
such routes may extend up to 3,500 nautical miles, they average between 500 and
1,500 nautical miles. Examples would be the B737 series of aircraft as well as
the A320, the MD-80 series and the B757.
Widebody aircraft currently have a seating capacity of approximately 200 to
450 and are used typically to service long-haul routes of greater than 3,500
nautical miles, although some operators also use widebody aircraft to service
short to medium-haul routes with high passenger densities relative to airport
capacity. Examples would be the B747, B767, A300 and A310 series of aircraft.
Commercial freighter aircraft are almost all variants of passenger models,
and many freighter aircraft are conversions of aircraft previously in passenger
service.
THE WORLD FLEET OF COMMERCIAL JET AIRCRAFT (EXCLUDING AIRCRAFT MANUFACTURED IN
THE CIS)
There were, as of December 31, 1997, 13,038 aircraft of all types in
service of which 12,271 were operated by commercial airlines. Approximately
three-quarters of the aircraft are narrowbody aircraft with the balance being
widebody aircraft.
Of the narrowbody aircraft in operation, approximately 20% were more than
25 years old and are expected to be replaced over the next 10 years. The two
remaining large (i.e., non-regional) aircraft manufacturers, Airbus and Boeing,
continue to upgrade their narrowbody products and in particular, Boeing has
recently introduced a new series of the B737 aircraft, announced the phase-out
of the MD-80 and MD-90 series and is launching an upgraded B757.
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Only approximately 5% of the widebody aircraft in service are more than 25
years old. However there has been considerable product innovation in this sector
over the last ten years with the introduction of six new types of aircraft, the
MD11, B767-300ER, B747-400, B777, A330 and A340, most of which have several
engine configurations. This has led to the growth in particular of the
long-range, widebody, twin-engined sector and has resulted in a continued weak
market for earlier widebody models such as the A300-B4, A310-200, B747-100,
B747-200 and DC-10. The newer models have lower operating costs and allow
airlines to develop new long-haul routes more efficiently as well as to increase
service frequency on established routes. These factors could result in earlier
models of these widebody aircraft being retired or converted to freighters
before the end of their operating lives.
Of the 1,895 freighters in service as of January 1, 1998, 1,267 were
delivered new in freighter configuration; the remaining 628 aircraft having been
converted from passenger aircraft. Some aircraft delivered new with freighter
capability include aircraft in a mixed passenger/freight configuration, known as
"combi" aircraft. As of January 1, 1998, approximately 317 such "combi" aircraft
were in service.
SUPPLY OF AIRCRAFT
NEW AIRCRAFT SUPPLY
There has been a long-term trend toward consolidation of the commercial
aircraft manufacturing industry as evidenced by the recent merger between Boeing
and McDonnell Douglas Corporation, leaving just Boeing and Airbus as
manufacturers of large commercial jet aircraft currently. The long lead time,
high capital cost and technological sophistication required to bring a new
aircraft model to the market create significant barriers to entry into this
sector of the industry.
However, despite the bankruptcy in 1996 of Fokker N.V., there are several
new participants in the rapidly growing regional jet market. As a result, the
regional jet market is somewhat fragmented with three manufacturers (British
Aerospace plc, Bombardier and Embraer) currently producing a total of four
different types of jet aircraft. Fairchild Dornier has entered the regional jet
market and has begun test flying a prototype aircraft. Boeing is also planning
to relaunch the MD95 as the B717, with first deliveries scheduled for 1999. A
consortium of Airbus Industrie Asia, Aviation Industries of China and Singapore
Technologies is planning an aircraft which is expected to take first delivery in
2002.
The manufacturers of commercial jet aircraft in the CIS are currently not a
material factor in supplying the requirements of operators outside the CIS and
the former Eastern Bloc countries.
Although most new aircraft are ordered under long-term, multi-aircraft
contracts, the volume of aircraft production has varied significantly over the
years resulting in an aircraft delivery cycle that often does not match the
airline demand cycle. In 1991, the large aircraft manufacturers reached their
highest production capacity ever delivering 830 new aircraft as the demand for
air travel experienced an all time low. Deliveries reduced over the subsequent
four years with 483 aircraft delivered in 1995. Approximately 900 aircraft are
currently scheduled for delivery in each of 1998 and 1999.
USED AIRCRAFT SUPPLY
The supply of used aircraft depends on the level of utilization of the
existing worldwide fleet, the proportion of this fleet that is not in revenue
earning service and the net change in this fleet based on manufacturers'
production levels and aircraft retirements. Used aircraft are typically supplied
by airlines and intermediaries such as brokers or lessors, although
manufacturers have sometimes agreed to purchase used aircraft as a trade-in
against delivery of new aircraft. According to the Airline Monitor, as of
December 31, 1997, there were approximately 333 commercial jet aircraft
available for sale or lease of which approximately 79.9% (266 aircraft) were
Stage 2 aircraft and approximately 20.1% (67 aircraft) Stage 3 aircraft.
Approximately 65% (216 aircraft) were narrowbodies and 35% (117 aircraft)
widebodies.
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OPERATING LEASING
Operating leasing has grown:
(a) to facilitate the matching of excess aircraft supply and demand in
different geographical regions;
(b) to meet the need for short-medium term capacity (i.e. for less than
the useful life of an aircraft); and
(c) to meet the financing gap for under-capitalized airlines, typically
where financing was not otherwise available.
Until the mid-1970s, almost all commercial aircraft were either owned by
their airline operators or leased under finance leases from financial
institutions, except for short-term leases of surplus aircraft from one airline
to another. In general, airlines enter into such transactions seeking an
economical use for the surplus capacity that has resulted from the replacement
of older aircraft with the new models and cyclical or seasonal declines in the
markets being served. Beginning in the mid-1970s, however, leasing companies
were willing to purchase aircraft and undertake the risk of finding a buyer or
lessee for such aircraft.
Operating lessors typically acquired aircraft for lease through purchases
of used aircraft, often through sale-leaseback arrangements with the operators
of such aircraft. In the mid-1980s a number of leasing companies, principally
ILFC and GPA Group plc ("GPA"), started to acquire new aircraft directly from
manufacturers, with or without lease commitments for such aircraft. Several
additional leasing companies have become significant purchasers of new aircraft
and their combined jet aircraft orders and options constituted approximately 24%
of outstanding jet orders as of January 1, 1998.
The number of airlines taking aircraft on operating and finance leases has
increased from 139 out of a worldwide total of 305 in 1980 (approximately 46% of
total airlines) to 479 out of a worldwide total of 651 as of January 1, 1998
(approximately 74% of total airlines).
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MANAGEMENT OF MSAF GROUP
Except to the limited extent described herein, particularly upon an Event
of Default, neither the Trustee nor any Noteholder has any right to participate
in the management or affairs of MSAF Group. In particular, such parties cannot
supervise the functions relating to the Leases and the re-lease of the Initial
Aircraft, which functions have generally been delegated to the Servicer under
the Servicing Agreement. See "Risk Factors -- Risks Relating to MSAF Group and
Certain Third Parties -- Delegation of Responsibilities", "Description of the
Notes -- Indenture Covenants" and "-- Events of Default and Remedies".
TRUSTEES
There are six trustees of MSAF, including the Delaware Trustee. The
Controlling Trustees listed below manage MSAF. Two of the trustees must be
Independent Trustees. The controlling or independent trustees or directors, as
applicable, of each Aircraft-Owning Subsidiary are the same persons as the
Controlling Trustees and the Independent Trustees, unless otherwise required by
any provisions of local law mandating a particular citizenship for trustees or
directors. The initial Controlling Trustees and Independent Trustees were
appointed by a subsidiary of Morgan Stanley. Any succeeding or additional
Controlling Trustees and Independent Trustees will be appointed by a majority of
the then standing Controlling Trustees. Transactions or proceedings involving
certain insolvency proceedings of MSAF may only be approved by a unanimous vote
of all Controlling Trustees and all Independent Trustees.
The Controlling Trustees and the Independent Trustees, their respective
ages and principal activities are as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Karl Essig................................... 46 Controlling Trustee
Alexander C. Frank........................... 40 Controlling Trustee
A. Maurice Mason............................. 34 Controlling Trustee
C. Scott Peterson............................ 37 Alternate Controlling Trustee
Juan C. O'Callahan........................... 64 Independent Trustee
Alexander C. Bancroft........................ 60 Independent Trustee
</TABLE>
Karl Essig is a Managing Director in the International Securitisation Group
at Morgan Stanley & Co. International Limited. Mr. Essig joined Morgan Stanley
in August of 1980 and has worked in the London, New York and Tokyo offices on
corporate finance, capital markets and derivatives transactions. In 1986 he
founded Morgan Stanley's Asset-Backed Finance Group which he headed for five
years. In 1992, Mr. Essig moved to London and established the International
Securitisation Group, which he currently heads. Mr. Essig is a graduate of
Stanford University and the Yale School of Management.
Alexander C. Frank is a Managing Director in the Corporate Treasury
Department, and the Treasurer of Morgan Stanley. Mr. Frank joined Morgan Stanley
in 1985 and has worked in the New York and London offices, in the firm's
Corporate Treasury and Corporate Tax Departments. In 1990 he established Morgan
Stanley Treasury's European Capital and Financing activity in London. In 1993
Mr. Frank assumed responsibility for the firm's Global Capital and Finance
function and became the Treasurer for North and South American activities. Mr.
Frank is a graduate of Dartmouth College and the University of Michigan School
of Business Administration.
A. Maurice Mason is an Executive Director in the International
Securitisation Group at Morgan Stanley & Co. International Limited. He joined
Morgan Stanley's Investment Banking Division in 1994 where he was responsible
for Morgan Stanley's corporate finance activities in the European transportation
sector. In 1997 he transferred to the International Securitisation Group where
he is responsible for the aviation finance sector. Prior to joining Morgan
Stanley, he spent over six years in the capital markets group at GPA. Mr. Mason
received a BA, BAI degree from Trinity College, Dublin.
C. Scott Peterson is a Managing Director in the International
Securitisation Group at Morgan Stanley & Co. International Limited. Mr. Peterson
joined Morgan Stanley in 1988 in the Mortgage-Backed Finance
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Group. In 1989 he joined the Asset-Backed Finance Group and subsequently
established the Equipment Finance Group to focus on transactions backed by
aircraft and other capital equipment. In 1993 he initiated the liability
management effort and led both the Equipment Finance and Liability Management
Groups until his transfer to London in 1996. Mr. Peterson received a BSc from
Oregon State University in 1982 and an MBA from The Wharton School in 1988.
Juan C. O'Callahan is principal of JOCR, an aviation consultancy based in
Connecticut. He joined The Boeing Company in 1961 after a career as a fighter
pilot with the United States Marine Corps and has since worked at Pacific Air
Lines, World Airways and GPA (having founded TAI, a forecasting and valuation
consultancy that was acquired by GPA in 1982). He has served on the boards of
America West Inc., Avitas Inc. and WorldCorp Inc., and is currently a director
of Pembroke Capital Limited. Mr. O'Callahan is a graduate of the University of
Pittsburgh, where he obtained a BSc in Aeronautical Engineering.
Alexander C. Bancroft is a partner of the law firm of Shearman & Sterling.
He specializes in the legal aspects of the financing of aircraft and other
transportation equipment. He joined Shearman & Sterling in 1964 after military
service and became a partner in 1973. Mr. Bancroft is a graduate of Harvard
College and Harvard Law School.
The Independent Trustees will be entitled to participate in all meetings of
the Controlling Trustees but will not be entitled to vote on any matter except
that the Independent Trustees will be entitled to vote on any action (i) to
cause MSAF or any subsidiary of MSAF to institute any proceeding seeking
liquidation or insolvency or similar proceeding, (ii) to consent to any
liquidation, insolvency or similar proceeding instituted against MSAF or any
subsidiary of MSAF, (iii) to take certain other actions related to insolvency
matters, and (iv) to sell, transfer, or otherwise dispose of, directly or
indirectly, any aircraft where the proceeds received from such sale or transfer
are less then certain targets set forth in the Indenture, and the unanimous
consent of all the Controlling Trustees and the Independent Trustees shall be
required to take any action specified in clauses (i), (ii) or (iii) above. See
"Description of the Notes -- Indenture Covenants -- Bankruptcy and Insolvency".
As is common with many other special purpose companies, MSAF will not have
any employees or executive officers. Accordingly, the Controlling Trustees will
rely upon the Servicer, the Administrative Agent, the Cash Manager, the
Financial Advisor and the other service providers for all asset servicing,
executive and administrative functions pursuant to the respective service
provider agreements. See "Risk Factors -- Risks Relating to MSAF Group and
Certain Third Parties". Certain individuals other than the Controlling Trustees
and the Independent Trustees listed above may serve as controlling or
independent trustees or directors of various subsidiaries of MSAF Group where
provisions of local law mandate a particular citizenship for trustees or
directors.
All trustees will be compensated for travel and other expenses incurred by
them in the performance of their duties. MSAF will pay each Independent Trustee
$50,000 per annum for their services in such capacity. The Controlling Trustees
appointed by a subsidiary of Morgan Stanley as the depositor of MSAF will not
receive remuneration from MSAF for their services.
The Controlling Trustees have not received any additional cash or non-cash
compensation as salary or bonus for their services as Controlling Trustees. In
the future, however, Controlling Trustees may receive an interest in the
Beneficial Interest. None of the trustees of MSAF currently has an employment
contract with MSAF.
BENEFICIAL OWNERSHIP OF MSAF
All of the Beneficial Interest is currently owned by a wholly-owned direct
subsidiary of Morgan Stanley but all or a portion of the Beneficial Interest may
be transferred to related or unrelated third parties in the future.
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SERVICER
The Servicer and its affiliates have not assumed and are not responsible
for, or guarantors of, and shall not assume or be responsible for, or guarantors
of, any liabilities of MSAF or any of its affiliates, including, without
limitation, any payments due with respect to the Notes. Any Additional Aircraft
may be serviced by different servicers or on different terms from those
applicable to the servicing of the Initial Aircraft.
The Servicer will provide services with respect to the Initial Aircraft
pursuant to the terms of the Servicing Agreement on behalf of MSAF Group (except
in certain circumstances described below where a substitute servicer may perform
such services). The Servicing Agreement (a) sets forth the various duties of the
Servicer with respect to the management and administration of the Initial
Aircraft and the Initial Leases and the Future Leases with respect to the
Initial Aircraft, (b) sets forth certain aircraft marketing activities to be
performed by the Servicer and (c) sets forth certain aircraft management-related
obligations of the Servicer in connection with offers and sales by MSAF Group of
Refinancing Notes or Additional Notes.
The Servicer will provide the services in accordance with the express terms
of the Servicing Agreement, which, inter alia, provides that the Servicer will
act in accordance with applicable law and with directions given by MSAF Group
from time to time in accordance with the Servicing Agreement. In addition, under
the Servicing Agreement, the Servicer will agree to perform its services in
accordance with the ILFC Services Standard and the ILFC Conflicts Standard.
The duties and obligations of the Servicer will be limited to those
expressly set forth in the Servicing Agreement and the Servicer will not have
any fiduciary or other implied duties or obligations to MSAF Group or any other
person, including any Noteholder.
In addition to managing the Initial Aircraft, ILFC also manages aircraft
assets owned by ILFC and other third parties. In the course of conducting such
activities, ILFC will from time to time have conflicts of interest in performing
its obligations on behalf of MSAF Group. See "Risk Factors -- Risks Relating to
MSAF Group and Certain Third Parties -- Conflicts of Interest of ILFC".
Pursuant to the Servicing Agreement, the Servicer will not be liable to
MSAF Group for any Losses arising (i) as a result of an Initial Aircraft sold,
leased or purchased on less favorable terms than might have been achieved at any
time, provided such transactions were entered into on the basis of a commercial
decision of the Servicer, or (ii) in respect of the Servicer's obligation to
apply the ILFC Conflicts Standard in respect of its performance of the services,
except, in either situation, in the case of wilful misconduct or fraud on the
part of the Servicer. See "Risk Factors -- Risks Relating to MSAF Group and
Certain Third Parties -- Limitation of Liability on the Part of the Servicer".
AIRCRAFT SERVICES
Pursuant to the Servicing Agreement, the Servicer has, inter alia,
undertaken:
- to employ or otherwise engage such staff (including in-house legal
staff) and maintain such supporting resources as the Servicer shall deem
necessary in accordance with its usual business practices with respect to
its own aircraft, both in number and quality to enable it to perform the
Services;
- to grant MSAF Group and its agents, including the Administrative Agent
and auditors, access to certain information and personnel of the Servicer
under specified circumstances to enable MSAF Group to monitor the
Servicer's compliance with the Servicing Agreement and otherwise for the
purposes of MSAF Group's business; and
- not to commingle with its own funds any funds of MSAF Group other than
security deposits held pursuant to the Servicing Agreement and
misdirected funds from Lessees (which shall be promptly redirected to an
MSAF Group bank account).
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The main categories of services being provided by the Servicer pursuant to
the Servicing Agreement in respect of the Initial Aircraft (the "SERVICES") are:
- Lease marketing services, including, subject to the terms of the
Indenture and the Servicing Agreement, remarketing, lease negotiation and
execution (including, without limitation, negotiating final Lease terms);
- Initial Aircraft assets management services, including lease rent
collection, aircraft maintenance, insurance, contract compliance of, and
enforcement against, Lessees, and accepting delivery and redelivery of
aircraft;
- Initial Aircraft sales services as, when and to the extent directed by
MSAF Group;
- monitoring of maintenance and provision of records and information with
respect to the Initial Aircraft;
- arranging for valuations and monitoring regulatory developments;
- providing to MSAF Group certain data and information relating to the
Initial Aircraft;
- assistance in connection with the public or private offerings of any
securities of MSAF or any of its affiliates, including assisting in
public disclosure relating to the Servicer and its affiliates contained
in any disclosure document, certain Initial Aircraft-related
participation in marketing activities solely with respect to the Initial
Aircraft and the Servicer and the Services, and providing MSAF Group,
underwriters, rating agencies and/or other advisors with the reasonable
opportunity to conduct due diligence with respect to the Servicer as it
relates to the Initial Aircraft;
- legal and other professional services with respect to the lease, sale or
financing of the Initial Aircraft, any amendment or modification of any
Lease, the enforcement of the rights of any person within MSAF Group
under any Lease, any disputes that arise with respect to the Initial
Aircraft or for any other purpose that the Servicer reasonably determines
is necessary in connection with the performance of the Services; and
- periodic reporting of operational information relating to the Initial
Aircraft.
OPERATING GUIDELINES
Under the Servicing Agreement, the Servicer will be entitled to exercise
such authority as is necessary to give it a practicable and working level of
autonomy, responsibility and authority in performing the Services, while at the
same time MSAF Group through the Administrative Agent will establish monitoring
and control procedures which are expected to enable it properly to manage the
business and assets of the MSAF Group.
Pursuant to the terms of the Servicing Agreement, the Servicer is required
to comply with the ILFC Services Standard and the ILFC Conflicts Standard in the
performance of the Services. All transactions to be entered into by the Servicer
on behalf of MSAF Group (other than with other persons within MSAF Group) are
required to be at arm's length and on fair market value terms unless otherwise
agreed or directed by MSAF Group. Certain transactions or matters with respect
to Initial Aircraft require the specific approval of MSAF Group, including:
- sales of (or commitments or agreements to sell) Initial Aircraft (other
than as required by a Lease);
- the entering into of any new Leases (including renewals or extensions,
unless any such Lease had originally been approved) if the Lease does not
comply with any applicable operating covenants set forth under
"Description of the Notes -- Operating Covenants";
- terminating any Lease or Leases to any single Lessee with respect to
Initial Aircraft then having a value in excess of $100 million;
- unless provided for in the applicable budget, entering into any contract
for the modification or maintenance of Initial Aircraft where the costs
to be incurred (A) exceed the greater of (i) the
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<PAGE> 72
estimated aggregate cost of a heavy maintenance or structural check for
similar aircraft and (ii) available maintenance reserves or other
collateral under the related Lease or (B) are outside the ordinary course
of MSAF Group's business;
- entering into any capital commitment or confirming any order or
commitment to acquire or acquiring aircraft or engines on behalf of MSAF
Group, except, with respect to a replacement engine or a spare part for
an Initial Aircraft, (A) if provided for in the applicable budget or (B)
at such times and on such terms and conditions as the Servicer deems
reasonably necessary or appropriate in connection with its performance of
the Services and in no greater quantity than that which is required to
enable the Initial Aircraft to be leased;
- issuing any guarantee on behalf of, or otherwise pledging the credit of,
any person within MSAF Group;
- unless otherwise permitted, entering into any agreement for services to
be provided in respect of Initial Aircraft by third parties at MSAF
Group's cost outside the ordinary course of ILFC's business, except to
the extent provided for in the applicable budget;
- incurring or causing to be incurred on behalf of any person within MSAF
Group any liability (actual or contingent), unless contemplated in the
applicable budget, pursuant to a transaction of a type for which MSAF
Group's specific approval is otherwise required, or incurred in the
ordinary course of MSAF Group's business; and
- any transaction with ILFC or any of its affiliates not contemplated in
the Servicing Agreement.
BUDGETS
MSAF Group will adopt an annual and a three-year budget each year with
respect to all Initial Aircraft. Under the Servicing Agreement, the Servicer has
undertaken to use best efforts to achieve the annual budget for each year.
MANAGEMENT FEES AND SERVICER EXPENSES
MSAF is obligated to pay certain fees to the Servicer, pursuant to the
Servicing Agreement. A base fee is payable in instalments: an initial fee of
$2,000,000 was paid on December 1, 1997 and the balance is payable monthly, in
the amounts of approximately $83,000 per month until November 30, 1998, $250,000
per month thereafter until November 30, 1999 and approximately $167,000 per
month thereafter, in each case subject to pro-rata reduction for any month in
which MSAF Group does not own all the Initial Aircraft. A rent-related fee is
also payable monthly, equal to 1% of the aggregate rent due for any month (or
portion of a month) in which MSAF Group owns the related Aircraft, plus 1% of
the aggregate rent actually paid for such month. In addition, the Servicer will
receive two incentive fees: (i) a results-based incentive fee, equal to 10% of
any excess of actual net results for any year over a target amount contained in
the applicable annual budget and (ii) a sales-based incentive fee with respect
to each sale of an Aircraft, equal to 1.5% of the lesser of the net proceeds of
such sale and the target amount for such Aircraft agreed in advance by MSAF and
the Servicer, plus 5% of any excess of such net proceeds over such target
amount.
The Servicer also will be reimbursed for certain expenses incurred in
connection with the Servicer's performance of the Services. These expenses
include, among other expenses, Initial Aircraft maintenance costs and insurance,
outside professional advisory fees (including legal fees) and other out of
pocket expenses, all of which in the aggregate may constitute a significant
additional component of MSAF Group's total overhead costs.
TERM AND TERMINATION
The Servicing Agreement shall expire on the twenty-fifth anniversary of the
date on which the last Initial Aircraft is delivered to MSAF Group.
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Each party will also have the right to terminate the Servicing Agreement
under certain circumstances. The Servicer has the right to terminate the
Servicing Agreement if, among other things:
- MSAF fails to pay when due any amount payable by MSAF to the Servicer if
not paid within 5 days of notice of such failure;
- MSAF or any of its subsidiaries shall materially breach any of their
obligations under the Servicing Agreement other than payment obligations;
- all of the public debt of the MSAF Group is repaid or defeased in full
in accordance with the terms of any Indenture;
- all of the Initial Aircraft of MSAF Group are sold; or
- an involuntary proceeding is commenced or an involuntary petition is
filed in respect of MSAF or any subsidiary of MSAF under applicable
bankruptcy, insolvency, receivership or similar law, and such proceeding
or petition shall continue undismissed for 120 days or any such person
shall go into liquidation, suffer a receiver or mortgagee to take
possession of all or substantially all of its assets or have an examiner
appointed over it, or a petition or proceeding is presented for any of
the foregoing and not discharged within 120 days; or a voluntary
proceeding is commenced in respect of MSAF or any subsidiary of MSAF
under bankruptcy, insolvency, receivership or similar law, or such person
consents to the institution of, or fails within 120 days to contest the
filing of, any petition described above, or files an answer admitting the
material allegations of any such petition, or makes a general assignment
for the benefit of its creditors.
MSAF has the right to terminate the Servicing Agreement with respect to one
or more Aircraft if:
- the Servicer materially breaches any of its obligations under the
Servicing Agreement;
- the Servicer fails, within a reasonable period of time, to re-lease an
Initial Aircraft upon the termination of any Lease or to sell an Initial
Aircraft upon commercially reasonable written direction from MSAF;
- all of the public debt of the MSAF Group is repaid or defeased in full
in accordance with the terms of any Indenture;
- all of the Initial Aircraft of MSAF Group are sold;
- a Rating Decline occurs as a result of a Change of Control. A "RATING
DECLINE" means that the rating of the outstanding senior unsecured
long-term debt securities of the Servicer is decreased below A1 by
Moody's, below A+ by Standard & Poor's or below AA- by DCR, at any time
between (a) the date of public notice of a Change of Control, or of the
intention of the Servicer or any person to effect a Change of Control and
(b) 90 days after the occurrence of the Change of Control (which period
shall be extended so long as the rating of the outstanding senior
unsecured long-term debt securities of the Servicer is under publicly
announced consideration for possible downgrade by a Rating Agency). A
"CHANGE OF CONTROL" means that either (A) any person or any persons
acting together that would constitute a "group" (a "GROUP") for purposes
of Section 13(d) of the Securities Exchange Act of 1934, together with
any affiliates or persons directly or indirectly owning 5% of the
outstanding common stock or equity interest, or of the combined voting
power of the voting stock, of such person ("RELATED PERSONS"), shall
beneficially own (within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934 ("RULE 13D-3")) at least 50% of the aggregate voting
power of all classes of voting stock of the Servicer, or (B) any person
or Group, together with any affiliates or Related Persons, shall succeed
in having a sufficient number of its nominees elected to the Board of
Directors of the Servicer such that such nominees, when added to any
existing director remaining on the Board of Directors of the Servicer
after such election who was a nominee of or is an affiliate or Related
Person of such person or Group, will constitute a majority of the Board
of Directors of the Servicer; provided that with respect to both clauses
(A) and (B) above, a Change of Control shall not be deemed to have
occurred if American International Group, Inc. continues to beneficially
own (within
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the meaning of Rule 13d-3) at least 51% of the aggregate voting power of
all classes of voting stock of the Servicer; or
- an involuntary proceeding is commenced in respect of the Servicer under
bankruptcy, insolvency, receivership or similar law, if such proceeding
continues undismissed for 120 days or the Servicer shall go into
liquidation, suffer a receiver or mortgagee to take possession of all or
substantially all of its assets or have an examiner appointed over it or
if a petition or proceeding is presented for any of the foregoing and not
discharged within 120 days or a voluntary proceeding is commenced in
respect of the Servicer under bankruptcy, insolvency, receivership or
similar law or the Servicer shall make a general assignment for the
benefit of its creditors.
Other than in the case of a termination of the Servicing Agreement by the
Servicer because of MSAF's failure to make a payment to the Servicer, the
Servicing Agreement may not be terminated, unless a replacement servicer has
been appointed and accepted such appointment. In the event that a replacement
servicer has not been appointed within 90 days after any termination of the
Servicing Agreement or resignation by the Servicer, the Servicer may petition
any court of competent jurisdiction for the appointment of a replacement
servicer.
ASSIGNMENT OF SERVICING AGREEMENT
The Servicing Agreement and the rights and obligations of the Servicer, on
the one hand, and MSAF, on the other hand, are not assignable by either party
other than with the prior consent of the other party.
PRIORITY OF PAYMENT OF SERVICING FEES AND REIMBURSABLE EXPENDITURES
The fees and expenses of the Servicer rank senior in priority of payment to
all payments of interest, principal and premium, if any, on the Notes.
CORPORATE MANAGEMENT
With regard to the corporate affairs of MSAF Group, management services are
provided by three entities: the Administrative Agent, the Cash Manager and the
Financial Advisor.
ADMINISTRATIVE AGENT
Cabot acts as the Administrative Agent of MSAF Group.
The Administrative Agent is responsible for providing administrative,
accounting, bank account management and calculation and other services to MSAF.
The Administrative Agent's duties include:
- monitoring the performance of the Servicer (including the Servicer's
compliance with the Servicing Agreement) and reporting on such
performance to MSAF;
- assisting MSAF in establishing a program for evaluating the Servicer's
performance under the Servicing Agreement;
- acting as liaison with various rating agencies to assess the impact of
management decisions on the ratings of the Notes and coordinating
responses to rating agency questions;
- the maintenance on behalf of MSAF Group of accounting ledgers and the
provision on a quarterly and annual basis of draft accounts on a combined
basis for MSAF Group as well as, on a quarterly and annual basis, on an
individual company basis for certain companies. However, MSAF Group
retains responsibility for the ledgers and accounts including all
discretionary decisions and judgments relating to the preparation and
maintenance thereof, and MSAF Group retains responsibility for, and
prepares, its financial statements;
- preparing annual budgets and presenting them to MSAF Group for approval;
- authorizing payment of certain bills and expenses;
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- to the extent required by MSAF Group or the parties thereto,
coordinating any amendments to the transaction agreements, subject to the
approval of MSAF Group;
- supervising outside counsel and other professional advisers and
coordinating legal and other professional advice received by MSAF Group
other than with respect to any service or matter which is the
responsibility of the Servicer under the Servicing Agreement;
- preparing and coordinating reports to investors and to the Commission,
including preparing press releases and managing investor relations with
the assistance of outside counsel and auditors, if appropriate;
- preparing for the approval of MSAF Group and filing all required tax
returns with the assistance of outside counsel and auditors, if
appropriate;
- maintaining, or monitoring the maintenance of, the books, records,
registers and associated filings of MSAF Group;
- preparing an agenda and any required papers for meetings of the
governing bodies of the entities within MSAF Group;
- assisting in making aircraft lease, sale and capital investment
decisions;
- overseeing the general operation of the ILFC Facility;
- overseeing the general operation of the Morgan Stanley Facility;
- establishing and maintaining the Accounts and any other accounts;
- advising MSAF Group as to the appropriate levels of the Liquidity
Reserve Amount;
- informing the Servicer of the aggregate deposits in the Accounts as
required;
- directing withdrawals and transfers from the Accounts in accordance with
the Indenture;
- receiving data provided by the Servicer with respect to the Aircraft and
Leases;
- calculating certain monthly payments, and all other calculations
otherwise required pursuant to the Indenture;
- providing the Trustee with information required by the Trustee to
provide its reports to the Noteholders; and
- providing additional services upon the request of MSAF Group upon terms
to be agreed at the time of any such request.
The Administrative Agent may delegate to a third party one or more of the
above administrative services it is responsible for providing to MSAF Group.
The Administrative Agent receives a monthly fee equal to 1.5% of the rental
payments made by the Lessees under the Leases for such month from MSAF Group in
respect of its services to MSAF Group subject to an annual minimum of $200,000.
The Administrative Agent is entitled to indemnification by MSAF Group for, and
will be held harmless against, any loss or liability incurred by the
Administrative Agent arising out of or in connection with its provision of
administrative services to MSAF Group (other than through its own deceit, fraud,
gross negligence or wilful misconduct or that of its officers, directors, agents
and employees).
MSAF Group may remove the Administrative Agent at any time on 120 days'
written notice.
The Administrative Agent may resign on 120 days' written notice in certain
circumstances.
CASH MANAGER
Bankers Trust Company acts as the Cash Manager. Subject to certain
limitations and at the direction of MSAF Group, the Cash Manager is authorized
to invest the funds held by MSAF Group in the Accounts in certain prescribed
investments (the "PERMITTED ACCOUNT INVESTMENTS") on permitted terms.
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The Cash Manager devotes the same amount of time and attention to and is
required to exercise the same level of skill, care and diligence in the
performance of its services as a prudent businessperson would in administering
such services on its own behalf. The Cash Manager's annual fees are not expected
to exceed $50,000 per annum. The Cash Manager is entitled to indemnification by
MSAF Group for, and will be held harmless against, any loss or liability
incurred by the Cash Manager (other than through its own gross negligence (or
simple negligence in the handling of funds), deceit, fraud or wilful misconduct
or that of its officers, directors, agents and employees).
MSAF may remove the Cash Manager at any time on 90 days' written notice as
long as MSAF Group has engaged another person or entity to perform the services
that were being provided by the Cash Manager. The Cash Manager may resign on 90
days' written notice as long as MSAF Group has engaged another person or entity
to perform the services that were being provided by the Cash Manager.
FINANCIAL ADVISOR
Morgan Stanley & Co. Incorporated acts as the Financial Advisor.
The Financial Advisor is responsible for assisting MSAF Group in developing
and implementing its interest rate risk management policies and developing
models for the purposes of analyzing the financial impact of aircraft lease,
sale and capital investment decisions. The Financial Advisor receives a fee of
$50,000 per annum, payable monthly in arrears in equal instalments, from MSAF
Group in respect of its services to MSAF Group. The Financial Advisory Agreement
may be terminated by either MSAF or the Financial Advisor on 30 days' written
notice.
DELAWARE TRUSTEE
Wilmington Trust Company will maintain the books and records, including
minute books and records and trust certificate records, of MSAF. It will make
available telephone, telecopy, telex and post office box facilities and will
maintain MSAF's principal place of business in Delaware.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
INTRODUCTION
The MSAF Group entities were organized in late 1997 and since that time
their principal business activity has been the acquisition of the Initial
Aircraft. MSAF Group's future business is expected to consist principally of
aircraft operating lease activities, acquisitions of Additional Aircraft and
sales of Aircraft. Cash flows generated from such activities will be used to
service interest and principal on the Notes, any Refinancing Notes and any
Additional Notes but only after various expenses of MSAF Group have been paid
for, including any taxes, obligations to Lessees including maintenance
obligations, fees and expenses of the Servicer, Administrative Agent, Cash
Manager, Financial Advisor, Trustee and other service providers, and payments to
Swap Providers. Upon the issuance of the Notes, MSAF will have no indebtedness
other than the Notes.
MSAF Group's ability to generate sufficient cash from its Initial Aircraft
assets to service the Notes will depend primarily on (i) the rental rates it can
achieve on Leases and the Lessees' ability to perform according to the terms of
those Leases and (ii) the prices it can achieve on any Initial Aircraft sales.
MSAF Group's ability to service the Notes will also depend on the level of its
operating expenses, including maintenance obligations which will increase as the
Initial Aircraft age, and on any unforeseen contingent liabilities arising.
There can be no assurance that cash flows generated from the Initial Aircraft
assets will be sufficient to service interest and principal on the Notes. See
"Risk Factors -- Risks Relating to the Aircraft", "-- Risks Relating to the
Leases" and "-- Risks Relating to the Lessees".
MSAF Group will not use operational cash flow to pay the purchase price for
Additional Aircraft but, instead, will issue Additional Notes to fund such
purchase price. Any such Additional Notes will be issued in compliance with the
limitations set forth under "Description of the Notes -- Indenture Covenants --
Limitation on Indebtedness".
INVESTORS SHOULD NOTE THAT MSAF WILL NOT PREPARE ANY CONSOLIDATED INCOME
STATEMENTS OR BALANCE SHEETS WITH RESPECT TO MSAF GROUP OR ANY FINANCIAL
INFORMATION OTHER THAN CASH REPORTS. SEE "REPORTS TO NOTEHOLDERS".
RECENT DEVELOPMENTS
As of May 31, 1998, all but one of the Contract Aircraft were acquired by
MSAF. The undelivered aircraft is a B737-400 on lease to the Turkish national
carrier, THY, with an appraised value of $28.82 million. Pursuant to the
Indenture, the Trustees have decided not to substitute this aircraft but to
distribute to Noteholders that portion of the proceeds from the Offering of the
Old Notes relating to this aircraft on the next payment date, June 15, 1998
pursuant to the priority of payments set forth in the Indenture. As a result,
the overall size of the Initial Aircraft is 32 aircraft plus a spare engine with
revised total appraised value reduced to $1,086.69. No aircraft have been sold
or suffered a total loss since March 3, 1998. As of May 31, 1998, the Initial
Aircraft were subject to leases with 29 lessees in 20 countries.
Since March 3, 1998, three of the Initial Aircraft were AOG for a period of
36, 42, and 59 days, respectively. Part of the AOG period was dedicated to
performing maintenance work on the aircraft prior to releasing. As of May 15,
1998 all three of the Initial Aircraft that were previously AOG were subject to
signed lease agreements with new lessees.
LIQUIDITY
LIQUIDITY RESERVE AMOUNT
The Liquidity Reserve Amount is intended to serve as a source of liquidity
for MSAF Group's maintenance obligations, security deposit return obligations,
operating expenses, contingent liabilities and Note obligations. The Liquidity
Reserve Amount may be funded with cash in the Collection Account and with
letters of credit, guarantees or other credit support instruments ("ELIGIBLE
CREDIT FACILITIES") provided by, or
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supported with further Eligible Credit Facilities provided by, a person (an
"ELIGIBLE PROVIDER") whose short-term unsecured debt is rated P-1 by Moody's,
A-1+ by Standard & Poor's, or D-1+ by DCR or is otherwise designated as an
Eligible Provider by the Controlling Trustees. Both the ILFC Facility discussed
below under "-- ILFC Facility" and the Morgan Stanley Facility discussed below
under "-- Morgan Stanley Facility" will be Eligible Credit Facilities and will
comprise part of the Liquidity Reserve Amount on and following the Closing Date.
There are currently no other Eligible Credit Facilities in place.
The Liquidity Reserve Amount was approximately $65.5 million on March 3,
1998. The Minimum Liquidity Reserve Amount was approximately $15 million on
March 3, 1998. The Liquidity Reserve Amount and the Minimum Liquidity Reserve
Amount may be increased or decreased from time to time for any reason (including
upon acquisitions of Additional Aircraft) by an action of the Controlling
Trustees in light of changes in, inter alia, the condition of the Aircraft, the
terms and conditions of the Leases, the financial condition of the Lessees,
sales of Aircraft and prevailing industry conditions; provided that MSAF Group
will obtain confirmation in advance in writing from the Rating Agencies that any
proposed reduction in the Liquidity Reserve Amount or the Minimum Liquidity
Reserve Amount will not result in a lowering or withdrawal by any such Rating
Agencies of their respective ratings of any MSAF Notes.
If the balance of cash on deposit in the Collection Account, together with
the amount available for drawing under any Eligible Credit Facilities, should
fall below the Liquidity Reserve Amount at any time (including as a result of
MSAF Group's determination that the Liquidity Reserve Amount should be
increased, as required by the Rating Agencies or otherwise), MSAF Group may
continue to make all payments, and any credit or liquidity enhancement
facilities may be drawn to fund such payments, including required payments on
the Notes, which rank prior to, or pari passu with, payments of the Minimum
Principal Payment Amount on the Class D Notes under "Description of the Notes --
Priority of Payments" and any Permitted Accruals other than in respect of
Modification Payments, provided that the balance of funds in the Collection
Account, together with the amount available for drawing under any Eligible
Credit Facilities, does not fall below the Minimum Liquidity Reserve Amount at
its then current level. However, the balance of funds in the Collection Account,
together with the amount available for drawing under any Eligible Credit
Facilities, may fall below the Minimum Liquidity Reserve Amount at its then
current level and MSAF Group may continue to make payments of, and any credit or
liquidity enhancement facilities may be drawn to fund such payments, all accrued
and unpaid interest on any subclass of the most senior class of Notes then
Outstanding to avoid an Event of Default, and, on the Final Maturity Date of any
subclass thereof, principal of, any subclass of the most senior class of Notes
then Outstanding to avoid an Event of Default.
Amounts drawn under any Eligible Credit Facility will either be repayable
at the third level in the priority of payments, as set forth in "Description of
the Notes -- Priority of Payments", before the First Collection Account Top-Up
(any such facility, a "PRIMARY ELIGIBLE CREDIT FACILITY") or at the eleventh
level in the priority of payments, as set forth in "Description of the Notes --
Priority of Payments", before the Second Collection Account Top-Up (any such
facility, a "SECONDARY ELIGIBLE CREDIT FACILITY").
The Liquidity Reserve Amount and the Minimum Liquidity Reserve Amount have
been determined largely based on an analysis of historical experience,
assumptions regarding MSAF Group's future experience and the frequency and cost
of certain contingencies in respect of the Initial Aircraft, and are intended to
provide liquidity for meeting the cost of maintenance obligations and
non-maintenance, aircraft-related contingencies such as removing regulatory
liens, complying with ADs, repossessing and releasing aircraft. In analyzing the
future impact of these costs, assumptions have been made regarding their
frequency and amount based upon historical experience. There can be no
assurance, however, that historical experience will prove to be relevant in the
future or that actual cash received by MSAF Group in the future will not be
significantly less than that assumed. Any significant variation may materially
adversely affect the ability of MSAF Group to make payments of interest and
principal on the Notes.
ILFC FACILITY
Under the ILFC Facility, ILFC will hold certain security deposits with
respect to the Initial Aircraft as custodian for the benefit of the MSAF Group.
ILFC will hold all cash security deposits paid with respect to
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the Initial Aircraft other than (i) amounts determined in good faith by ILFC to
be no longer held on behalf of a Lessee, whether upon expiry of or default under
the applicable Lease or otherwise, and (ii) any cash security deposits in an
amount exceeding three months' rent with respect to a single Initial Aircraft
and paid by a single Lessee. Any interest accruing on amounts of Initial
Aircraft security deposits that are being held by ILFC will generally accrue for
the benefit of ILFC.
In addition, under the ILFC Facility, ILFC will make loans to MSAF which
MSAF may use for the same purposes as those for which the Liquidity Reserve
Amount may be applied as discussed above under "-- Liquidity Reserve Amount",
including to pay interest and Minimum Principal Payment Amounts on the Notes.
ILFC's obligation to make such amounts available shall be limited to the "ILFC
FACILITY COMMITMENT" which was approximately $30.5 million on March 3, 1998. The
ILFC Facility Commitment shall be equal to (i) at any time before a Facility
Reduction Event, the sum of (A) $10 million plus (B) total Initial Aircraft
security deposits held by ILFC for the benefit of MSAF at such time minus (C)
all drawings previously made by MSAF under the ILFC Facility ("ILFC FACILITY
DRAWN AMOUNTS") and required to be repaid to ILFC but not repaid at such time
and (ii) at any time from and after a Facility Reduction Event, $10 million
minus all ILFC Facility Drawn Amounts required to be repaid to ILFC but not
repaid at such time. A "FACILITY REDUCTION EVENT" means a termination of the
Servicing Agreement prior to the twenty-fifth anniversary of the date on which
the last Initial Aircraft is delivered to MSAF Group for a reason other than a
sale of all the Initial Aircraft or the repayment or defeasance of MSAF's debt.
The ILFC Facility is a Secondary Eligible Credit Facility and, accordingly,
on the Payment Date following any drawing on the ILFC Facility, MSAF will be
obligated, to the extent there are Available Collections remaining after payment
of the Minimum Principal Payment Amount on the Class D Notes, to repay ILFC
Facility Drawn Amounts to ILFC, together with interest accrued thereon at 3% per
annum, calculated on the basis of a 360-day year consisting of twelve 30-day
months and compounded daily.
ILFC's agreement to provide the ILFC Facility will expire on the earliest
of (i) the twenty-fifth anniversary of the date on which the last Initial
Aircraft is delivered to MSAF Group, (ii) a sale of all the Initial Aircraft,
and (iii) the repayment or defeasance of all MSAF's debt.
For so long as ILFC is not an Eligible Provider, ILFC's obligations under
the ILFC Facility will be supported by an Eligible Credit Facility satisfactory
to MSAF provided by an Eligible Provider at ILFC's expense (a "BACK-UP
FACILITY"). Initially, this will be effected through the provision of a letter
of credit by Bank of Montreal for the benefit of MSAF. As of May 31, 1998, Bank
of Montreal's short-term unsecured debt was rated P-1 by Moody's and A-1+ by
Standard & Poor's.
MSAF may borrow under the ILFC Facility (i) in order to pay interest and
Minimum Principal Payment Amounts on the Notes, (ii) upon a downgrade in the
short-term unsecured debt rating of the provider of the Back-Up Facility such
that it is no longer an Eligible Provider and (iii) upon failure by the provider
of the Back-Up Facility to renew the Back-Up Facility (the events described in
clause (ii) and (iii), each, a "SUSPENSION EVENT"). If for any reason ILFC fails
to make any loan requested when due, MSAF may draw on the Back-Up Facility.
In the event of a loan by ILFC, or a drawing on the Back-Up Facility, in a
Suspension Event (a "SUSPENSION DRAWING"), MSAF will hold the drawing proceeds
in the Collection Account and such proceeds will comprise part of the cash
portion of the Liquidity Reserve Amount. In the event of any drawing, the
obligation to reimburse the provider of the Back-Up Facility shall be solely
ILFC's obligation and the provider of the Back-Up Facility shall have no
recourse to MSAF for any such amounts that are not reimbursed by ILFC.
Immediately following and after giving effect to any Suspension Drawing, ILFC
shall set off and apply the security deposits held by it on the date of such
Suspension Drawing on MSAF Group's behalf against the principal amount of any
ILFC Facility Drawn Amounts then outstanding, which shall be deemed repaid in
the amount of such set-off and application. After giving effect to such set-off
and application, MSAF shall be obliged to repay only up to $10 million of any
outstanding ILFC Facility Drawn Amounts unless and until ILFC has procured, at
its expense, a replacement Back-Up Facility acceptable to MSAF. MSAF shall be
obliged to pay interest on the proceeds of a Suspension Drawing at 3% per annum,
calculated on the basis of a 360-day year consisting of twelve 30-day months and
compounded daily.
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MORGAN STANLEY FACILITY
Under the Morgan Stanley Facility, Morgan Stanley will make loans to MSAF
which MSAF may use for the same purposes as those for which the Liquidity
Reserve Amount may be applied as discussed above under "-- Liquidity Reserve
Amount", including to pay interest and Minimum Principal Payment Amounts on the
Notes. Morgan Stanley's obligation to make such amounts available shall be
limited to the "MORGAN STANLEY FACILITY COMMITMENT". The Morgan Stanley Facility
Commitment, at any time, shall be equal to the sum of (A) $10 million minus (B)
all drawings previously made by MSAF under the Morgan Stanley Facility ("MORGAN
STANLEY FACILITY DRAWN AMOUNTS") and not repaid at such time.
The Morgan Stanley Facility is a Secondary Eligible Credit Facility and,
accordingly, on the Payment Date following any drawing on the Morgan Stanley
Facility, MSAF will be obligated, to the extent that there are Available
Collections remaining after payment of the Minimum Principal Payment Amount on
the Class D Notes, to repay Morgan Stanley Facility Drawn Amounts to Morgan
Stanley, together with interest accrued thereon at 3% per annum, calculated on
the basis of a 360-day year consisting of twelve 30-day months and compounded
daily.
Morgan Stanley's agreement to provide the Morgan Stanley Facility will
expire on the earlier of (i) a sale of all the Aircraft and (ii) the repayment
or defeasance of all MSAF's debt. Morgan Stanley has been designated by the
Controlling Trustees as an Eligible Provider. As of the date of this Prospectus,
Morgan Stanley's long-term unsecured debt was rated A1 by Moody's, A+ by
Standard & Poor's and AA- by DCR.
OTHER FACILITIES
There are currently no Primary Eligible Credit Facilities in place. MSAF
may put in place other Eligible Credit Facilities from time to time, each of
which shall be designated by the Controlling Trustees as a Primary Eligible
Credit Facility or a Secondary Eligible Credit Facility. In addition, MSAF may
from time to time put in place other credit or liquidity enhancement facilities
which are not Eligible Credit Facilities. Amounts drawn under any such other
facilities are repayable at the eleventh level in the order of priorities as set
forth in "Description of the Notes -- Priority of Payments", before the Second
Collection Account Top-Up.
INTEREST RATE MANAGEMENT
The leasing revenues of MSAF Group will be generated primarily from Rental
Payments. Rental Payments are currently entirely fixed but may be either fixed
or floating with respect to Future Leases. In general, an interest rate exposure
arises to the extent that MSAF Group's fixed and floating interest obligations
in respect of the Notes do not correlate to the mix of fixed and floating rental
payments for different rental periods. This interest rate exposure can be
managed through the use of interest rate swaps and other derivative instruments.
The Subclass A-1, A-2 and B-1 Notes will bear floating rates of interest and the
Subclass C-1 and D-1 Notes will bear fixed rates of interest. MSAF is a party to
eight interest rate swaps (the "INITIAL SWAPS") with an affiliate of Morgan
Stanley. In six of these swaps MSAF pays a fixed monthly coupon and receives one
month LIBOR and in two of these swaps MSAF pays one month LIBOR and receives a
fixed monthly coupon on the notional balances as set out below:
<TABLE>
<CAPTION>
NOTIONAL FIXED MONTHLY FIXED MONTHLY
BALANCE EFFECTIVE DATE MATURITY DATE PAY RATE RECEIVE RATE
- -------- ----------------- ----------------- ------------- -------------
($000'S) (%) (%)
<S> <C> <C> <C> <C>
100,000 November 12, 1997 November 15, 1999 6.0550 --
300,000 November 12, 1997 November 15, 2000 6.1325 --
200,000 November 12, 1997 November 15, 2002 6.2150 --
200,000 November 12, 1997 November 15, 2004 6.2650 --
150,000 November 12, 1997 November 15, 2007 6.3600 --
50,000 November 12, 1997 November 15, 2009 6.4250 --
150,000 February 19, 1998 November 15, 2007 -- 5.860
50,000 February 19, 1998 November 15, 2009 -- 5.905
</TABLE>
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At least every three months, MSAF expects to seek to enter into additional
swaps or sell at market value or unwind part or all of the initial and any
future swaps in order to rebalance the fixed and floating mix of interest
obligations (including those arising as a result of previous interest rate swaps
entered into) and the fixed and floating mix of rental payments.
Through the use of interest rate swaps, and other interest rate hedging
products, it is MSAF Group's policy not to be adversely exposed to material
movements in interest rates. MSAF Group's interest rate management strategy will
need to be rebalanced with any acquisition of Additional Aircraft to reflect the
adjusted mix of fixed and floating rate rental payments arising from any such
acquisition. There can be no assurance, however, that MSAF Group's interest rate
risk management strategies will be effective in this regard. Any change to MSAF
Group's policy with regard to its dealing in interest rate hedging products will
be subject to periodic review by the Rating Agencies.
The Controlling Trustees are responsible for reviewing and approving the
overall interest rate management policies and transaction authority limits.
Counterparty risk will be monitored on an ongoing basis. Counterparties will be
subject to the prior approval of the Controlling Trustees. MSAF Group's
counterparties are currently all affiliates of Morgan Stanley. Future
counterparties will consist primarily of the affiliates of major United States
and European financial institutions (including special-purpose derivative
vehicles) which have credit ratings, or which provide collateralization
arrangements, consistent with maintaining the ratings of the Notes.
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DESCRIPTION OF THE NOTES
The following summary is qualified in its entirety by reference to the
Indenture, the Cash Management Agreement, the Reference Agency Agreement, the
Administrative Agency Agreement, the Notes, the Security Trust Agreement, the
Servicing Agreement, the Asset Purchase Agreement, the Financial Advisory
Agreement, the Swap Agreements, the ILFC Facility and the Morgan Stanley
Facility (collectively, the "RELATED DOCUMENTS"). References to "Related
Documents" shall also include where the context requires, any Refinancing Notes
and any Additional Notes and guarantees, asset or stock purchase agreements,
swap or other interest rate agreements or other agreement entered into by any
member of MSAF Group in connection with any acquisition of Additional Aircraft
and issuance of Additional Notes.
GENERAL
The Old Notes were issued pursuant to the Indenture, a copy of which has
been filed as an exhibit to the Registration Statement, of which this Prospectus
is a part. The New Notes will also be issued pursuant to the Indenture, which
will be qualified under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act") upon effectiveness of the Registration Statement of which this
Prospectus is a part. The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act.
The terms of the New Notes will be identical in all material respects to
the Old Notes, except that the offer of the New Notes will have been registered
under the Securities Act and, therefore, the New Notes will not be subject to
certain transfer restrictions, registration rights and certain provisions
providing for an increase in the interest rate on the Notes under certain
circumstances relating to the Registration Agreement.
The Notes, composed of Subclass A-1, Subclass A-2, Subclass B-1, Subclass
C-1 and Subclass D-1 Notes, will be issued in fully registered form only. The
Notes will be issued in minimum denominations of $100,000 and integral multiples
of $1,000 in excess thereof.
The Notes are solely an obligation of MSAF and are not secured by the
Aircraft and do not represent obligations of any Lessee, Morgan Stanley, the
Trustee, ILFC, or any affiliate of any of the foregoing other than MSAF.
The Indenture provides that MSAF will pay the fees and expenses of the
Trustee and further provides that the Trustee will be entitled to
indemnification by MSAF for, and will be held harmless against, any loss,
liability or expenses incurred by the Trustee (other than through its own wilful
misconduct, bad faith or negligence or by reason of a breach of any of its
representations or warranties set forth in the Indenture).
The Trustee may resign with respect to any subclass of MSAF Notes at any
time without cause upon at least 90 days' prior written notice to MSAF, the
Administrative Agent and the holders of such subclass, in which event MSAF will
be obligated to appoint a successor trustee for such subclass of MSAF Notes.
Holders of each subclass may have divergent or conflicting interests from the
MSAF Noteholders of other subclasses. As a result, the occurrence of certain
circumstances, including the occurrence of an Event of Default, may give rise to
a potential conflict of interest on the part of the Trustee in its capacity as
trustee in respect of more than one subclass of MSAF Notes, upon which event the
Trustee may be compelled to resign as trustee in respect of more than one
subclass of MSAF Notes. If the Trustee ceases to be eligible to continue as
trustee with respect to any subclass of MSAF Notes, becomes incapable of acting
as Trustee or becomes insolvent, MSAF may remove the Trustee, or any MSAF
Noteholder of the applicable subclass who has been a bona fide MSAF Noteholder
for at least six months may, on behalf of itself and all other MSAF Noteholders
of the same subclass, petition any court of competent jurisdiction for the
removal of the Trustee as trustee of such subclass and the appointment of a
successor trustee. In addition, holders of not less than a majority in aggregate
Outstanding Principal Balance of any subclass of MSAF Notes may at any time
remove the Trustee with respect to such subclass without cause by delivering
written notice of such removal in writing to MSAF, the Administrative Agent and
the Trustee. Any resignation or removal of the Trustee and appointment of a
successor trustee will not become effective until acceptance of the appointment
by the successor trustee. Pursuant to such resignation, removal and successor
trustee provisions, it is possible that a different trustee
76
<PAGE> 83
could be appointed to act as the successor trustee with respect to each subclass
of the MSAF Notes. All references in this Prospectus to the "Trustee" should be
read to include the Trustee and any successor trustee appointed in the event of
such a resignation or removal.
RATINGS
Each subclass of the Notes is rated as of the date of this Prospectus as
follows:
<TABLE>
<CAPTION>
RATING AGENCIES
-----------------------------------
SUBCLASS OF NOTES MOODY'S STANDARD & POOR'S DCR
- ----------------- ------- ----------------- ---
<S> <C> <C> <C>
Subclass A-1............................................. Aa2 AA AA
Subclass A-2............................................. Aa2 AA AA
Subclass B-1............................................. A2 A A
Subclass C-1............................................. Baa2 BBB BBB
Subclass D-1............................................. Ba2 BB BB
</TABLE>
The ratings of the Notes address the likelihood of the timely payment of
interest and the ultimate payment of principal and premium, if any, on the
Notes. Payments of principal and interest on all subclasses of the Notes will be
payable only after any Expenses and certain other amounts have been paid or
provided for in full and only to the extent that Available Collections are
sufficient therefor in accordance with the priority of payments established for
the Notes. In addition, MSAF's ability to pay Step-Up Interest in full on the
Subclass A-1 Notes has not been rated by any of the Rating Agencies. The ratings
assigned to the Notes do not address the imposition of any withholding tax on
any payments under the Leases, the Notes or otherwise. See "Risk Factors --
Risks Relating to Tax".
A rating is not a recommendation to buy, sell or hold Notes inasmuch as
such ratings do not comment as to market price or suitability for a particular
investor and may be subject to revision or withdrawal at any time by the
assigning Rating Agency. In the event that the rating initially assigned to any
subclass of the Notes is subsequently lowered, suspended or withdrawn for any
reason, no person or entity is obliged to provide any additional support or
credit enhancement with respect to the Notes.
REGISTRATION REQUIREMENTS
Holders of New Notes are not generally entitled to any registration rights
with respect to such New Notes. Pursuant to the Registration Agreement, MSAF has
filed with the Commission the Registration Statement of which this Prospectus is
a part with respect to the Exchange Offer to exchange the Old Notes for New
Notes.
In the event that applicable interpretations of the staff of the Commission
do not permit MSAF to effect the Exchange Offer, or under certain other
circumstances, MSAF shall, at MSAF's cost, use its best efforts to cause to
become effective a shelf registration statement (the "SHELF REGISTRATION
STATEMENT") with respect to resales of the Notes and to keep such registration
statement effective until March 3, 2000 or until all Notes have been sold
thereunder. MSAF shall, in the event of such a shelf registration, provide to
each Noteholder copies of the prospectus, notifying each Noteholder when the
Shelf Registration Statement for the Notes has become effective and take certain
other actions as are required to permit resales of the Notes. A Noteholder that
sells its Notes pursuant to the Shelf Registration Statement generally will be
required to be named as a selling security holder in the related prospectus and
to deliver a prospectus to purchasers. In addition, such Noteholder will be
subject to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
Registration Rights Agreement that are applicable to such Noteholder (including
certain indemnification obligations).
In the event that the Exchange Offer is not consummated, or a Shelf
Registration Statement is not declared effective on or prior to November 30,
1998, then, from and after such date, the applicable annual interest rate borne
by each subclass of the Notes shall be increased by 0.50% per annum over the
rate then applicable to such subclass of Notes in accordance with the rate shown
on the cover page of this Offering
77
<PAGE> 84
Memorandum until the Exchange Offer is consummated or the Shelf Registration
Statement is declared effective. So long as the Notes are listed on the
Luxembourg Stock Exchange, any such increase in the interest rates applicable to
any subclass of Notes shall be published in accordance with the notification
requirements specified in the Indenture. See "-- Notices to Noteholders".
PAYMENTS
On each Payment Date, commencing April 15, 1998, payments of interest,
principal and, in certain limited circumstances described herein, premium on
each subclass of Notes will be determined and made in accordance with the
provisions described below under "-- Priority of Payments".
On each Payment Date, the Trustee will pay (or will instruct a paying agent
appointed in Luxembourg to pay) to the Noteholders all interest, principal and
premium, if any, on the Notes of each subclass (other than payments received
following an Event of Default in respect of any subclass of Notes), the receipt
of which is confirmed by the Trustee or paying agent by 1:00 p.m. (New York
time) on such Payment Date or, if such receipt is confirmed after 1:00 p.m. (New
York time) on such Payment Date or on any Business Day thereafter, then on the
Business Day following the Business Day on which payment is received. Each
payment on any Payment Date other than the Final Payment Date with respect to
any subclass of Notes will be made by the Trustee or paying agent to the
Noteholders as of the Record Date immediately preceding such Payment Date. The
final payment with respect to any Note, however, will be made only upon
presentation and surrender of such Note by the Noteholder or its agent
(including any holder in street name) at the office or agency of the applicable
Trustee or paying agent specified in the notice given by the Trustee or paying
agent with respect to such final payment. So long as the Notes are listed on the
Luxembourg Stock Exchange, MSAF shall appoint and maintain a paying agent in
Luxembourg.
At such time, if any, as the Notes of any subclass are issued in the form
of Definitive Notes, payments from the applicable Account on a Payment Date will
be made by check mailed to each Noteholder of a Definitive Note on the
applicable Record Date at its address appearing on the register maintained with
respect to such subclass. Alternatively, upon application in writing to the
Trustee, not later than the applicable Record Date, by a Noteholder of one or
more Definitive Notes of such subclass having an aggregate principal amount of
not less than $1,000,000, any such payments will be made by wire transfer to an
account designated by such Noteholder at a financial institution in New York,
New York; provided that the final payment for each subclass of Notes will be
made only upon presentation and surrender of the Definitive Notes of such
subclass by the Noteholder or its agent (including any holder in street name) at
the office or agency of the Trustee specified in the notice of such final
payment given by the Trustee. The Trustee will mail such notice of the final
payment of such subclass to each of the Noteholders of such subclass, specifying
the date and amount of such final payment.
If any Payment Date or other date specified herein for any payments to
Noteholders is not a Business Day, the payment scheduled to be made on such
Payment Date or other date shall be made on the next succeeding Business Day.
The following table sets forth the Expected Weighted Average Life, the
Expected Final Payment Date and the Final Maturity Date of each subclass of
Notes. The Expected Final Payment Date for each subclass of Notes represents the
date on which the final payment of principal of and interest on such subclass of
Notes is expected to be made based on the Assumptions. The Final Maturity Date
for each subclass of Notes represents the date on which all principal not
previously paid, if any, on the corresponding subclass of Notes is due and
payable. The actual final payment date for each subclass of Notes is likely to
occur earlier or later than the Expected Final Payment Date as a result of
numerous factors, including that the Assumptions are unlikely to correspond to
actual experience. For a description of certain Redemption events and other
factors which could cause the Notes to be paid prior to the Expected Final
Payment Date applicable to each corresponding subclass of Notes, see "-- Payment
of Principal and Interest -- Redemption". Holders of the Subclass A-1 Notes will
receive payments of Step-Up Interest in respect of any amounts Outstanding on
and after the Expected Final Payment Date for such subclass.
78
<PAGE> 85
EXPECTED WEIGHTED AVERAGE LIFE, EXPECTED FINAL PAYMENT DATES
AND FINAL MATURITY DATES OF THE NOTES
<TABLE>
<CAPTION>
EXPECTED
WEIGHTED
AVERAGE LIFE EXPECTED FINAL FINAL MATURITY
SUBCLASS OF NOTES IN YEARS PAYMENT DATE DATE
- ----------------- ------------ ------------------ --------------
<S> <C> <C> <C>
Subclass A-1............................. 2.0 March 15, 2000 March 15, 2023
Subclass A-2............................. 3.8 September 15, 2005 March 15, 2023
Subclass B-1............................. 8.6 March 15, 2013 March 15, 2023
Subclass C-1............................. 10.6 March 15, 2013 March 15, 2023
Subclass D-1............................. 12.1 March 15, 2014 March 15, 2023
</TABLE>
ASSUMPTIONS
The Assumptions and tables set forth below represent possible revenue
scenarios designed to illustrate certain payment characteristics of the Notes
and are not intended to be projections, estimates, forecasts or forward-looking
statements. The tables have been developed by fixing certain of the Assumptions
and by varying other Assumptions and certain other factors which affect MSAF
Group's revenues and costs and expenses. The Assumptions do not represent a
complete list of factors which may affect the revenues and costs and expenses of
MSAF Group, but rather indicate those factors which are likely to significantly
affect the performance of MSAF Group in future years. In addition, the range of
possible outcomes with respect to each Assumption and the combinations of
Assumptions set forth above do not indicate a comprehensive set of possible
results for MSAF Group. In particular, more severe stresses may lead to payments
of principal on the Notes being delayed or decreased, or in certain cases, an
Event of Default.
Accordingly, investors should understand that the following tables are
intended merely to illustrate certain, but not all, payment sensitivities of the
Notes to certain, but not all, market and economic stresses. MSAF Group does not
intend to update or revise the information presented to reflect changes
occurring after March 31, 1998. As of the date of this Prospectus, however, MSAF
Group is not aware of events or circumstances since March 31, 1998 that would
cause the Assumptions to be unreliable. It is highly likely that actual
experience will vary from the Assumptions and the possible revenue scenarios
represented by the tables. The principal factors that could cause MSAF Group's
actual revenues to differ materially from such scenarios are the Stresses and
certain "Risk Factors" as set out herein. See "Risk Factors".
REVENUE ASSUMPTIONS:
(i) One month LIBOR remains constant at 5.75% per annum and the U.S.
Treasury rate used for Make-Whole Premium calculations is 5.5%.
(ii) Funds on deposit in the Collection Account and any other cash
balances held by MSAF earn interest at a rate of one month LIBOR.
(iii) Aircraft coming off-lease in the future are assumed to be re-leased
at a monthly rate that is a function of the current contracted
monthly lease rate as of February 1, 1998 for such Aircraft, and the
age of such Aircraft. Lease rates are assumed to remain constant at
the monthly lease rate for the first 60% of an Aircraft's expected
useful life, thereafter declining on a straight-line basis to 40% of
such lease rate over the remainder of its expected useful life (the
"FUTURE LEASE RATE"). All types of Initial Aircraft in the Portfolio
are assumed to have an expected useful life of 25 years (the
"EXPECTED USEFUL LIFE").
(iv) Initial Aircraft are assumed to have no scrap value at the end of
their Expected Useful Life.
(v) All contracted and assumed future payments in respect of the Leases
are timely received by MSAF Group on the due date therefor.
(vi) Future Lease terms are assumed to be five years.
79
<PAGE> 86
(vii) No new Purchase Options with respect to the Initial Aircraft are
granted to Lessees by MSAF Group and the only existing Purchase
Option exercised is the option associated with the Conditional Sale
Agreement.
(viii) No new Lease termination or extension options are granted to Lessees
by MSAF Group and no existing termination or extension options are
exercised.
(ix) The Remaining Aircraft are delivered to MSAF Group and with the
exception of the Initial Aircraft sale assumed pursuant to the
Conditional Sale Agreement as detailed in paragraph (vii) above, MSAF
Group sells no Initial Aircraft.
(x) MSAF Group acquires no Additional Aircraft.
(xi) MSAF makes and receives Swap Payments in accordance with the
contracted terms of the Initial Swaps.
(xii) Security deposits, Modification Payments and Subordinated Swap
Payments are assumed to be zero.
The above Assumptions (i) to (xii) are used to determine the assumed gross
monthly revenue to MSAF Group before interest payments, principal payments,
selling, general and administrative expenses and before lost rental payments and
expenditures required due to Aircraft downtime, Lessee defaults, aircraft
repossession costs, bad debts and operating costs incurred in the ordinary
course of the operating lease business ("GROSS REVENUE"). See Appendix 3 to this
Prospectus for further data regarding Gross Revenue.
INTEREST, EXPENSE AND OPERATING COST ASSUMPTIONS:
(xiii) The Notes are issued in amounts and with coupons as set forth in the
following table and payments are made in accordance with the order
of priorities set forth under "-- Priority of Payments".
<TABLE>
<CAPTION>
SUBCLASS OF NOTES AMOUNT MONTHLY COUPON
----------------- ------------ --------------------
($ MILLIONS)
<S> <C> <C>
Subclass A-1................................ 400 1 Month LIBOR+ 0.21%
Subclass A-2................................ 340 1 Month LIBOR+ 0.35%
Subclass B-1................................ 100 1 Month LIBOR+ 0.65%
Subclass C-1................................ 100 6.90%
Subclass D-1................................ 110 8.70%
------
$1,050
======
</TABLE>
(xiv) Refinancing Notes are assumed to be issued and sold on the Expected
Final Payment Date of the Subclass A-1 Notes (and on each subsequent
expected final payment dates of any such Refinancing Notes) on the
same terms with respect to priority, coupon and redemption as the
Notes being refinanced and with maturities and amortization schedules
paid with the application of the Minimum, Scheduled and Supplemental
Principal Payment Amounts. Issuance expenses are assumed to be
one-twelfth of 0.05% of the Outstanding Principal Balance.
(xv) The Servicer's fees are as described under "Management of MSAF Group
-- Servicer" and the results-based incentive fee is assumed to be
equal to 1% of Gross Revenue. The Administrative Agent's fee is as
described in "Management of MSAF Group -- Corporate Management".
MSAF's other selling, general and administrative expenses in the
amount of $1 million per annum are deducted from Gross Revenue and
include fees to the Cash Manager and Financial Advisor.
(xvi) Gross Revenues are reduced each year by 3.5% to account for certain
operating costs incurred in the ordinary course of the operating
lease business including insurance expenses, Aircraft related costs
and leasing transaction expenses.
(xvii) The maximum Beneficial Interest Distribution Amount that can be paid
on any Payment Date in accordance with the above Assumptions is
paid.
80
<PAGE> 87
ASSUMED CASE STRESS SCENARIO:
(xviii) Gross Revenues are assumed to be reduced by 4.5% per annum in
respect of lost rental payments and expenditures required due to
AOG, Lessee defaults, aircraft repossession costs and bad debts
("STRESSES"). The following set of Stresses are presented for
illustrative purposes and only represent an example of a
combination of Stresses which result in approximately a 4.5%
reduction in Gross Revenues. Other Stress combinations could result
in Gross Revenue reductions which exceed 4.5%.
<TABLE>
<S> <C> <C>
A: Weighted Average Portfolio Turnover: 20% per annum (Assumption (vi))
B: Average Re-marketing Time: 4 weeks (.08 years)
C: Weighted Average Default Rate: 4% per annum
D: Average Repossession Time: 14 weeks (.27 years)
E: Average Repossession Cost: $500,000 per Aircraft
F: Weighted Average Bad Debt Expense: 1% per annum
AOG = (A X B) + (C X (B + D))
Annual Repossession Expense ("ARE") = (C X(E/Average
Gross Revenue per Aircraft)) (See Appendix 3)
AOG = (20% X .08 yrs) + (4% X (.08 yrs + .27 yrs)).......... 3.0%
ARE = (4% X 13%)............................................ 0.5
Bad Debt Expense............................................ +1.0
-----
Stress Related Gross Revenue Reduction...................... 4.5%
Operating costs (see Assumption (xvi))...................... +3.5
-----
Gross Revenue Reduction in the assumed case................. 8.0%
=====
</TABLE>
Increasing the above Stresses would result in a greater reduction in annual
Gross Revenues. The following table shows the effect upon Gross Revenues of
doubling the severity of each Stress (other than Average Repossession Cost)
outlined in the above example (in each case holding other Stresses unchanged).
<TABLE>
<CAPTION>
STRESS SEVERITY GROSS REVENUE REDUCTION
- ------ ------------- -----------------------
<S> <C> <C>
Portfolio Turnover................. 40% per annum 9.6%
Re-marketing Time.................. 8 weeks 9.9%
Default Rate....................... 8% per annum 9.9%
Repossession Time.................. 28 weeks 9.1%
Bad Debt Expense................... 2% per annum 9.0%
</TABLE>
It is highly likely that actual experience will differ from the Assumptions
and the Stresses and, therefore, principal payments on certain Notes will likely
occur earlier or later, and may occur significantly earlier or later, than
assumed.
PRINCIPAL REPAYMENTS UNDER THE ASSUMED CASE
The table below shows, for each Payment Date presented, the percentage of
the initial Outstanding Principal Balance of the aggregate Class A Notes,
including Refinancing Notes, and the Subclass A-1, Subclass A-2, Subclass B-1,
Subclass C-1 and Subclass D-1 Notes expected to be Outstanding on such Payment
Date based on the Assumptions. It is highly unlikely that the Assumptions will
correspond to actual experience. Therefore, principal payments on the Notes may
occur earlier or later than as set forth in the table. The failure of MSAF to
pay principal of any subclass of the Notes prior to the Final Maturity Date of
such subclass because funds are not available therefor in accordance with the
order of priorities described under "-- Priority of Payments" will not
constitute an Event of Default.
81
<PAGE> 88
PERCENT OF INITIAL PRINCIPAL BALANCE OF THE
NOTES BASED ON THE ASSUMED CASE(1)
<TABLE>
<CAPTION>
AGGREGATE CLASS A
NOTES, INCLUDING
PAYMENT DATE OCCURRING IN MARCH A-1 A-2 REFINANCING NOTES B-1 C-1 D-1
------------------------------- ---- ---- ----------------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
1998 (March 3, 1998).................. 100% 100% 100% 100% 100% 100%
1999.................................. 100% 87% 94% 96% 100% 100%
2000.................................. 0% 74% 88% 92% 100% 100%
2001.................................. 0% 61% 82% 88% 99% 100%
2002.................................. 0% 48% 76% 83% 97% 99%
2003.................................. 0% 34% 69% 78% 94% 98%
2004.................................. 0% 19% 63% 71% 89% 96%
2005.................................. 0% 6% 57% 64% 84% 93%
2006.................................. 0% 0% 51% 57% 77% 88%
2007.................................. 0% 0% 45% 50% 70% 83%
2008.................................. 0% 0% 39% 42% 61% 76%
2009.................................. 0% 0% 33% 33% 51% 67%
2010.................................. 0% 0% 28% 24% 40% 57%
2011.................................. 0% 0% 22% 15% 28% 45%
2012.................................. 0% 0% 18% 7% 14% 32%
2013.................................. 0% 0% 12% 0% 0% 17%
2014.................................. 0% 0% 6% 0% 0% 0%
Weighted Average Life (Years)(2)...... 2.0 3.8 8.4 8.6 10.6 12.1
</TABLE>
- ---------------
(1) See Appendices 3 and 9, respectively, for further data regarding Gross
Revenues and Pool Factors.
(2) The weighted average life of a Note equals (i) the sum of the products on
each Payment Date of (A) the principal payments assumed to be made on such
Payment Date and (B) the number of years from the date of issuance of such
Note to such Payment Date (ii) divided by the Initial Principal Balance of
such Note ("WEIGHTED AVERAGE LIFE").
DECLINING BALANCES OF THE NOTES AND ASSUMED PORTFOLIO VALUE
BASED ON THE ASSUMED CASE
LOGO
In each of the following tables, "EXPECTED MATURITY" means the period
(expressed in years) from March 3, 1998 through the expected final payment of
principal of the relevant Notes.
82
<PAGE> 89
EFFECT OF INABILITY TO REFINANCE SUBCLASS A-1 NOTES
The table below is based on the Assumptions, except that no Refinancing
Notes are assumed to be issued and sold and the Subclass A-1 Notes are assumed
to amortize according to the Priority of Payments. If such Refinancings do not
occur, the Expected Maturities ("EXP") and Weighted Average Lives ("AVG") of the
respective subclasses of Notes would be as set forth below.
EXPECTED MATURITIES AND WEIGHTED AVERAGE LIVES OF NOTES
<TABLE>
<CAPTION>
EXPECTED MATURITY/
WEIGHTED AVERAGE LIFE
--------------------------------
ASSUMED CASE NO REFINANCINGS
------------- ---------------
EXP AVG EXP AVG
---- ---- ----- -----
<S> <C> <C> <C> <C>
Subclass A-1................................................ 2.0 2.0 17.3 12.6
Subclass A-2................................................ 7.5 3.8 8.9 4.0
Subclass B-1................................................ 15.0 8.6 15.0 8.6
Subclass C-1................................................ 15.0 10.6 15.0 10.6
Subclass D-1................................................ 16.0 12.1 16.3 12.6
</TABLE>
MINIMUM REVENUE PERCENTAGE REQUIRED TO RETIRE NOTES
The table below indicates the minimum percentage of Gross Revenue that will
be necessary to repay all interest and principal on each class of Notes by their
respective Final Maturity Dates. If the actual revenue received by MSAF Group
were to fall below the percentages of Gross Revenue indicated below and all of
the other Assumptions were to occur as assumed, MSAF would be unable to meet its
required payment obligations which would constitute an Event of Default with
respect to the Notes.
PERCENTAGE OF GROSS REVENUE NECESSARY TO REPAY THE
NOTES BY THE APPLICABLE FINAL MATURITY DATE ASSUMING ACTUAL
EXPERIENCE CORRESPONDS TO THE ASSUMED CASE UNTIL THE BEGINNING OF THE YEAR
STATED
<TABLE>
<CAPTION>
MARCH 3, 1998 YEAR 3 YEAR 6 YEAR 10
------------- ------ ------ -------
<S> <C> <C> <C> <C>
Aggregate Class A Notes............................... 59.4% 58.2% 54.7% 47.5%
Subclass B-1 Notes.................................... 67.1% 65.7% 61.6% 53.0%
Subclass C-1 Notes.................................... 75.8% 74.2% 70.6% 61.4%
Subclass D-1 Notes.................................... 84.8% 83.3% 80.0% 72.1%
</TABLE>
83
<PAGE> 90
EFFECT OF A PERMANENT CHANGE IN GROSS REVENUE
The tables below have been prepared based on the Assumptions, except that
the revenue received by MSAF Group varies from Gross Revenues by the indicated
percentages, beginning in years 3 and 6. If the actual revenues received by MSAF
Group were to vary as indicated below and all of the other Assumptions were to
occur as assumed, then the Expected Maturities and Weighted Average Lives of the
respective subclasses of Notes would be as set forth below.
EXPECTED MATURITIES AND WEIGHTED AVERAGE LIVES OF NOTES
ASSUMING A PERMANENT CHANGE IN GROSS REVENUE, BEGINNING IN YEAR 3
<TABLE>
<CAPTION>
PERMANENT CHANGE IN GROSS REVENUE
--------------------------------------------------------------------
+10% 0% -8%* -15% -20%
----------- ----------- ----------- ----------- ------------
EXP AVG EXP AVG EXP AVG EXP AVG EXP AVG
---- ---- ---- ---- ---- ---- ---- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Subclass A-1........................ 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0
Subclass A-2........................ 5.9 3.2 6.4 3.4 7.5 3.8 8.9 4.4 9.2 4.6
Subclass B-1........................ 11.2 6.8 12.0 8.0 15.0 8.6 18.5 9.2 18.5 9.2
Subclass C-1........................ 11.0 9.2 14.0 10.5 15.0 10.6 20.0 14.2 20.0 14.7
Subclass D-1........................ 9.7 7.6 13.5 11.3 16.0 12.1 21.3 16.9 (1)
</TABLE>
- ---------------
*Assumed case
(1) Not all principal repaid prior to the Final Maturity Date. (Yield = 6.17%)
EXPECTED MATURITIES AND WEIGHTED AVERAGE LIVES OF NOTES
ASSUMING A PERMANENT CHANGE IN GROSS REVENUE, BEGINNING IN YEAR 6
<TABLE>
<CAPTION>
PERMANENT CHANGE IN GROSS REVENUE
-------------------------------------------------------------------
+10% 0% -8%* -15% -20%
----------- ----------- ----------- ----------- -----------
EXP AVG EXP AVG EXP AVG EXP AVG EXP AVG
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Subclass A-1......................... 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0
Subclass A-2......................... 6.6 3.7 7.0 3.8 7.5 3.8 8.9 4.0 8.9 4.1
Subclass B-1......................... 12.0 7.6 13.8 8.5 15.0 8.6 15.0 8.6 18.5 9.2
Subclass C-1......................... 12.8 10.2 14.7 10.6 15.0 10.6 17.4 12.2 20.0 14.0
Subclass D-1......................... 12.2 10.4 14.6 11.8 16.0 12.1 19.5 15.5 24.9 18.9
</TABLE>
- ---------------
*Assumed case
84
<PAGE> 91
EFFECT OF PERMANENT DECLINE IN PORTFOLIO VALUE
To the extent that the Adjusted Portfolio Value is significantly less than
the Assumed Portfolio Value, the Scheduled Principal Payment Amount payable to
holders of the Class A Notes may be increased. See "-- Principal Amortization".
Payment of such increased amount may shorten the Weighted Average Lives of the
Class A Notes and lengthen the Weighted Average Lives of the subclasses of Notes
that rank behind the Class A Notes in priority of payment. The following tables
show the Expected Maturity and Weighted Average Life of each subclass of Notes
if the Adjusted Portfolio Value was to permanently decline to a given percentage
of the Assumed Portfolio Value, beginning in years 1 and 5, respectively.
EXPECTED MATURITIES AND WEIGHTED AVERAGE LIVES OF NOTES
ASSUMING A PERMANENT CHANGE IN PORTFOLIO VALUE, BEGINNING IN YEAR 1
<TABLE>
<CAPTION>
ADJUSTED PORTFOLIO VALUE AS PERCENTAGE OF
ASSUMED PORTFOLIO VALUE BEGINNING IN YEAR 1
-----------------------------------------------------
100%* 90% 80% 70%
----------- ----------- ----------- -----------
EXP AVG EXP AVG EXP AVG EXP AVG
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Subclass A-1.................................... 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0
Subclass A-2.................................... 7.5 3.8 7.5 3.8 7.0 3.7 7.0 3.7
Subclass B-1.................................... 15.0 8.6 15.0 8.6 15.0 8.6 15.0 8.6
Subclass C-1.................................... 15.0 10.6 15.0 10.6 15.0 10.9 15.0 11.4
Subclass D-1.................................... 16.0 12.1 16.0 12.1 16.0 12.3 16.0 13.5
</TABLE>
- ---------------
*Assumed case
EXPECTED MATURITIES AND WEIGHTED AVERAGE LIVES OF NOTES
ASSUMING A PERMANENT CHANGE IN PORTFOLIO VALUE, BEGINNING IN YEAR 5
<TABLE>
<CAPTION>
ADJUSTED PORTFOLIO VALUE AS PERCENTAGE OF
ASSUMED PORTFOLIO VALUE BEGINNING IN YEAR 5
-----------------------------------------------------
100%* 90% 80% 70%
----------- ----------- ----------- -----------
EXP AVG EXP AVG EXP AVG EXP AVG
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Subclass A-1.................................... 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0
Subclass A-2.................................... 7.5 3.8 7.5 3.8 7.0 3.7 7.0 3.7
Subclass B-1.................................... 15.0 8.6 15.0 8.6 15.0 8.6 15.0 8.6
Subclass C-1.................................... 15.0 10.6 15.0 10.6 15.0 10.8 15.0 11.3
Subclass D-1.................................... 16.0 12.1 16.0 12.1 16.0 12.3 16.0 13.5
</TABLE>
- ---------------
*Assumed case
EFFECT OF CYCLICAL VARIATIONS IN GROSS REVENUE AND PORTFOLIO VALUE --
"RECESSION SCENARIOS"
Historically, the aviation industry has experienced cyclical swings in the
supply and demand for aircraft. MSAF Group would be negatively affected by a
decline in the demand for aircraft. Such a decline or "RECESSION" (as used in
this discussion) is assumed to result in a decline in Aircraft values and an
increase in defaults and downtime, as well as a decline in operating lease
rental rates. These effects would result in a decline in Gross Revenues.
85
<PAGE> 92
The following tables have been prepared on the basis of a number of
assumptions to show the effect on Expected Maturities and Weighted Average Lives
of Subclass B-1, Subclass C-1 and Subclass D-1 Notes if recessions having given
durations were to occur at certain given times in the future. Actual experience
will likely differ from that which is assumed and, therefore, Expected
Maturities and Weighted Average Lives of the Notes actually experienced will
likely differ from those shown in the tables below. In preparing the following
tables it has been assumed that a recession would have the following effect on
MSAF Group: First, Aircraft values would fall on the first day of the recession
to a given percentage of the Assumed Portfolio Value which, in turn, may trigger
payment of increased Scheduled Principal Payment Amounts on the Class A Notes if
amounts are available to do so. Second, after a period of two years following
the first day of the recession, Gross Revenues fall by a given percentage as
Aircraft are re-leased or Lessees default which would result in less cash flow
being available to make payments of interest and principal on the Notes. Third,
the recession lasts a given period of time followed by the Adjusted Portfolio
Value returning to the then Assumed Portfolio Value on the first day after the
recession and, two years following the end of the recession, Gross Revenues
returning to the Assumed Case. However, MSAF Group can give no assurance that
periods of weak traffic growth and lower demand for aircraft will be followed by
periods of strong growth and high demand for aircraft nor can it be assured that
following a recession Aircraft values and Gross Revenues will return to assumed
case levels.
EXPECTED MATURITIES AND WEIGHTED AVERAGE LIVES OF SUBCLASS B-1
NOTES ASSUMING A RECESSION LASTING THREE YEARS
<TABLE>
<S> <C> <C> <C> <C>
DECLINE IN GROSS REVENUES..................... 0% 8%* 10% 20%
ADJUSTED PORTFOLIO VALUE AS A PERCENTAGE OF
ASSUMED PORTFOLIO VALUE..................... 100% 100%* 90% 80%
</TABLE>
<TABLE>
<CAPTION>
EXP AVG EXP AVG EXP AVG EXP AVG
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Recession begins at start of
Year......................... 1 (Closing Date) 15.0 8.6 15.0 8.6 15.0 8.6 15.0 8.6
3 15.0 8.6 15.0 8.6 15.0 8.6 15.0 8.6
5 15.0 8.6 15.0 8.6 15.0 8.6 15.0 8.6
10 15.0 8.6 15.0 8.6 15.0 8.6 15.0 8.6
</TABLE>
- ---------------
*Assumed case
EXPECTED MATURITIES AND WEIGHTED AVERAGE LIVES OF SUBCLASS B-1
NOTES ASSUMING A RECESSION LASTING FIVE YEARS
<TABLE>
<S> <C> <C> <C> <C>
DECLINE IN GROSS REVENUES..................... 0% 8%* 10% 20%
ADJUSTED PORTFOLIO VALUE AS A PERCENTAGE OF
ASSUMED PORTFOLIO VALUE..................... 100% 100%* 90% 80%
</TABLE>
<TABLE>
<CAPTION>
EXP AVG EXP AVG EXP AVG EXP AVG
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Recession begins at start of
Year......................... 1 (Closing Date) 14.8 8.6 15.0 8.6 15.0 8.6 16.3 9.1
3 15.0 8.6 15.0 8.6 15.0 8.6 15.0 8.6
5 15.0 8.6 15.0 8.6 15.0 8.6 15.0 8.7
10 15.0 8.6 15.0 8.6 15.0 8.6 15.0 8.6
</TABLE>
- ---------------
*Assumed case
86
<PAGE> 93
EXPECTED MATURITIES AND WEIGHTED AVERAGE LIVES OF SUBCLASS C-1
NOTES ASSUMING A RECESSION LASTING THREE YEARS
<TABLE>
<S> <C> <C> <C> <C>
DECLINE IN GROSS REVENUES..................... 0% 8%* 10% 20%
ADJUSTED PORTFOLIO VALUE AS A PERCENTAGE OF
ASSUMED PORTFOLIO VALUE..................... 100% 100%* 90% 80%
</TABLE>
<TABLE>
<CAPTION>
EXP AVG EXP AVG EXP AVG EXP AVG
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Recession begins at start of
Year......................... 1 (Closing Date) 15.0 10.6 15.0 10.6 15.0 10.6 15.6 11.1
3 15.0 10.6 15.0 10.6 15.0 10.6 15.1 10.9
5 15.0 10.6 15.0 10.6 15.0 10.6 15.0 10.9
10 15.0 10.6 15.0 10.6 15.0 10.6 15.0 10.7
</TABLE>
- ---------------
*Assumed case
EXPECTED MATURITIES AND WEIGHTED AVERAGE LIVES OF SUBCLASS C-1
NOTES ASSUMING A RECESSION LASTING FIVE YEARS
<TABLE>
<S> <C> <C> <C> <C>
DECLINE IN GROSS REVENUES..................... 0% 8%* 10% 20%
ADJUSTED PORTFOLIO VALUE AS A PERCENTAGE OF
ASSUMED PORTFOLIO VALUE..................... 100% 100%* 90% 80%
</TABLE>
<TABLE>
<CAPTION>
EXP AVG EXP AVG EXP AVG EXP AVG
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Recession begins at start of
Year........................... 1 (Closing Date) 15.0 10.6 15.0 10.6 15.0 10.6 18.2 14.1
3 15.0 10.6 15.0 10.6 15.0 10.6 17.2 13.2
5 15.0 10.6 15.0 10.6 15.0 10.6 16.3 12.2
10 15.0 10.6 15.0 10.6 15.0 10.6 15.0 10.8
</TABLE>
- ---------------
*Assumed case
EXPECTED MATURITIES AND WEIGHTED AVERAGE LIVES OF SUBCLASS D-1
NOTES ASSUMING A RECESSION LASTING THREE YEARS
<TABLE>
<S> <C> <C> <C> <C>
DECLINE IN GROSS REVENUES..................... 0% 8%* 10% 20%
ADJUSTED PORTFOLIO VALUE AS A PERCENTAGE OF
ASSUMED PORTFOLIO VALUE..................... 100% 100%* 90% 80%
</TABLE>
<TABLE>
<CAPTION>
EXP AVG EXP AVG EXP AVG EXP AVG
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Recession begins at start of
Year........................... 1 (Closing Date) 15.9 12.1 16.0 12.1 16.0 12.3 17.9 15.2
3 16.0 12.1 16.0 12.1 16.0 12.2 17.5 14.7
5 16.0 12.1 16.0 12.1 16.0 12.1 17.1 14.0
10 16.0 12.1 16.0 12.1 16.0 12.1 16.5 12.9
</TABLE>
- ---------------
*Assumed case
87
<PAGE> 94
EXPECTED MATURITIES AND WEIGHTED AVERAGE LIVES OF SUBCLASS D-1
NOTES ASSUMING A RECESSION LASTING FIVE YEARS
<TABLE>
<S> <C> <C> <C> <C>
DECLINE IN GROSS REVENUES..................... 0% 8%* 10% 20%
ADJUSTED PORTFOLIO VALUE AS A PERCENTAGE OF
ASSUMED PORTFOLIO VALUE..................... 100% 100%* 90% 80%
</TABLE>
<TABLE>
<CAPTION>
EXP AVG EXP AVG EXP AVG EXP AVG
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Recession begins at start of
Year........................... 1 (Closing Date) 15.3 12.0 16.0 12.1 16.0 12.4 19.9 16.6
3 15.5 12.1 16.0 12.1 16.0 12.3 19.0 16.1
5 15.6 12.1 16.0 12.1 16.0 12.2 18.3 15.7
10 16.0 12.1 16.0 12.1 16.0 12.1 17.2 13.8
</TABLE>
- ---------------
*Assumed case
EFFECT OF CHANGES IN GROSS REVENUES ON YIELDS OF FIXED RATE NOTES
The tables below have been prepared based on the Assumptions, except that
the revenue received by MSAF Group varies from Gross Revenues by the indicated
percentages, beginning in certain years, for a period of three years in one case
and permanently in the other. If the actual revenues received by MSAF Group were
to vary as indicated below and all of the other Assumptions were to occur as
assumed, then the yield to maturity for the Subclass C-1 and Subclass D-1 Notes
would be as set forth below. If significant declines in Gross Revenues were to
occur, there may not be sufficient revenues available to meet interest payments
(as well as principal payments) on the Notes. In such cases, interest on the
Notes would be deferred.
YIELD, DATE OF FIRST DEFERRAL AND NUMBER OF MONTHS IN WHICH INTEREST IS DEFERRED
ON THE SUBCLASS C-1 NOTES GIVEN THE ASSUMPTIONS BUT WITH A THREE YEAR CHANGE IN
GROSS REVENUE OF THE MAGNITUDE SHOWN
<TABLE>
<CAPTION>
CHANGE IN GROSS REVENUES BEGINNING IN YEAR:
------------------------------------------------------------------------------------------
3 6 9
---------------------------- ---------------------------- ----------------------------
DATE OF MONTHS OF DATE OF MONTHS OF DATE OF MONTHS OF
YIELD DEFERRAL DEFERRALS YIELD DEFERRAL DEFERRALS YIELD DEFERRAL DEFERRALS
----- -------- --------- ----- -------- --------- ----- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase of 10%.................. 7.01% none 0 7.01% none 0 7.01% none 0
Decrease of 8%*.................. 7.01% none 0 7.01% none 0 7.01% none 0
Decrease of 20%.................. 7.01% none 0 7.01% none 0 7.01% none 0
Decrease of 30%.................. 7.01% none 0 7.01% none 0 7.01% none 0
</TABLE>
YIELD, DATE OF FIRST DEFERRAL AND NUMBER OF MONTHS IN WHICH INTEREST IS DEFERRED
ON THE SUBCLASS C-1 NOTES GIVEN THE ASSUMPTIONS BUT WITH A PERMANENT CHANGE IN
GROSS REVENUE OF THE MAGNITUDE SHOWN
<TABLE>
<CAPTION>
CHANGE IN GROSS REVENUES BEGINNING IN YEAR:
------------------------------------------------------------------------------------------
3 6 9
---------------------------- ---------------------------- ----------------------------
DATE OF MONTHS OF DATE OF MONTHS OF DATE OF MONTHS OF
YIELD DEFERRAL DEFERRALS YIELD DEFERRAL DEFERRALS YIELD DEFERRAL DEFERRALS
----- -------- --------- ----- -------- --------- ----- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase of 10%.................. 7.12% none 0 7.04% none 0 7.01% none 0
Decrease of 8%*.................. 7.01% none 0 7.01% none 0 7.01% none 0
Decrease of 20%.................. 7.01% none 0 7.01% none 0 7.01% none 0
Decrease of 30%.................. 3.38% Jul-03 237 6.72% Apr-07 122 7.01% May-11 17
</TABLE>
88
<PAGE> 95
YIELD, DATE OF FIRST DEFERRAL AND NUMBER OF MONTHS IN WHICH INTEREST IS DEFERRED
ON THE SUBCLASS D-1 NOTES, GIVEN THE ASSUMPTIONS BUT WITH A THREE YEAR CHANGE IN
GROSS REVENUE OF THE MAGNITUDE SHOWN
<TABLE>
<CAPTION>
CHANGE IN GROSS REVENUES BEGINNING IN YEAR:
------------------------------------------------------------------------------------------
3 6 9
---------------------------- ---------------------------- ----------------------------
DATE OF MONTHS OF DATE OF MONTHS OF DATE OF MONTHS OF
YIELD DEFERRAL DEFERRALS YIELD DEFERRAL DEFERRALS YIELD DEFERRAL DEFERRALS
----- -------- --------- ----- -------- --------- ----- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase of 10%.................. 8.86% none 0 8.86% none 0 8.86% none 0
Decrease of 8%*.................. 8.86% none 0 8.86% none 0 8.86% none 0
Decrease of 20%.................. 8.86% none 0 8.86% none 0 8.86% none 0
Decrease of 30%.................. 8.86% none 0 8.86% none 0 8.86% none 0
</TABLE>
- ---------------
*Assumed case
YIELD, DATE OF FIRST DEFERRAL AND NUMBER OF MONTHS IN WHICH INTEREST IS DEFERRED
ON THE SUBCLASS D-1 NOTES, GIVEN THE ASSUMPTIONS BUT WITH A PERMANENT CHANGE IN
GROSS REVENUE OF THE MAGNITUDE SHOWN
<TABLE>
<CAPTION>
CHANGE IN GROSS REVENUES BEGINNING IN YEAR:
---------------------------------------------------------------------------------------------
3 6 9
------------------------------ ----------------------------- ----------------------------
DATE OF MONTHS OF DATE OF MONTHS OF DATE OF MONTHS OF
YIELD DEFERRAL DEFERRALS YIELD DEFERRAL DEFERRALS YIELD DEFERRAL DEFERRALS
------- -------- --------- ------ -------- --------- ----- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase of 10%.............. 9.21% none 0 8.90% none 0 8.86% none 0
Decrease of 8%*.............. 8.86% none 0 8.86% none 0 8.86% none 0
Decrease of 20%.............. 6.17% Jul-07 189 8.86% May-13 15 8.86% none 0
Decrease of 30%.............. -25.02% Jun-03 238 -3.88% Apr-07 192 7.00% May-11 143
</TABLE>
- ---------------
*Assumed case
EFFECT OF PRINCIPAL ALLOCATION ACCORDING TO THE EXTENDED POOL FACTOR ONLY FOR
THE SUBCLASS A-2, SUBCLASS B-1, SUBCLASS C-1 AND SUBCLASS D-1 NOTES.
The following table has been prepared on the basis of a number of
assumptions to show the effect on Expected Maturities and Weighted Average Lives
of Subclass A-2, Subclass B-1, Subclass C-1 and Subclass D-1 Notes if subclasses
of Additional Notes are issued to fund the acquisition of Additional Aircraft
but Gross Revenues from the Aircraft are only sufficient to amortize such
subclasses with the application of Available Collections in accordance with the
applicable Extended Pool Factors in accordance with clause "First" under "--
Allocation of Principal Among Subclasses of Notes".
<TABLE>
<CAPTION>
SUBCLASSES OF NOTES EXP. AVG.
------------------- ---- ----
<S> <C> <C>
Subclass A-2 Notes.......................................... 8.9 4.9
Subclass B-1 Notes.......................................... 16.0 9.6
Subclass C-1 Notes.......................................... 17.0 12.6
Subclass D-1 Notes.......................................... 18.0 14.1
</TABLE>
PAYMENT OF PRINCIPAL AND INTEREST
GENERAL
Pursuant to the terms of the Leases, the Lessees are obliged to make rental
payments and certain other payments (collectively, the "RENTAL PAYMENTS") to
certain subsidiaries of MSAF. Pursuant to the terms of the Leases, all Rental
Payments and certain other amounts will be made directly to the Rental Account
held in the name of the Security Trustee on behalf of the Secured Parties.
Unsegregated amounts received by MSAF Group in respect of the assets of MSAF
Group will be transferred directly to the Collection Account pursuant to the
Indenture and the Administrative Agency Agreement. Any amounts received by MSAF
Group which are required to be segregated will be transferred to the Lessee
Funded Account. On the
89
<PAGE> 96
basis of the Assumptions, such Rental Payments, together with such other
amounts, are expected to be sufficient to pay the principal, interest and
premium, if any, on the Notes and all other amounts payable by MSAF Group to the
creditors referred to in the Administrative Agency Agreement, including the
Servicer, the Trustee, the Cash Manager, the Administrative Agent, the Financial
Advisor and each Swap Provider in each case when and as due.
The Notes constitute direct obligations of MSAF and are subordinated to the
Expenses and certain obligations and pari passu or senior to certain other
obligations specified in the Indenture. The only source of payment for the Notes
and the obligations of MSAF to creditors is (i) the payments made by the Lessees
under the Leases, (ii) payments or drawdowns under any credit or liquidity
enhancement facility, (iii) proceeds from dispositions, if any, of the assets of
MSAF Group, (iii) net payments, if any, under the Swap Agreements and (iv) net
cash proceeds received from the sale of Refinancing Notes. See "-- Payment of
Principal and Interest" and "-- Priority of Payments".
Each class and subclass of the Notes has the priority set forth in the
Indenture and the Notes. Pursuant to the subordination provisions of the
Indenture and the various classes of Notes, no payment of principal, interest
and premium, if any, on any class of Notes may be made on any Payment Date
unless certain required payments have been made in respect of the Notes of each
class ranking prior to such class of Notes on such Payment Date. The
subordination provisions contained in the Indenture may not be amended or
modified without the consent of each Swap Provider, each holder of the class of
Notes affected thereby and each holder of any class of Notes ranking senior to
such Notes. In no event shall the provisions relating to the priority of the
Expenses or any payments under Swap Agreements in the Indenture be amended or
modified.
In addition, the Administrative Agent, on behalf of MSAF, may replace the
bank with which the Accounts are held (1) if such bank fails to maintain a
short-term unsecured debt rating of A-1+ by Standard & Poor's, P-1 by Moody's or
D-1+ by DCR or better by each Rating Agency (or A-1 by Standard & Poor's, P-1 by
Moody's or D-1 by DCR or better if the amount on deposit at any time in any
Accounts held with such bank does not exceed 20% of the Outstanding Principal
Balance of the Notes for any period in excess of 30 days), (2) if such bank is
adjudged a bankrupt or an insolvent, (3) if a receiver or public officer takes
charge of such bank or its property, (4) if such bank becomes incapable of
acting or (5) upon 120 days' notice, for any reason, with Rating Agency
approval.
Holders of each class of Notes (other than Class A Notes) will not be
permitted to give a Default Notice with respect to any Event of Default or to
exercise any remedy in respect of such Event of Default until all amounts with
respect to Notes of each class ranking senior to such class of Notes have been
paid in full. See "-- Events of Default and Remedies".
INTEREST
Each Note will bear interest on the Outstanding Principal Balance thereof
from March 3, 1998, payable monthly in arrears on each Payment Date. The initial
Interest Accrual Period is the period commencing on and including March 3, 1998,
and ending on but excluding the first Payment Date. Each subsequent Interest
Accrual Period will include each period from and including the last preceding
Payment Date to but excluding the next succeeding Payment Date. The final
Interest Accrual Period with respect to each subclass of Notes will end on but
exclude the Final Maturity Date, or, if earlier, the date upon which all
principal, interest and premium, if any, on such subclass of Notes is paid in
full. Each subclass of Notes will bear interest for each Interest Accrual Period
at the rate per annum set forth on the cover page of this Prospectus.
Interest on the Subclass A-1, A-2 and B-1 Notes will be calculated on the
basis of a 360-day year and the actual number of days elapsed in an Interest
Accrual Period. Interest on Subclass C-1 and D-1 Notes will be calculated on the
basis of one-twelfth of an annual interest payment on the Outstanding Principal
Balance and in the case of an incomplete Interest Accrual Period on the basis of
a 360-day year consisting of twelve 30-day months.
The interest rate borne by the Subclass A-1 Notes will increase after the
Expected Final Payment Date of such subclass, to the extent such Notes are then
Outstanding, by the amount of Step-Up Interest. Payments
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<PAGE> 97
of Step-Up Interest on the Subclass A-1 Notes and any Step-Up Interest on
Additional Notes and Refinancing Notes will be subordinated to certain other
obligations of MSAF Group, including the payment of the Minimum Principal
Payment Amounts and Scheduled Principal Payment Amounts with respect to, and
accrued and unpaid interest on, the MSAF Notes, and will not be rated by the
Rating Agencies. See "-- Priority of Payments".
REFERENCE AGENCY AGREEMENT
For the purpose of calculating the rate of interest payable on the Subclass
A-1, A-2 and B-1 Notes, MSAF has entered into the Reference Agency Agreement
with the Trustee, Bankers Trust Company, as reference agent (the "REFERENCE
AGENT") and the Administrative Agent. The Reference Agent will determine LIBOR
for each Interest Accrual Period following the Initial Interest Accrual Period,
on a Reference Date (a date that is two Business Days before the Payment Date on
which such Interest Accrual Period commences). The Reference Agent will
determine LIBOR in accordance with the following provisions of the Reference
Agency Agreement:
On each Reference Date, the Reference Agent will determine LIBOR as the per
annum offered rate for deposits in U.S. dollars for a period of one month that
appears on the display designated as page "3750" on the Telerate Monitor (or
such other page or service as may replace it for the purpose of displaying LIBOR
of major banks for U.S. dollar deposits) at approximately 11:00 a.m. (London
time).
If the offered rate so appearing is replaced by the corresponding rates of
more than one bank then the determination described in the foregoing paragraph
shall be made, with any necessary consequential changes, on the basis of the
arithmetic mean of the rates (being at least two) which so appear, as determined
by the Reference Agent. If for any other reason such offered rate does not so
appear, or if the relevant page is unavailable, the Reference Agent will request
that each of the banks whose offered rates would have been used for the purposes
of the relevant page if the event leading to the application of this sentence
had not happened or any duly appointed substitute reference bank acting in each
case through its principal London office (the "REFERENCE BANKS"), to provide the
Reference Agent with its offered quotation to prime banks for dollar deposits in
London for the next Interest Accrual Period concerned as at 11:00 a.m. (London
time) on the applicable Reference Date. The floating rates of interest for such
Interest Accrual Period for each subclass of Subclass A-1, A-2 and B-1 Notes
shall be the aggregate of the arithmetic mean of such quotations (or of such of
them, being at least two, as are so provided), as determined by the Reference
Agent, plus the applicable interest rate spread over LIBOR set forth opposite
such subclass on the cover page of this Prospectus, plus Step-Up Interest, if
applicable.
If, on any Reference Date, one only or none of the Reference Banks provides
such quotation, the interest rate for the next Interest Accrual Period shall be
the rate per annum which the Reference Agent determines to be the aggregate of
the arithmetic mean of the U.S. dollar lending rates which New York City banks
selected by the Reference Agent are quoting on the relevant Reference Date to
leading European banks for the next Interest Accrual Period, plus the applicable
interest rate spread over LIBOR set forth opposite such subclass on the cover
page of this Prospectus, plus, if applicable, any Step-up Interest, except that,
if the banks so selected by the Reference Agent are not quoting as mentioned
above, the applicable rate of interest shall be the interest rate in effect for
the last preceding Interest Accrual Period.
Once having obtained LIBOR or its substitute, the Reference Agent will
calculate the interest rate for each subclass of Subclass A-1, A-2 and B-1 Notes
and the amount of interest payable on the relevant Payment Date in respect of
each subclass of Subclass A-1, A-2 and B-1 Notes. The interest amount for each
subclass of Subclass A-1, A-2 and B-1 Notes will be calculated by the Reference
Agent by multiplying the rate of interest for such subclass for the relevant
Interest Accrual Period by the estimated Outstanding Principal Balance of such
subclass of Subclass A-1, A-2 and B-1 Notes on the first day of such Interest
Accrual Period and by multiplying the product by the actual number of days in
such Interest Accrual Period divided by 360 and rounding the resulting amount to
the nearest cent (with half a cent being rounded upwards). The Reference Agent's
determination of LIBOR, the interest rate and the interest amount for each
91
<PAGE> 98
subclass of Subclass A-1, A-2 and B-1 Notes (in the absence of negligence,
wilful default, bad faith or manifest error) will be conclusive and binding upon
all parties.
As promptly as is practicable after the determination thereof, the
Reference Agent will give notice of applicable LIBOR, the Payment Date, the
interest rate for each subclass of Subclass A-1, A-2 and B-1 Notes for the
relevant Interest Accrual Period and the amount of interest on each subclass of
Subclass A-1, A-2 and B-1 Notes to MSAF, the Listing Agent, the Luxembourg Stock
Exchange and the Administrative Agent. Noteholders may obtain such information
at the offices of the Listing Agent or paying agent in Luxembourg or otherwise
in the Cash Reports provided to Noteholders by the Trustee on the second
Business Day before each Payment Date and any other date for distribution of any
payments with respect to the Notes.
If the Reference Agent does not determine the interest rate for each
subclass of Subclass A-1, A-2 and B-1 Notes or calculate the amount of interest
on each subclass of Subclass A-1, A-2 and B-1 Notes for the relevant Interest
Accrual Period in accordance with the provisions described above, the
Administrative Agent will determine such rate of interest or calculate such
interest amount in accordance with the provisions described above, and each such
determination or calculation will be deemed to have been made by the Reference
Agent.
MSAF reserves the right to terminate the appointment of the Reference Agent
at any time on 30 days' notice and to appoint a replacement reference agent in
its place. Notice of any such termination will be given to the holders of the
Subclass A-1, A-2 and B-1 Notes. The Reference Agent may not be removed or
resign its duties without a successor having been appointed.
PRINCIPAL AMORTIZATION
With respect to each class of the Notes, there may be distributed on any
Payment Date, to the extent there are sufficient funds in the Collection
Account, the sum of the Minimum Principal Payment Amount, if any, the Scheduled
Principal Payment Amount, if any, and, with respect to the Class A and B Notes
only, the Supplemental Principal Payment Amount, if any, and, principal
redemptions pursuant to priorities (xxi) through (xxiv) set forth under "--
Priority of Payments". If MSAF issues any Additional Notes or Refinancing Notes,
each such issuance constitutes a new and subsequent subclass of the respective
class of Notes. See "-- Allocation of Principal among Subclasses of Notes".
Minimum Principal Payment Amount. With respect to each class of the Notes,
the "MINIMUM PRINCIPAL PAYMENT AMOUNT" on any Payment Date will equal the
difference, if positive, between the Outstanding Principal Balance of such class
and the Minimum Target Principal Balance for such class on such Payment Date.
On each Payment Date, the "MINIMUM TARGET PRINCIPAL BALANCE" for the Class
A and B Notes will equal the product of (i) the applicable "MINIMUM CLASS
PERCENTAGE" on such Payment Date (as set forth in Appendices 5 and 6 to this
Prospectus) and (ii) the Assumed Portfolio Value (as set forth in Appendix 4 to
this Prospectus with respect to the Initial Aircraft) in respect of such Payment
Date; provided that with respect to only the Class A Notes, if on any Payment
Date the Outstanding Principal Balance of the Class A Notes (including
Refinancing Notes and Additional Notes) is greater than the Adjusted Portfolio
Value in respect of such Payment Date, then the Minimum Target Principal Balance
of the Class A Notes shall be equal to the Scheduled Target Principal Balance of
the Class A Notes.
For each Payment Date, the Minimum Target Principal Balance for the Class C
and D Notes is set out in Appendices 7 and 8 to this Prospectus.
In respect of each Payment Date, the "ASSUMED PORTFOLIO VALUE" with respect
to the Initial Aircraft will equal the aggregate sum of the products of (A) the
Initial Appraised Value of each Aircraft in the Portfolio on the Calculation
Date preceding such Payment Date and (B) the quotient obtained by dividing the
applicable Depreciation Factor (each, a "DEPRECIATION FACTOR") for such Aircraft
(as set forth below) on such Calculation Date by the Depreciation Factor for
such Aircraft on March 3, 1998. The Depreciation Factors produce a "depreciation
curve" that assumes an accelerating decline in the value of Initial Aircraft of
92
<PAGE> 99
increasing age. The accelerating annual decline in aircraft values that is
assumed by the depreciation curve has been expressed as an equation below:
Depreciation Factor = (1 - (kn)) X (1 + g)(n) but not less than zero
Where, with respect to the Initial Aircraft:
<TABLE>
<S> <C>
n = age of the Aircraft expressed in years
1
k =
-----------------------------------------
Expected Useful Life
g = 0.02
</TABLE>
The Depreciation Factors are used solely for the purposes of determining
repayments of principal to Noteholders and do not correlate to or predict actual
declines in aircraft values over any period. Furthermore, the Depreciation
Factor variables and therefore the depreciation curve will change as the
composition of the Portfolio changes through acquisitions and sales of
Additional Aircraft and Initial Aircraft. Finally, MSAF Group may in the future
apply different depreciation factors or alternative methodologies more generally
to express the assumed decline in values of Additional Aircraft. In addition,
the Minimum Class Percentages, the Scheduled Class Percentages and the
Supplemental Class Percentages for the Class A and B Notes and Minimum Target
Principal Balances and Scheduled Target Principal Balances for the Class C and D
Notes will change as Additional Aircraft are acquired; however, the Pool Factors
and the Extended Pool Factors for each subclass will not change as the
composition of the Portfolio changes.
Scheduled Principal Payment Amount. With respect to each class of Notes,
the "SCHEDULED PRINCIPAL PAYMENT AMOUNT" on any Payment Date will equal the
difference, if positive, between the Outstanding Principal Balance of such class
(after giving effect to any payment of the Minimum Principal Payment Amount for
such class) and the Scheduled Target Principal Balance for such class on such
Payment Date.
On each Payment Date, the "SCHEDULED TARGET PRINCIPAL BALANCE" for the
Class A Notes will equal the product of (i) the applicable "SCHEDULED CLASS
PERCENTAGE" on such Payment Date (as set forth in Appendix 5 to this Prospectus)
and (ii) the lesser of (A) the Assumed Portfolio Value in respect of such
Payment Date and (B) the product of the Adjusted Portfolio Value in respect of
such Payment Date and 105%. On each Payment Date, the Scheduled Target Principal
Balance for the Class B Notes will equal the product of (i) the applicable
Scheduled Class Percentage on such Payment Date (as set forth in Appendix 6 to
this Prospectus) and (ii) the Assumed Portfolio Value in respect of such Payment
Date.
For each Payment Date, the Scheduled Target Principal Balance for the Class
C and D Notes is set out in Appendices 7 and 8 to this Prospectus.
In respect of each Payment Date, the "ADJUSTED PORTFOLIO VALUE" will equal
the sum of the products, for each Aircraft in the Portfolio on the Calculation
Date preceding such Payment Date, of (A) the Adjusted Base Value of such
Aircraft and (B) the quotient obtained by dividing the applicable Depreciation
Factor for such Aircraft on such Calculation Date by the Depreciation Factor for
such Aircraft as of the Relevant Appraisal.
The "ADJUSTED BASE VALUE" of each Aircraft will be the Base Value of such
Aircraft as determined in the most recent Appraisal (the "RELEVANT APPRAISAL")
preceding such Calculation Date.
Supplemental Principal Payment Amount. With respect to the Class A and B
Notes the "SUPPLEMENTAL PRINCIPAL PAYMENT AMOUNT" on any Payment Date will equal
the difference, if positive, between the Outstanding Principal Balance of such
class (after giving effect to the payment of any Minimum Principal Payment
Amount and Scheduled Principal Payment Amount) and the Supplemental Target
Principal Balance for such class on such Payment Date.
On each Payment Date, the "SUPPLEMENTAL TARGET PRINCIPAL BALANCE" for the
Class A and B Notes will equal the product of (i) the applicable "SUPPLEMENTAL
CLASS PERCENTAGE" on such Payment Date (as set forth
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in Appendices 5 and 6 to this Prospectus) and (ii) the Assumed Portfolio Value
in respect of such Payment Date.
ALLOCATION OF PRINCIPAL AMONG SUBCLASSES OF NOTES
Subclass A-1 Notes. On the Expected Final Payment Date of the Subclass A-1
Notes, MSAF Group intends to refinance 100% of the Outstanding Principal Balance
of the Subclass A-1 Notes by issuing Refinancing Notes and selling such
Refinancing Notes in the capital markets. Failure to repay any Subclass A-1 Note
in full at its Expected Final Payment Date will not result in an Event of
Default. If the Subclass A-1 Notes are not repaid in full on their Expected
Final Payment Date, such subclass of Notes will convert automatically into a
subclass of Notes having a principal repayment schedule intended to ensure that
the remaining Outstanding Principal Balance of the Subclass A-1 Notes will be
repaid in full on or before its Final Maturity Date in accordance with the
Subclass A-1 Pool Factors set forth in Appendix 9.
MSAF may also refinance any other subclass of Notes, at any time, at the
Redemption Price that would be payable if MSAF were to have redeemed such Notes
instead. See "-- Refinancing" and "-- Indenture Covenants -- Limitation on
Indebtedness".
Subclass A-2, B-1, C-1 and D-1 Notes. The terms of the Subclass A-2, B-1,
C-1 and D-1 Notes will require amortization of the Outstanding Principal Balance
thereof on each or certain Payment Dates prior to each of their respective
Expected Final Payment Dates, to the extent there are funds available therefor
in accordance with the order of priorities set forth under "-- Priority of
Payments".
To the extent that any principal amount is required to be paid in
accordance with the priorities as described in "-- Priority of Payments" with
respect to any class of Notes on any Payment Date, Available Collections, to the
extent there are sufficient Available Collections therefor, will be applied to
the various subclasses of the relevant class in the following order after giving
effect to all prior subclass principal payments of such class:
(i) First, to each subclass, in order of the earliest issued subclass, the
difference, if positive, between the Outstanding Principal Balance of
each such subclass and the product of the applicable Extended Pool
Factor (as set forth in Appendix 10 to this Prospectus) on such
Payment Date and the Initial Principal Balance of each such subclass
(the "EXTENSION AMOUNT"); provided that in the case of two or more
subclasses issued on the same date, Available Collections will be
applied to each such subclass pro rata according to the amount of, but
not to exceed, the Extension Amount of such subclass.
(ii) Second, to each subclass, in no order of priority inter se, but pro
rata according to the amount of, but not to exceed, the difference,
if positive, between the Outstanding Principal Balance of each such
subclass (after giving effect to any payment under clause (i) above)
and the product of the applicable Pool Factor (as set forth in
Appendix 9 to this Prospectus) on such Payment Date and the Initial
Principal Balance of each such subclass.
(iii) Third, to each subclass with an Expected Final Payment Date on or
before such Payment Date, in order of the earliest issued subclass;
provided that in the case of two or more subclasses issued on the
same date, Available Collections will be applied to such subclasses
in order of the subclass with the earliest Expected Final Payment
Date and, with respect to any two or more subclasses having the same
Expected Final Payment Date, Available Collections will be applied to
such subclasses pro rata according to the Outstanding Principal
Balance of each such subclass (after giving effect to any payments
under clauses (i) and (ii) above) on such Payment Date.
(iv) Fourth, to each subclass with an Excess Amortization Date on or before
such Payment Date, in no order inter se, but pro rata according to the
Outstanding Principal Balance of each such subclass (after giving
effect to any payments under clauses (i), (ii) and (iii) above) on
such Payment Date.
(v) Fifth, to each subclass in order of the earliest Expected Final
Payment Date, provided, in the case of two or more subclasses having
the same Expected Final Payment Date, in no order of priority
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<PAGE> 101
inter se, but pro rata according to the Outstanding Principal Balance of
each such subclass (after giving effect to any payments under clauses
(i), (ii), (iii) and (iv) above) on such Payment Date.
"INITIAL PRINCIPAL BALANCE" means the initial Outstanding Principal Balance
on the relevant closing date of the Notes of such subclass.
The "EXCESS AMORTIZATION DATE" for each subclass of the Notes is as set out
below:
<TABLE>
<CAPTION>
SUBCLASS OF NOTES EXCESS AMORTIZATION DATE
- ----------------- ------------------------
<S> <C>
Subclass A-1................................................ March 15, 2000
Subclass A-2................................................ April 15, 1998
Subclass B-1................................................ April 15, 1998
Subclass C-1................................................ March 15, 2013
Subclass D-1................................................ March 15, 2010
</TABLE>
REFINANCING
MSAF may repay any subclass of the Notes, in whole but not in part, on any
date (a "REFINANCING DATE") with the proceeds of the issuance of any Refinancing
Notes issued in accordance with the "Limitation on Indebtedness" covenant under
the Indenture (any such repayment, a "REFINANCING"). See "-- Indenture Covenants
- -- Limitation on Indebtedness". The amount to be repaid by MSAF in connection
with the Refinancing of any subclass of Notes shall be equal to the Redemption
Price for such subclass on the Refinancing Date plus accrued and unpaid
interest.
In respect of any Refinancing of any subclass of Notes, at least five days
but not more than 30 days before the proposed Refinancing Date, the Trustee will
give notice of such Refinancing (a "NOTICE OF REFINANCING") to each holder of
such subclass of Notes in accordance with the notice provisions contained in the
Indenture. See "-- Notices to Noteholders". In connection with any Refinancing,
MSAF will deposit, or will cause to be deposited, in the Refinancing Account an
amount equal to the Redemption Price, together with an amount sufficient to pay
or provide for all accrued and unpaid interest as of the Refinancing Date. Each
Notice of Refinancing will state (i) the applicable Refinancing Date, (ii) the
Redemption Price of the Notes to be repaid and the amount of accrued but unpaid
interest payable thereon, (iii) that Notes of the subclass to be repaid must be
surrendered (which action may be taken by any holder of the Notes or its
authorized agent) and (iv) that, unless MSAF defaults in the payment of the
Redemption Price and any accrued and unpaid interest, interest on the subclass
of Notes to be refinanced will cease to accrue on and after the Refinancing
Date. Once a Notice of Refinancing in respect of any Refinancing is published,
each subclass of Notes to which such Notice of Refinancing applies will become
due and payable on the Refinancing Date stated in such Notice of Refinancing at
their Redemption Price, together with accrued and unpaid interest.
REDEMPTION
MSAF may redeem any subclass of the Notes (a "REDEMPTION") out of amounts
available for such purpose, if any, on any Payment Date (any such date, a
"REDEMPTION DATE"), in whole or in part, at the Redemption Price plus accrued
but unpaid interest. In addition, MSAF will be required on each Payment Date to
redeem Notes to the extent of any Available Collections, in the manner described
in "-- Principal Amortization" above and "-- Priority of Payments" below. Within
each subclass of Notes being redeemed in part, the amount of the Outstanding
Principal Balance being prepaid will be applied in each case pro rata among all
Notes of such subclass.
The Redemption Price on the Subclass A-1, A-2 and B-1 Notes redeemed (i)
with the application of funds other than from Available Collections (including
proceeds from Refinancing Notes and proceeds from third parties) will equal the
product of the applicable Redemption Premium set out below and Outstanding
Principal Balance of the amount of such subclass being redeemed and (ii) with
respect to redemptions from Available Collections, will equal the Outstanding
Principal Balance of the amount of such subclass being redeemed, without
premium.
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The Redemption Price of the Subclass C-1 Notes will equal the higher of (i)
the discounted present value of Scheduled Principal Payment Amounts and interest
on such subclass from the Redemption Date to and including the applicable
Expected Final Payment Date computed by discounting such payments at a discount
rate equal to the applicable Treasury Yield plus 0.50% and (ii) the Outstanding
Principal Balance of such subclass being redeemed.
The Redemption Price of the Subclass D-1 Notes will equal (i) if such
redemption occurs prior to March 15, 2003, the higher of (A) the discounted
present value of Scheduled Principal Payment Amounts and interest from the
Redemption Date through, but not including, March 15, 2003, plus the product of
the applicable Redemption Premium set out below and the assumed Outstanding
Principal Balance for March 15, 2003 discounted at a rate equal to the
applicable Treasury Yield plus 1.00% and (B) the Outstanding Principal Balance
of such subclass being redeemed or (ii) if such redemption occurs on or after
March 15, 2003, the product of the applicable Redemption Premium set out below
and the Outstanding Principal Balance of such subclass being redeemed.
<TABLE>
<CAPTION>
REDEMPTION DATE REDEMPTION PREMIUM
--------------- ------------------------------------------------
SUBCLASS SUBCLASS SUBCLASS SUBCLASS
A-1 NOTES A-2 NOTES B-1 NOTES D-1 NOTES
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
After March 3, 1998.......................... 101.00% 102.00% 103.00% --
On or after March 15, 1999................... 100.50% 101.50% 102.50% --
On or after March 15, 2000................... 100.00% 101.00% 102.00% --
On or after March 15, 2001................... -- 100.50% 101.50% --
On or after March 15, 2002................... -- 100.00% 101.00% --
On or after March 15, 2003................... -- 100.00% 100.50% 105.25%
On or after March 15, 2004................... -- 100.00% 100.00% 104.50%
On or after March 15, 2005................... -- 100.00% 100.00% 103.75%
On or after March 15, 2006................... -- -- 100.00% 103.00%
On or after March 15, 2007................... -- -- 100.00% 102.25%
On or after March 15, 2008................... -- -- 100.00% 101.50%
On or after March 15, 2009................... -- -- 100.00% 100.75%
On or after March 15, 2010................... -- -- 100.00% 100.00%
On or after March 15, 2011................... -- -- 100.00% 100.00%
On or after March 15, 2012................... -- -- 100.00% 100.00%
On or after March 15, 2013................... -- -- 100.00% 100.00%
On or after March 15, 2014................... -- -- -- 100.00%
</TABLE>
"TREASURY YIELD" means a per annum rate (expressed as a monthly equivalent
yield) determined to be the per annum rate equal to the semiannual yield to
maturity of the 6 1/4% United States Treasury Note maturing on February 15,
2003, and with respect to redemptions of the Subclass C-1 Notes, means, on any
Payment Date the interest rate (expressed as a semiannual decimal and, in the
case of United States Treasury bills, converted to a bond equivalent yield)
determined to be the per annum rate equal to the semiannual yield to maturity
for United States Treasury securities maturing on the Average Life Date of such
subclass and trading in the public securities markets either (x) as determined
by interpolation between the most recent weekly average yield to maturity for
two series of United States Treasury securities trading in the public securities
markets, (A) one maturing as close as possible to, but earlier than, the Average
Life Date of such subclass and (B) the other maturing as close as possible to,
but later than, the Average Life Date of such subclass in each case as published
in the most recent H.15 (519) or (y) if a weekly average yield to maturity for
United States Treasury securities maturing on the Average Life Date of such
subclass is reported in the most recent H.15 (519), such weekly average yield to
maturity as published in such H.15 (519).
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"H.15 (519)" means the weekly statistical release designated as such, or any
successor publication, published by the Board of Governors of the Federal
Reserve System. The date of determination of the Treasury Yield with respect to
the Subclass C-1 Notes shall be the fourth business day prior to the applicable
Payment Date and the "MOST RECENT H.15 (519)" means the H.15 (519) published
prior to the close of business on the fourth business day prior to the
applicable Payment Date.
"AVERAGE LIFE DATE" shall be the date which follows the applicable Payment
Date by a period equal to the Remaining Weighted Average Life of such subclass.
"REMAINING WEIGHTED AVERAGE LIFE", with respect to the Subclass C-1 Notes on any
Payment Date shall be (a) the sum of the products of (i) each Scheduled
Principal Payment Amount for such subclass on each subsequent Payment Date
(each, a "SUBSEQUENT DATE") and (ii) the number of days remaining until such
Subsequent Date divided by (b) the then Outstanding Principal Balance of such
subclass on such Payment Date.
Redemption for Taxation Purposes. All payments of principal, interest and
premium, if any, made by MSAF in respect of any Notes will be made without
withholding or deduction for or on account of any present or future taxes or
duties of whatever nature unless required by law. Should such withholding or
deduction be required by law, MSAF will not be obliged to pay any additional
amounts in respect of such withholding or deduction. If at any time:
(a) MSAF is, or on the next Payment Date will be, required to make any
withholding or deduction under the laws or regulations of any applicable
tax authority with respect to any payment in respect of any subclass of
Notes; or
(b) MSAF is or will be subject to any circumstance (whether by reason of
any law, regulation, regulatory requirement or double-taxation
convention, or the interpretation or application thereof, or otherwise)
leading to the imposition of a tax (whether by direct assessment or by
withholding at source) or other similar imposition by any jurisdiction
which would (i) materially increase the cost to MSAF of making payments
in respect of any subclass of Notes or of complying with its obligations
under or in connection with any Notes; (ii) materially increase the
operating or administrative expenses of MSAF; or (iii) otherwise
obligate MSAF or any of its subsidiaries to make any material payment
on, or calculated by reference to, the amount of any sum received or
receivable by MSAF, or by the Administrative Agent on behalf of MSAF as
contemplated by the Administrative Agency Agreement;
then MSAF will inform the Trustee at such time of any such requirement or
imposition and shall use its or their best efforts to avoid the effect of the
same; provided that no actions shall be taken by MSAF to avoid such effects
unless each Rating Agency has confirmed that such action will not result in the
lowering or withdrawal by it of its current rating of any subclass of MSAF Notes
then outstanding. If, after using its best efforts to avoid the adverse effect
described above, MSAF or any of its subsidiaries has not avoided such effects,
MSAF may, at its election, redeem the Notes of any or all subclasses to which
such withholding or deduction applies in whole with accrued and unpaid interest
but without premium on any Payment Date. However, any such redemptions may not
occur more than 30 days prior to such time as the requirement or imposition
described in (a) or (b) above is to become effective.
Method of Redemption. In respect of any Redemption of any subclass of
Notes to be made out of amounts available for such purposes, if any, other than
Available Collections on any Payment Date, at least 20 days but not more than 60
days before such Redemption Date, the Trustee will give notice of such
Redemption (a "NOTICE OF REDEMPTION") to each holder of such subclass of Notes
in accordance with the notice provisions contained in the Indenture; provided
that the Trustee shall have determined in advance of giving any such notice that
funds are or will, on the Redemption Date, be available therefor. See "--
Notices to Noteholders". If a Redemption is of less than all of the Notes of any
subclass, Notes of such subclass to be redeemed will be repaid principal pro
rata, to the extent moneys are available therefor. In the case of any Redemption
in whole (other than a Redemption resulting from taxation reasons), MSAF will
deposit, or will cause to be deposited, in the Defeasance/Redemption Account an
amount equal to the Redemption Price, together with an amount sufficient to pay
or provide for all of the accrued and unpaid interest as of the Redemption Date.
In the case of any required Redemption by MSAF from Collections on any Payment
Date
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pursuant to the Priority of Payments, such Redemptions will be made only in
conformance with the order of payments set forth under "Priority of Payments",
and no Notice of Redemption will be sent. Each Notice of Redemption will state
(i) the applicable Redemption Date, (ii) the Trustee's arrangements for making
payments due, (iii) the Redemption Price of the Notes to be redeemed, (iv) in
the case of Redemptions in whole, that Notes of the subclass to be redeemed must
be surrendered (which action may be taken by any holder of the Notes or its
authorized agent) to the Trustee to collect the Redemption Price and accrued and
unpaid interest on such Notes and (v) in the case of Redemptions in whole, that,
unless MSAF defaults in the payment of the Redemption Price and any accrued and
unpaid interest thereon, interest on the subclass of Notes called for Redemption
will cease to accrue on and after the Redemption Date. Once a Notice of
Redemption in respect of a Redemption in whole is published, each subclass of
Notes to which such Notice of Redemption applies will become due and payable on
the Redemption Date stated in such Notice of Redemption at its Redemption Price,
together with accrued and unpaid interest thereon.
DEFEASANCE
MSAF at any time may terminate all of its obligations under the Notes and
the Indenture ("LEGAL DEFEASANCE"), except for certain obligations, including
those respecting the defeasance trust and obligations to register the transfer
or exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes
and to maintain a register in respect of the Notes. MSAF at any time may
terminate its obligations under the covenants described under "Indenture
Covenants" and "Operating Covenants" and the Events of Default described under
"Events of Default and Remedies" other than clauses (a), (b), (c), (e) (solely
with respect to MSAF) and (f) (solely with respect to MSAF) set forth under "--
Events of Default and Remedies" ("COVENANT DEFEASANCE").
MSAF may exercise its legal defeasance options notwithstanding its prior
exercise of the covenant defeasance option. If MSAF exercises its legal
defeasance options, payment of the Notes may not be accelerated because of an
Event of Default with respect thereto. If MSAF exercises its covenant defeasance
options, payment of the Notes may not be accelerated because of the Events of
Default described under "Events of Default and Remedies" other than clauses (a),
(b), (c), (e) (solely with respect to MSAF) and (f) (solely with respect to
MSAF) set forth under "-- Events of Default and Remedies".
In order to exercise either defeasance option, MSAF must irrevocably
deposit in trust (the "DEFEASANCE TRUST") with the Trustee cash or obligations
of the U.S. Government or any combination thereof in such amounts as will be
sufficient for the payment of principal, premium (if any), and interest on the
Notes to redemption or maturity, as the case may be, and must comply with
certain other conditions, including delivering to the Trustee an opinion of
counsel to the effect that holders of the Notes will not recognize income, gain
or loss for Federal income tax purposes as a result of such deposit and
defeasance and will be subject to Federal income tax on the same amount and in
the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such opinion of counsel must be based on a ruling of the IRS or other
change in applicable Federal income tax law).
PRIORITY OF PAYMENTS
Pursuant to the terms of the Indenture and the Administrative Agency
Agreement, on each Payment Date, the Administrative Agent will withdraw all
amounts on deposit in the Collection Account and distribute such amounts in the
order of priority set forth below but, in each case, only to the extent that all
amounts ranking prior thereto have been paid in full.
(i) First, to the Expense Account, or in certain cases directly to the
relevant Expense payees, an amount equal to the Required Expense
Amount and then to the relevant Expense payees;
(ii) Second, in no order of priority inter se, but pro rata, (A) to
the holders of each subclass of Class A Notes, all accrued and
unpaid interest excluding Step-Up Interest, if applicable, on
such subclass of Class A Notes in no order of priority inter se,
but pro rata according to the amount of accrued and unpaid
interest on such subclass of Class A Notes; and (B) pro rata, to
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<PAGE> 105
any Swap Provider, an amount equal to any payment (other than
Subordinated Swap Payments) due from MSAF pursuant to any Swap
Agreement;
(iii) Third, first, to any persons providing Primary Eligible Credit
Facilities, any amounts payable to such persons under the terms
of their respective Primary Eligible Credit Facilities and then,
retain in the Collection Account an amount (the "FIRST COLLECTION
ACCOUNT TOP-UP"), if positive, equal to (A) the Minimum Liquidity
Reserve Amount less (B) amounts available for drawing under any
Primary Eligible Credit Facilities;
(iv) Fourth, to the holders of Class A Notes, in the order of priority
by subclass set forth under "-- Allocation of Principal among
Subclasses of Notes", an amount equal to the Minimum Principal
Payment Amount with respect to the Class A Notes;
(v) Fifth, to the holders of each subclass of Class B Notes, all
accrued and unpaid interest, excluding Step-Up Interest, if
applicable, on such subclass of Class B Notes in no order of
priority inter se, but pro rata according to the amount of accrued
and unpaid interest on such subclass of Class B Notes;
(vi) Sixth, to the holders of Class B Notes, in the order of priority
by subclass set forth under "-- Allocation of Principal among
Subclasses of Notes", an amount equal to the Minimum Principal
Payment Amount with respect to the Class B Notes;
(vii) Seventh, to the holders of each subclass of Class C Notes, all
accrued and unpaid interest, excluding Step-Up Interest, if
applicable, on such subclass of Class C Notes in no order of
priority inter se, but pro rata according to the amount of such
accrued and unpaid interest on such subclass of Class C Notes;
(viii) Eighth, to the holders of Class C Notes, in the order of priority
by subclass set forth under "-- Allocation of Principal among
Subclasses of Notes", an amount equal to the Minimum Principal
Payment Amount with respect to the Class C Notes;
(ix) Ninth, to the holders of each subclass of Class D Notes, all
accrued and unpaid interest, excluding Step-Up Interest, if
applicable, on such subclass of Class D Notes in no order of
priority inter se, but pro rata according to the amount of such
accrued and unpaid interest on such subclass of Class D Notes;
(x) Tenth, to the holders of Class D Notes, in the order of priority
by subclass set forth under "-- Allocation of Principal among
Subclasses of Notes", an amount equal to the Minimum Principal
Payment Amount with respect to the Class D Notes;
(xi) Eleventh, first, to any persons providing credit or liquidity
enhancement facilities that are not Primary Eligible Credit
Facilities, any amounts payable to such persons under the terms of
their respective facilities and then, retain in the Collection
Account an amount (the "SECOND COLLECTION ACCOUNT TOP-UP"), if
positive, equal to (A) the Liquidity Reserve Amount less (B) an
amount equal to cash amounts reserved under (iii) above plus
amounts available for drawing under any Eligible Credit
Facilities;
(xii) Twelfth, to the holders of Class A Notes, in the order of priority
by subclass set forth under "-- Allocation of Principal among
Subclasses of Notes", an amount equal to the Scheduled Principal
Payment Amount with respect to the Class A Notes;
(xiii) Thirteenth, to the holders of Class B Notes, in the order of
priority by subclass set forth under "-- Allocation of Principal
among Subclasses of Notes", an amount equal to the Scheduled
Principal Payment Amount with respect to the Class B Notes;
(xiv) Fourteenth, to the holders of Class C Notes, in the order of
priority by subclass set forth under "-- Allocation of Principal
among Subclasses of Notes", an amount equal to the Scheduled
Principal Payment Amount with respect to the Class C Notes;
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(xv) Fifteenth, to the holders of Class D Notes, in the order of
priority by subclass set forth under "-- Allocation of Principal
among Subclasses of Notes", an amount equal to the Scheduled
Principal Payment Amount with respect to the Class D Notes;
(xvi) Sixteenth, to the Permitted Accruals balance in the Expense
Account, an amount equal to Permitted Accruals in respect of any
Modification Payments (or any part thereof);
(xvii) Seventeenth, to the holders of each subclass of Notes entitled
thereto, an amount equal to all accrued and unpaid Step-Up
Interest on such subclass, if any, in no order of priority inter
se, but pro rata according to the amount of such accrued and
unpaid Step-Up Interest;
(xviii) Eighteenth, to the holders of the Beneficial Interest, the
Beneficial Interest Distribution Amount;
(xix) Nineteenth, to the holders of Class A Notes, in the order of
priority by subclass set forth under "-- Allocation of Principal
among Subclasses of Notes", an amount equal to the Supplemental
Principal Payment Amount with respect to the Class A Notes;
(xx) Twentieth, to the holders of Class B Notes, in the order of
priority by subclass set forth under "-- Allocation of Principal
among Subclasses of Notes", an amount equal to the Supplemental
Principal Payment Amount with respect to Class B Notes;
(xxi) Twenty-first, to the holders of Class D Notes, in the order of
priority by subclass set forth under "Allocation of Principal
among Subclasses of Notes" an amount equal to the Redemption Price
of the Outstanding Principal Balance, if any, of any subclass of
Class D Notes;
(xxii) Twenty-second, to the holders of Class C Notes, in the order of
priority by subclass set forth under "Allocation of Principal
among Subclasses of Notes" an amount equal to the Redemption Price
of the Outstanding Principal Balance, if any, of any subclass of
Class C Notes;
(xxiii) Twenty-third, to the holders of Class B Notes, in the order of
priority by subclass set forth under "Allocation of Principal
among Subclasses of Notes" an amount equal to the Redemption
Price of the Outstanding Principal Balance, if any, of any
subclass of Class B Notes;
(xxiv) Twenty-fourth, to the holders of Class A Notes, in the order of
priority by subclass set forth under "Allocation of Principal
among Subclasses of Notes" an amount equal to the Redemption Price
of the Outstanding Principal Balance, if any, of any subclass of
Class A Notes;
(xxv) Twenty-fifth, payments to Swap Providers which are subordinated in
accordance with the relevant Swap Agreement ("SUBORDINATED SWAP
PAYMENTS"); and
(xxvi) Twenty-sixth, to the holders of the Beneficial Interest, all
remaining amounts.
PRIORITY OF PAYMENTS FOLLOWING A DEFAULT NOTICE
Following delivery to MSAF or the Administrative Agent of a Default Notice
or if any Event of Default described in clause (e) or (f) under "-- Events of
Default and Remedies" shall have occurred and be continuing, the allocation of
payments described above will not apply and all amounts on deposit in the
Collection Account and the Expense Account will be applied in the following
order of priority:
(i) First, to the Expense Account, or in certain cases directly to the
relevant Expense payees, an amount equal to the Required Expense
Amount and then to the relevant Expense payees;
(ii) Second, in no order of priority inter se, but pro rata, to the
providers of any Primary Eligible Credit Facilities, such amounts
as are required to make any payments due to such providers
pursuant to their respective Primary Eligible Credit Facilities;
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(iii) Third, in no order of priority inter se, but (A) pro rata to the
holders of each subclass of Class A Notes, all accrued and unpaid
interest (including Step-Up Interest, if any) on, and all
Outstanding principal of, such subclass and (B) pro rata to any
Swap Provider, such amounts as are required to make any payments
(other than Subordinated Swap Payments) due to such Swap Provider
pursuant to any Swap Agreement;
(iv) Fourth, in no order of priority inter se, but pro rata, to the
holders of each subclass of Class B Notes, all accrued and unpaid
interest (including Step-Up Interest, if any) on and all
Outstanding principal of such subclass of Class B Notes;
(v) Fifth, in no order of priority inter se, but pro rata, to the
holders of each subclass of Class C Notes, all accrued and unpaid
interest (including Step-Up Interest, if any) on and all
Outstanding principal of such subclass of Class C Notes;
(vi) Sixth, in no order of priority inter se, but pro rata, to the
holders of each subclass of Class D Notes, all accrued and unpaid
interest (including Step-Up Interest, if any) on and all
Outstanding principal of such subclass of Class D Notes;
(vii) Seventh, in no order of priority inter se, but pro rata, to the
providers of any credit or liquidity enhancement facilities in
favor of MSAF other than Primary Eligible Credit Facilities, such
amounts as are required to make any payments due to such
providers pursuant to their respective facilities;
(viii) Eighth, in no order of priority inter se, but pro rata, to any
Swap Provider, such amounts as are required to make any
Subordinated Swap Payments due to such Swap Provider pursuant to
any Swap Agreement; and
(ix) Ninth, to the holders of the Beneficial Interest, all remaining
amounts.
INDENTURE COVENANTS
No Release of Obligations. MSAF will not take, or knowingly permit any
subsidiary to take, any action which would amend, terminate (other than any
termination in connection with the replacement of such agreement with an
agreement on terms substantially no less favorable to MSAF and its subsidiaries
than the agreement being terminated) or discharge or prejudice the validity or
effectiveness of the Indenture (other than as permitted therein), the Security
Trust Agreement, the Cash Management Agreement, the Administrative Agency
Agreement, the Financial Advisory Agreement or any Servicing Agreement or permit
any party to any such document to be released from such obligations, except, in
each case, as permitted or contemplated by the terms of such document, and
provided that such actions may be taken or permitted, and such releases may be
permitted, if MSAF shall have first obtained an authorizing resolution of the
Controlling Trustees determining that such action, permitted action or release
does not materially adversely affect the interests of the Noteholders, and
provided further, that in any case (i) MSAF will not take any action which would
result in any amendment or modification to any conflicts standard or duty of
care in such agreements and (ii) there must be at all times an administrative
agent, a cash manager, a financial advisor and, unless a Servicer resigns prior
to the appointment of a replacement servicer as a result of any failure to pay
amounts due and owing to it, one or more Servicers with respect to all Aircraft
in the Portfolio.
Limitation on Encumbrances. Under the terms of the Indenture, MSAF will
not, and will not permit any subsidiary to, create, incur, assume or suffer to
exist any mortgage, pledge, lien, encumbrance, charge or security interest (in
each case, an "ENCUMBRANCE"), including, without limitation, any conditional
sale, any sale with recourse against the seller or any affiliate of the seller,
or any agreement to give any security interest over or with respect to any of
MSAF's or any subsidiary's assets (excluding Lessee funds required to be
segregated from MSAF Group's other funds under the terms of any Lease)
including, without limitation, all beneficial interests in trusts, ordinary
shares and preferred shares, any options, warrants and other rights to acquire
such shares of capital stock ("STOCK") and any Indebtedness of any subsidiary
held by MSAF or a subsidiary thereof.
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Notwithstanding the foregoing, MSAF may create, incur, assume or suffer to
exist (i) any Permitted Encumbrance, (ii) any security interest created or
required to be created under the Security Trust Agreement, (iii) Encumbrances
over rights in or derived from leases, upon confirmation from the Rating
Agencies in advance that such action or event will not result in the lowering or
withdrawal of any rating assigned by any Rating Agency to any of the Notes,
provided that any transaction or series of transactions resulting in such
Encumbrance, taken as a whole, does not materially adversely affect the amount
of Collections that would have been received by MSAF from such Lease had such
Encumbrance not been created or (iv) any other Encumbrance the validity or
applicability of which is being contested in good faith in appropriate
proceedings by MSAF or any of its subsidiaries.
As used in this Prospectus, "AFFILIATE" means, with respect to any person,
any other person that, directly or indirectly, controls, is controlled by or is
under common control with, such person or is a director or officer of such
person; "CONTROL" of a person means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of such
person, whether through the ownership of voting Stock, by contract or otherwise;
and "PERMITTED ENCUMBRANCE" means (i) any lien for taxes, assessments and
governmental charges or levies not yet due and payable or which are being
contested in good faith by appropriate proceedings; (ii) in respect of any
Aircraft, any liens of a repairer, carrier or hanger keeper arising in the
ordinary course of business by operation of law or any engine or parts-pooling
arrangements or other similar lien; (iii) any permitted lien or encumbrance on
any Aircraft, Engines or Parts as defined under any Lease thereof (other than
liens or encumbrances created by the relevant lessor); (iv) any liens created by
or through or arising from debt or liabilities or any act or omission of any
Lessee in each case either in contravention of the relevant Lease (whether or
not such Lease has been terminated) or without the consent of the relevant
Lessor (provided that if such Lessor becomes aware of any such lien, such Lessor
shall use commercially reasonable efforts to have any such liens lifted); (v)
any head lease, lease, conditional sale agreement or Purchase Option existing on
March 3, 1998, with respect to the Initial Aircraft, or, with respect to any
Additional Aircraft, on the date such Aircraft is acquired by MSAF or any of its
subsidiaries or affiliates, or any Aircraft Agreement meeting the requirements
of (iii) or (v) of the second paragraph under the "Limitation on Aircraft Sales"
covenant: (vi) any lien for air navigation authority, airport tending, gate or
handling (or similar) charges or levies; (vii) any lien created in favor of MSAF
or any of its subsidiaries or the Security Trustee; (viii) any lien not referred
to in (i) through (vii) above which would not adversely affect the owner's
rights and does not exceed the greater of 1% of the aggregate Initial Appraised
Value of the Portfolio from time to time and $250,000 per Aircraft; and (ix) any
Encumbrance arising under the ILFC Facility or any other agreements the terms of
which contemplate that custody of security deposits held for Lessees with
respect to Additional Aircraft is held by a third party.
Limitation on Restricted Payments. Under the terms of the Indenture, MSAF
will not, and will not permit any of its subsidiaries to, (i) declare or pay any
dividend or make any distribution on its Stock held by persons other than MSAF
or any of its subsidiaries; provided that, so long as no Event of Default shall
have occurred and be continuing, MSAF may make payments on its Beneficial
Interest to the extent permitted by the Indenture; (ii) purchase, redeem, retire
or otherwise acquire for value any beneficial interest in MSAF or any stock of
its subsidiaries held by and on behalf of persons other than MSAF, any of its
subsidiaries or other Persons permitted under the requirements of (ii)(B) under
the "Limitation on the Issuance, Delivery and Sale of Capital Stock" covenant;
(iii) make any interest, principal or premium payment on the Notes or make any
voluntary or optional repurchase, defeasance or other acquisition or retirement
for value of Indebtedness of MSAF or any of its subsidiaries that is not owed to
MSAF or any of its subsidiaries other than in accordance with the Notes and the
Indenture; provided that MSAF or any of its affiliates may repurchase, defease
or otherwise acquire or retire any of the Notes other than from Available
Collections so long as any new notes of MSAF issued in connection with such
transaction rank pari passu with the Notes being repurchased, defeased, acquired
or retired; provided further that the Controlling Trustees shall determine that
such action does not materially adversely affect the Noteholders and shall have
obtained confirmation in advance that such action will not result in the
lowering or withdrawal of any rating assigned by any Rating Agency to any of the
MSAF Notes or (iv) make any investments (other than Permitted Account
Investments, investments permitted under the "Limitation on Engaging in Business
Activities" covenant, Allowed Restructurings and investments in any subsidiaries
that own Additional Aircraft).
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The term "INVESTMENT" for purposes of the above restriction shall mean any
loan or advance to a person or entity, any purchase or other acquisition of any
beneficial interest, capital stock, warrants, rights, options, obligations or
other securities of such person or entity, any capital contribution to such
person or entity or any other investment in such person or entity. For the
avoidance of doubt, "investment" shall not include any obligation of a purchaser
of an Aircraft to make deferred or installment payments pursuant to any Aircraft
Agreement specified in clauses (iii) or (v) of the second paragraph under
"Limitations on Aircraft Sales" below so long as MSAF Group retains a security
interest in the relevant Aircraft until all such obligations are discharged.
Limitation on Dividends and Other Payment Restrictions. Under the terms of
the Indenture, MSAF will not, and will not permit any of its subsidiaries to,
create or otherwise suffer to exist any consensual encumbrance or restriction of
any kind on the ability of any subsidiary to (i) declare or pay dividends or
make any other distributions permitted by applicable law, or purchase, redeem or
otherwise acquire for value, any beneficial interest in MSAF or the stock of any
such subsidiary, as the case may be, (ii) pay any Indebtedness owed to MSAF or
such subsidiary, (iii) make loans or advances to MSAF or such subsidiary or (iv)
transfer any of its property or assets to MSAF or any other subsidiary thereof.
The foregoing provisions shall not restrict any consensual encumbrances or
other restrictions: (i) existing on March 3, 1998, with respect to the Initial
Aircraft, or, with respect to any Additional Aircraft, on the date such Aircraft
is acquired, under any Related Document, and any amendments, extensions,
refinancings, renewals or replacements of such documents; provided that such
consensual encumbrances and restrictions in any such amendments, extensions,
refinancings, renewals or replacements are no less favorable in any material
respect to the holders of the MSAF Notes than those previously in effect and
being amended, extended, refinanced, renewed or replaced; or (ii) in the case of
clause (iv) in the preceding paragraph, (A) that restrict in a customary manner
the subletting, assignment or transfer of any property or asset that is a lease,
license, conveyance or contract or similar property or asset or (B) existing by
virtue of any transfer of, agreement to transfer, option or right with respect
to, or consensual encumbrance on, any property or assets of MSAF or any
subsidiary not otherwise prohibited by the Indenture. Nothing contained in this
covenant shall prevent MSAF or any subsidiary from creating, incurring, assuming
or suffering to exist any Encumbrances not otherwise prohibited under the
Indenture.
Limitation on Engaging in Business Activities. Under the terms of the
Indenture, MSAF will not, and will not permit any subsidiary to, engage in any
business or activity other than:
(i) (A) purchasing or otherwise acquiring aircraft assets (subject to the
limitations set forth in the "Limitation on Aircraft Acquisitions"
covenant) and (B) owning, holding, converting, maintaining,
modifying, managing, operating, leasing, re-leasing and, subject to
the limitations set forth in the "Limitations on Aircraft Sales"
covenant, selling or otherwise disposing of aircraft assets and
entering into all contracts and engaging in all related activities
incidental thereto, including from time to time accepting,
exchanging, holding or permitting any of its subsidiaries to accept,
exchange or hold (an "ALLOWED RESTRUCTURING") promissory notes,
contingent payment obligations or equity interests, of Lessees or
their affiliates issued in connection with the bankruptcy,
reorganization or other similar process, or in settlement of
delinquent obligations or obligations anticipated to be delinquent,
of such Lessees or their respective affiliates in the ordinary course
of business;
(ii) providing loans to, and guaranteeing or otherwise supporting the
obligations and liabilities of, MSAF's subsidiaries or any Future
MSAF Group Entity, in each case on such terms and in such manner as
the Controlling Trustees see fit and (whether or not such member of
MSAF Group derives a benefit therefrom) so long as such loans,
guarantees or other supports are provided in connection with the
purposes set forth in clause (i) of this covenant;
(iii) financing or refinancing the business activities described in clause
(i) of this covenant through the offer, sale and issuance of any
securities of MSAF, upon such terms and conditions as the Controlling
Trustees see fit, for cash or in payment or in partial payment for
any property purchased or otherwise acquired by MSAF Group or any
Future MSAF Group Entity;
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(iv) engaging in currency and interest rate exchange transactions for the
purposes of avoiding, reducing, minimizing, hedging against or
otherwise managing the risk of any loss, cost, expense or liability
arising, or which may arise, directly or indirectly, from any change
or changes in any interest rate or currency exchange rate or in the
price or value of any of the property or assets of MSAF or any of its
subsidiaries within limits determined by the Controlling Trustees from
time to time and submitted to the Rating Agencies, including but not
limited to dealings, whether involving purchases, sales or otherwise,
in foreign currency, spot and forward interest rate exchange
contracts, forward interest rate agreements, caps, floors and collars,
futures, options, swaps, and any other currency, interest rate and
other similar hedging arrangements and such other instruments as are
similar to, or derivatives of, any of the foregoing;
(v) (A) establishing, promoting and aiding in promoting, constituting,
forming or organizing companies, trusts, syndicates, partnerships or
other entities of all kinds in any part of the world for the purposes
set forth in clause (i) above, (B) acquiring, holding and disposing of
shares, securities and other interests in any such entity or
partnership and (C) disposing of shares, securities and other
interests in, or causing the dissolution of, any existing subsidiary;
provided that any such disposition which results in the disposition of
an Aircraft meets the requirements set forth under the "Limitation on
Aircraft Sales" covenant; and
(vi) taking out, acquiring, surrendering and assigning policies of
insurance and assurances with any insurance company or companies which
MSAF or any of its subsidiaries may think fit and to pay the premiums
thereon.
Limitation on Indebtedness. Under the terms of the Indenture, MSAF will
not, and will not permit any of its subsidiaries to, incur, create, issue,
assume, guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, whether present or
future (in any such case, to "INCUR"), Indebtedness.
For the purposes of the Indenture, "INDEBTEDNESS" means, with respect to
any person at any date of determination (without duplication), (i) all
indebtedness of such person for borrowed money, (ii) all obligations of such
person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such person in respect of letters of credit or other similar
instruments (including reimbursement obligations with respect thereto), (iv) all
obligations of such person to pay the deferred and unpaid purchase price of
property or services, which purchase price is due more than six months after the
date of purchasing such property or service or taking delivery and title thereto
or the completion of such services, and payment deferrals arranged primarily as
a method of raising finance or financing the acquisition of such property or
service, (v) all obligations of such person under a lease of (or other agreement
conveying the right to use) any property, whether real, personal or mixed, that
is required to be classified and accounted for as a capital lease obligation
under generally accepted accounting principles in the United States ("U.S.
GAAP"), (vi) all Indebtedness (as defined in clauses (i) through (v) of this
paragraph) of other persons secured by a lien on any asset of such person,
whether or not such Indebtedness is assumed by such person, and (vii) all
Indebtedness (as defined in clauses (i) through (v) of this paragraph) of other
persons guaranteed by such person.
Notwithstanding the foregoing, MSAF and any subsidiary may incur each and
all of the following: (i) Indebtedness in respect of any Note issued on March 3,
1998, (ii) Indebtedness in respect of any Refinancing Notes or other
Indebtedness issued in connection with the repurchase, acquisition, defeasance
or retirement for value of Notes; provided that (A) such Refinancing Notes or
other Indebtedness receive ratings from the Rating Agencies at the close of such
Refinancing or issuance equal to or higher than those of the subclass being
refinanced or repurchased, acquired, defeased or retired (determined at the date
of incurrence), (B) taking into account such Refinancing or repurchase,
acquisition, defeasance or retirement for value, MSAF receives confirmation
prior to such Refinancing from the Rating Agencies that such transaction will
not result in the lowering or withdrawal of any rating assigned by any Rating
Agency to any of the MSAF Notes Outstanding at such time, and (C) the net
proceeds of any such Refinancing or issuance shall be used only to repay the
Outstanding Principal Balance of the subclass of the Notes being so refinanced
or
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repurchased, acquired, defeased or retired (plus any Redemption Premium and
transaction expenses relating thereto); (iii) Indebtedness in respect of
guarantees by MSAF or any subsidiary of any other member of MSAF Group (other
than guarantees described in clause (v)), provided that no such Indebtedness in
respect of any member of MSAF Group other than MSAF or any subsidiary of MSAF
shall be incurred if it would materially adversely affect the Noteholders; (iv)
Indebtedness in respect of any Additional Notes incurred in connection with a
Permitted Additional Aircraft Acquisition; provided that (A) taking into account
the incurrence of such Indebtedness, MSAF receives confirmation prior thereto
that the incurrence of such Indebtedness will not result in the lowering or
withdrawal of any rating assigned by any Rating Agency to any of the MSAF Notes
Outstanding at such time and (B) the net proceeds of such Indebtedness shall be
used only to finance such Permitted Additional Aircraft Acquisition; (v)
Indebtedness in respect of guarantees by MSAF or any subsidiary of Indebtedness
incurred by any Future MSAF Group Entity (other than a subsidiary of MSAF) in
connection with a Permitted Additional Aircraft Acquisition; provided that (A)
such Future MSAF Group Entity shall have guaranteed the Notes, (B) the
Indebtedness being guaranteed would be permitted pursuant to clause (ii) or (iv)
above if such Indebtedness were incurred directly by MSAF or any subsidiary in
connection with such Permitted Additional Aircraft Acquisition and (C) the
Indebtedness being guaranteed was issued by such Future MSAF Group Entity under
an indenture, the terms of which (including the covenants and other obligations
of such Future MSAF Group Entity thereunder) are substantially similar to those
of the Indenture; (vi) Indebtedness to aircraft sellers pursuant to aircraft
acquisition or similar agreements; (vii) Indebtedness under intercompany loans
or any agreement between MSAF or any of its subsidiaries and any other members
of MSAF Group (each an "INTERCOMPANY LOAN"); provided that any Indebtedness owed
by any member of MSAF Group to MSAF shall be evidenced by promissory notes; and
(viii) Indebtedness of MSAF Group under any credit or liquidity enhancement
facility provided in favor of MSAF Group.
As used in this Prospectus, "GUARANTEE" means any obligation, contingent or
otherwise, of any person directly or indirectly guaranteeing any Indebtedness or
other obligation of any other person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such other person or (ii)
entered into for purposes of assuring in any other manner the obligee of such
Indebtedness or other obligation of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part); provided that the
term "guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "guarantee" when used as a verb has a
corresponding meaning.
Limitation on Aircraft Sales. Under the terms of the Indenture, MSAF will
not, and will not permit any of its subsidiaries to, sell, transfer or otherwise
dispose of any Aircraft or any interest therein.
Notwithstanding the foregoing, MSAF and any of its subsidiaries will be
permitted to sell, transfer or otherwise dispose of, directly or indirectly, (a)
any engines owned on March 3, 1998, with respect to the Initial Aircraft, or,
with respect to any Additional Aircraft, on the date such Aircraft is acquired,
or any replacements thereof ("ENGINES") or parts installed in or attached to any
Aircraft other than Engines ("PARTS"), or (b) one or more Aircraft or an
interest therein (i) pursuant to a Purchase Option or other agreements of a
similar character existing on March 3, 1998, with respect to the Initial
Aircraft, or, with respect to any Additional Aircraft, on the closing date of
the related issue of Additional Notes, (ii) within or among MSAF and its
subsidiaries without limitation, and among MSAF or any of its subsidiaries and
any other member of MSAF Group if such sale, transfer or disposition, as the
case may be, would not materially adversely affect the Noteholders, (iii)
pursuant to any Aircraft Agreement as long as such sale does not result in a
Concentration Default, and the net present value of the cash Net Sale Proceeds
is not less than the Note Target Price, (iv) pursuant to receipt of insurance
proceeds in connection with an event of loss, or (v) pursuant to an Aircraft
Agreement and, in any one calendar year, not exceeding 10% of the Adjusted
Portfolio Value as determined by the most recent Appraisal obtained for such
calendar year; provided that (x) the Controlling Trustees unanimously confirm
that each such sale does not materially adversely affect MSAF and the
Noteholders and (y) such sale does not result in a Concentration Default.
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For the purpose of this covenant, the net present value of the cash Net
Sale Proceeds of any sale, transfer or other disposition of any Aircraft shall
mean the present value of all payments received or to be received by MSAF Group
from the date of execution or option granting date, as the case may be, of the
relevant Aircraft Agreement through and including the date of transfer of title
to such Aircraft, discounted back to the date of execution or option granting
date, as the case may be, of such Aircraft Agreement at the weighted average
cost of funds of MSAF Group (based on the cost of funds represented by the Notes
on the Payment Date immediately preceding such date and taking into account any
Swap Agreements).
The "NOTE TARGET PRICE" means, in respect of any Aircraft, an amount equal
to 103% of the aggregate Outstanding Principal Balance of the MSAF Notes,
together with any accrued but unpaid interest thereon, allocable to such
Aircraft on the date of the sale agreement or purchase option date, as the case
may be. On any date, the Outstanding Principal Balance of MSAF Notes allocable
to an Aircraft will equal the product of (i) (A) the Adjusted Base Value of such
Aircraft divided by (B) the Adjusted Portfolio Value and (ii) the aggregate
Outstanding Principal Balance of the MSAF Notes, in each case on the most recent
Payment Date.
"AIRCRAFT AGREEMENT" means any lease, sub-lease, conditional sale
agreement, finance lease, hire purchase agreement or other agreement (other than
an agreement relating to maintenance, modification or repairs) or any purchase
option granted to a person other than MSAF or its subsidiaries or any other
member of MSAF Group to purchase an Aircraft pursuant to a purchase option
agreement, in each case pursuant to which any person acquires or is entitled to
acquire legal title, or the economic benefits of ownership of, such aircraft.
"NET SALE PROCEEDS" means, with respect to any sale or other disposition of
any assets, the aggregate amount of cash received or to be received from time to
time (whether as initial or deferred consideration) by or on behalf of the
seller in connection with such transaction after deducting therefrom (without
duplication) (a) reasonable and customary brokers' commissions and other similar
fees and commissions (including fees received by the Servicer under the
Servicing Agreement) and (b) the amount of taxes payable in connection with or
as a result of such transaction, in each case to the extent, but only to the
extent, that the amounts so deducted are, at the time of receipt of such cash,
actually paid to a person that is not an affiliate of the seller and are
properly attributable to such transaction or to the asset that is the subject
thereof.
"CONCENTRATION DEFAULT" means an Event of Default under "Operating
Covenants -- Concentration Limits", as such covenant may be adjusted from time
to time upon approval by the Rating Agencies, which would arise if effect were
given to any sale, transfer or other disposition or any purchase or other
acquisition as of the date of the binding sale or purchase agreement regardless
of whether such sale, transfer or other disposition or purchase or other
acquisition is scheduled or expected to occur after the date of such binding
agreement.
Limitation on Aircraft Acquisitions. Under the terms of the Indenture,
MSAF will not, and will not permit any of its subsidiaries, to purchase or
otherwise acquire any Aircraft other than the Initial Aircraft, any Substitute
Aircraft or any interest therein.
Notwithstanding the foregoing, MSAF and any of its subsidiaries will be
permitted to: (A) purchase or otherwise acquire, directly or indirectly,
Additional Aircraft; provided that (i) no Event of Default shall have occurred
and be continuing, (ii) all Scheduled Principal Payment Amounts on the Notes
have been paid, (iii) the acquisition does not result in a Concentration
Default, and (iv) after giving effect to such acquisition, no more than 90% by
appraised Base Value of the Portfolio consists of Stage 3 narrowbody aircraft
and regional jets, no more than 50% consists of Stage 3 widebody aircraft and no
more than 15% consists of Stage 2 aircraft and turboprop aircraft without the
Controlling Trustees having obtained confirmation in advance that such action
will not result in the lowering or withdrawal of any rating assigned by any
Rating Agency to any of the MSAF Notes Outstanding at such time; (B) act as
sponsor of a Future MSAF Group Entity other than a subsidiary of MSAF that would
fund an acquisition of aircraft assets with indebtedness guaranteed by MSAF
pursuant to the "Limitation on Indebtedness" covenant as described above;
provided that, if such acquisition of aircraft assets had been consummated
indirectly by MSAF, such acquisition would have been permitted pursuant to the
preceding clause (A) (each of the transactions described in clauses (A)
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and (B), a "PERMITTED ADDITIONAL AIRCRAFT ACQUISITION"); and (C) purchase or
otherwise acquire, directly or indirectly, (x) the Remaining Aircraft or (y)
Substitute Aircraft.
Limitation on Modification Payments and Capital Expenditures. Under the
terms of the Indenture, MSAF will not, and will not permit any of its
subsidiaries to, make any capital expenditures for the purpose of effecting any
optional improvement or modification of any Aircraft, or for the optional
conversion of any Aircraft from a passenger aircraft to a freighter or mixed-use
aircraft, for the purpose of purchasing or otherwise acquiring any Engines or
Parts outside of the ordinary course of business (each such expenditure, a
"MODIFICATION PAYMENT"). Notwithstanding the foregoing, MSAF may, and may permit
any of its subsidiaries to, make Modification Payments; provided that (i) each
Modification Payment, together with all other Modification Payments made after
March 3, 1998 with respect to any single Aircraft, do not exceed the aggregate
amount of funds that would be necessary to perform heavy maintenance (as
described in the applicable servicing agreement) on such Aircraft, including the
airframe and the related Engines thereof; (ii) such Modification Payment is
included in the annual operating budget of the MSAF Group and approved by the
Controlling Trustees; (iii) the amount of funds necessary to make such
Modification Payment shall have been accrued in advance as a Permitted Accrual
in the Expense Account through transfers into the Expense Account pursuant to
the Indenture or otherwise allowed to be paid under Permitted Indebtedness; and
(iv) the aggregate amount of all Modification Payments made by members of MSAF
Group, taken as a whole, pursuant to this covenant after March 3, 1998,
including such Modification Payment, shall not exceed 5% of the aggregate
Initial Appraised Value of all Aircraft acquired by MSAF Group.
Limitation on Consolidation, Merger and Transfer of Assets. Under the
terms of the Indenture, MSAF will not, and will not permit any subsidiary to,
consolidate with, merge with or into, or sell, convey, transfer, lease or
otherwise dispose of its property and assets (as an entirety or substantially as
an entirety in one transaction or in a series of related transactions) to, any
other person, or permit any other person to merge with or into MSAF or any
subsidiary, unless (i) the resulting entity is a special purpose entity, the
constituent document of which is substantially similar to the Amended and
Restated Trust Agreement or the equivalent charter document of such subsidiary,
as the case may be, and, after such consolidation, merger, sale, conveyance,
transfer, lease or other disposition, payments from such resulting entity to the
holders of the Notes do not give rise to any withholding tax payments less
favorable to the holders of the Notes than the amount of any withholding tax
payments which would have been required had such event not occurred, (ii) in the
case of consolidation, merger or transfer by MSAF, the surviving successor or
transferee entity shall expressly assume all of the obligations of MSAF in the
Indenture, the Notes and each other Related Document to which MSAF is then a
party, (iii) the Controlling Trustees shall have obtained confirmation in
advance that such action or event will not result in the lowering or withdrawal
of any rating assigned by any Rating Agency to any of the Notes, (iv)
immediately after giving effect to such transaction, no Event of Default shall
have occurred and be continuing, and (v) MSAF delivers to the Trustee an
officers' certificate and an opinion of counsel, in each case stating that such
consolidation, merger or transfer and such supplemental indenture comply with
the above criteria and, if applicable, the "Limitation on Aircraft Sales"
covenant and that all conditions precedent provided for in the Indenture
relating to such transaction have been complied with; provided that this
covenant shall not apply to any such consolidation, merger, sale, conveyance,
transfer, lease or disposition (a) within and among MSAF and any of its
subsidiaries and among MSAF Group if such consolidation, merger, sale,
conveyance, transfer, lease or disposition, as the case may be, would not
materially adversely affect the holders of the Notes, (b) complying with the
terms of the "Limitation on Aircraft Sales" covenant or (c) effected as part of
a single transaction providing for the redemption or defeasance of the MSAF
Notes in accordance with the terms thereof as described under "-- Redemption" or
"-- Defeasance", respectively.
Limitation on Transactions with Affiliates. Under the terms of the
Indenture, MSAF will not, and will not permit any subsidiary to, directly or
indirectly, enter into, renew or extend any transaction (including, without
limitation, the purchase, sale, lease or exchange of property or assets, or the
rendering of any service) with any affiliate of MSAF or any subsidiary, except
upon fair and reasonable terms no less favorable to MSAF or such subsidiary than
could be obtained, at the time of such transaction or at the time of the
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execution of the agreement providing therefor, in a comparable arm's-length
transaction with a person that is not such an affiliate.
The foregoing limitation does not limit, and shall not apply to: (i) any
transaction in connection with the establishment of MSAF Group, its acquisition
of the Initial Aircraft, any Substitute Aircraft or pursuant to the terms of the
Related Documents; (ii) any transaction within and among MSAF or any of its
subsidiaries and any other member of MSAF Group, provided that no such
transaction, other than between MSAF and any of its subsidiaries, shall be
consummated if it would materially adversely affect the holders of the MSAF
Notes; (iii) the payment of reasonable and customary fees to, and the provision
of reasonable and customary liability insurance in respect of, the Controlling
Trustees; (iv) any payments on the Beneficial Interest in accordance with the
Indenture and the "Order of Priorities"; (v) any Permitted Additional Aircraft
Acquisition or any transaction complying with the "Limitation on Aircraft Sales"
covenant; (vi) any payments of the types referred to in clauses (i) or (ii) of
the "Limitation on Restricted Payments" covenant and not prohibited thereunder;
(vii) entering into any transaction effected as part of a single transaction
providing for the redemption or defeasance of the MSAF Notes, in accordance with
the terms thereof as described under "-- Redemption" or "-- Defeasance",
respectively; (viii) entering into an interest rate swap or option on an
interest rate swap or other instrument used for the management of interest rate
risk with Morgan Stanley or any of its affiliates; or (ix) the tax
indemnification agreement between MSAF and Morgan Stanley.
Limitation on the Issuance, Delivery and Sale of Stock. Under the terms of
the Indenture, MSAF will not (i) issue, deliver or sell any shares,
participations or other equivalents (however designated, whether voting or
non-voting, other than beneficial interests, shares, participations or other
equivalents existing on March 3, 1998) in equity, or (ii) sell, or permit any
subsidiary, directly or indirectly, to issue, deliver or sell, any beneficial
interests, shares, participations or other equivalents (however designated,
whether voting or non-voting, other than such shares, interests, participations
or other equivalents existing on March 3, 1998) in equity except (A) issuances
or sales of further Beneficial Interests in MSAF having economic terms that are
no less favorable to the Noteholders than those of the Beneficial Interest
existing on March 3, 1998, (B) issuances or sales of shares of Stock of foreign
subsidiaries of MSAF to nationals in the jurisdiction of incorporation or
organization of such subsidiary, as the case may be, to the extent required by
applicable law or necessary in the determination of the Controlling Trustees to
avoid an adverse tax consequence in any such jurisdiction, (C) the pledge of the
beneficial interests and shares in MSAF's subsidiaries pursuant to the Security
Trust Agreement, (D) the sale, delivery or transfer of any Stock of any member
of the MSAF Group as part of a single transaction providing for the redemption
or defeasance of the MSAF Notes, in accordance with the terms set forth under
"-- Redemption" or "-- Defeasance", respectively, (E) the sale of any Stock in
connection with any sale of Aircraft in compliance with the terms of the
"Limitation on Aircraft Sales" covenant and (F) the sale, delivery, transfer or
pledge of beneficial interests or shares of any MSAF Group member to or for the
benefit of any other MSAF Group member.
Bankruptcy and Insolvency. Under the terms of the Indenture, (i) MSAF will
promptly provide the Trustee and the Rating Agencies with notice of the
institution of any proceeding by or against MSAF or any of its subsidiaries, as
the case may be, seeking to adjudicate any of them a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief or composition of their debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking an
entry of an order for relief or the appointment of a receiver, trustee or other
similar official for either or for any substantial part of their property, (ii)
MSAF will not amend any provision of the Amended and Restated Trust Agreement
that would adversely affect the rights, privileges or preferences of any holder
of the Notes, as determined by the Controlling Trustees, and (iii) MSAF will
not, without an affirmative unanimous written resolution of the Controlling
Trustees and the Independent Trustees take any action to waive, repeal, amend,
vary, supplement or otherwise modify the provision of the Amended and Restated
Trust Agreement which requires a unanimous resolution of the Controlling
Trustees and the Independent Trustees, or limits the actions of beneficial
interest holders, with respect to voluntary insolvency proceedings or consents
to involuntary insolvency proceedings.
In addition, under the terms of the Amended and Restated Trust Agreement
the Controlling Trustees and Independent Trustees will agree that while the
Notes are outstanding they will not take any action (i) to
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cause MSAF to institute any proceeding seeking liquidation or insolvency (or
similar proceeding), (ii) in the case of any such proceeding instituted against
MSAF, to authorize or consent to such proceedings or (iii) to terminate MSAF's
existence.
OPERATING COVENANTS
Concentration Limits. Unless the Controlling Trustees obtain prior written
confirmation from each of the Rating Agencies that no lowering or withdrawal of
the then current rating of any subclass of Notes will result, MSAF will not
permit any of its subsidiaries to lease or re-lease any Aircraft if entering
into such proposed lease would cause the Portfolio (excluding any Aircraft then
subject to an Aircraft Agreement and expected to be disposed of within one year
from the date of effectiveness of such lease pursuant to clauses (iii) and (v)
under "-- Indenture Covenants -- Limitation on Aircraft Sales" above but
including any Aircraft with respect to which MSAF Group has entered into a
binding agreement to acquire and which the Controlling Trustees reasonably
expect to acquire within 180 days from the date of effectiveness of such
agreement) to exceed any of the concentration limits set forth below (the
"CONCENTRATION LIMITS"); provided that the Indenture will permit breaches of
such Concentration Limits upon any renewal, extension or restructuring of any
Lease.
<TABLE>
<CAPTION>
LESSEE CONCENTRATION LIMITS PERCENTAGE OF
MOST RECENT APPRAISED
VALUE OF PORTFOLIO(1)
---------------------
<S> <C>
Single Lessee rated BBB/Baa2 (or the equivalent) or
better.................................................... 15%
Other single Lessees........................................ 10%
Five largest Lessees........................................ 35%
</TABLE>
<TABLE>
<CAPTION>
COUNTRY CONCENTRATION LIMITS PERCENTAGE OF
MOST RECENT APPRAISED
VALUE OF PORTFOLIO(1)
---------------------
<S> <C>
United States............................................... 25%
Countries rated BBB/Baa2 (or the equivalent) or better(2)... 20%
Other....................................................... 15%
</TABLE>
<TABLE>
<CAPTION>
REGION CONCENTRATION LIMITS PERCENTAGE OF
MOST RECENT APPRAISED
VALUE OF PORTFOLIO(1)
---------------------
<S> <C>
Developed Market Region(3).................................. 50%
Emerging Market Region(3)................................... 25%
Other(3).................................................... 20%
</TABLE>
- ---------------
(1) Percentage to be obtained by dividing the aggregate most recent Appraised
Values of all Aircraft leased or to be leased to Lessees habitually based in
the applicable country by the aggregate most recent Appraised Values of all
Aircraft then owned by MSAF Group and any future MSAF Group member.
(2) Based on the sovereign foreign currency debt rating assigned by the Rating
Agencies to the country in which a Lessee is habitually based at the time
the relevant Lease is executed.
(3) The designations of Emerging Markets and Developed Markets are as determined
and published by Capital International Perspective S.A. ("MSCI") from time
to time based on, among other things, gross domestic product levels,
regulation of foreign ownership of assets, the regulatory environment,
exchange controls and perceived investment risk. The current designations
are as set out below:
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<TABLE>
<CAPTION>
REGION COUNTRY
------ -------
<S> <C>
Developed Markets
Europe....................... EU (except Greece and Luxembourg), Norway and Switzerland
North America................ Canada and United States
Pacific...................... Australia, Hong Kong, Japan, New Zealand and Singapore
Emerging Markets
Asia......................... China, India, Indonesia, Korea, Malaysia, Pakistan,
Philippines, Sri Lanka, Taiwan and Thailand
Europe and Middle East....... Czech Republic, Greece, Hungary, Israel, Jordan, Poland,
Russia and Turkey
Latin America................ Argentina, Brazil, Chile, Colombia, Mexico, Peru and
Venezuela
Other
All other countries (generally those that have small or underdeveloped capital markets,
including Iceland, Fiji and Guyana)
</TABLE>
In addition, the Indenture will not permit MSAF or any subsidiary to lease
Aircraft operated or to be operated by Lessees domiciled in (i) certain
countries and (ii) certain other countries without procuring political risk
insurance. The list of prohibited countries and countries with respect to which
political risk insurance must be procured may be modified from time to time upon
the approval of the Rating Agencies.
The Indenture contains no limitations with respect to the country or region
where any sublessees of Aircraft operated or to be operated are domiciled if (i)
such sublease is permitted under the relevant Lease (including by reason of
consent or waiver, if applicable) or renewed Lease (including by reason of
consent or waiver, if applicable) and (ii) the relevant Lessee is either a
signatory to a Lease or a renewed Lease.
Compliance with Law, Maintenance of Permits. Under the terms of the
Indenture, MSAF will (i) comply, and cause each of its subsidiaries to comply,
in all material respects with all applicable laws, (ii) obtain, and cause each
of its subsidiaries to obtain, all material governmental (including regulatory)
registrations, certificates, licenses, permits and authorizations required for
such person's use and operation of the Aircraft, including, without limitation,
a current certificate of airworthiness for each Aircraft (issued by the
applicable aviation authority and in the appropriate category for the nature of
operations of such Aircraft), except that (A) no certificate of airworthiness
shall be required for any Aircraft (x) during any period when such Aircraft is
undergoing maintenance, modification or repair, (y) following the withdrawal or
suspension by such applicable aviation authority of certificates of
airworthiness in respect of all aircraft of the same model or period of
manufacture as such Aircraft (in which case MSAF shall comply, and cause each of
its subsidiaries to comply, with all directions of such applicable aviation
authority in connection with such withdrawal or suspension), (B) no
registration, certificates, licenses, permits or authorizations required for the
use or operation of any Aircraft need be obtained with respect to any period
when such Aircraft is not being operated and (C) no such registrations,
certificates, licenses, permits or authorizations shall be required to be
maintained for any Aircraft that is not the subject of a Lease, except to the
extent required under applicable laws, (iii) not cause or knowingly permit,
directly or indirectly, through any of its subsidiaries, any Lessee to operate
any Aircraft under any Lease in any material respect contrary to any applicable
law and (iv) not knowingly permit, directly or indirectly, through any of its
subsidiaries, any Lessee not to obtain all material governmental (including
regulatory) registrations, certificates, licenses, permits and authorizations
required for such Lessee's use and operation of any Aircraft under any operating
Lease except as provided, mutatis mutandis, in clauses (ii)(A) and (ii)(B)
above.
The foregoing covenant shall not be deemed to have been breached by virtue
of any act or omission of a Lessee or sub-lessee, or of any person which has
possession of the Aircraft or any Engine for the purpose of repairs,
maintenance, notification or storage, or by virtue of any requisition, seizure,
or confiscation of the Aircraft (other than seizure or confiscation arising from
a breach by MSAF or a subsidiary of such covenant) (each, a "THIRD PARTY
EVENT"); provided that (i) no member of MSAF Group consents or has consented to
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such Third Party Event; and (ii) the member of MSAF Group which is the lessor or
owner of such Aircraft promptly and diligently takes such commercially
reasonable actions as a leading international aircraft operating lessor or owner
would reasonably take in respect of such Third Party Event, including, as deemed
appropriate (taking into account, inter alia, the laws of the jurisdictions in
which the Aircraft are located), seeking to compel such Lessee or other relevant
person to remedy such Third Party Event or seeking to repossess the relevant
Aircraft or Engine.
Appraisal of Portfolio. Under the terms of the Indenture, MSAF will, at
least once each year and in any case no later than October 31 of each year,
deliver to the Trustee appraisals of the Base Value of each of the Aircraft,
from at least three independent appraisers that are members of the International
Society of Transport Aircraft Trading or any similar organization, each such
appraisal to be dated within 30 days prior to its delivery to the Trustee.
Maintenance of Assets. Under the terms of the Indenture, MSAF will (i)
with respect to each Aircraft and Engine that is subject to a Lease, cause
directly or indirectly, through any of its subsidiaries, such Aircraft and
Engine to be maintained in a state of repair and condition consistent with the
reasonable commercial practice of leading international aircraft operating
lessors with respect to similar aircraft under lease, taking into consideration,
among other things, the identity of the relevant Lessee (including the credit
standing and operating experience thereof), the age and condition of the
Aircraft and the jurisdiction in which such Aircraft will be operated or
registered under such Lease, and (ii) with respect to each Aircraft that is not
subject to a Lease, maintain, and cause each of its subsidiaries to maintain,
such Aircraft in a state of repair and condition consistent with the reasonable
commercial practice of leading international aircraft operating lessors with
respect to aircraft not under lease. No breach of this covenant, however, shall
be deemed to have occurred by virtue of any Third Party Event; provided that (i)
no member of MSAF Group consents or has consented to such Third Party Event; and
(ii) the member of MSAF Group which is the lessor or owner of such Aircraft
promptly and diligently takes such commercially reasonable actions as a leading
international aircraft operating lessor would reasonably take in respect of such
Third Party Event, including as deemed appropriate, seeking to compel such
Lessee or other relevant person to remedy such Third Party Event or seeking to
repossess the relevant Aircraft or Engine.
Notification of Trustee and Administrative Agent. Under the terms of the
Indenture, MSAF will notify the Trustee and Administrative Agent as soon as MSAF
or any of its subsidiaries becomes aware of any loss, theft, damage or
destruction to any Aircraft or Engine if the potential cost of repair or
replacement of such asset (without regard to any insurance claim related
thereto) may exceed $2,000,000.
Leases. Under the terms of the Indenture, MSAF shall adopt and has agreed
to cause the Servicer to use, and will adopt and will agree to cause any
additional Servicer replacing the Servicer pursuant to the terms of the
Servicing Agreement (an "ADDITIONAL SERVICER") to use, the pro forma lease
agreement or agreements then used by the Servicer or such Additional Servicer,
as the case may be, in connection with its aircraft operating leasing services
business generally, as such pro forma lease agreement or agreements may be
revised for purposes of MSAF Group specifically or generally from time to time
by the Servicer or Additional Servicer (the "PRO FORMA LEASE"), on behalf of
each member of MSAF Group as a starting point in the negotiation of Future
Leases; provided, that with respect to any Future Lease entered into in
connection with (x) the renewal or extension of a Lease, (y) the leasing of an
Aircraft to a person that is or was a Lessee under a pre-existing Lease or (z)
the leasing of an Aircraft to a person that is or was a lessee under an
operating lease of an aircraft that is being managed or serviced by the Servicer
or such Additional Servicer, as the case may be (such Future Lease, a "RENEWAL
LEASE"), a form of lease substantially similar to such pre-existing Lease or
operating lease (a "PRECEDENT LEASE"), as the case may be, may, in lieu of the
Pro Forma Lease, be used by the Servicer or such Additional Servicer, as the
case may be, on behalf of any member of the MSAF Group as a starting point in
the negotiation of such future lease with persons who are not members of the
MSAF Group or any Future MSAF Group Entity.
Opinions. Under the terms of the Indenture, MSAF will not enter into, and
will not permit any of its subsidiaries to enter into, any Future Lease with any
person that is not a member of MSAF Group or change the jurisdiction of
registration of any Aircraft that is subject to a Lease, unless, upon entering
into such Future
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Lease or changing the jurisdiction or registration of such Aircraft (or within a
commercially reasonable period thereafter), the Servicer or Additional Servicer,
as the case may be, obtains such legal opinions, if any, with regard to
compliance with the registration requirements of the relevant jurisdiction,
enforceability of the Future Lease and such other matters customary for such
transactions to the extent that receiving such legal opinions is consistent with
the reasonable commercial practice of leading international aircraft operating
lessors.
Insurance. Under the terms of the Indenture, MSAF will maintain or cause,
directly or indirectly through its subsidiaries, to be maintained with reputable
and responsible insurers or with insurers that maintain relevant reinsurance
with reputable and responsible reinsurers (i) airline hull insurance for each
Aircraft in an amount at least equal to the Note Target Price for such Aircraft
(or the equivalent thereof from time to time if such insurance is denominated in
a currency other than United States dollars), (ii) airline liability insurance
for each Aircraft and occurrence in an amount at least equal to the relevant
amounts set forth in the Indenture for each model of aircraft and (iii) airline
political risk insurance ("PRI") for each Aircraft subject to a Lease and
habitually based in a jurisdiction determined in accordance with the PRI
guidelines, as set forth in the Indenture and as amended from time to time with
the consent of the Rating Agencies, in an amount at least equal to the Note
Target Price (or the equivalent thereof from time to time if such insurance is
denominated in a currency other than United States Dollars) for such Aircraft;
provided, however, that with respect to any such insurance for any Aircraft
subject to a Lease, such insurance may be subject to commercially reasonable
deductible and self-insurance arrangements (taking into account, inter alia, the
creditworthiness and experience of the Lessee, if any, the type of aircraft and
market practices in the aircraft insurance industry generally). The coverage and
terms (including endorsements, deductibles and self-insurance arrangements) of
any insurance maintained with respect to any Aircraft not subject to a Lease
shall be substantially consistent with the commercial practices of leading
international aircraft operating lessors regarding similar aircraft.
In determining the amount of insurance required to be maintained, MSAF may
take into account any indemnification from, or insurance provided by, any
governmental, supranational or inter-governmental authority or agency (other
than, with respect to PRI, any governmental authority or agency of any
jurisdiction for which PRI must be obtained), the sovereign foreign currency
debt rating of which is rated AA, or the equivalent, by at least one of the
Rating Agencies, against any risk with respect to an Aircraft at least in an
amount which, when added to the amount of insurance against such risk maintained
by MSAF (or which MSAF has caused to be maintained), shall be at least equal to
the amount of insurance against such risk otherwise required by the covenant
(taking into account self-insurance permitted by the covenant). Any such
indemnification or insurance provided by such government shall provide
substantially similar protection as the insurance required by the covenant. MSAF
will not be required to maintain (or to cause to be maintained) any insurance
otherwise required hereunder to the extent that such insurance is not generally
available in the relevant insurance market at commercially reasonable rates from
time to time.
Indemnity. Under the terms of the Indenture, MSAF will, and will cause
each of its subsidiaries to, include in each Lease between a member of MSAF
Group and a person who is not a member of MSAF Group an indemnity in respect of
the Lease in respect of any losses or liabilities arising from the use or
operation of the Aircraft during the term of such Lease, subject to such
exceptions, limitations and qualifications as are consistent with the reasonable
commercial practices of leading international aircraft operating lessors.
EVENTS OF DEFAULT AND REMEDIES
Each of the following events will constitute an "EVENT OF DEFAULT" with
respect to any class of Notes under the Indenture (unless otherwise specified
below):
(a) failure to pay interest on the Notes of such class or any subclass
thereof (other than Step-Up Interest), in each case when such amount
becomes due, and such default continues for a period of five or more
Business Days;
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<PAGE> 119
(b) failure to pay principal or premium, if any, on the Notes of such
class or any subclass thereof either on or prior to the applicable
Final Maturity Date;
(c) failure to pay any amount (other than interest) when due and payable
in connection with any Note of such class or any subclass thereof, to
the extent that there are at such time Available Collections therefor,
and such default continues for a period of five or more Business Days;
(d) failure by MSAF to comply with any of the covenants, obligations,
conditions or provisions binding on it under the Indenture or the
Notes (other than a payment default for which provision is made in
clause (a), (b) or (c) above), if such failure materially adversely
affects the holders of such class of Notes and continues for a period
of 30 days or more after written notice thereof has been given to MSAF
by the Cash Manager, the Administrative Agent, the Servicer or
Additional Servicer, as the case may be, or by holders of at least 25%
of the aggregate Outstanding Principal Balance of the Notes of the
Senior Class;
(e) a court having jurisdiction in the premises enters a decree or order
for (i) relief in respect of MSAF, or any subsidiary thereof (other
than a subsidiary which owns or leases Aircraft having an aggregate
Base Value of less than 10% of the Adjusted Portfolio Value at that
time) (each, a "SIGNIFICANT SUBSIDIARY"), under any applicable law
relating to bankruptcy, insolvency, receivership, winding-up,
liquidation, reorganization, examination, relief of debtors or other
similar law now or hereafter in effect, (ii) appointment of a
receiver, liquidator, examiner, assignee, custodian, trustee,
sequestrator or similar official of MSAF or any Significant
Subsidiary; or (iii) the winding up or liquidation of the affairs of
MSAF or any Significant Subsidiary and, in each case, such decree or
order shall remain unstayed or such writ or other process shall not
have been stayed or dismissed within 90 days from entry thereof;
(f) MSAF or any Significant Subsidiary (i) commences a voluntary case
under any applicable law relating to bankruptcy, insolvency,
receivership, winding-up, liquidation, reorganization, examination,
relief of debtors or other similar law now or hereafter in effect, or
consents to the entry of an order for relief in any voluntary case
under any such law, (ii) consents to the appointment of or taking
possession by a receiver, liquidator, examiner, assignee, custodian,
trustee, sequestrator or similar official of MSAF or any Significant
Subsidiary or for all or substantially all of the property and assets
of MSAF or any Significant Subsidiary or (iii) effects any general
assignment for the benefit of creditors;
(g) any judgment or order for the payment of money in excess of 5% of the
aggregate Adjusted Portfolio Value shall be rendered against MSAF or
any subsidiary or any other member of MSAF Group and either (i)
enforcement proceedings shall have been commenced by any creditor upon
such judgment or order or (ii) there shall be any period of 10
consecutive days during which a stay of enforcement of such judgment
or order, by reason of a pending appeal or otherwise, shall not be in
effect; provided, however, that any such judgment or order shall not
be an Event of Default under the Indenture if and for so long as (i)
the amount of such judgment or order is covered by a valid and binding
policy of insurance between the defendant and the insurer covering
payment thereof and (ii) such insurer, which shall be rated at least A
by A.M. Best Company or any similar successor entity, has been
notified of, and has not disputed the claim made for payment of, the
amount of such judgment or order; or
(h) the constitutional documents of MSAF cease to be in full force and
effect without replacement documents having the same terms being in
full force and effect.
The Indenture provides that, within 30 days of the occurrence of an Event
of Default in respect of any class of Notes, the Trustee will give to the
Noteholders of such class notice, transmitted by mail, of all uncured or
unwaived defaults under the Indenture known to it on such date. If an Event of
Default (other than an Event of Default under (e) or (f) above) with respect to
the Senior Class of Notes shall have occurred and be continuing, the Senior
Trustee may, and, when instructed by the holders of 25% of the aggregate
Outstanding Principal Balance of the Senior Class of Notes, shall, give a
Default Notice to MSAF,
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the Administrative Agent, the Trustee and the Cash Manager declaring the
Outstanding Principal Balance of the Notes and all accrued and unpaid interest
thereon to be due and payable. At any time after the Senior Trustee has declared
the Outstanding Principal Balance of the Notes to be due and payable and prior
to the exercise of any other remedies pursuant to the Indenture, holders of a
majority of the Outstanding Principal Balance of the Senior Class of Notes, by
written notice to MSAF, the Senior Trustee and the Administrative Agent, may,
except in the case of (i) a default in the deposit or distribution of any
payment required to be made on the Notes of such class, (ii) a payment default
on such class of Notes or (iii) a default in respect of any covenant or
provision of the Indenture that cannot by the terms thereof be modified or
amended without the consent of each Noteholder affected thereby, rescind and
annul such declaration and thereby annul its consequences if: (i) there has been
paid to or deposited with the Senior Trustee an amount sufficient to pay all
overdue installments of interest on the Notes, and the principal of and premium,
if any, on the Notes that would have become due otherwise than by such
declaration of acceleration, (ii) the rescission would not conflict with any
judgment or decree and (iii) all other defaults and Events of Default, other
than nonpayment of interest and principal on the Notes that have become due
solely because of such acceleration, have been cured or waived. If an Event of
Default under clause (e) or (f) occurs, the Outstanding Principal Balance of the
Notes and all accrued and unpaid interest thereon shall automatically become due
and payable without any further action by any party. After the occurrence and
during the continuation of an Event of Default, (i) the Class B Noteholders will
not be permitted to give or direct the giving of a Default Notice or to exercise
any remedy in respect of such Event of Default until all interest and principal
on the Class A Notes have been paid in full, (ii) the Class C Noteholders will
not be permitted to give a Default Notice or to exercise any remedy in respect
of such Event of Default until all interest and principal on the Class A Notes
and the Class B Notes have been paid in full and (iii) the Class D Noteholders
will not be permitted to give a Default Notice or to exercise any remedy in
respect of such Event of Default until all interest and principal on the Class A
Notes, the Class B Notes and the Class C Notes have been paid in full. The
Trustee shall provide each Rating Agency with a copy of any Default Notice it
receives pursuant to the Indenture.
The Indenture contains a provision entitling the Trustee, subject to the
duty of the Trustee during a default to act with the required standard of care,
to be indemnified by the holders of any class of the Notes before proceeding to
exercise any right or power under the Indenture or the Administrative Agency
Agreement at the request or direction of such holders. Except in limited
circumstances, no holder of the Notes will have the right, other than through
the Senior Trustee acting in accordance with the Indenture, to sue for recovery
or take any other actions to enforce the obligations of MSAF to pay any and all
amounts due and payable under the Notes, and no holder of the Notes will have
the right to take any steps to cause the filing for bankruptcy of MSAF. However,
such limitation does not apply to a suit instituted by any holder of a Note for
the enforcement of payment of principal or interest on such Note on or after the
respective due dates therefor unless such holder shall have consented thereto.
The Senior Trustee is entitled to exercise any and all remedies available under
the Indenture.
For the purposes of the Indenture, the term "DEFAULT" shall mean the
occurrence of any event which is, or after notice or lapse of time, or both,
would constitute an Event of Default.
INTERCREDITOR RIGHTS
Subject to the terms of the Indenture, the Senior Trustee will have sole
discretion as to whether to direct the Administrative Agent to exercise and
enforce any and all remedies with respect to the Notes. The Senior Trustee may
take various actions in respect of the Notes, without regard to the interests of
any other creditors.
MODIFICATION AND WAIVER
In the event that the Trustee receives a request for its consent to an
amendment, modification or waiver under the Indenture, the Notes or any Related
Document relating to the Notes, the Trustee shall mail a notice of such proposed
amendment, modification or waiver to each Noteholder as to whether or not to
consent to such amendment, modification or waiver.
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The Indenture will provide that, with the consent of the holders of a
majority of the Outstanding Principal Balance of the Notes (acting as a single
class), modifications may be made to the Notes or the Indenture; provided that
any modification of the provisions setting forth the frequency or the currency
of payment of, the maturity of, or the method of calculation of the amount of
any interest, principal and premium, if any, payable in respect of any subclass
of Notes, or reducing the percentage of the aggregate Outstanding Principal
Balance of any subclass of Notes required to approve any such amendment or
waiver, or altering the manner or priority of payment of any subclass of Notes
(each, a "BASIC TERMS MODIFICATION") is not permitted without the consent of any
Swap Provider and the holder of each Outstanding Note affected thereby; provided
further however, that the Senior Trustee may waive any Event of Default. Any
such modification approved by the required holders of any subclass of Notes will
be binding on the holders of the relevant subclass of Notes and each party to
the Indenture. The foregoing, however, shall not prevent MSAF or any subsidiary
from amending any Lease; provided that such amendment is otherwise permitted by
the Indenture.
The subordination provisions contained in the Indenture may not be amended
or modified without the consent of each Swap Provider, each holder of the class
of Notes affected thereby and each holder of any class of Notes ranking senior
to such Notes.
Without the consent of each Noteholder, no amendment or modification of the
Indenture or the Administrative Agency Agreement may, inter alia, (a) modify the
provisions of the Indenture or the Administrative Agency Agreement with respect
to Account payment instructions and the payment thereunder by the Administrative
Agent or (b) result in the sale of MSAF's assets other than pursuant to the
provisions of "Indenture Covenants". In no event shall the provisions relating
to the priority of the Expenses or Swap Payments in the Indenture be amended or
modified.
NOTICES TO NOTEHOLDERS
Save as provided below, any notice to the Noteholders shall be validly
given (i) by publication in the Luxemburger Wort or, if such newspaper shall
cease to be published or timely publication therein shall not be practicable, in
such English language newspaper or newspapers as the Trustee shall approve
having a general circulation in Europe, (ii) by either of (a) the information
contained in such notice appearing on the relevant page of the Reuters Screen or
such other medium for the electronic display of data as may be approved by the
Trustee and notified to Noteholders or (b) publication in the Financial Times
and The Wall Street Journal (National Edition) or, if either newspaper shall
cease to be published or timely publication therein shall not be practicable, in
such English language newspaper or newspapers as the Trustee shall approve
having a general circulation in Europe and the United States and (iii) until
such time as any Definitive Notes are issued and, so long as the Notes are
registered in the name of a nominee for DTC, Euroclear and/or Cedel Bank,
delivery of the relevant notice to DTC, Euroclear and/or Cedel Bank for
communication by them to Noteholders.
The Trustee shall be at liberty to sanction some other method of giving
notice to the Noteholders if, in its opinion, such other method is reasonable,
having regard to the number and identity of the Noteholders and/or to market
practice then prevailing, is in the best interests of the Noteholders and will
comply with the rules of the Luxembourg Stock Exchange or such other stock
exchange (if any) on which the Notes are then listed, and any such notice shall
be deemed to have been given on such date as the Trustee may approve; provided
that notice of such method is given to the Noteholders in such manner as the
Trustee shall require.
Notwithstanding the above, any notice specifying the rate, amount or
Payment Date in respect of any Floating Rate Notes, or in respect of any
repayment of principal on any Notes shall, for so long as the Notes are listed
on the Luxembourg Stock Exchange and so long as the rules of the Luxembourg
Stock Exchange so require, be given to the Luxembourg Stock Exchange; provided
that such requirement shall be satisfied until such time as any Definitive Notes
are issued to all Noteholders and so long as the Notes are held on behalf of
DTC, Cedel Bank and Euroclear by (i) delivery of the relevant notice to DTC,
Cedel Bank and Euroclear for communication by them to the Noteholders without
the need for publication in the Luxemburger Wort and (ii) delivery of the notice
to the Luxembourg Stock Exchange and the paying agent in Luxembourg; provided
further, however, that any notice specifying (a) an increase in the interest
rate of any subclass of Notes due to Step-Up Interest or failure by MSAF to
comply with the registration requirements for the Notes or
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(b) redemption of principal of any Notes must be published in the Luxemburger
Wort or another daily newspaper of general circulation in Luxembourg. Any such
notice shall be deemed to have been given on the first day on which any of such
conditions shall have been met.
GOVERNING LAW AND JURISDICTION
The Indenture, the Notes, the Administrative Agency Agreement and the Cash
Management Agreement are to be governed by and construed in accordance with the
laws of the State of New York. In the Indenture, the Administrative Agency
Agreement and the Cash Management Agreement, MSAF has submitted to the
jurisdiction of the United States Federal and New York State courts located in
The City of New York for all purposes of or in connection with the Notes, the
Administrative Agency Agreement and Cash Management Agreement, as the case may
be, and has designated a person in The City of New York to accept service of any
process on its behalf.
BENEFICIAL INTEREST
The nominal value of the Beneficial Interest is $1.00. Morgan Stanley
indirectly holds 100% of the Beneficial Interest, but Morgan Stanley may
transfer all or a portion of the Beneficial Interest to a related or unrelated
person in the future. The Beneficial Interest will rank junior in priority of
payment to certain payments on the Notes and certain other obligations of MSAF
and, to the extent held by more than one person, pari passu among such persons.
Pursuant to the subordination provisions of the Indenture, payments on the
Beneficial Interest, other than the Beneficial Interest Distribution Amount, as
set forth in "-- Priority of Payments", are subordinated to all payments of
interest and principal on the Notes and no payments may be made on the
Beneficial Interest other than the Beneficial Interest Distribution Amount while
the Notes remain Outstanding.
When, as and if declared by the Controlling Trustees, a "BENEFICIAL
INTEREST DISTRIBUTION AMOUNT" shall only be payable on any Payment Date
occurring after March 15, 2003 and will not exceed the lesser of (i) 3% of the
difference, if positive, between the Adjusted Portfolio Value on such Payment
Date and the Outstanding Principal Balance of the MSAF Notes (determined prior
to application of Available Collections on such Payment Date) and (ii) 15% of
Available Collections on such Payment Date after application of payments and
retentions (i) through (xvii) as set forth above under "-- Priority of
Payments".
CASH MANAGEMENT AGREEMENT
The Cash Management Agreement among MSAF Group, the Cash Manager and the
Security Trustee, appoints the Cash Manager to invest the funds held by MSAF
Group in the Accounts in the Permitted Account Investments.
ACCOUNTS
The Administrative Agent, acting on behalf of the Security Trustee, has
established the following accounts: (i) the Collection Account, (ii) the Expense
Account, (iii) the initial Rental Account and (iv) an aircraft purchase account
(the "AIRCRAFT PURCHASE ACCOUNT") in which amounts were deposited to purchase
certain of the Initial Aircraft which had not been delivered as of March 3,
1998, the closing date of the Offering of the Old Notes (collectively with the
Lessee Funded Account, the Refinancing Account and the Defeasance/Redemption
Account, and including any ledger or subledger accounts maintained therein, the
"ACCOUNTS"). Each of the Collection Account, the Expense Account, the Rental
Accounts, the Lessee Funded Account and the Aircraft Purchase Account has been
established at a bank having (i) a long-term unsecured debt rating of not less
than AA, or the equivalent, by the Rating Agencies or (ii) a certificate of
deposit rating of A-1+ by Standard & Poor's and P-1 by Moody's and that is
acceptable to the other Rating Agencies. Where required by the terms of the
relevant Leases, certain Rental Accounts may be established at banks having
ratings of less than AA, or the equivalent, by the Rating Agencies, or a
certificate of deposit rating of less than A-1+ by Standard and Poor's and P-1
by Moody's. Except where local legal or regulatory reasons do not permit, all of
such Accounts will be held in the names of the Security Trustee, who will have
sole dominion and control over the Accounts, including, inter alia, the sole
power to direct withdrawals from
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or transfers among such Accounts. Subject to certain conditions set forth in the
Administrative Agency Agreement, the Security Trustee will delegate such
authority over the Accounts to the Administrative Agent; provided that the
Security Trustee will not be responsible for the acts or omissions of the
Administrative Agent.
For as long as any Notes remain Outstanding, funds on deposit in the
Accounts will be invested and reinvested by the Cash Manager at MSAF Group's
written direction (or, following delivery to MSAF or the Administrative Agent of
a Default Notice or if any Event of Default described in clause (e) or (f) under
" -- Events of Default and Remedies" shall have occurred and be continuing, at
the Security Trustee's written direction) in one or more Permitted Account
Investments maturing, in the case of the Collection Account and Expense Account,
such that sufficient funds shall be available to make required payments on the
first succeeding scheduled Payment Date after such Permitted Account Investments
are made; provided that investment and reinvestment of funds in the Lessee
Funded Account must be made in a manner and with maturities that conform to the
requirements of the related Leases or Aircraft Agreements, as the case may be.
Investment earnings on funds deposited in any Account, net of losses and
investment expenses, will, to the extent permitted by the terms of such related
Leases in the case of such funds in the Lessee Funded Account, be deposited in
the Collection Account and treated as collections.
RENTAL ACCOUNTS
The Lessees will make all payments under the Leases directly into the
applicable Rental Accounts. Pursuant to the Administrative Agency Agreement, the
Administrative Agent will transfer, or cause to be transferred, all funds
deposited into the Rental Accounts into the Collection Account as collections
within one Business Day of receipt thereof (other than certain limited amounts,
if any, required to be left on deposit for local legal or regulatory reasons).
COLLECTION ACCOUNT
Collections will include all amounts received by MSAF Group, including (i)
Rental Payments, (ii) amounts drawn under any credit or liquidity enhancement
facility, (iii) payments under any letter of credit, letter of comfort, letter
of guarantee or other assurance in respect of a Lessee's obligations under a
Lease, (iv) the cash portion of the Liquidity Reserve Amount, (v) amounts
received in respect of claims for damages or in respect of any breach of
contract for nonpayment of any of the foregoing (including any amounts received
from any MSAF Group subsidiary, whether by way of distribution, dividend,
repayment of a loan or otherwise and any proceeds received in connection with
any Allowed Restructuring), (vi) net proceeds of any Aircraft sale or amounts
received under any Aircraft Agreement, (vii) proceeds of any insurance payments
in respect of any Aircraft or any indemnification proceeds, (viii) certain
amounts transferred from the Lessee Funded Account to the Collection Account,
(ix) certain security deposits transferred from ILFC, (x) net payments to MSAF
Group under any Swap Agreement, (xi) investment income, if any, on all amounts
on deposit in the Accounts (in each case to the extent consistent with the terms
of applicable related Leases) and (xii) any other amounts received by any member
of the MSAF Group other than segregated funds, certain funds to be applied in
connection with a redemption, certain funds received in connection with a
Refinancing and other amounts required to be paid over to any third party
pursuant to any Related Document (collectively, the "COLLECTIONS").
Collections on deposit in the Collection Account will be calculated by the
Administrative Agent on the Calculation Date. The portion of the Required
Expense Amount that has not been paid directly by the Administrative Agent to
Expense payees will be transferred into the Expense Account on each Payment Date
and the Administrative Agent may, from time to time, transfer other amounts into
the Expense Account in respect of unanticipated Expenses falling due and payable
within such Interest Accrual Period. To the extent funds are available therefor
on any Payment Date, the Administrative Agent will also transfer amounts in
respect of expenses and costs that are not regular, monthly recurring expenses,
including Modification Payments and refinancing expenses, if any, anticipated to
become due and payable in any future Interest Accrual Period ("PERMITTED
ACCRUALS"). Amounts received in respect of certain segregated security deposits
and maintenance reserves (as described below) will be transferred directly into
the Lessee Funded Account.
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LIQUIDITY RESERVE AMOUNT
All Collections received by MSAF Group will either be transferred to
another Account as described above and below, paid to the appropriate third
party on behalf of MSAF Group or held in the Collection Account as a part of the
cash portion of the Liquidity Reserve Amount, a balance required to be held by
MSAF Group in the Collection Account pursuant to the Indenture. The Liquidity
Reserve Amount is intended to provide liquidity for MSAF Group to meet its
aircraft maintenance obligations and its lessee security deposit repayment
obligations and to provide for certain other contingencies that may arise in the
course of MSAF Group's activities. The Liquidity Reserve Amount may be funded
with cash in the Collection Account or with amounts available under Eligible
Credit Facilities.
The initial Liquidity Reserve Amount was approximately $65.2 million on
March 3, 1998. The Liquidity Reserve Amount may be increased or decreased from
time to time for any reason (including upon acquisitions of Additional Aircraft)
by an action of the Controlling Trustees in light of significant changes in,
inter alia, the condition of the Aircraft, the terms and conditions of the
Leases, the financial condition of the Lessees or prevailing industry
conditions; provided that MSAF Group will obtain confirmation in advance in
writing from the Rating Agencies that any such proposed reduction in the
Liquidity Reserve Amount will not result in a lowering or withdrawal by any such
Rating Agencies of their respective ratings of any class of Notes.
If the balance of cash on deposit in the Collection Account, together with
the amount available for drawing under any Eligible Credit Facilities, should
fall below the Liquidity Reserve Amount at any time (including as a result of
MSAF Group's determination that the Liquidity Reserve Amount should be
increased, as required by the Rating Agencies or otherwise), MSAF Group may
continue to make all payments, and any credit or liquidity enhancement
facilities may be drawn to fund such payments, including required payments on
the Notes, which rank prior to, or pari passu with, payments of Minimum
Principal Payment Amount on the Class D Notes under "Description of the Notes --
Priority of Payments" and any Permitted Accruals other than in respect of
Modification Payments, provided that the balance of funds in the Collection
Account, together with the amount available for drawing under any Eligible
Credit Facilities, does not fall below the Minimum Liquidity Reserve Amount at
its then current level. However, the balance of funds in the Collection Account,
together with the amount available for drawing under any Eligible Credit
Facilities, may fall below the Minimum Liquidity Reserve Amount at its then
current level and MSAF Group may continue to make payments of, and any credit or
liquidity enhancement facilities may be drawn to fund such payments, all accrued
and unpaid interest on any subclass of the most senior class of Notes then
Outstanding to avoid an Event of Default, and, on the Final Maturity Date of any
subclass thereof, principal of, any subclass of the most senior class of Notes
then Outstanding to avoid an Event of Default.
At such time as the aggregate Outstanding Principal Balance of the Notes is
less than or equal to the Liquidity Reserve Amount, the balance of funds, if
any, in the Collection Account will be distributed in accordance with the
priority of payments established for the Notes.
LESSEE FUNDED ACCOUNT
Certain Lessee security deposits and supplemental rent payments to provide
for maintenance reserves may be required to be segregated from other MSAF Group
funds in the future. Amounts received from Lessees in respect of such security
deposits and maintenance obligations will be held in the Lessee Funded Account.
Funds on deposit in the Lessee Funded Account will be used to make certain
maintenance and security deposit repayment related payments (or such other
payments as may be required or permitted under the terms of the relevant Leases)
or may be applied against maintenance-related payments otherwise required to be
made by the Lessee during the term of the related Lease and will not be used to
make payments in respect of the Notes or the Notes at any time, including after
the delivery of a Default Notice. In certain circumstances where Lessees
relinquish their rights to receive certain maintenance and security deposit
payments upon the expiration of a lease, surplus funds may be credited from the
Lessee Funded Account to the Collection Account.
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EXPENSE ACCOUNT
On each Payment Date, the Administrative Agent will withdraw from the funds
deposited in the Collection Account, in the priority of payments established for
the Notes, an amount equal to the Required Expense Amount, which amount will
then be used to pay the Expenses. To the extent that the Required Expense Amount
has not been paid directly by the Administrative Agent to Expense payees, the
Required Expense Amount will be deposited into the Expense Account. In addition,
in the period between Payment Dates, the Administrative Agent may make further
withdrawals of cash from the Collection Account in order to satisfy Expenses due
and payable prior to the next Payment Date that were not previously anticipated
to become so due and payable on the previous Payment Date. If funds on deposit
in the Collection Account are less than the Required Expense Amount on any
Payment Date, MSAF Group will be unable to pay the Required Expense Amount in
full on such date, which may lead to a default under one or more of the Related
Documents or MSAF Group's various service agreements. All Available Collections
remaining in the Collection Account will be used by the Administrative Agent to
make payments on the Notes in accordance with the priority of payments
established therefor under "-- Priority of Payments".
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REPORTS TO NOTEHOLDERS
On the second Business Day before each Payment Date and any other date for
distribution of any payments with respect to each subclass of Notes then
Outstanding, the Trustee will distribute to each Noteholder a Monthly Report
with respect to any payment to be made on such Payment Date or other date, as
the case may be, setting forth the following information:
<TABLE>
<S> <C> <C>
With respect to each Payment Date, (A) the balances on deposit on the
(i) Calculation Date immediately preceding the prior Payment Date, (B) the
aggregate amounts of deposits and withdrawals between such Calculation
Date and the Calculation Date immediately preceding the Payment Date
and (C) the balances on deposit in the Expense Account, Collection
Account and Lessee Funded Account on the Calculation Date immediately
preceding such Payment Date.
(ii) Analysis of Expense Account Activity
Balance on Preceding Calculation Date; .....................
Net Transfer to the Expense Account during the period
between the prior Calculation Date and the relevant
Calculation Date ...........................................
Payments during period between prior Calculation Date and
the relevant Calculation Date;
(1) Payments on prior Payment Date..........................
(2) Other payments..........................................
Balance on relevant Calculation Date........................
(iii) Analysis of Collection Account Activity
Balance on Preceding Calculation Date.......................
-- Required Expense Amount (including on preceding Payment
Date).....................................................
-- Net Transfer to Lessee Funded Accounts during period.....
-- Collections during period................................
-- Transfer from the Aircraft Purchase Account..............
-- Drawings under credit or liquidity enhancement
facilities................................................
-- Aggregate Note Payments..................................
-- Swap Payments............................................
-- Repayments of drawings under credit or liquidity
enhancement facilities....................................
Balance on relevant Calculation Date (separately stating the
Liquidity Reserve Amount)...................................
Analysis of current Payment Date distributions..............
(iv) Payments on the Notes
(a) Floating Rate Notes (by class and, if applicable,
subclass)...............................................
-- Applicable LIBOR for the current Interest Accrual
Period....................................................
-- Applicable Margin for the current Interest Accrual
Period....................................................
-- Applicable Interest Rate for the current Interest Accrual
Period....................................................
-- Interest Amount Payable..................................
-- Step-Up Interest.........................................
-- Opening Outstanding Principal Balance....................
-- Minimum Principal Payment Amount.........................
-- Scheduled Principal Payment Amount.......................
-- Supplemental Principal Payment Amount....................
-- Redemption Amount........................................
-- amount allocable to principal............................
-- amount allocable to premium..............................
-- Closing Outstanding Principal Balance....................
</TABLE>
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<TABLE>
<S> <C> <C>
(b) Fixed Rate Notes (by class and, if applicable, subclass)
Applicable Interest Rate....................................
Interest Amount Payable.....................................
Opening Outstanding Principal Balance.......................
Minimum Principal Payment Amount............................
Scheduled Principal Payment Amount..........................
Redemption Amount
-- amount allocable to principal............................
-- amount allocable to premium..............................
Closing Outstanding Principal Balance.......................
(v) Floating Rate Note information for next Interest Accrual
Period (by subclass)
Applicable LIBOR............................................
Applicable Margin...........................................
Applicable Interest Rate....................................
(vi) Payments per $100,000 Initial Outstanding Principal Balance
of Notes (by subclass)
Opening Outstanding Principal Balance.......................
Total Principal Payments....................................
Closing Outstanding Principal Balance.......................
Total Interest..............................................
Total Premium...............................................
</TABLE>
Following effectiveness of the Registration Statement of which this
Prospectus constitutes a part, such Monthly Reports are expected to be filed by
MSAF with the Commission in a Report on Form 8-K and the Quarterly Reports
accompanying the Monthly Reports for each April 15, July 15 and October 15 are
expected to be filed with the Commission in a Report on Form 10-Q. Following
effectiveness of the Registration Statement of which this Prospectus constitutes
a part, the Annual Report accompanying the Monthly Report for each February 15
is expected to be filed with the Commission in a Report on Form 10-K. The
financial data relating to annual Collection Account activity contained in
Annual Reports will be audited by Deloitte & Touche LLP.
After the end of each calendar year, the Trustee will furnish to each
person who at any time during such calendar year was a holder of any subclass of
Notes a statement containing the sum of the amounts determined pursuant to
clause (iv) above with respect to such subclass for such calendar year or, in
the event such person was a holder of record of any subclass of Notes during a
portion of such calendar year, for the applicable portion of such calendar year,
and such other items as are readily available to such Trustee and which a
Noteholder shall reasonably request as necessary for the purpose of such
Noteholder's preparation of its United States federal income tax returns. So
long as the Notes of any subclass are registered in the name of DTC or its
nominee, such report and such other items will be prepared on the basis of such
information supplied to the Indenture Trustee by DTC and the DTC Participants,
and will be delivered by the Trustee to such DTC Participants to be available
for forwarding by such DTC Participants to the applicable Noteholders in the
manner described above
The Trustee will publish or will cause to be published following each
Payment Date and other date specified above in a daily newspaper in Luxembourg
(expected to be the Luxemburger Wort) a notice to the effect that the
information set forth above will be available for review at the main office of
the Listing Agent for the Notes in Luxembourg City, Luxembourg. Notices to
Noteholders in respect of the Notes will be given by publication in a daily
newspaper in Luxembourg, which is expected to be the Luxemburger Wort. The
Luxembourg Stock Exchange will receive notice promptly following each
distribution date. In addition, the Trustee intends to provide such information
to Bloomberg Financial Markets promptly following each Payment Date for
publication on the BLOOMBERG.
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At such time, if any, as the Notes of any subclass are issued in the form
of Definitive Notes, the Trustee will prepare and deliver the information
described above to each holder of record of a Definitive Note of such subclass
as the name and period of beneficial ownership of such holder of record of a
Definitive Note of such subclass appears on the records of the Trustee. The
Trustee maintains the records concerning the holders of such Notes.
INVESTORS SHOULD NOTE THAT MSAF WILL NOT PREPARE ANY CONSOLIDATED INCOME
STATEMENTS OR BALANCE SHEETS WITH RESPECT TO MSAF GROUP OR ANY FINANCIAL
INFORMATION OTHER THAN THE CASH REPORTS.
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BOOK-ENTRY REGISTRATION, GLOBAL CLEARANCE AND SETTLEMENT
BOOK-ENTRY REGISTRATION
Investors will hold their Notes through The Depository Trust Company
("DTC") (in the United States) or Cedel Bank, societe anonyme ("CEDEL BANK") or
Morgan Guaranty Trust Company of New York, Brussels Office, as operator of the
Euroclear System ("EUROCLEAR") (in Europe) if they are participants in such
systems, or indirectly through organizations which are participants in such
systems. Except as set forth below, the Notes will be registered in the name of
Cede as the nominee for DTC. Investors will be entitled to receive a physical
certificate representing such person's interest therein only in the limited
circumstances described herein. Unless and until Definitive Notes are issued,
all references herein to actions by Noteholders will refer to actions taken by
DTC upon instructions from participants whose securities are held by DTC (the
"DTC PARTICIPANTS"), and all references herein to distributions, notices,
reports and statements to Noteholders will refer to distributions, notices,
reports and statements, respectively, to DTC or Cede, as the registered holder
of the Notes, or to DTC Participants for distribution to Noteholders in
accordance with DTC procedures.
Cedel Bank and Euroclear will hold omnibus positions on behalf of their
participants through customers' securities accounts in the names of Cedel Bank
and Morgan Guaranty Trust Company of New York, Brussels office, on the books of
their respective Depositaries which, in turn, will hold such positions in
customers' securities accounts in the Depositaries' names on the books of DTC.
Citibank, N.A. will act as depositary for Cedel Bank and Morgan Guaranty Trust
Company of New York will act as depositary for Euroclear (in such capacities,
the "DEPOSITARIES").
Transfers between DTC Participants will occur in the ordinary way in
accordance with DTC rules. Transfers between participating organizations whose
securities are held by Cedel Bank (the "CEDEL PARTICIPANTS") and participants in
Euroclear (the "EUROCLEAR PARTICIPANTS") will occur in the ordinary way in
accordance with the applicable rules and operating procedures of Cedel Bank and
Euroclear.
Cross-market transfers between persons holding directly or indirectly
through DTC Participants, on the one hand, and directly or indirectly through
Cedel Participants or Euroclear Participants, on the other, will be effected by
DTC in accordance with DTC rules on behalf of Cedel Bank or Euroclear, as the
case may be, by its respective Depositary. However, such cross-market
transactions will require delivery of instructions to Cedel Bank or Euroclear,
as the case may be, by the counterparty in such system in accordance with its
rules and procedures and within its established deadlines. If the transaction
meets its settlement requirements, Cedel Bank or Euroclear, as the case may be,
will deliver instructions to its respective Depositary to take action to effect
final settlement on its behalf by delivering or receiving securities in DTC, and
making or receiving payment in accordance with normal procedures for same-day
funds settlement applicable to DTC. Cedel Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of beneficial interests in the
Notes received in Cedel Bank or Euroclear as a result of a transaction with a
DTC Participant will be made during the securities settlement processing day
dated the Business Day following the DTC settlement date. Such credits or any
transactions in such Notes settled during such processing will be reported to
the relevant Cedel Participant or Euroclear Participant on such Business Day.
Cash received in Cedel Bank or Euroclear as a result of sales of beneficial
interests in the Global Notes by or through a Cedel Participant or Euroclear
Participant to a DTC Participant will be received with value on the DTC
settlement date but will be available in the relevant Cedel Bank or Euroclear
cash account only as of the Business Day following settlement in DTC.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC was created to hold securities for DTC Participants and to
facilitate the clearance and settlement of securities transactions between DTC
Participants through electronic book-entry changes in accounts of DTC
Participants, thereby eliminating the need for physical movement of
certificates. DTC Participants include securities brokers and dealers (including
the Initial Purchasers), banks, trust companies and clearing corporations and
may in the future include certain other organizations. Indirect access to the
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DTC system also is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a DTC
Participant either directly or indirectly ("INDIRECT PARTICIPANTS").
Investors who are not DTC Participants but desire to purchase, sell or
otherwise transfer ownership of, or other interests in, beneficial interests in
the Notes may do so only through DTC Participants. Indirect Participants are
required to effect transfers through a DTC Participant. Payments of interest,
principal, and premium, if any, in respect of the Notes will be made to DTC and
are the responsibility of MSAF. Noteholders will receive all distributions of
interest, principal and premium, if any, in respect of the Notes from the
Trustee or a paying agent through DTC Participants and Indirect Participants.
Disbursement of such payments to DTC Participants will be the responsibility of
DTC and disbursement of such payments to the Noteholders will be the
responsibility of DTC Participants and Indirect Participants. DTC's practice is
to credit DTC Participants' accounts on the payment date in accordance with
their respective holdings shown on DTC's records unless DTC has reason to
believe that it will not receive payment on such payment date. Payments by DTC
Participants to Noteholders will be governed by standing instructions and
customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such DTC Participant. So long as the Notes are registered in
the name of Cede & Co., the only "Noteholder" will be Cede & Co., as nominee for
DTC and such nominee will be considered the sole owner or holder of the Notes
for all purposes under the Indenture and the Notes. While so registered,
Noteholders will be permitted to exercise the rights of Noteholders only
indirectly through DTC and DTC Participants.
Under the rules, regulations and procedures governing DTC and its
operations (the "RULES"), DTC is required to make book-entry transfers of the
Notes among the DTC Participants on whose behalf it acts with respect to the
Notes and to receive and transmit distributions of interest, principal and
premium, if any, in respect of the Notes. DTC Participants and Indirect
Participants similarly are required to make book-entry transfers and receive and
transmit such payments on behalf of their respective Notes. The Rules provide a
mechanism by which Noteholders will receive payments and will be able to
transfer their interests.
DTC has advised MSAF that it will take any action permitted to be taken by
a Noteholder in respect of each subclass of Notes under the Indenture only at
the direction of one or more DTC Participants to whose accounts that subclass of
Notes is credited. Additionally, DTC has advised MSAF that it will take such
actions with respect to any percentage of the outstanding principal amount of
any subclass of Notes only at the direction of and on behalf of the DTC
Participants whose customers own such outstanding principal amount. DTC may take
conflicting actions with respect to different subclasses of Notes to the extent
that such actions are taken on behalf of DTC Participants whose holdings include
such different subclasses of Notes.
Distributions with respect to Notes held beneficially through Cedel Bank
will be credited to cash accounts of Cedel Participants in accordance with Cedel
Bank's rules and procedures, to the extent received by its Depositary. Cedel
Bank will take any other action permitted to be taken by a Noteholder under the
Indenture on behalf of a Cedel Participant only in accordance with its rules and
procedures and subject to its Depositary's ability to effect such actions on its
behalf through DTC.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "TERMS AND CONDITIONS"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear and receipts of payments with respect to securities in
Euroclear. All securities of a particular subclass in Euroclear are held on a
fungible basis without attribution of specific certificates to specific
securities clearance accounts. The Euroclear Operator acts under the Terms and
Conditions only on behalf of Euroclear Participants, and has no record of or
relationship with persons holding through Euroclear Participants.
Distributions with respect to Notes beneficially held through Euroclear
will be credited to the cash accounts of Euroclear Participants in accordance
with the Terms and Conditions, to the extent received by its Depositary. The
Euroclear Operator will take any other action permitted to be taken by a
Noteholder under
124
<PAGE> 131
the Indenture on behalf of a Euroclear Participant only in accordance with the
Terms and Conditions and subject to its Depositary's ability to effect such
actions on its behalf through DTC.
Although DTC, Cedel Bank and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Notes among participants of DTC,
Cedel Bank and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
DEFINITIVE NOTES
The Notes of any subclass may be issued in fully registered, certificated
form ("DEFINITIVE NOTES") to individual Noteholders of that subclass or their
nominees only if (i) MSAF advises the Trustee in writing that DTC is no longer
willing or able to properly discharge its responsibilities as depositary with
respect to the Notes and the Trustee or MSAF is unable to appoint a qualified
successor within 90 days of such notice, (ii) MSAF, at its option, elects to
terminate the book-entry system through DTC or (iii) after the occurrence of an
Event of Default with respect to any class of Notes, Noteholders of a subclass
within such class representing an aggregate of not less than 51% of the
aggregate outstanding principal amount of Notes of such subclass advise MSAF,
the Trustee and DTC through DTC Participants in writing that the continuation of
a book-entry system through DTC (or a successor thereto) is no longer in such
Noteholders' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Trustee will be required to notify all Noteholders of each
affected subclass through DTC of the availability of Definitive Notes of such
subclass. Upon surrender by DTC of the Global Notes of that subclass and receipt
of instructions for registration, the Trustee will reissue the Notes of that
subclass as Definitive Notes to Noteholders of that subclass.
Distributions of principal of, and interest and premiums, if any, on any
Definitive Notes will thereafter be made by the Trustee or a paying agent in
accordance with the procedures set forth in the Indenture directly to holders of
Definitive Notes in whose names the Definitive Notes were registered at the
close of business on the Record Date. Such distributions will be made by check
mailed to the address of such holder as it appears on the register maintained by
the registrar. The final payment on any such Definitive Notes, however, will be
made only upon presentation and surrender of such Definitive Notes at the office
or agency specified in the notice of final distribution to Noteholders.
Definitive Notes will be freely transferable and exchangeable for
Definitive Notes of the same subclass at the office of the Trustee or the
offices of the co-registrar in Luxembourg upon compliance with the requirements
set forth in the Indenture. No service charge will be imposed for any
registration of transfer or exchange, but payment of a sum sufficient to cover
any tax or other governmental charge may be required.
A Note that is mutilated, destroyed, lost or stolen may be exchanged or
replaced, as the case may be, at the offices of the Trustee or of the
co-registrar in Luxembourg upon presentation of the Note or satisfactory
evidence of destruction, loss or theft thereof to the Trustee or such
co-registrar. An indemnity satisfactory to the Trustee or such co-registrar may
be required at the expense of the Noteholder before a replacement Note will be
issued. The Noteholder will be required to pay any tax or other governmental
charge imposed in connection with such exchange or replacement and any other
expenses (including the fees and expenses of the Trustee and co-registrar)
connected therewith.
125
<PAGE> 132
CUSIP, ISIN AND COMMON CODE NUMBERS
The Notes have been accepted for clearance through Euroclear and Cedel
Bank. The CUSIP numbers, International Securities Identification Numbers
("ISIN") and the Common Code Numbers ("CCN") are set forth in the table below.
<TABLE>
<CAPTION>
SUBCLASS CUSIP ISIN CCN
- -------- ------------ ------------ ---------
<S> <C> <C> <C>
Subclass A-1.................................
Subclass A-2.................................
Subclass B-1.................................
Subclass C-1.................................
Subclass D-1.................................
</TABLE>
126
<PAGE> 133
TAXATION
U.S. FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Davis Polk & Wardwell, the following discussion sets
forth the material United States federal tax consequences resulting from the
purchase, ownership and disposition of Notes to the U.S. Holders and Non-U.S.
Holders described herein. It does not purport to consider all the possible tax
consequences of the purchase, ownership or disposition of the Notes, and it is
not intended to reflect the individual tax position of any holder. It deals only
with Notes held as capital assets. Except as expressly indicated, it is
addressed only to initial holders that purchased Notes at their issue price (as
defined below) in the offering (the "OFFERING") and does not deal with holders
with a special tax status or special tax situation, such as financial
institutions or dealers in securities or currencies, Notes held as a hedge
against currency risks or as part of a straddle with other investments or as
part of a "synthetic security" or other integrated investment (including a
"conversion transaction") consisting of a Note and one or more other
investments, or situations in which the functional currency of the Noteholder is
not the U.S. dollar. Except to the extent discussed below, this discussion is
not applicable to Non-U.S. Holders (as defined below). This discussion is based
upon the United States federal tax laws and regulations as now in effect and as
currently interpreted, and does not take into account possible changes in such
tax laws or such interpretations, all of which may be applied retroactively.
This discussion does not include any description of the tax laws of any state or
local governments within the United States, or of any foreign government, that
may be applicable to the Notes or holders thereof. Holders of Notes should
consult their own tax advisors concerning the application of the United States
federal tax laws to their particular situations as well as any consequences
arising under the laws of any other taxing jurisdiction.
For purposes of the discussion below, (i) "U.S. HOLDER" means a beneficial
owner of a Note that is for United States federal income tax purposes a citizen
or resident of the United States, a corporation, partnership or certain other
entities created or organized in or under the laws of the United States, or any
political subdivision thereof, or an estate or trust the income of which is
subject to United States federal income taxation regardless of its source and
(ii) "NON-U.S. HOLDER" means a person other than a U.S. Holder. The "issue
price" of a Note is the first price to the public (not including bond houses,
brokers or similar persons or organizations acting in the capacity of
underwriters, placement agents or wholesalers) at which a substantial amount of
Notes was sold for money.
TAXATION OF U.S. HOLDERS
Payments of interest on a Note generally will be includible in income by a
U.S. Holder as ordinary income at the time such payments are accrued or received
in accordance with the U.S. Holder's regular method of accounting for U.S.
federal income tax purposes.
Except as noted below, upon the sale, exchange or retirement of a Note, a
U.S. Holder generally will recognize gain or loss equal to the difference
between the amount realized from such sale or exchange (exclusive of any portion
thereof reflecting accrued but unpaid interest accrued between interest payment
dates on the Notes, which will be includible in income in accordance with the
United States person's method of accounting as described above) and its tax
basis in the Note. A U.S. Holder's adjusted basis in a Note generally will equal
such U.S. Holder's purchase price for such Note, decreased by any principal
repayments. Any capital gain will generally be U.S. source gain. U.S. Holders
should consult their tax advisors regarding the United States federal income tax
treatment of capital gains (which may be taxed at lower rates than ordinary
income for certain taxpayers who are individuals) and losses (the deductibility
of which is subject to limitations).
An exchange of New Notes for Old Notes will not be treated as a taxable
exchange for U.S. federal income tax purposes. Accordingly, holders (including
holders that are not initial holders) who exchange their Old Notes for New Notes
will not recognize income, gain or loss for U.S. federal income tax purposes. A
U.S. Holder's tax basis in the New Notes will be equal to its adjusted basis in
the Old Notes and its holding period will include the period during which it
held the Old Notes.
127
<PAGE> 134
TAXATION OF NON-U.S. HOLDERS
Payments of interest (including original issue discount, if any), principal
and premium, if any, on the Notes to any Non-U.S. Holder will not be subject to
United States federal withholding tax, providing that, in the case of interest,
such person (i) does not own, actually or constructively, 10% or more of the
total combined voting power of all classes of stock entitled to vote in the
Morgan Stanley subsidiary that owns the Beneficial Interest, (ii) is not a
controlled foreign corporation related, directly or indirectly, to the issuer
through stock ownership and (iii) is not a bank receiving interest described in
Section 881(c)(3)(A) of the Code, and provided that the statement requirement
described in the next sentence has been fulfilled with respect to the beneficial
owner. Sections 871(h) and 881(c) of the Code require that, in order to obtain
the exemption from withholding tax described in the previous sentence, either
the beneficial owner of the Note, or a securities clearing organization, bank or
other financial institution that holds customers' securities in the ordinary
course of its trade or business (a "FINANCIAL INSTITUTION") and that is holding
the Note on behalf of such beneficial owner, file a statement with the
withholding agent to the effect that the beneficial owner of the Note is not a
United States person. Under temporary United States Treasury Regulations which
apply to both stated interest and sale or exchange proceeds if either is paid
with respect to a Note on or before December 31, 1999, such requirement will be
fulfilled if (i) the beneficial owner of a Note certifies on Internal Revenue
Service ("IRS") Form W-8, under penalties of perjury, that it is not a United
States person and provides its name and address and (ii) any Financial
Institution holding the Note on behalf of the beneficial owner files a statement
with the withholding agent to the effect that it has received such a statement
from the Noteholder (and furnishes the withholding agent with a copy thereof).
Recently issued final Treasury Regulations (the "FINAL REGULATIONS"), which
apply to interest (including original issue discount) and sale or exchange
proceeds paid with respect to a Note after December 31, 1999, also provide that
the requirement of Section 871(h) and 881(c) generally will be fulfilled if
beneficial owners (including partners of certain foreign partnerships), as well
as certain foreign partnerships, meet the two conditions set forth in the
preceding sentence. However, a beneficial owner that is a foreign estate or
trust (or fiduciary thereof), a foreign partnership that has entered into a
withholding agreement with the IRS, or a Non-U.S. Holder holding a Note through
its United States branch will be required to provide its "taxpayer
identification number" in addition to its name and address on Form W-8. Foreign
partnerships and their partners should consult their tax advisors regarding
possible additional reporting requirements.
Notwithstanding the foregoing, if interest or other income received with
respect to the Note is effectively connected with a United States trade or
business conducted by a Non-U.S. Holder, such Noteholder, although exempt from
the withholding tax described in the preceding paragraph, may be subject to
United States federal income tax on such interest in the same manner as if it
were a United States person. In addition, if such Noteholder is a corporation,
it may be subject to a branch profits tax equal to 30% (or a lower treaty rate)
of its effectively connected earnings and profits for the taxable year, subject
to certain adjustments.
A Non-U.S. Holder will not be subject to United States federal income tax
on gain realized on the sale, exchange or other disposition of a Note, unless
(i) such Noteholder is an individual who is present in the United States for 183
days or more in the taxable year of disposition, and either (a) such individual
has a "tax home" (as defined in code Section 911(d)(3)) in the United States
(unless such gain is attributable to a fixed place of business in a foreign
country maintained by such individual and has been subject to foreign tax of at
least 10%) or (b) the gain is attributable to an office or other fixed place of
business maintained by such individual in the United States or (ii) such gain is
effectively connected with the conduct by such Noteholder of a trade or business
in the United States.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Trustee will be required to report annually to the IRS, and to each
Noteholder of record, certain information, including the Noteholder's name,
address and taxpayer identification number (either the Noteholder's Social
Security number or its employer identification number, as the case may be), the
aggregate amount of principal and interest paid and the amount of tax withheld,
if any. This obligation, however, does not apply with respect to certain U.S.
Holders, including corporations, tax-exempt organizations, qualified pension and
profit-sharing trusts and individual retirement accounts.
128
<PAGE> 135
In the event a U.S. Holder subject to the reporting requirements described
above fails to supply its correct taxpayer identification number in the manner
required by applicable law or underreports its tax liability, MSAF, its agents
or paying agents may be required to "backup" withhold a tax equal to 31% of each
payment of interest and principal on the Notes. This backup withholding is not
an additional tax and may be credited against the Noteholder's United States
federal income tax liability, provided that the required information is
furnished to the IRS.
Under current Treasury regulations, information reporting and backup
withholding will not apply to payments made by MSAF or any agent thereof to a
Noteholder that is a Non-U.S. Holder if the certifications required by Section
871(h) and 881(c) of the Code (described above) are received, provided that MSAF
or such agent does not have actual knowledge that the payee is a United States
person.
The Final Regulations modify the backup withholding and information
reporting procedures in certain respects for payments made after December 31,
1999. Holders are urged to consult their tax advisors regarding the application
of the backup withholding and information reporting rules.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. MSAF has agreed that, starting on the Expiration Date and
ending on the close of business on the 180th day following the Expiration Date,
it will make this Prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale.
MSAF will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is "underwriter"
within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, MSAF will promptly send
additional copies of this Prospectus and any amendment or supplement to this
Prospectus to any broker-dealer that requests such documents in the letter of
Transmittal. MSAF has agreed to pay all expenses incident to the Exchange Offer
(including the expenses of one counsel for the holders of the Old Notes) other
than commissions or concessions of any brokers or dealers and will indemnify the
holders of the Old Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
129
<PAGE> 136
ERISA CONSIDERATIONS
ERISA and the Code impose certain requirements on employee benefit plans
and certain other retirement plans and arrangements, including individual
retirement accounts and annuities, that are subject to ERISA and/or the Code or
any entity which may be deemed to hold the assets of any such plan (all of which
are hereinafter referred to as "PLANS") and or persons who are fiduciaries with
respect to such Plans. A person who exercises discretionary authority or control
with respect to the management or assets of a Plan will be considered a
fiduciary of the Plan under ERISA. In accordance with ERISA's general fiduciary
standards, before investing in a Note, a Plan fiduciary should determine whether
such an investment is permitted under the governing Plan instruments and is
appropriate for the Plan in view of its overall investment policy and the
composition and diversification of its portfolio, taking into account the
limited liquidity of the Notes. Other provisions of ERISA and the Code prohibit
certain transactions ("PROHIBITED TRANSACTIONS") involving the assets of a Plan
and persons who have certain specified relationships to the Plan ("PARTIES IN
INTEREST" within the meaning of ERISA or "DISQUALIFIED PERSONS" within the
meaning of the Code). By virtue of its relationship with Morgan Stanley, MSAF
may be a party in interest or a disqualified person with respect to a Plan
purchasing the Notes. Any Plan that proposes to purchase Notes must determine
that its purchase of Notes will not give rise to a direct or indirect Prohibited
Transaction.
Certain statutory or administrative exemptions from the Prohibited
Transaction rules under ERISA and the Code may be available to a Plan which is
purchasing the Notes. Included among these exemptions are: Prohibited
Transaction Class Exemption ("PTCE") 84-14 (regarding transactions directed by
an independent qualified professional asset manager), PTCE 91-38 (regarding
investments by bank collective investment funds), PTCE 90-1 (regarding
investments by insurance company pooled separate accounts), PTCE 95-60
(regarding investments by insurance company general accounts) or PTCE 96-23
(regarding transactions directed by a qualified in-house asset manager).
Governmental plans and certain church plans (as defined under ERISA) are
not subject to the Prohibited Transaction rules. Such plans may, however, be
subject to federal, state or local laws or regulations which may affect their
investment in the Notes. Any fiduciary of such a governmental or church plan
considering a purchase of the Notes must determine the need for, and the
availability, if necessary, of any exemptive relief under any such laws or
regulations.
The foregoing discussion is general in nature and is not intended to be all
inclusive. Any fiduciary of a Plan, governmental plan or church plan considering
the purchase and holding of the Notes should consult with its legal advisors
regarding the consequences of such purchase and holding. By its purchase and
acceptance of a Note, each such purchaser will be deemed to have represented and
warranted that either (i) no Plan assets have been used to purchase such Notes
or (ii) one or more Prohibited Transaction statutory or administrative
exemptions applies such that the use of such Plan assets to purchase and hold
such Notes will not constitute a non-exempt Prohibited Transaction.
130
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LEGAL MATTERS
Certain legal matters relating to the New Notes offered hereby will be
passed upon for MSAF by Davis Polk & Wardwell, New York, New York, counsel for
MSAF Group and by Richards, Layton & Finger, Wilmington, Delaware, special
Delaware counsel for MSAF Group.
In accordance with the rules of the Luxembourg Stock Exchange, MSAF states
that there has been no material adverse change in the financial condition of
MSAF since the date of its formation on October 30, 1997.
EXPERTS
Valuations of the Aircraft have been made by three expert aircraft
appraisers: Aircraft Information Services, Inc., BK Associates, Inc. and
Airclaims Limited. These valuations are discussed in detail elsewhere in this
Prospectus and are included herein in reliance upon the authority of such firms
as experts in giving such appraisals.
131
<PAGE> 138
APPENDIX 1
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Accounts.............................. 116
Additional Aircraft................... 1
Additional Leases..................... 1
Additional Notes...................... 1
Additional Servicer................... 111
Adjusted Base Value................... 93
Adjusted Portfolio Value.............. 93
Administrative Agency Agreement....... 17
Administrative Agent.................. 17
ADs................................... 27
Aero Mexico........................... 46
Aeropostale........................... 46
affiliate............................. 102
Agent's Message....................... 35
Airbus................................ 22
Air Liberte........................... 46
Air Pacific........................... 46
Aircraft.............................. 1
Aircraft Agreement.................... 106
Aircraft-Owning Subsidiaries.......... 21
Aircraft Purchase Account............. 116
Alaska Airlines....................... 46
Allowed Restructuring................. 103
Amended and Restated Trust
Agreement........................... 10
Annual Report......................... Cover
Ansett................................ 46
AOG................................... 59
Appraisals............................ 14
Appraisers............................ 14
ARE................................... 81
Asiana................................ 46
ASMs.................................. 58
Assumed Debt Service Coverage Ratio... 5
Assumed First Year's Net Revenue...... 4
Assumed Interest Coverage Ratio....... 4
Assumed Portfolio Value............... 92
Assumptions........................... 12
ATOP.................................. 37
Available Collections................. 11
Average Life Date..................... 97
Avg................................... 83
Back-Up Facility...................... 73
Base Value............................ 14
Basic Terms Modification.............. 115
Beneficial Interest................... 2
Beneficial Interest Distribution
Amount.............................. 116
Boeing................................ 22
Book-Entry Confirmation............... 35
Book-Entry Transfer Facility.......... 36
Britannia............................. 46
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business Day.......................... 10
Cabot................................. 1
Caledonian............................ 46
Calculation Date...................... 10
Cash Management Agreement............. 17
Cash Manager.......................... 17
Cash Reports.......................... Cover
CCN................................... 126
Cedel Bank............................ 123
Cedel Participants.................... 123
Change of Control..................... 67
Chicago Convention.................... 44
China Airlines........................ 46
China Hainan.......................... 46
Code.................................. 19
Collection Account.................... 16
Collections........................... 117
Commission............................ Cover
Concentration Default................. 106
Concentration Limits.................. 109
Conditional Sale Agreement............ 52
control............................... 102
Contract Aircraft..................... 50
Contract Lease........................ 50
Controlling Trustees.................. 2
covenant defeasance................... 98
DCR................................... 11
default............................... 114
defeasance trust...................... 98
Definitive Notes...................... 125
Delaware Trustee...................... 2
Depositaries.......................... 123
Depreciation Factor................... 92
disqualified persons.................. 130
Dragon Air............................ 46
DTC................................... 123
DTC Participants...................... 123
Eligible Institutions................. 36
Eligible Provider..................... 72
Eligible Credit Facilities............ 71
Encumbrance........................... 101
Engine Lease.......................... 51
Engines............................... 105
ERISA................................. 19
EU.................................... 27
Euroclear............................. 123
Euroclear Participants................ 123
Event of Default...................... 112
Excess Amortization Date.............. 95
Exchange Act.......................... Cover
</TABLE>
A-1
<PAGE> 139
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Exchange Agent........................ 3
Exchange Offer........................ Cover
Exp................................... 83
Expected Final Payment Date........... 5
Expected Maturity..................... 82
Expected Useful Life.................. 79
Expense Account....................... 17
Expenses.............................. 13
Expiration Date....................... 35
Extension Amount...................... 94
Facility Reduction Event.............. 73
Falcon................................ 46
Final Maturity Date................... 5
Final Regulations..................... 128
Financial Advisor..................... 17
Financial Advisory Agreement.......... 18
Financial Institution................. 128
First Collection Account Top-Up....... 99
First Year's Interest................. 4
First Year's Interest and Minimum and
Scheduled Principal................. 5
Flightlease........................... 46
Future Lease Rate..................... 79
Future Leases......................... 1
Future MSAF Group Entities............ 41
GPA................................... 61
Gross Revenue......................... 80
Group................................. 67
guarantee............................. 105
Guyana Airways........................ 46
H.15 (519)............................ 97
Holders............................... Cover
Icelandair............................ 46
ILFC.................................. 1
ILFC Conflicts Standard............... 22
ILFC Facility......................... 15
ILFC Facility Commitment.............. 73
ILFC Facility Drawn Amounts........... 73
ILFC Services Standard................ 22
ILFC Managed Portfolio................ 41
incur................................. 104
Indebtedness.......................... 104
Indenture............................. 11
Independent Trustees.................. 2
Indirect Participants................. 124
Initial Aircraft...................... 1
Initial Appraised Value............... 15
Initial Leases........................ 1
Initial Lessees....................... 16
Initial Loan.......................... 4
Initial Loan to Value................. 4
Initial Principal Balance............. 95
Initial Swaps......................... 74
Intercompany Loan..................... 105
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Interest Accrual Period............... 10
investment............................ 103
IRS................................... 128
ISIN.................................. 126
KLM................................... 46
Leases................................ 1
legal defeasance...................... 98
Lessees............................... 16
Lessor................................ 50
Letter of Transmittal................. Cover
LIBOR................................. Cover
Liens................................. 27
Liquidity Reserve Amount.............. 16
Listing Agent......................... Cover
Losses................................ 23
Malev................................. 46
Minimum Class Percentage.............. 92
Minimum Liquidity Reserve Amount...... 17
Minimum Principal Payment Amount...... 92
Minimum Target Principal Balance...... 92
Modification Payment.................. 107
Monarch............................... 46
Monthly Report........................ Cover
Moody's............................... 11
Morgan Stanley........................ 1
Morgan Stanley Facility............... 16
Morgan Stanley Facility Commitment.... 74
Morgan Stanley Facility Drawn
Amounts............................. 74
most recent H.15(519)................. 97
MSA I................................. 12
MSAF.................................. Cover
MSAF Group............................ Cover
MSAF Noteholders...................... 11
MSAF Notes............................ 1
MSCI.................................. 109
Navasota.............................. 52
Net Sale Proceeds..................... 106
New Notes............................. Cover
Non-U.S. Holder....................... 127
Noteholders........................... 11
Notes................................. Cover
Notice of Redemption.................. 97
Notice of Refinancing................. 95
Note Target Price..................... 106
NYSE.................................. 37
Offering.............................. 127
Old Notes............................. Cover
Olympic............................... 46
Onur Air.............................. 46
Outstanding........................... 33
Outstanding Principal Balance......... 13
parties in interest................... 130
Parts................................. 105
Passaredo............................. 46
</TABLE>
A-2
<PAGE> 140
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Passaredo Lease....................... 52
Payment Date.......................... 10
Permitted Account Investments......... 69
Permitted Accruals.................... 117
Permitted Additional Aircraft
Acquisition......................... 107
Permitted Encumbrance................. 102
Plans................................. 130
Portfolio............................. 1
Precedent Lease....................... 111
PRI................................... 112
Primary Eligible Credit Facility...... 72
Pro Forma Lease....................... 111
Prohibited Transactions............... 130
PTCE.................................. 130
Purchase Options...................... 26
Quarterly Report...................... Cover
Rating Agencies....................... 11
Rating Decline........................ 67
recession............................. 85
Record Date........................... 10
Redemption............................ 95
Redemption Date....................... 95
Redemption Price...................... 13
Reference Agent....................... 91
Reference Banks....................... 91
Reference Date........................ 10
Refinancing........................... 95
Refinancing Date...................... 95
Refinancing Notes..................... 12
Registration Agreement................ Cover
Registration Statement................ Cover
Related Documents..................... 76
Related Persons....................... 67
Re-Leasing Guidelines................. 18
Relevant Appraisal.................... 93
Remaining Weighted Average Life....... 97
Renewal Lease......................... 111
Rental Payments....................... 89
Required Expense Amount............... 11
RPMs.................................. 58
Rule 13d-3............................ 67
Rules................................. 124
Scheduled Class Percentage............ 93
Scheduled Principal Payment Amount.... 93
Scheduled Target Principal Balance.... 93
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Second Collection Account Top-Up...... 99
Secondary Eligible Credit Facility.... 72
Securities Act........................ Cover
Security Trust Agreement.............. 33
Security Trustee...................... 33
Servicer.............................. 1
Services.............................. 65
Servicing Agreement................... 1
Shelf Registration Statement.......... 77
Significant Subsidiary................ 113
SPC-5................................. 12
Stage 3 aircraft...................... 44
Standard & Poor's..................... 11
Step-Up Interest...................... 13
Stock................................. 101
Stresses.............................. 81
Subordinated Swap Payments............ 100
Subsequent Date....................... 97
Supplemental Class Percentage......... 93
Supplemental Principal Payment
Amount.............................. 93
Supplemental Target Principal
Balance............................. 93
Suspension Drawing.................... 73
Suspension Event...................... 73
Swap Providers........................ 13
Swiss Air............................. 46
TAESA................................. 46
TAP................................... 46
Terms and Conditions.................. 124
Third Party Event..................... 110
Transaero............................. 46
Transavia............................. 46
Transwede............................. 46
Treasury Yield........................ 96
Trustee............................... 11
TWA................................... 46
U.S. Bankruptcy Code.................. 34
U.S. GAAP............................. 104
U.S. Holder........................... 127
Unijet................................ 46
Varig................................. 46
VASP.................................. 46
Weighted Average Life................. 82
World Traffic Growth.................. 58
$..................................... Cover
</TABLE>
A-3
<PAGE> 141
APPENDIX 2
AIRCRAFT TYPES DATA(1)
<TABLE>
<CAPTION>
NO. & STAGE 3
NARROW/ MFR. OF NOISE
TYPE & VARIANT WIDEBODY TYPICAL SEATS ENGINES COMPLIANCE PROD. YEARS NO. DELIVERED(2)
-------------- -------- ------------- ------------ ---------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Airbus A300-600R............... Wide 220 (3 class) 2 X GE/PW Yes 1987- 156
Airbus A310-300................ Wide 180 (3 class) 2 X GE/PW Yes 1985- 169
Airbus A320-200................ Narrow 150 (2 class) 2 X CFM/IAE Yes 1988- 591
Airbus A321-100................ Narrow 185 (2 class) 2 X CFM/IAE Yes 1993- 65
Boeing 737-300................. Narrow 130 (2 class) 2 X CFM Yes 1984- 1032(4)
Boeing 737-300F................ Narrow 0 2 X CFM Yes (all conversions) (all conversions)
Boeing 737-300QC............... Narrow 130/freight 2 X CFM Yes (all conversions) (all conversions)
Boeing 737-400................. Narrow 150 (2 class) 2 X CFM Yes 1988- 442
Boeing 737-500................. Narrow 110 (2 class) 2 X CFM Yes 1989- 354
Boeing 747-300................. Wide 400 (3 class) 4 X GE/PW/RR Yes 1982-90 81
Boeing 757-200................. Narrow 200 (2 class) 2 X PW/RR Yes 1982- 783
Boeing 767-200ER............... Wide 180 (3 class) 2 X GE/PW Yes 1984- 133
Boeing 767-300ER............... Wide 220 (3 class) 2 X GE/PW/RR Yes 1986- 362
Fokker 70...................... Narrow 70 (2 class) 2 X RR Yes 1994-97 48
MDC MD-82(6)................... Narrow 140 (2 class) 2 X PW Yes 1981- 577
MDC MD-83(6)................... Narrow 140 (2 class) 2 X PW Yes 1984- 224
<CAPTION>
CURRENT ON NO. OF
TYPE & VARIANT FLEET ORDER OPERATORS(3)
-------------- ------- ----- -------------
<S> <C> <C> <C>
Airbus A300-600R............... 154 8 18
Airbus A310-300................ 166 7 43
Airbus A320-200................ 588 297 80
Airbus A321-100................ 65 59 13
Boeing 737-300................. 992 88 95
Boeing 737-300F................ 3 0 2
Boeing 737-300QC............... 29 0 6
Boeing 737-400................. 439 37 54
Boeing 737-500................. 353 29 41
Boeing 747-300................. 79 0 22
Boeing 757-200................. 779 128 63
Boeing 767-200ER............... 130 0 26
Boeing 767-300ER............... 361 77 38
Fokker 70...................... 48 0 11
MDC MD-82(6)................... 570 0 24
MDC MD-83(6)................... 246(5) 10 31
</TABLE>
- ---------------
Source: Airclaims Limited.
(1) Data is as at January 1, 1998.
(2) Includes demonstrators/test aircraft.
(3) Excludes lessors.
(4) 737-300 deliveries include aircraft later converted to - 300F or 300QC.
(5) MD-83 current fleet includes aircraft converted from MD-81 and -82.
(6) Boeing has announced that production of these aircraft types is expected to
end in 1999.
A-4
<PAGE> 142
APPENDIX 3
MONTHLY GROSS REVENUES BASED ON THE ASSUMPTIONS
<TABLE>
<CAPTION>
GROSS
MONTH REVENUES
- ------------------------- ----------
($)
<S> <C>
April 1998............... 20,127,090
May 1998................. 11,041,661
June 1998................ 11,898,636
July 1998................ 9,998,636
August 1998.............. 11,070,411
September 1998........... 11,898,636
October 1998............. 9,998,636
November 1998............ 11,070,411
December 1998............ 11,875,636
January 1999............. 9,978,787
February 1999............ 10,440,562
March 1999............... 11,890,312
April 1999............... 10,617,053
May 1999................. 9,858,828
June 1999................ 12,545,803
July 1999................ 10,645,803
August 1999.............. 9,887,578
September 1999........... 12,545,803
October 1999............. 10,645,803
November 1999............ 9,887,578
December 1999............ 12,522,803
January 2000............. 10,624,379
February 2000............ 9,866,154
March 2000............... 12,534,330
April 2000............... 10,646,906
May 2000................. 9,897,643
June 2000................ 12,563,720
July 2000................ 10,663,720
August 2000.............. 9,906,095
September 2000........... 12,563,720
October 2000............. 10,663,720
November 2000............ 9,906,095
December 2000............ 11,317,631
January 2001............. 11,292,706
February 2001............ 10,535,081
March 2001............... 11,329,154
April 2001............... 10,736,600
May 2001................. 10,806,275
June 2001................ 11,590,400
July 2001................ 10,736,600
August 2001.............. 10,806,875
September 2001........... 11,590,400
October 2001............. 10,736,600
November 2001............ 10,806,875
December 2001............ 11,590,400
January 2002............. 10,738,176
February 2002............ 10,808,451
March 2002............... 11,601,927
April 2002............... 10,749,703
May 2002................. 10,819,978
June 2002................ 11,603,503
July 2002................ 10,749,703
August 2002.............. 10,772,967
September 2002........... 11,626,767
October 2002............. 10,737,967
</TABLE>
<TABLE>
<CAPTION>
GROSS
MONTH REVENUES
- ------------------------- ----------
($)
<S> <C>
November 2002............ 10,737,967
December 2002............ 11,591,767
January 2003............. 10,739,543
February 2003............ 10,739,543
March 2003............... 11,310,319
April 2003............... 10,742,695
May 2003................. 11,026,611
June 2003................ 11,026,611
July 2003................ 11,026,611
August 2003.............. 11,026,611
September 2003........... 11,026,611
October 2003............. 11,055,921
November 2003............ 11,055,921
December 2003............ 11,055,921
January 2004............. 15,613,844
February 2004............ 10,707,385
March 2004............... 10,711,291
April 2004............... 10,586,731
May 2004................. 10,586,731
June 2004................ 10,586,731
July 2004................ 10,586,731
August 2004.............. 10,586,731
September 2004........... 10,586,731
October 2004............. 10,552,625
November 2004............ 10,552,625
December 2004............ 10,552,625
January 2005............. 10,552,625
February 2005............ 10,552,625
March 2005............... 10,532,565
April 2005............... 10,532,565
May 2005................. 10,532,565
June 2005................ 10,532,565
July 2005................ 10,532,565
August 2005.............. 10,532,565
September 2005........... 10,532,565
October 2005............. 10,532,565
November 2005............ 10,532,565
December 2005............ 10,456,449
January 2006............. 10,456,449
February 2006............ 10,432,224
March 2006............... 10,432,224
April 2006............... 10,343,761
May 2006................. 10,309,593
June 2006................ 10,309,593
July 2006................ 10,270,089
August 2006.............. 10,270,089
September 2006........... 10,270,089
October 2006............. 10,270,089
November 2006............ 10,270,089
December 2006............ 10,270,089
January 2007............. 10,228,759
February 2007............ 10,228,759
March 2007............... 10,227,930
April 2007............... 10,227,930
May 2007................. 10,227,541
</TABLE>
<TABLE>
<CAPTION>
GROSS
MONTH REVENUES
- ------------------------- ----------
($)
<S> <C>
June 2007................ 10,227,541
July 2007................ 10,227,541
August 2007.............. 10,227,541
September 2007........... 10,227,541
October 2007............. 10,227,541
November 2007............ 10,227,541
December 2007............ 10,227,541
January 2008............. 10,227,541
February 2008............ 10,227,541
March 2008............... 10,226,619
April 2008............... 10,226,619
May 2008................. 9,843,805
June 2008................ 9,842,377
July 2008................ 9,842,377
August 2008.............. 9,842,377
September 2008........... 9,842,377
October 2008............. 9,734,411
November 2008............ 9,734,411
December 2008............ 9,653,636
January 2009............. 9,653,636
February 2009............ 9,653,636
March 2009............... 9,653,636
April 2009............... 9,431,656
May 2009................. 9,431,656
June 2009................ 9,431,656
July 2009................ 9,431,656
August 2009.............. 9,431,656
September 2009........... 9,431,656
October 2009............. 9,359,938
November 2009............ 9,359,938
December 2009............ 9,359,938
January 2010............. 9,359,938
February 2010............ 9,359,938
March 2010............... 9,335,730
April 2010............... 9,335,730
May 2010................. 9,335,730
June 2010................ 9,335,730
July 2010................ 9,335,730
August 2010.............. 9,335,730
September 2010........... 9,335,730
October 2010............. 9,335,730
November 2010............ 9,335,730
December 2010............ 9,191,116
January 2011............. 9,191,116
February 2011............ 9,056,116
March 2011............... 9,056,116
April 2011............... 8,737,419
May 2011................. 8,666,319
June 2011................ 8,666,319
July 2011................ 8,593,314
August 2011.............. 8,593,314
September 2011........... 8,593,314
October 2011............. 8,593,314
November 2011............ 8,593,314
December 2011............ 8,593,314
</TABLE>
A-5
<PAGE> 143
MONTHLY GROSS REVENUES BASED ON THE ASSUMPTIONS (CONTINUED)
<TABLE>
<CAPTION>
GROSS
MONTH REVENUES
- ------------------------- ----------
($)
<S> <C>
January 2012............. 8,519,289
February 2012............ 8,519,289
March 2012............... 8,444,739
April 2012............... 8,444,739
May 2012................. 8,344,530
June 2012................ 8,344,530
July 2012................ 8,344,530
August 2012.............. 8,341,451
September 2012........... 8,341,451
October 2012............. 8,341,451
November 2012............ 8,341,451
December 2012............ 8,341,451
January 2013............. 8,341,451
February 2013............ 8,341,451
March 2013............... 8,254,151
April 2013............... 8,254,151
May 2013................. 7,330,081
June 2013................ 7,234,864
July 2013................ 7,234,864
August 2013.............. 7,234,864
September 2013........... 7,050,432
October 2013............. 6,872,139
November 2013............ 6,872,139
December 2013............ 6,791,139
January 2014............. 6,758,168
February 2014............ 6,725,939
March 2014............... 6,693,561
April 2014............... 6,300,808
May 2014................. 6,300,808
June 2014................ 6,300,808
July 2014................ 6,300,808
August 2014.............. 6,300,808
September 2014........... 6,300,808
October 2014............. 6,167,572
November 2014............ 6,167,572
December 2014............ 6,167,572
January 2015............. 6,167,572
February 2015............ 6,167,572
March 2015............... 6,051,063
April 2015............... 6,051,063
May 2015................. 6,051,063
June 2015................ 5,966,095
July 2015................ 5,966,095
August 2015.............. 5,966,095
September 2015........... 5,966,095
</TABLE>
<TABLE>
<CAPTION>
GROSS
MONTH REVENUES
- ------------------------- ----------
($)
<S> <C>
October 2015............. 5,966,095
November 2015............ 5,966,095
December 2015............ 5,700,476
January 2016............. 5,700,476
February 2016............ 5,409,701
March 2016............... 5,409,701
April 2016............... 4,804,828
May 2016................. 4,673,096
June 2016................ 4,673,096
July 2016................ 4,542,254
August 2016.............. 4,542,254
September 2016........... 4,542,254
October 2016............. 4,542,254
November 2016............ 4,542,254
December 2016............ 4,542,254
January 2017............. 4,410,860
February 2017............ 4,410,860
March 2017............... 4,237,738
April 2017............... 4,237,738
May 2017................. 4,004,307
June 2017................ 4,004,307
July 2017................ 4,004,307
August 2017.............. 3,997,328
September 2017........... 3,997,328
October 2017............. 3,997,328
November 2017............ 3,997,328
December 2017............ 3,997,328
January 2018............. 3,997,328
February 2018............ 3,997,328
March 2018............... 3,794,549
April 2018............... 3,794,549
May 2018................. 3,192,249
June 2018................ 2,971,504
July 2018................ 2,971,504
August 2018.............. 2,971,504
September 2018........... 2,740,804
October 2018............. 2,432,753
November 2018............ 2,432,753
December 2018............ 2,324,528
January 2019............. 2,270,820
February 2019............ 2,217,156
March 2019............... 2,163,540
April 2019............... 1,995,242
May 2019................. 1,995,242
June 2019................ 1,995,242
</TABLE>
<TABLE>
<CAPTION>
GROSS
MONTH REVENUES
- ------------------------- ----------
($)
<S> <C>
July 2019................ 1,995,242
August 2019.............. 1,995,242
September 2019........... 1,995,242
October 2019............. 1,995,242
November 2019............ 1,995,242
December 2019............ 1,995,242
January 2020............. 1,995,242
February 2020............ 1,995,242
March 2020............... 1,747,595
April 2020............... 1,747,595
May 2020................. 1,747,595
June 2020................ 1,643,127
July 2020................ 1,643,127
August 2020.............. 1,643,127
September 2020........... 1,643,127
October 2020............. 1,643,127
November 2020............ 1,643,127
December 2020............ 1,502,065
January 2021............. 1,502,065
February 2021............ 1,502,065
March 2021............... 1,502,065
April 2021............... 918,578
May 2021................. 918,578
June 2021................ 918,578
July 2021................ 918,578
August 2021.............. 918,578
September 2021........... 918,578
October 2021............. 918,578
November 2021............ 918,578
December 2021............ 918,578
January 2022............. 918,578
February 2022............ 918,578
March 2022............... 918,578
April 2022............... 918,578
May 2022................. 918,578
June 2022................ 918,578
July 2022................ 918,578
August 2022.............. 905,372
September 2022........... 905,372
October 2022............. 905,372
November 2022............ 905,372
December 2022............ 905,372
January 2023............. 905,372
February 2023............ 905,372
March 2023............... 905,372
</TABLE>
A-6
<PAGE> 144
APPENDIX 4
ASSUMED PORTFOLIO VALUES FOR THE INITIAL PORTFOLIO
<TABLE>
<CAPTION>
EXPECTED
MONTH PORTFOLIO VALUE
- ---------------------- ---------------
($ MILLIONS)
<S> <C>
Closing............... 1,115.51
April 1998............ 1,110.73
May 1998.............. 1,107.30
June 1998............. 1,103.85
July 1998............. 1,100.39
August 1998........... 1,096.92
September 1998........ 1,093.43
October 1998.......... 1,089.93
November 1998......... 1,086.41
December 1998......... 1,082.88
January 1999.......... 1,079.33
February 1999......... 1,075.77
March 1999............ 1,072.19
April 1999............ 1,068.60
May 1999.............. 1,064.99
June 1999............. 1,061.37
July 1999............. 1,057.74
August 1999........... 1,054.08
September 1999........ 1,050.42
October 1999.......... 1,046.74
November 1999......... 1,043.04
December 1999......... 1,039.33
January 2000.......... 1,035.61
February 2000......... 1,031.86
March 2000............ 1,028.11
April 2000............ 1,024.34
May 2000.............. 1,020.55
June 2000............. 1,016.75
July 2000............. 1,012.93
August 2000........... 1,009.10
September 2000........ 1,005.25
October 2000.......... 1,001.39
November 2000......... 997.51
December 2000......... 993.61
January 2001.......... 989.70
February 2001......... 985.78
March 2001............ 981.83
April 2001............ 977.88
May 2001.............. 973.90
June 2001............. 969.92
July 2001............. 965.91
August 2001........... 961.89
September 2001........ 957.85
October 2001.......... 953.80
November 2001......... 949.73
December 2001......... 945.65
January 2002.......... 941.55
February 2002......... 937.43
March 2002............ 933.30
April 2002............ 929.15
May 2002.............. 924.98
June 2002............. 920.80
July 2002............. 916.60
August 2002........... 912.39
September 2002........ 908.16
</TABLE>
<TABLE>
<CAPTION>
EXPECTED
MONTH PORTFOLIO VALUE
- ---------------------- ---------------
($ MILLIONS)
<S> <C>
October 2002.......... 903.91
November 2002......... 899.65
December 2002......... 895.37
January 2003.......... 891.07
February 2003......... 886.76
March 2003............ 882.43
April 2003............ 878.08
May 2003.............. 873.72
June 2003............. 869.34
July 2003............. 864.94
August 2003........... 860.53
September 2003........ 856.09
October 2003.......... 851.65
November 2003......... 847.18
December 2003......... 842.70
January 2004.......... 817.34
February 2004......... 813.02
March 2004............ 808.67
April 2004............ 804.31
May 2004.............. 799.94
June 2004............. 795.54
July 2004............. 791.13
August 2004........... 786.70
September 2004........ 782.26
October 2004.......... 777.80
November 2004......... 773.32
December 2004......... 768.83
January 2005.......... 764.31
February 2005......... 759.79
March 2005............ 755.24
April 2005............ 750.68
May 2005.............. 746.10
June 2005............. 741.50
July 2005............. 736.89
August 2005........... 732.25
September 2005........ 727.60
October 2005.......... 722.94
November 2005......... 718.25
December 2005......... 713.55
January 2006.......... 708.83
February 2006......... 704.10
March 2006............ 699.35
April 2006............ 694.57
May 2006.............. 689.78
June 2006............. 684.98
July 2006............. 680.15
August 2006........... 675.31
September 2006........ 670.45
October 2006.......... 665.57
November 2006......... 660.68
December 2006......... 655.76
January 2007.......... 650.83
February 2007......... 645.88
March 2007............ 640.91
April 2007............ 635.93
</TABLE>
<TABLE>
<CAPTION>
EXPECTED
MONTH PORTFOLIO VALUE
- ---------------------- ---------------
($ MILLIONS)
<S> <C>
May 2007.............. 630.92
June 2007............. 625.90
July 2007............. 620.86
August 2007........... 615.80
September 2007........ 610.72
October 2007.......... 605.62
November 2007......... 600.51
December 2007......... 595.38
January 2008.......... 590.22
February 2008......... 585.05
March 2008............ 579.86
April 2008............ 574.66
May 2008.............. 569.43
June 2008............. 564.18
July 2008............. 558.92
August 2008........... 553.63
September 2008........ 548.33
October 2008.......... 543.01
November 2008......... 537.67
December 2008......... 532.31
January 2009.......... 526.93
February 2009......... 521.53
March 2009............ 516.12
April 2009............ 510.68
May 2009.............. 505.22
June 2009............. 499.75
July 2009............. 494.25
August 2009........... 488.74
September 2009........ 483.20
October 2009.......... 477.65
November 2009......... 472.08
December 2009......... 466.48
January 2010.......... 460.87
February 2010......... 455.24
March 2010............ 449.59
April 2010............ 443.91
May 2010.............. 438.22
June 2010............. 432.51
July 2010............. 426.78
August 2010........... 421.02
September 2010........ 415.25
October 2010.......... 409.46
November 2010......... 403.65
December 2010......... 398.11
January 2011.......... 392.70
February 2011......... 387.27
March 2011............ 381.82
April 2011............ 376.36
May 2011.............. 370.87
June 2011............. 365.37
July 2011............. 359.84
August 2011........... 354.30
September 2011........ 348.74
October 2011.......... 343.16
November 2011......... 337.56
</TABLE>
A-7
<PAGE> 145
ASSUMED PORTFOLIO VALUES FOR THE INITIAL PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
EXPECTED
MONTH PORTFOLIO VALUE
- ---------------------- ---------------
($ MILLIONS)
<S> <C>
December 2011......... 331.94
January 2012.......... 326.30
February 2012......... 320.64
March 2012............ 314.96
April 2012............ 309.26
May 2012.............. 303.54
June 2012............. 297.89
July 2012............. 292.31
August 2012........... 286.70
September 2012........ 281.28
October 2012.......... 276.01
November 2012......... 270.82
December 2012......... 265.62
January 2013.......... 260.39
February 2013......... 255.15
March 2013............ 249.89
April 2013............ 244.61
May 2013.............. 239.57
June 2013............. 234.76
July 2013............. 229.93
August 2013........... 225.09
September 2013........ 220.23
October 2013.......... 215.36
November 2013......... 210.71
December 2013......... 206.14
January 2014.......... 201.90
February 2014......... 197.83
March 2014............ 193.89
April 2014............ 190.08
May 2014.............. 186.40
June 2014............. 182.71
July 2014............. 179.00
August 2014........... 175.29
September 2014........ 171.56
October 2014.......... 167.81
November 2014......... 164.06
December 2014......... 160.29
January 2015.......... 156.51
February 2015......... 152.72
March 2015............ 148.91
April 2015............ 145.38
May 2015.............. 141.92
June 2015............. 138.45
July 2015............. 134.97
August 2015........... 131.47
September 2015........ 127.97
</TABLE>
<TABLE>
<CAPTION>
EXPECTED
MONTH PORTFOLIO VALUE
- ---------------------- ---------------
($ MILLIONS)
<S> <C>
October 2015.......... 124.58
November 2015......... 121.44
December 2015......... 118.28
January 2016.......... 115.12
February 2016......... 111.95
March 2016............ 108.76
April 2016............ 105.57
May 2016.............. 102.36
June 2016............. 99.14
July 2016............. 95.91
August 2016........... 92.67
September 2016........ 89.42
October 2016.......... 86.16
November 2016......... 82.89
December 2016......... 79.61
January 2017.......... 76.32
February 2017......... 73.20
March 2017............ 70.36
April 2017............ 67.59
May 2017.............. 64.86
June 2017............. 62.26
July 2017............. 59.64
August 2017........... 57.02
September 2017........ 54.39
October 2017.......... 51.75
November 2017......... 49.10
December 2017......... 46.45
January 2018.......... 43.78
February 2018......... 41.11
March 2018............ 38.55
April 2018............ 36.26
May 2018.............. 34.29
June 2018............. 32.68
July 2018............. 31.12
August 2018........... 29.55
September 2018........ 27.98
October 2018.......... 26.41
November 2018......... 24.82
December 2018......... 23.27
January 2019.......... 21.85
February 2019......... 20.42
March 2019............ 19.12
April 2019............ 17.95
May 2019.............. 16.79
June 2019............. 15.61
</TABLE>
<TABLE>
<CAPTION>
EXPECTED
MONTH PORTFOLIO VALUE
- ---------------------- ---------------
($ MILLIONS)
<S> <C>
July 2019............. 14.44
August 2019........... 13.26
September 2019........ 12.07
October 2019.......... 11.30
November 2019......... 10.53
December 2019......... 9.76
January 2020.......... 8.99
February 2020......... 8.22
March 2020............ 7.45
April 2020............ 6.67
May 2020.............. 5.89
June 2020............. 5.30
July 2020............. 4.73
August 2020........... 4.17
September 2020........ 3.60
October 2020.......... 3.04
November 2020......... 2.47
December 2020......... 1.89
January 2021.......... 1.40
February 2021......... 0.93
March 2021............ 0.59
April 2021............ 0.32
May 2021.............. 0.05
June 2021............. 0.00
July 2021............. 0.00
August 2021........... 0.00
September 2021........ 0.00
October 2021.......... 0.00
November 2021......... 0.00
December 2021......... 0.00
January 2022.......... 0.00
February 2022......... 0.00
March 2022............ 0.00
April 2022............ 0.00
May 2022.............. 0.00
June 2022............. 0.00
July 2022............. 0.00
August 2022........... 0.00
September 2022........ 0.00
October 2022.......... 0.00
November 2022......... 0.00
December 2022......... 0.00
January 2023.......... 0.00
February 2023......... 0.00
March 2023............ 0.00
</TABLE>
A-8
<PAGE> 146
APPENDIX 5
CLASS A CLASS PERCENTAGES
<TABLE>
<CAPTION>
CLASS A CLASS A CLASS A
MINIMUM SCHEDULED SUPPLEMENTAL
PAYMENT DATE CLASS CLASS CLASS
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
- ------------ ---------- ---------- ------------
<S> <C> <C> <C>
Closing.............. 66.34% 66.34% 59.70%
April 1998........... 66.34% 66.34% 59.69%
May 1998............. 66.34% 66.34% 59.66%
June 1998............ 66.34% 66.34% 59.63%
July 1998............ 66.34% 66.34% 59.58%
August 1998.......... 66.34% 66.34% 59.53%
September 1998....... 66.34% 66.34% 59.47%
October 1998......... 66.33% 66.33% 59.40%
November 1998........ 66.33% 66.33% 59.33%
December 1998........ 66.33% 66.33% 59.26%
January 1999......... 66.33% 66.33% 59.18%
February 1999........ 66.33% 66.33% 59.09%
March 1999........... 66.32% 66.32% 59.00%
April 1999........... 66.32% 66.32% 58.91%
May 1999............. 66.32% 66.32% 58.81%
June 1999............ 66.31% 66.31% 58.71%
July 1999............ 66.31% 66.31% 58.60%
August 1999.......... 66.30% 66.30% 58.49%
September 1999....... 66.30% 66.30% 58.38%
October 1999......... 66.29% 66.29% 58.26%
November 1999........ 66.29% 66.28% 58.13%
December 1999........ 66.28% 66.27% 58.01%
January 2000......... 66.27% 66.26% 57.88%
February 2000........ 66.26% 66.25% 57.75%
March 2000........... 66.25% 66.24% 57.61%
April 2000........... 66.24% 66.23% 57.47%
May 2000............. 66.23% 66.22% 57.33%
June 2000............ 66.22% 66.21% 57.18%
July 2000............ 66.21% 66.19% 57.03%
August 2000.......... 66.19% 66.18% 56.88%
September 2000....... 66.18% 66.16% 56.73%
October 2000......... 66.16% 66.14% 56.57%
November 2000........ 66.15% 66.12% 56.41%
December 2000........ 66.13% 66.10% 56.24%
January 2001......... 66.11% 66.08% 56.07%
February 2001........ 66.09% 66.06% 55.90%
March 2001........... 66.07% 66.04% 55.73%
April 2001........... 66.05% 66.01% 55.55%
May 2001............. 66.03% 65.99% 55.38%
June 2001............ 66.01% 65.96% 55.20%
July 2001............ 65.98% 65.93% 55.01%
August 2001.......... 65.96% 65.90% 54.82%
September 2001....... 65.93% 65.87% 54.63%
October 2001......... 65.90% 65.84% 54.44%
November 2001........ 65.87% 65.81% 54.25%
December 2001........ 65.84% 65.77% 54.05%
January 2002......... 65.81% 65.74% 53.85%
February 2002........ 65.78% 65.70% 53.65%
March 2002........... 65.75% 65.66% 53.44%
April 2002........... 65.71% 65.62% 53.24%
May 2002............. 65.68% 65.58% 53.03%
June 2002............ 65.64% 65.53% 52.81%
July 2002............ 65.60% 65.49% 52.60%
August 2002.......... 65.56% 65.44% 52.38%
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS A CLASS A
MINIMUM SCHEDULED SUPPLEMENTAL
PAYMENT DATE CLASS CLASS CLASS
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
- ------------ ---------- ---------- ------------
<S> <C> <C> <C>
September 2002....... 65.52% 65.39% 52.16%
October 2002......... 65.48% 65.34% 51.94%
November 2002........ 65.43% 65.29% 51.72%
December 2002........ 65.39% 65.23% 51.49%
January 2003......... 65.34% 65.18% 51.26%
February 2003........ 65.29% 65.12% 51.03%
March 2003........... 65.24% 65.06% 50.80%
April 2003........... 65.19% 65.00% 50.56%
May 2003............. 65.14% 64.93% 50.32%
June 2003............ 65.09% 64.87% 50.08%
July 2003............ 65.03% 64.80% 49.84%
August 2003.......... 64.97% 64.73% 49.60%
September 2003....... 64.91% 64.66% 49.35%
October 2003......... 64.85% 64.58% 49.10%
November 2003........ 64.79% 64.51% 48.85%
December 2003........ 64.73% 64.43% 48.60%
January 2004......... 64.66% 64.35% 48.34%
February 2004........ 64.59% 64.27% 48.08%
March 2004........... 64.53% 64.19% 47.82%
April 2004........... 64.46% 64.10% 47.56%
May 2004............. 64.38% 64.01% 47.30%
June 2004............ 64.31% 63.92% 47.03%
July 2004............ 64.23% 63.83% 46.76%
August 2004.......... 64.16% 63.73% 46.49%
September 2004....... 64.08% 63.64% 46.22%
October 2004......... 63.99% 63.54% 45.95%
November 2004........ 63.91% 63.43% 45.67%
December 2004........ 63.83% 63.33% 45.39%
January 2005......... 63.74% 63.22% 45.11%
February 2005........ 63.65% 63.11% 44.83%
March 2005........... 63.56% 63.00% 44.55%
April 2005........... 63.47% 62.89% 44.26%
May 2005............. 63.37% 62.77% 43.97%
June 2005............ 63.28% 62.65% 43.68%
July 2005............ 63.18% 62.53% 43.39%
August 2005.......... 63.08% 62.40% 43.10%
September 2005....... 62.98% 62.28% 42.80%
October 2005......... 62.87% 62.15% 42.50%
November 2005........ 62.76% 62.01% 42.20%
December 2005........ 62.66% 61.88% 41.90%
January 2006......... 62.54% 61.74% 41.60%
February 2006........ 62.43% 61.60% 41.29%
March 2006........... 62.32% 61.46% 40.99%
April 2006........... 62.20% 61.31% 40.68%
May 2006............. 62.08% 61.16% 40.37%
June 2006............ 61.96% 61.01% 40.05%
July 2006............ 61.84% 60.85% 39.74%
August 2006.......... 61.71% 60.70% 39.42%
September 2006....... 61.58% 60.54% 39.10%
October 2006......... 61.45% 60.37% 38.78%
November 2006........ 61.32% 60.21% 38.46%
December 2006........ 61.18% 60.04% 38.14%
January 2007......... 61.05% 59.86% 37.81%
February 2007........ 60.91% 59.69% 37.49%
</TABLE>
A-9
<PAGE> 147
CLASS A CLASS PERCENTAGES (CONTINUED)
<TABLE>
<CAPTION>
CLASS A CLASS A CLASS A
MINIMUM SCHEDULED SUPPLEMENTAL
PAYMENT DATE CLASS CLASS CLASS
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
- ------------ ---------- ---------- ------------
<S> <C> <C> <C>
March 2007........... 60.77% 59.51% 37.16%
April 2007........... 60.62% 59.33% 36.83%
May 2007............. 60.47% 59.14% 36.49%
June 2007............ 60.33% 58.96% 36.16%
July 2007............ 60.17% 58.77% 35.82%
August 2007.......... 60.02% 58.57% 35.48%
September 2007....... 59.86% 58.37% 35.14%
October 2007......... 59.71% 58.17% 34.80%
November 2007........ 59.55% 57.97% 34.46%
December 2007........ 59.38% 57.76% 34.12%
January 2008......... 59.22% 57.55% 33.77%
February 2008........ 59.05% 57.34% 33.42%
March 2008........... 58.88% 57.12% 33.07%
April 2008........... 58.70% 56.90% 32.72%
May 2008............. 58.53% 56.68% 32.37%
June 2008............ 58.35% 56.45% 32.01%
July 2008............ 58.17% 56.22% 31.65%
August 2008.......... 57.98% 55.99% 31.30%
September 2008....... 57.80% 55.75% 30.94%
October 2008......... 57.61% 55.51% 30.57%
November 2008........ 57.41% 55.26% 30.21%
December 2008........ 57.22% 55.01% 29.85%
January 2009......... 57.02% 54.76% 29.48%
February 2009........ 56.82% 54.51% 29.11%
March 2009........... 56.62% 54.25% 28.74%
April 2009........... 56.42% 53.99% 28.37%
May 2009............. 56.21% 53.72% 28.00%
June 2009............ 56.00% 53.45% 27.62%
July 2009............ 55.78% 53.18% 27.25%
August 2009.......... 55.57% 52.90% 26.87%
September 2009....... 55.35% 52.62% 26.49%
October 2009......... 55.12% 52.33% 26.11%
November 2009........ 54.90% 52.04% 25.72%
December 2009........ 54.67% 51.75% 25.34%
January 2010......... 54.44% 51.45% 24.95%
February 2010........ 54.21% 51.15% 24.57%
March 2010........... 53.97% 50.85% 24.18%
April 2010........... 53.73% 50.54% 23.79%
May 2010............. 53.49% 50.23% 23.40%
June 2010............ 53.24% 49.91% 23.00%
July 2010............ 53.00% 49.59% 22.61%
August 2010.......... 52.74% 49.27% 22.21%
September 2010....... 52.49% 48.94% 21.81%
October 2010......... 52.23% 48.61% 21.41%
November 2010........ 51.97% 48.27% 21.01%
December 2010........ 51.71% 47.93% 20.61%
January 2011......... 51.44% 47.59% 20.20%
February 2011........ 51.17% 47.24% 19.80%
March 2011........... 50.90% 46.88% 19.39%
April 2011........... 50.62% 46.53% 18.98%
May 2011............. 50.34% 46.17% 18.57%
June 2011............ 50.06% 45.80% 18.16%
July 2011............ 49.78% 45.43% 17.74%
August 2011.......... 49.49% 45.06% 17.33%
September 2011....... 49.20% 44.68% 16.91%
October 2011......... 48.90% 44.29% 16.49%
November 2011........ 48.60% 43.91% 16.07%
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS A CLASS A
MINIMUM SCHEDULED SUPPLEMENTAL
PAYMENT DATE CLASS CLASS CLASS
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
- ------------ ---------- ---------- ------------
<S> <C> <C> <C>
December 2011........ 48.30% 43.52% 15.65%
January 2012......... 48.00% 43.12% 15.23%
February 2012........ 47.69% 42.72% 14.80%
March 2012........... 47.38% 42.31% 14.38%
April 2012........... 47.07% 41.90% 13.95%
May 2012............. 46.75% 41.49% 13.52%
June 2012............ 46.43% 41.07% 13.09%
July 2012............ 46.10% 40.65% 12.66%
August 2012.......... 45.77% 40.22% 12.23%
September 2012....... 45.44% 39.79% 11.79%
October 2012......... 45.11% 39.35% 11.36%
November 2012........ 44.77% 38.91% 10.92%
December 2012........ 44.43% 38.46% 10.48%
January 2013......... 44.09% 38.01% 10.04%
February 2013........ 43.74% 37.56% 9.60%
March 2013........... 43.39% 37.10% 9.16%
April 2013........... 43.03% 36.63% 8.71%
May 2013............. 42.67% 36.16% 8.27%
June 2013............ 42.31% 35.69% 7.82%
July 2013............ 41.94% 35.21% 7.37%
August 2013.......... 41.58% 34.73% 6.92%
September 2013....... 41.20% 34.24% 6.47%
October 2013......... 40.83% 33.74% 6.02%
November 2013........ 40.45% 33.24% 5.56%
December 2013........ 40.06% 32.74% 5.11%
January 2014......... 39.68% 32.23% 4.65%
February 2014........ 39.29% 31.72% 4.19%
March 2014........... 38.89% 31.20% 3.73%
April 2014........... 38.49% 30.68% 3.27%
May 2014............. 38.09% 30.15% 2.81%
June 2014............ 37.69% 29.61% 2.34%
July 2014............ 37.28% 29.07% 1.88%
August 2014.......... 36.86% 28.53% 1.41%
September 2014....... 36.45% 27.98% 0.94%
October 2014......... 36.03% 27.43% 0.47%
November 2014........ 35.60% 26.87% 0.00%
December 2014........ 35.18% 26.30% 0.00%
January 2015......... 34.74% 25.73% 0.00%
February 2015........ 34.31% 25.16% 0.00%
March 2015........... 33.87% 24.58% 0.00%
April 2015........... 33.43% 23.99% 0.00%
May 2015............. 32.98% 23.40% 0.00%
June 2015............ 32.53% 22.80% 0.00%
July 2015............ 32.07% 22.20% 0.00%
August 2015.......... 31.62% 21.60% 0.00%
September 2015....... 31.15% 20.98% 0.00%
October 2015......... 30.69% 20.37% 0.00%
November 2015........ 30.22% 19.74% 0.00%
December 2015........ 29.74% 19.11% 0.00%
January 2016......... 29.27% 18.48% 0.00%
February 2016........ 28.78% 17.84% 0.00%
March 2016........... 28.30% 17.20% 0.00%
April 2016........... 27.81% 16.54% 0.00%
May 2016............. 27.31% 15.89% 0.00%
June 2016............ 26.81% 15.23% 0.00%
July 2016............ 26.31% 14.56% 0.00%
August 2016.......... 25.81% 13.89% 0.00%
</TABLE>
A-10
<PAGE> 148
CLASS A CLASS PERCENTAGES (CONTINUED)
<TABLE>
<CAPTION>
CLASS A CLASS A CLASS A
MINIMUM SCHEDULED SUPPLEMENTAL
PAYMENT DATE CLASS CLASS CLASS
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
- ------------ ---------- ---------- ------------
<S> <C> <C> <C>
September 2016....... 25.30% 13.21% 0.00%
October 2016......... 24.78% 12.52% 0.00%
November 2016........ 24.26% 11.83% 0.00%
December 2016........ 23.74% 11.14% 0.00%
January 2017......... 23.21% 10.44% 0.00%
February 2017........ 22.68% 9.73% 0.00%
March 2017........... 22.15% 9.02% 0.00%
April 2017........... 21.61% 8.30% 0.00%
May 2017............. 21.07% 7.57% 0.00%
June 2017............ 20.52% 6.84% 0.00%
July 2017............ 19.97% 6.10% 0.00%
August 2017.......... 19.41% 5.36% 0.00%
September 2017....... 18.85% 4.61% 0.00%
October 2017......... 18.29% 3.86% 0.00%
November 2017........ 17.72% 3.10% 0.00%
December 2017........ 17.14% 2.33% 0.00%
January 2018......... 16.57% 1.56% 0.00%
February 2018........ 15.98% 0.78% 0.00%
March 2018........... 15.40% 0.00% 0.00%
April 2018........... 14.81% 0.00% 0.00%
May 2018............. 14.21% 0.00% 0.00%
June 2018............ 13.61% 0.00% 0.00%
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS A CLASS A
MINIMUM SCHEDULED SUPPLEMENTAL
PAYMENT DATE CLASS CLASS CLASS
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
- ------------ ---------- ---------- ------------
<S> <C> <C> <C>
July 2018............ 13.01% 0.00% 0.00%
August 2018.......... 12.40% 0.00% 0.00%
September 2018....... 11.79% 0.00% 0.00%
October 2018......... 11.17% 0.00% 0.00%
November 2018........ 10.55% 0.00% 0.00%
December 2018........ 9.93% 0.00% 0.00%
January 2019......... 9.30% 0.00% 0.00%
February 2019........ 8.66% 0.00% 0.00%
March 2019........... 8.02% 0.00% 0.00%
April 2019........... 7.38% 0.00% 0.00%
May 2019............. 6.73% 0.00% 0.00%
June 2019............ 6.08% 0.00% 0.00%
July 2019............ 5.42% 0.00% 0.00%
August 2019.......... 4.76% 0.00% 0.00%
September 2019....... 4.09% 0.00% 0.00%
October 2019......... 3.42% 0.00% 0.00%
November 2019........ 2.75% 0.00% 0.00%
December 2019........ 2.07% 0.00% 0.00%
January 2020......... 1.38% 0.00% 0.00%
February 2020........ 0.69% 0.00% 0.00%
March 2020........... 0.00% 0.00% 0.00%
</TABLE>
A-11
<PAGE> 149
APPENDIX 6
CLASS B CLASS PERCENTAGES
<TABLE>
<CAPTION>
CLASS B CLASS B CLASS B
MINIMUM SCHEDULED SUPPLEMENTAL
PAYMENT DATE CLASS CLASS CLASS
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
- ------------ ---------- ---------- ------------
<S> <C> <C> <C>
Closing.............. 8.96% 8.96% 8.96%
April 1998........... 8.96% 8.96% 8.96%
May 1998............. 8.96% 8.96% 8.96%
June 1998............ 8.96% 8.96% 8.96%
July 1998............ 8.96% 8.96% 8.96%
August 1998.......... 8.96% 8.96% 8.96%
September 1998....... 8.96% 8.96% 8.96%
October 1998......... 8.96% 8.96% 8.95%
November 1998........ 8.96% 8.96% 8.95%
December 1998........ 8.96% 8.96% 8.95%
January 1999......... 8.96% 8.96% 8.94%
February 1999........ 8.96% 8.96% 8.94%
March 1999........... 8.96% 8.96% 8.93%
April 1999........... 8.96% 8.96% 8.93%
May 1999............. 8.96% 8.96% 8.92%
June 1999............ 8.96% 8.96% 8.91%
July 1999............ 8.96% 8.96% 8.90%
August 1999.......... 8.96% 8.96% 8.89%
September 1999....... 8.96% 8.96% 8.88%
October 1999......... 8.96% 8.96% 8.87%
November 1999........ 8.96% 8.96% 8.86%
December 1999........ 8.96% 8.96% 8.85%
January 2000......... 8.96% 8.96% 8.84%
February 2000........ 8.96% 8.96% 8.82%
March 2000........... 8.96% 8.96% 8.81%
April 2000........... 8.96% 8.96% 8.79%
May 2000............. 8.96% 8.96% 8.78%
June 2000............ 8.96% 8.96% 8.76%
July 2000............ 8.96% 8.96% 8.74%
August 2000.......... 8.96% 8.96% 8.72%
September 2000....... 8.96% 8.96% 8.71%
October 2000......... 8.96% 8.96% 8.69%
November 2000........ 8.95% 8.95% 8.67%
December 2000........ 8.95% 8.95% 8.64%
January 2001......... 8.95% 8.95% 8.62%
February 2001........ 8.95% 8.95% 8.60%
March 2001........... 8.95% 8.95% 8.57%
April 2001........... 8.95% 8.95% 8.55%
May 2001............. 8.95% 8.95% 8.52%
June 2001............ 8.94% 8.94% 8.50%
July 2001............ 8.94% 8.94% 8.47%
August 2001.......... 8.94% 8.94% 8.44%
September 2001....... 8.94% 8.94% 8.41%
October 2001......... 8.94% 8.93% 8.38%
November 2001........ 8.93% 8.93% 8.35%
December 2001........ 8.93% 8.93% 8.32%
January 2002......... 8.93% 8.92% 8.28%
February 2002........ 8.92% 8.92% 8.25%
March 2002........... 8.92% 8.92% 8.22%
April 2002........... 8.92% 8.91% 8.18%
May 2002............. 8.92% 8.91% 8.14%
June 2002............ 8.91% 8.90% 8.11%
July 2002............ 8.91% 8.90% 8.07%
August 2002.......... 8.90% 8.89% 8.03%
September 2002....... 8.90% 8.89% 7.99%
October 2002......... 8.90% 8.88% 7.95%
November 2002........ 8.89% 8.88% 7.90%
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS B CLASS B
MINIMUM SCHEDULED SUPPLEMENTAL
PAYMENT DATE CLASS CLASS CLASS
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
- ------------ ---------- ---------- ------------
<S> <C> <C> <C>
December 2002........ 8.89% 8.87% 7.86%
January 2003......... 8.88% 8.86% 7.82%
February 2003........ 8.88% 8.86% 7.77%
March 2003........... 8.87% 8.85% 7.72%
April 2003........... 8.87% 8.84% 7.68%
May 2003............. 8.86% 8.83% 7.63%
June 2003............ 8.85% 8.82% 7.58%
July 2003............ 8.85% 8.81% 7.53%
August 2003.......... 8.84% 8.81% 7.48%
September 2003....... 8.83% 8.80% 7.43%
October 2003......... 8.83% 8.78% 7.37%
November 2003........ 8.82% 8.77% 7.32%
December 2003........ 8.81% 8.76% 7.26%
January 2004......... 8.81% 8.75% 7.21%
February 2004........ 8.80% 8.74% 7.15%
March 2004........... 8.79% 8.73% 7.09%
April 2004........... 8.78% 8.71% 7.03%
May 2004............. 8.77% 8.70% 6.97%
June 2004............ 8.76% 8.68% 6.91%
July 2004............ 8.75% 8.67% 6.85%
August 2004.......... 8.74% 8.65% 6.79%
September 2004....... 8.73% 8.64% 6.72%
October 2004......... 8.72% 8.62% 6.66%
November 2004........ 8.71% 8.60% 6.59%
December 2004........ 8.70% 8.58% 6.52%
January 2005......... 8.69% 8.56% 6.45%
February 2005........ 8.68% 8.55% 6.38%
March 2005........... 8.66% 8.52% 6.31%
April 2005........... 8.65% 8.50% 6.24%
May 2005............. 8.64% 8.48% 6.17%
June 2005............ 8.62% 8.46% 6.09%
July 2005............ 8.61% 8.44% 6.02%
August 2005.......... 8.60% 8.41% 5.94%
September 2005....... 8.58% 8.39% 5.87%
October 2005......... 8.57% 8.36% 5.79%
November 2005........ 8.55% 8.33% 5.71%
December 2005........ 8.53% 8.31% 5.63%
January 2006......... 8.52% 8.28% 5.55%
February 2006........ 8.50% 8.25% 5.46%
March 2006........... 8.48% 8.22% 5.38%
April 2006........... 8.47% 8.19% 5.29%
May 2006............. 8.45% 8.16% 5.21%
June 2006............ 8.43% 8.12% 5.12%
July 2006............ 8.41% 8.09% 5.03%
August 2006.......... 8.39% 8.05% 4.94%
September 2006....... 8.37% 8.02% 4.85%
October 2006......... 8.35% 7.98% 4.76%
November 2006........ 8.33% 7.94% 4.67%
December 2006........ 8.31% 7.90% 4.57%
January 2007......... 8.29% 7.86% 4.48%
February 2007........ 8.26% 7.82% 4.38%
March 2007........... 8.24% 7.78% 4.29%
April 2007........... 8.22% 7.73% 4.19%
May 2007............. 8.19% 7.69% 4.09%
June 2007............ 8.17% 7.64% 3.99%
July 2007............ 8.14% 7.59% 3.88%
August 2007.......... 8.12% 7.54% 3.78%
</TABLE>
A-12
<PAGE> 150
CLASS B CLASS PERCENTAGES (CONTINUED)
<TABLE>
<CAPTION>
CLASS B CLASS B CLASS B
MINIMUM SCHEDULED SUPPLEMENTAL
PAYMENT DATE CLASS CLASS CLASS
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
- ------------ ---------- ---------- ------------
<S> <C> <C> <C>
September 2007....... 8.09% 7.49% 3.68%
October 2007......... 8.06% 7.44% 3.57%
November 2007........ 8.03% 7.39% 3.47%
December 2007........ 8.01% 7.33% 3.36%
January 2008......... 7.98% 7.28% 3.25%
February 2008........ 7.95% 7.22% 3.14%
March 2008........... 7.92% 7.16% 3.03%
April 2008........... 7.89% 7.10% 2.91%
May 2008............. 7.86% 7.04% 2.80%
June 2008............ 7.82% 6.98% 2.69%
July 2008............ 7.79% 6.91% 2.57%
August 2008.......... 7.76% 6.85% 2.45%
September 2008....... 7.72% 6.78% 2.34%
October 2008......... 7.69% 6.71% 2.22%
November 2008........ 7.65% 6.64% 2.09%
December 2008........ 7.62% 6.56% 1.97%
January 2009......... 7.58% 6.49% 1.85%
February 2009........ 7.54% 6.41% 1.73%
March 2009........... 7.50% 6.34% 1.60%
April 2009........... 7.47% 6.26% 1.47%
May 2009............. 7.43% 6.18% 1.35%
June 2009............ 7.39% 6.09% 1.22%
July 2009............ 7.34% 6.01% 1.09%
August 2009.......... 7.30% 5.92% 0.95%
September 2009....... 7.26% 5.83% 0.82%
October 2009......... 7.22% 5.74% 0.69%
November 2009........ 7.17% 5.65% 0.55%
December 2009........ 7.13% 5.55% 0.42%
January 2010......... 7.08% 5.46% 0.28%
February 2010........ 7.03% 5.36% 0.14%
March 2010........... 6.99% 5.26% 0.00%
April 2010........... 6.94% 5.15% 0.00%
May 2010............. 6.89% 5.05% 0.00%
June 2010............ 6.84% 4.94% 0.00%
July 2010............ 6.79% 4.83% 0.00%
August 2010.......... 6.74% 4.72% 0.00%
September 2010....... 6.68% 4.61% 0.00%
October 2010......... 6.63% 4.49% 0.00%
November 2010........ 6.58% 4.37% 0.00%
December 2010........ 6.52% 4.25% 0.00%
January 2011......... 6.46% 4.13% 0.00%
February 2011........ 6.41% 4.00% 0.00%
March 2011........... 6.35% 3.88% 0.00%
April 2011........... 6.29% 3.74% 0.00%
May 2011............. 6.23% 3.61% 0.00%
June 2011............ 6.17% 3.48% 0.00%
July 2011............ 6.11% 3.34% 0.00%
August 2011.......... 6.04% 3.20% 0.00%
September 2011....... 5.98% 3.06% 0.00%
October 2011......... 5.92% 2.91% 0.00%
November 2011........ 5.85% 2.76% 0.00%
December 2011........ 5.78% 2.61% 0.00%
January 2012......... 5.72% 2.46% 0.00%
February 2012........ 5.65% 2.30% 0.00%
March 2012........... 5.58% 2.14% 0.00%
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS B CLASS B
MINIMUM SCHEDULED SUPPLEMENTAL
PAYMENT DATE CLASS CLASS CLASS
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
- ------------ ---------- ---------- ------------
<S> <C> <C> <C>
April 2012........... 5.51% 1.98% 0.00%
May 2012............. 5.43% 1.81% 0.00%
June 2012............ 5.36% 1.65% 0.00%
July 2012............ 5.29% 1.48% 0.00%
August 2012.......... 5.21% 1.30% 0.00%
September 2012....... 5.13% 1.13% 0.00%
October 2012......... 5.06% 0.95% 0.00%
November 2012........ 4.98% 0.76% 0.00%
December 2012........ 4.90% 0.58% 0.00%
January 2013......... 4.82% 0.39% 0.00%
February 2013........ 4.74% 0.20% 0.00%
March 2013........... 4.65% 0.00% 0.00%
April 2013........... 4.57% 0.00% 0.00%
May 2013............. 4.48% 0.00% 0.00%
June 2013............ 4.40% 0.00% 0.00%
July 2013............ 4.31% 0.00% 0.00%
August 2013.......... 4.22% 0.00% 0.00%
September 2013....... 4.13% 0.00% 0.00%
October 2013......... 4.04% 0.00% 0.00%
November 2013........ 3.95% 0.00% 0.00%
December 2013........ 3.85% 0.00% 0.00%
January 2014......... 3.76% 0.00% 0.00%
February 2014........ 3.66% 0.00% 0.00%
March 2014........... 3.56% 0.00% 0.00%
April 2014........... 3.47% 0.00% 0.00%
May 2014............. 3.37% 0.00% 0.00%
June 2014............ 3.26% 0.00% 0.00%
July 2014............ 3.16% 0.00% 0.00%
August 2014.......... 3.06% 0.00% 0.00%
September 2014....... 2.95% 0.00% 0.00%
October 2014......... 2.85% 0.00% 0.00%
November 2014........ 2.74% 0.00% 0.00%
December 2014........ 2.63% 0.00% 0.00%
January 2015......... 2.52% 0.00% 0.00%
February 2015........ 2.40% 0.00% 0.00%
March 2015........... 2.29% 0.00% 0.00%
April 2015........... 2.18% 0.00% 0.00%
May 2015............. 2.06% 0.00% 0.00%
June 2015............ 1.94% 0.00% 0.00%
July 2015............ 1.82% 0.00% 0.00%
August 2015.......... 1.70% 0.00% 0.00%
September 2015....... 1.58% 0.00% 0.00%
October 2015......... 1.46% 0.00% 0.00%
November 2015........ 1.33% 0.00% 0.00%
December 2015........ 1.21% 0.00% 0.00%
January 2016......... 1.08% 0.00% 0.00%
February 2016........ 0.95% 0.00% 0.00%
March 2016........... 0.82% 0.00% 0.00%
April 2016........... 0.69% 0.00% 0.00%
May 2016............. 0.55% 0.00% 0.00%
June 2016............ 0.42% 0.00% 0.00%
July 2016............ 0.28% 0.00% 0.00%
August 2016.......... 0.14% 0.00% 0.00%
September 2016....... 0.00% 0.00% 0.00%
</TABLE>
A-13
<PAGE> 151
APPENDIX 7
CLASS C TARGET PRINCIPAL BALANCES
<TABLE>
<CAPTION>
CLASS C CLASS C
MINIMUM SCHEDULED
PAYMENT DATE TARGET PRINCIPAL TARGET PRINCIPAL
OCCURRING IN BALANCE BALANCE
- ------------ ---------------- ----------------
($) ($)
<S> <C> <C>
Closing.............. 100,000,000 100,000,000
April 1998........... 100,000,000 100,000,000
May 1998............. 100,000,000 100,000,000
June 1998............ 100,000,000 100,000,000
July 1998............ 100,000,000 100,000,000
August 1998.......... 100,000,000 100,000,000
September 1998....... 100,000,000 100,000,000
October 1998......... 100,000,000 100,000,000
November 1998........ 100,000,000 100,000,000
December 1998........ 100,000,000 100,000,000
January 1999......... 100,000,000 100,000,000
February 1999........ 100,000,000 100,000,000
March 1999........... 100,000,000 100,000,000
April 1999........... 100,000,000 100,000,000
May 1999............. 100,000,000 100,000,000
June 1999............ 100,000,000 100,000,000
July 1999............ 100,000,000 100,000,000
August 1999.......... 100,000,000 100,000,000
September 1999....... 100,000,000 100,000,000
October 1999......... 99,999,825 99,996,772
November 1999........ 99,999,043 99,986,794
December 1999........ 99,997,412 99,969,890
January 2000......... 99,994,757 99,945,967
February 2000........ 99,990,934 99,914,956
March 2000........... 99,985,819 99,876,807
April 2000........... 99,979,299 99,831,475
May 2000............. 99,971,272 99,778,925
June 2000............ 99,961,645 99,719,125
July 2000............ 99,950,328 99,652,047
August 2000.......... 99,937,239 99,577,666
September 2000....... 99,922,300 99,495,959
October 2000......... 99,905,436 99,406,905
November 2000........ 99,886,576 99,310,486
December 2000........ 99,865,651 99,206,683
January 2001......... 99,842,596 99,095,480
February 2001........ 99,817,348 98,976,860
March 2001........... 99,789,845 98,850,810
April 2001........... 99,760,027 98,717,316
May 2001............. 99,727,838 98,576,363
June 2001............ 99,693,222 98,427,941
July 2001............ 99,656,123 98,272,036
August 2001.......... 99,616,490 98,108,638
September 2001....... 99,574,270 97,937,736
October 2001......... 99,529,413 97,759,319
November 2001........ 99,481,870 97,573,377
December 2001........ 99,431,592 97,379,901
January 2002......... 99,378,533 97,178,882
February 2002........ 99,322,645 96,970,309
March 2002........... 99,263,883 96,754,176
April 2002........... 99,202,204 96,530,472
May 2002............. 99,137,562 96,299,191
June 2002............ 99,069,916 96,060,325
July 2002............ 98,999,222 95,813,865
August 2002.......... 98,925,439 95,559,804
</TABLE>
<TABLE>
<CAPTION>
($) ($)
CLASS C CLASS C
MINIMUM SCHEDULED
PAYMENT DATE TARGET PRINCIPAL TARGET PRINCIPAL
OCCURRING IN BALANCE BALANCE
- ------------ ---------------- ----------------
<S> <C> <C>
September 2002....... 98,848,527 95,298,136
October 2002......... 98,768,445 95,028,853
November 2002........ 98,685,153 94,751,948
December 2002........ 98,598,612 94,467,415
January 2003......... 98,508,784 94,175,248
February 2003........ 98,415,631 93,875,439
March 2003........... 98,319,115 93,567,983
April 2003........... 98,219,199 93,252,875
May 2003............. 98,115,847 92,930,107
June 2003............ 98,009,023 92,599,674
July 2003............ 97,898,690 92,261,571
August 2003.......... 97,784,815 91,915,791
September 2003....... 97,667,362 91,562,331
October 2003......... 97,546,296 91,201,184
November 2003........ 97,421,584 90,832,345
December 2003........ 97,293,192 90,455,810
January 2004......... 97,161,088 90,071,572
February 2004........ 97,025,237 89,679,628
March 2004........... 96,885,608 89,279,972
April 2004........... 96,742,168 88,872,601
May 2004............. 96,594,886 88,457,508
June 2004............ 96,443,729 88,034,690
July 2004............ 96,288,668 87,604,143
August 2004.......... 96,129,670 87,165,861
September 2004....... 95,966,705 86,719,841
October 2004......... 95,799,743 86,266,077
November 2004........ 95,628,753 85,804,568
December 2004........ 95,453,706 85,335,307
January 2005......... 95,274,572 84,858,290
February 2005........ 95,091,322 84,373,515
March 2005........... 94,903,927 83,880,977
April 2005........... 94,712,357 83,380,672
May 2005............. 94,516,585 82,872,597
June 2005............ 94,316,582 82,356,747
July 2005............ 94,112,319 81,833,119
August 2005.......... 93,903,770 81,301,709
September 2005....... 93,690,906 80,762,514
October 2005......... 93,473,699 80,215,530
November 2005........ 93,252,123 79,660,753
December 2005........ 93,026,151 79,098,181
January 2006......... 92,795,755 78,527,809
February 2006........ 92,560,908 77,949,634
March 2006........... 92,321,585 77,363,654
April 2006........... 92,077,759 76,769,864
May 2006............. 91,829,404 76,168,262
June 2006............ 91,576,494 75,558,844
July 2006............ 91,319,004 74,941,607
August 2006.......... 91,056,907 74,316,549
September 2006....... 90,790,178 73,683,665
October 2006......... 90,518,792 73,042,952
November 2006........ 90,242,724 72,394,409
December 2006........ 89,961,949 71,738,032
January 2007......... 89,676,442 71,073,817
February 2007........ 89,386,179 70,401,762
</TABLE>
A-14
<PAGE> 152
CLASS C TARGET PRINCIPAL BALANCES (CONTINUED)
<TABLE>
<CAPTION>
CLASS C CLASS C
MINIMUM SCHEDULED
PAYMENT DATE TARGET PRINCIPAL TARGET PRINCIPAL
OCCURRING IN BALANCE BALANCE
- ------------ ---------------- ----------------
($) ($)
<S> <C> <C>
March 2007........... 89,091,135 69,721,865
April 2007........... 88,791,286 69,034,121
May 2007............. 88,486,607 68,338,529
June 2007............ 88,177,075 67,635,085
July 2007............ 87,862,666 66,923,788
August 2007.......... 87,543,356 66,204,633
September 2007....... 87,219,121 65,477,618
October 2007......... 86,889,938 64,742,742
November 2007........ 86,555,784 64,000,000
December 2007........ 86,216,635 63,249,391
January 2008......... 85,872,469 62,490,911
February 2008........ 85,523,262 61,724,559
March 2008........... 85,168,991 60,950,331
April 2008........... 84,809,635 60,168,225
May 2008............. 84,445,170 59,378,239
June 2008............ 84,075,573 58,580,370
July 2008............ 83,700,823 57,774,616
August 2008.......... 83,320,898 56,960,973
September 2008....... 82,935,774 56,139,441
October 2008......... 82,545,431 55,310,016
November 2008........ 82,149,846 54,472,696
December 2008........ 81,748,998 53,627,479
January 2009......... 81,342,865 52,774,362
February 2009........ 80,931,424 51,913,343
March 2009........... 80,514,656 51,044,420
April 2009........... 80,092,538 50,167,590
May 2009............. 79,665,050 49,282,851
June 2009............ 79,232,169 48,390,202
July 2009............ 78,793,876 47,489,639
August 2009.......... 78,350,148 46,581,161
September 2009....... 77,900,966 45,664,765
October 2009......... 77,446,308 44,740,449
November 2009........ 76,986,154 43,808,212
December 2009........ 76,520,484 42,868,050
January 2010......... 76,049,276 41,919,962
February 2010........ 75,572,510 40,963,946
March 2010........... 75,090,167 40,000,000
April 2010........... 74,602,225 39,028,121
May 2010............. 74,108,665 38,048,308
June 2010............ 73,609,467 37,060,559
July 2010............ 73,104,610 36,064,870
August 2010.......... 72,594,075 35,061,242
September 2010....... 72,077,843 34,049,671
October 2010......... 71,555,892 33,030,155
November 2010........ 71,028,205 32,002,693
December 2010........ 70,494,760 30,967,283
January 2011......... 69,955,540 29,923,923
February 2011........ 69,410,523 28,872,610
March 2011........... 68,859,692 27,813,343
April 2011........... 68,303,027 26,746,121
May 2011............. 67,740,508 25,670,940
June 2011............ 67,172,117 24,587,800
July 2011............ 66,597,834 23,496,698
August 2011.......... 66,017,641 22,397,633
September 2011....... 65,431,519 21,290,603
October 2011......... 64,839,448 20,175,606
</TABLE>
<TABLE>
<CAPTION>
($) ($)
CLASS C CLASS C
MINIMUM SCHEDULED
PAYMENT DATE TARGET PRINCIPAL TARGET PRINCIPAL
OCCURRING IN BALANCE BALANCE
- ------------ ---------------- ----------------
<S> <C> <C>
November 2011........ 64,241,412 19,052,639
December 2011........ 63,637,389 17,921,703
January 2012......... 63,027,363 16,782,794
February 2012........ 62,411,314 15,635,910
March 2012........... 61,789,225 14,481,051
April 2012........... 61,161,076 13,318,214
May 2012............. 60,526,849 12,147,398
June 2012............ 59,886,527 10,968,601
July 2012............ 59,240,091 9,781,821
August 2012.......... 58,587,523 8,587,057
September 2012....... 57,928,804 7,384,306
October 2012......... 57,263,918 6,173,568
November 2012........ 56,592,845 4,954,840
December 2012........ 55,915,569 3,728,121
January 2013......... 55,232,071 2,493,409
February 2013........ 54,542,333 1,250,702
March 2013........... 53,846,339 0
April 2013........... 53,144,070 0
May 2013............. 52,435,508 0
June 2013............ 51,720,637 0
July 2013............ 50,999,439 0
August 2013.......... 50,271,896 0
September 2013....... 49,537,991 0
October 2013......... 48,797,707 0
November 2013........ 48,051,027 0
December 2013........ 47,297,933 0
January 2014......... 46,538,409 0
February 2014........ 45,772,437 0
March 2014........... 45,000,000 0
April 2014........... 44,221,082 0
May 2014............. 43,435,665 0
June 2014............ 42,643,733 0
July 2014............ 41,845,269 0
August 2014.......... 41,040,256 0
September 2014....... 40,228,678 0
October 2014......... 39,410,518 0
November 2014........ 38,585,759 0
December 2014........ 37,754,384 0
January 2015......... 36,916,378 0
February 2015........ 36,071,725 0
March 2015........... 35,220,406 0
April 2015........... 34,362,407 0
May 2015............. 33,497,710 0
June 2015............ 32,626,301 0
July 2015............ 31,748,162 0
August 2015.......... 30,863,277 0
September 2015....... 29,971,630 0
October 2015......... 29,073,206 0
November 2015........ 28,167,988 0
December 2015........ 27,255,960 0
January 2016......... 26,337,107 0
February 2016........ 25,411,412 0
March 2016........... 24,478,859 0
April 2016........... 23,539,434 0
May 2016............. 22,593,119 0
June 2016............ 21,639,901 0
</TABLE>
A-15
<PAGE> 153
CLASS C TARGET PRINCIPAL BALANCES (CONTINUED)
<TABLE>
<CAPTION>
CLASS C CLASS C
MINIMUM SCHEDULED
PAYMENT DATE TARGET PRINCIPAL TARGET PRINCIPAL
OCCURRING IN BALANCE BALANCE
- ------------ ---------------- ----------------
($) ($)
<S> <C> <C>
July 2016............ 20,679,761 0
August 2016.......... 19,712,686 0
September 2016....... 18,738,660 0
October 2016......... 17,757,667 0
November 2016........ 16,769,691 0
December 2016........ 15,774,718 0
January 2017......... 14,772,731 0
February 2017........ 13,763,716 0
March 2017........... 12,747,657 0
April 2017........... 11,724,539 0
May 2017............. 10,694,346 0
</TABLE>
<TABLE>
<CAPTION>
($) ($)
CLASS C CLASS C
MINIMUM SCHEDULED
PAYMENT DATE TARGET PRINCIPAL TARGET PRINCIPAL
OCCURRING IN BALANCE BALANCE
- ------------ ---------------- ----------------
<S> <C> <C>
June 2017............ 9,657,064 0
July 2017............ 8,612,676 0
August 2017.......... 7,561,169 0
September 2017....... 6,502,527 0
October 2017......... 5,436,735 0
November 2017........ 4,363,778 0
December 2017........ 3,283,641 0
January 2018......... 2,196,309 0
February 2018........ 1,101,767 0
March 2018........... 0 0
</TABLE>
A-16
<PAGE> 154
APPENDIX 8
CLASS D TARGET PRINCIPAL BALANCES
<TABLE>
<CAPTION>
CLASS D CLASS D
MINIMUM SCHEDULED
PAYMENT DATE TARGET PRINCIPAL TARGET PRINCIPAL
OCCURRING IN BALANCE BALANCE
- ------------ ---------------- ----------------
($) ($)
<S> <C> <C>
Closing.............. 110,000,000 110,000,000
April 1998........... 110,000,000 110,000,000
May 1998............. 110,000,000 110,000,000
June 1998............ 110,000,000 110,000,000
July 1998............ 110,000,000 110,000,000
August 1998.......... 110,000,000 110,000,000
September 1998....... 110,000,000 110,000,000
October 1998......... 110,000,000 110,000,000
November 1998........ 110,000,000 110,000,000
December 1998........ 110,000,000 110,000,000
January 1999......... 110,000,000 110,000,000
February 1999........ 110,000,000 110,000,000
March 1999........... 110,000,000 110,000,000
April 1999........... 110,000,000 110,000,000
May 1999............. 110,000,000 110,000,000
June 1999............ 110,000,000 110,000,000
July 1999............ 110,000,000 110,000,000
August 1999.......... 110,000,000 110,000,000
September 1999....... 110,000,000 110,000,000
October 1999......... 110,000,000 110,000,000
November 1999........ 110,000,000 110,000,000
December 1999........ 110,000,000 110,000,000
January 2000......... 110,000,000 110,000,000
February 2000........ 110,000,000 110,000,000
March 2000........... 110,000,000 110,000,000
April 2000........... 110,000,000 110,000,000
May 2000............. 110,000,000 110,000,000
June 2000............ 110,000,000 110,000,000
July 2000............ 110,000,000 110,000,000
August 2000.......... 110,000,000 110,000,000
September 2000....... 110,000,000 110,000,000
October 2000......... 110,000,000 109,999,467
November 2000........ 110,000,000 109,997,175
December 2000........ 110,000,000 109,992,508
January 2001......... 110,000,000 109,985,035
February 2001........ 110,000,000 109,974,404
March 2001........... 110,000,000 109,960,316
April 2001........... 110,000,000 109,942,503
May 2001............. 110,000,000 109,920,727
June 2001............ 110,000,000 109,894,765
July 2001............ 110,000,000 109,864,413
August 2001.......... 110,000,000 109,829,479
September 2001....... 110,000,000 109,789,782
October 2001......... 110,000,000 109,745,152
November 2001........ 110,000,000 109,695,426
December 2001........ 110,000,000 109,640,449
January 2002......... 110,000,000 109,580,070
February 2002........ 110,000,000 109,514,148
March 2002........... 110,000,000 109,442,544
April 2002........... 109,999,964 109,365,125
May 2002............. 109,999,750 109,281,762
June 2002............ 109,999,231 109,192,330
July 2002............ 109,998,291 109,096,708
August 2002.......... 109,996,824 108,994,779
</TABLE>
<TABLE>
<CAPTION>
($) ($)
CLASS D CLASS D
MINIMUM SCHEDULED
PAYMENT DATE TARGET PRINCIPAL TARGET PRINCIPAL
OCCURRING IN BALANCE BALANCE
- ------------ ---------------- ----------------
<S> <C> <C>
September 2002....... 109,994,732 108,886,428
October 2002......... 109,991,919 108,771,542
November 2002........ 109,988,294 108,650,013
December 2002........ 109,983,767 108,521,734
January 2003......... 109,978,253 108,386,602
February 2003........ 109,971,667 108,244,514
March 2003........... 109,963,927 108,095,372
April 2003........... 109,954,953 107,939,076
May 2003............. 109,944,664 107,775,533
June 2003............ 109,932,985 107,604,647
July 2003............ 109,919,838 107,426,326
August 2003.......... 109,905,147 107,240,481
September 2003....... 109,888,839 107,047,023
October 2003......... 109,870,840 106,845,863
November 2003........ 109,851,078 106,636,915
December 2003........ 109,829,481 106,420,097
January 2004......... 109,805,978 106,195,323
February 2004........ 109,780,499 105,962,511
March 2004........... 109,752,976 105,721,582
April 2004........... 109,723,339 105,472,455
May 2004............. 109,691,520 105,215,053
June 2004............ 109,657,452 104,949,296
July 2004............ 109,621,068 104,675,109
August 2004.......... 109,582,302 104,392,417
September 2004....... 109,541,088 104,101,145
October 2004......... 109,497,362 103,801,220
November 2004........ 109,451,057 103,492,568
December 2004........ 109,402,110 103,175,118
January 2005......... 109,350,458 102,848,800
February 2005........ 109,296,036 102,513,543
March 2005........... 109,238,782 102,169,278
April 2005........... 109,178,633 101,815,937
May 2005............. 109,115,527 101,453,451
June 2005............ 109,049,402 101,081,754
July 2005............ 108,980,197 100,700,779
August 2005.......... 108,907,850 100,310,462
September 2005....... 108,832,301 99,910,736
October 2005......... 108,753,490 99,501,537
November 2005........ 108,671,357 99,082,802
December 2005........ 108,585,840 98,654,468
January 2006......... 108,496,882 98,216,473
February 2006........ 108,404,423 97,768,754
March 2006........... 108,308,404 97,311,250
April 2006........... 108,208,766 96,843,901
May 2006............. 108,105,452 96,366,646
June 2006............ 107,998,402 95,879,426
July 2006............ 107,887,560 95,382,181
August 2006.......... 107,772,867 94,874,854
September 2006....... 107,654,266 94,357,385
October 2006......... 107,531,701 93,829,717
November 2006........ 107,405,114 93,291,793
December 2006........ 107,274,449 92,743,556
January 2007......... 107,139,650 92,184,951
February 2007........ 107,000,660 91,615,920
</TABLE>
A-17
<PAGE> 155
CLASS D TARGET PRINCIPAL BALANCES (CONTINUED)
<TABLE>
<CAPTION>
CLASS D CLASS D
MINIMUM SCHEDULED
PAYMENT DATE TARGET PRINCIPAL TARGET PRINCIPAL
OCCURRING IN BALANCE BALANCE
- ------------ ---------------- ----------------
($) ($)
<S> <C> <C>
March 2007........... 106,857,423 91,036,410
April 2007........... 106,709,884 90,446,364
May 2007............. 106,557,987 89,845,729
June 2007............ 106,401,676 89,234,450
July 2007............ 106,240,898 88,612,474
August 2007.......... 106,075,596 87,979,746
September 2007....... 105,905,716 87,336,215
October 2007......... 105,731,204 86,681,828
November 2007........ 105,552,004 86,016,532
December 2007........ 105,368,064 85,340,276
January 2008......... 105,179,329 84,653,009
February 2008........ 104,985,745 83,954,678
March 2008........... 104,787,259 83,245,234
April 2008........... 104,583,816 82,524,625
May 2008............. 104,375,365 81,792,802
June 2008............ 104,161,850 81,049,716
July 2008............ 103,943,221 80,295,316
August 2008.......... 103,719,423 79,529,553
September 2008....... 103,490,405 78,752,379
October 2008......... 103,256,113 77,963,745
November 2008........ 103,016,495 77,163,603
December 2008........ 102,771,500 76,351,905
January 2009......... 102,521,074 75,528,603
February 2009........ 102,265,166 74,693,649
March 2009........... 102,003,725 73,846,998
April 2009........... 101,736,698 72,988,602
May 2009............. 101,464,034 72,118,414
June 2009............ 101,185,682 71,236,389
July 2009............ 100,901,591 70,342,480
August 2009.......... 100,611,709 69,436,641
September 2009....... 100,315,985 68,518,827
October 2009......... 100,014,369 67,588,993
November 2009........ 99,706,810 66,647,094
December 2009........ 99,393,256 65,693,085
January 2010......... 99,073,659 64,726,922
February 2010........ 98,747,967 63,748,560
March 2010........... 98,416,130 62,757,955
April 2010........... 98,078,099 61,755,064
May 2010............. 97,733,822 60,739,843
June 2010............ 97,383,250 59,712,248
July 2010............ 97,026,334 58,672,237
August 2010.......... 96,663,024 57,619,767
September 2010....... 96,293,270 56,554,794
October 2010......... 95,917,023 55,477,277
November 2010........ 95,534,233 54,387,174
December 2010........ 95,144,852 53,284,441
January 2011......... 94,748,829 52,169,038
February 2011........ 94,346,117 51,040,922
March 2011........... 93,936,666 49,900,053
April 2011........... 93,520,427 48,746,388
May 2011............. 93,097,353 47,579,888
June 2011............ 92,667,393 46,400,510
July 2011............ 92,230,500 45,208,215
August 2011.......... 91,786,625 44,002,962
September 2011....... 91,335,720 42,784,710
October 2011......... 90,877,737 41,553,420
</TABLE>
<TABLE>
<CAPTION>
($) ($)
CLASS D CLASS D
MINIMUM SCHEDULED
PAYMENT DATE TARGET PRINCIPAL TARGET PRINCIPAL
OCCURRING IN BALANCE BALANCE
- ------------ ---------------- ----------------
<S> <C> <C>
November 2011........ 90,412,628 40,309,052
December 2011........ 89,940,344 39,051,565
January 2012......... 89,460,838 37,780,920
February 2012........ 88,974,061 36,497,078
March 2012........... 88,479,967 35,200,000
April 2012........... 87,978,507 33,889,646
May 2012............. 87,469,634 32,565,978
June 2012............ 86,953,300 31,228,957
July 2012............ 86,429,459 29,878,543
August 2012.......... 85,898,062 28,514,700
September 2012....... 85,359,062 27,137,389
October 2012......... 84,812,413 25,746,570
November 2012........ 84,258,067 24,342,208
December 2012........ 83,695,978 22,924,263
January 2013......... 83,126,098 21,492,699
February 2013........ 82,548,380 20,047,477
March 2013........... 81,962,779 18,588,561
April 2013........... 81,369,247 17,115,913
May 2013............. 80,767,737 15,629,496
June 2013............ 80,158,204 14,129,273
July 2013............ 79,540,600 12,615,208
August 2013.......... 78,914,880 11,087,264
September 2013....... 78,280,998 9,545,405
October 2013......... 77,638,906 7,989,594
November 2013........ 76,988,559 6,419,794
December 2013........ 76,329,911 4,835,971
January 2014......... 75,662,916 3,238,088
February 2014........ 74,987,529 1,626,110
March 2014........... 74,303,702 0
April 2014........... 73,611,391 0
May 2014............. 72,910,550 0
June 2014............ 72,201,134 0
July 2014............ 71,483,096 0
August 2014.......... 70,756,391 0
September 2014....... 70,020,974 0
October 2014......... 69,276,800 0
November 2014........ 68,523,823 0
December 2014........ 67,761,998 0
January 2015......... 66,991,281 0
February 2015........ 66,211,625 0
March 2015........... 65,422,986 0
April 2015........... 64,625,320 0
May 2015............. 63,818,580 0
June 2015............ 63,002,723 0
July 2015............ 62,177,704 0
August 2015.......... 61,343,478 0
September 2015....... 60,500,000 0
October 2015......... 59,647,226 0
November 2015........ 58,785,112 0
December 2015........ 57,913,612 0
January 2016......... 57,032,683 0
February 2016........ 56,142,281 0
March 2016........... 55,242,360 0
April 2016........... 54,332,878 0
May 2016............. 53,413,789 0
June 2016............ 52,485,050 0
</TABLE>
A-18
<PAGE> 156
CLASS D TARGET PRINCIPAL BALANCES (CONTINUED)
<TABLE>
<CAPTION>
CLASS D CLASS D
MINIMUM SCHEDULED
PAYMENT DATE TARGET PRINCIPAL TARGET PRINCIPAL
OCCURRING IN BALANCE BALANCE
- ------------ ---------------- ----------------
($) ($)
<S> <C> <C>
July 2016............ 51,546,617 0
August 2016.......... 50,598,446 0
September 2016....... 49,640,492 0
October 2016......... 48,672,713 0
November 2016........ 47,695,064 0
December 2016........ 46,707,501 0
January 2017......... 45,709,982 0
February 2017........ 44,702,462 0
March 2017........... 43,684,897 0
April 2017........... 42,657,245 0
May 2017............. 41,619,462 0
June 2017............ 40,571,504 0
July 2017............ 39,513,328 0
August 2017.......... 38,444,891 0
September 2017....... 37,366,149 0
October 2017......... 36,277,060 0
November 2017........ 35,177,581 0
December 2017........ 34,067,667 0
January 2018......... 32,947,277 0
February 2018........ 31,816,367 0
March 2018........... 30,674,894 0
April 2018........... 29,522,816 0
May 2018............. 28,360,089 0
</TABLE>
<TABLE>
<CAPTION>
($) ($)
CLASS D CLASS D
MINIMUM SCHEDULED
PAYMENT DATE TARGET PRINCIPAL TARGET PRINCIPAL
OCCURRING IN BALANCE BALANCE
- ------------ ---------------- ----------------
<S> <C> <C>
June 2018............ 27,186,671 0
July 2018............ 26,002,519 0
August 2018.......... 24,807,591 0
September 2018....... 23,601,843 0
October 2018......... 22,385,234 0
November 2018........ 21,157,720 0
December 2018........ 19,919,260 0
January 2019......... 18,669,810 0
February 2019........ 17,409,329 0
March 2019........... 16,137,774 0
April 2019........... 14,855,103 0
May 2019............. 13,561,273 0
June 2019............ 12,256,242 0
July 2019............ 10,939,969 0
August 2019.......... 9,612,411 0
September 2019....... 8,273,526 0
October 2019......... 6,923,272 0
November 2019........ 5,561,607 0
December 2019........ 4,188,489 0
January 2020......... 2,803,877 0
February 2020........ 1,407,728 0
March 2020........... 0 0
</TABLE>
A-19
<PAGE> 157
APPENDIX 9
POOL FACTORS
<TABLE>
<CAPTION>
PAYMENT DATE SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
OCCURRING IN A-1 A-2 B-1 C-1 D-1
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Closing.............. 100.00% 100.00% 100.00% 100.00% 100.00%
April 1998........... 100.00% 97.42% 99.52% 100.00% 100.00%
May 1998............. 100.00% 96.44% 99.21% 100.00% 100.00%
June 1998............ 100.00% 95.22% 98.91% 100.00% 100.00%
July 1998............ 100.00% 94.50% 98.60% 100.00% 100.00%
August 1998.......... 100.00% 93.49% 98.28% 100.00% 100.00%
September 1998....... 100.00% 92.26% 97.97% 100.00% 100.00%
October 1998......... 100.00% 91.52% 97.66% 100.00% 100.00%
November 1998........ 100.00% 90.49% 97.34% 100.00% 100.00%
December 1998........ 100.00% 89.30% 97.03% 100.00% 100.00%
January 1999......... 100.00% 88.60% 96.71% 100.00% 100.00%
February 1999........ 100.00% 87.77% 96.39% 100.00% 100.00%
March 1999........... 100.00% 86.56% 96.07% 100.00% 100.00%
April 1999........... 100.00% 85.67% 95.75% 100.00% 100.00%
May 1999............. 100.00% 84.98% 95.42% 100.00% 100.00%
June 1999............ 100.00% 83.59% 95.10% 100.00% 100.00%
July 1999............ 100.00% 82.68% 94.77% 100.00% 100.00%
August 1999.......... 100.00% 81.96% 94.45% 100.00% 100.00%
September 1999....... 100.00% 80.55% 94.12% 100.00% 100.00%
October 1999......... 100.00% 79.63% 93.79% 100.00% 100.00%
November 1999........ 100.00% 78.90% 93.46% 99.99% 100.00%
December 1999........ 100.00% 77.46% 93.12% 99.97% 100.00%
January 2000......... 100.00% 76.50% 92.79% 99.95% 100.00%
February 2000........ 100.00% 75.74% 92.46% 99.91% 100.00%
March 2000........... 100.00% 74.28% 92.12% 99.88% 100.00%
April 2000........... 100.00% 73.31% 91.78% 99.83% 100.00%
May 2000............. 100.00% 72.52% 91.44% 99.78% 100.00%
June 2000............ 100.00% 71.05% 91.10% 99.72% 100.00%
July 2000............ 100.00% 70.05% 90.76% 99.65% 100.00%
August 2000.......... 100.00% 69.26% 90.42% 99.58% 100.00%
September 2000....... 100.00% 67.77% 90.07% 99.50% 100.00%
October 2000......... 100.00% 66.77% 89.72% 99.41% 100.00%
November 2000........ 100.00% 65.99% 89.28% 99.31% 100.00%
December 2000........ 100.00% 64.82% 88.93% 99.21% 99.99%
January 2001......... 100.00% 63.63% 88.58% 99.10% 99.99%
February 2001........ 100.00% 62.64% 88.23% 98.98% 99.98%
March 2001........... 100.00% 61.39% 87.87% 98.85% 99.96%
April 2001........... 100.00% 60.34% 87.52% 98.72% 99.95%
May 2001............. 100.00% 59.25% 87.16% 98.58% 99.93%
June 2001............ 100.00% 58.00% 86.71% 98.43% 99.90%
July 2001............ 100.00% 56.93% 86.35% 98.27% 99.88%
August 2001.......... 100.00% 55.85% 85.99% 98.11% 99.84%
September 2001....... 100.00% 54.56% 85.63% 97.94% 99.81%
October 2001......... 100.00% 53.50% 85.17% 97.76% 99.77%
November 2001........ 100.00% 52.41% 84.81% 97.57% 99.72%
December 2001........ 100.00% 51.10% 84.45% 97.38% 99.67%
January 2002......... 100.00% 50.05% 83.99% 97.18% 99.62%
February 2002........ 100.00% 48.95% 83.62% 96.97% 99.56%
March 2002........... 100.00% 47.61% 83.25% 96.75% 99.49%
April 2002........... 100.00% 46.54% 82.79% 96.53% 99.42%
May 2002............. 100.00% 45.42% 82.42% 96.30% 99.35%
June 2002............ 100.00% 44.13% 81.95% 96.06% 99.27%
July 2002............ 100.00% 43.02% 81.58% 95.81% 99.18%
August 2002.......... 100.00% 41.93% 81.11% 95.56% 99.09%
September 2002....... 100.00% 40.60% 80.74% 95.30% 98.99%
October 2002......... 100.00% 39.51% 80.27% 95.03% 98.88%
</TABLE>
<TABLE>
<CAPTION>
PAYMENT DATE SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
OCCURRING IN A-1 A-2 B-1 C-1 D-1
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
November 2002........ 100.00% 38.40% 79.89% 94.75% 98.77%
December 2002........ 100.00% 37.08% 79.42% 94.47% 98.66%
January 2003......... 100.00% 35.98% 78.95% 94.18% 98.53%
February 2003........ 100.00% 34.85% 78.57% 93.88% 98.40%
March 2003........... 100.00% 33.58% 78.09% 93.57% 98.27%
April 2003........... 100.00% 32.51% 77.62% 93.25% 98.13%
May 2003............. 100.00% 31.34% 77.15% 92.93% 97.98%
June 2003............ 100.00% 30.19% 76.68% 92.60% 97.82%
July 2003............ 100.00% 29.02% 76.20% 92.26% 97.66%
August 2003.......... 100.00% 27.84% 75.81% 91.92% 97.49%
September 2003....... 100.00% 26.68% 75.34% 91.56% 97.32%
October 2003......... 100.00% 25.52% 74.77% 91.20% 97.13%
November 2003........ 100.00% 24.35% 74.30% 90.83% 96.94%
December 2003........ 100.00% 23.16% 73.82% 90.46% 96.75%
January 2004......... 100.00% 21.16% 71.52% 90.07% 96.54%
February 2004........ 100.00% 20.05% 71.06% 89.68% 96.33%
March 2004........... 100.00% 18.90% 70.60% 89.28% 96.11%
April 2004........... 100.00% 17.84% 70.06% 88.87% 95.88%
May 2004............. 100.00% 16.73% 69.59% 88.46% 95.65%
June 2004............ 100.00% 15.66% 69.05% 88.03% 95.41%
July 2004............ 100.00% 14.55% 68.59% 87.60% 95.16%
August 2004.......... 100.00% 13.47% 68.05% 87.17% 94.90%
September 2004....... 100.00% 12.37% 67.59% 86.72% 94.64%
October 2004......... 100.00% 11.29% 67.05% 86.27% 94.36%
November 2004........ 100.00% 10.21% 66.51% 85.80% 94.08%
December 2004........ 100.00% 9.12% 65.97% 85.34% 93.80%
January 2005......... 100.00% 8.02% 65.43% 84.86% 93.50%
February 2005........ 100.00% 6.90% 64.96% 84.37% 93.19%
March 2005........... 100.00% 5.75% 64.35% 83.88% 92.88%
April 2005........... 100.00% 4.65% 63.81% 83.38% 92.56%
May 2005............. 100.00% 3.52% 63.27% 82.87% 92.23%
June 2005............ 100.00% 2.41% 62.73% 82.36% 91.89%
July 2005............ 100.00% 1.28% 62.19% 81.83% 91.55%
August 2005.......... 100.00% 0.18% 61.58% 81.30% 91.19%
September 2005....... 99.21% 0.00% 61.05% 80.76% 90.83%
October 2005......... 98.25% 0.00% 60.44% 80.22% 90.46%
November 2005........ 97.31% 0.00% 59.83% 79.66% 90.08%
December 2005........ 96.35% 0.00% 59.30% 79.10% 89.69%
January 2006......... 95.43% 0.00% 58.69% 78.53% 89.29%
February 2006........ 94.50% 0.00% 58.09% 77.95% 88.88%
March 2006........... 93.52% 0.00% 57.49% 77.36% 88.46%
April 2006........... 92.61% 0.00% 56.89% 76.77% 88.04%
May 2006............. 91.68% 0.00% 56.29% 76.17% 87.61%
June 2006............ 90.79% 0.00% 55.62% 75.56% 87.16%
July 2006............ 89.87% 0.00% 55.02% 74.94% 86.71%
August 2006.......... 88.98% 0.00% 54.36% 74.32% 86.25%
September 2006....... 88.07% 0.00% 53.77% 73.68% 85.78%
October 2006......... 87.15% 0.00% 53.11% 73.04% 85.30%
November 2006........ 86.25% 0.00% 52.46% 72.39% 84.81%
December 2006........ 85.33% 0.00% 51.81% 71.74% 84.31%
January 2007......... 84.43% 0.00% 51.16% 71.07% 83.80%
February 2007........ 83.53% 0.00% 50.51% 70.40% 83.29%
March 2007........... 82.58% 0.00% 49.86% 69.72% 82.76%
April 2007........... 81.69% 0.00% 49.16% 69.03% 82.22%
May 2007............. 80.76% 0.00% 48.52% 68.34% 81.68%
June 2007............ 79.86% 0.00% 47.82% 67.64% 81.12%
</TABLE>
A-20
<PAGE> 158
POOL FACTORS (CONTINUED)
<TABLE>
<CAPTION>
PAYMENT DATE SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
OCCURRING IN A-1 A-2 B-1 C-1 D-1
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
July 2007............ 78.94% 0.00% 47.12% 66.92% 80.56%
August 2007.......... 78.03% 0.00% 46.43% 66.20% 79.98%
September 2007....... 77.12% 0.00% 45.74% 65.48% 79.40%
October 2007......... 76.19% 0.00% 45.06% 64.74% 78.80%
November 2007........ 75.27% 0.00% 44.38% 64.00% 78.20%
December 2007........ 74.35% 0.00% 43.64% 63.25% 77.58%
January 2008......... 73.41% 0.00% 42.97% 62.49% 76.96%
February 2008........ 72.48% 0.00% 42.24% 61.72% 76.32%
March 2008........... 71.51% 0.00% 41.52% 60.95% 75.68%
April 2008........... 70.57% 0.00% 40.80% 60.17% 75.02%
May 2008............. 69.70% 0.00% 40.09% 59.38% 74.36%
June 2008............ 68.83% 0.00% 39.38% 58.58% 73.68%
July 2008............ 67.96% 0.00% 38.62% 57.77% 73.00%
August 2008.......... 67.09% 0.00% 37.92% 56.96% 72.30%
September 2008....... 66.23% 0.00% 37.18% 56.14% 71.59%
October 2008......... 65.37% 0.00% 36.44% 55.31% 70.88%
November 2008........ 64.52% 0.00% 35.70% 54.47% 70.15%
December 2008........ 63.68% 0.00% 34.92% 53.63% 69.41%
January 2009......... 62.84% 0.00% 34.20% 52.77% 68.66%
February 2009........ 62.01% 0.00% 33.43% 51.91% 67.90%
March 2009........... 61.12% 0.00% 32.72% 51.04% 67.13%
April 2009........... 60.33% 0.00% 31.97% 50.17% 66.35%
May 2009............. 59.52% 0.00% 31.22% 49.28% 65.56%
June 2009............ 58.72% 0.00% 30.43% 48.39% 64.76%
July 2009............ 57.90% 0.00% 29.70% 47.49% 63.95%
August 2009.......... 57.10% 0.00% 28.93% 46.58% 63.12%
September 2009....... 56.30% 0.00% 28.17% 45.66% 62.29%
October 2009......... 55.49% 0.00% 27.42% 44.74% 61.44%
November 2009........ 54.69% 0.00% 26.67% 43.81% 60.59%
December 2009........ 53.88% 0.00% 25.89% 42.87% 59.72%
January 2010......... 53.06% 0.00% 25.16% 41.92% 58.84%
February 2010........ 52.25% 0.00% 24.40% 40.96% 57.95%
March 2010........... 51.41% 0.00% 23.65% 40.00% 57.05%
April 2010........... 50.60% 0.00% 22.86% 39.03% 56.14%
May 2010............. 49.76% 0.00% 22.13% 38.05% 55.22%
June 2010............ 48.94% 0.00% 21.37% 37.06% 54.28%
July 2010............ 48.11% 0.00% 20.61% 36.06% 53.34%
August 2010.......... 47.27% 0.00% 19.87% 35.06% 52.38%
September 2010....... 46.44% 0.00% 19.14% 34.05% 51.41%
October 2010......... 45.59% 0.00% 18.38% 33.03% 50.43%
November 2010........ 44.75% 0.00% 17.64% 32.00% 49.44%
December 2010........ 43.92% 0.00% 16.92% 30.97% 48.44%
January 2011......... 43.09% 0.00% 16.22% 29.92% 47.43%
February 2011........ 42.29% 0.00% 15.49% 28.87% 46.40%
March 2011........... 41.46% 0.00% 14.81% 27.81% 45.36%
April 2011........... 40.72% 0.00% 14.08% 26.75% 44.31%
</TABLE>
<TABLE>
<CAPTION>
PAYMENT DATE SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
OCCURRING IN A-1 A-2 B-1 C-1 D-1
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
May 2011............. 39.99% 0.00% 13.39% 25.67% 43.25%
June 2011............ 39.25% 0.00% 12.71% 24.59% 42.18%
July 2011............ 38.52% 0.00% 12.02% 23.50% 41.10%
August 2011.......... 37.79% 0.00% 11.34% 22.40% 40.00%
September 2011....... 37.06% 0.00% 10.67% 21.29% 38.90%
October 2011......... 36.32% 0.00% 9.99% 20.18% 37.78%
November 2011........ 35.58% 0.00% 9.32% 19.05% 36.64%
December 2011........ 34.83% 0.00% 8.66% 17.92% 35.50%
January 2012......... 34.09% 0.00% 8.03% 16.78% 34.35%
February 2012........ 33.36% 0.00% 7.37% 15.64% 33.18%
March 2012........... 32.62% 0.00% 6.74% 14.48% 32.00%
April 2012........... 31.88% 0.00% 6.12% 13.32% 30.81%
May 2012............. 31.16% 0.00% 5.49% 12.15% 29.61%
June 2012............ 30.41% 0.00% 4.92% 10.97% 28.39%
July 2012............ 29.63% 0.00% 4.33% 9.78% 27.16%
August 2012.......... 28.83% 0.00% 3.73% 8.59% 26.00%
September 2012....... 27.98% 0.00% 3.18% 7.38% 24.91%
October 2012......... 27.15% 0.00% 2.62% 6.17% 23.71%
November 2012........ 26.34% 0.00% 2.06% 4.95% 22.44%
December 2012........ 25.54% 0.00% 1.54% 3.73% 21.07%
January 2013......... 24.74% 0.00% 1.02% 2.49% 19.66%
February 2013........ 23.94% 0.00% 0.51% 1.25% 18.22%
March 2013........... 23.12% 0.00% 0.00% 0.00% 16.90%
April 2013........... 21.92% 0.00% 0.00% 0.00% 15.56%
May 2013............. 20.91% 0.00% 0.00% 0.00% 14.21%
June 2013............ 19.91% 0.00% 0.00% 0.00% 12.84%
July 2013............ 18.91% 0.00% 0.00% 0.00% 11.47%
August 2013.......... 17.91% 0.00% 0.00% 0.00% 10.08%
September 2013....... 16.94% 0.00% 0.00% 0.00% 8.68%
October 2013......... 16.01% 0.00% 0.00% 0.00% 7.26%
November 2013........ 15.07% 0.00% 0.00% 0.00% 5.84%
December 2013........ 14.14% 0.00% 0.00% 0.00% 4.40%
January 2014......... 13.22% 0.00% 0.00% 0.00% 2.94%
February 2014........ 12.31% 0.00% 0.00% 0.00% 1.48%
March 2014........... 11.38% 0.00% 0.00% 0.00% 0.00%
April 2014........... 10.14% 0.00% 0.00% 0.00% 0.00%
May 2014............. 8.89% 0.00% 0.00% 0.00% 0.00%
June 2014............ 7.63% 0.00% 0.00% 0.00% 0.00%
July 2014............ 6.36% 0.00% 0.00% 0.00% 0.00%
August 2014.......... 5.10% 0.00% 0.00% 0.00% 0.00%
September 2014....... 3.82% 0.00% 0.00% 0.00% 0.00%
October 2014......... 2.57% 0.00% 0.00% 0.00% 0.00%
November 2014........ 1.31% 0.00% 0.00% 0.00% 0.00%
December 2014........ 0.04% 0.00% 0.00% 0.00% 0.00%
January 2015......... 0.00% 0.00% 0.00% 0.00% 0.00%
</TABLE>
A-21
<PAGE> 159
APPENDIX 10
EXTENDED POOL FACTORS
<TABLE>
<CAPTION>
PAYMENT DATE SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
OCCURRING IN A-1 A-2 B-1 C-1 D-1
- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Closing.............. 100.00% 100.00% 100.00% 100.00% 100.00%
April 1998........... 100.00% 99.08% 100.00% 100.00% 100.00%
May 1998............. 100.00% 98.41% 100.00% 100.00% 100.00%
June 1998............ 100.00% 97.73% 100.00% 100.00% 100.00%
July 1998............ 100.00% 97.06% 100.00% 100.00% 100.00%
August 1998.......... 100.00% 96.38% 100.00% 100.00% 100.00%
September 1998....... 100.00% 95.70% 100.00% 100.00% 100.00%
October 1998......... 100.00% 94.98% 100.00% 100.00% 100.00%
November 1998........ 100.00% 94.30% 100.00% 100.00% 100.00%
December 1998........ 100.00% 93.61% 100.00% 100.00% 100.00%
January 1999......... 100.00% 92.92% 100.00% 100.00% 100.00%
February 1999........ 100.00% 92.22% 100.00% 100.00% 100.00%
March 1999........... 100.00% 91.49% 100.00% 100.00% 100.00%
April 1999........... 100.00% 90.79% 99.52% 100.00% 100.00%
May 1999............. 100.00% 90.09% 99.21% 100.00% 100.00%
June 1999............ 100.00% 89.35% 98.91% 100.00% 100.00%
July 1999............ 100.00% 88.64% 98.60% 100.00% 100.00%
August 1999.......... 100.00% 87.90% 98.28% 100.00% 100.00%
September 1999....... 100.00% 87.18% 97.97% 100.00% 100.00%
October 1999......... 100.00% 86.44% 97.66% 100.00% 100.00%
November 1999........ 100.00% 85.72% 97.34% 100.00% 100.00%
December 1999........ 100.00% 84.96% 97.03% 100.00% 100.00%
January 2000......... 100.00% 84.20% 96.71% 100.00% 100.00%
February 2000........ 100.00% 83.45% 96.39% 100.00% 100.00%
March 2000........... 100.00% 82.68% 96.07% 100.00% 100.00%
April 2000........... 100.00% 81.92% 95.75% 100.00% 100.00%
May 2000............. 100.00% 81.15% 95.42% 100.00% 100.00%
June 2000............ 100.00% 80.38% 95.10% 100.00% 100.00%
July 2000............ 100.00% 79.61% 94.77% 100.00% 100.00%
August 2000.......... 100.00% 78.80% 94.45% 100.00% 100.00%
September 2000....... 100.00% 78.02% 94.12% 100.00% 100.00%
October 2000......... 100.00% 77.21% 93.79% 100.00% 100.00%
November 2000........ 100.00% 76.43% 93.46% 100.00% 100.00%
December 2000........ 100.00% 75.61% 93.12% 100.00% 100.00%
January 2001......... 100.00% 74.79% 92.79% 100.00% 100.00%
February 2001........ 100.00% 73.97% 92.46% 100.00% 100.00%
March 2001........... 100.00% 73.15% 92.12% 100.00% 100.00%
April 2001........... 100.00% 72.32% 91.78% 100.00% 100.00%
May 2001............. 100.00% 71.49% 91.44% 100.00% 100.00%
June 2001............ 100.00% 70.66% 91.10% 100.00% 100.00%
July 2001............ 100.00% 69.80% 90.76% 100.00% 100.00%
August 2001.......... 100.00% 68.96% 90.42% 100.00% 100.00%
September 2001....... 100.00% 68.09% 90.07% 100.00% 100.00%
October 2001......... 100.00% 67.22% 89.72% 100.00% 100.00%
November 2001........ 100.00% 66.35% 89.28% 99.99% 100.00%
December 2001........ 100.00% 65.47% 88.93% 99.97% 100.00%
January 2002......... 100.00% 64.60% 88.58% 99.95% 100.00%
February 2002........ 100.00% 63.72% 88.23% 99.91% 100.00%
March 2002........... 100.00% 62.84% 87.87% 99.88% 100.00%
April 2002........... 100.00% 61.92% 87.52% 99.83% 100.00%
May 2002............. 100.00% 61.04% 87.16% 99.78% 100.00%
June 2002............ 100.00% 60.12% 86.71% 99.72% 100.00%
July 2002............ 100.00% 59.20% 86.35% 99.65% 100.00%
August 2002.......... 100.00% 58.28% 85.99% 99.58% 100.00%
September 2002....... 100.00% 57.36% 85.63% 99.50% 100.00%
October 2002......... 100.00% 56.44% 85.17% 99.41% 100.00%
</TABLE>
<TABLE>
<CAPTION>
PAYMENT DATE SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
OCCURRING IN A-1 A-2 B-1 C-1 D-1
- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
November 2002........ 100.00% 55.48% 84.81% 99.31% 100.00%
December 2002........ 100.00% 54.55% 84.45% 99.21% 99.99%
January 2003......... 100.00% 53.60% 83.99% 99.10% 99.99%
February 2003........ 100.00% 52.64% 83.62% 98.98% 99.98%
March 2003........... 100.00% 51.68% 83.25% 98.85% 99.96%
April 2003........... 100.00% 50.71% 82.79% 98.72% 99.95%
May 2003............. 100.00% 49.75% 82.42% 98.58% 99.93%
June 2003............ 100.00% 48.78% 81.95% 98.43% 99.90%
July 2003............ 100.00% 47.79% 81.58% 98.27% 99.88%
August 2003.......... 100.00% 46.79% 81.11% 98.11% 99.84%
September 2003....... 100.00% 45.79% 80.74% 97.94% 99.81%
October 2003......... 100.00% 44.79% 80.27% 97.76% 99.77%
November 2003........ 100.00% 43.79% 79.89% 97.57% 99.72%
December 2003........ 100.00% 42.79% 79.42% 97.38% 99.67%
January 2004......... 100.00% 37.79% 78.95% 97.18% 99.62%
February 2004........ 100.00% 36.80% 78.57% 96.97% 99.56%
March 2004........... 100.00% 35.83% 78.09% 96.75% 99.49%
April 2004........... 100.00% 34.84% 77.62% 96.53% 99.42%
May 2004............. 100.00% 33.82% 77.15% 96.30% 99.35%
June 2004............ 100.00% 32.83% 76.68% 96.06% 99.27%
July 2004............ 100.00% 31.81% 76.20% 95.81% 99.18%
August 2004.......... 100.00% 30.81% 75.81% 95.56% 99.09%
September 2004....... 100.00% 29.79% 75.34% 95.30% 98.99%
October 2004......... 100.00% 28.74% 74.77% 95.03% 98.88%
November 2004........ 100.00% 27.71% 74.30% 94.75% 98.77%
December 2004........ 100.00% 26.69% 73.82% 94.47% 98.66%
January 2005......... 100.00% 25.64% 71.52% 94.18% 98.53%
February 2005........ 100.00% 24.59% 71.06% 93.88% 98.40%
March 2005........... 100.00% 23.54% 70.60% 93.57% 98.27%
April 2005........... 100.00% 22.49% 70.06% 93.25% 98.13%
May 2005............. 100.00% 21.41% 69.59% 92.93% 97.98%
June 2005............ 100.00% 20.36% 69.05% 92.60% 97.82%
July 2005............ 100.00% 19.28% 68.59% 92.26% 97.66%
August 2005.......... 100.00% 18.21% 68.05% 91.92% 97.49%
September 2005....... 100.00% 17.13% 67.59% 91.56% 97.32%
October 2005......... 100.00% 16.03% 67.05% 91.20% 97.13%
November 2005........ 100.00% 14.93% 66.51% 90.83% 96.94%
December 2005........ 100.00% 13.86% 65.97% 90.46% 96.75%
January 2006......... 100.00% 12.74% 65.43% 90.07% 96.54%
February 2006........ 100.00% 11.64% 64.96% 89.68% 96.33%
March 2006........... 100.00% 10.54% 64.35% 89.28% 96.11%
April 2006........... 100.00% 9.42% 63.81% 88.87% 95.88%
May 2006............. 100.00% 8.30% 63.27% 88.46% 95.65%
June 2006............ 100.00% 7.18% 62.73% 88.03% 95.41%
July 2006............ 100.00% 6.06% 62.19% 87.60% 95.16%
August 2006.......... 100.00% 4.92% 61.58% 87.17% 94.90%
September 2006....... 100.00% 3.78% 61.05% 86.72% 94.64%
October 2006......... 100.00% 2.65% 60.44% 86.27% 94.36%
November 2006........ 100.00% 1.51% 59.83% 85.80% 94.08%
December 2006........ 100.00% 0.35% 59.30% 85.34% 93.80%
January 2007......... 99.33% 0.00% 58.69% 84.86% 93.50%
February 2007........ 98.35% 0.00% 58.09% 84.37% 93.19%
March 2007........... 97.37% 0.00% 57.49% 83.88% 92.88%
April 2007........... 96.37% 0.00% 56.89% 83.38% 92.56%
May 2007............. 95.38% 0.00% 56.29% 82.87% 92.23%
June 2007............ 94.40% 0.00% 55.62% 82.36% 91.89%
</TABLE>
A-22
<PAGE> 160
EXTENDED POOL FACTORS (CONTINUED)
<TABLE>
<CAPTION>
PAYMENT DATE SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
OCCURRING IN A-1 A-2 B-1 C-1 D-1
- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
July 2007............ 93.39% 0.00% 55.02% 81.83% 91.55%
August 2007.......... 92.40% 0.00% 54.36% 81.30% 91.19%
September 2007....... 91.39% 0.00% 53.77% 80.76% 90.83%
October 2007......... 90.40% 0.00% 53.11% 80.22% 90.46%
November 2007........ 89.40% 0.00% 52.46% 79.66% 90.08%
December 2007........ 88.38% 0.00% 51.81% 79.10% 89.69%
January 2008......... 87.38% 0.00% 51.16% 78.53% 89.29%
February 2008........ 86.37% 0.00% 50.51% 77.95% 88.88%
March 2008........... 85.36% 0.00% 49.86% 77.36% 88.46%
April 2008........... 84.33% 0.00% 49.16% 76.77% 88.04%
May 2008............. 83.32% 0.00% 48.52% 76.17% 87.61%
June 2008............ 82.30% 0.00% 47.82% 75.56% 87.16%
July 2008............ 81.28% 0.00% 47.12% 74.94% 86.71%
August 2008.......... 80.25% 0.00% 46.43% 74.32% 86.25%
September 2008....... 79.23% 0.00% 45.74% 73.68% 85.78%
October 2008......... 78.21% 0.00% 45.06% 73.04% 85.30%
November 2008........ 77.17% 0.00% 44.38% 72.39% 84.81%
December 2008........ 76.15% 0.00% 43.64% 71.74% 84.31%
January 2009......... 75.11% 0.00% 42.97% 71.07% 83.80%
February 2009........ 74.08% 0.00% 42.24% 70.40% 83.29%
March 2009........... 73.06% 0.00% 41.52% 69.72% 82.76%
April 2009........... 72.03% 0.00% 40.80% 69.03% 82.22%
May 2009............. 71.00% 0.00% 40.09% 68.34% 81.68%
June 2009............ 69.96% 0.00% 39.38% 67.64% 81.12%
July 2009............ 68.92% 0.00% 38.62% 66.92% 80.56%
August 2009.......... 67.90% 0.00% 37.92% 66.20% 79.98%
September 2009....... 66.86% 0.00% 37.18% 65.48% 79.40%
October 2009......... 65.82% 0.00% 36.44% 64.74% 78.80%
November 2009........ 64.79% 0.00% 35.70% 64.00% 78.20%
December 2009........ 63.76% 0.00% 34.92% 63.25% 77.58%
January 2010......... 62.72% 0.00% 34.20% 62.49% 76.96%
February 2010........ 61.70% 0.00% 33.43% 61.72% 76.32%
March 2010........... 60.66% 0.00% 32.72% 60.95% 75.68%
April 2010........... 59.63% 0.00% 31.97% 60.17% 75.02%
May 2010............. 58.60% 0.00% 31.22% 59.38% 74.36%
June 2010............ 57.57% 0.00% 30.43% 58.58% 73.68%
July 2010............ 56.55% 0.00% 29.70% 57.77% 73.00%
August 2010.......... 55.51% 0.00% 28.93% 56.96% 72.30%
September 2010....... 54.49% 0.00% 28.17% 56.14% 71.59%
October 2010......... 53.47% 0.00% 27.42% 55.31% 70.88%
November 2010........ 52.44% 0.00% 26.67% 54.47% 70.15%
December 2010........ 51.47% 0.00% 25.89% 53.63% 69.41%
January 2011......... 50.50% 0.00% 25.16% 52.77% 68.66%
February 2011........ 49.54% 0.00% 24.40% 51.91% 67.90%
March 2011........... 48.59% 0.00% 23.65% 51.04% 67.13%
April 2011........... 47.63% 0.00% 22.86% 50.17% 66.35%
May 2011............. 46.67% 0.00% 22.13% 49.28% 65.56%
June 2011............ 45.73% 0.00% 21.37% 48.39% 64.76%
July 2011............ 44.78% 0.00% 20.61% 47.49% 63.95%
August 2011.......... 43.84% 0.00% 19.87% 46.58% 63.12%
September 2011....... 42.89% 0.00% 19.14% 45.66% 62.29%
October 2011......... 41.95% 0.00% 18.38% 44.74% 61.44%
November 2011........ 41.01% 0.00% 17.64% 43.81% 60.59%
December 2011........ 40.08% 0.00% 16.92% 42.87% 59.72%
January 2012......... 39.16% 0.00% 16.22% 41.92% 58.84%
February 2012........ 38.23% 0.00% 15.49% 40.96% 57.95%
March 2012........... 37.31% 0.00% 14.81% 40.00% 57.05%
April 2012........... 36.39% 0.00% 14.08% 39.03% 56.14%
</TABLE>
<TABLE>
<CAPTION>
PAYMENT DATE SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
OCCURRING IN A-1 A-2 B-1 C-1 D-1
- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
May 2012............. 35.48% 0.00% 13.39% 38.05% 55.22%
June 2012............ 34.58% 0.00% 12.71% 37.06% 54.28%
July 2012............ 33.69% 0.00% 12.02% 36.06% 53.34%
August 2012.......... 32.81% 0.00% 11.34% 35.06% 52.38%
September 2012....... 31.95% 0.00% 10.67% 34.05% 51.41%
October 2012......... 31.13% 0.00% 9.99% 33.03% 50.43%
November 2012........ 30.31% 0.00% 9.32% 32.00% 49.44%
December 2012........ 29.50% 0.00% 8.66% 30.97% 48.44%
January 2013......... 28.70% 0.00% 8.03% 29.92% 47.43%
February 2013........ 27.90% 0.00% 7.37% 28.87% 46.40%
March 2013........... 27.11% 0.00% 6.74% 27.81% 45.36%
April 2013........... 26.31% 0.00% 6.12% 26.75% 44.31%
May 2013............. 25.56% 0.00% 5.49% 25.67% 43.25%
June 2013............ 24.83% 0.00% 4.92% 24.59% 42.18%
July 2013............ 24.11% 0.00% 4.33% 23.50% 41.10%
August 2013.......... 23.40% 0.00% 3.73% 22.40% 40.00%
September 2013....... 22.68% 0.00% 3.18% 21.29% 38.90%
October 2013......... 21.98% 0.00% 2.62% 20.18% 37.78%
November 2013........ 21.31% 0.00% 2.06% 19.05% 36.64%
December 2013........ 20.65% 0.00% 1.54% 17.92% 35.50%
January 2014......... 20.03% 0.00% 1.02% 16.78% 34.35%
February 2014........ 19.43% 0.00% 0.51% 15.64% 33.18%
March 2014........... 18.85% 0.00% 0.00% 14.48% 32.00%
April 2014........... 18.29% 0.00% 0.00% 13.32% 30.81%
May 2014............. 17.75% 0.00% 0.00% 12.15% 29.61%
June 2014............ 17.22% 0.00% 0.00% 10.97% 28.39%
July 2014............ 16.68% 0.00% 0.00% 9.78% 27.16%
August 2014.......... 16.15% 0.00% 0.00% 8.59% 26.00%
September 2014....... 15.63% 0.00% 0.00% 7.38% 24.91%
October 2014......... 15.12% 0.00% 0.00% 6.17% 23.71%
November 2014........ 14.60% 0.00% 0.00% 4.95% 22.44%
December 2014........ 14.10% 0.00% 0.00% 3.73% 21.07%
January 2015......... 13.59% 0.00% 0.00% 2.49% 19.66%
February 2015........ 13.10% 0.00% 0.00% 1.25% 18.22%
March 2015........... 12.61% 0.00% 0.00% 0.00% 16.90%
April 2015........... 12.15% 0.00% 0.00% 0.00% 15.56%
May 2015............. 11.70% 0.00% 0.00% 0.00% 14.21%
June 2015............ 11.26% 0.00% 0.00% 0.00% 12.84%
July 2015............ 10.82% 0.00% 0.00% 0.00% 11.47%
August 2015.......... 10.39% 0.00% 0.00% 0.00% 10.08%
September 2015....... 9.97% 0.00% 0.00% 0.00% 8.68%
October 2015......... 9.56% 0.00% 0.00% 0.00% 7.26%
November 2015........ 9.17% 0.00% 0.00% 0.00% 5.84%
December 2015........ 8.79% 0.00% 0.00% 0.00% 4.40%
January 2016......... 8.42% 0.00% 0.00% 0.00% 2.94%
February 2016........ 8.05% 0.00% 0.00% 0.00% 1.48%
March 2016........... 7.69% 0.00% 0.00% 0.00% 0.00%
April 2016........... 7.34% 0.00% 0.00% 0.00% 0.00%
May 2016............. 6.99% 0.00% 0.00% 0.00% 0.00%
June 2016............ 6.64% 0.00% 0.00% 0.00% 0.00%
July 2016............ 6.31% 0.00% 0.00% 0.00% 0.00%
August 2016.......... 5.98% 0.00% 0.00% 0.00% 0.00%
September 2016....... 5.66% 0.00% 0.00% 0.00% 0.00%
October 2016......... 5.34% 0.00% 0.00% 0.00% 0.00%
November 2016........ 5.03% 0.00% 0.00% 0.00% 0.00%
December 2016........ 4.72% 0.00% 0.00% 0.00% 0.00%
January 2017......... 4.43% 0.00% 0.00% 0.00% 0.00%
February 2017........ 4.15% 0.00% 0.00% 0.00% 0.00%
</TABLE>
A-23
<PAGE> 161
EXTENDED POOL FACTORS (CONTINUED)
<TABLE>
<CAPTION>
PAYMENT DATE SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
OCCURRING IN A-1 A-2 B-1 C-1 D-1
- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
March 2017........... 3.90% 0.00% 0.00% 0.00% 0.00%
April 2017........... 3.65% 0.00% 0.00% 0.00% 0.00%
May 2017............. 3.42% 0.00% 0.00% 0.00% 0.00%
June 2017............ 3.19% 0.00% 0.00% 0.00% 0.00%
July 2017............ 2.98% 0.00% 0.00% 0.00% 0.00%
August 2017.......... 2.77% 0.00% 0.00% 0.00% 0.00%
September 2017....... 2.56% 0.00% 0.00% 0.00% 0.00%
October 2017......... 2.37% 0.00% 0.00% 0.00% 0.00%
November 2017........ 2.18% 0.00% 0.00% 0.00% 0.00%
December 2017........ 1.99% 0.00% 0.00% 0.00% 0.00%
January 2018......... 1.81% 0.00% 0.00% 0.00% 0.00%
February 2018........ 1.64% 0.00% 0.00% 0.00% 0.00%
March 2018........... 1.48% 0.00% 0.00% 0.00% 0.00%
April 2018........... 1.34% 0.00% 0.00% 0.00% 0.00%
May 2018............. 1.22% 0.00% 0.00% 0.00% 0.00%
June 2018............ 1.11% 0.00% 0.00% 0.00% 0.00%
July 2018............ 1.01% 0.00% 0.00% 0.00% 0.00%
August 2018.......... 0.92% 0.00% 0.00% 0.00% 0.00%
September 2018....... 0.82% 0.00% 0.00% 0.00% 0.00%
</TABLE>
<TABLE>
<CAPTION>
PAYMENT DATE SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
OCCURRING IN A-1 A-2 B-1 C-1 D-1
- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
October 2018......... 0.74% 0.00% 0.00% 0.00% 0.00%
November 2018........ 0.65% 0.00% 0.00% 0.00% 0.00%
December 2018........ 0.58% 0.00% 0.00% 0.00% 0.00%
January 2019......... 0.51% 0.00% 0.00% 0.00% 0.00%
February 2019........ 0.44% 0.00% 0.00% 0.00% 0.00%
March 2019........... 0.38% 0.00% 0.00% 0.00% 0.00%
April 2019........... 0.33% 0.00% 0.00% 0.00% 0.00%
May 2019............. 0.28% 0.00% 0.00% 0.00% 0.00%
June 2019............ 0.24% 0.00% 0.00% 0.00% 0.00%
July 2019............ 0.20% 0.00% 0.00% 0.00% 0.00%
August 2019.......... 0.16% 0.00% 0.00% 0.00% 0.00%
September 2019....... 0.12% 0.00% 0.00% 0.00% 0.00%
October 2019......... 0.10% 0.00% 0.00% 0.00% 0.00%
November 2019........ 0.07% 0.00% 0.00% 0.00% 0.00%
December 2019........ 0.05% 0.00% 0.00% 0.00% 0.00%
January 2020......... 0.03% 0.00% 0.00% 0.00% 0.00%
February 2020........ 0.01% 0.00% 0.00% 0.00% 0.00%
March 2020........... 0.00% 0.00% 0.00% 0.00% 0.00%
</TABLE>
A-24
<PAGE> 162
MORGAN STANLEY AIRCRAFT FINANCE
c/o Wilmington Trust Company
1100 North Market Street
Rodney Square North
Wilmington, Delaware 19890
<TABLE>
<S> <C>
TRUSTEE, SECURITY TRUSTEE, PAYING AGENT
CASH MANAGER AND REFERENCE AGENT AND REGISTRAR
BANKERS TRUST COMPANY BANKERS TRUST COMPANY
Four Albany Street Four Albany Street
Mail Stop 5091 Mail Stop 5091
New York, New York 10006 New York, New York 10006
USA USA
ADMINISTRATIVE AGENT SERVICER
CABOT AIRCRAFT SERVICES LIMITED INTERNATIONAL LEASE FINANCE CORPORATION
Europa House 1999 Avenue of the Stars
Harcourt Street Los Angeles, California 90067
Dublin 2 USA
Ireland
FINANCIAL ADVISOR LUXEMBOURG PAYING AGENT
AND CO-REGISTRAR
MORGAN STANLEY & CO. INCORPORATED
1585 Broadway BANQUE INTERNATIONALE A LUXEMBOURG S.A.
New York, New York 10036 69, route d'Esch
USA L-1470 Luxembourg
</TABLE>
LEGAL ADVISORS
<TABLE>
<S> <C>
To MSAF Group as to To MSAF Group as
United States law special Delaware counsel
DAVIS POLK & WARDWELL RICHARDS, LAYTON & FINGER, P.A.
1 Frederick's Place One Rodney Square
London EC2R 8AB P.O. Box 551
England Wilmington, Delaware 19899
USA
</TABLE>
LISTING AGENT
BANQUE INTERNATIONALE A LUXEMBOURG S.A.
69, route d'Esch
L-1470 Luxembourg
<PAGE> 163
PROSPECTUS ALTERNATE
$1,050,000,000
Morgan Stanley Aircraft Finance
NOTES
Interest on the Notes is payable monthly in arrears on the 15th day of each
month.
The Subclass A-1 Notes bear interest at the London interbank offered rate for
one month U.S. dollar deposits ("LIBOR") + 0.21%, have an expected final payment
date of March 15, 2000 and a final maturity date of March 15, 2023.
The Subclass A-2 Notes bear interest at a rate of LIBOR + 0.35%, have an
expected final payment date of September 15, 2005 and a final maturity date of
March 15, 2023.
The Subclass B-1 Notes bear interest at a rate of LIBOR + 0.65%, have an
expected final payment date of March 15, 2013 and a final maturity date of March
15, 2023.
The Subclass C-1 Notes bear interest at a rate of 6.90%, have an expected
final payment date of March 15, 2013 and a final maturity date of March 15,
2023.
The Subclass D-1 Notes bear interest at a rate of 8.70%, have an expected
final payment date of March 15, 2014 and a final maturity date of March 15,
2023.
The only source of payment for the Notes and other obligations of MSAF Group
will be the payments made by the Lessees under the Leases, proceeds from
dispositions, if any, of the assets of MSAF Group, net payments, if any, under
the Swap Agreements, drawings under available credit or liquidity enhancement
facilities and net cash proceeds received from the sale of Refinancing Notes.
Payments on the Notes will be subordinated to certain other obligations of MSAF
Group as further described herein.
MSAF Group may from time to time directly or indirectly acquire additional
aircraft and related leases, subject to certain conditions. Such acquisitions
will only be funded through external financing, principally Additional Notes,
and not through Available Collections. See "Risk Factors -- Risks Relating to
Additional Aircraft".
------------------------
ALL OF THE BENEFICIAL INTEREST IN MSAF IS INDIRECTLY OWNED BY MORGAN STANLEY
BUT THE NOTES ARE NOT OBLIGATIONS OF, OR GUARANTEED BY, MORGAN STANLEY OR ANY
PERSON OTHER THAN THE MSAF GROUP, THE NOTES ARE NOT OBLIGATIONS OF, OR
GUARANTEED BY, BANKERS TRUST COMPANY, AS TRUSTEE, SECURITY TRUSTEE OR CASH
MANAGER, OR INTERNATIONAL LEASE FINANCE CORPORATION, AS SERVICER OR ANY OF THEIR
AFFILIATES.
See "Risk Factors" beginning on page 20 hereof for a discussion of certain
factors that should be considered by prospective investors.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
This Prospectus is to be used by Morgan Stanley & Co. Incorporated in
connection with offers and sales of the Notes in market-making transactions at
negotiated prices related to prevailing market prices at the time of sale.
Morgan Stanley & Co. Incorporated may act as principal or agent in such
transactions.
, 1998
<PAGE> 164
ALTERNATE
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary......................................... 1
Summary Description of the New Notes............ 10
Risk Factors.................................... 20
Consequences of Failure to Exchange........... 20
Exchange Offer Procedures..................... 21
Risks Relating to MSAF Group and
Certain Third Parties....................... 21
Risks Relating to the Aircraft................ 23
Year 2000 Risk................................ 25
Risks Relating to the Leases.................. 28
Risks Relating to the Lessees................. 30
Lease Termination and Aircraft Repossession... 32
Risks Relating to Payments on the Notes....... 33
Risks Relating to the Capital Markets......... 33
Certain Bankruptcy Considerations............. 34
Risks Relating to Tax......................... 34
The Exchange Offer.............................. 35
Terms of the Exchange Offer; Period for
Tendering Old Notes......................... 35
Procedures for Tendering Old Notes............ 35
Acceptance of Old Notes for Exchange; Delivery
of New Notes................................ 37
Interest on the New Notes..................... 37
Book-Entry Transfer........................... 37
Guaranteed Delivery Procedures................ 37
Withdrawal Rights............................. 38
Certain Conditions to the Exchange Offer...... 38
Exchange Agent................................ 39
Fees and Expenses............................. 39
Transfer Taxes................................ 39
Consequences of Failure to Exchange........... 39
The Parties..................................... 41
MSAF Group.................................... 41
Servicer...................................... 41
Administrative Agent.......................... 43
Cash Manager, Trustee, Security Trustee and
Reference Agent............................. 43
Financial Advisor............................. 43
The Initial Aircraft and Leases................. 44
MSAF's Ownership of the Aircraft.............. 44
Appraisers' Reports........................... 44
Portfolio Information......................... 44
MSAF Group Portfolio Analysis................. 49
Acquisition of Additional Aircraft............ 49
Initial Leases................................ 50
Indemnification and Insurance of the
Aircraft.................................... 52
The Lessees................................... 54
The Commercial Aircraft Industry................ 58
Introduction.................................. 58
Demand for Aircraft........................... 58
The World Fleet of Commercial Jet Aircraft
(Excluding Aircraft Manufactured in the
CIS)........................................ 59
Supply of Aircraft............................ 60
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Operating Leasing............................. 61
Management of MSAF Group........................ 62
Trustees...................................... 62
Beneficial Ownership of MSAF.................. 63
Servicer...................................... 64
Corporate Management.......................... 68
Management's Discussion and Analysis of Results
of Operations and Financial Condition......... 71
Introduction.................................. 71
Recent Developments........................... 71
Liquidity..................................... 71
Interest Rate Management...................... 74
Description of the Notes........................ 76
General....................................... 76
Registration Requirements..................... 77
Payments...................................... 78
Assumptions................................... 79
Payment of Principal and Interest............. 89
Priority of Payments.......................... 98
Indenture Covenants........................... 101
Operating Covenants........................... 109
Events of Default and Remedies................ 112
Intercreditor Rights.......................... 114
Modification and Waiver....................... 114
Notices to Noteholders........................ 115
Governing Law and Jurisdiction................ 116
Beneficial Interest........................... 116
Cash Management Agreement..................... 116
Accounts...................................... 116
Reports to Noteholders.......................... 120
Book-Entry Registration, Global Clearance and
Settlement.................................... 123
Book-Entry Registration....................... 123
Definitive Notes.............................. 125
CUSIP, ISIN and Common Code Numbers........... 126
Taxation........................................ 127
U.S. Federal Income Tax Considerations........ 127
Plan of Distribution............................ 129
ERISA Considerations............................ 130
Legal Matters................................... 131
Experts......................................... 131
Appendix 1. Index of Defined Terms.............. A-1
Appendix 2. Aircraft Types Data................. A-4
Appendix 3. Monthly Gross Revenues Based on the
Assumptions................................... A-5
Appendix 4. Assumed Portfolio Values for the
Initial Portfolio............................. A-7
Appendix 5. Class A Class Percentages........... A-9
Appendix 6. Class B Class Percentages........... A-12
Appendix 7. Class C Target Principal Balances... A-14
Appendix 8. Class D Target Principal Balances... A-17
Appendix 9. Pool Factors........................ A-20
Appendix 10. Extended Pool Factors.............. A-22
</TABLE>
i
<PAGE> 165
ALTERNATE
CERTAIN RISK FACTORS
TRADING MARKET FOR THE NOTES
Morgan Stanley & Co. Incorporated ("MS&Co.") currently makes a market in
the Notes. However, it is not obligated to do so, and any such market making may
be discontinued at any time without notice, in its sole discretion. Therefore,
no assurance can be given as to the liquidity of, or the trading market for, the
Notes.
MARKET-MAKING ACTIVITIES OF MS&CO. AND MSI
This Prospectus is to be used by MS&Co. in connection with offers and sales
of the Notes in market-making transactions at negotiated prices related to
prevailing market prices at the time of sale. MS&Co. may act as principal or
agent in such transactions. MS&Co. has no obligation to make a market in the
Notes and may discontinue its market-making activities at any time without
notice, in its sole discretion.
MS&Co. is a wholly owned subsidiary of Morgan Stanley, Dean Witter,
Discover & Co., which indirectly holds 100% of the beneficial interest in MSAF.
The initial Controlling Trustees of MSAF are officers of an affiliate of Morgan
Stanley.
MS&Co. acted as representative of the initial purchasers in connection with
the original offering of the Old Notes. The subscription discounts and
commissions received on each subclass of the Old Notes were as follows:
<TABLE>
<CAPTION>
SUBSCRIPTION
DISCOUNTS AND
SUBCLASS OF NOTES COMMISSIONS
----------------- -------------
<S> <C>
Subclass A-1 Notes.......................................... 0.30%
Subclass A-2 Notes.......................................... 0.60%
Subclass B-1 Notes.......................................... 0.85%
Subclass C-1 Notes.......................................... 1.50%
Subclass D-1 Notes.......................................... 2.50%
</TABLE>
<PAGE> 166
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Third Amended and Restated Trust Agreement (the "Trust Agreement") of
Morgan Stanley Aircraft Finance ("MSAF") dated as of March 3, 1998 provides that
MSAF will indemnify, to the fullest extent permitted by Delaware law, each
trustee (and the officers, directors, employees, heirs, executors or
administrators of such trustee) who was or is a party or is threatened to be
made a party to, or is involved in any threatened, pending or completed action
or suit by or in the right of MSAF to procure a judgment in its favor by reason
of the fact that such person is or was a trustee of MSAF or is or was serving at
the request of MSAF as a trustee, director or officer of another trust,
corporation, partnership, joint venture or other enterprise. MSAF also agreed to
indemnify, to the fullest extent permitted by Delaware law, each trustee of MSAF
from any and all losses, liabilities or expenses that may be imposed on,
incurred by or asserted against any of them arising out of, in connection with
or related to their performance under the Trust Agreement.
ITEM 21. EXHIBITS
(a) Exhibits
The following is a list of exhibits to this Registration Statement:
<TABLE>
<C> <S>
3.1 Certificate of Trust of MSAF
3.2 Third Amended and Restated Trust Agreement of MSAF dated as
of March 3, 1998
4.1 Indenture dated as of March 3, 1998 by and among MSAF and
Bankers Trust Company, as Trustee with respect to the Notes
4.2 Form of Global Note (included in Exhibit 4.1)
4.3 Registration Rights Agreement dated March 3, 1998 by and
between MSAF and Morgan Stanley & Co. International Limited
5.1 Opinion of Davis Polk & Wardwell as to the legality of the
securities being registered hereby
8.1 Opinion of Davis Polk & Wardwell as to certain U.S. Federal
income tax matters (included in Exhibit 5.1)
10.1 Administrative Agency Agreement dated as of March 3, 1998
among MSAF, Cabot Aircraft Services Limited, as
Administrative Agent, Bankers Trust Company, as Security
Trustee and each subsidiary of MSAF
10.2 Cash Management Agreement dated as of March 3, 1998 among
MSAF, Bankers Trust Company, as Security Trustee and as Cash
Manager and each subsidiary of MSAF
10.3 Financial Advisory Agreement dated as of March 3, 1998
between MSAF and Morgan Stanley & Co. Incorporated, as
Financial Adviser
10.4 Custody and Loan Agreement dated as of March 3, 1998 among
MSAF, International Lease Finance Corporation and each
subsidiary of MSAF
10.5 Loan Agreement dated as of March 3, 1998 between MSAF and
Morgan Stanley, Dean Witter, Discover & Co.
10.6 Security Trust Agreement dated as of March 3, 1998 among
MSAF, Bankers Trust Company, as Security Trustee, as Cash
Manager and as Trustee, Cabot Aircraft Services Limited, as
Administrative Agent and each subsidiary of MSAF
10.7 Reference Agency Agreement dated as of March 3, 1998 among
MSAF, Bankers Trust Company, as Reference Agent and as
Trustee and Cabot Aircraft Services Limited, as
Administrative Agent
</TABLE>
II-1
<PAGE> 167
<TABLE>
<C> <S>
10.8 Servicing Agreement dated as of November 10, 1997 among
MSAF, International Lease Finance Corporation, Cabot
Aircraft Services Limited, as Administrative Agent and each
subsidiary of MSAF
21.1 Subsidiaries of MSAF
23.1 Consent of Davis Polk & Wardwell (included in Exhibit 5.1)
23.2 Consent of Aircraft Information Services, Inc.
23.3 Consent of BK Associates, Inc.
23.4 Consent of Airclaims Limited
24.1 Trustees' Power of Attorney (included in signature pages)
25.1 Statement of Eligibility of Bankers Trust Company, as
Trustee, under the Indenture to be qualified under the Trust
Indenture Act of 1939
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Letters to DTC Participants
99.4 Form of Letter to Clients and Form of Instruction to
Book-Entry Transfer Participant
99.5 Appraisal of Aircraft Information Services, Inc. relating to
the Aircraft
99.6 Appraisal of BK Associates, Inc. relating to the Aircraft
99.7 Appraisal of Airclaims Limited relating to the Aircraft
</TABLE>
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Item 4, 10(b), 11 or 13 of Form S-4, within one business day of receipt of such
request, and to send the incorporated documents by first-class mail or equally
prompt means. This includes information contained in documents filed subsequent
to the effective date of the registration statement throughout the date
responding to the request.
(b) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(c) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each of the registrant's
annual reports pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of any employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 20 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-2
<PAGE> 168
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant, Morgan
Stanley Aircraft Finance, has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in New York,
New York, on June 11, 1998.
MORGAN STANLEY AIRCRAFT FINANCE
By: /s/ KARL ESSIG
------------------------------------
Signatory Trustee
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Karl Essig, Alexander C. Frank, A. Maurice Mason
and C. Scott Peterson his true and lawful attorneys-in-fact and agent, each
acting alone, with full powers of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments to this Registration Statement, including post-effective amendments,
as well as any related registration statement (or amendment thereto) and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, and hereby ratifies and confirms all his said attorneys-in-fact and
agents or any of them or his substitute or substitutes may lawfully do or cause
to be done by virtue thereof.
The Power of Attorney may be executed in multiple counterparts, each of
which shall be deemed an original, but which taken together shall constitute one
instrument.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the following
capacities on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ KARL ESSIG Controlling Trustee June 11, 1998
- -----------------------------------------------------
Karl Essig
/s/ ALEXANDER C. FRANK Controlling Trustee June 11, 1998
- -----------------------------------------------------
Alexander C. Frank
/s/ A. MAURICE MASON Controlling Trustee June 11, 1998
- -----------------------------------------------------
A. Maurice Mason
/s/ JUAN C. O'CALLAHAN Independent Trustee June 11, 1998
- -----------------------------------------------------
Juan C. O'Callahan
/s/ ALEXANDER C. BANCROFT Independent Trustee June 11, 1998
- -----------------------------------------------------
Alexander C. Bancroft
Wilmington Trust Company Delaware Trustee
By:
Title:
</TABLE>
II-4
<PAGE> 1
Exhibit 3.1
CERTIFICATE OF TRUST OF MORGAN STANLEY AIRCRAFT FINANCE
This Certificate of Trust of MORGAN STANLEY AIRCRAFT FINANCE (the "Trust")
is being duly executed and filed by Wilmington Trust Company, a Delaware
banking corporation, Scott Peterson, Ellen Brunsberg and Maurice Mason, in each
case solely in their capacity as trustees, to form a business trust under the
Delaware Business Trust Act (12 Del. C. Section 3801 et seq.).
1. Name. The name of the business trust formed hereby is MORGAN STANLEY
AIRCRAFT FINANCE.
2. Delaware Trustee. The name and business address of the trustee of the
Trust in the State of Delaware is Wilmington Trust Company, Rodney Square
North, 1100 North Market Street, Wilmington DE 19890-0001.
3. Effective Date. This Certificate of Trust shall be effective upon
filing.
IN WITNESS WHEREOF, the undersigned, being all of the trustees of the
Trust, have executed this Certificate of Trust.
WILMINGTON TRUST COMPANY, as Owner Trustee
By: /s/ Emmett R. Harmon
Name: Emmett R. Harmon
Title: Vice President
SCOTT PETERSON, as Controlling Trustee
/s/ Scott Peterson
ELLEN BRUNSBERG, as Controlling Trustee
/s/ Ellen Brunsberg
MAURICE MASON, as Controlling Trustee
/s/ Maurice Mason
<PAGE> 1
CONFORMED COPY
Exhibit 3.2
THIRD AMENDED AND RESTATED TRUST AGREEMENT
OF
MORGAN STANLEY AIRCRAFT FINANCE
Dated as of March 3, 1998
<PAGE> 2
TABLE OF CONTENTS
PAGE
----
ARTICLE 1 DEFINITIONS
SECTION 1.01. Definitions.................................... 2
ARTICLE 2 CREATION OF MSAF
SECTION 2.01. Organizational Matters......................... 3
SECTION 2.02. Acceptance of Trust and Duties;
Controlling Trustees; Signatory Trustees....... 4
SECTION 2.03. Objects........................................ 5
SECTION 2.04. Prohibition and Limitation of Actions
by MSAF and the Trustees....................... 6
SECTION 2.05. Independent Business........................... 10
SECTION 2.06. Duration of MSAF............................... 11
SECTION 2.07. Trust for benefit of holders of
MSAF debt securities........................... 11
ARTICLE 3 TRUSTEES
SECTION 3.01. Number and Status.............................. 12
SECTION 3.02. Delaware Trustee............................... 12
SECTION 3.03. Controlling Trustees;
Alternate Controlling Trustee.................. 12
SECTION 3.04. Independent Trustees........................... 13
SECTION 3.05. Quorum......................................... 13
SECTION 3.06. Meetings....................................... 13
SECTION 3.07. Notice......................................... 14
SECTION 3.08. Voting Following the Appointment of
Independent Trustees........................... 14
SECTION 3.09. Resolutions.................................... 15
SECTION 3.10. Committees..................................... 15
SECTION 3.11. Vacancies...................................... 16
SECTION 3.12. Effect of Vacancies............................ 16
SECTION 3.13. Transactions with Trustees..................... 16
SECTION 3.14. Interests of Trustees.......................... 17
SECTION 3.15. Disclosure of Interests........................ 17
SECTION 3.16. Contract with Trustee.......................... 17
SECTION 3.17. Validity of Acts............................... 17
SECTION 3.18. Minute Book.................................... 18
SECTION 3.19. Fees and Remuneration.......................... 18
SECTION 3.20. Trustees May Rely.............................. 18
SECTION 3.21. Trustees Act Solely as Trustees................ 19
SECTION 3.22. No Expenses for the Trustees................... 19
SECTION 3.23. No Representations or Warranties as to
Certain Matters................................ 19
ARTICLE 4 INDEMNIFICATION OF TRUSTEES
2
<PAGE> 3
Page
----
SECTION 4.01. Liability and Indemnity................... 19
SECTION 4.02. Agents.................................... 20
SECTION 4.03. Insurance................................. 20
SECTION 4.04. Non-exclusive Rights...................... 20
SECTION 4.05. Survival.................................. 20
ARTICLE 5 TERMINATION OF MSAF
SECTION 5.01. Termination of MSAF....................... 21
ARTICLE 6 AMENDMENTS
SECTION 6.01. Amendments................................ 21
ARTICLE 7 MISCELLANEOUS
SECTION 7.01. Notices................................... 22
SECTION 7.02. Governing Law............................. 23
SECTION 7.03. Jurisdiction.............................. 23
SECTION 7.04. Counterparts.............................. 23
SECTION 7.05. Agreement................................. 23
SECTION 7.06. Table of Contents; Headings............... 23
3
<PAGE> 4
THIRD AMENDED AND RESTATED TRUST AGREEMENT (this "TRUST AGREEMENT"), dated
as of March 3, 1998, among MS Financing Inc., a Delaware corporation, as
depositor (the "DEPOSITOR"), Wilmington Trust Company, a Delaware banking
corporation, which is acting hereunder not in its individual capacity but solely
as owner trustee (the "DELAWARE TRUSTEE"), Karl Essig, Maurice Mason and
Alexander Frank (the "CONTROLLING TRUSTEES") and Scott Peterson as an alternate
for Karl Essig in his capacity as Controlling Trustee (the "ALTERNATE
CONTROLLING TRUSTEE") and Juan O'Callahan and Alexander Bancroft (the
"INDEPENDENT TRUSTEES" and, together with the Controlling Trustees, the
Alternate Controlling Trustee and the Delaware Trustee, the "TRUSTEES"). This
Trust Agreement amends and restates in its entirety the second amended and
restated trust agreement (the "SECOND AMENDED AND RESTATED TRUST AGREEMENT")
entered into among the Depositor, the Delaware Trustee, Karl Essig, Maurice
Mason and Alexander Frank, as Controlling Trustees and Scott Peterson, as the
Alternate Controlling Trustee, dated as of February 18, 1998.
RECITALS
WHEREAS, pursuant to the original trust agreement entered into among the
Depositor, the Delaware Trustee and Scott Peterson, Ellen Brunsberg and Maurice
Mason, as controlling trustees, dated as of October 30, 1997, the First
Amended and Restated Trust Agreement, the Second Amended and Restated Trust
Agreement and a Certificate of Trust filed with the Secretary of State of
Delaware on October 31, 1997, the Depositor created a business trust under
Chapter 38 of Title 12 of the Delaware Code, 12 Del.C. Section 3801 et seq.
(the "BUSINESS TRUST ACT") named "Morgan Stanley Aircraft Finance" ("MSAF") by
assigning and transferring to MSAF $1. (such $1., together with any and all
property owned directly or indirectly from time to time by MSAF, "TRUST
PROPERTY");
WHEREAS, MSAF was created to acquire, directly or indirectly through
intermediaries, aircraft and related assets from time to time and to issue and
sell debt securities to finance and refinance such acquisitions;
NOW, THEREFORE, it being the intention of the parties hereto to continue
MSAF as a business trust under the Business Trust Act and that this Trust
Agreement constitute the governing instrument of such business trust, the
parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
4
<PAGE> 5
SECTION 1.01. Definitions. The following terms, as used herein, have the
following meanings. Capitalized terms used but not defined herein have the
meaning assigned to such terms in the Indenture.
"AFFILIATE" means as to any Person, any other Person that, directly or
indirectly through one or more intermediaries, controls or is controlled by or
is under common control with such Person; provided, however that neither MSAF
nor any of its subsidiaries shall be considered to be Affiliates of the
Depositor or its Affiliates.
"ASSET PURCHASE AGREEMENT" has the meaning assigned to such term in
Section 2.03 herein.
"CONTROL" (including, with its correlative meanings, "CONTROLLED BY" and
"UNDER COMMON CONTROL WITH") means possession, direct or indirect, of the power
to direct or cause the direction of management or policies of a Person, whether
through the ownership of securities or partnership or other ownership
interests, by contract or otherwise).
"INDENTURE" means the Indenture dated as of March 3, 1998 between MSAF and
Bankers Trust Company, a New York banking corporation, as trustee.
"INDEPENDENT TRUSTEE" means a Trustee who is not at the time of his
appointment or at any time during his service as Trustee, and has not been for
the twenty-four months prior to his appointment as Trustee, an employee,
officer, director, creditor or supplier of Morgan Stanley, Dean Witter,
Discover & Co., MSAF, or any Affiliate of any such person, except with the
approval of the Rating Agencies.
"PERSON" means an individual, corporation, partnership, limited liability
company, association, statutory business trust, common law trust, or other
entity or organization, including a government or political subdivision or an
agency or instrumentality thereof.
"RATING AGENCIES" means Moody's Investors Service, Inc., Standard & Poor's
Rating Group and Duff & Phelps Credit Rating Co. and any other nationally
recognized statistical rating organizations that from time to time are
contracted to rate debt securities issued by MSAF.
"SIGNATORY TRUSTEES" has the meaning assigned to such term in Section 2.02
herein.
5
<PAGE> 6
ARTICLE 2
CREATION OF MSAF
SECTION 2.01. Organizational Matters.
(a) The name of the trust continued hereby is "Morgan Stanley Aircraft
Finance". To the extent practicable, the Trustees shall conduct MSAF's
activities, execute all documents and cause MSAF to sue or be sued under the
foregoing name, which name (and the word "Trust" wherever used in this Trust
Agreement, except where the context otherwise requires) shall refer to the
business trust created hereby, or the Trustees acting on behalf of the Trust as
trustees, and not individually, and shall not refer to the officers, agents,
employees or beneficial owners of MSAF. Under circumstances in which the
Trustees determine that the use of the name "Morgan Stanley Aircraft Finance"
is not practicable or desirable, they may change the name and use any other
designation or name for the Trust.
(b) The principal office of MSAF, and such additional offices as the
Controlling Trustees may determine to establish, shall be located at such place
or places inside or outside the State of Delaware as the Controlling Trustees
may designate from time to time.
(c) MSAF is a "business trust", the Trustees are the "trustees" and the
Depositor is the sole "beneficial" owner", within the meaning of the Business
Trust Act. MSAF shall not be deemed to be a general partnership, limited
partnership, joint venture, joint shares company or a corporation (but nothing
herein shall preclude MSAF from being treated for tax purposes as a trust under
the United States Internal Revenue Code of 1986, as amended).
(d) Legal title to all Trust Property shall be vested in MSAF as a
separate legal entity, except that the Controlling Trustees may cause legal
title to any Trust Property to be held by or in the name of any other Person as
nominee. The right, title and interest of the Trustees in and to the Trust
Property shall automatically vest in successor and additional Trustees upon
their qualification and acceptance of election or appointment as Trustees, and
they shall thereupon have all the rights and obligations of Trustees, whether
or not conveyancing documents have been executed and delivered. Written
evidence of the qualification and acceptance of election or appointment of
successor and additional Trustees may be filed with the records of MSAF and in
such other offices, agencies or places as the Controlling Trustees may deem
necessary or desirable. No beneficial owner of MSAF shall be deemed to have a
severable ownership interest in any individual asset of MSAF or any right of
partition or possession thereof.
(e) The Trustees hereby declare that they shall hold the Trust Property
upon the terms hereinafter set forth in this Trust Agreement.
SECTION 2.02. Acceptance of Trust and Duties; Controlling Trustees;
Signatory Trustees; Alternate Signatory Trustee.
6
<PAGE> 7
(a) Each of the Trustees accepts the trust created hereby and agrees to
perform its duties in accordance with all of the terms and conditions contained
in this Trust Agreement. In performing its duties hereunder, no Trustee shall
have any duty or liability with respect to the administration of MSAF, except
for its gross negligence or willful misconduct, and no implied duties shall be
read into this Trust Agreement against any Trustee. The Trustees shall not be
liable for the acts or omissions of the Depositor nor shall the Delaware
Trustee be liable for any act or omission by it in good faith in accordance
with directions of the Controlling Trustees or for any act or omission of the
Controlling Trustees or the Independent Trustees.
(b) The Controlling Trustees shall manage the property and affairs of MSAF
and specifically, for so long as any debt securities of MSAF remain
outstanding, for the benefit of the holders of such debt securities such that
no action shall be taken with respect to the Trust Property or the proceeds
thereof which contravenes or conflicts with any provision of the indenture or
other instrument governing such debt securities. The sole purpose of the
Delaware Trustee in entering into this Trust Agreement is to satisfy the
requirements of Section 3807(a) of the Business Trust Act. It is understood
and agreed by the parties hereto that the Delaware Trustee shall have none of
the duties or liabilities of the Controlling Trustees. The duties of the
Delaware Trustee shall be limited to (i) accepting legal process served on MSAF
in the State of Delaware and (ii) the execution of any certificates required to
be filed with the Delaware Secretary of State which the Delaware Trustee is
required to execute under Section 3811 of the Business Trust Act. To the
extent that, at law or in equity, the Delaware Trustee has duties (including
fiduciary duties) and liabilities relating thereto to MSAF or the Depositor, it
is hereby understood and agreed by the parties hereto that such duties and
liabilities are replaced by the duties and liabilities of the Delaware Trustee
expressly set forth in this Trust Agreement.
(c) Each of Karl Essig and Alexander Frank (the "SIGNATORY TRUSTEES") is
hereby authorized and directed to enter into the agreements approved by either
of them, such approval to be evidenced by the signature of any one of such
Signatory Trustees on any such agreement. Scott Peterson is hereby authorized
to act as an alternate for Karl Essig in his capacity as Signatory Trustee (the
"ALTERNATE SIGNATORY TRUSTEE") The Delaware Trustee is further authorized and
directed to enter into such other documents and take such other action as
either Signatory Trustee shall specifically direct in written instructions
delivered to the Delaware Trustee; provided, however, that the Delaware Trustee
shall not be required to take any action if the Delaware Trustee shall
determine, or shall be advised by counsel, that such action is likely to result
in personal liability or is contrary to applicable law or any agreement to
which the Delaware Trustee is a party.
SECTION 2.03. Objects. MSAF is formed for the following objects only:
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(a) to act as the Depositor of MSA I, a Delaware business trust;
(b) to enter into such agreements as the Controlling Trustees see fit in
order to engage in the transactions contemplated hereby, including the Asset
Purchase Agreement dated as of November 10, 1997 between MSAF and International
Lease Finance Corporation (the "ASSET PURCHASE AGREEMENT");
(c) to acquire aircraft and related assets (including the capital stock of
one corporation) pursuant to the Asset Purchase Agreement;
(d) to purchase or otherwise acquire, directly or indirectly through
intermediaries, additional aircraft and related assets from time to time and
own, hold, convert, maintain, modify, manage, operate, lease, re-lease and sell
or otherwise dispose of aircraft assets and enter into all contracts and engage
in all related activities incidental thereto, including from time to time,
accepting, exchanging, holding or permitting any of its subsidiaries to accept,
exchange or hold promissory notes, contingent payment obligations or equity
interests of lessees or their affiliates issued in connection with the
bankruptcy, reorganization or other similar process, or in settlement of
delinquent obligations or obligations anticipated to be delinquent, of such
lessees or their respective Affiliates in the ordinary course of business;
(e) to provide loans to or guarantee or otherwise support the obligations
and liabilities of any of its subsidiaries on such terms and in such manner as
the Controlling Trustees see fit and (whether or not MSAF or any of its
subsidiaries shall derive a benefit therefrom) so long as such loans,
guarantees, or other supports are provided for the purposes set forth in
paragraphs 2.03(a), (b), (c) or (d) hereof; provided that no such loan,
guarantee or other support of the obligations or liabilities of any of its
subsidiaries shall be granted if it would materially adversely affect the
holders of any debt securities of MSAF;
(f) to finance and refinance the activities described in paragraphs
2.03(a), (b), (c) or (d) above through the offer, sale and issuance of any
securities of MSAF upon such terms and conditions as the Controlling Trustees
see fit, for cash or in payment or in partial payment for any property
purchased or otherwise acquired by MSAF or any of its subsidiaries and to grant
a security interest or other form of mortgage or charge in the Trust Property
or proceeds of the Trust Property whether now or hereinafter acquired;
(g) to engage in currency and interest rate exchange transactions for the
purposes of avoiding, reducing, minimizing, hedging against or otherwise
managing the risk of any loss, cost, expense or liability arising, or which may
arise, directly or indirectly, from any change or changes in any interest rate
or currency exchange rate or in the price or value of any of MSAF's or any of
its subsidiaries' property or assets, within limits determined by the
Controlling Trustees from time to time and submitted to the Rating Agencies,
including but not limited to dealings, whether involving purchases, sales or
otherwise, in foreign currency, spot and forward interest rate exchange rate
contracts, forward
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interest rate agreements, caps, floors and collars, futures, options, swaps and
any other currency, interest rate and other similar hedging arrangements and
such other instruments as are similar to, or derivatives of, any of the
foregoing;
(h) to establish, promote and aid in promoting, constituting, forming or
organizing companies, trusts, syndicates, partnerships or other entities of all
kinds in any part of the world for the purposes set forth in paragraph 2.03(a),
(b), (c) or (d) hereof and to acquire, hold and dispose of shares, securities
and other interests in, or causing the dissolution of any existing subsidiary;
(i) to take out, acquire, surrender and assign policies of insurance and
assurances with any insurance company or companies which MSAF or any of its
subsidiaries may think fit and to pay the premiums thereon; and
(j) to do all such things as may be deemed incidental or conducive to the
attainment of the above objects or any of them.
SECTION 2.04. Prohibition and Limitation of Actions by MSAF and the
Trustees.
(a) Prohibited activity. MSAF shall not, and the Trustees shall not cause
MSAF to engage in any activity other than as required or authorized by Section
2.03 in particular, or any other provision of this Trust Agreement. Any party
to this Trust Agreement and, for so long as any debt securities of MSAF remain
outstanding, any holders of such debt securities, may bring a proceeding to set
aside and enjoin the performance of any act or acts by MSAF that are not
required or authorized by Section 2.03 in particular or any other provision of
this Trust Agreement.
(b) Limitation on activities of new subsidiaries. The organizational
documents of any direct or indirect subsidiaries of MSAF formed or acquired on
or after the date hereof shall contain express objects clauses identical in all
material respects to those contained in the organizational documents of the
existing subsidiaries of MSAF.
(c) Limitation on employees. MSAF shall not, and MSAF shall not permit
any of its subsidiaries to, employ or maintain any employees other than as
required by any provisions of local law; provided that the trustees and
directors of MSAF and each of its subsidiaries shall not be deemed to be
employees for purposes of this Section 2.04(c).
(d) Limitation on Indebtedness. MSAF shall not, and MSAF shall not permit
any of its subsidiaries to, incur, create, issue, assume, guarantee or
otherwise become liable for or with respect to, or become responsible for, the
payment of, contingently or otherwise, whether present or future (in any such
case, to "INCUR"), Indebtedness.
For the purposes of this Trust Agreement, "INDEBTEDNESS" means, with
respect to any Person at any date of determination (without duplication), (i)
all indebtedness of such Person for borrowed money, (ii) all obligations of
such Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all
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obligations of such Person in respect of letters of credit or other similar
instruments (including reimbursement obligations with respect thereto), (iv)
all obligations of such Person to pay the deferred and unpaid purchase price of
property or services, which purchase price is due more than six months after
the date of purchasing such property or service or taking delivery and title
thereto or the completion of such services, and payment deferrals arranged
primarily as a method of raising finance or financing the acquisition of such
property or service, (v) all obligations of such Person under a lease of (or
other agreement conveying the right to use) any property (whether real,
personal or mixed) that is required to be classified and accounted for as a
capital lease obligation under U.S. GAAP, (vi) all Indebtedness (as defined in
clauses (i) through (v) of this paragraph) of other Persons secured by a lien
on any asset of such Person, whether or not such Indebtedness is assumed by
such Person, and (vii) all Indebtedness (as defined in clauses (i) through (v)
of this paragraph) of other Persons guaranteed by such Person.
Notwithstanding the foregoing, MSAF and any of its subsidiaries may incur
each and all of the following:
(i) Indebtedness in respect of any Initial Notes issued on the
Initial Closing Date;
(ii) Indebtedness in respect of any Refinancing Notes or other
Indebtedness described in the proviso to Section 5.02(c)(iii) of the
Indenture; provided that (A) such Refinancing Notes or other Indebtedness
receive ratings from the Rating Agencies at the close of such Refinancing
or repurchase equal to or higher than those of the subclass being
refinanced or repurchased (determined at the date of incurrence), (B)
taking into account such Refinancing or repurchase, MSAF receives Rating
Agency Confirmation prior to such Refinancing or repurchase with respect
to each subclass of MSAF Group Notes Outstanding at such time and (C) the
net proceeds of any such Refinancing or other Indebtedness shall be used
only to repay the Outstanding Principal Balance of the subclass of Notes
being so refinanced or repurchased (plus any Redemption Premium and
transaction expenses relating thereto);
(iii) Indebtedness in respect of guarantees by MSAF or any of its
subsidiaries of any other MSAF Group Member (other than the Guarantee
described in (v) below), provided that no such Indebtedness shall be
incurred if it would materially adversely affect the Noteholders;
(iv) Indebtedness in respect of any Issuer Additional Notes the
proceeds of which are applied to finance a Permitted Additional Aircraft
Acquisition; provided that (A) MSAF receives Rating Agency Confirmation
prior to the incurrence of such Indebtedness with respect to all of the
MSAF Group Notes Outstanding at such time and (B) the net
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proceeds of such Indebtedness shall be used only to finance such Permitted
Additional Aircraft Acquisition and (C) such Issuer Additional Notes will
be cross-collateralized with all Outstanding Notes by the Collateral under
the Security Trust Agreement;
(v) Indebtedness in respect of the Guarantee set forth in Article XII
of the Indenture; provided that (A) the Indebtedness guaranteed thereby is
incurred by a Guarantor that has guaranteed the Notes, (B) the
Indebtedness being guaranteed would be permitted pursuant to clause (ii)
or (iv) if such Indebtedness were incurred directly by the Issuer and (C)
the Indebtedness being guaranteed was issued by the Guarantor under an
indenture the terms of which (including the covenants and other
obligations of the Guarantor thereunder) are substantially identical to
those of the Indenture;
(vi) obligations to each Seller under each Acquisition Agreement and
any related lease assignment and assumption agreements and the documents
related thereto;
(vii) Indebtedness under any agreements between MSAF or any of its
subsidiaries and any other MSAF Group Members (each, an "INTERCOMPANY
LOAN"); provided that such Indebtedness shall be evidenced by promissory
notes and written notification shall have been given to each Rating Agency
of the incurrence of such Indebtedness; and
(viii) Indebtedness of MSAF Group under any Credit Facility.
For the purposes of this Trust Agreement, "GUARANTEE" means any
obligation, contingent or otherwise, of any Person directly or indirectly
guaranteeing any Indebtedness or other obligation of any other Person and,
without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of such Indebtedness or
other obligation of such other Person or (ii) entered into for purposes of
assuring in any other manner the obligee of such Indebtedness or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); provided that the term "guarantee" shall
not include endorsements for collection or deposit in the ordinary course of
business. The term "guarantee" when used as a verb has a corresponding
meaning.
(e) Limitation on Consolidation, Merger and Transfer of Assets. MSAF
shall not, and MSAF shall not permit any of its subsidiaries to, consolidate
with, merge with or into, or sell, convey, transfer, lease or otherwise dispose
of its property and assets (as an entirety or substantially an entirety in one
transaction or in a series of related transactions) to, any other Person, or
permit any other Person to merge with or into MSAF or any of its subsidiaries,
unless (i) the resulting entity is a special purpose entity, the organizational
document of which is substantially similar to this Trust Agreement or the
equivalent organizational
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document of such MSAF subsidiary, as the case may be, and, after such
consolidation, merger, sale, conveyance, transfer, lease or other disposition,
payments from such resulting entity to the Noteholders do not give rise to any
withholding tax payments less favorable to the Noteholders than the amount of
any withholding tax payments which would have been required had such event not
occured, (ii) in the case of any consolidation, merger or transfer by MSAF, the
surviving successor or transferee entity shall expressly assume all of the
obligations of MSAF under the Indenture, the Notes and each other Related
Document to which MSAF is then a party, (iii) the Controlling Trustees shall
have obtained a Rating Agency Confirmation with respect to such merger, sale,
conveyance, transfer, lease or disposition, (iv) immediately after giving
effect to such transaction, no Event of Default shall have occurred and be
continuing and (v) MSAF delivers to the trustee under the Indenture an
Officer's Certificate and an opinion of counsel, in each case stating that such
consolidation, merger or transfer and such supplemental indenture comply with
the above criteria and, if applicable, Section 5.02(g) of the Indenture and
that all conditions precedent provided for in the Indenture relating to such
transaction have been complied with; provided that this covenant shall not
apply to any such consolidation, merger, sale, conveyance, transfer, lease or
disposition (a) within and among MSAF and any of its subsidiaries and any other
MSAF Group Member if such consolidation, merger, sale, conveyance, transfer,
lease or disposition, as the case may be, would not materially adversely affect
the Noteholders, (b) complying with the terms of Section 5.02(g) of the
Indenture or (c) effected as part of a single transaction providing for the
redemption or defeasance of MSAF Group Notes in accordance with Section 3.10 or
Article XI, respectively, of the Indenture.
SECTION 2.05. Independent Business. MSAF will conduct its activities, and
will procure that each of its subsidiaries will conduct its business such that
it is a separate and readily identifiable business from, and independent of, the
Depositor and any of its Affiliates (it being understood that the Depositor and
its Affiliates may publish financial statements that consolidate those of MSAF
and any of its Affiliates, if to do so is required by any applicable law or
accounting principles from time to time in effect and MSAF's subsidiaries may
file consolidated tax returns with the Depositor and its Affiliates for tax
purposes) and:
(a) it will observe, and will cause its subsidiaries to observe, all
formalities necessary to remain legal entities separate and distinct from the
Depositor and any of its Affiliates;
(b) it will maintain, and will cause its subsidiaries to maintain, each of
their respective assets and liabilities separate and distinct from those of the
Depositor and any of its Affiliates;
(c) it will maintain, and will cause its subsidiaries to maintain,
records, books, accounts, and minutes separate from those of the Depositor and
any of its
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Affiliates;
(d) it will pay its obligations, and will cause its subsidiaries to pay
each of their respective obligations in the ordinary course of business as
legal entities separate from the Depositor and any of its Affiliates;
(e) it will keep, and will cause its subsidiaries to keep, each of their
respective funds separate and distinct from any funds of the Depositor and any
of its Affiliates, and will receive, deposit, withdraw and disburse such funds
separately from any funds of the Depositor and any of its Affiliates;
(f) it will conduct its activities, and will cause each of its respective
subsidiaries to conduct their respective businesses in their own name, and not
in the name of the Depositor or any of its Affiliates;
(g) it will not agree, and will cause its subsidiaries not to agree, to
pay or become liable for any debt of the Depositor or any of its Affiliates;
(h) it will not hold out, and will cause its subsidiaries not to hold out,
that any of them is a division of the Depositor or any of its Affiliates or
that the Depositor or any of its Affiliates is a division of any of them;
(i) it will not induce, and will cause its subsidiaries not to induce, any
third party to rely on the creditworthiness of the Depositor or any of its
Affiliates in order that such third party will be induced to contract with it;
and
(j) it will not enter into, and will cause its subsidiaries not to enter
into, any transaction between any of them and the Depositor or any of its
Affiliates that are more favorable to the Depositor and its Affiliates than
transactions that MSAF and its subsidiaries would have been able to enter into
at such time on an arm's-length basis with a non-affiliated third party, other
than any agreements in effect on the date hereof or any transactions permitted
pursuant to the Indenture.
SECTION 2.06. Duration of MSAF. MSAF, unless terminated pursuant to the
provisions of Article 5, shall have a perpetual existence.
SECTION 2.07. Trust for benefit of holders of MSAF debt securities.
(a) This Trust Agreement has been entered into, and MSAF has been created,
in part to induce the holders from time to time of MSAF's debt securities to
purchase such debt securities. The Depositor and the Controlling Trustees
agree that the holders of MSAF's debt securities from time to time are third
party beneficiaries hereof, and shall be entitled to enforce the terms of this
Trust Agreement to the same extent as if they were parties hereto, subject,
however, to the provisions of the documents governing such debt securities.
(b) The Depositor and each other beneficial owner of MSAF hereby expressly
acknowledges and agrees that (i) its right, if any, to receive dividends or
other distributions of Trust Property is subordinate to the rights of the
holders from time to time of MSAF's debt securities and (ii) it may not
withdraw from MSAF or obtain possession of, or otherwise exercise legal or
equitable remedies with respect to, the Trust Property prior to the payment in
full of the principal and
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interest of, and any other amount owing with respect to, MSAF's debt securities
from time to time outstanding.
(c) Neither the bankruptcy, insolvency or other incapacity of the
Depositor or any other beneficial owner of MSAF, nor any transfer, by operation
of law or otherwise, by it of any interest in MSAF or the Trust Property, shall
(i) operate to terminate this Trust Agreement or MSAF, (ii) entitle the
Depositor's or such other beneficial owner's legal representatives or
transferees to claim an accounting or to take any action in any court for a
partition of the Trust Property or winding up of MSAF or (iii) otherwise affect
the rights, duties and liabilities of the parties hereto.
ARTICLE 3
TRUSTEES
SECTION 3.01. Number and Status. The number of Trustees shall be at least
six (at least two of which shall be Independent Trustees). At all times, one of
the Trustees shall be the Delaware Trustee or any successor or permitted
assigns.
SECTION 3.02. Delaware Trustee. (a) The Delaware Trustee shall be:
Wilmington Trust Company
(b) As required under the Business Trust Act, the Delaware Trustee is and
any successor or permitted assigns shall be:
(i) a natural Person who is a resident of the state of Delaware; or
(ii) if not a natural Person, an entity which has its principal place
of business in the State of Delaware, and otherwise meets the requirements
of applicable law.
(c) The Delaware Trustee may resign upon 30 days prior written notice to
MSAF, such resignation to be effective upon the appointment of a successor
Delaware Trustee. If no successor has been appointed within such 30 day
period, the Delaware Trustee may, at the expense of MSAF, petition a court to
appoint a successor Delaware trustee.
SECTION 3.03. Controlling Trustees; Alternate Controlling Trustee.
(a) The Controlling Trustees shall be:
Karl Essig
Maurice Mason
Alexander Frank
(b) The Alternate Controlling Trustee shall be:
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Scott Peterson
The Alternate Controlling Trustee is hereby authorized to act as an
alternate for Karl Essig in his capacity as Controlling Trustee in accordance
with all of the terms and conditions contained in this Trust Agreement.
SECTION 3.04. Independent Trustees. (a) The Independent Trustees
shall be:
Juan O'Callahan
Alexander Bancroft
(b) The Controlling Trustees shall have the power at any time and from
time to time to elect any person to be an Independent Trustee in order to
ensure that the provisions of this Trust Agreement as to the number of
Independent Trustees required to be in office are fulfilled. Any Independent
Trustee so appointed shall hold office until he resigns or is disqualified in
accordance with Section 3.11 hereof.
SECTION 3.05. Quorum. A meeting of the Controlling Trustees at which a
quorum is present shall be competent to exercise all powers and discretion for
the time being exercisable by the Controlling Trustees. The quorum necessary
for the transaction of the business of the Controlling Trustees shall be a
majority of the Controlling Trustees except that the quorum necessary for the
transaction of any business specified in Section 3.08(a), Section 3.08(b) or
unless the proviso of Section 3.08(c) applies, Section 3.08(c) shall be all
Controlling Trustees and all Independent Trustees. A Controlling Trustee,
notwithstanding his interest, may be counted in the quorum present at any
meeting at which he is appointed to hold office or place of profit under MSAF,
or at which the terms of his appointment are arranged, but he may not vote on
his own appointment or the terms thereof. In the absence of Karl Essig at any
meeting of the Controlling Trustees, the Alternate Controlling Trustee, if
present, shall be counted in the quorum present at any such meeting.
SECTION 3.06. Meetings. (a) The Controlling Trustees may meet together
for the dispatch of business, adjourn and otherwise regulate their meetings as
they think fit. Questions arising at any meeting shall be determined by a
majority of the Controlling Trustees or, if less than three, all of the
Controlling Trustees. At any meeting of the Controlling Trustees in which Karl
Essig is not present, the Alternate Controlling Trustee, if present, shall be
competent to exercise all powers and discretion exercisable by Karl Essig in his
capacity as Controlling Trustee. A Controlling Trustee may, at any time, summon
a meeting of the Controlling Trustees by giving to each Controlling Trustee not
less than twenty-four hours'
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notice of the meeting; provided, that any meeting may be convened at shorter
notice and in such manner as all Controlling Trustees shall approve; provided
further, that, notwithstanding the provisions of Section 7.01 hereof, unless
otherwise resolved by the Controlling Trustees, notices of Controlling
Trustees' meetings need not be in writing. Notice of Controlling Trustees'
meetings need not be provided to the Alternate Controlling Trustee.
(b) If a Trustee is by any means in communication with one or more other
Trustees so that each Trustee participating in the communication can hear what
is said by any other of them, each Trustee so participating in the
communication is deemed to be present at a meeting with the other Trustees so
participating, notwithstanding that all the Trustees so participating are not
present together in the same place.
SECTION 3.07. Notice. Any notice to be given to or by any Person pursuant
to this Trust Agreement shall be in writing, save as provided in Section 3.06
hereof. Any Trustee present in person at any meeting of Trustees shall, for all
purposes, be deemed to have received due notice of such meeting and, where
requisite, of the purposes for which such meeting was convened. Any notice or
document served on a Trustee shall, notwithstanding that such Trustee be then
incompetent, disabled, dead or bankrupt and whether or not MSAF has notice of
his incompetency, disability, death or bankruptcy, be deemed to have been duly
served on such Trustee. Notwithstanding any of the provisions of this Trust
Agreement, any notice to be given by MSAF to a Trustee may be given in any
manner agreed in advance by any such Trustee.
SECTION 3.08. Voting Following the Appointment of Independent Trustees.
The Controlling Trustees shall possess and be entitled in their discretion to
exercise all rights and power to vote with respect to any lawful action to be
taken by the Controlling Trustees, except as otherwise provided herein. For so
long as any amount is outstanding or payable under any debt securities of MSAF,
the Trustees shall not have the power to take any action in their capacities as
Trustees that would cause MSAF or any of its subsidiaries to be in violation of
the terms governing any such debt securities. Each Controlling Trustee shall
have the power to vote an equal portion of all of the voting rights of MSAF.
A unanimous vote of the Controlling Trustees and the Independent Trustees
shall be required to:
(a) cause MSAF or any subsidiary of MSAF to take any action with respect
to the institution of any proceeding by MSAF or any subsidiary of MSAF seeking
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief or composition of its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry of an
order
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for relief or the appointment of a receiver, trustee, or other similar official
for it or any substantial part of its property, or seeking termination of
MSAF's existence other than pursuant to Section 5.01 or the existence of any
subsidiary of MSAF;
(b) in the case of any such proceeding instituted against MSAF or any
subsidiary of MSAF (but not instituted by it), cause MSAF or any subsidiary of
MSAF to take any action to authorize or consent to such proceedings (including,
without limitation, the entry of an order for relief against, or the
appointment of a receiver, trustee, custodian or other similar official for
MSAF or any subsidiary of MSAF, or any substantial part of its property, or
that of any subsidiary); and
(c) cause MSAF or any subsidiary of MSAF to take any action with respect
to any merger, consolidation, amalgamation, or reorganization of MSAF or any
subsidiary of MSAF, with or into any other person or entity, or any conveyance,
transfer or other disposal of (whether in one transaction or a series of
transactions) all or substantially all of the assets of MSAF or any subsidiary
of MSAF; provided, however, that such unanimous approval is not required so
long as the organizational documents of the resulting person or entity provide
for the unanimous approval of the Independent Trustees for the events
contemplated by this Section 3.08 and Section 6.01 hereof.
(d) sell, transfer, or otherwise dispose of, directly or indirectly, any
aircraft pursuant to Section 5.02(g)(v) of the Indenture whereby the net
present value of the cash Net Sale Proceeds is less than the Note Target Price.
SECTION 3.09. Resolutions. A resolution in writing signed by all of the
Controlling Trustees or by all of the members of a committee appointed pursuant
to Section 3.10 hereof or by all of the Controlling Trustees and Independent
Trustees pursuant to Section 3.08 hereof (as the case may be) shall be valid and
effectual as if it had been passed at a meeting of the Controlling Trustees or
of the relevant committee or of the Controlling Trustees and Independent
Trustees duly convened and held. Such resolution may consist of two or more
documents in like form each signed by one or more of the Controlling Trustees,
Independent Trustees or members of the relevant committee (as the case may be).
With respect to any resolutions requiring the approval of the Controlling
Trustees, the signature of Karl Essig or the Alternate Controlling Trustee shall
count as one vote in favor of any such resolutions.
SECTION 3.10. Committees. Except as otherwise provided in Section 3.08,
the Controlling Trustees may delegate any of their powers to committees
consisting of any one or more of such Controlling Trustees or such other persons
as they think fit. Any committee so formed shall in the exercise of the powers
so delegated conform to any regulations that may be imposed on it by the
Controlling Trustees. The meetings and proceedings of any such committee
consisting of one or more persons shall be governed by the provisions of this
Trust Agreement regulating the meetings and proceedings of the Controlling
Trustees, so far as the same are applicable and are not superseded by any
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regulations made by the Trustees under this Trust Agreement.
SECTION 3.11. Vacancies. The office of a Trustee shall be vacated if:
(a) he resigns his office by 30 days prior written notice to MSAF, such
resignation to be effective upon the appointment of a successor Delaware
Trustee;
(b) in the case of an Independent Trustee, he ceases to be qualified as an
Independent Trustee within the meaning of that term contained in this Trust
Agreement;
(c) he dies or is unable or refuses to act;
(d) he is removed by a majority vote of the Controlling Trustees;
provided, that in the case of the removal of a Controlling Trustee, the
Controlling Trustee subject to the removal action shall not be required or
entitled to vote; or
(e) in the case of the Delaware Trustee, or any successor or permitted
assigns acting as the Delaware Trustee, the failure of the Delaware Trustee or
such successor or assigns to meet the requirements of Section 3807(a) of the
Business Trust Act.
SECTION 3.12. Effect of Vacancies. (a) Neither the death, resignation,
retirement, removal, bankruptcy, dissolution, liquidation, incompetence or
incapacity of a Trustee, including without limitation the failure of the
Delaware Trustee to meet the requirements of Section 3807(a) of the Business
Trust Act, shall operate to terminate this Trust Agreement or MSAF.
(b) If there is at any time a vacancy in the position of a Trustee, it is
understood that the Depositor may not exercise the voting power of the vacant
Trustee position and that said voting power will accordingly remain suspended
during such vacancy.
SECTION 3.13. Transactions with Trustees. A Trustee may hold any other
office or place of profit under MSAF (other than the office of auditor) in
conjunction with his office of Trustee and may act in a professional capacity to
MSAF on such terms as to tenure of office, remuneration and otherwise as the
Controlling Trustees may determine.
SECTION 3.14. Interests of Trustees. Subject to applicable Delaware law,
and provided that he has disclosed to the Controlling Trustees the nature and
extent of any of his material interests, a Trustee notwithstanding his office:
(a) may be a party to, or otherwise interested in, any transaction or
arrangement with MSAF or in which MSAF is otherwise interested;
(b) other than, in the case of an Independent Trustee, to the extent
limited by the definition thereof, may be a director or other officer of, or
employed by, or a party to any transaction or arrangement with, or otherwise
interested in, any body corporate promoted by MSAF or in which MSAF is
18
<PAGE> 19
otherwise interested or which engages in transactions similar to those engaged
in by MSAF and might present a conflict of interest for such Trustee in
discharging his duties; and
(c) shall not, by reason of his office, be accountable to MSAF or the
Depositor for any benefit which he derives from any such office or employment
or from any such transaction or arrangement or from any interest in such body
corporate and no such transaction or arrangement shall be liable to be avoided
on the ground of any such interest or benefit.
SECTION 3.15. Disclosure of Interests. For the purposes of Section 3.16:
(a) a general notice given to the Controlling Trustees that a Trustee is
to be regarded as having an interest of the nature and extent specified in the
notice in any transaction or arrangement in which a specified Person or class
of persons is interested shall be deemed to be a disclosure that the Trustee
has an interest in any such transaction of the nature and extent so specified;
and
(b) an interest of which a Trustee has no knowledge and of which it is
unreasonable to expect him to have knowledge shall not be treated as an
interest of that Trustee.
SECTION 3.16. Contract with Trustee. A Controlling Trustee,
notwithstanding his interest, may be counted in the quorum present at any
meeting at which any contract or arrangement in which he is interested is
considered and, subject to the provisions of Sections 3.13 and 3.14 hereof, he
may vote in respect of any such contract or arrangement.
SECTION 3.17. Validity of Acts. All acts done bona fide by any meeting of
Trustees or of a committee appointed by the Controlling Trustees or by any
Person acting as a Trustee shall, notwithstanding that it is afterwards
discovered that there was some defect in the appointment of any such Trustee or
committee or Person acting as aforesaid, or that they or any of them were
disqualified or had vacated office or were not entitled to vote, be as valid as
if every such Person had been duly appointed and was qualified and had continued
to be a Trustee or a member of a committee appointed by the Trustees and had
been entitled to vote.
SECTION 3.18. Minute Book. The Trustees shall cause all resolutions in
writing passed in accordance with Section 3.09 hereof and minutes of proceedings
at all meetings of the Trustees and of committees appointed by the Controlling
Trustees to be entered in books kept for the purpose. Any minutes of a meeting
shall be evidence of the proceedings.
SECTION 3.19. Fees and Remuneration. The Trustees shall be paid out of the
funds of MSAF their reasonable traveling and other expenses (including
reasonable fees and expenses of counsel and other experts) properly and
necessarily expended by them in attending meetings of the Trustees or otherwise
19
<PAGE> 20
in the affairs of MSAF. The Independent Trustees shall each be paid by way of
remuneration for their services a sum of $50,000 per annum which shall be
deemed to accrue from day to day. The Delaware Trustee shall be paid such
fee(s) as shall be agreed upon in a separate fee agreement to be entered into
by the Delaware Trustee and MSAF.
SECTION 3.20. Trustees May Rely. No Trustee shall incur any liability to
anyone in acting upon any signature, instrument, notice, resolution, request,
consent, order, certificate, report, opinion, bond or other document or paper
reasonably and in good faith believed by it to be genuine and signed by the
proper party or parties thereto. The Trustees may accept a copy of a resolution
of the board of directors of any corporate entity, certified by the secretary,
an assistant secretary or any other officer of the said entity, as duly adopted
and in full force and effect, as conclusive evidence that such resolution has
been adopted by said board and is in full force and effect. As to any fact or
matter, the manner of ascertainment of which is not specifically described
herein, the Trustees may for all purposes hereof rely on a certificate, signed
by or on behalf of the party executing such certificate, as to such fact or
matter, and such certificate shall constitute full protection of the Trustees
for any action taken or omitted to be taken by them in good faith in reliance
thereon. The Trustees may (a) exercise their powers and perform their duties by
or through such attorneys and agents as they shall appoint with due care, and
they shall not be liable for the acts or omissions of such attorneys and agents
and (b) consult with counsel, accountants and other experts, and the Trustees
shall be entitled to rely upon the advice of counsel, accountants and other
experts selected by them with due care and shall be protected by the advice of
such counsel in anything done or omitted to be done in accordance with such
advice. In particular, no provision of this Trust Agreement shall be deemed to
impose any duty on any Trustee to take any action if such Trustee shall have
been advised by counsel that such action would expose it to personal liability
or is contrary to the terms hereof, or is contrary to law.
SECTION 3.21. Trustees Act Solely as Trustees. In accepting and
performing the trusts created hereby, each Trustee acts solely as trustee
hereunder and not in any individual capacity, and all persons having any claims
against any Trustee by reason of the transactions contemplated hereby shall not
have any recourse to such Trustee in its individual capacity and shall look only
to the property of MSAF for payment or satisfaction thereof.
SECTION 3.22. No Expenses for the Trustees. No Trustee shall have any
obligation by virtue of this Trust Agreement to spend any of its own funds, or
to take any action which could, in the discretion of such Trustee, result in any
cost or expense being incurred by the Trustee, other than in connection with its
own obligations hereunder.
20
<PAGE> 21
SECTION 3.23. No Representations or Warranties as to Certain Matters .
NONE OF THE TRUSTEES, EITHER IN ITS CAPACITY AS TRUSTEE OR IN ITS INDIVIDUAL
CAPACITY, MAKES OR SHALL BE DEEMED TO HAVE MADE (A) ANY REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE, AIRWORTHINESS, VALUE, CONDITION,
WORKMANSHIP, DESIGN, COMPLIANCE WITH SPECIFICATIONS, CONSTRUCTION, OPERATION,
MERCHANTABILITY OR FITNESS FOR USE FOR A PARTICULAR PURPOSE OF THE AIRCRAFT
OWNED BY MSAF, AS TO THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT
DISCOVERABLE, AS TO THE ABSENCE OF ANY INFRINGEMENT OF ANY PATENT, TRADEMARK OR
COPYRIGHT, AS TO THE ABSENCE OF OBLIGATIONS BASED ON STRICT LIABILITY IN TORT,
OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH
RESPECT TO THOSE AIRCRAFT OR ANY PART THEREOF.
ARTICLE 4
INDEMNIFICATION OF TRUSTEES
SECTION 4.01. Liability and Indemnity. (a) The Trustees shall not be
liable to MSAF or the Depositor for monetary damages for breach of fiduciary
duty as a Trustee to the fullest extent permitted by Delaware law.
(b) Each Trustee (and the officers, directors, employees, heirs, executors
or administrators of such Trustee) who was or is a party or is threatened to be
made a party to, or is involved in any threatened, pending or completed action
or suit by or in the right of MSAF to procure a judgment in its favor by reason
of the fact that such Person is or was a Trustee of MSAF or is or was serving
at the request of MSAF as a trustee, director or officer of another trust,
corporation, partnership, joint venture or other enterprise, shall be
indemnified and held harmless by MSAF to the fullest extent permitted by
Delaware law.
(c) MSAF does hereby assume liability for and agree to indemnify,
reimburse and hold harmless each of the Trustees from any and all losses,
liabilities or expenses that may be imposed on, incurred by or asserted against
any of them arising out of, in connection with or related to their performance
under this Trust Agreement to the fullest extent permitted by Delaware law.
(d) The right to indemnification conferred in this Article 4 shall also
include the right to be paid by MSAF the expenses incurred in connection with
any such proceeding in advance of its final disposition to the fullest extent
authorized by Delaware law. The right to indemnification conferred in this
Article 4 shall be a contract right.
21
<PAGE> 22
SECTION 4.02. Agents. MSAF may, by action of its Controlling Trustees,
provide indemnification to such of the agents of MSAF to such extent and to such
effect as the Controlling Trustees shall determine to be appropriate and
authorized by Delaware law.
SECTION 4.03. Insurance. MSAF shall have power to purchase and maintain
insurance on behalf of any Person who is or was a Trustee or agent of MSAF, or
is or was serving at the request of MSAF as a trustee, director, officer,
employee or agent of another trust, corporation, partnership, joint venture or
other enterprise against any expense, liability or loss incurred by such Person
in any such capacity or arising out of his status as such, whether or not MSAF
would have the power to indemnify him against such liability under Delaware law.
SECTION 4.04. Non-exclusive Rights. The rights and authority conferred in
this Article 4 shall not be exclusive of any other right which any Person may
otherwise have or hereafter acquire.
SECTION 4.05. Survival. Neither the amendment nor repeal of this Trust
Agreement, nor, to the fullest extent permitted by Delaware law, any adoption or
modification of law, shall eliminate or reduce the effect of this Article 4 in
respect of any acts or omissions occurring prior to such amendment, repeal,
adoption or modification.
ARTICLE 5
TERMINATION OF MSAF
SECTION 5.01. Termination of MSAF. (a) MSAF shall dissolve only: (i) upon
satisfaction in full by MSAF of all debt securities issued by MSAF in accordance
with their respective terms and (ii) with the consent of all of the Controlling
Trustees.
(b) As soon as is practicable after the occurrence of the events referred
to in Section 5.01(a) above, the Controlling Trustees shall, after paying or
making provision for the payment of all obligations of MSAF in accordance with
applicable law, file a certificate of cancellation with the Secretary of State
of the State of Delaware, and thereupon MSAF shall terminate.
(c) The provisions of Article 4 shall survive termination of MSAF.
ARTICLE 6
AMENDMENTS
22
<PAGE> 23
SECTION 6.01. Amendments. (a) This Trust Agreement may only be amended
by a written instrument approved and executed by:
(i) a majority of the Controlling Trustees; and
(ii) if the amendment affects the rights, powers, duties or
obligations of the Delaware Trustee, the Delaware Trustee;
provided, however, that if the amendment affects (A) the rights, powers,
duties or obligations, including but not limited to, the events contemplated by
Section 3.08 hereof, of the Independent Trustees, (B) any organizational
documents of any subsidiaries of MSAF, to the extent such amendment would
affect the rights, powers or duties of the independent trustees or directors of
such subsidiary comparable to those in Sections 3.08 and 6.01 hereof or (C) any
of the provisions of Sections 2.02(b), 2.07 or 6.01, such amendment may only be
affected by a written instrument approved and executed by all of the
Controlling Trustees and Independent Trustees.
(b) At such time after MSAF has issued any debt securities that remain
outstanding, any amendment that would adversely affect the rights, privileges
or preferences of any holder of such debt securities, as determined by the
Controlling Trustees, may be effected only with such additional requirements as
may be set forth in the terms of the indenture or other instrument governing
such debt securities.
(C) Notice of each amendment to this Trust Agreement shall be given to
each of the Rating Agencies.
ARTICLE 7
MISCELLANEOUS
SECTION 7.01. Notices. All notices, consents, directions, approvals,
instructions, requests and other communications required or permitted by such
agreement to be given to any Person shall be in writing, and any such notice
shall become effective ten days after being deposited in the mails, certified or
registered, return receipt requested, with appropriate postage prepaid for first
class mail, or if delivered by hand or courier service or in the form of a
facsimile, when received (and, in the case of a facsimile, receipt of such
facsimile is confirmed to the sender), and shall be directed to the address or
facsimile number of such Person set forth below:
If to the Delaware Trustee:
Wilmington Trust Company
Attention: Corporate Trust Administration
1100 North Market Street
Rodney Square North
23
<PAGE> 24
Wilmington, Delaware 19890
Fax:(302) 651-8882
If to the Depositor, to:
MS Financing Inc.
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
Attention: Mr. Scott Peterson
Fax: + 44-171-415 4328
With a copy to:
Davis Polk & Wardwell
1 Frederick's Place
London EC2R 8AB
Attention: Mr. Tom Reid
Fax: + 44-171-418 1400
From time to time any party to such agreement may designate a new address
or number for purposes of notice thereunder by notice to each of the other
parties thereto.
SECTION 7.02. Governing Law. This Trust Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware.
SECTION 7.03. Jurisdiction. The Depositor hereby submits to the
jurisdiction of the Courts of Delaware or the United States Federal Courts
sitting therein, in any action or proceeding brought to enforce or otherwise
arising out of or relating to this Trust Agreement. The Depositor irrevocably
appoints Corporation Service Corporation, with an office on the date hereof at
1013 Centre Road, Wilmington, County of New Castle, Delaware 19805, as its agent
for service of process to receive on behalf of the Depositor service of copies
of the summons and complaint and any other process which may be served in any
such action or proceeding. Such service may be made by mailing or delivering a
copy of such process to the Depositor in care of such process agent, at the
address of such process agent stated above, and the Depositor hereby irrevocably
authorizes and directs such process agent to accept such service on its behalf.
As an alternative method of service of process, the Depositor consents to the
service of any and all process in any such action or proceeding by the mailing
of copies of such process to the Depositor by registered or certified mail at
its address
24
<PAGE> 25
designated in Section 7.01. In addition, the Depositor hereby irrevocably
waives to the fullest extent permitted by law any objection which it may now or
hereafter have to the laying of venue in any such action or proceeding in the
Courts of the State of Delaware or the United States Federal Courts sitting
therein, and hereby further irrevocably waives any claim that any such forum is
an inconvenient forum.
SECTION 7.04. Counterparts. This Trust Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument.
SECTION 7.05. Agreement. The terms of this Trust Agreement shall be
binding upon and inure to the benefit of and shall be enforceable by the
Depositor and the Trustees and their respective successors and assigns.
SECTION 7.06. Table of Contents; Headings. The table of contents and
headings of the various articles, sections and other subdivisions of this Trust
Agreement are for convenience of reference only and shall not modify, define or
limit any of the terms or provisions of such agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Trust Agreement
or caused this Trust Agreement to be duly executed by their respective officers
hereunto duly authorized, as of the day and year first above written.
WILMINGTON TRUST COMPANY, as Delaware Trustee
By: /s/ Emmett R. Harmon
Name: Emmett R. Harmon
Title: Vice President
MS FINANCING INC., as the Depositor
By: /s/ Debra M. Aaron
Name: Debra M. Aaron
Title: Vice President
KARL ESSIG, as Controlling Trustee
/s/ Karl Essig
ALEXANDER FRANK, as Controlling Trustee
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<PAGE> 26
/s/ Alexander Frank
MAURICE MASON, as Controlling Trustee
/s/ Maurice Mason
JUAN O'CALLAHAN, as Independent Trustee
/s/ Juan O'Callahan
ALEXANDER BANCROFT, as Independent Trustee
/s/ Alexander Bancroft
SCOTT PETERSON, as Alternate Controlling Trustee
/s/ Scott Peterson
26
<PAGE> 1
Exhibit 4.1
Conformed Copy
INDENTURE
dated as of March 3, 1998
by and between
MORGAN STANLEY AIRCRAFT FINANCE, a Delaware business trust,
as issuer of the Notes,
and
BANKERS TRUST COMPANY, as initial
trustee of the Notes
<PAGE> 2
Reconciliation and tie between the Indenture, dated as of March 3, 1998, and
the Trust Indenture Act of 1939, as amended. This reconciliation does not
constitute part of the Indenture.
<TABLE>
<S> <C>
Trust Indenture Act
of 1939 Section Indenture Section
------------------- -----------------
310(a)(1) 6.09
(a)(2) 6.09
(b) 6.08
311 6.08
312(a) 2.12
313(a) 6.10
313(c) 6.10/6.11(c)
314(a) 6.11(a) - (c)
(a)(4) 6.11(d)
(c)(1) 1.03
(c)(2) 1.03
(e) 1.03
315(b) 6.07
315(d) 6.01
316(a)(last sentence) 1.04(c)
(a)(1)(A) 4.12
(a)(1)(B) 4.05
(b) 4.09
(c) 1.04(d)
317(a)(1) 4.03; 13.04
(a)(2) 4.10
(b) 2.04
318(a) 13.13
</TABLE>
<PAGE> 3
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
Section 1.01. Definitions 1
Section 1.02. Rules of Construction 32
Section 1.03. Compliance Certificates and Opinions 34
Section 1.04. Acts of Noteholders 34
Section 1.05. Incorporation by Reference of Trust Indenture Act 36
ARTICLE II
THE NOTES
Section 2.01. Amount Not to Exceed the Initial Outstanding
Principal Balance; Terms; Form; Execution and
Delivery 36
Section 2.02. Restrictive Legends 39
Section 2.03. Registrar and Paying Agent 41
Section 2.04. Paying Agent to Hold Money in Trust 42
Section 2.05. Method of Payment 42
Section 2.06. Minimum Denomination 43
Section 2.07. Transfer and Exchange; Cancellation 43
Section 2.08. Mutilated, Destroyed, Lost or Stolen Notes 44
Section 2.09. Payments of Transfer Taxes 44
Section 2.10. Refinancing of Notes 45
Section 2.11. Issuer Additional Notes 46
Section 2.12. Book-Entry Provisions 48
Section 2.13. Special Transfer Provisions 50
Section 2.14. Temporary Definitive Notes 53
Section 2.15. Statements to Noteholders 54
Section 2.16. CUSIP, CINS AND ISIN Numbers 56
ARTICLE III
ACCOUNTS; PRIORITY OF PAYMENTS
Section 3.01. Establishment of Accounts 56
Section 3.02. Investments of Cash 61
Section 3.03. Closing Date Deposits, Withdrawals and Transfers 61
Section 3.04. Interim Deposits and Withdrawals 62
Section 3.05. Interim Deposits and Withdrawals for Modification
Payments or Dispositions of Aircraft 63
Section 3.06. Calculation Date Calculations 63
Section 3.07. Payment Date First Step Withdrawals and Transfers 66
Section 3.08. Payment Date Second Step Withdrawals 66
<PAGE> 4
Page
Section 3.09. Allocations of Principal Payments Among Subclasses
of the Notes 71
Section 3.10. Certain Redemptions; Certain Premiums 71
Section 3.11. Adjustment of Class Percentages and Target
Principal Balances 73
ARTICLE IV
DEFAULT AND REMEDIES
Section 4.01. Events of Default 74
Section 4.02. Acceleration, Rescission and Annulment 75
Section 4.03. Other Remedies 76
Section 4.04. Limitation on Suits 76
Section 4.05. Waiver of Existing Defaults 77
Section 4.06. Restoration of Rights and Remedies 77
Section 4.07. Remedies Cumulative 78
Section 4.08. Authority of Courts Not Required 78
Section 4.09. Rights of Noteholders to Receive Payment 78
Section 4.10. Trustee May File Proofs of Claim 78
Section 4.11. Undertaking for Costs 78
Section 4.12. Control by Noteholders 79
ARTICLE V
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 5.01. Representations and Warranties 79
Section 5.02. General Covenants 81
Section 5.03. Operating Covenants 93
ARTICLE VI
THE TRUSTEE
Section 6.01. Acceptance of Trusts and Duties 98
Section 6.02. Absence of Duties 98
Section 6.03. Representations or Warranties 99
Section 6.04. Reliance; Agents; Advice of Counsel 99
Section 6.05. Not Acting in Individual Capacity 101
Section 6.06. No Compensation from Noteholders 101
Section 6.07. Notice of Defaults 101
Section 6.08. May Hold Notes 101
Section 6.09. Corporate Trustee Required; Eligibility 101
Section 6.10. Reports by Trustee 102
Section 6.11. Reports by the Issuer 102
ARTICLE VII
<PAGE> 5
SUCCESSOR TRUSTEES
Page
Section 7.01. Resignation and Removal of Trustee 103
Section 7.02. Appointment of Successor 103
ARTICLE VIII
INDEMNITY
Section 8.01. Indemnity 104
Section 8.02. Noteholders' Indemnity 105
ARTICLE IX
MODIFICATION
Section 9.01. Modification with Consent of Holders 105
Section 9.02. Modification Without Consent of Holders 106
Section 9.03. Subordination and Priority of Payments 106
Section 9.04. Execution of Amendments by Trustee 106
Section 9.05. Swap Providers 106
Section 9.06. Conformity with Trust Indenture Act 107
ARTICLE X
SUBORDINATION
Section 10.01. Subordination of the Notes 107
ARTICLE XI
DISCHARGE OF INDENTURE; DEFEASANCE
Section 11.01. Discharge of Liability on the Notes; Defeasance 109
Section 11.02. Conditions to Defeasance 110
Section 11.03. Application of Trust Money 111
Section 11.04. Repayment to Issuer 111
Section 11.05. Indemnity for Government Obligations and
Corporate Obligations 111
Section 11.06. Reinstatement 112
ARTICLE XII
GUARANTEE
Section 12.01. Guarantee 112
Section 12.02. Conditions to Effectiveness of Guarantee 114
Section 12.03. Ranking and Subordination of the Guarantees 114
<PAGE> 6
Page
ARTICLE XIII
MISCELLANEOUS
Section 13.01. Right of Trustee to Perform 115
Section 13.02. Waiver 115
Section 13.03. Severability 115
Section 13.04. Restrictions on Exercise of Certain Rights 116
Section 13.05. Notices 116
Section 13.06. Assignments 118
Section 13.07. Currency Conversion 118
Section 13.08. Application to Court 119
Section 13.09. Governing Law 120
Section 13.10. Jurisdiction 120
Section 13.11. Counterparts 120
Section 13.12. Table of Contents, Headings, Etc. 120
Section 13.13. Trust Indenture Act 120
Schedules
Schedule A - Initial Appraised Value of the Initial Aircraft
Schedule B - Issuer Subsidiaries
Exhibits
Exhibit A-1 - Form of Subclass A-1 Floating Rate Note
Exhibit A-2 - Form of Subclass A-2 Floating Rate Note
Exhibit B - Form of Subclass B-1 Floating Rate Note
Exhibit C - Form of Subclass C-1 Fixed Rate Note
Exhibit D - Form of Subclass D-1 Fixed Rate Note
Exhibit E - Concentration Limits
Exhibit F - Agents for Service of Process
Exhibit G - Insurance Provisions
Exhibit H - Form of Monthly Report to the Issuer and Each Rating
Agency
Exhibit I - Form of Certificate
Exhibit J - Form of Certificate to be Delivered in Connection with
Transfers Pursuant to Regulation S
Exhibit K - Form of Certificate to be Delivered in Connection with
Transfers to Non-QIB Accredited Investors
Exhibit L - Core Lease Provisions
Appendices
<PAGE> 7
Appendix A - Class Percentages
Appendix B - Target Principal Balances
<PAGE> 8
TRUST INDENTURE, dated as of March 3, 1998 (this "Indenture"), by
and among MORGAN STANLEY AIRCRAFT FINANCE, a Delaware business
trust ("MSAF") created under the Third Amended and Restated Trust
Agreement dated as of March 3, 1998 (the "Trust Agreement"), among
MS Financing Inc., as depositor (the "Depositor"), Wilmington
Trust Company, as Delaware Trustee (the "Delaware Trustee"), the
Controlling Trustees, the Alternate Controlling Trustee and the
Independent Trustees, as issuer of the Notes (the "Issuer"), and
BANKERS TRUST COMPANY, as trustee of each subclass of Notes (the
"Trustee").
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. For purposes of this Indenture, the following
terms shall have the meanings indicated below:
"Acceleration Default" means any Event of Default of the type described in
Section 4.01(f) or 4.01(g) hereof.
"Accounts" means the Rental Accounts, the Collection Account, the
Defeasance/Redemption Account, the Expense Account, the Lessee Funded Account,
the Aircraft Purchase Account and the Refinancing Account and any ledger and
subledger accounts maintained therein in accordance with this Indenture.
"Acquisition Agreements" means the Asset Purchase Agreement and any
agreements pursuant to which Issuer Additional Aircraft are acquired.
"Act", with respect to any Noteholder, has the meaning given to such term
in Section 1.04 hereof.
"Additional Aircraft" means the Issuer Additional Aircraft and the
Guarantor Additional Aircraft.
"Additional Issuance" has the meaning given to such term in Section 2.11
hereof.
"Additional Lease" means, with respect to each Additional Aircraft, each
aircraft lease agreement, conditional sale agreement, hire purchase agreement
or other similar arrangement with respect to such Additional Aircraft on the
relevant Closing Date.
"Additional Servicer" means a servicer of any Issuer Additional Aircraft
pursuant to an Additional Servicing Agreement.
<PAGE> 9
"Additional Servicing Agreement" means any servicing agreement entered
into to service any Issuer Additional Aircraft.
"Adjusted Base Value" means, with respect to any Aircraft on any
Calculation Date, the average of the Base Values of such Aircraft as determined
by the Appraisals of such Aircraft delivered in connection with the Relevant
Appraisal with respect to such Calculation Date.
"Adjusted Portfolio Value" means, in respect of any Payment Date, the sum
of the products of (i) the Adjusted Base Value of each Aircraft in the
Portfolio on the Calculation Date preceding such Payment Date and (ii) the
quotient obtained by dividing the applicable Depreciation Factor for such
Aircraft on such Calculation Date by the applicable Depreciation Factor for
such Aircraft as of the Relevant Appraisal with respect to such Calculation
Date.
"Administrative Agency Agreement" means the Administrative Agency
Agreement dated as of the Initial Closing Date among the Administrative Agent,
the Security Trustee, the Issuer, the Aircraft Owning Companies, Greenfly
(Ireland) Limited and Redfly (UK) Limited.
"Administrative Agent" means Cabot Aircraft Services Limited, a company
incorporated under the laws of Ireland, in its capacity as administrative agent
under the Administrative Agency Agreement, including its successors in interest
and permitted assigns, until a successor Person shall have become the
administrative agent under such agreement, and thereafter "Administrative
Agent" shall mean such successor Person.
"affiliate" has the meaning given to such term in Section 5.02(b) hereof.
"Agent Members" has the meaning given to such term in Section 2.12 hereof.
"Agreed Currency" has the meaning given to such term in Section 13.07(a)
hereof.
"Agreed Value Payment" means a payment to be made by or on behalf of a
Lessee under a Lease upon or following a Total Loss of an Aircraft with respect
to such Total Loss.
"Aircraft" means the Initial Aircraft and the Additional Aircraft.
"Aircraft Agreement" has the meaning given to such term in Section 5.02(g)
hereof.
"Aircraft Owning Companies" means initially, MSA I and Aircraft SPC-5,
Inc., a California corporation, any successor corporations and any other Issuer
Subsidiaries holding title to an Aircraft.
"Aircraft Purchase Account" has the meaning given to such term in Section
<PAGE> 10
3.01(h) hereof.
"Aircraft Sale" means any sale or other disposition of any Aircraft,
including by reason of such Aircraft suffering a Total Loss.
"Allowed Restructuring" has the meaning given to such term in Section
5.02(e) hereof.
"Annual Report" has the meaning given to such term in Section 2.15(a)
hereof.
"Applicable Aviation Authority" means, in relation to any Aircraft, each
governmental or regulatory authority that has responsibility for the
supervision of civil aviation and/or the registration and operations of civil
aircraft in the State of Registration of such Aircraft.
"Applicable Law" means, with respect to any Person, all laws, rules,
regulations and orders of governmental regulatory authorities applicable to
such Person, including, without limitation, the regulations of each Applicable
Aviation Authority applicable to such Person.
"Appraisal" means a desktop appraisal of the Base Value of an Aircraft
made pursuant to Section 5.03(c) hereof.
"Appraisers" has the meaning set forth in Section 5.03(c) hereof.
"Asset Purchase Agreement" means the Asset Purchase Agreement dated as of
November 10, 1997 between ILFC and the Issuer.
"Assumed Portfolio Value" means, in respect of any Payment Date, the sum
of the products of (i) the Initial Appraised Value of each Aircraft in the
Portfolio on the Calculation Date preceding such Payment Date and (ii) the
quotient obtained by dividing the Depreciation Factor applicable to such
Aircraft on such Calculation Date by the Depreciation Factor applicable to such
Aircraft on the relevant Closing Date.
"Authorized Agent" means, with respect to the Notes of any subclass, any
authorized Paying Agent or Registrar for the Notes of such subclass.
"Available Collections Amount" means, as of any Calculation Date, amounts
on deposit in the Collection Account less the Required Expense Amount
determined as of such date.
"Bankers Trust" means Bankers Trust Company, a New York banking
corporation currently located at Four Albany Street, New York, New York 10006.
"Base Value" means the value of an Aircraft in an open, unrestricted,
stable market environment with a reasonable balance of supply and demand, and
with full consideration of the Aircraft's "highest and best use", presuming an
arm's-length, cash
<PAGE> 11
transaction between willing, able and knowledgeable parties, acting prudently,
with an absence of duress and with a reasonable period of time available for
marketing, adjusted to account for the maintenance status of such Aircraft (with
certain assumptions as to use since the last reported status).
"Basic Terms Modification" has the meaning given to such term in Section
9.01 hereof.
"Beneficial Interest" means the undivided beneficial interest in the
property of the Issuer arising out of the Trust Agreement.
"Beneficial Interest Distribution Amount" means on any Payment Date after
March 15, 2003, an amount, as determined and declared by the Controlling
Trustees, not to exceed the lesser of (i) 3% of the difference, if positive,
between the Adjusted Portfolio Value in respect of such Payment Date and the
Outstanding Principal Balance of the MSAF Group Notes (determined prior to
application of the Available Collections Amount on such Payment Date) and (ii)
15% of the Available Collections Amount on such Payment Date after application
of payments and retentions set forth in (i) to (xvii) of Section 3.08(a)
hereof.
"Business Day" means a day on which U.S. dollar deposits may be dealt in
on the London inter-bank market and commercial banks and foreign exchange
markets are open in New York, New York and London, England and, with respect to
payments to or withdrawals from the Non-Trustee Accounts, a day on which the
financial institution at which such account is located is open for business.
"Calculation Date" means the fourth Business Day immediately preceding
each Payment Date.
"Cash Management Agreement" means the Cash Management Agreement dated as
of the Initial Closing Date among the Issuer, the Trustee, the Security Trustee
and the Cash Manager.
"Cash Manager" means Bankers Trust, in its capacity as cash manager under
the Cash Management Agreement, including its successors in interest, until a
successor Person shall have become the cash manager under that agreement, and
thereafter, "Cash Manager" shall mean such successor Person.
"Cedel" means Cedel Bank, societe anonyme.
"Class A Notes" means, collectively, the Subclass A-1 Notes and the
Subclass A-2 Notes, each substantially in the form attached as Exhibits A-1 and
A-2 hereto, any Refinancing Notes issued to refinance any subclass of the Class
A Notes and any Issuer Additional Notes of such class.
"Class B Notes" means the Subclass B-1 Notes, substantially in the form
attached as Exhibit B-1 hereto, any Refinancing Notes issued to refinance any
subclass of the Class B Notes and any Issuer Additional Notes of such class.
<PAGE> 12
"Class C Notes" means the Subclass C-1 Notes, each substantially in the
form attached as Exhibit C-1 hereto, any Refinancing Notes issued to refinance
any subclass of the Class C Notes and any Issuer Additional Notes of such
class.
"Class D Notes" means the Subclass D-1 Notes, substantially in the form
attached as Exhibit D-1 hereto, any Refinancing Notes issued to refinance any
subclass of the Class D Notes and any Issuer Additional Notes of such class.
"Class Percentage" means each of the Minimum Class Percentage, Scheduled
Class Percentage and Supplemental Class Percentage.
"Closing Date" means in the case of (i) the Initial Notes and the Initial
Aircraft, the Initial Closing Date, (ii) any Refinancing Notes or MSAF Group
Additional Notes, the relevant date of issuance of such Notes and (iii) any
Additional Aircraft, the date of issuance of the MSAF Group Additional Notes
issued to finance the acquisition of such Additional Aircraft.
"Collateral" has the meaning given to such term in the Security Trust
Agreement.
"Collection Account" has the meaning given to such term in Section 3.01(b)
hereof.
"Collections" means, without duplication, (i) Rental Payments (other than
Segregated Funds) and all other amounts received by any MSAF Group Member
pursuant to any Lease or MSAF Group Related Collateral Document, (ii) the
amount on deposit in the Collection Account in respect of the Liquidity Reserve
Amount, (iii) amounts received in respect of claims for damages or in respect
of any breach of contract for nonpayment of any of the foregoing (including any
amounts received from any MSAF Group Member, whether by way of distribution,
dividend, repayment of a loan or otherwise, and any proceeds received in
connection with any Allowed Restructuring), (iv) the amount received by any
MSAF Group Member in connection with any Aircraft Sale or otherwise received
under any Aircraft Agreement, including sale proceeds, Total Loss Proceeds,
Agreed Value Payments, proceeds of PRI, Requisition Compensation and all
Partial Loss Proceeds, less, in each case, any expenses payable by such MSAF
Group Member to any Person that is not a MSAF Group Member in connection
therewith, (v) other amounts received by any MSAF Group Member from insurance
with respect to any Aircraft, (vi) any amounts transferred from the Lessee
Funded Account into the Collection Account in accordance with Section 3.07
hereof, (vii) any Swap Receipts, (viii) the proceeds of any investments of the
funds in the Accounts (except to the extent that any such proceeds are required
to be paid over to any Lessee under a Lease), (ix) any amounts transferred from
the Aircraft Purchase Account into the Collection Account in accordance with
Section 3.04 hereof and (x) any other amounts received by any MSAF Group Member
other than (A) Segregated Funds, (B) funds to be applied in connection with a
redemption under Section 3.10(a) or (b) under this Indenture or under any
Guarantor Indenture, which shall be deposited in the Defeasance/Redemption
Account, (C) funds received in connection with a Refinancing and (D) other
amounts required to be
<PAGE> 13
paid over to any third party pursuant to any Related Document, in each case
subject to the restrictions set forth in this Indenture and any Guarantor
Indenture.
"Commission" means the U.S. Securities and Exchange Commission, as from
time to time constituted or created under the Exchange Act, or, if at any time
after the execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then
the body performing such duties on such date.
"Concentration Default" has the meaning given to such term in Section
5.02(g) hereof.
"Concentration Limits" has the meaning given to such term in Section
5.03(a) hereof.
"control" has the meaning given to such term in Section 5.02(b) hereof,
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Controlling Trustees" has the meaning given to such term in the Trust
Agreement.
"Controlling Trustees' Resolution" means a copy of a resolution certified
by a Signatory Trustee as having been duly adopted by the Controlling Trustees
and being in full force and effect on the date of such certification.
"Core Lease Provisions" has the meaning given to such term in Section
5.03(f) hereof.
"Corporate Obligations" has the meaning given to such term in Section
11.02 hereof.
"Corporate Trust Office" means, with respect to the Trustee, the office of
such trustee in the city at which at any particular time its corporate trust
business shall be principally administered and, with respect to the Trustee on
the date hereof, shall be Four Albany Street, New York, New York 10006,
Attention: Corporate Trust and Agency Group--Structured Finance, Facsimile No:
+212-250-6439.
"covenant defeasance" has the meaning given to such term in Section 11.01
hereof.
"Credit Facility" means any letter of credit, guarantee or other credit or
liquidity enhancement facility in favor of the Issuer.
"Custody and Loan Agreement" means the custody and loan agreement dated as
of the Initial Closing Date among the Issuer, the other MSAF Lessors (as
defined therein) and ILFC.
<PAGE> 14
"DCR" means Duff and Phelps Credit Rating Co., and any successor thereto,
or, if such corporation or its successor shall for any reason no longer perform
the functions of a securities rating agency, "DCR" shall be deemed to refer to
any other nationally recognized rating agency designated by the Issuer.
"Default" means a condition, event or act which, with the giving of notice
or the lapse of time or both, would constitute an Event of Default.
"Default Notice" means a notice given to the Issuer by Holders
representing 25% of the aggregate Outstanding Principal Balance of the Senior
Class of Notes, with a copy to the Trustee of each subclass of Notes, the Cash
Manager and the Administrative Agent, declaring all Outstanding principal of
and accrued and unpaid interest on the Notes to be immediately due and payable.
"Defeasance/Redemption Account" has the meaning given to such term in
Section 3.01(g) hereof.
"Definitive Notes" has the meaning given to such term in Section 2.01(b)
hereof.
"Depositor" has the meaning set forth in the preambles hereof.
"Depository" means The Depository Trust Company, its nominees and their
respective successors.
"Depreciation Factor" means, (i) with respect to each Initial Aircraft on
any date of determination, if positive, the product of (1-kn) and 1.02n ,
where "n" equals the age of such Aircraft in years from the date of its
manufacture and "k" equals a fraction, the numerator of which is 1 and the
denominator of which is the Expected Useful Life of such Initial Aircraft;
provided that in the event such Aircraft is converted to freighter service, the
Depreciation Factor for such Aircraft shall be the factor determined by the
Controlling Trustees and (ii) with respect to each Additional Aircraft, the
Depreciation Factor determined by the Controlling Trustees in connection with
the issuance of the MSAF Group Additional Notes funding the acquisition of such
Additional Aircraft.
"Direction" has the meaning given to such term in Section 1.04(c) hereof.
"Eligibility Requirements" has the meaning given to such term in Section
2.03(b) hereof.
"Eligible Account" means a segregated trust account with an Eligible
Institution.
"Eligible Credit Facility" means any Credit Facility provided by, or
supported with a further Credit Facility provided by, an Eligible Provider.
"Eligible Institution" means (a) Bankers Trust, so long as it has (A) a
<PAGE> 15
long-term unsecured debt rating of A (or the equivalent) or better by each
Rating Agency or (B) a certificate of deposit rating of A-1 by Standard &
Poor's, P-1 by Moody's and otherwise acceptable to DCR; and (b) any bank
organized under the laws of the United States of America or any state thereof,
or the District of Columbia (or any domestic branch of a foreign bank), which
at all times has either (A) a long-term unsecured debt rating of AA (or the
equivalent) or better by each Rating Agency or (B) a certificate of deposit
rating of A-l+ by Standard & Poor's, P-1 by Moody's and D-1 by DCR.
"Eligible Provider" means a Person whose short-term unsecured debt is
rated A-1+ by Standard & Poor's, P-1 by Moody's or D-1+ by DCR or is otherwise
designated as an Eligible Provider by the Controlling Trustees.
"Encumbrance" has the meaning given to such term in Section 5.02(b)
hereof.
"Engine" means each engine installed on any aircraft, or, where any such
engine has been replaced under the terms of the relevant Lease, the engine
replacing such engine, and includes any and all Parts incorporated in,
installed on or attached to such engine.
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear System.
"Event of Default", with respect to a class of Notes, has the meaning
given to such term in Section 4.01 hereof.
"Excess Amortization Date" means, with respect to (i) the Subclass A-1
Notes, March 15, 2000, (ii) the Subclass A-2 Notes and the Subclass B-1 Notes,
April 15, 1998, (iii) the Subclass C-1 Notes, March 15, 2013, (iv) the Subclass
D-1 Notes, March 15, 2010 and (v) any Refinancing Notes or Issuer Additional
Notes, the Excess Amortization Date established by or pursuant to a Controlling
Trustees' Resolution or in any indenture supplemental hereto providing for the
issuance of such Notes or specified in the form of such Notes.
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended.
"Exchange Notes" means any securities of the Issuer containing terms
identical to the Notes (except that such Exchange Notes shall be registered
under the Securities Act) that are issued and exchanged for the Notes pursuant
to a Registration Rights Agreement and this Indenture.
"Expected Final Payment Date" means with respect to (i) the Subclass A-1
Notes, March 15, 2000, (ii) the Subclass A-2 Notes, September 15, 2005, (iii)
the Subclass B-1 Notes, March 15, 2013, (iv) the Subclass C-1 Notes, March 15,
2013, (v) the Subclass D-1 Notes, March 15, 2014 and (vi) any Refinancing Notes
or Issuer Additional Notes, the Expected Final Payment Date established by or
pursuant to a Controlling Trustees' Resolution or in any indenture supplemental
hereto providing for the issuance of such Notes or specified in the form of
such Notes.
<PAGE> 16
"Expected Useful Life" means, with respect to each Initial Aircraft, 25
years and, with respect to any Issuer Additional Aircraft, the "Useful Life"
established by or pursuant to a Controlling Trustees' Resolution or in any
indenture supplemental hereto providing for the issuance of Issuer Additional
Notes funding the acquisition of such Additional Aircraft.
"Expense Account" has the meaning given to such term in Section 3.01(d) of
this Indenture.
"Expenses" means, with respect to MSAF Group, collectively, any fees,
costs or expenses incurred by any MSAF Group Member in the course of the
business activities permitted under Section 5.02(e) of this Indenture or under
any Guarantor Indenture, including, without limitation, any fees and expenses
of any Service Provider; provided, however, that, except as expressly provided
herein, Expenses shall not include any amount payable on the MSAF Group Notes,
under any Swap Agreement or under any Credit Facilities or any other amounts
ranking pari passu with or junior to interest payable on the MSAF Group Class A
Notes in the priority of payments set forth under Section 3.08 of this
Indenture.
"Extended Pool Factor" means, with respect to each subclass of MSAF Group
Notes, the "Extended Pool Factor" set forth in the appendix to such Notes.
"Extension Amount" has the meaning given to such term in Section 3.09
hereof.
"Final Maturity Date" means with respect to (i) the Subclass A-1 Notes,
the Subclass A-2 Notes, the Subclass B-1 Notes, the Subclass C-1 Notes and the
Subclass D-1 Notes, March 15, 2023 and (ii) any Refinancing Notes or Issuer
Additional Notes, the date specified in the form of such Notes.
"Financial Advisor" means Morgan Stanley & Co. Incorporated in its
capacity as financial advisor under the Financial Advisory Agreement, including
its successors in interest and permitted assigns, until a successor Person
shall become the financial advisor under such agreement; and thereafter
"Financial Advisor" shall mean such successor Person.
"Financial Advisory Agreement" means the Financial Advisory Agreement
dated as of the Initial Closing Date among the Financial Advisor and the
Issuer.
"Fixed Rate Notes" means the Subclass C-1 Notes, the Subclass D-1 Notes
and any Refinancing Notes or Issuer Additional Notes issued with a fixed rate
of interest.
"Floating Rate Notes" means the Subclass A-1 Notes, the Subclass A-2
Notes, the Subclass B-1 Notes and any Refinancing Notes or Issuer Additional
Notes issued with a floating or variable rate of interest.
"Future Lease" means, with respect to each Aircraft, any aircraft lease
<PAGE> 17
agreement, conditional sale agreement, hire purchase agreement or other similar
arrangement as may be in effect at any time after the relevant Closing Date
between the related MSAF Group Member (as lessor or vendor) and a Person not an
MSAF Group Member (as lessee or purchaser), as such agreement or arrangement may
be amended, modified, extended, supplemented, assigned or novated from time to
time, in each case other than any Initial Lease; provided that if, under any
sub-leasing arrangement with respect to an Aircraft, the lessor thereof agrees
to receive payments or collateral directly from, or is to make payments directly
to, the sub-lessee, in any such case to the exclusion of the related Lessee,
then the relevant sub-lease shall constitute the "Lease", and the sub-lessee
shall constitute the related "Lessee" with respect to such Aircraft, but only to
the extent of the provisions of such sub-lease agreement relevant to such
payments and collateral and to the extent agreed by the relevant lessor.
"Global Notes" means any Rule 144A Global Notes and Regulation S Global
Notes.
"Guarantee" has the meaning given to such term in Section 5.02(f) hereof.
"guarantee" has the meaning given to such term in Section 5.02(f) hereof.
"Guarantor" means a special purpose vehicle, other than an Issuer
Subsidiary, organized to (i) issue Guarantor Additional Notes pursuant to an
indenture the terms of which are substantially identical to those of this
Indenture, the proceeds of which shall be used to acquire Guarantor Additional
Aircraft and (ii) guarantee the Notes.
"Guarantor Additional Aircraft" means any aircraft or Engine acquired by a
Guarantor or any Guarantor Subsidiary after the Initial Closing Date, excluding
any such aircraft or Engine sold or disposed of by way of a completed Aircraft
Sale.
"Guarantor Additional Notes" has the meaning given to such term in Section
12.02 hereof.
"Guarantor Class A Additional Note Guarantee" has the meaning given to
such term in Section 12.03 hereof.
"Guarantor Class A Additional Notes" means the Guarantor Additional Notes
issued by a Guarantor ranking pari passu with the Class A Notes.
"Guarantor Class B Additional Note Guarantee" has the meaning given to
such term in Section 12.03 hereof.
"Guarantor Class B Additional Notes" means the Guarantor Additional Notes
issued by a Guarantor ranking pari passu with the Class B Notes.
"Guarantor Class C Additional Note Guarantee" has the meaning given to
such term in Section 12.03 hereof.
<PAGE> 18
"Guarantor Class C Additional Notes" means the Guarantor Additional Notes
issued by a Guarantor ranking pari passu with the Class C Notes.
"Guarantor Class D Additional Note Guarantee" has the meaning given to
such term in Section 12.03 hereof.
"Guarantor Class D Additional Notes" means the Guarantor Additional Notes
issued by a Guarantor ranking pari passu with the Class D Notes.
"Guarantor Indenture" has the meaning given to such term in Section 12.02
hereof.
"Guarantor Subsidiary" means each subsidiary of a Guarantor.
"Guarantor Trustee" means a trustee or any successor trustee appointed in
accordance with a Guarantor Indenture.
"ILFC" means International Lease Finance Corporation, a corporation
incorporated under the laws of California.
"incur" has the meaning given to such term in Section 5.02(f) hereof.
"Indebtedness" has the meaning given to such term in Section 5.02(f)
hereof.
"Indenture" has the meaning set forth in the preamble hereof.
"Independent Trustees" has the meaning given to such term in the Trust
Agreement.
"Initial Aircraft" means each of the aircraft (including any related
Engines) and the spare Engine identified in Schedule A hereto, any Remaining
Aircraft and Substitute Aircraft, excluding any such aircraft sold or disposed
of by way of a completed Aircraft Sale.
"Initial Appraised Value", in the case of each Initial Aircraft, means the
average of the appraisals by each of the Initial Appraisers of the Base Value
of such Aircraft as of September 30, 1997 and, in the case of any Additional
Aircraft, the average of the appraisals by each of the Appraisers of the Base
Value of such Aircraft as of a date not more than six months prior to the
Closing Date for the issuance of the relevant MSAF Group Additional Notes.
"Initial Appraisers" means Aircraft Information Services, Inc., BK
Associates, Inc. and Airclaims Limited.
"Initial Closing Date" means March 3, 1998.
<PAGE> 19
"Initial Lease" means, with respect to each Initial Aircraft, each
aircraft lease agreement, conditional sale agreement, hire purchase agreement
or other similar arrangement with respect to such Initial Aircraft which is
listed in Section 3.09 of the Disclosure Schedule to the Asset Purchase
Agreement, as such agreement or arrangement may be amended, modified, extended,
supplemented, assigned or novated from time to time.
"Initial Notes" means the Subclass A-1 Notes, the Subclass A-2 Notes, the
Subclass B-1 Notes, the Subclass C-1 Notes and the Subclass D-1 Notes.
"Initial Outstanding Balance" means, with respect to any MSAF Group Notes,
the initial total principal amount on the date of issuance therefor of such
Notes unpaid and outstanding at any time.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act.
"Intercompany Loan" has the meaning given to such term in Section 5.02(f)
hereof.
"Interest Accrual Period" means, as to each subclass of MSAF Group Notes,
the period beginning on (and including) the relevant Closing Date and ending on
(but excluding) the first Payment Date thereafter and each successive period
beginning on (and including) a Payment Date and ending on (but excluding) the
next succeeding Payment Date; provided that the final Interest Accrual Period
with respect to any subclass of MSAF Group Notes shall end on but exclude the
Final Maturity Date with respect to such subclass of MSAF Group Notes (or, if
earlier, with respect to any subclass of MSAF Group Notes repaid in full, the
date such subclass of MSAF Group Notes is repaid in full). Account balances
with respect to each Interest Accrual Period shall be determined by reference
to the balances of funds on deposit in the Accounts on the Calculation Date
immediately preceding each Payment Date.
"Interest Amount" means, with respect to each subclass of MSAF Group
Notes, on any Payment Date, the amount of accrued and unpaid interest at the
Stated Rate of Interest with respect to such subclass of MSAF Group Notes on
such Payment Date (including, to the fullest extent permitted by applicable
law, interest on accrued and unpaid interest (excluding any unpaid Step-Up
Interest) from any prior Interest Accrual Period at the Stated Rate of Interest
for such subclass), determined in accordance with the terms of such subclass of
MSAF Group Notes. Any amount of Premium or interest on any subclass of MSAF
Group Notes not paid when due shall, to the fullest extent permitted by
applicable law, bear interest at an interest rate per annum equal to the Stated
Rate of Interest for such MSAF Group Notes from the date when due until such
amount is paid or duly provided for, payable on the next succeeding Payment
Date, subject to the availability of the Available Collections Amount therefor
after making payments entitled to priority under Section 3.08 hereof.
"investment" has the meaning given to such term in Section 5.02(c) hereof.
<PAGE> 20
"Issuer" has the meaning set forth in the preamble hereof.
"Issuer Additional Aircraft" means any aircraft or Engine acquired by the
Issuer or any Issuer Subsidiary after the Initial Closing Date (other than any
Remaining Aircraft or Substitute Aircraft), excluding any such aircraft or
Engine sold or disposed of by way of a completed Aircraft Sale.
"Issuer Additional Notes" means any notes issued pursuant to this
Indenture the proceeds of which are used to acquire Issuer Additional Aircraft.
"Issuer Subsidiary" means each subsidiary of the Issuer existing on the
Initial Closing Date and listed on Schedule B to this Indenture and any other
subsidiary of the Issuer.
"Leases" means the Initial Leases, the Future Leases and the Additional
Leases.
"legal defeasance" has the meaning given to such term in Section 11.01
hereof.
"Lessee" means each Person who is the lessee of an Aircraft from time to
time leased from any MSAF Group Member.
"Lessee Funded Account" has the meaning given to such term in Section
3.01(c) hereof.
"LIBOR" means, unless otherwise specified, the London interbank offered
rate for one month U.S. dollar deposits, determined pursuant to the Reference
Agency Agreement.
"Liquidity Reserve Amount" means an amount, initially approximately $65.5
million, which may be increased or decreased from time to time by the
Controlling Trustees for any reason; provided that any such reduction shall be
subject to Rating Agency Confirmation.
"Listing Agent" means Banque Internationale a Luxembourg S.A.
"Losses" means any loss, cost, charge, expense, interest, fee, payment,
demand, liability, claim, action, proceeding, penalty, fine, damages, judgment,
order or other sanction other than Taxes.
"Minimum Class Percentage" means, with respect to the MSAF Group Class A
Notes and the MSAF Group Class B Notes on any Payment Date, the "Minimum Class
Percentage" set forth in Appendix A to this Indenture for such Payment Date, as
such percentage shall be adjusted from time to time in accordance with Section
3.11 hereof.
"Minimum Liquidity Reserve Amount" means an amount, initially equal to $15
million, which may be increased or decreased from time to time by the
Controlling
<PAGE> 21
Trustees for any reason; provided that any such reduction shall be subject to
Rating Agency Confirmation.
"Minimum Principal Payment Amount" means, with respect to each class of
MSAF Group Notes on any Payment Date, the difference, if positive, between the
aggregate Outstanding Principal Balance of such class of MSAF Group Notes and
the Minimum Target Principal Balance of such class of MSAF Group Notes on such
Payment Date.
"Minimum Target Principal Balance" means, with respect to (i) the MSAF
Group Class A Notes and the MSAF Group Class B Notes on any Payment Date, the
product of (x) the Minimum Class Percentage for such class of MSAF Group Notes
on such Payment Date and (y) the Assumed Portfolio Value in respect of such
Payment Date; provided that, if on any Payment Date the Outstanding Principal
Balance of MSAF Group Class A Notes is greater than the Adjusted Portfolio
Value in respect of such Payment Date, then the "Minimum Target Principal
Balance" of MSAF Group Class A Notes shall be equal to the Scheduled Target
Principal Balance of MSAF Group Class A Notes and (ii) the MSAF Group Class C
Notes and the MSAF Group Class D Notes on any Payment Date, the "Minimum Target
Principal Balance" set forth in Appendix A to this Indenture for such Payment
Date, as such amount shall be adjusted from time to time in accordance with
Section 3.11 hereof.
"Modification Payment" has the meaning given to such term in Section
5.02(i) hereof.
"Monthly Report" has the meaning given to such term in Section 2.15(a)
hereof.
"Moody's" means Moody's Investors Service, Inc. and any successor thereto.
"Morgan Stanley" means Morgan Stanley, Dean Witter, Discover & Co., a
corporation incorporated under the laws of the State of Delaware.
"Morgan Stanley Loan Agreement" means the loan agreement dated as of the
Initial Closing Date between the Issuer and Morgan Stanley.
"MSAF Group" means the Issuer, any Issuer Subsidiary, any Guarantor and
any Guarantor Subsidiary.
"MSAF Group Additional Notes" means the Issuer Additional Notes and the
Guarantor Additional Notes.
"MSAF Group Class A Notes" means the Class A Notes and the Guarantor Class
A Additional Notes.
"MSAF Group Class B Notes" means the Class B Notes and the Guarantor Class
B Additional Notes.
<PAGE> 22
"MSAF Group Class C Notes" means the Class C Notes and the Guarantor Class
C Additional Notes.
"MSAF Group Class D Notes" means the Class D Notes and the Guarantor Class
D Additional Notes.
"MSAF Group Fixed Rate Notes" means the MSAF Group Notes issued with a
fixed rate of interest.
"MSAF Group Floating Rate Notes" means the MSAF Group Notes issued with a
floating or variable rate of interest.
"MSAF Group Member" means the Issuer, any Guarantor, any Issuer Subsidiary
or any Guarantor Subsidiary.
"MSAF Group Notes" means the Notes and the Guarantor Additional Notes.
"MSAF Group Related Collateral Document" means any Related Collateral
Document or any "Related Collateral Document" referred to in a Guarantor
Indenture.
"MSA I" means MSA I, a Delaware business trust.
"Net Sale Proceeds" has the meaning given to such term in Section 5.02(g)
hereof.
"Non-Trustee Accounts" has the meaning given to such term in Section
3.01(e) hereof.
"Non-U.S. Person" means a person who is not a U.S. person, as defined in
Regulation S.
"Note Account" has the meaning given to such term in Section 3.01(i)
hereof.
"Noteholder" or "Holder" means any Person in whose name a MSAF Group Class
A Note, MSAF Group Class B Note, MSAF Group Class C Note or MSAF Group Class D
Note is registered from time to time in the Register for such MSAF Group Notes.
"Notes" means the Initial Notes and the Issuer Additional Notes and any
Exchange Notes.
"Note Target Price" has the meaning given to such term in Section 5.02(g)
hereof.
"Notices" has the meaning given to such term in Section 13.05 hereof.
"Officer's Certificate" means a certificate signed by, with respect to the
Issuer,
<PAGE> 23
any Signatory Trustee and, with respect to a Guarantor or any other
Person, any officer, director, trustee or equivalent representative.
"Operating Bank" means Bankers Trust or any other Eligible Institution at
which the Accounts are held; provided that (i) upon the resignation or removal
and the replacement of the Senior Trustee pursuant to the terms of this
Indenture, the successor trustee appointed thereunder shall be the Operating
Bank; and (ii) if at any time the Operating Bank ceases to be an Eligible
Institution, a successor operating bank shall be appointed by the
Administrative Agent on behalf of the Security Trustee and all Accounts (other
than the Non-Trustee Accounts) shall thereafter be transferred to and be
maintained at such successor operating bank in the name of the Security Trustee
and such successor operating bank shall thereafter be the "Operating Bank".
"Opinion of Counsel" means a written opinion signed by legal counsel, who
may be an employee of or counsel to the Issuer, that meets the requirements of
Section 1.03 hereof.
"Outstanding" means (a) with respect to the Notes of any class or subclass
at any time, all Notes of such class or subclass theretofore authenticated and
delivered by the Trustee except (i) any such Notes cancelled by, or delivered
for cancellation to, the Trustee; (ii) any such Notes, or portions thereof, for
the payment of principal of and accrued and unpaid interest on which moneys
have been deposited in the applicable Note Account or distributed to
Noteholders by the Trustee and any such Notes, or portions thereof, for the
payment or redemption of which moneys in the necessary amount have been
deposited in the Defeasance/Redemption Account; provided that if such Notes are
to be redeemed prior to the maturity thereof in accordance with the
requirements of Section 3.10(a) or 3.10(b) hereof, notice of such redemption
shall have been given as provided in Section 3.10(c) hereof, or provision
satisfactory to the Trustee shall have been made for giving such notice; and
(iii) any such Notes in exchange or substitution for which other Notes, as the
case may be, have been authenticated and delivered, or which have been paid
pursuant to the terms of this Indenture (unless proof satisfactory to the
Trustee is presented that any of such Notes is held by a Person in whose hands
such Note is a legal, valid and binding obligation of the Issuer); and (b) when
used with respect to any other evidence of indebtedness shall mean, at any
time, any principal amount thereof then unpaid and outstanding (whether or not
due or payable).
"Outstanding Principal Balance" means, with respect to any MSAF Group Note
or other evidence of indebtedness Outstanding, the total principal amount of
such evidence of indebtedness unpaid and outstanding at any time as determined
in the report to be delivered pursuant to Section 3.06 hereof.
"Partial Loss" means, with respect to any Aircraft or related asset, any
event or occurrence of loss, damage, destruction or the like which is not a
Total Loss.
"Partial Loss Proceeds" means, with respect to any Aircraft or related
asset, the total proceeds of the insurance or reinsurance (other than in
respect of liability insurance) paid in respect of any Partial Loss to any MSAF
Group Member.
<PAGE> 24
"Parts" means any part, component, appliance, accessory, instrument or
other item of equipment (other than any Engine) installed in or attached to any
Aircraft (or part thereof).
"Paying Agent" has the meaning given to such term in Section 2.03 hereof.
The term "Paying Agent" includes any additional Paying Agent.
"Payment Date" means the 15th day of each month, commencing on April 15,
1998; provided that if any Payment Date would otherwise fall on a day which is
not a Business Day, such Payment Date shall be the first following day which is
a Business Day.
"Permanent Regulation S Global Note" has the meaning given to such term in
Section 2.01 hereof.
"Permitted Account Investments" means, in each case, book-entry
securities, negotiable instruments or securities represented by instruments in
bearer or registered form which evidence:
(a) direct obligations of, and obligations fully guaranteed as to
timely payment by, the United States of America (having original
maturities of no more than 365 days, or such lesser time as is required
for the distribution of funds);
(b) demand deposits, time deposits or certificates of deposit of the
Operating Bank or of depository institutions or trust companies organized
under the laws of the United States of America or any state thereof, or
the District of Columbia (or any domestic branch of a foreign bank) (i)
having original maturities of no more than 365 days, or such lesser time
as is required for the distribution of funds; provided that at the time
of investment or contractual commitment to invest therein, the short-term
debt rating of such depository institution or trust company shall be at
least "A-1+" by Standard & Poor's and "P-1" by Moody's and which is
acceptable to DCR or (ii) having maturities of more than 365 days and, at
the time of the investment or contractual commitment to invest therein, a
rating of "AA" from Standard & Poor's and "Aa2" from Moody's and which is
acceptable to DCR;
(c) corporate or municipal debt obligations (i) having remaining
maturities of no more than 365 days, or such lesser time as is required
for the distribution of funds, having, at the time of the investment or
contractual commitment to invest therein, a rating of at least "A-1+" or
"AA" by Standard & Poor's and "P-1" or "Aa2" by Moody's and which is
acceptable to DCR or (ii) having maturities of more than 365 days and, at
the time of the investment or contractual commitment to invest therein, a
rating of "AA" from Standard & Poor's and "Aa2" from Moody's and which is
acceptable to DCR;
(d) investments in money market funds (including funds in respect of
which the Trustee or any of its affiliates is investment manager or
advisor) having a rating of at least "AA" by Standard & Poor's and "Aa2"
by Moody's and which is
<PAGE> 25
acceptable to DCR;
(e) notes or bankers' acceptances (having original maturities of no
more than 365 days, or such lesser time as is required for the
distribution of funds) issued by any depository institution or trust
company referred to in (b) above; or
(f) any other investments approved pursuant to a Rating Agency
Confirmation;
provided, however, that no investment shall be made in any obligations of any
depository institution or trust company which has a contractual right to set
off and apply any deposits held, and other indebtedness owing, by any MSAF
Group Member to or for the credit or the account of such bank.
"Permitted Accruals" has the meaning given to such term in Section 3.01(d)
hereof.
"Permitted Additional Aircraft Acquisition" has the meaning given to such
term in Section 5.02(h) hereof.
"Permitted Encumbrance" has the meaning given to such term in Section
5.02(b) hereof.
"Person" means any natural person, firm, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
government or any political subdivision thereof or any other legal entity,
including public bodies.
"Pledged Beneficial Interest" has the meaning given to such term in the
Security Trust Agreement.
"Pledged Debt" has the meaning given to such term in the Security Trust
Agreement.
"Pledged Stock" has the meaning given to such term in the Security Trust
Agreement.
"Pool Factor" means, with respect to each subclass of MSAF Group Notes on
any Payment Date, the "Pool Factor" for such Payment Date set forth in the
appendix to such Notes.
"Portfolio" means, at any time, all Aircraft owned by MSAF Group.
"Precedent Lease" has the meaning given to such term in Section 5.03(f)
hereof.
"Premium" means, with respect to any Note on the Redemption Date thereof,
<PAGE> 26
the excess of the Redemption Price over the Outstanding Principal Balance
thereof.
"PRI" has the meaning given to such term in Section 5.03(h) hereof.
"PRI Guidelines" has the meaning given to such term in Section 5.03(a)
hereof.
"Primary Eligible Credit Facility" means any Eligible Credit Facility,
other than a Secondary Eligible Credit Facility, which provides by its terms
that it is entitled only to the priority of repayment accorded to Primary
Eligible Credit Facilities under Section 3.08 hereof.
"Prior Ranking Amounts" has the meaning assigned to such term in Section
3.08 hereof.
"Private Placement Legend" means the legend initially set forth on the
Notes in the form set forth in Section 2.02 hereof.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Quarterly Report" has the meaning given to such term in Section 2.15(a)
hereof.
"Rating Agency" means each of DCR, Moody's and Standard & Poor's and any
other nationally recognized rating agency designated by the Issuer and the
Guarantor, if any; provided that such organizations shall only be deemed to be
a Rating Agency for purposes of the Indenture with respect to MSAF Group Notes
they are then rating.
"Rating Agency Confirmation" means a prior written confirmation from each
Rating Agency that a specified action or event shall not result in the
downgrade or withdrawal of such Rating Agency's then current credit rating, if
any, of any subclass of MSAF Group Notes.
"Received Currency" has the meaning given to such term in Section 13.07(a)
hereof.
"Receiver" means any Person or Persons appointed as (and any additional
Person or Persons appointed or substituted as) administrative receiver,
receiver, manager or receiver and manager.
"Record Date" means with respect to each Payment Date, the close of
business on the day that is 15 days prior to such Payment Date, whether or not
such day is a Business Day.
"Redemption" has the meaning given to such term in Section 3.10(c) hereof.
"Redemption Date" means the date, which shall in each case be a Payment
<PAGE> 27
Date, on which Notes of any subclass are redeemed.
"Redemption Premium" means (i) in respect of any Initial Note on any date,
the Redemption Premium indicated in the table below:
<PAGE> 28
<TABLE>
<CAPTION>
REDEMPTION DATE REDEMPTION PREMIUM
- ---------------------------- ------------------------------------------
SUBCLASS SUBCLASS SUBCLASS SUBCLASS
A-1 NOTES A-2 NOTES B-1 NOTES D-1 NOTES
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
On or after the Closing Date 101.00% 102.00% 103.00% --
On or after March 15, 1999 100.50% 101.50% 102.50% --
On or after March 15, 2000 100.00% 101.00% 102.00% --
On or after March 15, 2001 -- 100.50% 101.50% --
On or after March 15, 2002 -- 100.00% 101.00% --
On or after March 15, 2003 -- 100.00% 100.50% 105.25%
On or after March 15, 2004 -- 100.00% 100.00% 104.50%
On or after March 15, 2005 -- 100.00% 100.00% 103.75%
On or after March 15, 2006 -- -- 100.00% 103.00%
On or after March 15, 2007 -- -- 100.00% 102.25%
On or after March 15, 2008 -- -- 100.00% 101.50%
On or after March 15, 2009 -- -- 100.00% 100.75%
On or after March 15, 2010 -- -- 100.00% 100.00%
On or after March 15, 2011 -- -- 100.00% 100.00%
On or after March 15, 2012 -- -- 100.00% 100.00%
On or after March 15, 2013 -- -- 100.00% 100.00%
On or after March 15, 2014 -- -- -- 100.00%
</TABLE>
and (ii) in respect of any subclass of Refinancing Notes or Issuer Additional
Notes, the Redemption Premium established by or pursuant to a Controlling
Trustees' Resolution or in any indenture supplemental hereto providing for the
issuance of such Notes or designated as such in the form of such Notes.
"Redemption Price" means with respect to (i) the Subclass A-1 Notes, the
Subclass A-2 Notes and the Subclass B-1 Notes, (A) to the extent that the
redemption is funded other than out of the Available Collections Amount
(including proceeds from Refinancing Notes and proceeds from third parties),
the product of the applicable Redemption Premium and the Outstanding Principal
Balance of the portion of such subclass of Notes being redeemed and (B) to the
extent that the redemption is funded out of the Available Collections Amount,
the Outstanding Principal Balance of the portion of such subclass of Notes
being redeemed, without premium, (ii) any portion of the Subclass C-1 Notes
being redeemed, the higher of (X) the discounted present value of the Scheduled
Principal Payment Amounts allocable in accordance with Section 3.09 hereof in
respect of, and interest on, such portion from the Redemption Date to and
including the applicable Expected Final Payment Date discounted at a rate equal
to the Treasury Yield plus 0.5% and (Y) the Outstanding Principal Balance of
such portion, (iii) any portion of the Subclass D-1 Notes being redeemed,
(a) if such redemption occurs prior to March 15, 2003, the higher of (1) the
discounted present value of the Scheduled Principal Payment Amounts allocable
in accordance with Section 3.09 hereof in respect of, and interest on, such
portion from the Redemption Date to, but not including, March 15, 2003, plus
the product of the applicable Redemption Premium and the assumed Outstanding
Principal Balance for March 15, 2003 of
<PAGE> 29
such portion, discounted at a rate equal to the Treasury Yield plus 1% and (2)
the Outstanding Principal Balance of such portion and (b) if such redemption
occurs on or after March 15, 2003, the product of the applicable Redemption
Premium and the Outstanding Principal Balance of such portion and (iv) any
Refinancing Notes or Issuer Additional Notes, the Redemption Price established
by or pursuant to a Controlling Trustees' Resolution or in any indenture
supplemental hereto providing for the issuance of such Notes or designated as
such in the form of such Notes.
"Reference Agency Agreement" means the Reference Agency Agreement dated as
of the Initial Closing Date, among the Issuer, the Trustee, the Reference Agent
and the Administrative Agent pursuant to which LIBOR is established from time
to time.
"Reference Agent" means Bankers Trust in its capacity as reference agent
under the Reference Agency Agreement, including its successors in interest,
until another Person shall have become the reference agent under that
agreement, and thereafter "Reference Agent" shall mean such successor Person.
"Reference Date" means, with respect to each Interest Accrual Period, the
day that is two Business Days prior to the Payment Date on which such Interest
Accrual Period commences; provided, however, that the Reference Date with
respect to the initial Interest Accrual Period means the date that is two
Business Days before the Initial Closing Date.
"Refinancing" has the meaning given to such term in Section 2.10 hereof.
"Refinancing Account" has the meaning given to such term in Section
3.01(f) hereof.
"Refinancing Expenses" means all out-of-pocket costs and expenses incurred
in connection with an offering and issuance of Refinancing Notes.
"Refinancing Notes" means any subclass of Notes issued by the Issuer under
this Indenture at any time and from time to time after the date hereof, the
proceeds of which are used to repay all or any part of the Outstanding
Principal Balance of a subclass of Notes and ranking pari passu with such
Notes.
"Register" has the meaning given to such term in Section 2.03 hereof.
"Registrar" has the meaning given to such term in Section 2.03 hereof and
includes any additional Registrar.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of the Initial Closing Date, between the Issuer and Morgan Stanley &
Co. Incorporated and any other agreement entered into between the Issuer and a
purchaser of Notes providing for the registration of the transfer of such Notes
under the Securities Act.
"Registration Statement" means the Registration Statement as defined and
described in a Registration Rights Agreement.
<PAGE> 30
"Regulation S" means Regulation S under the Securities Act.
"Regulation S Global Note" has the meaning given to such term in Section
2.01 hereof.
"Regulation S Global Note Exchange Date" means the date of exchange of any
Temporary Regulation S Global Note for any Permanent Regulation S Global Note,
which date shall be forty days after the Initial Closing Date, in the case of
the Initial Notes, and, in the case of any Additional Issuance, the date
established by or pursuant to a Controlling Trustees' Resolution or in any
indenture supplemental hereto providing for such Additional Issuance.
"Related Collateral Document" means any letter of credit, third-party or
bank guarantee or cash collateral provided by or on behalf of a Lessee to
secure such Lessee's obligations under a Lease.
"Related Documents" means the Administrative Agency Agreement, the Cash
Management Agreement, each Credit Facility, this Indenture, the Notes, the
Reference Agency Agreement, the Security Documents, the Servicing Agreement,
the Financial Advisory Agreement, the Asset Purchase Agreement, the
Registration Rights Agreement, the Tax Indemnification Agreement, any
Additional Servicing Agreements, any other Acquisition Agreements, any Swap
Agreements and any Swap Guarantees.
"Relevant Appraisal" means, with respect to any date of determination, the
most recent Appraisal preceding such date of determination.
"Relevant Information" means any information provided to the
Administrative Agent by any Service Provider or any other service provider
retained from time to time by MSAF Group pursuant to the Related Documents.
"Remaining Aircraft" means those Initial Aircraft title to which has not
been transferred to an Aircraft Owning Company by the Initial Closing Date.
"Renewal Lease" has the meaning given to such term in Section 5.03(f)
hereof.
"Rental Account" has the meaning given to such term in Section 3.01(e)
hereof.
"Rental Payments" means all rental payments and other amounts payable by
or on behalf of a Lessee under a Lease.
"Required Expense Amount" means, with respect to MSAF Group on each
Payment Date, (i) the amount of Expenses of MSAF Group due and payable on the
Calculation Date relating to such Payment Date or reasonably anticipated to
become due and payable before the end of the six-month period beginning on such
date, (ii) at the discretion of the Administrative Agent, an amount necessary
to provide for Permitted Accruals (other than
<PAGE> 31
accruals in respect of Modification Payments) and (iii) an amount determined by
the Administrative Agent to be necessary to maintain the Permitted Balance in
the Expense Account after payment of the Expenses (on such Payment Date and
during the next succeeding Interest Accrual Period) and provision for the
Permitted Accruals.
"Requisition Compensation" means all monies or other compensation
receivable by any MSAF Group Member from any government, whether civil,
military or de facto, or public or local authority in relation to an Aircraft
in the event of its requisition for title, confiscation, restraint, detention,
forfeiture or compulsory acquisition or seizure or requisition for hire by or
under the order of any government or public or local authority.
"Responsible Officer" means, (i) with respect to the Trustee, any officer
within the Corporate Trust Office, including any Vice President, Managing
Director, Assistant Vice President, Secretary, Assistant Secretary or any other
officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and also, with respect to a
particular matter, any other officer to whom such matter is referred because of
such officer's knowledge and familiarity with the particular subject and
(ii) with respect to the Issuer, any Controlling Trustee.
"Rule 144A" means Rule 144A under the Securities Act.
"Rule 144A Global Note" has the meaning given to such term in Section 2.01
hereof.
"Scheduled Class Percentage" means, with respect to the MSAF Group Class A
Notes and the MSAF Group Class B Notes on any Payment Date, the "Scheduled
Class Percentage" set forth in Appendix A to this Indenture for such Payment
Date, as such percentage shall be adjusted from time to time in accordance with
Section 3.11 hereof.
"Scheduled Expiration Date" with respect to any Lease, means the date upon
which such lease is scheduled to expire under the terms thereof.
"Scheduled Principal Payment Amount" means, with respect to each class of
MSAF Group Notes on any Payment Date, the difference, if positive, between the
aggregate Outstanding Principal Balance of such class of MSAF Group Notes
(after giving effect to any payment of the Minimum Principal Payment Amount for
such class of MSAF Group Notes) and the Scheduled Target Principal Balance of
such class of MSAF Group Notes on such Payment Date.
"Scheduled Target Principal Balance" means with respect to (i) the MSAF
Group Class A Notes on any Payment Date, the product of (A) of the Scheduled
Class Percentage for the MSAF Group Class A Notes on such Payment Date and (B)
the lesser of (x) the Assumed Portfolio Value in respect of such Payment Date
and (y) 105% of the Adjusted Portfolio Value in respect of such Payment Date,
(ii) the MSAF Group Class B Notes on any Payment Date, the product of the
Scheduled Class Percentage for the MSAF Group Class B Notes on such Payment
Date and the Assumed Portfolio Value in respect of such Payment Date and (iii)
the MSAF Group Class C Notes and the MSAF Group Class D
<PAGE> 32
Notes on any Payment Date, the "Scheduled Target Principal Balance" for such
Payment Date set forth in Appendix B to this Indenture, in each case as such
amount shall be adjusted from time to time in accordance with Section 3.11
hereof.
"Secondary Eligible Credit Facility" means the Custody and Loan Agreement,
the Morgan Stanley Loan Agreement and any other Eligible Credit Facility
designated as a "Secondary Eligible Credit Facility" by the Controlling
Trustees and which provides by its terms that it is entitled only to the
priority of repayment accorded to Secondary Eligible Credit Facilities under
Section 3.08 hereof.
"Secured Parties" has the meaning given to such term in the Security Trust
Agreement.
"Securities Act" means the Securities Act of 1933.
"Security Interests" means the security interests granted or expressed to
be granted in the Collateral pursuant to the Security Trust Agreement.
"Security Trust Agreement" means the Security Trust Agreement dated as of
the Initial Closing Date, among the Issuer, each other party thereto and the
Security Trustee, for the benefit of the Secured Parties.
"Security Trustee" means the trustee appointed pursuant to Section 6.01 of
the Security Trust Agreement, initially Bankers Trust.
"Segregated Funds" means all of the funds, including any maintenance
reserves and security deposits, received from Lessees and not permitted to be
commingled with the funds of the MSAF Group pursuant to the terms of the
related Leases.
"Sellers" means ILFC and any sellers of Issuer Additional Aircraft.
"Senior Claim" has the meaning given to such term in Section 10.01 hereof.
"Senior Class" means, (i) so long as any Class A Notes are Outstanding,
the Class A Notes, (ii) after the Class A Notes have been repaid in full and so
long as any Class B Notes are Outstanding, the Class B Notes, (iii) after the
Class A Notes and Class B Notes have been repaid in full and so long as any
Class C Notes are Outstanding, the Class C Notes and (iv) after the Class A
Notes, Class B Notes and Class C Notes have been paid in full and so long as
any Class D Notes are Outstanding, the Class D Notes.
"Senior Trustee" means the Trustee of the Senior Class of the Notes;
provided that if more than one Person shall otherwise be the Trustee of various
subclasses of the Senior Class of Notes, then the Senior Trustee shall be the
Trustee of the subclass of such Notes with the lowest numerical designation
then Outstanding.
"Service Provider" means each of the Cash Manager, the Delaware Trustee,
the Servicer, the Trustee, the Security Trustee, the Administrative Agent, the
Reference Agent,
<PAGE> 33
the Financial Advisor and any Additional Servicer.
"Servicer" means ILFC in its capacity as servicer under the Servicing
Agreement, including its successors in interest, until a successor Person shall
have become the servicer pursuant to such agreement or any replacement
servicing agreement, and thereafter "Servicer" shall mean such successor
Person.
"Servicer's Pro Forma Lease" has the meaning given to such term in Section
5.03(f) hereof.
"Servicing Agreement" means the Servicing Agreement, dated as of November
10, 1997, among the Servicer, the Issuer, the Administrative Agent and the
entities listed in Appendix A thereto.
"Shelf Registration Statement" has the meaning given to such term in the
applicable Registration Rights Agreement.
"Signatory Trustee" has the meaning given to such term in the Trust
Agreement.
"Significant Subsidiary" means at any time and from time to time any
subsidiary of the Issuer or any Guarantor other than any subsidiary which owns
or leases Aircraft having an aggregate Base Value of less than 10% of the
Adjusted Portfolio Value at such time.
"Standard & Poor's" means Standard & Poor's Ratings Group, a division of
The McGraw-Hill Companies, Inc. and any successor thereto.
"Stated Rate of Interest" means, with respect to each subclass of MSAF
Group Notes, the interest rate set forth in such MSAF Group Notes; provided,
however, if an exchange offer registered under the Securities Act is not
consummated or a Shelf Registration Statement under the Securities Act with
respect to resales of (i) the Initial Notes is not declared effective by the
Commission on or prior to the date that is 270 days after the Initial Closing
Date provided that if such day is not a Business Day, then the next succeeding
Business Day, the Stated Rate of Interest for such MSAF Group Notes shall
increase by 0.5% per annum until (A) such exchange offer is consummated or (B)
the Shelf Registration Statement is declared effective or (ii) any MSAF Group
Additional Notes is not declared effective by the Commission on or prior to the
date specified in the Registration Rights Agreement relating to such MSAF Group
Notes, the Stated Rate of Interest shall increase by the rate specified in such
Registration Rights Agreement until such time as is specified therein.
"State of Registration" means, in relation to an Aircraft at any time, the
country or state on whose national register such Aircraft is registered at that
time under the laws of such country or state in accordance with the applicable
provisions of any Lease relating to such Aircraft.
<PAGE> 34
"Step-Up Interest" means with respect to (i) any Subclass A-1 Notes not
repaid on or before the Expected Final Payment Date thereof, interest, at a
rate of 0.5% per annum, and (ii) any Refinancing Notes or MSAF Group Additional
Notes that by their terms provide that they are entitled to Step-Up Interest at
any time, interest, at a rate established by or pursuant to a Controlling
Trustees' Resolution or in any indenture supplemental hereto providing for the
issuance of such Notes or specified in the form of such Notes, which shall
accrue in addition to the Stated Rate of Interest on the Outstanding Principal
Balance of such MSAF Group Notes.
"Stock" has the meaning given to such term in Section 5.02(b) hereof.
"Subclass A-1 Notes" means the Subclass A-1 Notes, due March 15, 2023, of
the Issuer in the initial aggregate principal amount of $400,000,000,
substantially in the form of Exhibit A-1 hereto, including any note issued in
replacement or substitution therefor, any Exchange Note issued in exchange for
such Note pursuant to a Registration Rights Agreement and this Indenture and
any Refinancing Notes designated in the form of such Refinancing Notes as being
entitled to the rights and benefits of the Subclass A-1 Notes under this
Indenture, in each case ranking pari passu in order of payment priority to the
Subclass A-1 Notes.
"Subclass A-2 Notes" means the Subclass A-2 Notes, due March 15, 2023, of
the Issuer in the initial aggregate principal amount of $340,000,000,
substantially in the form of Exhibit A-2 hereto, including any note issued in
replacement or substitution therefor, any Exchange Note issued in exchange for
such Note pursuant to a Registration Rights Agreement and this Indenture and
any Refinancing Notes designated in the form of such Refinancing Notes as being
entitled to the rights and benefits of the Subclass A-2 Notes under this
Indenture, in each case ranking pari passu in order of payment priority to the
Subclass A-2 Notes.
"Subclass B-1 Notes" means the Subclass B-1 Notes, due March 15, 2023, of
the Issuer in the initial aggregate principal amount of $100,000,000,
substantially in the form of Exhibit B-1 hereto, including any notes issued in
replacement or substitution therefor, any Exchange Note issued in exchange for
such Note pursuant to a Registration Rights Agreement and this Indenture and
any Refinancing Notes designated in the form of such Refinancing Notes as being
entitled to the rights and benefits of the Subclass B-1 Notes under this
Indenture, in each case ranking pari passu in order of payment priority to the
Subclass B-1 Notes.
"Subclass C-1 Notes" means the Subclass C-1 Notes, due March 15, 2023, of
the Issuer in the initial aggregate principal amount of $100,000,000,
substantially in the form of Exhibit C-1 hereto, including any notes issued in
replacement or substitution therefor, any Exchange Note issued in exchange for
such Note pursuant to a Registration Rights Agreement and this Indenture and
any Refinancing Notes designated in the form of such Refinancing Notes as being
entitled to the rights and benefits of the Subclass C-1 Notes under this
Indenture, in each case ranking pari passu in order of payment priority to the
Subclass C-1 Notes.
<PAGE> 35
"Subclass D-1 Notes" means the Subclass D-1 Notes, due March 15, 2023, of
the Issuer in the initial aggregate principal amount of $110,000,000,
substantially in the form of Exhibit D-1 hereto, including any notes issued in
replacement or substitution therefor, any Exchange Note issued in exchange for
such Note pursuant to a Registration Rights Agreement and this Indenture and
any Refinancing Notes designated in the form of such Refinancing Notes as being
entitled to the rights and benefits of the Subclass D-1 Notes under this
Indenture, in each case ranking pari passu in order of payment priority to the
Subclass D-1 Notes.
"Subordinated Claim" has the meaning given to such term in Section 10.01
hereof.
"Subordinated Swap Payments" has the meaning given to such term in Section
3.08 hereof.
"Substitute Aircraft" means an aircraft identified to replace a Remaining
Aircraft that has failed to be delivered to the MSAF Group; provided, that such
aircraft (i) is no more than seven years old as of February 28, 1998, (ii) is
subject to an operating lease contract, or letter of intent therefor, that will
become effective within 90 days following February 28, 1998, (iii) is of the
same type as such undelivered Remaining Aircraft and (iv) does not result in a
Concentration Default.
"Supplemental Class Percentage" means, with respect to the MSAF Group
Class A Notes and the MSAF Group Class B Notes on each Payment Date, the
"Supplemental Class Percentage" on such Payment Date set forth in Appendix A to
this Indenture, as such percentage shall be adjusted from time to time in
accordance with Section 3.11 hereof.
"Supplemental Principal Payment Amount" means, with respect to the MSAF
Group Class A Notes and the MSAF Group Class B Notes on any Payment Date, the
difference, if positive, between the Outstanding Principal Balance of such
class of MSAF Group Notes (after giving effect to any payment of the Minimum
Principal Payment Amount and Scheduled Principal Payment Amount for such class
of MSAF Group Notes) and the Supplemental Target Principal Balance of such
class of MSAF Group Notes on such Payment Date.
"Supplemental Target Principal Balance" means, with respect to the MSAF
Group Class A Notes and the MSAF Group Class B Notes on any Payment Date, the
product of (i) the Supplemental Class Percentage for such class of MSAF Group
Notes on such Payment Date and (ii) the Assumed Portfolio Value in respect of
such Payment Date.
"Swap Agreement" means any interest rate swap, cap, floor, Swaption, or
other interest rate hedging agreement among the Issuer and any Swap Provider
existing on the Initial Closing Date or entered into in accordance with
Sections 5.02(e)(iv) and 9.05 of this Indenture.
"Swap Breakage Costs" means any amounts payable by any MSAF Group
<PAGE> 36
Member to a Swap Provider as a result of any early termination (however
described or defined therein) of any Swap Agreement.
"Swap Guarantee" has the meaning given to such term in Section 9.05
hereof.
"Swap Payment" means, on any Payment Date, a net payment to a Swap
Provider by any MSAF Group Member, other than any Subordinated Swap Payment.
"Swap Provider" means the counterparty of any MSAF Group Member under any
Swap Agreement.
"Swap Receipt" means a net payment to be made by a Swap Provider into the
Collection Account under a Swap Agreement and includes any such payment made by
a guarantor under any related Swap Guarantee or any termination payment
received from any counterparty to a Swap Agreement.
"Swaption" means any option agreement with respect to a Swap Agreement.
"Target Principal Balance" means, with respect to the MSAF Group Class C
Notes and the MSAF Group Class D Notes on any Payment Date, each of the Minimum
Target Principal Balance and the Scheduled Target Principal Balance on such
Payment Date.
"Tax" and "Taxes" mean any and all taxes, fees, levies, duties, tariffs,
imposts, and other charges of any kind (together with any and all interest,
penalties, loss, damage, liability, expense, additions to tax and additional
amounts or costs incurred or imposed with respect thereto) imposed or otherwise
assessed by the United States or by any state, local or foreign government (or
any subdivision or agency thereof) or other taxing authority, including,
without limitation: taxes or other charges on or with respect to income,
franchises, windfall or other profits, gross receipts, property, sales, use,
capital stock, payroll, employment, social security, workers' compensation,
unemployment compensation, or net worth and similar charges; taxes or other
charges in the nature of excise, withholding, ad valorem, stamp, transfer,
value added, taxes on goods and services, gains taxes, license, registration
and documentation fees, customs duties, tariffs, and similar charges.
"Tax Indemnification Agreement" means the Tax Indemnification Agreement
dated as of the Initial Closing Date entered into by the Issuer and Morgan
Stanley.
"Temporary Regulation S Global Note" has the meaning given to such term in
Section 2.01 hereof.
"Third Party Event" has the meaning given to such term in Section 5.03(b)
hereof.
"Total Loss" means, with respect to any Aircraft (a) if the same is
subject to a Lease, a Casualty Occurrence or Event of Loss (each as defined in
such Lease) or the like (however so defined); or (b) if the same is not subject
to a Lease, (i) its actual, constructive, compromised, arranged or agreed total
loss, (ii) its destruction, damage beyond repair or
<PAGE> 37
being rendered permanently unfit for normal use for any reason whatsoever, (iii)
its requisition for title, confiscation, restraint, detention, forfeiture or any
compulsory acquisition or seizure or requisition for hire (other than a
requisition for hire for a temporary period not exceeding 180 days) by or under
the order of any government (whether civil, military or de facto) or public or
local authority or (iv) its hijacking, theft or disappearance, resulting in loss
of possession by the owner or operator thereof for a period of 30 consecutive
days or longer. A Total Loss with respect to any Aircraft shall be deemed to
occur on the date on which such Total Loss is deemed pursuant to the relevant
Lease to have occurred or, if such Lease does not so deem or the relevant
Aircraft is not subject to a Lease, (A) in the case of an actual total loss or
destruction, damage beyond repair or being rendered permanently unfit, the date
on which such loss, destruction, damage or rendering occurs (or, if the date of
loss or destruction is not known, the date on which the relevant Aircraft was
last heard of); (B) in the case of a constructive, compromised, arranged or
agreed total loss, the earlier of (1) the date 30 days after the date on which
notice claiming such total loss is issued to the insurers or brokers and (2) the
date on which such loss is agreed or compromised by the insurers; (C) in the
case of requisition for title, confiscation, restraint, detention, forfeiture,
compulsory acquisition or seizure, the date on which the same takes effect; (D)
in the case of a requisition for hire, the expiration of a period of 180 days
from the date on which such requisition commenced (or, if earlier, the date upon
which insurers make payment on the basis of a Total Loss); or (E) in the case of
clause (iv) above, the final day of the period of 30 consecutive days referred
to therein.
"Total Loss Proceeds" means, in relation to an Aircraft, the total net
proceeds of the insurance and reinsurance paid in respect of a Total Loss
thereof and includes, in the case of a Total Loss of an airframe which does not
involve the Total Loss of all Engines or parts installed thereon at the time
when such Total Loss occurred, the net sale proceeds of any such surviving
Engines or parts.
"Treasury Yield" means, with respect to (i) any Redemption of the Subclass
C-1 Notes on any Payment Date, the interest rate (expressed as a semiannual
decimal and, in the case of United States Treasury bills, converted to a bond
equivalent yield) determined on the fourth Business Day prior to such Payment
Date to be the per annum rate equal to the semiannual yield to maturity for
United States Treasury securities maturing on the Average Life Date of such
subclass and trading in the public securities markets either (x) as determined
by interpolation between the most recent weekly average yield to maturity for
two series of United States Treasury securities trading in the public
securities markets, (A) one maturing as close as possible to, but earlier than,
the Average Life Date of such subclass and (B) the other maturing as close as
possible to, but later than, the Average Life Date of such subclass in each
case as published in the most recent H.15 (519) or (y) if a weekly average
yield to maturity for United States Treasury securities maturing on the Average
Life Date of such subclass is reported in the most recent H.15 (519), such
weekly average yield to maturity as published in such H.15 (519), (ii) any
Redemption of the Subclass D-1 Notes on any Payment Date, a per annum rate
(expressed as a monthly equivalent yield) determined to be the per annum rate
equal to the semiannual yield to maturity of the 6 1/4% United States Treasury
Notes maturing on February 15, 2003 and (iii) any Redemption of any Refinancing
Notes or Issuer Additional Notes on any Payment Date, the Treasury Yield for
such Payment
<PAGE> 38
Date, if any, established by or pursuant to a Controlling Trustees' Resolution
or in any indenture supplemental hereto providing for the issuance of such Notes
or designated as such in the form of such Notes.
For the purposes of this definition,
"H.15 (519)" means the weekly statistical release designated as
such, or any successor publication, published by the Board of Governors
of the Federal Reserve System, and the most recent H.15 (519) is the H.15
(519) published prior to the close of business on the fourth Business Day
prior to the applicable Payment Date.
"Average Life Date" of any subclass of Notes shall be the date which
follows the applicable Payment Date by a period equal to the Remaining
Weighted Average Life of such subclass.
"Remaining Weighted Average Life" means, with respect to any
subclass of Notes on any Payment Date, (i) the sum of the products of (A)
the portion of the Scheduled Principal Payment Amount allocable to such
subclass in accordance with Section 3.09 hereof on each subsequent
Payment Date (each, a "Subsequent Date") and (B) the number of days
remaining until such Subsequent Date divided by (ii) the Outstanding
Principal Balance of such subclass on such Payment Date.
"Trust Agreement" has the meaning given to such term in the preamble
hereof.
"Trustee" has the meaning given to such term in the preamble hereof and
any successor Trustee appointed in accordance with the terms hereof.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939, (15
U.S. Code Section Section 77aaa-77bbbb), as in effect on the date this
Indenture was executed, except as provided in Section 9.06 hereof.
"U.S. GAAP" means generally accepted accounting principles in the United
States.
"U.S. Government Obligations" has the meaning given to such term in
Section 11.02 hereof.
Section 1.02. Rules of Construction Unless the context otherwise requires:
(a) A term has the meaning assigned to it and an accounting term not
otherwise defined has the meaning assigned to it in accordance with U.S.
GAAP.
(b) The terms "herein", "hereof" and other words of similar import
refer to this Indenture as a whole and not to any particular Article,
Section or other subdivision.
(c) Unless otherwise indicated in context, all references to
Articles, Sections, Appendices, Exhibits or Annexes refer to an Article
or Section of, or an
<PAGE> 39
Appendix, Exhibit or Annex to, this Indenture.
(d) Words of the masculine, feminine or neuter gender shall mean and
include the correlative words of other genders, and words in the singular
shall include the plural, and vice versa.
(e) The terms "include", "including" and similar terms shall be
construed as if followed by the phrase "without limitation".
(f) Unless otherwise indicated, references to a subclass of Notes
shall be to the Subclass A-1 Notes, the Subclass A-2 Notes, the Subclass
B-1 Notes, the Subclass C-1 Notes and the Subclass D-1 Notes or to a
subclass of Refinancing Notes or Issuer Additional Notes, as applicable;
and references to a class of Notes shall be to the Class A Notes, Class B
Notes, Class C Notes and Class D Notes or to a class of Refinancing Notes
or Issuer Additional Notes, as applicable.
(g) References in this Indenture to an agreement or other document
(including this Indenture) include references to such agreement or
document as amended, replaced or otherwise modified in accordance with
the provisions of this Indenture, and the provisions of this Indenture
apply to successive events and transactions.
(h) References in this Indenture to any statute or other legislative
provision shall include any statutory or legislative modification or
re-enactment thereof, or any substitution therefor.
(i) References in this Indenture to the Notes of any class or
subclass include the conditions applicable to the Notes of such class or
subclass; and any reference to any amount of money due or payable by
reference to the Notes of any class or subclass shall include any sum
covenanted to be paid by the Issuer under this Indenture in respect of
the Notes of such class or subclass.
(j) References in this Indenture to any action, remedy or method of
judicial proceeding for the enforcement of the rights of creditors or of
security shall be deemed to include, in respect of any jurisdiction other
than the State of New York, references to such action, remedy or method
of judicial proceeding for the enforcement of the rights of creditors or
of security available or appropriate in such jurisdiction as shall most
nearly approximate such action, remedy or method of judicial proceeding
described or referred to in this Indenture.
(k) Where any payment is to be made, funds applied or any
calculation is to be made hereunder on a day which is not a Business Day,
unless any Related Document otherwise provides, such payment shall be
made, funds applied and calculation made on the next succeeding Business
Day, and payments shall be adjusted accordingly.
(l) Where both the Servicer and any Additional Servicer or any
<PAGE> 40
replacement servicer are performing or may perform lease management
and/or remarketing services pursuant to a Related Document in relation to
one or more Aircraft at the same time, a reference in this Indenture to
the "Servicer" shall be construed as a reference to each of the Servicer
and such Additional Servicer or such replacement servicer and the rights
and obligations of the parties hereto shall be construed accordingly.
(m) Any provision in this Indenture providing for a transfer to or
among, or a withdrawal from, an Account or any other bank account by the
Administrative Agent shall be construed to be a transfer to or among, or
a withdrawal from, as the case may be, such Account or other bank account
by the Operating Bank or other Eligible Institution at which the
applicable account or accounts are located at the written, electronic or
other automated funds transfer direction of the Administrative Agent.
Such direction may be made by the Administrative Agent unless and until a
Default Notice shall have been delivered to MSAF or the Administrative
Agent, or the Administrative Agent shall have defaulted under the
Administrative Agency Agreement, and any such direction shall be in
writing and (i) give full details of the amount to be transferred or
withdrawn, the Account or other bank account to be debited, the Account
or other bank account to be credited and the date of the relevant payment
and (ii) certify that such request is made pursuant to and in accordance
with the terms of this Indenture. The Operating Bank and the Trustee
shall be entitled to act in accordance with such a request, without
further question or inquiry, and shall have no obligation to give any
direction to any other Eligible Institution at which an account or
accounts are located unless and until it receives such a request from the
Administrative Agent; provided that the Administrative Agent shall at all
times comply with the relevant provisions of the Administrative Agency
Agreement with respect to any such direction.
Section 1.03. Compliance Certificates and Opinions. Upon any application
or request by the Issuer to the Trustee to take any action under any provision
of this Indenture, the Issuer shall furnish to the Trustee an Officer's
Certificate stating that, in the opinion of the signers thereof, all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with, and an Opinion of Counsel stating that, in the
opinion of such counsel, all such conditions precedent, if any, have been
complied with, except that in the case of any such application or request as to
which the furnishing of such documents is specifically required by any
provision of this Indenture relating to such particular application or
request, no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture (other than a certificate provided
pursuant to Section 6.11 hereof) or any indenture supplemental hereto shall
include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions in this
Indenture relating thereto;
(2) a brief statement as to the nature and scope of the examination
or
<PAGE> 41
investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
Section 1.04. Acts of Noteholders. (a) Any direction, consent, waiver or
other action provided by this Indenture in respect of the Notes of any subclass
to be given or taken by Noteholders may be embodied in and evidenced by one or
more instruments of substantially similar tenor signed by such Noteholders in
person or by an agent or proxy duly appointed in writing; and, except as herein
otherwise expressly provided, such action shall become effective when such
instrument or instruments are delivered to the Trustee, to each Rating Agency
where it is hereby expressly required pursuant to this Indenture or to the
Issuer. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the
Noteholders signing such instrument or instruments. Proof of execution of any
such instrument or of a writing appointing any such agent shall be sufficient
for any purpose under this Indenture and conclusive in favor of the Trustee or
the Issuer, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the certificate of any notary public or
other officer of any jurisdiction authorized to take acknowledgments of deeds
or administer oaths that the Person executing such instrument acknowledged to
him the execution thereof, or by an affidavit of a witness to such execution
sworn to before any such notary or such other officer and where such execution
is by an officer of a corporation or association, trustee of a trust or member
of a partnership, on behalf of such corporation, association, trust or
partnership, such certificate or affidavit shall also constitute sufficient
proof of his authority. The fact and date of the execution of any such
instrument or writing, or the authority of the Person executing the same, may
also be proved in any other reasonable manner which the Trustee deems
sufficient.
(c) In determining whether the Holders of Notes have given any direction,
consent, request, demand, authorization, notice, waiver or other Act (a
"Direction"), under this Indenture, Notes owned by the Issuer or any affiliate
of any such Person shall be disregarded and deemed not to be Outstanding for
purposes of any such determination. In determining whether the Trustee shall
be protected in relying upon any such Direction, only Notes which a Responsible
Officer of the Trustee actually knows to be so owned shall be so disregarded.
Notwithstanding the foregoing, (i) if any such Person owns 100% of the Notes of
any subclass Outstanding, such Notes shall not be so disregarded as aforesaid,
and (ii) if any amount of Notes of such subclass so owned by any such Person
have been pledged in good faith, such Notes shall not be disregarded as
aforesaid if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to such Notes and that the
<PAGE> 42
pledgee is not the Issuer, the Depositor or any affiliate of any such
Person.
(d) The Issuer may at its option, by delivery of Officers' Certificates to
the Trustee, set a record date other than the Record Date to determine the
Noteholders in respect of the Notes of any subclass entitled to give any
Direction in respect of such Notes. Notwithstanding Section 316(c) of the
Trust Indenture Act, such record date shall be the record date specified in
such Officer's Certificate which shall be a date not more than 30 days prior to
the first solicitation of Noteholders in connection therewith. If such a
record date is fixed, such Direction may be given before or after such record
date, but only the Noteholders of record of the applicable subclass at the
close of business on such record date shall be deemed to be Noteholders for the
purposes of determining whether Noteholders of the requisite proportion of
Outstanding Notes of such subclass have authorized or agreed or consented to
such Direction, and for that purpose the Outstanding Notes of such subclass
shall be computed as of such record date; provided that no such Direction by
the Noteholders on such record date shall be deemed effective unless it shall
become effective pursuant to the provisions of this Indenture not later than
one year after the record date.
(e) Any Direction or other action by the Holder of any Note shall bind the
Holder of every Note issued upon the transfer thereof or in exchange therefor
or in lieu thereof, whether or not notation of such action is made upon such
Note.
Section 1.05. Incorporation by Reference of Trust Indenture Act. Whenever
this Indenture refers to a provision of the TIA, the provision is incorporated
by reference in and made a part of this Indenture. The following TIA terms used
in this Indenture have the following meanings:
"indenture securities" means the Notes;
"indenture security holder" means a Holder or a Noteholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
and
"obligor" on the indenture securities means the Issuer.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by a rule of the
Commission and not otherwise defined herein have the meanings assigned to them
therein.
ARTICLE II
THE NOTES
<PAGE> 43
Section 2.01. Amount Not to Exceed the Initial Outstanding Principal
Balance; Terms; Form; Execution and Delivery. (a) The Outstanding Principal
Balance of any subclass of Notes which may be authenticated and delivered from
time to time under this Indenture shall not exceed the initial Outstanding
Principal Balance set forth for such subclass of Notes in the definition
thereof or, with respect to any subclass of Refinancing Notes or Issuer
Additional Notes, authorized in a Controlling Trustees' Resolution; provided
that at no time may the Outstanding Principal Balance of any such subclass of
Refinancing Notes exceed the Outstanding Principal Balance of the subclass of
Notes being refinanced thereby immediately prior to such Refinancing plus any
Premium and transaction expenses relating thereto; and provided, further, that
any Issuer Additional Notes shall be issued in accordance with Section 2.11
hereof.
(b) There shall be issued and delivered and authenticated on the relevant
Closing Date to each of the Noteholders Notes in the principal amounts and
maturities and bearing the interest rates, in each case in registered form and
substantially in the form set forth in the applicable exhibit to this Indenture
or in any indenture supplemental hereto, with such appropriate insertions,
omissions, substitutions and other variations as are required or permitted by
this Indenture, and may have such letters, numbers or other marks of
identification and such legends or endorsements printed, lithographed or
engraved thereon, as may be required to comply with the rules of any securities
exchange on which such Notes may be listed or to conform to any usage in
respect thereof, or as may, consistently herewith, be prescribed by the Trustee
or by the Signatory Trustee executing such Notes, such determination by said
Signatory Trustee to be evidenced by his execution of the Notes.
Definitive Notes of each subclass shall be printed, lithographed or
engraved or produced by any combination of these methods or may be produced in
any other manner permitted by the rules of any securities exchange on which the
Notes may be listed, all as determined by the Signatory Trustee executing such
Notes, as evidenced by his execution of such Notes.
Each subclass of Notes offered and sold in reliance on Rule 144A shall be
issued initially in the form of one or more permanent global Notes in
registered form, substantially in the form set forth in the applicable exhibit
to this Indenture or in any indenture supplemental hereto (each, a "Rule 144A
Global Note"), registered in the name of the nominee of the Depository,
deposited with the Trustee, as custodian for the Depository, duly executed by
the Issuer and authenticated by the Trustee as hereinafter provided. The
aggregate principal amount of each Rule 144A Global Note may from time to time
be increased or decreased by adjustments made on the records of the Trustee, as
custodian for the Depository or its nominee, in accordance with the
instructions given by the Holder thereof, as hereinafter provided.
Each subclass of Notes offered and sold in offshore transactions in
reliance on Regulation S shall be issued initially in the form of one or more
temporary global Notes in registered form substantially in the form set forth
in the applicable exhibit to this Indenture or in any indenture supplemental
hereto (each, a "Temporary Regulation S Global Note"), registered in the name
of the nominee of the Depository, deposited with the Trustee, as custodian for
the Depository, duly executed by the Issuer and authenticated by the Trustee as
<PAGE> 44
hereinafter provided. At any time following the applicable Regulation S Global
Note Exchange Date, upon receipt by the Trustee and the Issuer of a certificate
substantially in the form of Exhibit I hereto, one or more permanent global
Notes for each subclass of Notes in registered form substantially in the form
set forth in the applicable exhibit to this Indenture or in any indenture
supplemental hereto (each, a "Permanent Regulation S Global Note"; and together
with each Temporary Regulation S Global Note, the "Regulation S Global Notes")
duly executed by the Issuer and authenticated by the Trustee as hereinafter
provided shall be deposited with the Trustee, as custodian for the Depository,
and the Registrar shall reflect on its books and records the date and a decrease
in the principal amount of the Temporary Regulation S Global Note of such
subclass in an amount equal to the principal amount of the beneficial interest
in such Temporary Regulation S Global Note transferred.
Notes offered and sold in reliance on Section 4(2) of the Securities Act
shall be issued in the form of permanent certificated Notes in registered form
in substantially the form set forth in the applicable exhibit to this Indenture
(collectively with the definitive, fully registered Notes issued pursuant to
Section 2.12(b) hereof, the "Definitive Notes").
The Initial Notes issuable hereunder on the Initial Closing Date shall be
issued in five subclasses. The Initial Notes shall be designated the Subclass
A-1 Notes, the Subclass A-2 Notes, the Subclass B-1 Notes, the Subclass C-1
Notes and the Subclass D-1 Notes.
Interest shall accrue on any subclass of the Floating Rate Notes from the
relevant Closing Date and shall be computed for each Interest Accrual Period on
the basis of a 360-day year and the actual number of days elapsed in such
Interest Accrual Period on the Outstanding Principal Balance of such Note.
Interest shall accrue on any subclass of the Fixed Rate Notes from the relevant
Closing Date and shall be computed for each Interest Accrual Period on the
basis of a 360-day year and one-twelfth of an annual interest payment on the
Outstanding Principal Balance and, in the case of an incomplete Interest
Accrual Period, on the basis of a 360-day year consisting of twelve 30-day
months and the actual number of days elapsed in such Interest Accrual Period.
(c) On the date of any Refinancing, the Issuer shall issue and deliver as
provided in Section 2.10 hereof an aggregate principal amount of Refinancing
Notes having the maturities and bearing the interest rates and such other terms
authorized by one or more Controlling Trustees' Resolutions or in any indenture
supplemental hereto providing for the issuance of such Notes or specified in
the form of such Notes, in each case in accordance with such Section 2.10.
(d) On the date of the issuance, if any, of any Issuer Additional Notes,
the Issuer shall issue and deliver, as provided in Sections 2.11 and 5.02(f)
hereof, an aggregate principal amount of Issuer Additional Notes having the
maturities and bearing the interest rates and such other terms authorized by
one or more Controlling Trustees' Resolutions or in any indenture supplemental
hereto providing for the issuance of such Notes or specified in the form of
such Notes, in each case in accordance with such Section 2.11.
(e) The Notes shall be executed on behalf of the Issuer by the manual or
facsimile signature of a Signatory Trustee of the Issuer.
<PAGE> 45
(f) Each Note bearing the manual or facsimile signatures of any individual
who was at the time such Note was executed a Signatory Trustee of the Issuer
shall bind the Issuer, notwithstanding that any such individual has ceased to
hold such office prior to the authentication and delivery of such Notes or any
payment thereon.
(g) At any time and from time to time after the execution of any Notes,
the Issuer may deliver such Notes to the Trustee for authentication and,
subject to the provisions of clause (h) below, the Trustee shall authenticate
such Notes by manual or facsimile signature upon receipt by it of written
orders of the Issuer. The Notes shall be authenticated on behalf of the
Trustee by any Responsible Officer of the Trustee.
(h) No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless it shall have been executed on
behalf of the Issuer as provided in clause (e) above and authenticated by or on
behalf of the Trustee as provided in clause (g) above. Such signatures shall
be conclusive evidence that such Note has been duly executed and authenticated
under this Indenture. Each Note shall be dated the date of its authentication.
Section 2.02. Restrictive Legends. Unless and until a Note is exchanged
for an Exchange Note in connection with an effective registration under the
Securities Act pursuant to the Registration Rights Agreement, each Rule 144A
Global Note, each Regulation S Global Note and each Definitive Note issued in
reliance on Section 4(2) of the Securities Act shall bear the following legend
on the face thereof:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT") OR WITH ANY SECURITIES REGULATORY
AUTHORITY IN ANY JURISDICTION AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF,
U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS
ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT(A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)
OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN
"INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND
IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT,
WITHIN THE TIME PERIOD REFERRED TO IN RULE 144(k) (TAKING INTO ACCOUNT
THE PROVISIONS OF RULE 144(d) IF APPLICABLE) UNDER THE SECURITIES ACT AS
IN EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE, RESELL OR OTHERWISE
TRANSFER THIS NOTE EXCEPT (A) TO MORGAN STANLEY AIRCRAFT FINANCE OR ANY
SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED
INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES
ACT, (C) INSIDE THE UNITED STATES TO AN
<PAGE> 46
INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES
TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE
FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND IF SUCH
TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES OF LESS
THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER THAT SUCH
TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED
STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 OF
REGULATION S UNDER THE SECURITIES ACT, (E) PURSUANT TO AN EXEMPTION FROM
REGISTRATION IN ACCORDANCE WITH RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE), OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND, IN EACH CASE (A) THROUGH (F) ABOVE, IN ACCORDANCE
WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE IN THE UNITED STATES OR
ANY OTHER APPLICABLE JURISDICTION, AND (3) AGREES THAT IT WILL DELIVER TO
EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE
WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE
APPROPRIATE BOX SET FORTH ON THE TRANSFER NOTICE ATTACHED HERETO AND
SUBMIT THIS CERTIFICATE TO THE TRUSTEE. IF THE PROPOSED TRANSFEREE IS AN
INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO THE TRUSTEE AND THE ISSUER SUCH CERTIFICATIONS,
LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY
REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN
TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS
A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF
THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS.
Each Global Note, whether or not an Exchange Note, shall also bear the
following legend on the face thereof:
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY
PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH
<PAGE> 47
OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL
BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET
FORTH IN SECTION 2.13 OF THE INDENTURE.
Section 2.03. Registrar and Paying Agent. (a) With respect to each
subclass of Notes, there shall at all times be maintained an office or agency
in the location set forth in Section 13.05 hereof where Notes of such subclass
may be presented or surrendered for registration of transfer or for exchange
(each, a "Registrar"), and for payment thereof (each, a "Paying Agent") and
where notices and demands to or upon the Issuer in respect of such Notes may be
served. For so long as any Notes are listed on the Luxembourg Stock Exchange,
the Issuer shall appoint and maintain a Paying Agent and a Registrar in
Luxembourg. The Issuer shall cause each Registrar to keep a register of such
subclass of Notes for which it is acting as Registrar and of their transfer and
exchange (the "Register"). Written notice of the location of each such other
office or agency and of any change of location thereof shall be given by the
Trustee to the Issuer and the Holders of such subclass. In the event that no
such office or agency shall be maintained or no such notice of location or of
change of location shall be given, presentations and demands may be made and
notices may be served at the Corporate Trust Office of the Trustee.
(b) Each Authorized Agent shall be a bank or trust company, shall be a
corporation organized and doing business under the laws of the United States or
any state or territory thereof or of the District of Columbia, with a combined
capital and surplus of at least $75,000,000 (or having a combined capital and
surplus in excess of $5,000,000 and the obligations of which, whether now in
existence or hereafter incurred, are fully and unconditionally guaranteed by a
corporation organized and doing business under the laws of the United States,
any state or territory thereof or of the District of Columbia and having a
combined capital and surplus of at least $75,000,000) and shall be authorized
under the laws of the United States or any state or territory thereof to
exercise corporate trust powers, subject to supervision by Federal or state
authorities (such requirements, the "Eligibility Requirements"). The Trustee
shall initially be a Paying Agent and Registrar hereunder with respect to the
Notes of each subclass. Each Registrar other than the Trustee shall furnish to
the Trustee, at stated intervals of not more than six months, and at such other
times as the Trustee may request in writing, a copy of the Register maintained
by such Registrar.
(c) Any corporation into which any Authorized Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, consolidation or conversion to which any Authorized Agent
shall be a party, or any corporation succeeding to the corporate trust business
of any Authorized Agent, shall be the
<PAGE> 48
successor of such Authorized Agent hereunder, if such successor corporation is
otherwise eligible under this Section, without the execution or filing of any
paper or any further act on the part of the parties hereto or such Authorized
Agent or such successor corporation.
(d) Any Authorized Agent may at any time resign by giving written notice
of resignation to the Trustee and the Issuer. The Issuer may, and at the
request of the Trustee shall, at any time terminate the agency of any
Authorized Agent by giving written notice of termination to such Authorized
Agent and to the Trustee. Upon the resignation or termination of an Authorized
Agent or if at any time any such Authorized Agent shall cease to be eligible
under this Section (when, in either case, no other Authorized Agent performing
the functions of such Authorized Agent shall have been appointed by the
Trustee), the Issuer shall promptly appoint one or more qualified successor
Authorized Agents, reasonably satisfactory to the Trustee, to perform the
functions of the Authorized Agent which has resigned or whose agency has been
terminated or who shall have ceased to be eligible under this Section. The
Issuer shall give written notice of any such appointment made by it to the
Trustee; and in each case the Trustee shall mail notice of such appointment to
all Holders of the related subclass as their names and addresses appear on the
Register for such subclass.
(e) The Issuer agrees to pay, or cause to be paid, from time to time to
each Authorized Agent reasonable compensation for its services and to reimburse
it for its reasonable expenses to be agreed to pursuant to separate agreements
with each such Authorized Agent.
Section 2.04. Paying Agent to Hold Money in Trust. The Trustee shall
require each Paying Agent other than the Trustee to agree in writing that all
moneys deposited with any Paying Agent for the purpose of any payment on the
Notes shall be deposited and held in trust for the benefit of the Holders
entitled to such payment, subject to the provisions of this Section. Moneys so
deposited and held in trust shall constitute a separate trust fund for the
benefit of the Holders with respect to which such money was deposited.
The Trustee may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, direct any Paying
Agent to pay to the Trustee all sums held in trust by such Paying Agent; and,
upon such payment by any Paying Agent to the Trustee, such Paying Agent shall
be released from all further liability with respect to such money.
Section 2.05. Method of Payment. (a) On each Payment Date, the Trustee
shall, or shall instruct a Paying Agent to, pay, to the extent of the Available
Collections Amount therefor, to the Noteholders all interest, principal and
premium, if any, on the Notes of each subclass (other than payments received
following an Event of Default in respect of any subclass of Notes); provided,
that in the event and to the extent receipt of any payment is not confirmed by
the Trustee or Paying Agent by 1:00 p.m. (New York time) on such Payment Date
or any Business Day thereafter, distribution thereof shall be made on the
Business Day following the Business Day such payment is received. Each payment
on any Payment Date other than the Final Payment Date with respect to any
subclass of Notes shall be made by the Trustee or Paying Agent to the
Noteholders as of the Record Date for such Payment Date. The final payment with
respect to any Note, however, shall be made only upon presentation and
surrender of such Note by the Noteholder or its agent at the Corporate
<PAGE> 49
Trust Office or agency of the Trustee or Paying Agent specified in the
notice given by the Trustee or Paying Agent with respect to such final payment.
(b) At such time, if any, as the Notes of any subclass are issued in the
form of Definitive Notes, payments on a Payment Date shall be made by check
mailed to each Noteholder of a Definitive Note on the applicable Record Date at
its address appearing on the Register maintained with respect to such subclass.
Alternatively, upon application in writing to the Trustee, not later than the
applicable Record Date, by a Noteholder of one or more Definitive Notes of such
subclass having an aggregate principal amount of not less than $1,000,000, any
such payments shall be made by wire transfer to an account designated by such
Noteholder at a financial institution in New York, New York; provided that the
final payment for each subclass of Notes shall be made only upon presentation
and surrender of the Definitive Notes of such subclass by the Noteholder or its
agent at the Corporate Trust Office or agency of the Trustee or Paying Agent
specified in the notice of such final payment given by the Trustee or Paying
Agent. The Trustee or Paying Agent shall mail such notice of the final payment
of such subclass to each of the Noteholders of such subclass, specifying the
date and amount of such final payment.
Section 2.06. Minimum Denomination. Each subclass of Notes shall be
issued in minimum denominations of $100,000 and integral multiples of $1,000 in
excess thereof.
Section 2.07. Transfer and Exchange; Cancellation. The Notes are
issuable only in registered form. A Holder may transfer a Note only by written
application to the Registrar stating the name of the proposed transferee and
otherwise complying with the terms of this Indenture. No such transfer shall
be effected until, and such transferee shall succeed to the rights of a Holder
only upon, final acceptance and registration of the transfer by the Registrar
in the Register.
Prior to the due presentment for registration of transfer of a Note, the
Issuer and the Trustee may deem and treat the applicable registered Noteholder
as the absolute owner and Holder of such Note for the purpose of receiving
payment of all amounts payable with respect to such Note and for all other
purposes and shall not be affected by any notice to the contrary. The
Registrar (if different from the Trustee) shall promptly notify the Trustee and
the Trustee shall promptly notify the Issuer of each request for a registration
of transfer of a Note.
Furthermore, any Holder of a Global Note shall, by acceptance of such
Global Note, agree that, subject to Section 2.12(b) hereof, transfers of
beneficial interests in such Global Note may be effected only through a
book-entry system maintained by the Holder of such Global Note (or its agent)
and that ownership of a beneficial interest in such Note shall be required to
be reflected in a book-entry. When Notes are presented to the Registrar with a
request to register the transfer or to exchange them for an equal principal
amount of Notes of other authorized denominations (including an exchange of
Notes for Exchange Notes), the Registrar shall register the transfer or make
the exchange as requested if its requirements for such transactions are met
(including, in the case of a transfer, that such Notes are duly endorsed or
accompanied by a written instrument of transfer in form satisfactory to the
Trustee and Registrar duly executed by the Holder thereof or by an attorney who
is authorized
<PAGE> 50
in writing to act on behalf of the Holder); provided that no exchanges of
Notes for Exchange Notes shall occur until a Registration Statement shall have
been declared effective by the Commission and any Notes that are exchanged for
Exchange Notes shall be cancelled by the Trustee. To permit registrations of
transfers and exchanges, the Issuer shall execute and the Trustee shall
authenticate Notes at the Registrar's request. Except as set forth in Sections
2.08 and 2.09 hereof, no service charge shall be made for any registration of
transfer or exchange or redemption of the Notes.
The Issuer shall not be required to exchange or register the transfer of
any Notes as above provided during the 15-day period preceding the Final
Maturity Date of any such Notes or during a 15-day period preceding the first
mailing of any notice of Redemption or Refinancing of Notes to be redeemed or
refinanced. The Issuer shall not be required to exchange or register the
transfer of any Notes that have been selected, called or are being called for
Redemption or Refinancing except, in the case of any Notes where notice has
been given that such Notes are to be redeemed in part, the portion thereof not
so to be redeemed.
The Issuer at any time may deliver Notes to the Trustee for cancellation.
The Trustee and no one else shall cancel and destroy in accordance with its
customary practices in effect from time to time (subject to the record
retention requirements of the Exchange Act) any such Notes, together with any
other Notes surrendered to it for registration of transfer, exchange or
payment. The Issuer may not issue new Notes (other than Refinancing Notes
issued in connection with any Refinancing) to replace Notes it has redeemed,
paid or delivered to the Trustee for cancellation.
Section 2.08. Mutilated, Destroyed, Lost or Stolen Notes. If any Note
shall become mutilated, destroyed, lost or stolen, the Issuer shall, upon the
written request of the Holder thereof and presentation of the Note or
satisfactory evidence of destruction, loss or theft thereof to the Trustee or
Registrar, issue, and the Trustee shall authenticate and the Trustee or
Registrar shall deliver in exchange therefor or in replacement thereof, a new
Note of the same subclass, payable to such Holder in the same principal amount,
of the same maturity, with the same payment schedule, bearing the same interest
rate and dated the date of its authentication. If the Note being replaced has
become mutilated, such Note shall be surrendered to the Trustee or a Registrar
and forwarded to the Issuer by the Trustee or such Registrar. If the Note
being replaced has been destroyed, lost or stolen, the Holder thereof shall
furnish to the Issuer, the Trustee or a Registrar (i) such security or
indemnity as may be required by them to save the Issuer, the Trustee and such
Registrar harmless and (ii) evidence satisfactory to the Issuer, the Trustee
and such Registrar of the destruction, loss or theft of such Note and of the
ownership thereof. The Noteholders will be required to pay any tax or other
governmental charge imposed in connection with such exchange or replacement and
any other expenses (including the fees and expenses of the Trustee and any
Registrar) connected therewith.
Section 2.09. Payments of Transfer Taxes. Upon the transfer of any Note
or Notes pursuant to Section 2.07 hereof, the Issuer or the Trustee may require
from the party requesting such new Note or Notes payment of a sum to reimburse
the Issuer or the Trustee for, or to provide funds for the payment of, any
transfer tax or similar governmental charge payable in connection therewith.
<PAGE> 51
Section 2.10. Refinancing of Notes. (a) Subject to paragraphs (b) and
(c) below and Section 5.02(f)(ii) hereof, the Issuer may issue Refinancing
Notes pursuant to this Indenture for the purpose of refinancing the Outstanding
Principal Balance of any subclass of Notes (including refinancings of
Refinancing Notes). Each refinancing of any subclass of Notes with the
proceeds of an offering of Refinancing Notes (a "Refinancing") shall be
authorized pursuant to one or more Controlling Trustees' Resolutions. Each
Refinancing Note shall be designated generally as a "Note" for all purposes
under this Indenture, with such further designations added or incorporated in
such title as specified in the related Controlling Trustees' Resolutions or in
any indenture supplemental hereto providing for the issuance of such Notes or
specified in the form of such Notes, as the case may be.
(b) A Refinancing of any subclass of Notes in whole or in part may occur
on any Payment Date after the Initial Closing Date; provided that notice of
such Refinancing shall be given to the Trustee and, for so long as any Notes
are listed on the Luxembourg Stock Exchange, to the Listing Agent and the
Luxembourg Stock Exchange, not less than five days and not more than thirty
days prior to the date of such Refinancing; provided, further that an amount
equal to the Redemption Price plus accrued and unpaid interest will be payable
with respect to any subclass of Notes so refinanced. Each notice in respect of
a Refinancing shall state (i) the date of such Refinancing, (ii) the Redemption
Price of the Notes to be refinanced and the amount of accrued but unpaid
interest thereon, (iii) that the Notes of the subclass to be refinanced must be
surrendered and (iv) that, unless the Issuer defaults in the payment of the
Redemption Price and any accrued and unpaid interest, interest on such subclass
of Notes to be refinanced will cease to accrue on and after the date of such
Refinancing. On the date of any Refinancing, the Issuer shall issue and sell
an aggregate principal amount of Refinancing Notes not to exceed the
Outstanding Principal Balance of the subclass of Notes being refinanced thereby
plus any Premium and transaction expenses relating thereto. The proceeds of
each sale of Refinancing Notes shall be used to repay the Outstanding Principal
Balance of the subclass of Notes being refinanced thereby. Once a Notice of
Refinancing in respect of any Refinancing is published, each subclass of Notes
to which such Notice of Refinancing applies shall become due and payable on the
Refinancing Date stated in such Notice of Refinancing at their Redemption
Price, together with accrued and unpaid interest.
(c) Each Refinancing Note shall contain such terms as may be established
in or pursuant to the related Controlling Trustees' Resolutions (subject to
Section 2.01 hereof) or in any indenture supplemental hereto providing for the
issuance of such Notes or specified in the form of such Notes to the extent
permitted below, and shall have the same ranking pursuant to Section 3.08 with
respect to all other Outstanding Notes as the Notes being refinanced thereby.
Prior to any Refinancing, any or all of the following, as applicable, with
respect to the related issue of Refinancing Notes shall have been determined by
the Issuer and set forth in such Controlling Trustees' Resolutions or in any
indenture supplemental hereto providing for the issuance of such Notes or
specified in the form of such Notes, as the case may be:
(1) the subclass of Notes to be refinanced by such Refinancing
Notes;
(2) the aggregate principal amount of each subclass of such
Refinancing
<PAGE> 52
Notes which may be issued in respect of such Refinancing;
(3) the proposed date of such Refinancing;
(4) the Expected Final Payment Date and the Final Maturity Date of
each subclass of such Refinancing Notes;
(5) the rate at which such Refinancing Notes shall bear interest or
the method by which such rate shall be determined;
(6) if other than denominations of $100,000 and any integral
multiple of $1,000 in excess thereof, the denomination or denominations
in which any subclass of such Refinancing Notes shall be issuable;
(7) whether any such Refinancing Notes are to be issuable initially
in temporary or permanent global form and, if so, whether beneficial
owners of interests in any such permanent global Refinancing Note may
exchange such interests for Refinancing Notes of such subclass and of
like tenor of any authorized form and denomination and the circumstances
under which any such exchanges may occur, if other than in the manner
provided in Section 2.07 hereof, and the circumstances under which and
the place or places where any such exchanges may be made and the identity
of any initial depository therefor; and
(8) any other terms, conditions, rights and preferences (or
limitations on such rights and preferences) relating to the subclass of
Refinancing Notes (which terms shall comply with Applicable Law and not
be inconsistent with the requirements or restrictions of this Indenture,
including Section 5.02(f)(ii) hereof).
If any of the terms of any issue of Refinancing Notes are established by
action taken pursuant to one or more Controlling Trustees' Resolutions, such
Controlling Trustees' Resolutions shall be delivered to the Trustee setting
forth the terms of such Refinancing Notes.
Section 2.11. Issuer Additional Notes. (a) Subject to paragraph (b)
below and Section 5.02(f)(iv) hereof, the Issuer may issue Issuer Additional
Notes pursuant to this Indenture the proceeds of which shall be used to acquire
Issuer Additional Aircraft (each, an "Additional Issuance"). Each issuance of
any subclass of Issuer Additional Notes shall be authorized pursuant to one or
more Controlling Trustees' Resolutions. Each Issuer Additional Note shall be
designated generally as a "Note" for all purposes under this Indenture, with
such further designations added or incorporated in such title as specified in
the related Controlling Trustees' Resolutions or in any indenture supplemental
hereto providing for the issuance of such Notes or specified in the form of
such Notes, as the case may be.
(b) Each Issuer Additional Note shall contain such terms as may be
established in or pursuant to the related Controlling Trustees' Resolutions
(subject to Section 2.01 hereof) or in any indenture supplemental hereto
providing for the issuance of such Notes or specified in the form of such Notes
to the extent permitted below, and shall
<PAGE> 53
have the same ranking pursuant to Section 3.08 with respect to all other
Outstanding MSAF Group Notes of the same class. Prior to any issuance, any or
all of the following, as applicable, with respect to the related Additional
Issuance shall have been determined by the Issuer and set forth in such
Controlling Trustees' Resolutions or in any indenture supplemental hereto or
specified in the form of such Notes, as the case may be:
(1) the subclass of Notes to be issued;
(2) the aggregate principal amount of each subclass of such Issuer
Additional Notes which may be issued;
(3) the proposed date of such Additional Issuance;
(4) the Expected Final Payment Date and the Final Maturity Date of
each subclass of such Issuer Additional Notes;
(5) the rate at which such Issuer Additional Notes shall bear
interest or the method by which such rate shall be determined;
(6) if other than denominations of $100,000 and any integral
multiple of $1,000 in excess thereof, the denomination or denominations
in which each subclass of any such Issuer Additional Notes shall be
issuable;
(7) whether any such Issuer Additional Notes are to be issuable
initially in temporary or permanent global form and, if so, whether
beneficial owners of interests in any such permanent global Issuer
Additional Note may exchange such interests for Issuer Additional Notes
of the same subclass and of like tenor and of any authorized form and
denomination and the circumstances under which any such exchanges may
occur, if other than in the manner provided in Section 2.07 hereof, and
the circumstances under which and the place or places where any such
exchanges may be made and the identity of any initial depository
therefor; and
(8) any other terms, conditions, rights and preferences (or
limitations on such rights and preferences) relating to each subclass of
Issuer Additional Notes (which terms shall comply with Applicable Law and
not be inconsistent with the requirements or restrictions of this
Indenture, including Sections 5.02(f) and 13.13 hereof).
If any of the terms of any issue of Issuer Additional Notes are
established by action taken pursuant to one or more Controlling Trustees'
Resolutions, such Controlling Trustees' Resolutions shall be delivered to the
Trustee setting forth the terms of such Issuer Additional Notes.
Section 2.12. Book-Entry Provisions. (a) Global Notes of each subclass
initially shall (i) be registered in the name of the Depository for such Notes
or in the name of the nominee of such Depository, (ii) be delivered to the
Trustee as custodian for the Depository and (iii) if not registered under the
Securities Act, bear the Private Placement Legend as set forth in Section 2.02
hereof.
<PAGE> 54
Members of, or participants in, the Depository ("Agent Members") shall
have no rights under this Indenture with respect to any Global Note held on
their behalf by the Depository, or the Trustee as its custodian, or under such
Global Note, and the Depository may be treated by the Issuer, the Trustee and
any agent of the Issuer or the Trustee as the absolute owner of such Global
Note for all purposes whatsoever.
Whenever notice or other communication to the Noteholders of any subclass
of Global Notes is required under this Indenture, unless and until Definitive
Notes shall have been issued pursuant to Section 2.12(b) below, the Trustee
shall give all such notices and communications specified herein to be given to
Noteholders of such subclass of Global Notes to the Depository and/or the Agent
Members, and shall make available additional copies as requested by such Agent
Members.
Notwithstanding the foregoing, nothing herein shall prevent the Issuer,
the Trustee or any agent of the Issuer or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depository
or impair, as between the Depository and its Agent Members, the operation of
customary practices governing the exercise of the rights of a Holder of any
Global Note. Neither the Issuer nor the Trustee shall be liable for any delay
by the Depository in identifying the beneficial owners of the Global Notes, and
the Issuer and the Trustee may conclusively rely on, and shall be fully
protected in relying on, instructions from the Depository for all purposes
(including with respect to the registration and delivery, and the respective
principal amounts, of any Global Notes to be issued).
(b) Transfers of a Global Note shall be limited to transfers of such
Global Note in whole, but not in part, to the Depository, its successors or
their respective nominees. Interests of beneficial owners in a Global Note may
be transferred in accordance with the rules and procedures of the Depository
and the provisions of Section 2.13 hereof. Definitive Notes shall be issued to
the individual beneficial owners or their nominees in exchange for their
beneficial interests in the Rule 144A Global Note or the Regulation S Global
Note, respectively, only if (i) the Issuer advises the Trustee in writing that
the Depository is no longer willing or able to properly discharge its
responsibilities as depositary with respect to the Notes and the Trustee or the
Issuer is unable to appoint a qualified successor within 90 days of such
notice, (ii) the Issuer, at its option, elects to terminate the book-entry
system through the Depository or (iii) after the occurrence of an Event of
Default with respect to any class of Notes, Noteholders of a subclass within
such class representing an aggregate of not less than 51% of the aggregate
Outstanding Principal Balance of Notes of such subclass advise the Issuer, the
Trustee and the Depository through the Agent Members in writing that the
continuation of a book-entry system through the Depository (or a successor
thereto) is no longer in the best interests of the Noteholders of such
subclass. Upon the occurrence of any event described in the immediately
preceding sentence, the Trustee shall notify all Noteholders of each affected
subclass, through the Depository, of the occurrence of such event and of the
availability of Definitive Notes of such subclass. Upon surrender to the
Trustee of the Global Notes of such subclass held by the Depository,
accompanied by registration instructions from the Depository for registration
of Definitive Notes in the names of Noteholders of such subclass, the Issuer
shall issue and the Trustee shall authenticate and deliver the Definitive Notes
of such subclass to the beneficial owners of such subclass or their
<PAGE> 55
nominees in accordance with the instructions of the Depository.
None of the Issuer, the Registrar, the Paying Agent or the Trustee shall
be liable for any delay in delivery of such instructions and may conclusively
rely on, and shall be fully protected in relying on, such registration
instructions. Upon the issuance of Definitive Notes of such subclass, the
Trustee shall recognize the Persons in whose name the Definitive Notes are
registered in the Register as Noteholders hereunder. Neither the Issuer nor
the Trustee shall be liable if the Trustee or the Issuer is unable to locate a
qualified successor Depository.
Definitive Notes of any subclass will be freely transferable and
exchangeable for Definitive Notes of the same subclass at the office of the
Trustee or the office of a Registrar upon compliance with the requirements set
forth herein.
(c) Any beneficial interest in one of the Global Notes as to any subclass
that is transferred to a Person who takes delivery in the form of an interest
in another Global Note will, upon transfer, cease to be an interest in such
Global Note and become an interest in such other Global Note and, accordingly,
will thereafter be subject to all transfer restrictions, if any, and other
procedures applicable to beneficial interests in such other Global Note for as
long as it remains such an interest.
(d) Any Definitive Note delivered in exchange for an interest in a Rule
144A Global Note pursuant to paragraph (b) of this Section shall, except as
otherwise provided by paragraph (f) of Section 2.13, bear the Private Placement
Legend applicable to a Rule 144A Global Note set forth in Section 2.02 hereof.
(e) Any Definitive Note delivered in exchange for an interest in a
Regulation S Global Note pursuant to paragraph (b) of this Section shall,
except as otherwise provided by paragraph (f) of Section 2.13, bear the Private
Placement Legend applicable to a Regulation S Global Note set forth in Section
2.02 hereof.
Section 2.13. Special Transfer Provisions. Unless and until a Note is
exchanged for an Exchange Note under an effective registration statement under
the Securities Act pursuant to the Registration Rights Agreement, the following
provisions shall apply:
(a) Transfers to Non-QIB Institutional Accredited Investors. The
following provisions shall apply with respect to the registration of any
proposed transfer of a Note to any Institutional Accredited Investor which is
not a QIB (excluding Non-U.S. Persons):
(i) The Registrar shall register the transfer of any Note, whether
or not such Note bears the Private Placement Legend, if the proposed
transferee has delivered to the Registrar (A) a certificate substantially
in the form of Exhibit K hereto and (B) if the aggregate principal amount
of the Notes being transferred is less than $250,000, an Opinion of
Counsel acceptable to the Issuer that such transfer is in compliance with
the Securities Act.
(ii) If the proposed transferor is an Agent Member holding a
beneficial
<PAGE> 56
interest in the Rule 144A Global Note, upon receipt by the Registrar of
(x) the documents, if any, required by paragraph (i) and (y) instructions
given in accordance with the Depositary's and the Registrar's procedures,
the Registrar shall reflect on its books and records the date and a
decrease in the principal amount of the Rule 144A Global Note in an amount
equal to the principal amount of the beneficial interest in the Rule 144A
Global Note to be transferred, and the Issuer shall execute, and the
Trustee shall authenticate and deliver, one or more Definitive Notes of
like tenor and amount.
(b) Transfers to QIBs. The following provisions shall apply with respect
to the registration of any proposed transfer of an interest in a Rule 144A
Global Note or a Definitive Note issued in exchange for an interest in such Rule
144A Global Note in accordance with Section 2.12(b) hereof to a QIB (excluding
Non-U.S. Persons):
(i) If the Note to be transferred consists of (x) Definitive Notes,
the Registrar shall register the transfer if such transfer is being made
by a proposed transferor who has checked the box provided for on the form
of Note stating, or has otherwise advised the Issuer and the Registrar in
writing, that the sale has been made in compliance with the provisions of
Rule 144A to a transferee who has signed the certification provided for
on the form of Note stating, or has otherwise advised the Issuer and the
Registrar in writing, that it is purchasing the Note for its own account
or an account with respect to which it exercises sole investment
discretion and that it and any such account are QIBs within the meaning
of Rule 144A, are aware that the sale to it is being made in reliance on
Rule 144A and acknowledge that they have received such information
regarding the Issuer as they have requested pursuant to Rule 144A or have
determined not to request such information and that they are aware that
the transferor is relying upon their foregoing representations in order
to claim the exemption from registration provided by Rule 144A or (y) an
interest in a Rule 144A Global Note, the transfer of such interest may be
effected only through the book-entry system maintained by the Depository.
(ii) If the proposed transferee is an Agent Member, and the Note to
be transferred is a Definitive Note, upon receipt by the Registrar of the
documents referred to in Clause (i) and instructions given in accordance
with the Depository's and the Registrar's procedures, the Registrar shall
reflect on its books and records the date and an increase in the
principal amount at maturity of the Rule 144A Global Note in an amount
equal to the principal amount at maturity of the Definitive Note to be
transferred, and the Trustee shall cancel the Definitive Note so
transferred.
(c) Transfers of Interests in a Temporary Regulation S Global Note. The
following provisions shall apply with respect to registration of any proposed
transfer of interests in a Temporary Regulation S Global Note:
(i) The Registrar shall register the transfer of any interest in a
Temporary Regulation S Global Note (x) if the proposed transferee is a
Non-U.S. Person and the proposed transferor has delivered to the
Registrar a certificate substantially in the form of Exhibit J hereto or
(y) if the proposed transferee is a QIB and the proposed transferor has
checked the box provided for on the form of Note stating, or has
<PAGE> 57
otherwise advised the Issuer and the Registrar in writing, that the sale
has been made in compliance with the provisions of Rule 144A to a
transferee who has signed the certification provided for on the form of
Note stating, or has otherwise advised the Issuer and the Registrar in
writing, that it is purchasing the Note for its own account or an account
with respect to which it exercises sole investment discretion and that it
and any such account are QIBs within the meaning of Rule 144A, are aware
that the sale to them is being made in reliance on Rule 144A and
acknowledge that they have received such information regarding the Issuer
as they have requested pursuant to Rule 144A or have determined not to
request such information and that they are aware that the transferor is
relying upon their foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
(ii) If the proposed transferee is an Agent Member that provides the
documents referred to in clause (i)(y) above, upon receipt by the
Registrar of such documents and instructions given in accordance with the
Depository's and the Registrar's procedures, the Registrar shall reflect
on its books and records the date and an increase in the principal amount
of the Rule 144A Global Note of the relevant subclass, in an amount equal
to the principal amount of the Temporary Regulation S Global Note of such
subclass to be transferred, and the Trustee shall decrease the amount of
the Temporary Regulation S Global Note of such subclass.
(d) Transfers of Interests in a Permanent Regulation S Global Note or
Definitive Notes Issued in Exchange for an Interest in a Permanent Regulation S
Global Note to U.S. Persons. The Registrar shall register any transfer of
interests in a Permanent Regulation S Global Note or Definitive Notes issued in
exchange for an interest in a Permanent Regulation S Global Note in accordance
with Section 2.12(b) hereof to U.S. Persons without requiring any additional
certification.
(e) Transfers to Non-U.S. Persons at any Time. The following provisions
shall apply with respect to any transfer of a Note to a Non-U.S. Person:
(i) Prior to the applicable Regulation S Global Notes Exchange Date,
the Registrar shall register any proposed transfer of a Note to a
Non-U.S. Person upon receipt of a certificate substantially in the form
of Exhibit J hereto from the proposed transferor.
(ii) On and after the applicable Regulation S Global Notes Exchange
Date, the Registrar shall register any proposed transfer of a Note to any
Non-U.S. Person if the Note to be transferred is a Definitive Note or an
interest in a Rule 144A Global Note, upon receipt of a certificate
substantially in the form of Exhibit J from the proposed transferor.
(iii) (a) If the proposed transferor is an Agent Member holding a
beneficial interest in a Rule 144A Global Note, upon receipt by the
Registrar of (x) the documents, if any, required by paragraph (ii) and
(y) instructions in accordance with the Depository's and the Registrar's
procedures, the Registrar shall reflect on its books and records the date
and a decrease in the principal amount of a Rule 144A Global Note in an
amount equal to the principal amount of the beneficial interest in such
Rule
<PAGE> 58
144A Global Note to be transferred, and (b) if the proposed transferee is
an Agent Member, upon receipt by the Registrar of instructions given in
accordance with the Depository's and the Registrar's procedures, the
Registrar shall reflect on its books and records the date and an increase
in the principal amount of the Regulation S Global Note of the relevant
subclass in an amount equal to the principal amount of the beneficial
interest in such Rule 144A Global Note or any Definitive Notes issued in
exchange for such interest in such Rule 144A Global Note to be
transferred, and the Trustee shall cancel the Definitive Note, if any, so
transferred or decrease the amount of the Rule 144A Global Note.
(f) Private Placement Legend. Upon the transfer, exchange or replacement
of Notes not bearing the Private Placement Legend, the Registrar shall deliver
Notes that do not bear the Private Placement Legend. Upon the transfer,
exchange or replacement of Notes bearing the Private Placement Legend, the
Registrar shall deliver only Notes that bear the Private Placement Legend
unless either (i) the Private Placement Legend is no longer required under
Section 2.02 hereof or, in respect of a Definitive Note, the condition set
forth in paragraph (e)(ii) of this Section 2.13 exists or (ii) there is
delivered to the Registrar an Opinion of Counsel reasonably satisfactory to the
Issuer and the Trustee to the effect that neither such legend nor the related
restrictions on transfer are required in order to maintain compliance with the
provisions of the Securities Act.
(g) General. By its acceptance of any Note bearing the Private Placement
Legend, each Holder of such Note acknowledges the restrictions on transfer of
such Note set forth in this Indenture and in the Private Placement Legend and
agrees that it will transfer such Note only as provided in this Indenture. The
Registrar shall not register a transfer of any Note unless such transfer
complies with the restrictions on transfer of such Note set forth in this
Indenture. In connection with any transfer of Notes, each Holder agrees by its
acceptance of the Notes to furnish the Trustee the certifications and legal
opinions described herein to confirm that such transfer is being made pursuant
to an exemption from, or a transaction not subject to, the registration
requirements of the Securities Act; provided that the Trustee shall not be
required to determine (but may rely on a determination made by the Issuer with
respect to) the sufficiency of any such legal opinions.
The Trustee shall retain copies of all letters, notices and other written
communications received pursuant to Section 2.12 hereof or this Section 2.13.
The Issuer shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time upon the giving
of reasonable written notice to the Trustee.
Section 2.14. Temporary Definitive Notes. Pending the preparation of
Definitive Notes of any subclass, the Issuer may execute and the Trustee may
authenticate and deliver temporary Definitive Notes of such subclass which are
printed, lithographed, typewritten or otherwise produced, in any denomination,
containing substantially the same terms and provisions as are set forth in the
applicable exhibit hereto or in any indenture supplemental hereto, except for
such appropriate insertions, omissions, substitutions and other variations
relating to their temporary nature as the Signatory Trustee of the Issuer
executing such temporary Definitive Notes may determine, as evidenced by his
execution of
<PAGE> 59
such temporary Definitive Notes.
If temporary Definitive Notes of any subclass are issued, the Issuer will
cause Definitive Notes of such subclass to be prepared without unreasonable
delay. After the preparation of Definitive Notes of such subclass, the
temporary Definitive Notes shall be exchangeable for Definitive Notes upon
surrender of such temporary Definitive Notes at the Corporate Trust Office of
the Trustee, without charge to the Holder thereof. Upon surrender for
cancellation of any one or more temporary Definitive Notes, the Issuer shall
execute and the Trustee shall authenticate and deliver in exchange therefor
Definitive Notes of like subclass, in authorized denominations and in the same
aggregate principal amounts. Until so exchanged, such temporary Definitive
Notes shall in all respects be entitled to the same benefits under this
Indenture as Definitive Notes.
Section 2.15. Statements to Noteholders. (a) On the second Business Day
before each Payment Date and any other date for distribution of any payments
with respect to any subclass of Notes then Outstanding, the Trustee will,
provided that such information is delivered to the Trustee in a timely manner,
distribute to each Noteholder with each Payment to Noteholders of such subclass
a report, substantially in the form attached as Exhibit H hereto and setting
forth the information described therein after giving effect to such Payment
(each, a "Monthly Report"). Each Monthly Report for each April 15, July 15 and
October 15 shall be accompanied by (i) a statement setting forth an analysis of
the Collection Account activity for the preceding fiscal quarter ended February
28, May 31 and August 31, respectively, (ii) a discussion and analysis of such
activity and of any significant developments affecting MSAF Group in such
quarter and (iii) an updated description of the Aircraft then in the Portfolio
and the related Lessees (each, a "Quarterly Report"). Each Monthly Report for
each February 15 shall be accompanied by (i) a statement setting forth an
analysis of the Collection Account activity for the preceding fiscal year ended
November 30, (ii) a discussion and analysis of such activity and of any
significant developments affecting MSAF Group in such year and (iii) updated
information with respect to the Aircraft then in the Portfolio (each, a "Annual
Report").
(b) After the end of each calendar year but not later than the latest date
permitted by law, the Trustee in its capacity as Paying Agent shall or, if the
Paying Agent is another Person other than the Trustee, the Trustee shall
instruct such Paying Agent to, furnish to each Person who at any time during
such calendar year was a Noteholder of record of any subclass a statement
containing the sum of the amounts determined pursuant to clause (D) of Exhibit
H hereto with respect to the subclass for such calendar year or, in the event
such Person was a Noteholder of record of any subclass during only a portion of
such calendar year, for the applicable portion of such calendar year, and such
other items as are readily available to the Trustee and which a Noteholder
shall reasonably request as necessary for the purpose of such Noteholder's
preparation of its U.S. federal income or other tax returns. So long as any of
the Notes are registered in the name of the initial Depository or its nominee,
such report and such other items will be prepared on the basis of such
information supplied to the Trustee by the initial Depository and the Agent
Members, and will be delivered by the Trustee to such Agent Members to be
available for forwarding by such Agent Members to the applicable beneficial
owners in the manner described above. In the event that any such information
has been provided by any Paying Agent directly to such Person through other
<PAGE> 60
tax-related reports or otherwise, the Trustee in its capacity as Paying Agent
shall not be obligated to comply with such request for information.
(c) On each Payment Date and any other date specified herein for
distribution of any Payments with respect to the Notes of any subclass, the
Trustee shall provide to the Listing Agent, on behalf of the Luxembourg Stock
Exchange, a copy of the report to Noteholders of such subclass described in
this Section 2.15(a).
(d) At such time, if any, as the Notes of any subclass are issued in the
form of Definitive Notes, the Trustee shall prepare and deliver the information
described in this Section 2.15(b) to each Holder of record of a Definitive Note
of such subclass for the relevant period of beneficial ownership of such
Definitive Note as appears on the records of the Trustee.
(e) Following each Payment Date and any other date specified herein for
distribution of any Payments with respect to the Notes and prior to a
Refinancing or Redemption, the Trustee shall cause notice thereof to be given
(i) by publication in the Luxemburger Wort or, if such newspaper shall cease to
be published or timely publication therein shall not be practicable, in such
English language newspaper or newspapers as the Trustee shall approve having a
general circulation in Europe, (ii) by either of (a) the information contained
in such notice appearing on the relevant page of the Reuters Screen or such
other medium for the electronic display of data as may be approved by the
Trustee and notified to Noteholders or (b) publication in the Financial Times
and The Wall Street Journal (National Edition) or, if either newspaper shall
cease to be published or timely publication therein shall not be practicable,
in such English language newspaper or newspapers as the Trustee shall approve
having a general circulation in Europe and the United States and (iii) until
such time as any Definitive Notes are issued and, so long as the Notes of any
subclass are registered with the Depository, Euroclear and/or Cedel, delivery
of the relevant notice to the Depository, Euroclear and/or Cedel for
communication by them to Noteholders of such subclass. Notwithstanding the
above, any notice to the Noteholders of any subclass specifying a floating
interest rate for the Notes, any Payment Date, any principal payment or any
payment of Premium, if any, shall be validly given by delivery of the relevant
notice to the Depository, Euroclear and/or Cedel for communication by them to
such Noteholders, without the need for publication in the Luxemburger Wort.
(f) The Trustee shall be at liberty to sanction some other method of
giving notice to the Noteholders of any subclass if, in its opinion, such other
method is reasonable, having regard to the number and identity of the
Noteholders of such subclass and/or to market practice then prevailing, is in
the best interests of the Noteholders of such subclass and will comply with the
rules of the Luxembourg Stock Exchange as confirmed by the Listing Agent or
such other stock exchange (if any) on which the Notes of such subclass are then
listed, and any such notice shall be deemed to have been given on such date as
the Trustee may approve; provided that notice of such method is given to the
Noteholders of such subclass in such manner as the Trustee shall require.
Notwithstanding the above, any notice specifying the rate, amount or
Payment Date in respect of the Notes of any subclass bearing interest at a
floating rate or in respect of any repayment of principal on any Notes shall,
for so long as such Notes are listed on the
<PAGE> 61
Luxembourg Stock Exchange and so long as the rules of the Luxembourg Stock
Exchange so require, be given to the Listing Agent; provided that such
requirement shall be satisfied until such time as any Definitive Notes of such
subclass are issued to all Noteholders and so long as the Notes of such subclass
are held on behalf of DTC, Cedel and Euroclear by (i) delivery of the relevant
notice to DTC, Cedel and Euroclear for communication by them to the Noteholders
of such subclass without need for publication in the Luxemburger Wort and (ii)
delivery of the notice to the Luxembourg Stock Exchange and the Paying Agent in
Luxembourg; provided further, that any notice specifying (a) an increase in the
rate of interest of any subclass of Notes due to Step-Up Interest or failure by
the Issuer to comply with the registration requirements for the Notes or (b)
redemption of principal of any Notes must be published in the Luxemburger Wort
or another daily newspaper of general circulation in Luxembourg. Any such
notice shall be deemed to have been given on the first day on which any of such
conditions shall have been met.
Section 2.16. CUSIP, CINS AND ISIN Numbers. The Issuer in issuing the
Notes may use "CUSIP", "CINS", "ISIN" or other identification numbers (if then
generally in use), and if so, the Trustee shall use CUSIP numbers, CINS
numbers, ISIN numbers or other identification numbers, as the case may be, in
notices of redemption or exchange as a convenience to Holders; provided that
any such notice shall state that no representation is made as to the
correctness of such numbers either as printed on the Notes or as contained in
any notice of redemption or exchange and that reliance may be placed only on
the other identification numbers printed on the Notes; provided further, that
failure to use "CUSIP", "CINS", "ISIN" or other identification numbers in any
notice of redemption or exchange shall not affect the validity or sufficiency
of such notice.
ARTICLE III
ACCOUNTS; PRIORITY OF PAYMENTS
Section 3.01. Establishment of Accounts. (a) The Administrative Agent,
acting on behalf of the Security Trustee, shall establish and maintain the
Accounts set forth on Schedule I to the Administrative Agency Agreement and any
additional accounts established from time to time in the manner described in
this Section 3.01. To the greatest extent possible, the Security Trustee shall
be granted a security interest in the Issuer's and the Issuer Subsidiaries'
interests in the cash balances from time to time deposited in all of the
Accounts pursuant to the terms of Section 2.01 of the Security Trust Agreement.
The Security Trustee shall have sole dominion and control over the Accounts
(including, inter alia, the sole power to direct withdrawals or transfers from
the Accounts), which dominion and control is delegated to the Administrative
Agent pursuant to Section 2.01(b) of the Administrative Agency Agreement.
(i) The Administrative Agent shall make withdrawals and transfers
from the Accounts in accordance with the terms of the Administrative
Agency Agreement and this Indenture based on the Relevant Information and
as calculated by it pursuant to this Indenture and the Administrative
Agency Agreement.
<PAGE> 62
(ii) If the Operating Bank should change at any time, then the
Administrative Agent, acting on behalf of the Security Trustee, shall
thereupon promptly establish replacement accounts as necessary at the
successor Operating Bank and transfer the balance of funds in each
Account then maintained at the former Operating Bank pursuant to the
terms of the Administrative Agency Agreement to such successor Operating
Bank.
(b) Collection Account. The Administrative Agent, acting on behalf of the
Security Trustee, shall establish and maintain at the Operating Bank in the
name of the Security Trustee (or in the name of an Eligible Institution
designated in writing by the Security Trustee to the Operating Bank), a trust
account (the "Collection Account"). The Collection Account shall bear a
designation clearly indicating that the funds deposited therein are held for
the benefit of the Secured Parties. All Collections received by the Issuer
and the Issuer Subsidiaries shall be deposited in the Collection Account and
transferred therefrom in accordance with the terms of this Indenture.
If the balance of funds on deposit in the Collection Account, together
with the amount available for drawing under any Eligible Credit Facilities,
falls below the Liquidity Reserve Amount at any time (including as a result of
any increase in the Liquidity Reserve Amount), the Issuer may continue to make
all payments, including required payments on the MSAF Group Notes and any
Guarantees, which rank prior to, or pari passu with, payments of Minimum
Principal Payment Amounts on the MSAF Group Class D Notes pursuant to Section
3.08(a) hereof and any Permitted Accruals other than in respect of Modification
Payments; provided that the balance of funds in the Collection Account,
together with the amount available for drawing under any Eligible Credit
Facilities does not fall below the Minimum Liquidity Reserve Amount at its then
current level; provided further, however, that the balance of funds in the
Collection Account, together with the amount available for drawing under any
Eligible Credit Facilities may fall below the Minimum Liquidity Reserve Amount
at its then current level, and the Issuer may continue to make all payments,
including required payments on MSAF Group Notes and any Guarantees, in order to
pay accrued and unpaid interest on, and, on the applicable Final Maturity Date
thereof, principal of, the Senior Class then Outstanding to avoid an Event of
Default, in each case subject to the order of priorities under Section 3.08
hereof.
The Security Trustee shall have sole dominion and control over the
Collection Account and all investments made through and/or maintained in the
Collection Account, including authority to direct withdrawals from or transfers
among the Collection Account and each other Account. Amounts may be withdrawn
or transferred from the Collection Account only in accordance with the
provisions of this Indenture, any Guarantor Indenture and the Administrative
Agency Agreement by authorized officers or employees of the Security Trustee or
agents authorized by the Security Trustee in writing (including the
Administrative Agent and any authorized agent thereof pursuant to the
Administrative Agency Agreement). If, at any time, the Collection Account
ceases to be an Eligible Account, the Administrative Agent or an agent thereof
shall, within 10 Business Days, establish a new collection account meeting the
conditions set forth in this Section 3.01(b) and transfer any cash or
investments in
<PAGE> 63
the existing Collection Account to such new collection account; and from the
date such new collection account is established, it shall be the "Collection
Account".
(c) Lessee Funded Account. The Administrative Agent, acting on behalf of
the Security Trustee, shall establish and maintain at the Operating Bank in the
name of the Security Trustee (or in the name of an Eligible Institution
designated in writing by the Security Trustee to the Operating Bank) one or
more trust accounts (collectively, the "Lessee Funded Account"). The Lessee
Funded Account shall bear a designation indicating that the Segregated Funds
deposited therein are held for the benefit of the relevant Lessee pursuant to
the terms of any Lease which requires that such funds be segregated from the
other funds of the MSAF Group, and that such Segregated Funds are to be held in
accordance with such Lease. Any Segregated Funds received from time to time
from such Lessees (other than any cash security deposits which shall be
transferred by the Administrative Agent to ILFC to be held in custody in
accordance with the Custody and Loan Agreement) shall be transferred by the
Administrative Agent directly into the Lessee Funded Account. All funds on
deposit in the Lessee Funded Accounts shall be accounted for and, if required
by any Lease, segregated on a per lease basis as set forth below and may not be
used to make payments, other than as permitted under Section 3.07 hereof, in
respect of the Notes or the Notes at any time, including after the delivery of
a Default Notice. Any Segregated Funds relating to an expired Lease that
remain in the Lessee Funded Account after expiration of such lease and that are
not due and owing to the relevant Lessee under such expired lease shall be
credited in the Lessee Funded Account to the next Lessee of the relevant
Aircraft to the extent, if any, required under the terms of the next Lease
relating to such aircraft.
The Security Trustee shall have sole dominion and control over the Lessee
Funded Account and all investments made through and/or maintained in the Lessee
Funded Accounts, including sole authority to direct withdrawals or transfers
therefrom. Amounts may be withdrawn from the Lessee Funded Account only in
accordance with the provisions of this Indenture, any Guarantor Indenture and
the Administrative Agency Agreement and only by officers, employees or agents
authorized by the Security Trustee in writing (including the Administrative
Agent and any authorized agent thereof pursuant to the Administrative Agency
Agreement). If, at any time, any Lessee Funded Account ceases to be an
Eligible Account, the Administrative Agent or an agent thereof shall establish,
within 10 Business Days, a new lessee funded account to replace such Lessee
Funded Account meeting the conditions set forth in this Section 3.01(c) and
transfer any cash or investments in the existing Lessee Funded Account to such
new lessee funded account; and from the date any such new lessee funded account
is established, it shall be the "Lessee Funded Account" with respect to the
relevant Lease.
(d) Expense Account. The Administrative Agent, acting on behalf of the
Security Trustee, shall establish and maintain at the Operating Bank, in the
name of the Security Trustee (or in the name of an Eligible Institution
designated in writing by the Security Trustee to the Operating Bank), a trust
account (the "Expense Account") bearing a designation indicating that the funds
deposited therein are held for the benefit of the Secured Parties. On each
Payment Date, the Required Expense Amount (other than the part of the Required
Expense Amount paid directly to certain Expense payees on such Payment Date
pursuant to Section 3.08(a)(i)) shall be deposited into the Expense Account
from the
<PAGE> 64
Collection Account. The Administrative Agent may, but shall not be required
to, maintain in the Expense Account a balance containing accruals in respect of
Expenses that are not regular, monthly recurring Expenses, including
Modification Payments and Refinancing Expenses, if any, of MSAF Group
anticipated to become due and payable in any future Interest Accrual Period
(the "Permitted Accruals").
The Security Trustee shall have sole dominion and control over the Expense
Account, including sole authority to direct withdrawals from or transfers among
the Accounts. Amounts may be withdrawn or transferred from the Expense Account
only in accordance with the provisions of this Indenture, any Guarantor
Indenture and the Administrative Agency Agreement by authorized officers or
employees of the Security Trustee or by agents authorized by the Security
Trustee in writing (including the Administrative Agent and any authorized
agents thereof pursuant to the Administrative Agency Agreement). If, at any
time, the Expense Account ceases to be an Eligible Account, the Administrative
Agent or an agent thereof shall establish, within 10 Business Days, a new
expense account meeting the conditions set forth in this Section 3.01(d) and
transfer any cash or investments in the existing Expense Account to such new
expense account; and from the date such new expense account is established, it
shall be the "Expense Account".
(e) Rental Accounts. The Administrative Agent, acting on behalf of the
Security Trustee, shall establish and maintain, on or prior to the applicable
Closing Date and from time to time thereafter, one or more rental accounts
(each, a "Rental Account") for the deposit of Rental Payments and any amounts
received pursuant to any Related Collateral Documents; provided that all funds
on deposit in each Rental Account (other than certain limited amounts, if any,
required to be left on deposit for local tax or other regulatory or legal
reasons) shall be transferred by the Administrative Agent or its agent from
such Rental Account into the Collection Account within one Business Day of
receipt thereof. Each Rental Account (other than the Non-Trustee Accounts)
shall be established and maintained at the Operating Bank (in which case such
Rental Account shall be a trust account), another Eligible Institution or a
responsible and reputable bank in accordance with Section 2.04 of the
Administrative Agency Agreement in the name of the Security Trustee on behalf
of the Secured Parties.
In each case in which, for tax or other regulatory or legal reasons, any
Rental Account cannot be established in the name of the Security Trustee, then,
upon written notice from the Administrative Agent to the Security Trustee and
each Rating Agency, the Issuer and any related Issuer Subsidiary shall open
such Rental Account (each, a "Non-Trustee Account") in the name of the relevant
Issuer or Lessor or such other Person as may be specified by the terms of the
relevant Lease, at an Eligible Institution or other reputable and responsible
bank; provided that no Non-Trustee Account may be opened unless the relevant
Lessor is or becomes a party to a Security Document.
(f) Refinancing Account. The Administrative Agent, acting on behalf of
the Trustee, shall establish and maintain at the Operating Bank in the name of
the Trustee, a trust account (the "Refinancing Account") for the benefit of the
Holders of MSAF Group Notes of any subclass being refinanced for the purpose of
receiving the cash proceeds of any such Refinancing and holding such proceeds
on behalf of the Holders of such MSAF Group
<PAGE> 65
Notes until such time as the Outstanding Principal Balance and all accrued and
unpaid interest and Premium, if any, on such MSAF Group Notes are repaid in
full using such proceeds and such MSAF Group Notes are cancelled by the
Trustee.
(g) Defeasance/Redemption Account. The Administrative Agent, acting on
behalf of the Trustee, shall establish and maintain at the Operating Bank in
the name of the Trustee, a trust account (the "Defeasance/Redemption Account")
for the benefit of the Holders of MSAF Group Notes of any subclass being
redeemed or defeased at the Operating Bank or such other Eligible Institution
as may be required for the purpose of receiving funds or securities to be used
to redeem or defease MSAF Group Notes pursuant to Section 3.10 or Article XI
hereof or pursuant to any Guarantor Indenture and holding such funds on behalf
of the Holders of the subclass of MSAF Group Notes to be redeemed or defeased,
as the case may be, until such time as the Outstanding Principal Balance and
all accrued and unpaid interest and Premium, if any, on such MSAF Group Notes
are repaid in full using such funds and such MSAF Group Notes are cancelled by
the Trustee.
(h) Aircraft Purchase Account. The Administrative Agent, acting on behalf
of the Security Trustee, shall establish and maintain at the Operating Bank in
the name of the Security Trustee, a trust account (the "Aircraft Purchase
Account") for the purpose of (i) holding proceeds of the issuance of the
Initial Notes on behalf of the Holders until such time as the Remaining
Aircraft or Substitute Aircraft are delivered or such other time as the funds
held therein are transferred to the Collection Account in accordance with
Section 3.04 hereof and (ii) holding proceeds of any Additional Issuance
pending application of such proceeds for the acquisition of Additional
Aircraft.
The Security Trustee shall have sole dominion and control over the
Aircraft Purchase Account and all investments made through and/or maintained in
the Aircraft Purchase Account, including authority to direct withdrawals from
or transfers among the Aircraft Purchase Account and each other Account. Any
amounts may be withdrawn or transferred from the Aircraft Purchase Account only
in accordance with the provisions of this Indenture and the Administrative
Agency Agreement by authorized officers or employees of the Security Trustee or
agents authorized by the Security Trustee in writing (including the
Administrative Agent and any authorized agent thereof pursuant to the
Administrative Agency Agreement). If, at any time such account is required to
be maintained by the Issuer, the Aircraft Purchase Account ceases to be an
Eligible Account, the Administrative Agent or an agent thereof shall, within 10
Business Days, establish a new deposit account meeting the conditions set forth
in this Section 3.01(h) and transfer any cash or investments in the existing
Aircraft Purchase Account to such new deposit account; and from the date such
new deposit account is established, it shall be the "Aircraft Purchase
Account".
(i) Note Account. The Administrative Agent, acting on behalf of the
Trustee, shall establish and maintain at the Operating Bank in the name of the
Trustee a trust account for the benefit of the Noteholders of each subclass
(each, a "Note Account") as a non-interest-bearing account. The Trustee shall
hold each Note Account in trust for the benefit of the Noteholders of the
relevant subclass, and shall make or permit withdrawals therefrom only as
provided in this Indenture. On each day when a payment is required to be made
under this Indenture in respect of a subclass, such amount shall be transferred
from the
<PAGE> 66
Collection Account to the applicable Note Account for application to the
payment of such Notes in accordance with the terms of this Indenture.
Section 3.02. Investments of Cash. For so long as any MSAF Group Notes
remain Outstanding, the Cash Manager, on behalf of the Security Trustee, shall,
at the written direction of MSAF, invest and reinvest the funds on deposit in
the Accounts in Permitted Account Investments ; provided, however, that
following the giving of a Default Notice or during the continuance of an
Acceleration Default, the Cash Manager shall invest such amount at the written
direction of the Security Trustee in Permitted Account Investments described in
clause (d) of the definition thereof (but in each case only to the extent such
investment, as advised by the Administrative Agent to the Cash Manager, is
permitted by the Leases pursuant to which such funds were received) from the
time of receipt thereof until such time as such amounts are required to be
distributed pursuant to the terms of this Indenture. Pursuant to the Cash
Management Agreement, the Cash Manager shall make such investments and
reinvestments in accordance with the terms of the following provisions:
(i) the Permitted Account Investments shall have maturities and
other terms such that sufficient funds shall be available to make
required payments pursuant to this Indenture and any Guarantor Indenture
(A) on or before the first Payment Date after which such investment is
made, in the case of investments of funds on deposit in the Collection
Account and the Expense Account, or (B) in accordance with the
requirements of the relevant Leases or Aircraft Agreements, in the case
of investments of funds on deposit in the Lessee Funded Accounts;
provided that an investment maturing within one year of the date of
investment shall nevertheless be a Permitted Account Investment if it has
been acquired with funds which are not reasonably anticipated, at the
discretion of the Administrative Agent, to be required to be paid to any
other Person or otherwise transferred from the applicable Account prior
to such maturity;
(ii) if any funds to be invested are not received in the Accounts by
1:00 p.m., New York City time, on any Business Day, such funds shall, if
possible, be invested in overnight Permitted Account Investments; and
(iii) if required by the terms of a Lease, any investments of funds
on deposit in a Lessee Funded Account or the Collection Account shall be
made on behalf of the relevant Lessee in such investments as may be
required thereunder.
Section 3.03. Closing Date Deposits, Withdrawals and Transfers. On each
Closing Date, the Administrative Agent shall make the following transfers to
the Accounts:
(i) deposit into the relevant Lessee Funded Account the amount of
the initial Segregated Funds, if any, received or deemed to have been
received from the Sellers pursuant to the terms of the relevant
Acquisition Agreements;
(ii) deposit into the Collection Account, in the case of the Initial
Closing Date, an amount equal to the cash portion of the initial
Liquidity Reserve Amount and, in the case of any other Closing Dates, any
amount necessary to reflect the required Liquidity Reserve Amount at such
date;
<PAGE> 67
(iii) transfer from the Collection Account to the Expense Account an
amount equal to the Required Expense Amount for the relevant initial
Interest Accrual Period; and
(iv) deposit into the Aircraft Purchase Account, (A) in the case of
the Initial Closing Date, an amount equal to the Initial Outstanding
Balance of the Initial Notes raised with respect to the Remaining
Aircraft and (B) in the case of any other Closing Dates, if applicable,
an amount equal to the proceeds of any MSAF Group Additional Notes issued
to acquire the Additional Aircraft.
Section 3.04. Interim Deposits and Withdrawals. (a) Interim Withdrawals
and Transfers for Expenses, Certain Lease Obligations and Other Obligations.
On any Business Day, the Administrative Agent, on behalf of the Security
Trustee, may make, without duplication, the following withdrawals for the
following purposes, in each case after written notice from the Servicer or the
Administrative Agent to the Trustee, which notice shall identify the basis for
such withdrawal or transfer in reasonable detail:
(i) withdraw from the Expense Account or the Lessee Funded Account
or draw under the applicable Related Collateral to the extent that funds
on deposit therein or available thereunder may be withdrawn or drawn
pursuant to the terms of the related Lease or Related Collateral
Document, to discharge any Expense or Permitted Accruals then due and
payable;
(ii) transfer from the Collection Account from time to time (but in
no event on less than one Business Day's prior written notice to the
Trustee, such notice to be given by the delivery of a notice in the form
of Exhibit B to the Administrative Agency Agreement, from the
Administrative Agent (unless such one Business Day's notice requirement
is waived by the Trustee)), other amounts, including amounts constituting
the Liquidity Reserve Amount, from the Collection Account into the
Expense Account, in each case only to the extent that such funds are to
be applied to unanticipated Expenses which become due and payable during
such Interest Accrual Period; provided that no such transfer from the
Collection Account in respect of Expenses shall be made prior to the next
succeeding Payment Date if, in the reasonable judgment of the
Administrative Agent such transfer would have a material adverse effect
on the ability of MSAF Group to make payments of accrued and unpaid
interest on the Senior Class of MSAF Group Notes then Outstanding on the
next Payment Date therefor in accordance with Section 3.08 hereof;
(iii) withdraw Segregated Funds from the Lessee Funded Account or
draw under any applicable Related Collateral, in any case to the extent
required by or necessary in connection with a Lease, any documents
related thereto and the Related Collateral Documents, for deposit in the
Collection Account to satisfy any default in Rental Payments under any
related Lease;
(iv) transfer any Segregated Funds from the Collection Account to
the Lessee Funded Account in accordance with the terms of any Lease;
<PAGE> 68
(v) withdraw from the Aircraft Purchase Account an amount equal to
the purchase price of any Remaining Aircraft, Substitute Aircraft or
Additional Aircraft, to the extent necessary to effect payment therefor;
and
(vi) (A) in the case of the Initial Notes, on June 1, 1998, and (B)
in the case of any MSAF Group Additional Notes, on such date as shall be
set forth in a Controlling Trustees' Resolution, transfer any balance in
the Aircraft Purchase Account to the Collection Account for application
in accordance with Section 3.08(a) hereof.
Section 3.05. Interim Deposits and Withdrawals for Modification Payments
or Dispositions of Aircraft. On any Business Day, the Administrative Agent, on
behalf of the Security Trustee, shall withdraw from time to time from the
Permitted Accruals on deposit in the Expense Account and, to the extent
permitted under Section 3.08(a) hereof, such other amounts as may be necessary
from the Collection Account to pay amounts due and owing in respect of a
Modification Payment and shall transfer such amounts to the appropriate payees.
Upon the sale or other disposition of any Aircraft, Engine or other asset, the
Administrative Agent shall deposit any and all proceeds received in respect
thereof by any MSAF Group Member in the Collection Account (other than in
connection with any sale of all or substantially all of the assets of MSAF
Group, in which case the Administrative Agent shall deposit any and all
proceeds thereof into the Defeasance/Redemption Account in connection with the
redemption of each subclass of the MSAF Group Notes). Any funds then on
deposit in the Lessee Funded Account related to the Aircraft subject to such
sale or other disposition shall be applied on a basis consistent with the terms
of the Lease related to such Aircraft, if any, or as otherwise provided by the
relevant agreements related to such sale or other disposition.
Section 3.06. Calculation Date Calculations. (a) Calculation of
Required Amounts. As soon as practicable after each Calculation Date, but in
no event later than two Business Days preceding the immediately succeeding
Payment Date, the Administrative Agent shall, based on information known to it
or Relevant Information provided to it, determine the Collections received
during the period commencing on the day next following the preceding
Calculation Date and ending on such Calculation Date and calculate the
following amounts:
(A) the balance of funds on deposit in the Accounts on the
Calculation Date and the required Liquidity Reserve Amount on such
Calculation Date;
(B) the Required Expense Amount as of such Calculation Date;
(C) the Available Collections Amount on such Calculation Date
(separately listing any Swap Payments and Swap Breakage Costs and amounts
to be retained in the Collection Account pursuant to Section 3.08(a)(iii)
and (xi));
(D) the net Segregated Funds available to be transferred into the
Collection Account on such Calculation Date; and
<PAGE> 69
(E) any other information, determinations and calculations
reasonably required in order to give effect to the terms of this
Indenture and the Related Documents.
(b) Calculation of Interest Amounts. Not later than five Business Days
prior to each Payment Date, the following calculations or determinations with
respect to Interest Amounts due on such Payment Date shall be performed or made
and, if calculated or determined by a Person other than the Administrative
Agent, provided to the Administrative Agent:
(i) the Reference Agent shall calculate the applicable interest rate
on each subclass of MSAF Group Floating Rate Notes based on LIBOR
determined on the Reference Date for the relevant Interest Accrual
Period;
(ii) the Administrative Agent shall calculate the Interest Amount in
respect of each subclass of MSAF Group Floating Rate Notes on such
Payment Date;
(iii) the Administrative Agent shall calculate the amount of Step-Up
Interest (including Step-Up Interest on any accrued and unpaid Step-Up
Interest), if any, in respect of each subclass of MSAF Group Notes
entitled to such Step-Up Interest on such Payment Date; and
(iv) the Administrative Agent shall calculate the Interest Amount in
respect of each subclass of MSAF Group Fixed Rate Notes on such Payment
Date.
(c) Calculation of Principal Payment Amounts. Not later than five
Business Days prior to each Payment Date, the Administrative Agent shall
calculate or determine the following with respect to principal payments due on
such Payment Date:
(i) the Outstanding Principal Balance of each class and subclass of
the MSAF Group Notes on such Payment Date immediately prior to any
principal payment on such date;
(ii) the Adjusted Portfolio Value and the Assumed Portfolio Value on
such Payment Date;
(iii) the Minimum Target Principal Balance for each applicable class
of MSAF Group Notes Outstanding and Minimum Principal Payment Amount on
such Payment Date with respect to each class of MSAF Group Notes;
(iv) the Scheduled Target Principal Balance for each applicable
class of MSAF Group Notes Outstanding and Scheduled Principal Payment
Amount on such Payment Date with respect to each class of MSAF Group
Notes; and
(v) the Supplemental Principal Balance for each applicable class of
MSAF Group Notes Outstanding and Supplemental Principal Payment Amount on
such Payment Date with respect to each class of MSAF Group Notes.
(d) Calculation of Refinancing Amounts. Not later than two Business
<PAGE> 70
Days prior to the date on which a Refinancing of any subclass of MSAF Group
Notes is scheduled to occur, the Administrative Agent shall perform the
calculations necessary to determine, with respect to each such subclass of MSAF
Group Note to be repaid on such date, the Redemption Price of such subclass and
the accrued and unpaid interest on such subclass.
(e) Application of the Available Collections Amount. Not later than 1:00
p.m., New York City time, on the Business Day prior to each Payment Date, the
Administrative Agent shall determine the amounts to be applied on such Payment
Date to make each of the payments contemplated by Section 3.08(a) or 3.08(b),
as applicable, setting forth separately, in the case of payments in respect of
MSAF Group Notes, the amount to be applied on such Payment Date to pay
interest, principal and Premium, if any, on each subclass of MSAF Group Notes
in accordance with Sections 3.08 and 3.09.
(f) Reports. (i) The Administrative Agent shall provide all of the
information required to be provided in the report set forth as Exhibit H hereto
setting forth the information described in Sections 3.06(a), (b), (c) and (d)
and such other information as is required to be set forth therein, together
with as many copies of such reports as the Trustee may reasonably request, to
the Issuer, each Rating Agency, the Cash Manager, the Financial Advisor, the
Servicer, any Additional Servicer, the Listing Agent and the Trustee, no later
than 1:00 p.m., New York City time, two Business Days immediately preceding
each Payment Date:
(ii) The Administrative Agent will provide to the Trustee, on the first
Payment Date following the filing by MSAF Group of any Report on Form 10-Q
under the Exchange Act with the Commission, a copy of Schedule A hereto,
updated and revised to reflect the then current composition of the Portfolio.
(iii) The Administrative Agent will provide to the Trustee, not later than
90 days after the end of each calendar year, a statement containing (A) the
cumulative amount of each type of payment reported in clauses (B), (D), (E) and
(F) of Section 3.06(a) during the preceding calendar year (or any portion
thereof) for each subclass of Notes Outstanding at any time during such year
and (B) such other items as are readily ascertainable and that the Trustee or
any Noteholder shall reasonably request as necessary for the purpose of such
Noteholder's preparation of its U.S. federal income tax returns.
Section 3.07. Payment Date First Step Withdrawals and Transfers. On each
Payment Date, the Administrative Agent, on behalf of the Security Trustee,
shall make the following withdrawals from and transfers among the Accounts:
(a) transfer the proceeds of any Refinancing of any subclass of
Notes from the Refinancing Account to the applicable Note Account in each
case in accordance with Section 2.10(b) and Section 5.02(f) hereof and
Section 2.04(d) of the Administrative Agency Agreement;
(b) subject to the applicable Leases, transfer from the Lessee
Funded Account to the Collection Account any available Segregated Funds;
<PAGE> 71
(c) transfer from the Collection Account to the Lessee Funded
Account the amount of any Segregated Funds then on deposit in the
Collection Account;
(d) transfer from any Account (other than the Collection Account) to
the Collection Account the amount of earnings (net of losses and
investment expenses), if any, on investments of funds on deposit therein
during the preceding Interest Accrual Period, except that earnings on any
portion of the funds on deposit in any Account required under the terms
of the related Lease to be repaid to the related Lessee shall be retained
therein; and
(e) after the giving of a Default Notice or following the Interest
Accrual Period in which an Aircraft Sale occurs with respect to the last
remaining Aircraft, transfer any amounts remaining in the Lessee Funded
Account (other than amounts required to be maintained in such account
pursuant to the terms of the related Lease or Aircraft Agreement) into
the Collection Account.
Section 3.08. Payment Date Second Step Withdrawals. (a) On each Payment
Date, after the withdrawals and transfers provided for in Section 3.07 have
been made, the Administrative Agent, on behalf of the Security Trustee, shall
distribute the amounts set forth below in the order of priority set forth below
but, in each case, only to the extent that all amounts then required to be paid
ranking prior thereto "Prior Ranking Amounts" have been paid in full. All
payments of Available Collections Amount to be made to Holders of any subclass
of Notes pursuant to this Section 3.08 shall be made through a direct transfer
of funds to the applicable Note Account with respect to such subclass of Notes.
To the extent that any amounts are retained in the Collection Account on any
Payment Date pursuant to this Section 3.08(a), such amounts shall not be
distributed thereafter on such Payment Date out of the Collection Account as
Available Collections Amount pursuant to any succeeding payment required to be
made under this Section 3.08(a) provided that there are funds available
therefor.
(i) First, to the Expense Account or directly to the relevant
Expense payees in accordance with the Administrative Agency Agreement, an
amount equal to the Required Expense Amount and then to the relevant
Expense payees;
(ii) Second, in no order of priority inter se, but pro rata (A)
among the Note Accounts for each subclass of MSAF Group Class A Notes,
the Interest Amount on such subclass of MSAF Group Class A Notes in no
order of priority inter se, but pro rata according to the amount of
accrued and unpaid interest on such subclass of MSAF Group Class A Notes
and (B) pro rata, to any Swap Provider, an amount equal to any Swap
Payment due pursuant to any Swap Agreement (other than any Subordinated
Swap Payments);
(iii) Third, first, to any Persons providing any Primary Eligible
Credit Facilities, any amounts payable to such Persons under the terms of
their respective Primary Eligible Credit Facilities and then, after
giving effect to the transfers made in respect of all Prior Ranking
Amounts, retain in the Collection Account an amount, if positive, equal
to the Minimum Liquidity Reserve Amount less the amounts available for
drawing under any Primary Eligible Credit Facilities;
<PAGE> 72
(iv) Fourth, to the Note Accounts for each subclass of MSAF Group
Class A Notes, in the order of priority by subclass set forth in Section
3.09 hereof, an amount equal to the Minimum Principal Payment Amount of
the MSAF Group Class A Notes;
(v) Fifth, among the Note Accounts for each subclass of MSAF Group
Class B Notes, the Interest Amount on such subclass of MSAF Group Class B
Notes in no order of priority inter se, but pro rata according to the
amount of accrued and unpaid interest on such subclass of MSAF Group
Class B Notes;
(vi) Sixth, to the Note Accounts for each subclass of MSAF Group
Class B Notes, in the order of priority by subclass set forth in Section
3.09 hereof, an amount equal to the Minimum Principal Payment Amount of
the MSAF Group Class B Notes;
(vii) Seventh, among the Note Accounts for each subclass of MSAF
Group Class C Notes, the Interest Amount on such subclass of MSAF Group
Class C Notes in no order of priority inter se, but pro rata according to
the amount of accrued and unpaid interest on such subclass of MSAF Group
Class C Notes;
(viii) Eighth, to the Note Accounts for each subclass of MSAF Group
Class C Notes, in the order of priority by subclass set forth in Section
3.09 hereof, an amount equal to the Minimum Principal Payment Amount of
the MSAF Group Class C Notes;
(ix) Ninth, among the Note Accounts for each subclass of MSAF Group
Class D Notes, the Interest Amount on such subclass of MSAF Group Class D
Notes in no order of priority inter se, but pro rata according to the
amount of accrued and unpaid interest on such subclass of MSAF Group
Class D Notes;
(x) Tenth, to the Note Accounts for each subclass of MSAF Group
Class D Notes in the order of priority by subclass set forth in Section
3.09 hereof, an amount equal to the Minimum Principal Payment Amount of
the MSAF Group Class D Notes;
(xi) Eleventh, first, to any Persons providing any Credit Facilities
that are not Primary Eligible Credit Facilities, any amounts payable to
such Persons under the terms of their respective Credit Facilities and
then, after giving effect to the transfers made in respect of all Prior
Ranking Amounts, retain in the Collection Account an amount equal to the
difference, if positive, between the Liquidity Reserve Amount and the sum
of (x) the amount of cash reserved under (iii) above and (y) the amount
available for drawing under any Eligible Credit Facilities;
(xii) Twelfth, to the Note Accounts for each subclass of MSAF Group
Class A Notes, in the order of priority by subclass set forth in Section
3.09 hereof, an amount equal to the Scheduled Principal Payment Amount of
the MSAF Group Class A Notes;
<PAGE> 73
(xiii) Thirteenth, to the Note Accounts for each subclass of MSAF
Group Class B Notes, in the order of priority by subclass set forth in
Section 3.09 hereof, an amount equal to the Scheduled Principal Payment
Amount of the MSAF Group Class B Notes;
(xiv) Fourteenth, to the Note Accounts for each subclass of MSAF
Group Class C Notes, in the order of priority by subclass set forth in
Section 3.09 hereof, an amount equal to the Scheduled Principal Payment
Amount of the MSAF Group Class C Notes;
(xv) Fifteenth, to the Note Accounts for each subclass of MSAF Group
Class D Notes, in the order of priority by subclass set forth in Section
3.09 hereof, an amount equal to the Scheduled Principal Payment Amount of
the MSAF Group Class D Notes;
(xvi) Sixteenth, to the Expense Account, an amount equal to
Permitted Accruals in respect of Modification Payments (or any part
thereof);
(xvii) Seventeenth, among the Note Accounts for each subclass of
MSAF Group Notes entitled thereto, an amount equal to all accrued and
unpaid Step-Up Interest, if any, in no order of priority inter se, but
pro rata according to the amount of such accrued and unpaid Step-Up
Interest;
(xviii) Eighteenth, to the holders of the Beneficial Interest, the
Beneficial Interest Distribution Amount;
(xix) Nineteenth, to the Note Accounts for each subclass of MSAF
Group Class A Notes, in the order of priority by subclass set forth in
Section 3.09 hereof, an amount equal to the Supplemental Principal
Payment Amount of the MSAF Group Class A Notes;
(xx) Twentieth, to the Note Accounts for each subclass of MSAF Group
Class B Notes, in the order of priority by subclass set forth in Section
3.09 hereof, an amount equal to the Supplemental Principal Payment Amount
of the MSAF Group Class B Notes;
(xxi) Twenty-first, to the Note Accounts for each subclass of MSAF
Group Class D Notes, in the order of priority by subclass set forth in
Section 3.09 hereof, an amount equal to the Redemption Price of the
Outstanding Principal Balance of each such subclass;
(xxii) Twenty-second, to the Note Accounts for each subclass of MSAF
Group Class C Notes, in the order of priority by subclass set forth in
Section 3.09 hereof, an
<PAGE> 74
amount equal to the Redemption Price of the Outstanding Principal Balance
of each such subclass;
(xxiii) Twenty-third, to the Note Accounts for each subclass of MSAF
Group Class B Notes, in the order of priority by subclass set forth in
Section 3.09 hereof, an amount equal to the Redemption Price of the
Outstanding Principal Balance of each such subclass;
(xxiv) Twenty-fourth, to the Note Accounts for each subclass of MSAF
Group Class A Notes, in the order of priority by subclass set forth in
Section 3.09 hereof, an amount equal to the Redemption Price of the
Outstanding Principal Balance of each such subclass;
(xxv) Twenty-fifth, payments to the Swap Providers which are
subordinated in accordance with the relevant Swap Agreements
("Subordinated Swap Payments"); and
(xxvi) Twenty-sixth, to the holders of the Beneficial Interest, all
remaining amounts.
(b) Anything to the contrary contained in Section 3.08(a) hereof
notwithstanding, following delivery to the Issuer, any Guarantor or the
Administrative Agent of a Default Notice or during the continuance of an
Acceleration Default, the allocation of payments described in such Section
3.08(a) shall not apply and all amounts on deposit in the Collection Account
and the Expense Account shall be applied by the Administrative Agent in the
following order of priority:
(i) First, to the Expense Account for distribution by the
Administrative Agent or, in accordance with the Administrative Agency
Agreement, directly to the relevant Expense payees, an amount equal to
the Required Expense Amount and then to the relevant Expense payees;
(ii) Second, in no order of priority inter se, but pro rata to the
providers of any Primary Eligible Credit Facilities, such amounts as are
required to make any payments due to such providers pursuant to the terms
of their respective Primary Eligible Credit Facilities;
(iii) Third, in no order of priority inter se, but pro rata in
respect of amounts outstanding or payable on such date, (A) pro rata
among the Note Accounts for each subclass of MSAF Group Class A Notes,
all accrued and unpaid interest (including any Step-Up Interest) on, and
the Outstanding Principal Balance of such subclass of MSAF Group Class A
Notes and (B) pro rata to any Swap Provider, such amounts as are required
to pay any Swap Payments (other than Subordinated Swap Payments) due
pursuant to any Swap Agreement;
(iv) Fourth, in no order of priority inter se, but pro rata in
respect of amounts outstanding or payable on such date, pro rata among
the Note Accounts for each subclass of MSAF Group Class B Notes, all
accrued and unpaid interest (including any Step-Up Interest) on, and the
Outstanding Principal Balance of such subclass of MSAF Group Class B
Notes;
(v) Fifth, in no order of priority inter se, but pro rata in respect
of amounts outstanding or payable on such date, pro rata among the Note
Accounts for
<PAGE> 75
each subclass of MSAF Group Class C Notes, all accrued and unpaid
interest (including any Step-Up Interest) on, and the Outstanding
Principal Balance of such subclass of MSAF Group Class C Notes;
(vi) Sixth, in no order of priority inter se, but pro rata in
respect of amounts outstanding or payable on such date, pro rata among
the Note Accounts for each subclass of MSAF Group Class D Notes, all
accrued and unpaid interest (including any Step-Up Interest) on, and the
Outstanding Principal Balance of such subclass of MSAF Group Class D
Notes;
(vii) Seventh, in no order of priority inter se, but pro rata to the
providers of Credit Facilities other than Primary Eligible Credit
Facilities, such amounts as are required to make payments due to such
providers pursuant to the terms of their respective Credit Facilities;
(viii) Eighth, in no order of priority inter se, but pro rata, to any Swap
Provider, such amounts as are required to make any Subordinated Swap Payments
due pursuant to any Swap Agreement; and
(ix) Ninth, to the holders of the Beneficial Interest, any amount
remaining.
Section 3.09. Allocations of Principal Payments Among Subclasses of the
Notes. To the extent that any payment of principal pursuant to Section 3.08(a)
hereof is allocable to any class of MSAF Group Notes on any Payment Date, the
Available Collections Amount will be applied to repay all MSAF Group Notes in
such class in the following order of priority: (i) First, to each subclass, in
order of the earliest issued subclass, the difference, if positive, between the
Outstanding Principal Balance of each such subclass and the product of the
applicable Extended Pool Factor on such Payment Date and the Initial Principal
Balance of each such subclass (any such difference, the "Extension Amount");
provided that in the case of two or more subclasses issued on the same date,
the Available Collections Amount will be applied to each such subclass pro rata
according to the amount of, but not to exceed, the Extension Amount of such
subclass; (ii) Second, to each subclass, in no order of priority inter se, but
pro rata according to the amount of, but not to exceed, the difference, if
positive, between the Outstanding Principal Balance of each such subclass
(after giving effect to any payment under clause (i) above) and the product of
the applicable Pool Factor on such Payment Date and the Initial Principal
Balance of each such subclass; (iii) Third, to each subclass with an Expected
Final Payment Date on or before such Payment Date, in order of the earliest
issued subclass; provided that in the case of two or more subclasses issued on
the same date, the Available Collections Amount will be applied to such
subclasses in order of the subclass with the earliest Expected Final Payment
Date and, with respect to any two or more subclasses having the same Expected
Final Payment Date, the Available Collections Amount will be applied to such
subclasses pro rata according to the Outstanding Principal Balance of each such
subclass (after giving effect to any payment under clauses (i) and (ii) above)
on such Payment Date; (iv) Fourth, to each subclass with an Excess Amortization
Date on or before such Payment Date, in no order of priority inter se, but pro
rata according to the Outstanding Principal Balance of each such subclass
(after giving effect to any payment under clauses (i), (ii) and (iii) above) on
such Payment Date; and (v) Fifth, to each subclass in order of the earliest
Expected Final Payment Date, provided, in the case of two or
<PAGE> 76
more subclasses having the same Expected Final Payment Date, in no order of
priority inter se, but pro rata, according to the Outstanding Principal Balance
of each such subclass (after giving effect to any payment under clauses (i),
(ii), (iii) and (iv) above on such Payment Date.
. Section 3.10. Certain Redemptions; Certain Premiums. (a) Optional
Redemption. Subject to the provisions of Section 3.10(c) hereof, on any
Payment Date the Issuer may elect to redeem any subclass of the Notes in whole
or in part, out of amounts available for such purpose, if any, other than
Collections, at the Redemption Price plus any accrued and unpaid interest
thereon to the Redemption Date; provided that notice of any such redemption
shall be given to the Trustee not less than 30 days prior to such Redemption
Date; and provided further, the provisions of this Section 3.10(a) shall not
apply to any Refinancing pursuant to Section 3.10 hereof.
(b) Redemption for Taxation Reasons. Subject to the provisions of Section
3.10(c) hereof, if, at any time,
(i) the Issuer is, or on the next succeeding Payment Date will be,
required to make any withholding or deduction under the laws or
regulations of any applicable tax authority with respect to any payment
on any subclass of MSAF Group Notes; or
(ii) the Issuer is or will be subject to any circumstance (whether
by reason of any law, regulation, regulatory requirement or
double-taxation convention, or the interpretation or application thereof,
or otherwise) leading to the imposition of a tax (whether by direct
assessment or by withholding at source) or other similar imposition by
any jurisdiction which would (A) materially increase the cost to the
Issuer of making payments in respect of any subclass of MSAF Group Notes
or of complying with its obligations under or in connection with the MSAF
Group Notes; (B) materially increase the operating or administrative
expenses of the Issuer; or (C) otherwise obligate the Issuer or any of
its subsidiaries to make any material payment on, or calculated by
reference to, the amount of any sum received or receivable by the Issuer,
or by the Administrative Agent on behalf of MSAF Group as contemplated by
the Administrative Agency Agreement;
then the Issuer shall inform the Trustee in writing at such time of any such
requirement or imposition and shall use its best efforts to avoid the effect of
the same; provided that no actions shall be taken by the Issuer to avoid such
effects without Rating Agency Confirmation. If, after using its reasonable
best efforts to avoid the adverse effects described above, the Issuer or any of
its subsidiaries has not avoided such effects, the Issuer may, at its election,
redeem the MSAF Group Notes in whole, without Premium, on any Payment Date;
provided, however, that any such redemptions may not occur more than 30 days
prior to such time as the requirement or imposition described in (i) or (ii)
above is to become effective; and provided further that notice of any such
redemption shall be given to the Trustee not less than 30 days prior to such
Redemption Date.
(c) Method of Redemption. The Trustee (or the Administrative Agent acting
as its agent (or any authorized agent of the Administrative Agent)) shall give
written notice in respect of any redemption of any subclass of MSAF Group Notes
under Section
<PAGE> 77
3.10(a) or 3.10(b) hereof (a "Redemption") to each Holder of MSAF Group Notes
and, for so long as the Notes are listed on the Luxembourg Stock Exchange, the
Luxembourg Stock Exchange, at least 20 days but not more than 60 days before
such Redemption Date. The Trustee shall not be permitted to deliver any notice
under this Section 3.10(c) unless and until it shall have received evidence
satisfactory to it that amounts sufficient to (A) redeem such subclass of MSAF
Group Notes and (B) pay all accrued and unpaid interest, including interest on
interest, in respect of each subclass of MSAF Group Notes ranking pari passu
therewith or prior thereto are, or will on or before the Redemption Date be,
deposited in the Defeasance/Redemption Account. Each notice in respect of a
Redemption given pursuant to this Section 3.10(c) shall state (i) the
applicable Redemption Date, (ii) the Trustee's arrangements for making payments
in respect of such Redemption, (iii) the Redemption Price of the MSAF Group
Notes to be redeemed, (iv) in the case of Redemption in whole, that MSAF Group
Notes of the subclass to be redeemed must be surrendered to the Trustee to
collect the Redemption Price plus accrued and unpaid interest on such MSAF
Group Notes and (v) in the case of Redemption in whole, that, unless the MSAF
Group defaults in the payment of the Redemption Price and any accrued and
unpaid interest thereon, interest on the subclass of MSAF Group Notes called
for Redemption shall cease to accrue on and after the Redemption Date.
(d) Deposit of Redemption Amount. On or before any Redemption Date in
respect of a Redemption under Section 3.10(a), the Issuer shall, to the extent
an amount equal to the Redemption Price of MSAF Group Notes to be redeemed and
all accrued and unpaid interest as of the Redemption Date is not then held by
the Issuer, deposit or cause to be deposited in the Defeasance/Redemption
Account an amount in immediately available funds equal to such amount to be
redeemed. On or before any Redemption Date in respect of a Redemption under
Section 3.10(b), the Issuer shall, to the extent an amount equal to the
Outstanding Principal Balance of MSAF Group Notes to be redeemed and all
accrued and unpaid interest as of the Redemption Date is not then held by the
Issuer, deposit or cause to be deposited in the Defeasance/Redemption Account
an amount in immediately available funds equal to such amount to be redeemed.
(e) MSAF Group Notes Payable on Redemption Date. After notice has been
given under Section 3.10(c) hereof, the Outstanding Principal Balance of the
MSAF Group Notes to be redeemed on such Redemption Date shall become due and
payable at the Corporate Trust Office of the Trustee, and from and after such
Redemption Date (unless there shall be a default in the payment of the
applicable amount to be redeemed) such principal amount shall cease to bear
interest. Upon surrender of any MSAF Group Note for redemption in accordance
with such notice, the Redemption Price of such MSAF Group Note, together with
accrued and unpaid interest thereon shall be paid as provided for in this
Article III. If any MSAF Group Note to be redeemed shall not be so paid upon
surrender thereof for redemption, the Outstanding Principal Balance thereof
shall continue to bear interest until paid from the Redemption Date at the
interest rate applicable to such MSAF Group Note.
Section 3.11. Adjustment of Class Percentages and Target Principal
Balances. Upon each acquisition of any Additional Aircraft, subject to
Sections 5.02(f)(iv) and 5.02(h) hereof, each of the Class Percentages for the
MSAF Group Class A Notes and the MSAF Group Class B Notes and each of the
Target Principal Balances for the MSAF Group Class C
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Notes and the MSAF Group Class D Notes shall be adjusted to take into account
such Permitted Additional Aircraft Acquisition in the manner determined by the
Controlling Trustees; provided, that no Pool Factor or Extended Pool Factor for
any subclass of MSAF Group Notes may be adjusted. The Administrative Agent
shall include such adjusted Class Percentages and Target Principal Balances in
each Quarterly Report and Annual Report.
ARTICLE IV
DEFAULT AND REMEDIES
Section 4.01. Events of Default. Each of the following events shall
constitute an "Event of Default" hereunder with respect to any class of Notes,
and each such Event of Default shall be deemed to exist and continue so long
as, but only so long as, it shall not have been remedied:
(a) failure to pay when due interest (other than any Step-Up
Interest) on any Note of such class or subclass thereof, and the
continuance of such default unremedied for a period of five Business Days
or more after the same shall have become due and payable;
(b) failure to pay when due principal of or Premium, if any, on any
Note of such class or subclass thereof on or prior to the applicable
Final Maturity Date;
(c) failure to pay any amount (other than interest) when due and
payable in connection with any Note of such class or subclass thereof, to
the extent that there are, at such time, funds available for such payment
in the Collection Account, and the continuance of such default for a
period of five Business Days or more;
(d) failure by the Issuer to comply with any of the covenants,
obligations, conditions or provisions binding on it under this Indenture
or any of the Notes (other than a payment default for which provision is
made in clause (a), (b) or (c) of this Section 4.01), if such failure or
such breach materially adversely affects the Holders of such class of
Notes and continues for a period of 30 days or more after written notice
thereof has been given to the Issuer by the Senior Trustee or by the
Holders of at least 25% of the aggregate Outstanding Principal Balance of
the Notes of the Senior Class;
(e) an "Event of Default" under and as defined in any Guarantor
Indenture;
(f) a court having jurisdiction in the premises enters a decree or
order for (i) relief in respect of the Issuer or any Significant
Subsidiary of the Issuer under any Applicable Law relating to bankruptcy,
insolvency, receivership, winding-up, liquidation, reorganization,
examination, relief of debtors or other similar law now or hereafter in
effect; (ii) appointment of a receiver, liquidator, examiner, assignee,
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custodian, trustee, sequestrator or similar official of the Issuer or any
Significant Subsidiary of the Issuer; or (iii) the winding up or
liquidation of the affairs of the Issuer or any Significant Subsidiary of
the Issuer and, in each case, such decree or order shall remain unstayed
or such writ or other process shall not have been stayed or dismissed
within 90 days from entry thereof;
(g) the Issuer or any Significant Subsidiary of the Issuer (i)
commences a voluntary case under any Applicable Law relating to
bankruptcy, insolvency, receivership, winding-up, liquidation,
reorganization, examination, relief of debtors or other similar law now
or hereafter in effect, or consents to the entry of an order for relief
in any involuntary case under any such law; (ii) consents to the
appointment of or taking possession by a receiver, liquidator, examiner,
assignee, custodian, trustee, sequestrator or similar official of the
Issuer or any Significant Subsidiary of the Issuer or for all or
substantially all of the property and assets of the Issuer or any
Significant Subsidiary of the Issuer; or (iii) effects any general
assignment for the benefit of creditors;
(h) any judgment or order for the payment of money in excess of 5%
of the aggregate Adjusted Portfolio Value shall be rendered against the
Issuer or any Issuer Subsidiary or any other member of the MSAF Group and
either (i) enforcement proceedings shall have been commenced by any
creditor upon such judgment or order or (ii) there shall be any period of
10 consecutive days during which a stay of enforcement of such judgment
or order, by reason of a pending appeal or otherwise, shall not be in
effect; provided, however, that any such judgment or order shall not be
an Event of Default under this Section 4.01(h) if and for so long as (i)
the amount of such judgment or order is covered by a valid and binding
policy of insurance between the defendant and the insurer covering
payment thereof and (ii) such insurer, which shall be rated at least "A"
by A.M. Best Company or any similar successor entity, has been notified
of, and has not disputed the claim made for payment of, the amount of
such judgment or order; or
(i) the constitutional documents creating the Issuer cease to be in
full force and effect without replacement documents having the same terms
being in full force and effect.
Section 4.02. Acceleration, Rescission and Annulment. (a) If an Event
of Default with respect to the Senior Class of Notes (other than an Event of
Default under clause (f) or (g) of Section 4.01) occurs and is continuing, the
Senior Trustee may, and, upon the direction of Holders of at least 25% of the
aggregate Outstanding Principal Balance of the Senior Class of Notes, shall,
give a Default Notice to the Issuer, the Cash Manager, the Administrative Agent
and the Trustee declaring the Outstanding Principal Balance of the Notes and
all accrued and unpaid interest thereon to be due and payable. Upon delivery
of a Default Notice, such Outstanding Principal Balance and all accrued and
unpaid interest thereon shall be due and payable. At any time after the Senior
Trustee has declared the Outstanding Principal Balance of the Notes to be due
and payable and prior to the exercise of any other remedies pursuant to this
Article IV, Holders of a majority of the aggregate Outstanding Principal
Balance of the Senior Class of Notes, by written notice to the Issuer, the
Senior Trustee and the Administrative Agent, may, subject to Section 4.05(a),
rescind and
<PAGE> 80
annul such declaration and thereby annul its consequences if: (i) there has
been paid to or deposited with the Senior Trustee an amount sufficient to pay
all overdue installments of interest on the MSAF Group Notes, and the principal
of and Premium, if any, on the MSAF Group Notes that would have become due
otherwise than by such declaration of acceleration, (ii) the rescission would
not conflict with any judgment or decree and (iii) all other Defaults and
Events of Default, other than nonpayment of interest and principal on the MSAF
Group Notes that have become due solely because of such acceleration, have been
cured or waived. If an Event of Default under clause (f) or (g) of Section
4.01 occurs, the Outstanding Principal Balance of the Notes and all accrued and
unpaid interest thereon shall automatically become due and payable without any
further action by any party.
(b) Notwithstanding Sections 4.02 and 4.03 hereof, after the occurrence
and during the continuation of an Event of Default, (i) the Class B Noteholders
shall not be permitted to give or direct the giving of a Default Notice or to
exercise any remedy in respect of such Event of Default until all interest and
principal on the Class A Notes have been paid in full, (ii) the Class C
Noteholders shall not be permitted to give a Default Notice or to exercise any
remedy in respect of such Event of Default until all interest and principal on
the Class A Notes and the Class B Notes have been paid in full and (iii) the
Class D Noteholders shall not be permitted to give a Default Notice or to
exercise any remedy in respect of such Event of Default until all interest and
principal on the Class A Notes, the Class B Notes and the Class C Notes have
been paid in full.
(c) The Trustee shall provide each Rating Agency with a copy of any
Default Notice it receives pursuant to this Indenture.
Section 4.03. Other Remedies. If an Event of Default occurs and is
continuing, the Senior Trustee may pursue any available remedy by proceeding at
law or in equity to collect the payment of principal of, Premium, if any, or
interest on the Notes or to enforce the performance of any provision of the
Notes or this Indenture.
The Senior Trustee may maintain a proceeding even if it does not possess
any of the Notes or does not produce any of them in the proceeding.
Section 4.04. Limitation on Suits. Without limiting the provisions of
Section 4.09 and the final sentence of Section 13.04, no Holder shall have any
right to institute any proceeding, judicial or otherwise, with respect to this
Indenture, the Security Trust Agreement or the Notes, or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless:
(a) such Holder holds Notes of the Senior Class and has previously
given written notice to the Senior Trustee of a continuing Event of
Default;
(b) the Holders of at least 25% of the aggregate Outstanding
Principal Balance of the Senior Class of Notes make a written request to
the Senior Trustee to pursue a remedy hereunder;
(c) such Holder or Holders offer to the Senior Trustee an indemnity
<PAGE> 81
reasonably satisfactory to the Senior Trustee against any costs, expenses
and liabilities to be incurred in complying with such request;
(d) the Senior Trustee does not comply with such request within 60
days after receipt of the request and the offer of indemnity; and
(e) during such 60-day period, Holders of a majority of the
Outstanding Principal Balance of the Senior Class of Notes do not give
the Senior Trustee a direction inconsistent with such request.
No one or more Noteholders may use this Indenture to affect, disturb or
prejudice the rights of another Holder or to obtain or seek to obtain any
preference or priority not otherwise created by this Indenture and the terms of
the Notes over any other Holder or to enforce any right under this Indenture,
except in the manner herein provided.
Section 4.05. Waiver of Existing Defaults. (a) The Senior Trustee or a
majority of the Outstanding Principal Balance of the Senior Class of Notes by
notice to the Senior Trustee may waive any existing Default hereunder and its
consequences, except a Default: (i) in the deposit or distribution of any
payment required to be made on any Notes, (ii) in the payment of the interest
on, principal of or Premium, if any, on any Note or (iii) in respect of a
covenant or provision hereof which under Article IX hereof cannot be modified
or amended without the consent of the Holder of each Note affected thereby.
Upon any such waiver, such Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured for every purpose
of this Indenture, but no such waiver shall extend to any subsequent or other
Default or impair any right consequent thereon. Each such notice of waiver
shall also be notified to each Rating Agency.
(b) Any written waiver of a Default or an Event of Default given by
Holders of the Notes to the Trustee and the Issuer in accordance with the terms
of this Indenture shall be binding upon the Trustee and the other parties
hereto. Unless such writing expressly provides to the contrary, any waiver so
granted shall extend only to the specific event or occurrence which gave rise
to the Default or Event of Default so waived and not to any other similar event
or occurrence which occurs subsequent to the date of such waiver.
Section 4.06. Restoration of Rights and Remedies. If the Trustee or any
Holder of Notes of the Senior Class has instituted any proceeding to enforce
any right or remedy under this Indenture, and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or such Holder, then in every such case the Issuer, the Trustee and
the Noteholders shall, subject to any determination in such proceeding, be
restored severally and respectively to their former positions hereunder, and
thereafter all rights and remedies of the Trustee and the Noteholders shall
continue as though no such proceeding has been instituted.
Section 4.07. Remedies Cumulative. Each and every right, power and
remedy herein given to the Trustee specifically or otherwise in this Indenture
shall be cumulative and shall be in addition to every other right, power and
remedy herein specifically given or now or hereafter existing at law, in equity
or by statute, and each and every right, power and remedy whether specifically
herein given or otherwise existing may be exercised from time to
<PAGE> 82
time and as often and in such order as may be deemed expedient by the Trustee,
and the exercise or the beginning of the exercise of any power or remedy shall
not be construed to be a waiver of the right to exercise at the same time or
thereafter any other right, power or remedy. No delay or omission by the
Trustee in the exercise of any right, remedy or power or in the pursuance of
any remedy shall impair any such right, power or remedy or be construed to be a
waiver of any Default on the part of the Issuer or to be an acquiescence
therein.
Section 4.08. Authority of Courts Not Required. The parties hereto agree
that, to the greatest extent permitted by law, the Trustee shall not be obliged
or required to seek or obtain the authority of, or any judgment or order of,
the courts of any jurisdiction in order to exercise any of its rights, powers
and remedies under this Indenture, and the parties hereby waive any such
requirement to the greatest extent permitted by law.
Section 4.09. Rights of Noteholders to Receive Payment. Notwithstanding
any other provision of this Indenture, the right of any Noteholder to receive
payment of interest on, principal of and Premium, if any, on its Note on or
after the respective due dates therefor expressed in such Note, or to bring
suit for the enforcement of any such payment on or after such respective dates,
shall not be impaired or affected without the consent of such Noteholder.
Section 4.10. Trustee May File Proofs of Claim. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee and of any Noteholder
allowed in any judicial proceedings relating to any obligor on the Notes, its
creditors or its property.
Section 4.11. Undertaking for Costs. All parties to this Indenture
agree, and each Noteholder by its acceptance thereof shall be deemed to have
agreed, that in any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in such suit of an undertaking to pay the costs of such suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in such suit, having due regard to
the merits and good faith of the claims or defense made by the party litigant.
This Section 4.11 does not apply to a suit instituted by the Trustee, a suit
instituted by any Noteholder for the enforcement of the payment of interest,
principal or Premium, if any, on his Note on or after the respective due dates
expressed in such Note, or a suit by a Noteholder or Noteholders of more than
10% of the Outstanding Principal Balance of any class or subclass of the Notes.
Section 4.12. Control by Noteholders. Subject to Section 4.04 hereof,
the Noteholders holding Notes of any class or subclass of not less than 25% of
the Outstanding Principal Balance of Notes of such class or subclass shall have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee, or exercising any trust or power conferred
on the Trustee under this Indenture; provided that
(1) such direction shall not be in conflict with any rule of law or
with this Agreement and would not involve the Trustee in personal
liability or expense;
(2) the Trustee shall not determine that the action so directed
would be
<PAGE> 83
unjustly prejudicial to the Noteholders of such class or subclass not
taking part in such direction, and
(3) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
ARTICLE V
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 5.01. Representations and Warranties. The Issuer represents and
warrants to the Trustee as follows:
(i) Due Organization. Each of the Issuer and MSA I is a business
trust created under the laws of Delaware, and each Issuer Subsidiary
other than MSA I is a corporation duly incorporated in its respective
jurisdiction of incorporation, in each case with full power and authority
to conduct its business; and none of the Issuer or any Issuer Subsidiary
is in liquidation, bankruptcy or suspension of payments.
(ii) Special Purpose Status. The Issuer has not engaged in any
activities since its organization (other than those incidental to its
organization and other appropriate trust steps and arrangements for the
payment of fees to, and director's and officer's insurance for, the
Controlling Trustees, the Alternate Controlling Trustee and the
Independent Trustees, the purchase of the Initial Aircraft and interests
in the Initial Leases, the authorization and the issuance of the Initial
Notes, the execution of the Related Documents and the activities referred
to in or contemplated by such agreements), and the Issuer has not paid
any dividends or other distributions since its organization.
(iii) Non-Contravention. The purchase of the Initial Aircraft and
interests in the Initial Leases pursuant to the Asset Purchase Agreement,
the creation of the Initial Notes and the issuance, execution and
delivery of, and the compliance by the Issuer and each Issuer Subsidiary
with the terms of each of the Related Documents and the Initial Notes:
(A) do not and will not at the Initial Closing Date or any
Payment Date conflict with, or result in a breach of any of the
terms or provisions of, or constitute a default under, the
constitutional documents of the Issuer or the constituent documents
of any Issuer Subsidiary or with any existing law, rule or
regulation applying to or affecting the Issuer or any Issuer
Subsidiary or any judgment, order or decree of any government,
governmental body or court having jurisdiction over the Issuer or
any Issuer Subsidiary; and
(B) do not and will not at the Initial Closing Date or any
Payment Date infringe the terms of, or constitute a default under,
any deed, indenture, agreement or other instrument or obligation to
which the Issuer or any Issuer Subsidiary is a party or by which
any of them or any part of their undertaking,
<PAGE> 84
assets, property or revenues are bound.
(iv) Due Authorization. The purchase of the Initial Aircraft and
interests in the Initial Leases, the creation, execution and issuance of
the Initial Notes, the execution and issue or delivery by the Issuer and
each Issuer Subsidiary of the Related Documents executed by it and the
performance by each of them of their obligations to be assumed hereunder
and thereunder and the arrangements contemplated hereby and thereby to be
performed by each of them have been duly authorized by each of them.
(v) Validity and Enforceability. This Indenture constitutes, and
the Related Documents, when executed and delivered and, in the case of
the Initial Notes, when issued and authenticated, will constitute valid,
legally binding and (subject to general equitable principles, insolvency,
liquidation, reorganization and other laws of general application
relating to creditors' rights or claims or to laws of prescription or the
concepts of materiality, reasonableness, good faith and fair dealing)
enforceable obligations of the Issuer and each Issuer Subsidiary
executing the same.
(vi) No Defaults. There exists no Event of Default nor any event
which, had the Initial Notes already been issued, would constitute a
Default or an Event of Default.
(vii) No Encumbrances. Subject to the Security Interests created in
favor of the Security Trustee and except for Permitted Encumbrances,
there exists no Encumbrance over the assets or undertaking of the Issuer
or any Issuer Subsidiary which ranks prior to or pari passu with the
obligation to make payments on the Initial Notes.
(viii) No Consents. All consents, approvals, authorizations or
other orders of all regulatory authorities required (excluding any
required by the other parties to the Related Documents) for or in
connection with the execution and performance of the Related Documents by
the Issuer and each Issuer Subsidiary and the issue and performance of
the Initial Notes and the offering of the Initial Notes by the Issuer has
been obtained and are in full force and effect and not contingent upon
fulfillment of any condition.
(ix) No Litigation. There is no action, suit, investigation or
proceeding pending against, or to the knowledge of the Issuer, threatened
against or affecting, the Issuer or any Issuer Subsidiary before any
court or arbitrator or any governmental body, agency or official which in
any manner challenges or seeks to prevent, enjoin, alter or materially
delay the transactions contemplated by this Indenture (including the
Exhibits and Schedules attached hereto) and the Related Documents.
(x) Employees, Subsidiaries. The Issuer and each Issuer Subsidiary
have no employees. Set forth in Schedule B hereto is a true and complete
list, as of the date hereof, of all Issuer Subsidiaries, together with
their jurisdictions of organization.
(xi) Ownership. The Issuer or an Issuer Subsidiary is the
beneficial owner
<PAGE> 85
of the Pledged Stock, the Pledged Debt, the Pledged Beneficial Interest
and the Non-Trustee Accounts, free from all Encumbrances and claims
whatsoever other than Permitted Encumbrances.
(xii) No Filings. Under the laws of Delaware and New York
(including U.S. federal law) in force at the date hereof, it is not
necessary or desirable that this Indenture or any Related Document to
which an Issuer Subsidiary is a party (other than evidences of the
Security Interests) be filed, recorded or enrolled (other than the filing
of the Trust Agreement in Delaware) with any court or other authority in
any such jurisdictions or that any stamp, registration or similar tax be
paid on or in relation to this Indenture or any of the other Related
Documents.
(xiii) Other Representations. The representations and warranties
made by the Issuer and each Issuer Subsidiary in any of the other Related
Documents are true and accurate.
Section 5.02. General Covenants. The Issuer covenants with the Trustee
as follows:
(a) No Release of Obligations. The Issuer shall not take, or
knowingly permit any Issuer Subsidiary to take, any action which would
amend, terminate (other than any termination in connection with the
replacement of such agreement with an agreement on terms substantially no
less favorable to MSAF Group than the agreement being terminated) or
discharge or prejudice the validity or effectiveness of this Indenture
(other than as permitted herein), the Security Trust Agreement, the Cash
Management Agreement, the Administrative Agency Agreement, the Financial
Advisory Agreement, the Servicing Agreement or any Additional Servicing
Agreement or permit any party to any such document to be released from
such obligations, except, in each case, as permitted or contemplated by
the terms of such document, and provided that such actions may be taken
or permitted, and such releases may be permitted, if the Issuer shall
have first obtained an authorizing resolution of the Controlling Trustees
determining that such action, permitted action or release does not
materially adversely affect the interests of the Noteholders and having
given notice thereof to the Rating Agencies; and provided further that,
in any case (i) the Issuer shall not take any action which would result
in any amendment or modification to the conflicts standard or duty of
care in such agreements and (ii) there must be at all times an
administrative agent, a cash manager, a financial advisor and a servicer
(provided that, if the Servicer or any Additional Servicer terminates the
Servicing Agreement or any Additional Servicing Agreement pursuant to
Section 10.02(a) thereof, this Section 5.02(a) shall not be violated if
the Issuer uses its best efforts to obtain a successor servicer).
(b) Limitation on Encumbrances. The Issuer shall not, and shall not
permit any Issuer Subsidiary to, create, incur, assume or suffer to exist
any mortgage, pledge, lien, encumbrance, charge or security interest (in
each case, an "Encumbrance"), including, without limitation, any
conditional sale, any sale with recourse against the seller or any
affiliate of the seller, or any agreement to give any security interest
over or with respect to any of the Issuer's or any Issuer Subsidiary's
<PAGE> 86
assets (other than the segregation of the Segregated Funds) including,
without limitation, all shares of capital stock, all beneficial interests
in trusts, all ordinary shares and preferred shares and any options,
warrants and other rights to acquire such shares or interests ("Stock")
and any Indebtedness of any Issuer Subsidiary held by the Issuer or any
Issuer Subsidiary.
Notwithstanding the foregoing, the Issuer may create, incur, assume
or suffer to exist (i) any Permitted Encumbrance, (ii) any security
interest created or required to be created under the Security Trust
Agreement, (iii) Encumbrances over rights in or derived from Leases, upon
Rating Agency Confirmation (provided that any transaction or series of
transactions resulting in such Encumbrance, taken as a whole, does not
materially adversely affect the amount of Collections that would have
been received by any MSAF Group Member from such Lease had such
Encumbrance not been created) or (iv) any other Encumbrance the validity
or applicability of which is being contested in good faith in appropriate
proceedings by the Issuer or any Issuer Subsidiary.
For the purposes of this Indenture, "affiliate" means, with respect
to any Person, any other Person that, directly or indirectly, controls,
is controlled by or is under common control with, such Person or is a
director or officer of such Person; "control" of a Person means the
possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of such Person, whether through
the ownership of voting Stock, by contract or otherwise. For the
purposes of this Indenture, "Permitted Encumbrance" means (i) any lien
for taxes, assessments and governmental charges or levies not yet due and
payable or which are being contested in good faith by appropriate
proceedings; (ii) in respect of any Aircraft, any lien of a repairer,
carrier or hangar keeper arising in the ordinary course of business by
operation of law or any engine or parts-pooling arrangements or other
similar lien; (iii) any permitted lien or encumbrances on any Aircraft,
Engines or Parts as defined under any Lease thereof (other than liens or
encumbrances created by the relevant lessor); (iv) any lien created by or
through or arising from debt or liabilities or any act or omission of any
Lessee in each case either in contravention of the relevant Lease
(whether or not such Lease has been terminated) or without the consent of
the relevant lessor (provided that if such lessor becomes aware of any
such lien, it shall use commercially reasonable efforts to have any such
lien lifted); (v) any head lease, lease, Conditional Sale Agreement or
Purchase Option existing on the relevant Closing Date or Aircraft
Agreement meeting the requirements of clause (iii) or (v) of the second
paragraph of Section 5.02(g) hereof; (vi) any lien for air navigation
authority, airport tending, gate or handling (or similar) charges or
levies; (vii) any lien created in favor of the Issuer, any Issuer
Subsidiary or the Security Trustee; (viii) any Encumbrance arising under
the Custody and Loan Agreement or under any other agreement the terms of
which contemplate that security deposits held for Lessees with respect to
Additional Aircraft are held by a third party and (ix) any other lien not
referred to in clauses (i) through (viii) of this paragraph which would
not adversely affect the owner's rights and does not exceed the greater
of 0.2% of the aggregate Initial Appraised Value of the Portfolio from
time to time and $250,000 per Aircraft.
<PAGE> 87
(c) Limitation on Restricted Payments. The Issuer shall not, and
shall not permit any Issuer Subsidiary to (i) declare or pay any dividend
or make any distribution on its Stock held by Persons other than the
Issuer or any Issuer Subsidiary; provided that so long as no Event of
Default shall have occurred and be continuing and to the extent there are
available funds therefor in the Collection Account on such Payment Date,
the Issuer may, subject to the provisions set forth in Section 3.08
hereof, pay the Beneficial Interest Distribution Amount and the amount
referred to in Section 3.08(a)(xxvi) hereof; (ii) purchase, redeem,
retire or otherwise acquire for value any shares of Stock of the Issuer
or any Issuer Subsidiary held by or on behalf of Persons other than the
Issuer, any Issuer Subsidiary and other Persons permitted under Section
5.02(l)(ii)(B) hereof; (iii) make any payment of principal, interest or
Premium, if any, on the Notes or make any voluntary or optional
repurchase, defeasance or other acquisition or retirement for value of
Indebtedness of the Issuer or such Issuer Subsidiary that is not owed to
the Issuer or such Issuer Subsidiary other than in accordance with
Section 3.10 hereof; provided that the Issuer or any of its affiliates
may repurchase, defease or otherwise acquire or retire any of the Notes
other than from the Available Collections Amount so long as any new notes
of the Issuer issued in connection with such transaction rank pari passu
with the Notes being repurchased, defeased, acquired or retired and the
Controlling Trustees shall determine that such action does not materially
adversely affect the Noteholders and shall have obtained Rating Agency
Confirmation or (iv) make any investments (other than Permitted Account
Investments, Allowed Restructurings, investments permitted under Section
5.02(e) hereof and investments in any Aircraft Owning Companies pursuant
to a Permitted Aircraft Acquisition; provided that written notification
of the organization or acquisition of each such Aircraft Owning Company
shall have been given to each Rating Agency).
The term "investment" for purposes of the above restriction shall
mean any loan or advance to a Person, any purchase or other acquisition
of any beneficial interest, capital stock, warrants, rights, options,
obligations or other securities of such Person, any capital contribution
to such Person or any other investment in such Person. For the avoidance
of doubt, "investment" shall not include any obligation of a purchaser of
an Aircraft to make deferred or installment payments pursuant to any
Aircraft Agreement specified in (iii) or (iv) of the second paragraph of
Section 5.02(g) hereof so long as MSAF Group retains a security interest
in the relevant Aircraft until all such obligations are discharged.
(d) Limitation on Dividends and Other Payment Restrictions. The
Issuer shall not, and shall not permit any Issuer Subsidiary to, create
or otherwise suffer to exist any consensual encumbrance or restriction of
any kind on the ability of any Issuer Subsidiary to (i) declare or pay
dividends or make any other distributions permitted by applicable law, or
purchase, redeem or otherwise acquire for value, the Stock of the Issuer
or such Issuer Subsidiary, as the case may be; (ii) pay any Indebtedness
owed to the Issuer or such Issuer Subsidiary; (iii) make loans or
advances to the Issuer or such Issuer Subsidiary; or (iv) transfer any of
its property or assets to the Issuer or any other Issuer Subsidiary.
<PAGE> 88
The foregoing provisions shall not restrict any consensual
encumbrances or other restrictions: (i) existing on the Initial Closing
Date or, in the case of any Issuer Additional Aircraft, the date of
acquisition of such Aircraft, under any Related Document, and any
amendments, extensions, refinancings, renewals or replacements of such
documents; provided that such consensual encumbrances and restrictions in
any such amendments, extensions, refinancings, renewals or replacements
are no less favorable in any material respect to the Holders of the MSAF
Group Notes than those previously in effect and being amended, extended,
refinanced, renewed or replaced; or (ii) in the case of clause (iv) of
the preceding paragraph, (A) that restrict in a customary manner the
subletting, assignment or transfer of any property or asset that is a
lease, license, conveyance or contract or similar property or asset or
(B) existing by virtue of any transfer of, agreement to transfer, option
or right with respect to, or consensual encumbrance on, any property or
assets of the Issuer or any Issuer Subsidiary not otherwise prohibited by
this Indenture. Nothing contained in this covenant shall prevent the
Issuer or any Issuer Subsidiary from creating, incurring, assuming or
suffering to exist any Encumbrances not otherwise prohibited under this
Indenture.
(e) Limitation on Engaging in Business Activities. The Issuer shall
not, and shall not permit any Issuer Subsidiary to, engage in any
business or activity other than:
(i) purchasing or otherwise acquiring (subject to Section
5.02(h) hereof), owning, holding, converting, maintaining,
modifying, managing, operating, leasing, re-leasing and, subject to
the limitations set forth in Section 5.02(g) hereof, selling or
otherwise disposing of the Aircraft and entering into all contracts
and engaging in all related activities incidental thereto,
including from time to time accepting, exchanging, holding or
permitting any Issuer Subsidiary to accept, exchange or hold (an
"Allowed Restructuring") promissory notes, contingent payment
obligations or equity interests, of Lessees or their affiliates
issued in connection with the bankruptcy, reorganization or other
similar process, or in settlement of delinquent obligations or
obligations anticipated to be delinquent, of such Lessees or their
respective affiliates in the ordinary course of business;
(ii) providing loans to, guaranteeing or otherwise supporting
the obligations and liabilities of any MSAF Group Member, in each
case on such terms and in such manner as the Controlling Trustees
see fit and (whether or not the Issuer or any Issuer Subsidiary
derives a benefit therefrom) so long as such loans, guarantees or
other supports are provided in connection with the purposes set
forth in clause (i) of this Section 5.02(e); provided that written
notification shall have been given to each Rating Agency of such
loan, guarantee or other support;
(iii) financing or refinancing the business activities
described in clause (i) of this covenant through the offer, sale
and issuance of any securities
<PAGE> 89
of the Issuer or any Guarantor, upon such terms and conditions as
the Controlling Trustees see fit, for cash or in payment or in
partial payment for any property purchased or otherwise acquired by
any MSAF Group Member;
(iv) engaging in currency and interest rate exchange
transactions for the purposes of avoiding, reducing, minimizing,
hedging against or otherwise managing the risk of any loss, cost,
expense or liability arising, or which may arise, directly or
indirectly, from any change or changes in any interest rate or
currency exchange rate or in the price or value of any of the
Issuer's or any Issuer Subsidiary's property or assets, within
limits determined by the Controlling Trustees from time to time and
submitted to the Rating Agencies, including but not limited to
dealings, whether involving purchases, sales or otherwise, in
foreign currency, spot and forward interest rate exchange
contracts, forward interest rate agreements, caps, floors and
collars, futures, options, swaps and any other currency, interest
rate and other similar hedging arrangements and such other
instruments as are similar to, or derivatives of, any of the
foregoing;
(v) (A) establishing, promoting and aiding in promoting,
constituting, forming or organizing companies, trusts, syndicates,
partnerships or other entities of all kinds in any part of the
world for the purposes set forth in clause (i) above; provided that
written notification shall have been given to each Rating Agency
that such company, trust, syndicate or partnership is set up in
compliance with this Indenture, (B) acquiring, holding and
disposing of shares, securities and other interests in any such
trust, company, syndicate, partnership or other entity and (C)
disposing of shares, securities and other interests in, or causing
the dissolution of, any existing subsidiary; provided that any such
disposition which results in the disposition of an Aircraft meets
the requirements set forth in Section 5.02(g) hereof; and
(vi) taking out, acquiring, surrendering and assigning
policies of insurance and assurances with any insurance company or
companies which the Issuer or any Issuer Subsidiary may think fit
and to pay the premiums thereon.
(f) Limitation on Indebtedness. The Issuer shall not, and shall
not permit any Issuer Subsidiary to, incur, create, issue, assume,
guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, whether
present or future (in any such case, to "incur"), Indebtedness.
For the purposes of this Indenture, "Indebtedness" means, with
respect to any Person at any date of determination (without duplication),
(i) all indebtedness of such Person for borrowed money, (ii) all
obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments, (iii) all obligations of such Person in respect of
letters of credit or other similar instruments (including reimbursement
obligations with respect thereto), (iv) all the obligations of such
Person to pay the deferred and unpaid purchase price of property or
services, which purchase price is
<PAGE> 90
due more than six months after the date of purchasing such property or
service or taking delivery and title thereto or the completion of such
services, and payment deferrals arranged primarily as a method of raising
finance or financing the acquisition of such property or service, (v) all
obligations of such Person under a lease of (or other agreement conveying
the right to use) any property (whether real, personal or mixed) that is
required to be classified and accounted for as a capital lease obligation
under U.S. GAAP, (vi) all Indebtedness (as defined in clauses (i) through
(v) of this paragraph) of other Persons secured by a lien on any asset of
such Person, whether or not such Indebtedness is assumed by such Person,
and (vii) all Indebtedness (as defined in clauses (i) through (v) of this
paragraph) of other Persons guaranteed by such Person.
Notwithstanding the foregoing, the Issuer and any Issuer Subsidiary
may incur each and all of the following:
(i) Indebtedness in respect of any Initial Notes issued on the
Initial Closing Date;
(ii) Indebtedness in respect of any Refinancing Notes or other
Indebtedness described in the proviso to Section 5.02(c)(iii);
provided that (A) such Refinancing Notes or other Indebtedness
receive ratings from the Rating Agencies at the close of such
Refinancing or repurchase equal to or higher than those of the
subclass being refinanced or repurchased (determined at the date of
incurrence), (B) taking into account such Refinancing or
repurchase, the Issuer receives Rating Agency Confirmation prior to
such Refinancing or repurchase with respect to each subclass of
MSAF Group Notes Outstanding at such time and (C) the net proceeds
of any such Refinancing or other Indebtedness shall be used only to
repay the Outstanding Principal Balance of the subclass of Notes
being so refinanced or repurchased plus any Redemption Premium and
transaction expenses relating thereto;
(iii) Indebtedness in respect of guarantees by MSAF or any
MSAF Subsidiary of any other MSAF Group Member (other than the
Guarantee described in (v) below), provided that no such
Indebtedness shall be incurred if it would materially adversely
affect the Noteholders;
(iv) Indebtedness in respect of any Issuer Additional Notes
the proceeds of which are applied to finance a Permitted Additional
Aircraft Acquisition; provided that (A) the Issuer receives Rating
Agency Confirmation prior to the incurrence of such Indebtedness
with respect to all of the MSAF Group Notes Outstanding at such
time and (B) the net proceeds of such Indebtedness shall be used
only to finance such Permitted Additional Aircraft Acquisition and
(c) such Issuer Additional Notes will be cross-collateralized with
all Outstanding Notes by the Collateral under the Security Trust
Agreement;
(v) Indebtedness in respect of the Guarantee set forth in
Article XII
<PAGE> 91
of this Indenture (the "Guarantee"); provided that (A) the
Indebtedness guaranteed thereby is incurred by a Guarantor that has
guaranteed the Notes, (B) the Indebtedness being guaranteed would
be permitted pursuant to clause (ii) or (iv) if such Indebtedness
were incurred directly by the Issuer and (C) the Indebtedness being
guaranteed was issued by the Guarantor under an indenture the terms
of which (including the covenants and other obligations of the
Guarantor thereunder) are substantially identical to those of this
Indenture;
(vi) obligations to each Seller under each Acquisition
Agreement and any related lease assignment and assumption
agreements and the documents related thereto;
(vii) Indebtedness under any agreements between the Issuer or
any Issuer Subsidiary and any other MSAF Group Members (each, an
"Intercompany Loan"); provided that such Indebtedness shall be
evidenced by promissory notes and written notification shall have
been given to each Rating Agency of the incurrence of such
Indebtedness; and
(viii) Indebtedness of MSAF Group under any Credit Facility.
For the purposes of this Indenture, "guarantee" means any
obligation, contingent or otherwise, of any Person directly or
indirectly guaranteeing any Indebtedness or other obligation of any
other Person and, without limiting the generality of the foregoing,
any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for
the purchase or payment of) such Indebtedness or other obligation
of such other Person or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness or other
obligation of the payment thereof or to protect such obligee
against loss in respect thereof (in whole or in part); provided
that the term "guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term
"guarantee" when used as a verb has a corresponding meaning.
(g) Limitation on Aircraft Sales. The Issuer shall not, and shall
not permit any Issuer Subsidiary to, sell, transfer or otherwise dispose
of any Aircraft or any interest therein.
Notwithstanding the foregoing, the Issuer and any Issuer Subsidiary
shall be permitted to sell, transfer or otherwise dispose of, directly or
indirectly, (a) any Engine or Part owned on the Initial Closing Date or,
with respect to any Issuer Additional Aircraft, on the date such Aircraft
is acquired or (b) one or more Aircraft or an interest therein (i)
pursuant to a Purchase Option or other agreements of a similar character
existing on the Initial Closing Date or, with respect to any Additional
Aircraft, on the Closing Date therefor, (ii) within or among the Issuer
and the Issuer Subsidiaries without limitation, and among the Issuer
and/or any Issuer Subsidiary and any other MSAF Group Member; provided
that no such sale, transfer or disposition shall be made other than to
the Issuer or any Issuer Subsidiary if such sale,
<PAGE> 92
transfer or other disposition would materially adversely affect the
Noteholders; provided, further, that written notification shall have been
given to each Rating Agency of such sale, transfer or disposition, (iii)
pursuant to any Aircraft Agreement; provided that such sale does not
result in a Concentration Default and the net present value of the cash
Net Sale Proceeds is not less than the Note Target Price, (iv) pursuant
to receipt of insurance proceeds in connection with an event of loss or
(v) pursuant to an Aircraft Agreement and, in any one calendar year, not
exceeding 10% of the Adjusted Portfolio Value as determined by the most
recent Appraisal obtained for such calendar year; provided that the
Controlling Trustees unanimously confirm that each such sale would not
materially adversely affect the Noteholders and such sale does not result
in a Concentration Default.
For the purpose of this Section 5.02(g), the net present value of
the cash Net Sale Proceeds of any sale, transfer or other disposition of
any Aircraft shall mean the present value of all payments received or to
be received by the Issuer or any Issuer Subsidiary from the date of
execution or option granting date, as the case may be, of the relevant
Aircraft Agreement through and including the date of transfer of title to
such Aircraft, discounted back to the date of execution or option
granting date, as the case may be, of such Aircraft Agreement at the
weighted average cost of funds of the MSAF Group (based on the cost of
funds represented by the MSAF Group Notes and taking into account any
Swap Agreements).
The "Note Target Price" means, in respect of any Aircraft, an amount
equal to 103% of the aggregate Outstanding Principal Balance of the MSAF
Group Notes, together with any accrued but unpaid interest thereon and
any related Swap Breakage Costs, allocable to such Aircraft on the date
of the sale agreement or purchase option granting date, as the case may
be. On any date, the Outstanding Principal Balance of MSAF Group Notes
allocable to an Aircraft shall equal the product of (i) (A) the Adjusted
Base Value of such Aircraft divided by (B) the Adjusted Portfolio Value
and (ii) the aggregate Outstanding Principal Balance of MSAF Group Notes,
in each case on the most recent Payment Date.
"Aircraft Agreement" means any lease, sublease, conditional sale
agreement, finance leases, hire purchase agreement or other agreement
(other than an agreement relating to maintenance, modification or
repairs) or any purchase option granted to a Person other than any MSAF
Group Member to purchase an Aircraft pursuant to a purchase option
agreement, in each case pursuant to which any Person acquires or is
entitled to acquire legal title, or the economic benefits of ownership
of, such Aircraft.
"Net Sale Proceeds" means, with respect to any sale or other
disposition of any assets, the aggregate amount of cash received or to be
received from time to time (whether as initial or deferred consideration)
by or on behalf of the seller in connection with such transaction after
deducting therefrom (without duplication) (a) reasonable and customary
brokerage commissions and other similar fees and commissions (including
fees received by the Servicer under the Servicing Agreement) and (b) the
amount of taxes payable in connection with or as a result of such
transaction, in each case to the extent, but only to the extent, that the
amounts so
<PAGE> 93
deducted are, at the time of receipt of such cash, actually paid to a
Person that is not an affiliate of the seller and are properly
attributable to such transaction or to the asset that is the subject
thereof.
"Concentration Default" means an Event of Default under Section
5.03(a) which would arise if effect were given to any sale, transfer or
other disposition or any purchase or other acquisition pursuant to an
Aircraft Agreement as of the date of such Aircraft Agreement regardless
of whether such sale, transfer or other disposition or purchase or other
acquisition is scheduled or expected to occur after the date of such
Aircraft Agreement.
(h) Limitation on Aircraft Acquisitions. The Issuer shall not, and
shall not permit any Issuer Subsidiary to, purchase or otherwise acquire
any Aircraft other than the Initial Aircraft or any interest therein.
Notwithstanding the foregoing, the Issuer may, and may permit any
Issuer Subsidiary to, (A) purchase or otherwise acquire, directly or
indirectly, Additional Aircraft from time to time (a "Permitted
Additional Aircraft Acquisition"); provided that (i) no Event of Default
shall have occurred and be continuing, (ii) all Scheduled Principal
Payment Amounts have been paid, (iii) the acquisition does not result in
a Concentration Default and (iv) after giving effect to such acquisition,
no more than 90% by appraised Base Value of the Portfolio consists of
Stage 3 narrowbody aircraft and regional jets, no more than 50% by
appraised Base Value of the Portfolio consists of Stage 3 widebody
aircraft and no more than 15% by appraised Base Value of the Portfolio
consists of Stage 2 aircraft and turboprop aircraft without the
Controlling Trustees having obtained Rating Agency Confirmation, (B) act
as sponsor of a future MSAF Group entity other than an Issuer Subsidiary
that would fund an acquisition of aircraft assets with Indebtedness
guaranteed by the Issuer pursuant to Section 12.01; provided that, if
such acquisition of aircraft assets had been consummated indirectly by
the Issuer, such acquisition would have been permitted pursuant to the
preceding clause (A) and (C) purchase or otherwise acquire, directly or
indirectly, (x) Remaining Aircraft pursuant to the Asset Purchase
Agreement or (y) Substitute Aircraft.
(i) Limitation on Modification Payments and Capital Expenditures.
The Issuer shall not, and shall not permit any Issuer Subsidiary to, make
any capital expenditures for the purpose of effecting any optional
improvement or modification of any Aircraft, for the optional conversion
of any Aircraft from a passenger aircraft to a freighter or mixed-use
aircraft, or for the purpose of purchasing or otherwise acquiring any
Engines or Parts outside of the ordinary course of business (each such
expenditure, a "Modification Payment").
Notwithstanding the foregoing, the Issuer may, and may permit any
Issuer Subsidiary to, make Modification Payments; provided that (i) each
Modification Payment, together with all other Modification Payments made
after the Initial Closing Date pursuant to this Section 5.02(i) with
respect to any single Aircraft, do not exceed the aggregate amount of
funds that would be necessary to perform one incidence of heavy
maintenance (as described in the applicable Servicing Agreement or
Additional
<PAGE> 94
Servicing Agreement) on such Aircraft, including the airframe and the
related Engines thereof; (ii) such Modification Payment is included in
the annual operating budget of the MSAF Group and approved by the
Controlling Trustees; (iii) the amount of funds necessary to make such
Modification Payment shall have been accrued in advance as a Permitted
Accrual in the Expense Account through transfers into the Expense Account
pursuant to Section 3.08(a)(xvi) hereof or otherwise allowed to be paid
under Section 5.02(f) hereof; and (iv) the aggregate amount of all
Modification Payments made by all MSAF Group Members, taken as a whole,
pursuant to this Section 5.02(i) and pursuant to any Guarantor Indenture
after the Initial Closing Date, including such Modification Payment,
shall not exceed 5% of the aggregate Initial Appraised Value of all
Aircraft acquired by MSAF Group.
(j) Limitation on Consolidation, Merger and Transfer of Assets. The
Issuer shall not, and shall not permit any Issuer Subsidiary to,
consolidate with, merge with or into, or sell, convey, transfer, lease or
otherwise dispose of its property and assets (as an entirety or
substantially an entirety in one transaction or in a series of related
transactions) to, any other Person, or permit any other Person to merge
with or into the Issuer or any Issuer Subsidiary, unless (i) the
resulting entity is a special purpose corporation, the charter of which
is substantially similar to the Trust Agreement or the equivalent charter
document of such Issuer Subsidiary, as the case may be, and, after such
consolidation, merger, sale, conveyance, transfer, lease or other
disposition, payments from such resulting entity to the Noteholders do
not give rise to any withholding tax payments less favorable to the
Noteholders than the amount of any withholding tax payments which would
have been required had such event not occurred, (ii) in the case of any
consolidation, merger or transfer by the Issuer, the surviving successor
or transferee entity shall expressly assume all of the obligations of the
Issuer under this Indenture, the Notes and each other Related Document to
which the Issuer is then a party, (iii) the Controlling Trustees shall
have obtained a Rating Agency Confirmation with respect to such merger,
sale, conveyance, transfer, lease or disposition, (iv) immediately after
giving effect to such transaction, no Event of Default shall have
occurred and be continuing and (v) the Issuer delivers to the Trustee an
Officer's Certificate and an opinion of counsel, in each case stating
that such consolidation, merger or transfer and such supplemental
indenture comply with the above criteria and, if applicable, Section
5.02(g) hereof and that all conditions precedent provided for herein
relating to such transaction have been complied with; provided that this
covenant shall not apply to any such consolidation, merger, sale,
conveyance, transfer, lease or disposition (a) within and among the
Issuer and any Issuer Subsidiary and any other MSAF Group Member if such
consolidation, merger, sale, conveyance, transfer, lease or disposition,
as the case may be, would not materially adversely affect the Noteholders
and written notification is given to such Rating Agency, (b) complying
with the terms of Section 5.02(g) hereof or (c) effected as part of a
single transaction providing for the redemption or defeasance of MSAF
Group Notes in accordance with Section 3.10 or Article XI, respectively,
hereof.
(k) Limitation on Transactions with Affiliates. The Issuer shall
not, and shall not permit any Issuer Subsidiary, directly or indirectly,
to enter into, renew or extend any transaction (including, without
limitation, the purchase, sale, lease or
<PAGE> 95
exchange of property or assets, or the rendering of any service) with any
affiliate of the Issuer or any Issuer Subsidiary, except upon fair and
reasonable terms no less favorable to the Issuer or such Issuer
Subsidiary than could be obtained, at the time of such transaction or at
the time of the execution of the agreement providing therefor, in a
comparable arm's-length transaction with a Person that is not such an
affiliate.
The foregoing limitation does not limit, and shall not apply to:
(i) any transaction in connection with the establishment of MSAF Group,
its acquisition of the Initial Aircraft or pursuant to the terms of the
Related Documents; (ii) any transaction within and among the Issuer or
any Issuer Subsidiary and any other MSAF Group Member; provided that no
such transaction, other than among the Issuer and any Issuer Subsidiary,
shall be consummated if such transaction would materially adversely
affect any Noteholders; (iii) the payment of reasonable and customary
regular fees to, and the provision of reasonable and customary liability
insurance in respect of, the Controlling Trustees; (iv) any payments on
the Beneficial Interest in accordance with Section 3.08 hereof; (v) any
Permitted Additional Aircraft Acquisition or any transaction complying
with Section 5.02(g) hereof; (vi) any payments of the types referred to
in clause (i) or (ii) of Section 5.02(c) hereof and not prohibited
thereunder; (vii) sale of Aircraft or any Issuer Subsidiaries as part of
a single transaction providing for the redemption or defeasance of MSAF
Group Notes in accordance with Section 3.10 or Article XI, respectively,
hereof, (viii) any Swap Agreement or Swaption or other instrument used
for the management of interest rate risk with Morgan Stanley or any of
its affiliates or (ix) the Tax Indemnification Agreement.
(l) Limitation on the Issuance, Delivery and Sale of Capital Stock.
The Issuer shall not (i) issue, deliver or sell any shares, interests,
participations or other equivalents (however designated, whether voting
or non-voting, other than beneficial interests, shares, participations or
other equivalents existing on the Initial Closing Date) in equity, or
(ii) sell, or permit any Issuer Subsidiary, directly or indirectly, to
issue, deliver or sell, any shares, interests, participations or other
equivalents in equity (however designated, whether voting or non-voting,
other than beneficial interests, shares, participations or other
equivalents existing on the Initial Closing Date), except (A) issuances
or sales of further beneficial interest in the Issuer having economic
terms no less favorable to the Noteholders than the terms of the
Beneficial Interest on the Initial Closing Date, (B) issuances or sales
of shares of Stock of foreign Issuer Subsidiaries to nationals in the
jurisdiction of incorporation or organization of such Issuer Subsidiary,
as the case may be, to the extent required by applicable law or necessary
in the determination of the Controlling Trustees to avoid adverse tax
consequences in any such jurisdiction, (C) the pledge of the Pledged
Stock and Pledged Beneficial Interest pursuant to the Security Trust
Agreement, (D) the sale, delivery or transfer of any Stock of any MSAF
Group Member as part of a single transaction providing for the redemption
or defeasance of the MSAF Group Notes in accordance with Section 3.10 or
Article XI, respectively, hereof and pursuant to a Guarantor Indenture,
(E) the sale of any Stock of an Issuer Subsidiary in order to effect the
sale of all Aircraft owned by such Issuer Subsidiary in compliance with
Section 5.02(g) hereof and (F) the sale, delivery, transfer or pledge of
stock or beneficial interests of any MSAF Group Member to or for the
benefit of any other
<PAGE> 96
MSAF Group Member.
(m) Bankruptcy and Insolvency; Corporate Governance. The Issuer (i)
shall promptly provide the Trustee and the Rating Agencies with written
notice of the institution of any proceeding by or against the Issuer or
any Issuer Subsidiary, as the case may be, seeking to adjudicate any of
them a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief or
composition of their debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry
of an order for relief or the appointment of a receiver, trustee or other
similar official for either or for any substantial part of their
property; (ii) shall not take any action to waive, repeal, amend, vary,
supplement or otherwise modify its charter documents that would adversely
affect the rights, privileges or preferences of any holder of the MSAF
Notes, as determined by the Controlling Trustees; and (iii) shall not,
without an affirmative unanimous written resolution of the Independent
Trustees and the Controlling Trustees, take any action to waive, repeal,
amend, vary, supplement or otherwise modify the provisions of the Trust
Agreement which requires a unanimous resolution of the Independent
Trustees and the Controlling Trustees, or limits the actions of
beneficial interest holders, with respect to voluntary insolvency
proceedings or consents to involuntary insolvency proceedings.
(n) Payment of Principal, Premium, if any, and Interest. The Issuer
shall duly and punctually pay the principal, Premium, if any, and
interest on the Notes in accordance with the terms of this Indenture and
the Notes.
(o) Limitation on Employees. The Issuer shall not, and shall not
permit any Issuer Subsidiary to, employ or maintain any employees other
than as required by any provisions of local law; provided that trustees
and directors shall not be deemed to be employees for purposes of this
Section 5.03(o).
Section 5.03. Operating Covenants. The Issuer covenants with the Trustee
as follows:
(a) Concentration Limits. Unless the Controlling Trustees obtain
Rating Agency Confirmation, the Issuer shall not permit any Issuer
Subsidiary to lease or re-lease any Aircraft if entering into such
proposed Lease would cause the Portfolio (excluding any Aircraft then
subject to an Aircraft Agreement and expected to be disposed of within
one year pursuant to Section 5.02(g)(iii) and (v) but as to which the
Issuer or any Issuer Subsidiary retains an interest including a right to
lease rentals or other payments, finance lease payments, instalment
purchase agreements or any other payments with respect to such Aircraft,
but including any Aircraft with respect to which MSAF Group has entered
into a binding agreement to acquire and which the Controlling Trustees
reasonably expect to acquire within 180 days from the date of such
agreement) to exceed any of the Concentration Limits set forth in Exhibit
E hereto (as such limits may be adjusted by the Issuer from time to time,
subject to Rating Agency Confirmation, the "Concentration Limits");
provided that the Issuer
<PAGE> 97
and any Issuer Subsidiary shall be entitled to renew or extend any Lease
to the existing Lessee thereunder irrespective of the effect of such
renewal or extension on the Concentration Limits. The Issuer shall not
permit any Issuer Subsidiary to lease or re-lease any Aircraft operated
or to be operated by a Lessee domiciled in a jurisdiction set forth in
clause (a) of the PRI Guidelines as set forth on Exhibit E hereto and as
amended from time to time upon the approval of the Rating Agencies (the
"PRI Guidelines") as "Prohibited Countries".
(b) Compliance with Law, Maintenance of Permits. The Issuer shall
(i) comply, and cause each Issuer Subsidiary to comply, in all material
respects with all Applicable Laws, (ii) obtain, and cause each Issuer
Subsidiary to obtain, all material governmental (including regulatory)
registrations, certificates, licenses, permits and authorizations
required for the use and operation of the Aircraft owned by it,
including, without limitation, a current certificate of airworthiness for
each such Aircraft (issued by the Applicable Aviation Authority and in
the appropriate category for the nature of the operations of such
Aircraft), except that (A) no certificate of airworthiness shall be
required for any Aircraft (x) during any period when such Aircraft is
undergoing maintenance, modification or repair, (y) following the
withdrawal or suspension by such Applicable Aviation Authority of
certificates of airworthiness in respect of all aircraft of the same
model or period of manufacture as such Aircraft (in which case the Issuer
shall comply, and cause each Issuer Subsidiary to comply, with all
directions of such Applicable Aviation Authority in connection with such
withdrawal or suspension), (B) no registrations, certificates, licenses,
permits or authorizations required for the use or operation of any
Aircraft need be obtained with respect to any period when such Aircraft
is not being operated and (C) no such registrations, certificates,
licenses, permits or authorizations shall be required to be maintained
for any Aircraft that is not the subject of a Lease, except to the extent
required under Applicable Laws, (iii) not cause or knowingly permit,
directly or indirectly, through any Issuer Subsidiary, any Lessee to
operate any Aircraft under any Lease in any material respect contrary to
any Applicable Law and (iv) not knowingly permit, directly or indirectly,
through any Issuer Subsidiary, any Lessee not to obtain all material
governmental (including regulatory) registrations, Notes, licenses,
permits and authorizations required for such Lessee's use and operation
of any Aircraft under any operating Lease except as provided, mutatis
mutandis, in clauses (ii)(A) and (ii)(B) above.
Notwithstanding the foregoing, no breach of this Section 5.03(b)
shall be deemed to have occurred by virtue of any act or omission of a
Lessee or sub-lessee, or of any Person which has possession of the
Aircraft or any Engine for the purpose of repairs, maintenance,
modification or storage, or by virtue of any requisition, seizure, or
confiscation of the Aircraft (other than seizure or confiscation arising
from a breach by the Issuer or an Issuer Subsidiary of this Section
5.03(b)) (each, a "Third Party Event"); provided that (i) neither the
Issuer nor any Issuer Subsidiary consents or has consented to such Third
Party Event; and (ii) the Issuer or Issuer Subsidiary which is the lessor
or owner of such Aircraft promptly and diligently takes such commercially
reasonable actions as a leading international aircraft operating lessor
would reasonably take in respect of such Third Party Event, including, as
deemed
<PAGE> 98
appropriate (taking into account, inter alia, the laws of the
jurisdictions in which the Aircraft are located), seeking to compel such
Lessee or other relevant Person to remedy such Third Party Event or
seeking to repossess the relevant Aircraft or Engine.
(c) Appraisal of Aircraft. The Issuer shall, at least once each
year and in any case no later than 30 days prior to October 31 of each
year, commencing in 1998, deliver to the Trustee appraisals of the Base
Value of each of the Initial Aircraft and Issuer Additional Aircraft from
at least three independent appraisers that are members of the
International Society of Transport Aircraft Trading or any similar
organization (each, an "Appraiser"), each such appraisal to be dated
within 30 days prior to its delivery to the Trustee.
(d) Maintenance of Assets. The Issuer shall (i) with respect to
each Initial Aircraft or Issuer Additional Aircraft, as the case may be,
and Engine that is subject to a Lease, cause, directly or indirectly,
through any Issuer Subsidiary, such Aircraft and Engine to be maintained
in a state of repair and condition consistent with the reasonable
commercial practice of leading international aircraft operating lessors
with respect to similar aircraft under lease, taking into consideration,
among other things, the identity of the relevant Lessee (including the
credit standing and operating experience thereof), the age and condition
of the Aircraft and the jurisdiction in which such Aircraft will be
operated or registered under such Lease and (ii) with respect to each
Aircraft that is not subject to a Lease, maintain, and cause each Issuer
Subsidiary to maintain, such Aircraft in a state of repair and condition
consistent with the reasonable commercial practice of leading
international aircraft operating lessors with respect to aircraft not
under lease. Notwithstanding the foregoing, no breach of this Section
5.03(d) shall be deemed to have occurred by virtue of any Third Party
Event; provided that (i) neither the Issuer nor any Issuer Subsidiary
consents or has consented to such Third Party Event; and (ii) the Issuer
or such Issuer Subsidiary which is the lessor or owner of such Aircraft
promptly and diligently takes such commercially reasonable actions as a
leading international aircraft operating lessor would reasonably take in
respect of such Third Party Event, including as deemed appropriate,
seeking to compel such Lessee or other relevant Person to remedy such
Third Party Event or seeking to repossess the relevant Aircraft or
Engine.
(e) Notification of Trustee and Administrative Agent. The Issuer
shall notify the Trustee and Administrative Agent in writing as soon as
the Issuer or any Issuer Subsidiary becomes aware of any loss, theft,
damage or destruction to any Initial Aircraft, Issuer Additional Aircraft
or Engine if the potential cost of repair or replacement of such asset
(without regard to any insurance claim related thereto) may exceed
$2,000,000.
(f) Leases. The Issuer shall (i) adopt and shall cause the Servicer
to utilize the pro forma lease set forth in Exhibit B to Schedule 2.02(a)
of the Asset Purchase Agreement, and will adopt and will agree to cause
any Additional Servicer to utilize the pro forma lease agreement or
agreements then used by such Additional Servicer in connection with its
aircraft operating leasing services business generally, as such pro forma
lease agreement or agreements may be revised for purposes of
<PAGE> 99
MSAF Group specifically or generally from time to time by the Servicer or
the Additional Servicer, as the case may be (the "Servicer's Pro Forma
Lease"), for use by the Servicer or such Additional Servicer, as the case
may be, on behalf of the Issuer or any Issuer Subsidiary as a starting
point in the negotiation of Future Leases with Persons who are not MSAF
Group Members; provided, however, that with respect to any Future Lease
entered into in connection with (x) the renewal or extension of an
Initial Lease, (y) the leasing of an Aircraft to a Person that is or was
a Lessee under an Initial Lease or (z) the leasing of an Aircraft to a
Person that is or was the lessee under an operating lease of an aircraft
that is being managed or serviced by the Servicer or the Additional
Servicer, as the case may be (such Future Lease, a "Renewal Lease"), a
form of lease substantially similar to such Initial Lease or operating
lease (a "Precedent Lease"), as the case may be, may be used by the
Servicer or the Additional Servicer, as the case may be, in lieu of the
Servicer's Pro Forma Lease on behalf of the Issuer or any Issuer
Subsidiary as a starting point in the negotiation of such Future Lease
with Persons who are not MSAF Group Members and provided further,
however, that if the Controlling Trustees determine, in an annual review
of the Servicer's Pro Forma Lease on or before each anniversary of the
relevant Closing Date, that any revision to the Servicer's Pro Forma
Lease made from time to time since the preceding review by the
Controlling Trustees (or, with respect to the first anniversary of the
Initial Closing Date, since the Initial Closing Date) is substantially
inconsistent with the core lease provisions of the Issuer set forth in
Exhibit L to this Indenture (as such provisions may be amended from time
to time, the "Core Lease Provisions") in a manner and to such a degree as
to have a material adverse effect on the Noteholders, taking into
consideration, inter alia, such revision and any risk that the Aircraft
might not be able to be leased on terms inconsistent with the provisions
of the Servicer's Pro Forma Lease, then the Controlling Trustees shall
direct the Servicer not to include such revision in the Servicer's Pro
Forma Lease to be used thereafter as the starting point in the
negotiation of any Future Lease with respect to the Aircraft. If the
Controlling Trustees determine that any such revision to the Servicer's
Pro Forma Lease will not have a material adverse effect on the
Noteholders, then the Controlling Trustees shall amend the applicable
Core Lease Provisions and (ii) notify the Rating Agencies of any Future
Lease entered into the terms of which are materially less favorable from
the point of view of the lessor than any of the Leases then in effect,
including without limitation, such changes to the Core Lease Provisions.
The Issuer shall not enter into, and shall not permit any Issuer
Subsidiary to enter into, any Future Lease the rental payments under
which are denominated in a currency other than U.S. dollars without
Rating Agency Confirmation.
(g) Opinions. The Issuer shall not enter into, and shall not permit
any Issuer Subsidiary to enter into, any Future Lease with any Person
that is not an MSAF Group Member or change the jurisdiction of
registration of any Aircraft that is subject to a Lease, unless, upon
entering into such Future Lease or changing the jurisdiction or
registration of such Aircraft (or within a commercially reasonable period
thereafter), the Servicer or Additional Servicer, as the case may be,
obtains such legal opinions, if any, with regard to compliance with the
registration requirements of the relevant jurisdiction, enforceability of
the Future Lease and such other matters
<PAGE> 100
customary for such transactions to the extent that receiving such legal
opinions is consistent with the reasonable commercial practice of leading
international aircraft operating lessors.
(h) Insurance. The Issuer shall maintain or cause, directly or
indirectly through the Issuer Subsidiaries, to be maintained with
reputable and responsible insurers or with insurers that maintain
relevant reinsurance with reputable and responsible reinsurers (i)
airline hull insurance for each Initial Aircraft and Issuer Additional
Aircraft in an amount at least equal to the Note Target Price for such
Aircraft (or the equivalent thereof from time to time if such insurance
is denominated in a currency other than U.S. dollars) and (ii) airline
liability insurance for each Aircraft and occurrence in an amount at
least equal to the relevant amount set forth on Exhibit G hereto for each
model of aircraft and as amended from time to time with the approval of
the Rating Agencies and (iii) airline political risk insurance ("PRI")
for each Aircraft subject to a Lease and habitually based in a
jurisdiction determined in accordance with clause (b) of the PRI
Guidelines, which may be amended from time to time only with the approval
of the Rating Agencies, in an amount at least equal to the Note Target
Price (or the equivalent thereof from time to time if such insurance is
denominated in a currency other than U.S. dollars) for such Aircraft;
provided further that for a period commencing sixty days after the
Initial Closing Date to one year from the Initial Closing Date(any period
may be extended for up to one year if so requested in writing by any
Rating Agency), the Issuer shall, upon request from any Rating Agency,
obtain PRI with respect to Aircraft leased to Lessees habitually based in
certain countries other than Developed Markets specified by each such
Rating Agency; provided, however, that with respect to any such insurance
for any Aircraft subject to a Lease, such insurance may be subject to
commercially reasonable deductible and self-insurance arrangements
(taking into account, inter alia, the creditworthiness and experience of
the Lessee, if any, the type of aircraft and market practices in the
aircraft insurance industry generally). The coverage and terms
(including endorsements, deductibles and self-insurance arrangements) of
any insurance maintained with respect to any Aircraft not subject to a
Lease shall be substantially consistent with the commercial practices of
leading international aircraft operating lessors regarding similar
aircraft.
In determining the amount of insurance required to be maintained by
this Section 5.03(h), the Issuer may take into account any
indemnification from, or insurance provided by, any governmental,
supranational or inter-governmental authority or agency (other than, with
respect to PRI, any governmental authority or agency of any jurisdiction
for which PRI must be obtained, the sovereign foreign currency debt of
which is rated AA, or the equivalent, by at least one of the Rating
Agencies, against any risk with respect to an Aircraft at least in an
amount which, when added to the amount of insurance against such risk
maintained by the Issuer (or which the Issuer has caused to be
maintained), shall be at least equal to the amount of insurance against
such risk otherwise required by this Section 5.03(h) (taking into account
self-insurance permitted by this Section 5.03(h)). Any such
indemnification or insurance provided by such government shall provide
substantially similar protection as the insurance required by this
Section 5.03(h). The Issuer shall not be required to maintain (or to
cause to be maintained) any insurance otherwise required
<PAGE> 101
hereunder to the extent that such insurance is not generally available in
the relevant insurance market at commercially reasonable rates from time
to time.
(i) Indemnity. The Issuer shall, and shall cause each Issuer
Subsidiary to, include in each Lease between the Issuer or such Issuer
Subsidiary and a Person who is not an MSAF Group Member an indemnity from
such Person in respect of any losses or liabilities arising from the use
or operation of the Aircraft during the term of such Lease, subject to
such exceptions, limitations and qualifications as are consistent with
the reasonable commercial practice of leading international aircraft
operating lessors.
(j) Swaptions. The Issuer shall, unless otherwise approved by each
Rating Agency, purchase Swaptions commencing one year after the Initial
Closing Date.
ARTICLE VI
THE TRUSTEE
Section 6.01. Acceptance of Trusts and Duties. The duties and
responsibilities of the Trustee shall be as provided by the TIA and as set
forth herein. The Trustee accepts the trusts hereby created and applicable to
it and agrees to perform the same but only upon the terms of this Indenture and
the TIA and agrees to receive and disburse all moneys received by it in
accordance with the terms hereof. The Trustee in its individual capacity shall
not be answerable or accountable under any circumstances, except for its own
willful misconduct or negligence or breach of any of its representations or
warranties set forth herein and the Trustee shall not be liable for any action
or inaction of the Issuer or any other parties to any of the Related Documents.
Any amounts received by the Trustee under this Indenture, including, without
limitation, the fees and out-of-pocket expenses of the Trustee shall be
Expenses of the Issuer.
Section 6.02. Absence of Duties. Except in accordance with written
instructions or requests furnished pursuant to Sections 5.02 and 5.03 hereof,
the Trustee shall have no duty to ascertain or inquire as to the performance or
observance of any covenants, conditions or agreements on the part of any
Lessee. Notwithstanding the foregoing, the Trustee, upon written request,
shall furnish to any Noteholder, promptly upon receipt thereof, duplicates or
copies of all reports, Notices, requests, demands, certificates, financial
statements and other instruments furnished to the Trustee under this Indenture.
Section 6.03. Representations or Warranties. The Trustee does not make
and shall not be deemed to have made any representation or warranty as to the
validity, legality or enforceability of this Indenture, the Notes or any other
document or instrument or as to the correctness of any statement contained in
any thereof, except that the Trustee in its individual capacity hereby
represents and warrants (i) that each such specified document to which it is a
party has been or will be duly executed and delivered by one of its officers
who is and will be duly authorized to execute and deliver such document on its
behalf, and (ii) the Indenture is
<PAGE> 102
the legal, valid and binding obligation of Bankers Trust, enforceable against
Bankers Trust in accordance with its terms, subject to the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium or similar law
affecting creditors' rights generally.
Section 6.04. Reliance; Agents; Advice of Counsel. The Trustee shall
incur no liability to anyone acting upon any signature, instrument, notice,
resolution, request, consent, order, certificate, report, opinion, bond or
other document or paper believed by it to be genuine and believed by it to be
signed by the proper party or parties. The Trustee may accept a copy of a
resolution of, in the case of the Issuer, the Controlling Trustees and, in the
case of any other party to any Related Document, the governing body of such
Person, certified in an accompanying Officer's Certificate as duly adopted and
in full force and effect, as conclusive evidence that such resolution has been
duly adopted and that the same is in full force and effect. As to any fact or
matter the manner of ascertainment of which is not specifically described
herein, the Trustee shall be entitled to receive and may for all purposes
hereof conclusively rely on a certificate, signed by an officer of any duly
authorized Person, as to such fact or matter, and such certificate shall
constitute full protection to the Trustee for any action taken or omitted to be
taken by it in good faith in reliance thereon. The Trustee shall furnish to
the Cash Manager or the Administrative Agent upon written request such
information and copies of such documents as the Trustee may have and as are
necessary for the Cash Manager or the Administrative Agent to perform its
duties under Article II hereof. The Trustee shall assume, and shall be fully
protected in assuming, that the Issuer is authorized by its constitutional
documents to enter into this Indenture and to take all action permitted to be
taken by it pursuant to the provisions hereof, and shall not inquire into the
authorization of the Issuer with respect thereto.
The Trustee shall not be liable for any action it takes or omits to take
in good faith that it believes to be authorized or within its rights or powers
or for any action it takes or omits to take in accordance with the direction of
the Holders in accordance with Section 4.12 hereof relating to the time, method
and place of conducting any proceeding for any remedy available to the Trustee,
or exercising any trust or power conferred upon the Trustee, under this
Indenture.
The Trustee may execute any of the trusts or powers hereunder or perform
any duties hereunder either directly or by or through agents or attorneys or a
custodian or nominee, and the Trustee shall not be responsible for any
misconduct or negligence on the part of, or for the supervision of, any such
agent, attorney, custodian or nominee appointed with due care by it hereunder.
The Trustee may consult with counsel as to any matter relating to this
Indenture and any Opinion of Counsel or any advice of such counsel shall be
full and complete authorization and protection in respect of any action taken
or suffered or omitted by it hereunder in good faith and in accordance with
such advice or Opinion of Counsel.
The Trustee shall be under no obligation to exercise any of the rights or
powers vested in it by this Indenture, or to institute, conduct or defend any
litigation hereunder or in relation hereto, at the request, order or direction
of any of the Holders, pursuant to the provisions of this Indenture, unless
such Holders shall have offered to the
<PAGE> 103
Trustee security or indemnity reasonably satisfactory to it against the costs,
expenses and liabilities which may be incurred therein or thereby.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, if there is
reasonable ground for believing that the repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it, and
none of the provisions contained in this Indenture shall in any event require
the Trustee to perform, or be responsible or liable for the manner of
performance of, any obligations of the Issuer or the Administrative Agent under
this Indenture or any of the Related Documents.
The Trustee shall not be liable for any Losses or Taxes (except for Taxes
relating to any compensation, fees or commissions of any entity acting in its
capacity as Trustee hereunder) or in connection with the selection of Permitted
Account Investments or for any investment losses resulting from Permitted
Account Investments.
When the Trustee incurs expenses or renders services in connection with an
Event of Default specified in Section 4.01(f) or 4.01(g) hereof, such expenses
(including the fees and expenses of its counsel) and the compensation for such
services are intended to constitute expenses of administration under any
bankruptcy law or law relating to creditors' rights generally.
The Trustee shall not be charged with knowledge of an Event of Default
unless a Responsible Officer of the Trustee obtains actual knowledge of such
event or the Trustee receives written notice of such event from the Issuer, the
Administrative Agent or Noteholders owning Notes aggregating not less than 10%
of the outstanding principal amount of the Notes.
The Trustee shall have no duty to monitor the performance of the Issuer,
the Cash Manager or any other party to the Related Documents, nor shall it have
any liability in connection with the malfeasance or nonfeasance by such
parties. The Trustee shall have no liability in connection with compliance by
the Issuer, the Administrative Agent or any lessee under a Lease with statutory
or regulatory requirements related to any Aircraft or any Lease. The Trustee
shall not make or be deemed to have made any representations or warranties with
respect to any Aircraft or any Lease or the validity or sufficiency of any
assignment or other disposition of any Aircraft or any Lease.
Section 6.05. Not Acting in Individual Capacity. The Trustee acts
hereunder solely as trustee unless otherwise expressly provided; and all
Persons, other than the Noteholders to the extent expressly provided in this
Indenture, having any claim against the Trustee by reason of the transactions
contemplated hereby shall look, subject to the lien and priorities of payment
as herein provided, only to the property of the Issuer for payment or
satisfaction thereof.
Section 6.06. No Compensation from Noteholders. The Trustee agrees that
it shall have no right against the Noteholders or, except as provided in
Article III hereof, the property of the Issuer, for any fee as compensation for
its services hereunder.
<PAGE> 104
Section 6.07. Notice of Defaults. As promptly as practicable after, and
in any event within 30 days after, the occurrence of any Default hereunder, the
Trustee shall transmit by mail to the Issuer and the Noteholders holding Notes
of the related subclass in accordance with Section 313(c) of the TIA, notice of
such Default hereunder actually known to a Responsible Officer of the Trustee,
unless such Default shall have been cured or waived; provided, however, that,
except in the case of a Default on the payment of the interest, principal, or
Premium, if any, on any Note, the Trustee shall be fully protected in
withholding such notice if and so long as a trust committee of Responsible
Officers of the Trustee in good faith determines that the withholding of such
notice is in the interests of the Noteholders of the related class.
Section 6.08. May Hold Notes. The Trustee, any Paying Agent, the
Registrar or any of their affiliates or any other agent in their respective
individual or any other capacity, may become the owner or pledgee of Notes and,
subject to Sections 310(b) and 311 of the Trust Indenture Act, may otherwise
deal with the Issuer with the same rights it would have if it were not Trustee,
Paying Agent, Registrar or such other agent.
Section 6.09. Corporate Trustee Required; Eligibility. There shall at
all times be a Trustee which shall be eligible to act as a trustee under
Section 310(a) of the Trust Indenture Act and shall meet the Eligibility
Requirements. If such corporation publishes reports of conditions at least
annually, pursuant to law or to the requirements of federal, state, territorial
or District of Columbia supervising or examining authority, then for the
purposes of this Section 6.09, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of conditions so published.
In case at any time the Trustee shall cease to be eligible in accordance
with the provisions of this Section 6.09 to act as Trustee, the Trustee shall
resign immediately as Trustee in the manner and with the effect specified in
Section 7.01 hereof.
Section 6.10. Reports by Trustee. Within 60 days after February 28 of
each year commencing with the first full year following the issuance of any
subclass of Notes, the Trustee shall transmit to the Noteholders of each
subclass, as provided in Section 313(c) of the TIA, a brief report describing,
among other things, any changes in eligibility and qualifications of the
Trustee and any issuance of Additional Notes, if required by Section 313(a) of
the TIA.
Section 6.11. Reports by the Issuer. The Issuer shall:
(a) file with the Trustee, within 30 days after the Issuer is
required to file the same with the Commission, copies of the annual reports
and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may from time to time by
rules and regulations prescribe) which the Issuer is required to file with
the Commission pursuant to section 13 or section 15(d) of the Exchange Act;
or, if the Issuer is not required to file information, documents or reports
pursuant to either of such sections, then to file with the Trustee all
Monthly Reports, Quarterly Reports and Annual Reports;
<PAGE> 105
(b) file with the Trustee and the Commission, in accordance with the
rules and regulations prescribed by the Commission, such additional
information, documents and reports with respect to compliance by the
Issuer with the conditions and covenants provided for in this Indenture,
as may be required by such rules and regulations, including, in the case
of annual reports, if required by such rules and regulations,
certificates or opinions of independent public accountants;
(c) transmit to all Noteholders, in the manner and to the extent
provided in Section 313(c) of the Trust Indenture Act such summaries of
any information, documents and reports required to be filed by the Issuer
pursuant to subsections (a) and (b) of this Section 6.11 as may be
required by rules and regulations prescribed by the Commission; and
(d) furnish to the Trustee, within 120 days after the end of each
fiscal year, a brief certificate from the principal executive officer,
principal accounting officer or principal financial officer of the
Administrative Agent, as applicable, as to his or her knowledge of the
Issuer's compliance with all conditions and covenants under this
Indenture (it being understood that for purposes of this paragraph (d),
such compliance shall be determined without regard to any period of grace
or requirement of notice provided under this Indenture).
ARTICLE VII
SUCCESSOR TRUSTEES
Section 7.01. Resignation and Removal of Trustee. The Trustee may resign
as to all or any of the subclasses of the Notes at any time without cause by
giving at least 90 days' prior written notice to the Issuer, the Cash Manager,
the Administrative Agent and the Holders. Holders of a majority of the
Outstanding Principal Balance of any subclass of the Notes may at any time
remove the Trustee as to such subclass without cause by an instrument in
writing delivered to the Issuer, the Cash Manager, the Administrative Agent,
the Security Trustee, the Senior Trustee and the Trustee being removed. In
addition, the Issuer may remove the Trustee as to any of the subclasses of the
Notes if: (i) such Trustee fails to comply with Section 310 of the TIA after
written request therefor by the Issuer or the Noteholder of the related
subclass who has been a bona fide Noteholder for at least six months, (ii) such
Trustee fails to comply with Section 7.02(c) hereof, (iii) such Trustee is
adjudged a bankrupt or an insolvent, (iv) a receiver or public officer takes
charge of such Trustee or its property or (v) such Trustee becomes incapable of
acting. References to the Trustee in this Indenture include any successor
Trustee as to all or any of the subclasses of the Notes appointed in accordance
with this Article VII.
Section 7.02. Appointment of Successor. (a) In the case of the
resignation or removal of the Trustee as to any subclass of the Notes under
Section 7.01 hereof, the Issuer shall promptly appoint a successor Trustee as
to such subclass; provided that a majority of the Outstanding Principal Balance
of such subclass of the Notes may appoint, within one year
<PAGE> 106
after such resignation or removal, a successor Trustee as to such subclass
which may be other than the successor Trustee appointed by the Issuer, and such
successor Trustee appointed by the Issuer shall be superseded by the successor
Trustee so appointed by the Noteholders. If a successor Trustee as to any
subclass of the Notes shall not have been appointed and accepted its
appointment hereunder within 60 days after the Trustee gives notice of
resignation as to such subclass, the retiring Trustee, the Issuer, the
Administrative Agent, the Cash Manager or a majority of the Outstanding
Principal Balance of such subclass of the Notes may petition any court of
competent jurisdiction for the appointment of a successor Trustee as to such
subclass. Any successor Trustee so appointed by such court shall immediately
and without further act be superseded by any successor Trustee appointed as
provided in the first sentence of this paragraph within one year from the date
of the appointment by such court.
(b) Any successor Trustee as to any subclass of the Notes, however
appointed, shall execute and deliver to the Issuer, the Cash Manager, the
Administrative Agent and the predecessor Trustee as to such subclass an
instrument accepting such appointment, and thereupon such successor Trustee,
without further act, shall become vested with all the estates, properties,
rights, powers, duties and trusts of such predecessor Trustee hereunder in the
trusts hereunder applicable to it with like effect as if originally named the
Trustee as to such subclass herein; provided that, upon the written request of
such successor Trustee, such predecessor Trustee shall, upon payment of all
amounts due and owing to it, execute and deliver an instrument transferring to
such successor Trustee, upon the trusts herein expressed applicable to it, all
the estates, properties, rights, powers and trusts of such predecessor Trustee,
and such predecessor Trustee shall duly assign, transfer, deliver and pay over
to such successor Trustee all moneys or other property then held by such
predecessor Trustee hereunder solely for the benefit of such subclass of the
Notes.
(c) If a successor Trustee is appointed with respect to one or more (but
not all) subclasses of the Notes, the Issuer, the predecessor Trustee and each
successor Trustee with respect to each subclass of Notes shall execute and
deliver an indenture supplemental hereto which shall contain such provisions as
shall be deemed necessary or desirable to confirm that all the rights, powers,
trusts and duties of the predecessor Trustee with respect to the subclasses of
Notes as to which the predecessor Trustee is not retiring shall continue to be
vested in the predecessor Trustee, and shall add to or change any of the
provisions of this Indenture as shall be necessary to provide for or facilitate
the administration of the Notes hereunder by more than one Trustee.
(d) Each Trustee shall be an Eligible Institution and shall meet the
Eligibility Requirements, if there be such an institution willing, able and
legally qualified to perform the duties of a Trustee hereunder; provided that
the Rating Agencies shall receive notice of any replacement Trustee.
(e) Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any corporation to which substantially all the business of the Trustee may be
transferred, shall, subject to the terms of paragraph (c) of this Section, be
the Trustee under this Indenture without further act.
<PAGE> 107
ARTICLE VIII
INDEMNITY
Section 8.01. Indemnity. The Issuer shall indemnify the Trustee (and its
officers, directors, employees and agents) for, and hold it harmless against,
any loss, liability or expense incurred by it without negligence or bad faith
on its part in connection with the acceptance or administration of this
Indenture and its duties under this Indenture and the Notes, including the
costs and expenses of defending itself against any claim or liability and of
complying with any process served upon it or any of its officers in connection
with the exercise or performance of any of its powers or duties and hold it
harmless against, any loss, liability or reasonable expense incurred without
negligence or bad faith on its part, arising out of or in connection with
actions taken or omitted to be taken in reliance on any Officer's Certificate
furnished hereunder, or the failure to furnish any such Officers' Certificate
required to be furnished hereunder. The Trustee shall notify the Issuer and
the Rating Agencies promptly of any claim asserted against the Trustee for
which it may seek indemnity; provided, however, that failure to provide such
notice shall not invalidate any right to indemnity hereunder. The Issuer shall
defend the claim and the Trustee shall cooperate in the defense. The Trustee
may have separate counsel and the Issuer shall pay reasonable fees and expenses
of such counsel. The Issuer need not pay for any settlements made without its
consent; provided that such consent shall not be unreasonably withheld. The
Issuer need not reimburse any expense or indemnity against any loss or
liability incurred by the Trustee through negligence or bad faith.
Section 8.02. Noteholders' Indemnity. The Trustee shall be entitled,
subject to such Trustee's duty during a default to act with the required
standard of care, to be indemnified by the Holders of any subclass of the Notes
before proceeding to exercise any right or power under this Indenture or the
Cash Management Agreement at the request or direction of such Holders.
The provisions of Sections 8.01 and 8.02 hereof shall survive the
termination of this Indenture or the earlier resignation or removal of the
Trustee.
ARTICLE IX
MODIFICATION
Section 9.01. Modification with Consent of Holders. With the consent of
Holders of a majority of the Outstanding Principal Balance of the Notes on the
date of any vote of such Holders (voting as a single class), the Issuer, when
authorized by resolution of the Board, may amend or modify this Indenture or
the Notes; provided that, without the consent of each Swap Provider and each
Holder of any Notes affected thereby, no such amendment may modify the
provisions of this Indenture or the Notes setting forth the frequency or the
currency of payment of, the maturity of, or the method of calculation of the
amount of, any interest, principal and Premium, if any, payable in respect of
any subclass of
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Notes, or reduce the percentage of the aggregate Outstanding Principal Balance
of any subclass of Notes required to approve any amendment or waiver of this
Section 9.01 or alter the manner or priority of payment of such subclass of
Notes (each, a "Basic Terms Modification").
It shall not be necessary for the consent of the Holders under this
Section 9.01 to approve the particular form of any proposed amendment or
waiver, but it shall be sufficient if such consent approves the substance
thereof. Any such modification approved by the required Holders of any class
or subclass of Notes will be binding on the Holders of the relevant class or
subclass of Notes and each party to the Indenture.
The Issuer shall give each Rating Agency prior notice of any amendment
under this Section 9.01 and any amendments of the constitutive documents by the
Issuer or any Issuer Subsidiaries, and, after an amendment under this Section
9.01 becomes effective, the Issuer shall mail to the Holders and the Rating
Agencies a notice briefly describing such amendment. Any failure of the Issuer
to mail such notice, or any defect therein, shall not, however, in any way
impair or affect the validity of any such amendment.
After an amendment under this Section 9.01 becomes effective, it shall
bind every Holder, whether or not notation thereof is made on any Note held by
such Holder.
Section 9.02. Modification Without Consent of Holders. Subject to
Section 9.01 hereof, the Trustee may agree, without the consent of any
Noteholder, (a) to any modification (other than a Basic Terms Modification) of,
or the waiver or authorization of any breach or prospective breach of, any
provision of any Related Document or of the relevant Notes to correct a
manifest error or an error which is of a formal, minor or technical nature, (b)
to modify the provisions of this Indenture or the Administrative Agency
Agreement relating to the timing of movement of Rental Payments or other monies
received or Expenses incurred among the Accounts by the Administrative Agent or
(c) to comply with the requirements of the Commission in connection with the
qualification of this Indenture under the TIA. Any such modification shall be
notified to the Holders as soon as practicable thereafter and shall be binding
on all the Holders.
Section 9.03. Subordination and Priority of Payments. The subordination
provisions contained in Section 3.08, Section 3.09 and Article X hereof may not
be amended or modified without the consent of each Swap Provider, each provider
of a Credit Facility, each Noteholder of the subclass affected thereby and each
Noteholder of any subclass of Notes ranking senior thereto. In no event shall
the provisions set forth in Section 3.08 relating to the priority of the
Expenses, Swap Payments and payments under all Credit Facilities be amended or
modified.
Section 9.04. Execution of Amendments by Trustee. In executing, or
accepting the additional trusts created by, any amendment or modification to
this Indenture permitted by this Article or the modifications thereby of the
trusts created by this Indenture, the Trustee shall be entitled to receive, and
shall be fully protected in relying upon, an Officer's Certificate and an
Opinion of Counsel stating that the execution of such amendment
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is authorized or permitted by this Indenture. The Trustee may, but shall not
be obligated to, enter into any such amendment
which affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise.
Section 9.05. Swap Providers. (a) The Issuer may enter into one or more
Swap Agreements from time to time; provided, that counterparties to all Swap
Agreements shall be subject to the prior approval of the Controlling Trustees
and shall have credit ratings or provide collateralization arrangements
consistent with maintaining the ratings of the Notes.
(b) Notification to Trustee. The Issuer shall promptly notify the Trustee
in writing of the execution of any Swap Agreement or Swap Guarantee.
(c) Third Party Beneficiary. Each Swap Provider and each provider of a
Credit Facility shall be a third party beneficiary of Sections 3.08 and 9.03
hereof.
Section 9.06. Conformity with Trust Indenture Act. Every indenture
supplemental hereto pursuant to this Article IX shall conform to the
requirements of the TIA as then in effect.
ARTICLE X
SUBORDINATION
Section 10.01. Subordination of the Notes. (a) Each of the Issuer and
the Trustee (on behalf of the Holders of each class of Notes) covenants and
agrees, and each Holder, by its acceptance of a Note, covenants and agrees,
that the Notes of each class will be issued subject to the provisions of this
Article X; and each Holder, by its acceptance of a Note, agrees that all
amounts payable on any Note will, to the extent and in the manner set forth in
this Article X, Section 3.08 and , if applicable, Section 3.09 hereof, be
subordinated in right of payment to the prior payment in full of all Expenses
payable to the Service Providers pursuant to this Indenture and the Related
Documents. In addition, each Holder, by its acceptance of a Note, agrees that
(i) all amounts payable on any Class A Note will, to the extent and in the
manner set forth in this Article X and Section 3.08 hereof, be subordinated in
right of payment to all payments under any Primary Eligible Credit Facilities;
(ii) all amounts payable on any Class B Note will, to the extent and in the
manner set forth in this Article X and Section 3.08 hereof, be subordinated in
right of payment to all payments under any Primary Eligible Credit Facilities,
the payment in full of the Class A Notes and all Swap Payments (other than
Subordinated Swap Payments) payable to any Swap Provider pursuant to any Swap
Agreement; (iii) all amounts payable on any Class C Note will, to the extent
and in the manner set forth in this Article X and Section 3.08 hereof, be
subordinated in right of payment to all payments under any Primary Eligible
Credit Facilities, the payment in full of the Class A Notes, all Swap Payments
(other than Subordinated Swap Payments) payable to any Swap Provider pursuant
to any Swap Agreement and the Class B Notes and (iv) all amounts payable on any
Class D Note will, to the extent and in the manner set forth in this Article X
and Section 3.08, be subordinated in right of payment to the payment in full to
all payments under any Primary Eligible Credit Facilities, the payment in full
of the Class A
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Notes, all Swap Payments (other than Subordinated Swap Payments) payable to any
Swap Provider pursuant to any Swap Agreement, the Class B Notes and the Class C
Notes. Any claim to payment so stated to be subordinated is referred to as a
"Subordinated Claim"; each claim to payment to which another claim to payment
is a Subordinated Claim is referred to as a "Senior Claim" with respect to such
Subordinated Claim.
(b) If prior to the payment in full of all Senior Claims then due and
payable, the Trustee or any Holder of a Subordinated Claim shall have received
any payment or distribution in respect of such Subordinated Claim in excess of
the amount to which such Holder was then entitled under Section 3.08 hereof,
then such payment or distribution shall be received and held in trust by such
Person and paid over or delivered to the Trustee for application as provided in
such Section 3.08.
(c) If any Service Provider, the Trustee or Holder of any Senior Claim
receives any payment in respect of any Senior Claim which is subsequently
invalidated, declared preferential, set aside and/or required to be repaid to a
trustee, receiver or other party, then, to the extent such payment is so
invalidated, declared preferential, set aside and/or required to be repaid,
such Senior Claim shall be revived and continue in full force and effect, and
shall be entitled to the benefits of this Article X, all as if such payment had
not been received.
(d) Subject to Section 10.01(i) below, the Trustee (on its own behalf and
on behalf of the Holders) and the Issuer each confirm that the payment
priorities specified in Section 3.08 hereof shall apply in all circumstances.
(e) Each Holder, by its acceptance of a Note, authorizes and expressly
directs the Trustee on its behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article X, and
appoints the Trustee its attorney-in-fact for such purposes, including, in the
event of any dissolution, winding up, liquidation or reorganization of the
Issuer (whether in bankruptcy, insolvency, receivership, reorganization or
similar proceedings or upon an assignment for the benefit of creditors or
otherwise) any actions tending towards liquidation of the property and assets
of the Issuer or the filing of a claim for the unpaid balance of its Notes in
the form required in those proceedings.
(f) If payment on the MSAF Group Notes is accelerated as a result of an
Event of Default, the Issuer shall promptly notify the holders of the Senior
Claims of such acceleration.
(g) After all Senior Claims are paid in full and until the Subordinated
Claims are paid in full, the holders of Subordinated Claims shall be subrogated
to the rights of holders of Senior Claims to receive payments applicable to
Senior Claims. A payment made under this Article X to holders of Senior Claims
which otherwise would have been made to the holders of Subordinated Claims is
not, as between the Issuer and the holders of Subordinated Claims, a payment by
the Issuer.
(h) No right of any holder of any Senior Claim to enforce the
<PAGE> 111
subordination of any Subordinated Claim shall be impaired by an act or failure
to act by the Issuer or the Trustee or by any failure by either the Issuer or
the Trustee to comply with this Indenture.
(i) Notwithstanding anything contained herein to the contrary, payments
from property (or proceeds thereof) deposited in the Defeasance/Redemption
Account pursuant to Article XI, which property shall be for the benefit of the
applicable Holders, shall not be subordinated to the prior payment of any
Senior Claims or subject to the restrictions set forth in this Article X,
Section 3.08 and Section 3.09 hereof, and none of the Holders shall be
obligated to pay over any payments from any such property to the Trustee or any
holder of Senior Claims or any other creditor of the Issuer or any Issuer
Subsidiary.
(j) Each Holder by accepting a Note acknowledges and agrees that the
foregoing subordination provisions are, and are intended to be, an inducement
and a consideration to each holder of any Senior Claim, whether such Senior
Claim was created or acquired before or after the issuance of such Holder's
claim, to acquire and continue to hold such Senior Claim and such holder of any
Senior Claim shall be deemed conclusively to have relied on such subordination
provisions in acquiring and continuing to hold such Senior Claim.
ARTICLE XI
DISCHARGE OF INDENTURE; DEFEASANCE
Section 11.01. Discharge of Liability on the Notes; Defeasance. (a)
When (i) the Issuer delivers to the Trustee all Outstanding Notes (other than
Notes replaced pursuant to Section 2.08 hereof) for cancellation or (ii) all
Outstanding Notes have become due and payable, whether at maturity or as a
result of the mailing of a notice of redemption pursuant to Section 3.10(c)
hereof and the Issuer irrevocably deposits in the Defeasance/Redemption Account
funds sufficient to pay at maturity or upon redemption all Outstanding Notes,
including interest thereon to maturity or the Redemption Date (other than Notes
replaced pursuant to Section 2.08), and if in either case the Issuer pays all
other sums payable hereunder by the Issuer, then this Indenture shall, subject
to Section 11.01(c), cease to be of further effect. The Trustee shall
acknowledge satisfaction and discharge of this Indenture on demand of the
Issuer accompanied by an Officers' Certificate and an opinion of counsel, at
the cost and expense of the Issuer, to the effect that any conditions precedent
to a discharge of this Indenture have been met.
(b) Subject to Sections 11.01(c) and 11.02, the Issuer at any time may
terminate (i) all its obligations under the Notes or any class or subclass of
Notes and this Indenture ("legal defeasance" option) or (ii) its obligations
under Sections 5.02, 5.03 and 4.01 (other than with respect to a failure to
comply with Sections 4.01(a)), 4.01(b), 4.01(c), 4.01(f) (only with respect to
the Issuer) and 4.01(g) (only with respect to the Issuer) ("covenant
defeasance" option); provided that no "legal defeasance" option or "covenant
defeasance" option may be exercised unless such option is exercised
contemporaneously by a Guarantor with respect to all Outstanding Guarantor
Additional Notes. The Issuer may exercise its legal
<PAGE> 112
defeasance option notwithstanding its prior exercise of its covenant defeasance
option.
If the Issuer exercises its legal defeasance option, payment of any Notes
subject to such legal defeasance may not be accelerated because of an Event of
Default. If the Issuer exercises its covenant defeasance option, payment of
the Notes may not be accelerated because of an Event of Default (other than
with respect to a failure to comply with Section 5.02(n)), 4.01(a), 4.01(b),
4.01(c), 4.01(f) (other than with respect to the Issuer) and 4.01(g) (other
than with respect to the Issuer).
Upon satisfaction of the conditions set forth herein and upon request of
the Issuer, the Trustee shall acknowledge in writing the discharge of those
obligations that the Issuer terminates.
(c) Notwithstanding clauses (a) and (b) above, the Issuer's obligations in
Sections 2.01, 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 2.09, 5.02(n), Article
VI, Sections 8.01, 11.04, 11.05 and 11.06 shall survive until all the Notes
have been paid in full. Thereafter, the Issuer's obligations in Sections 8.01,
11.04 and 11.05 shall survive.
Section 11.02. Conditions to Defeasance. The Issuer may exercise its
legal defeasance option or its covenant defeasance option only if:
(1) the Issuer irrevocably deposits in trust in the
Defeasance/Redemption Account any one or any combination of (A) money,
(B) obligations of, and supported by the full faith and credit of, the
U.S. Government ("U.S. Government Obligations") or (C) obligations of
corporate issuers ("Corporate Obligations") (provided that any such
Corporate Obligations are rated AA+, or the equivalent, or higher, by the
Rating Agencies at such time and shall not have a maturity of longer than
three years from the date of defeasance) for the payment of all
principal, Premium, if any, and interest (i) on the Notes or any class or
subclass of Notes being defeased, in the case of legal defeasance, or
(ii) on all of the Notes in the case of covenant defeasance, in either
case, to maturity or redemption, as the case may be;
(2) the Issuer delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing their
opinion that the payments of principal and interest when due and without
reinvestment on the deposited U.S. Government Obligations or the
Corporate Obligations plus any deposited money without investment will
provide cash at such times and in such amounts as will be sufficient to
pay principal and interest when due (i) on the Notes or any class or
subclass of Notes being defeased, in the case of legal defeasance, or
(ii) on all of the Notes in the case of covenant defeasance, in either
case, to maturity or redemption, as the case may be;
(3) 91 days pass after the deposit described in clause (1) above is
made and during the 91-day period no Event of Default specified in
Section 4.01(f) or (g) with respect to the Issuer occurs which is
continuing at the end of the period;
<PAGE> 113
(4) the deposit described in clause (1) above does not constitute a
default under any other agreement binding on the Issuer;
(5) the Issuer delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit described in clause (1)
does not constitute, or is qualified as, a regulated investment company
under the Investment Company Act of 1940, as amended;
(6) in the case of the legal defeasance option, the Issuer shall
have delivered to the Trustee an Opinion of Counsel stating that (i) the
Issuer has received from, or there has been published by, the U.S.
Internal Revenue Service a ruling, or (ii) since the date of this
Indenture there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the Noteholders will not recognize income,
gain or loss for U.S. federal income tax purposes as a result of such
legal defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such legal defeasance had not occurred;
(7) in the case of the covenant defeasance option, the Issuer shall
have delivered to the Trustee an Opinion of Counsel to the effect that
the Noteholders will not recognize income, gain or loss for U.S. federal
income tax purposes as a result of such covenant defeasance and will be
subject to U.S. federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such covenant
defeasance had not occurred;
(8) if the related Notes are then listed on any securities exchange,
the Issuer delivers to the Trustee an Opinion of Counsel to the effect
that such deposit, defeasance and discharge will not cause such Notes to
be delisted;
(9) the Issuer has obtained a Rating Agency Confirmation relating to
the defeasance contemplated by this Section 11.02; and
(10) the Issuer delivers to the Trustee an Officer's Certificate and
an Opinion of Counsel, each stating that all conditions precedent to the
defeasance and discharge of the Notes as contemplated by this Article XI
have been complied with.
Section 11.03. Application of Trust Money. The Trustee shall hold in
trust in the Defeasance/Redemption Account money, U.S. Government Obligations
or Corporate Obligations deposited with it pursuant to this Article XI. It
shall apply the deposited money and the money from U.S. Government Obligations
or Corporate Obligations in accordance with this Indenture to the payment of
principal, Premium, if any, and interest on the class or subclass of Notes.
Money and securities so held in trust are not subject to Article X hereof.
Section 11.04. Repayment to Issuer. The Trustee shall promptly turn over
to the Issuer upon request any excess money or securities held by it at any
time.
Subject to any applicable abandoned property law, the Trustee shall pay to
the Issuer upon request any money held by it for the payment of principal or
interest that remains
<PAGE> 114
unclaimed for two years and, thereafter, Noteholders entitled to the money must
look to the Issuer for payment as general creditors.
Section 11.05. Indemnity for Government Obligations and Corporate
Obligations. The Issuer shall pay and shall indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against deposited U.S.
Government Obligations or Corporate Obligations, or the principal and interest
received on such U.S. Government Obligations or Corporate Obligations.
Section 11.06. Reinstatement. If the Trustee is unable to apply any
money or U.S. Government Obligations or Corporate Obligations in accordance
with this Article XI by reason of any legal proceeding or by reason of any
order or judgment of any court or governmental authority enjoining, restraining
or otherwise prohibiting such application, the Issuer's obligations under this
Indenture and the Notes shall be revived and reinstated as though no deposit
had occurred pursuant to this Article XI until such time as the Trustee is
permitted to apply all such money, U.S. Government Obligations or Corporate
Obligations in accordance with this Article XI; provided, however, that, if the
Issuer has made any payment of interest on or principal of any Notes because of
the reinstatement of its obligations, the Issuer shall be subrogated to the
rights of the Holders of such Notes to receive such payment from the money,
U.S. Government Obligations or Corporate Obligations held by the Trustee.
ARTICLE XII
GUARANTEE
Section 12.01. Guarantee. Subject to Section 12.02 hereof,
(a) the Issuer hereby fully and unconditionally guarantees to each holder
of any Guarantor Notes and to each Guarantor Trustee on behalf of any such
holder, in each case: (A) the due and punctual payment of principal, accrued
and unpaid interest and Premium (as defined in the Guarantor Indenture pursuant
to which such Guarantor Notes have been issued), if any, on such Guarantor
Notes, when and as the same shall become due and payable, whether at the
applicable Final Maturity Date (as defined in such Guarantor Indenture) of such
Guarantor Notes, by acceleration or otherwise, the due and punctual payment of
interest on any overdue principal, to the extent lawful, and the due and
punctual performance of all other obligations of the Guarantor to the holders
of such Guarantor Notes or under such Guarantor Indenture, and (B) in the case
of any extension of time of payment or renewal of such Guarantor Notes or any
of such other obligations, that the same shall be promptly paid in full when
due or otherwise. The liability of the Issuer under this Guarantee is limited
to the maximum amount that will result in the obligations of the Issuer not
constituting a fraudulent conveyance or fraudulent transfer under applicable
law;
(b) the Issuer hereby waives diligence, presentment, filing of claims with
a court in the event of merger or bankruptcy of the Guarantor, any right to
acquire a proceeding first against the Guarantor, the benefit of discussion,
protest or notice with respect to any Guarantor Note of any subclass or the
debt evidenced thereby and all demands
<PAGE> 115
whatsoever (except as specified above), and covenants that this Guarantee shall
not be discharged as to any such Guarantor Note except by payment in full of
the principal, accrued and unpaid interest and Premium, if any, thereon. The
maturity of the obligations guaranteed hereby may be accelerated as provided in
Article IV of the Guarantor Indenture for the purposes of this Guarantee. In
the event of any declaration of acceleration of such obligations as provided in
Article IV of such Guarantor Indenture, such obligations (whether or not due
and payable) shall forthwith become due and payable by the Issuer for the
purpose of this Guarantee. In addition, without limiting the foregoing
provisions, upon the effectiveness of an acceleration under Article IV of such
Guarantor Indenture, the Guarantor Trustee shall be entitled to make a demand
for payment on such Guarantor Notes under this Guarantee;
(c) the Issuer hereby waives any claim or other rights which it may now or
hereafter acquire against the Guarantor that arise from the existence, payment,
performance or enforcement of the Issuer's obligations under such Guarantor
Indenture, including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution, indemnification, any right to
participate in any claim or remedy of the holder of any Guarantor Note against
the Guarantor, whether or not such claim, remedy or right arises in equity, or
under contract, statute or common law, including, without limitation, the right
to take or receive from the Guarantor, directly or indirectly, in cash or other
property or in any other manner, payment or security on account of such claim
or other rights, until all of the Issuer's obligations under the Guarantor
Indenture have been satisfied. If any payment shall be paid to the Issuer in
violation of the preceding sentence and the principal, accrued interest and
Premium, if any, on any Guarantor Notes shall not have been paid in full, such
amount shall be deemed to have been paid to the Issuer for the benefit of, and
held in trust for the benefit of, the holders of such Guarantor Notes, and
shall forthwith be paid to the Guarantor Trustee for the benefit of such
holders to be credited and applied upon the principal, accrued interest and
Premium, if any, on such Guarantor Notes;
(d) the Issuer hereby agrees that this Guarantee shall continue to be
effective or be reinstated, as the case may be, if at any time, payment, or any
part thereof, of any obligations guaranteed or interest thereon is rescinded or
must otherwise be restored by a holder to the Guarantor upon the bankruptcy or
insolvency of the Guarantor or the Issuer or otherwise; and
(e) the Issuer hereby agrees that its obligations under this Guarantee
shall be irrevocable and unconditional, irrespective of the validity,
regularity or enforceability of the Guarantor Notes against the Guarantor, the
absence of any action to enforce the Guarantor's obligations under the
Guarantor Notes, any waiver or consent by a holder with respect to any
provisions thereof, any amendment to the terms under which the Guarantor Notes
are issued, any release of collateral related to the Guarantor Notes, the
bankruptcy of the Guarantor or any circumstance which might otherwise
constitute a legal or equitable discharge or defense of a guarantor; provided,
however, that the Issuer shall be entitled to exercise any right that the
Guarantor could have exercised under the Guarantor Indenture to cure any
default in respect of its obligations under the Guarantor Indenture or the
Guarantor Notes, if any, but only to the extent such right, if any, is provided
to the Guarantor under such Guarantor Indenture or the Guarantor Notes.
<PAGE> 116
Section 12.02. Conditions to Effectiveness of Guarantee. The Guarantee
set forth in Section 12.01 shall become valid and effective only upon the
fulfillment of each of the following conditions:
(i) the Guarantor shall have entered into an indenture, the terms of
which (including the covenants and other obligations of such Guarantor
thereunder) are substantially identical to those of this Indenture (the
"Guarantor Indenture" and the notes issued thereunder, the "Guarantor
Additional Notes");
(ii) the Guarantor shall have entered into all related documents,
the terms of which are substantially similar to those of the
corresponding Related Documents (including cross-collateralizing the
Notes by naming the Noteholders as secured parties to any security
agreements);
(iii) all amounts received by such Guarantor or any Guarantor
Subsidiary pursuant to any Lease or MSAF Group Related Collateral
Document shall have been deposited into the Collections Account;
(iv) the certificate of authentication on the Guarantor Additional
Notes shall have been signed by or on behalf of the Guarantor Trustee;
and
(v) the Issuer shall have received Rating Agency Confirmation prior
to the issuance of the Guarantor Additional Notes.
Section 12.03. Ranking and Subordination of the Guarantees. The
Guarantee of the Guarantor Class A Additional Notes (the "Guarantor Class A
Additional Note Guarantee") shall rank pari passu with the Issuer's obligation
to make payments on or otherwise perform in accordance with the terms of the
Class A Notes and shall rank senior to its obligation to make payments on or
otherwise perform in accordance with the terms of the Class B Notes, its
Guarantee of the Guarantor Class B Additional Notes (the "Guarantor Class B
Additional Note Guarantee"), the Class C Notes, its Guarantee of the Guarantor
Class C Additional Notes (the "Guarantor Class C Additional Note Guarantee"),
the Class D Notes and its Guarantee of the Guarantor Class D Additional Notes
(the "Guarantor Class D Additional Note Guarantee"). The Guarantor Class B
Additional Note Guarantee shall rank junior to the Issuer's obligation to make
payments on or otherwise perform in accordance with the terms of the Class A
Notes and the Guarantor Class A Additional Note Guarantee, shall rank pari
passu with its obligation to make payments on or otherwise perform in
accordance with the terms of the Class B Notes and shall rank senior to its
obligation to make payments on or otherwise perform in accordance with the
terms of the Class C Notes, the Guarantor Class C Additional Note Guarantee,
the Class D Notes and the Guarantor Class D Additional Note Guarantee. The
Guarantor Class C Additional Note Guarantee shall rank junior to the Issuer's
obligation to make payments on or otherwise perform in accordance with the
terms of the Class A Notes, the Guarantor Class A Additional Note Guarantee,
the Class B Notes and the Guarantor Class B Additional Note Guarantee, shall
rank pari passu with its obligation to make payments on or otherwise perform in
accordance with the terms of the Class C Notes and shall rank senior to its
obligation to make payments on or otherwise
<PAGE> 117
perform in accordance with the terms of the Class D Notes and the Guarantor
Class D Additional Note Guarantee. The Guarantor Class D Additional Note
Guarantee shall rank junior to the Issuer's obligation to make payments on or
otherwise perform in accordance with the terms of the Class A Notes, the
Guarantor Class A Additional Note Guarantee, the Class B Notes, the Guarantor
Class B Additional Note Guarantee, the Class C Notes and the Guarantor Class C
Additional Note Guarantee, shall rank pari passu with its obligation to make
payments on or otherwise perform in accordance with the terms of the Class D
Notes.
ARTICLE XIII
MISCELLANEOUS
Section 13.01. Right of Trustee to Perform. If the Issuer for any reason
fails to observe or punctually to perform any of its obligations to the
Trustee, whether under this Indenture or any of the other Related Documents or
otherwise, the Trustee shall have power (but shall have no obligation), on
behalf of or in the name of the Issuer or otherwise, to perform such
obligations and to take any steps which the Trustee may, in its absolute
discretion, consider appropriate with a view to remedying, or mitigating the
consequences of, such failure by the Issuer; provided that no exercise or
failure to exercise this power by the Trustee shall in any way prejudice the
Trustee's other rights under this Indenture or any of the other Related
Documents.
Section 13.02. Waiver. Any waiver by any party of any provision of this
Indenture or any right, remedy or option hereunder shall only prevent and estop
such party from thereafter enforcing such provision, right, remedy or option if
such waiver is given in writing and only as to the specific instance and for
the specific purpose for which such waiver was given. The failure or refusal
of any party hereto to insist in any one or more instances, or in a course of
dealing, upon the strict performance of any of the terms or provisions of this
Indenture by any party hereto or the partial exercise of any right, remedy or
option hereunder shall not be construed as a waiver or relinquishment of any
such term or provision, but the same shall continue in full force and effect.
No failure on the part of the Trustee to exercise, and no delay on its part in
exercising, any right or remedy under this Indenture will operate as a waiver
thereof, nor will any single or partial exercise of any right or remedy
preclude any other or further exercise thereof or the exercise of any other
right or remedy. The rights and remedies provided in this Indenture are
cumulative and not exclusive of any rights or remedies provided by law.
Section 13.03. Severability. In the event that any provision of this
Indenture or the application thereof to any party hereto or to any circumstance
or in any jurisdiction governing this Indenture shall, to any extent, be
invalid or unenforceable under any applicable statute, regulation or rule of
law, then such provision shall be deemed inoperative to the extent that it is
invalid or unenforceable and the remainder of this Indenture, and the
application of any such invalid or unenforceable provision to the parties,
jurisdictions or circumstances other than to whom or to which it is held
invalid or unenforceable, shall not be affected thereby nor shall the same
affect the validity or enforceability of this Indenture. The parties hereto
further agree that the holding by any court of competent jurisdiction that any
<PAGE> 118
remedy pursued by the Trustee hereunder is unavailable or unenforceable shall
not affect in any way the ability of the Trustee to pursue any other remedy
available to it.
Section 13.04. Restrictions on Exercise of Certain Rights. The Trustee
and, during the continuance of a payment Default with respect to the Senior
Class of Notes, the Senior Trustee, in its capacity as trustee of such class
and except as otherwise provided in Section 4.04, may sue for recovery or take
any other steps for the purpose of recovering any of the obligations hereunder
or any other debts or liabilities whatsoever owing to it by the Issuer. Each
of the Noteholders shall at all times be deemed to have agreed by virtue of the
acceptance of the Notes that only the Trustee and, during the continuance of a
payment Default with respect to the Senior Class of Notes, the Senior Trustee,
in its capacity as trustee of such class and except as provided in Section
4.04, may take any steps for the purpose of procuring the appointment of an
administrative receiver, examiner, receiver or similar officer or the making of
an administration order or for instituting any bankruptcy, reorganization,
arrangement, insolvency, winding up, liquidation, composition, examination or
any like proceedings under the laws of Delaware.
Section 13.05. Notices. All notices, demands, certificates, requests,
directions, instructions and communications hereunder ("Notices") shall be in
writing and shall be effective (a) upon receipt when sent through the mails,
registered or certified mail, return receipt requested, postage prepaid, with
such receipt to be effective the date of delivery indicated on the return
receipt, or (b) one Business Day after delivery to an overnight courier, or (c)
on the date personally delivered to an authorized officer of the party to which
sent, or (d) on the date transmitted by legible telecopier transmission with a
confirmation of receipt, in all cases addressed to the recipient as follows:
if to the Issuer, to:
Morgan Stanley Aircraft Finance
c/o Wilmington Trust Company
1100 North Market Street
Rodney Square North
Wilmington, Delaware 19890
Attention: Corporate Trust Administrator
Facsimile: (+302) 651-8882
and
Morgan Stanley Aircraft Finance
c/o Cabot Aircraft Services Limited
4th Floor
Europa House
Harcourt Street
Dublin 2
Ireland
Attention: Mr. Kieran O'Keefe
Facsimile: (+353-1) 475-4778
<PAGE> 119
with copies to:
Davis Polk & Wardwell
1 Frederick's Place
London
EC2R 8AB
Attention: Mr. Tom Reid
Facsimile: (+44-171) 418-1400
and
Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London
E14 4QA
Attention: Mr. Scott Peterson
Facsimile: (+44-171) 415-4328
if to the Administrative Agent, to:
Cabot Aircraft Services Limited
4th Floor
Europa House
Harcourt Street
Dublin 2
Ireland
Attention: Mr. Kieran O'Keefe
Facsimile: (+353-1) 475-4778
if to the Trustee, the Registrar or the Paying Agent, to:
Bankers Trust Company
Four Albany Street
New York, New York 10006
Attention: Corporate Trust and Agency Group,
Structured Finance Team
Facsimile: (+212) 250-6439
Telephone: (+212) 250-4237
if to the Cash Manager, to:
Bankers Trust Company
Four Albany Street
9th Floor
Mailstop 5091
<PAGE> 120
New York, New York 10006
Attention: F. Jim Della Sala
Facsimile: (+212) 250-3193
for so long as the Notes are listed on the Luxembourg Stock
Exchange, if to the Listing Agent, Luxembourg Paying Agent and Registrar,
to:
Banque Internationale a Luxembourg S.A.
69, route d'Esch
L-1470 Luxembourg
Attention: Sabrina Deisges
Facsimile: (+352) 4590-4227
A copy of each notice given hereunder to any party hereto shall also be given
to each of the other parties hereto. Each party hereto may, by notice given in
accordance herewith to each of the other parties hereto, designate any further
or different address to which subsequent Notices shall be sent.
Section 13.06. Assignments. This Indenture shall be a continuing
obligation of the Issuer and shall (i) be binding upon the Issuer and its
successors and assigns and (ii) inure to the benefit of and be enforceable by
the Trustee, and by its successors, transferees and assigns. The Issuer may
not assign any of its obligations under the Indenture, or delegate any of its
duties hereunder.
Section 13.07. Currency Conversion. (a) If any amount is received or
recovered by the Administrative Agent or the Trustee in respect of this
Indenture or any part thereof (whether as a result of the enforcement of the
security created under the Security Trust Agreement or pursuant to this
Indenture or any judgment or order of any court or in the liquidation or
dissolution of the Issuer or by way of damages for any breach of any obligation
to make any payment under or in respect of the Issuer's obligations hereunder
or any part thereof or otherwise) in a currency (the "Received Currency") other
than the currency in which such amount was expressed to be payable (the "Agreed
Currency"), then the amount in the Received Currency actually received or
recovered by the Trustee shall, to the fullest extent permitted by Applicable
Law, only constitute a discharge to the Issuer to the extent of the amount of
the Agreed Currency which the Administrative Agent or the Trustee was or would
have been able in accordance with its normal procedures to purchase on the date
of actual receipt or recovery (or, if that is not practicable, on the next date
on which it is so practicable), and, if the amount of the Agreed Currency which
the Administrative Agent or Trustee is or would have been so able to purchase
is less than the amount of the Agreed Currency which was originally payable by
the Issuer, the Issuer shall pay to the Administrative Agent such amount as the
Administrative Agent shall determine to be necessary to indemnify the Trustee
against any Loss sustained by it as a result (including the cost of making any
such purchase and any premiums, commissions or other charges paid or incurred
in connection therewith) and so that such indemnity, to the fullest extent
permitted by Applicable Law, (i) shall constitute a separate and independent
obligation of the Issuer distinct from its obligation to discharge the amount
which was originally payable by the
<PAGE> 121
Issuer and (ii) shall give rise to a separate and independent cause of action
and apply irrespective of any indulgence granted by the Administrative Agent or
the Trustee and continue in full force and effect notwithstanding any judgment,
order, claim or proof for a liquidated amount in respect of the amount
originally payable by the Issuer or any judgment or order and no proof or
evidence of any actual loss shall be required.
(b) For the purpose of or pending the discharge of any of the moneys and
liabilities hereby secured the Administrative Agent may convert any moneys
received, recovered or realized by the Administrative Agent under this
Indenture (including the proceeds of any previous conversion under this Section
13.07) from their existing currency of denomination into the currency of
denomination (if different) of such moneys and liabilities and any conversion
from one currency to another for the purposes of any of the foregoing shall be
made at the Trustee's then prevailing spot selling rate at its office by which
such conversion is made. If not otherwise required to be applied in the
Received Currency, the Administrative Agent, acting on behalf of the Security
Trustee, shall promptly convert any moneys in such Received Currency other than
U.S. dollars into U.S. dollars. Each previous reference in this section to a
currency extends to funds of that currency and funds of one currency may be
converted into different funds of the same currency.
Section 13.08. Application to Court. The Security Trustee may at any
time after the service of a Default Notice apply to any court of competent
jurisdiction for an order that the terms of this Indenture be carried into
execution under the direction of such court and for the appointment of a
Receiver of the Collateral or any part thereof and for any other order in
relation to the administration of this Indenture as the Senior Trustee shall
deem fit and it may assent to or approve any application to any court of
competent jurisdiction made at the instigation of any of the Noteholders and
shall be indemnified by the Issuer against all costs, charges and expenses
incurred by it in relation to any such application or proceedings.
Section 13.09. Governing Law. THIS INDENTURE SHALL IN ALL RESPECTS BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.
Section 13.10. Jurisdiction. (a) Each of the parties hereto agrees that
the United States federal and New York State courts located in The City of New
York shall have jurisdiction to hear and determine any suit, action or
proceeding, and to settle any disputes, which may arise out of or in connection
with this Indenture and, for such purposes, submits to the jurisdiction of such
courts. Each of the parties hereto waives any objection which it might now or
hereafter have to the United States federal or New York State courts located in
The City of New York being nominated as the forum to hear and determine any
suit, action or proceeding, and to settle any disputes, which may arise out of
or in connection with this Indenture and agrees not to claim that any such
court is not a convenient or appropriate forum. Each of the parties hereto
agrees that the process by which any suit, action or proceeding is begun may be
served on it by being delivered in connection with any suit, action or
proceeding in The City of New York to the Person named as the process agent of
such party in Exhibit F at the address set out therein or at the principal New
York City office of such process agent, if not the same.
<PAGE> 122
(b) The submission to the jurisdiction of the courts referred to in
Section 13.10(a) shall not (and shall not be construed so as to) limit the
right of the Trustee to take proceedings against the Issuer in any other court
of competent jurisdiction nor shall the taking of proceedings in any one or
more jurisdictions preclude the taking of proceedings in any other
jurisdiction, whether concurrently or not.
(c) Each of the parties hereto hereby consents generally in respect of any
legal action or proceeding arising out of or in connection with this Indenture
to the giving of any relief or the issue of any process in connection with such
action or proceeding, including the making, enforcement or execution against
any property whatsoever (irrespective of its use or intended use) of any order
or judgment which may be made or given in such action or proceeding.
<PAGE> 123
Section 13.11. Counterparts. This Indenture may be executed in two or
more counterparts by the parties hereto, and each such counterpart shall be
considered an original and all such counterparts shall constitute one and the
same instrument.
Section 13.12. Table of Contents, Headings, Etc. The Table of Contents
and headings of the Articles and Sections of this Indenture have been inserted
for convenience of reference only, are not to be considered a part hereof and
shall in no way modify or restrict any of the terms and provisions hereof.
Section 13.13. Trust Indenture Act. Prior to the effectiveness of the
Registration Statement, this Indenture shall be incorporated and be governed by
the provisions of the Trust Indenture Act that are required to be part of and
to govern indentures qualified under the Trust Indenture Act. After the
effectiveness of the Registration Statement, this Indenture shall be subject to
the provisions of the Trust Indenture Act that are required to be a part of
this Indenture and shall, to the extent applicable, be governed by such
provisions.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, all as of the date first written above.
MORGAN STANLEY AIRCRAFT FINANCE, as
Issuer
By /s/ C. Scott Peterson
________________________________
Name: C. Scott Peterson
Title: Alternate Signatory Trustee
BANKERS TRUST COMPANY, not in its
individual capacity
<PAGE> 124
but solely as Trustee
By /s/ Patricia M.F. Russo
________________________________
Name: Patricia M.F. Russo
Title: Vice President
<PAGE> 125
SCHEDULE A
INITIAL APPRAISED VALUE OF THE INITIAL AIRCRAFT
<TABLE>
<CAPTION>
INITIAL APPRAISAL VALUE AT
SEPTEMBER 30, 1997
SERIAL NUMBER ($000'S)
- ------------- --------------------------
<S> <C>
23788 $21,973
49822 20,097
25165 21,973
25161 26,310
410 26,273
409 26,310
27635 32,053
704279 6,037
23807 39,067
279 32,260
26256 69,780
49825 19,010
25104 29,713
24234 23,527
25371 28,263
49824 21,627
414 32,520
393 32,310
11569 18,533
11565 18,423
11564 17,530
24367 37,090
597 47,030
25372 28,820
26295 28,073
24798 57,627
555 54,377
24106 67,953
437 32,543
26272 44,993
26260 71,727
23811 22,697
24260 36,017
24299 22,973
</TABLE>
<PAGE> 126
SCHEDULE B
ISSUER SUBSIDIARIES
Jurisdiction of Organization
<TABLE>
<S> <C>
MSA I Delaware
Aircraft SPC-5, Inc. California
Greenfly (Ireland) Limited Ireland
Redfly (UK) Limited U.K.
</TABLE>
<PAGE> 127
EXHIBIT A-1
FORM OF SUBCLASS A-1 FLOATING RATE NOTE
MORGAN STANLEY AIRCRAFT FINANCE
SUBCLASS A-1 NOTE, Due March 15, 2023
No. ____ [CUSIP][ISIN][CCN]
$_________
MORGAN STANLEY AIRCRAFT FINANCE, a business trust organized under the laws
of the State of Delaware (herein referred to as the "Issuer"), for value
received, hereby promises to pay to CEDE & CO., or registered assigns, the
principal sum of ___________________________________________________ DOLLARS
($_________) on March 15, 2023 (the "Final Maturity Date") and to pay interest
monthly in arrears on the Outstanding Principal Balance hereof at a fluctuating
interest rate per annum equal to the sum of LIBOR plus 0.21% per annum (the
"Stated Interest Rate") from the date hereof until the Outstanding Principal
Balance hereof is paid or duly provided for, payable on each Payment Date.
Interest on this Subclass A-1 Note in each Interest Accrual Period shall be
calculated on the basis of a 360-day year and the actual number of days elapsed
in such Interest Accrual Period.
This Subclass A-1 Note is one of a duly authorized issue of Notes of the
Issuer, designated as its "Subclass A-1 Notes, due March 15, 2023", issued
under the Trust Indenture dated as of March 3, 1998 (as amended or supplemented
from time to time, the "Indenture"), between the Issuer and Bankers Trust
Company, as trustee (the "Trustee"). The Indenture also provides for the
issuance of Subclass A-2 Notes, Subclass B-1 Notes, Subclass C-1 Notes and
Subclass D-1 Notes (collectively, the "Initial Notes"). All capitalized terms
used in this Subclass A-1 Note and not defined herein shall have the respective
meanings assigned to such terms in the Indenture. Reference is made to the
Indenture and all indentures supplemental thereto for a statement of the
respective rights and obligations thereunder of the Issuer, the Trustee and the
Subclass A-1 Noteholders. This Subclass A-1 Note is subject to all terms of
the Indenture.
The Issuer will redeem the Outstanding Principal Balance of this Subclass
A-1 Note prior to the Final Maturity Date on the Payment Dates and in the
amounts specified in the Indenture, subject to the availability of the
Available Collections Amount therefor after making payments entitled to
priority under Sections 3.08 and 3.09 of the Indenture.
The Issuer may redeem all or part of the Outstanding Principal Balance of
this Subclass A-1 Note prior to the Final Maturity Date on the Payment Dates,
in the
<PAGE> 128
A-1-2
amounts and under the circumstances specified in the Indenture.
Other than in the case of a redemption for taxation reasons specified in
the Indenture, upon any redemption of any amount of the Outstanding Principal
Balance of this Subclass A-1 Note (i) with the application of funds other than
the Available Collections Amount (including proceeds from Refinancing Notes and
proceeds from third parties), such amount shall be redeemed at a Redemption
Price equal to the product of the applicable Redemption Premium applicable
thereto and the Outstanding Principal Balance thereof and (ii) with the
application of the Available Collections Amount, such amount shall be redeemed
at a Redemption Price equal to the Outstanding Principal Balance thereof.
Following the Expected Final Payment Date of this Subclass A-1 Note and
until the Outstanding Principal Balance hereof is paid or duly provided for,
the Outstanding Principal Balance hereof shall bear additional interest
("Step-Up Interest") at the rate of 0.5% per annum, payable on each Payment
Date, subject to the availability of the Available Collections Amount therefor
after making payments entitled to priority under Sections 3.08 and 3.09 of the
Indenture.
Any amount of Premium or interest (including Step-Up Interest) on this
Subclass A-1 Note that is not paid when due shall, to the fullest extent
permitted by applicable law, bear interest at a fluctuating interest rate per
annum equal to the Stated Interest Rate plus, following the Expected Final
Payment Date of this Subclass A-1 Note, 0.5% per annum from the date when due
until such amount is paid or duly provided for, payable on the next succeeding
Payment Date, subject, in the case of Step-Up Interest, to the availability of
the Available Collections Amount therefor after making payments entitled to
priority under Sections 3.08 and 3.09 of the Indenture.
If an exchange offer (the "Exchange Offer") registered under the
Securities Act is not consummated and a shelf registration statement (the
"Shelf Registration Statement") under the Securities Act with respect to
resales of the Notes is not declared effective by the Commission, on or before
November 30, 1998 in accordance with the terms of the Registration Rights
Agreement dated as of March 3, 1998 between the Issuer and Morgan Stanley & Co.
International Limited, thereafter an additional incremental interest amount
will accrue on each subclass of Notes, at an annual rate of 0.50%. Such
additional incremental interest amounts on the Notes will be payable in cash on
each Payment Date until the Exchange Offer is consummated or the Shelf
Registration Statement is declared effective. The Holder of this Note is
entitled to the benefits of such Registration Rights Agreement.
The indebtedness evidenced by the Subclass A-1 Notes is, to the extent and
in the manner provided in the Indenture, subordinate and subject in right of
payment to the prior payment in full of all Senior Claims (as defined in the
Indenture), and this Subclass A-1 Note is issued subject to such provisions.
Each Holder of this Subclass A-1 Note, by accepting the same, (a) agrees to and
shall be bound by such provisions, (b) authorizes and directs the Trustee on
his behalf to take such action as may be necessary or appropriate to effectuate
the subordination as provided in the Indenture and (c) appoints the Trustee his
<PAGE> 129
A-1-3
attorney-in-fact for such purpose.
The maturity of this Subclass A-1 Note is subject to acceleration upon the
occurrence and during the continuance of the Events of Default specified in the
Indenture.
This Subclass A-1 Note is and will be secured, on a subordinated basis, by
the collateral pledged as security therefor as provided in the Security Trust
Agreement.
Subject to and in accordance with the terms of the Indenture, there will
be distributed monthly on each Payment Date commencing on April 15, 1998, to
the Person in whose name this Subclass A-1 Note is registered at the close of
business on the Record Date with respect to such Payment Date, in the manner
specified in Section 3.08 of the Indenture, such Person's pro rata share (based
on the aggregate percentage of the Outstanding Principal Balance of the
Subclass A-1 Notes held by such Person) of the aggregate amount distributable
to all Holders of Subclass A-1 Notes on such Payment Date.
All amounts payable in respect of this Subclass A-1 Note shall be payable
in U.S. dollars in immediately available funds in the manner provided in the
Indenture to the Holder hereof on the Record Date relating to such payment.
The final payment with respect to this Subclass A-1 Note, however, shall be
made only upon presentation and surrender of this Note by the Noteholder or its
agent at the Corporate Trust Office or agency of the Trustee or Paying Agent
specified in the notice given by the Trustee or Paying Agent with respect to
such final payment. At such time, if any, as this Subclass A-1 Note is issued
in the form of one or more Definitive Notes, payments on a Payment Date shall
be made by check mailed to each Noteholder of such a Definitive Note on the
applicable Record Date at its address appearing on the Register maintained with
respect to Subclass A-1 Notes. Alternatively, upon application in writing to
the Trustee, not later than the applicable Record Date, by a Noteholder of one
or more Definitive Notes of Subclass A-1 having an aggregate principal amount
of not less than $1,000,000, any such payments shall be made by wire transfer
to an account designated by such Noteholder at a financial institution in New
York, New York. The final payment with respect to any such Definitive Note,
however, shall be made only upon presentation and surrender of such Definitive
Note by the Noteholder or its agent at the Corporate Trust Office or agency of
the Trustee or Paying Agent specified in the notice of such final payment given
by the Trustee or Paying Agent. Any reduction in the principal amount of this
Subclass A-1 Note (or any one or more predecessor Subclass A-1 Notes) effected
by any payments made on any Payment Date shall be binding upon all future
Holders of this Subclass A-1 Note and of any Subclass A-1 Note issued upon the
registration of transfer of, in exchange or in lieu of or upon the refinancing
of this Subclass A-1 Note, whether or not noted hereon.
The Holder of this Subclass A-1 Note agrees, by acceptance hereof, to pay
over to the Administrative Agent any money (including principal, Premium and
interest) paid to it in respect of this Subclass A-1 Note in the event that the
Administrative Agent, acting in good faith, determines subsequently that such
monies were not paid in accordance with the priority of payment provisions of
the Indenture or as a result of any other mistake
<PAGE> 130
A-1-4
of fact or law on the part of the Administrative Agent in making such payment.
This Subclass A-1 Note is issuable only in registered form. A Holder may
transfer this Note only by written application to the Registrar stating the name
of the proposed transferee and otherwise complying with the terms of the
Indenture. No such transfer shall be effected until, and such transferee shall
succeed to the rights of a Holder only upon, final acceptance and registration
of the transfer by the Registrar in the Register. When this Subclass A-1 Note
is presented to the Registrar with a request to register the transfer or to
exchange it for an equal principal amount of Subclass A-1 Notes of other
authorized denominations, the Registrar shall register the transfer or make the
exchange as requested if its requirements for such transactions are met
(including, in the case of a transfer, that such Note is duly endorsed or
accompanied by a written instrument of transfer in form satisfactory to the
Trustee and Registrar duly executed by the Holder thereof or by an attorney who
is authorized in writing to act on behalf of the Holder). No service charge
shall be made for any registration of transfer or exchange of this Subclass A-1
Note, but the party requesting such new Note or Notes may be required to pay a
sum sufficient to cover any transfer tax or similar governmental charge payable
in connection therewith.
Prior to the registration of transfer of this Subclass A-1 Note, the
Issuer and the Trustee may deem and treat the Person in whose name this
Subclass A-1 Note (as of the day of determination or as of such other date as
may be specified in the Indenture) is registered as the absolute owner and
Holder hereof for the purpose of receiving payment of all amounts payable with
respect to this Subclass A-1 Note and for all other purposes, and neither the
Issuer nor the Trustee shall be affected by notice to the contrary.
The Indenture permits the amendment or modification of the Indenture and
the Subclass A-1 Notes by the Issuer with the consent of the Holders of a
majority of the Outstanding Principal Balance of all Notes on the date of any
vote of such Holders (voting as a single class); provided that, without the
consent of each Swap Provider and each Holder of any Notes affected thereby, no
such amendment may (i) modify the provisions of the Indenture or the Notes
setting forth the frequency or the currency of payment of, the maturity of, or
the method of calculation of the amount of, any interest, principal and
Premium, if any, payable in respect of any subclass of Notes, (ii) reduce the
percentage of the aggregate Outstanding Principal Balance of such subclass of
Notes required to approve any amendment or waiver of Section 9.01 of the
Indenture or (iii) alter the manner or priority of payment of such subclass of
Notes (each, a "Basic Terms Modification"). Any such amendment or modification
shall be binding on every Holder hereof, whether or not notation thereof is
made upon this Subclass A-1 Note. The Indenture also permits the Trustee to
agree, without the consent of any Noteholder, (a) to any modification (other
than a Basic Terms Modification) of, or the waiver or authorization of any
breach or prospective breach of, any provision of any Related Document or of
the relevant Notes to correct a manifest error or an error which is of a
formal, minor or technical nature or (b) to modify the provisions of the
Indenture or the Administrative Agency Agreement relating to the timing of
movement of Rental Payments or other monies received or Expenses incurred among
the Accounts by the Administrative Agent.
<PAGE> 131
A-1-5
The subordination provisions contained in Section 3.08, Section 3.09 and
Article X of the Indenture may not be amended or modified without the consent
of each Swap Provider, each provider of a Credit Facility, each Noteholder of
the subclass affected thereby and each Noteholder of any subclass of Notes
ranking senior thereto. In no event shall the provisions set forth in Section
3.08 of the Indenture relating to the priority of the Expenses, Swap Payments
and payments under all Credit Facilities be amended or modified.
The Indenture also contains provisions permitting the Holders of Notes
representing a majority of the Outstanding Principal Balance of the Senior
Class of Notes, on behalf of the Holders of all of the Subclass A-1 Notes, to
waive compliance by the Issuer with certain provisions of the Indenture and
certain past defaults under the Indenture and their consequences. Any such
consent or waiver shall be conclusive and binding upon all present and future
Holders of this Subclass A-1 Note and of any Subclass A-1 Note issued upon the
registration of transfer of, in exchange or in lieu of or upon the refinancing
of this Subclass A-1 Note, whether or not notation of such consent or waiver is
made upon this Subclass A-1 Note.
The term "Issuer" as used in this Subclass A-1 Note includes any successor
to the Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances, to
merge or consolidate, subject to the rights of the Trustee and the Holders of
Subclass A-1 Notes under the Indenture.
The Subclass A-1 Notes are issuable only in registered form in
denominations as provided in the Indenture, subject to certain limitations
therein set forth.
This Subclass A-1 Note shall in all respects be governed by, and construed
in accordance with, the laws of the State of New York, including all matters of
construction, validity and performance.
Unless the certificate of authentication hereon has been executed by the
Trustee whose name appears below by manual or facsimile signature, this
Subclass A-1
<PAGE> 132
A-1-6
Note shall not be entitled to any benefit under the Indenture, or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Issuer has caused this Subclass A-1 Note to be
signed manually or by facsimile by its Signatory Trustee.
Date:______________ MORGAN STANLEY AIRCRAFT FINANCE
By:__________________________
Name:
Title: Signatory Trustee
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Subclass A-1 Notes due March 15, 2023 designated above
and referred to in the within-mentioned indenture.
Date: ____________ BANKERS TRUST COMPANY, not in its
individual capacity but solely
as Trustee
By: __________________________
Authorized Signatory
<PAGE> 133
A-1-7
[FORM OF] TRANSFER NOTICE
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No. __________________
_______________________________________________________________________________
(Please print or typewrite name and address including zip code of assignee)
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing ______________________________ attorney to transfer said Note on the
books of the Issuer with full power of substitution in the premises.
Date: [Signature of Transferor]
NOTE: The signature to this assignment
must correspond with the name as written
upon the face of the within-mentioned
instrument in every particular, without
alteration or any change whatsoever.
[THE FOLLOWING PROVISIONS TO BE
INCLUDED ON ALL NOTES OTHER THAN
EXCHANGE NOTES AND PERMANENT
REGULATION S GLOBAL NOTES]
In connection with any transfer of this Note occurring prior to the date
which is the earlier of (i) the date the Shelf Registration Statement is
declared effective or (ii) the end of the period referred to in Rule 144(K)
under the Securities Act, the undersigned confirms
<PAGE> 134
that without utilizing any general solicitation or general advertising that:
[Check One]
[ ] (a) this Note is being transferred in compliance with the exemption from
registration under the Securities Act of 1933 provided by Rule 144A
thereunder.
or
[ ] (b) this Note is being transferred other than in accordance with (a)
above and documents are being furnished which comply with the
conditions of transfer set forth in this Note and the Indenture.
If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Note in the name of any Person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.13 of the Indenture shall have
been satisfied.
Date:
NOTICE: The signature to this assignment must
correspond with the name as written upon the face of
the within-mentioned instrument in every particular,
without alteration or any change whatsoever.
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Note
for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
of 1933 and is aware that the sale to it is being made in reliance on Rule 144A
and acknowledges that it has received such information regarding the Company as
the undersigned has requested pursuant to Rule 144A or has determined not to
request such information and that it is aware that the transferor is relying
upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated:
NOTICE: to be executed by an executive
officer
<PAGE> 135
A-2-9
EXHIBIT A-2
FORM OF SUBCLASS A-2 FLOATING RATE NOTE
MORGAN STANLEY AIRCRAFT FINANCE
SUBCLASS A-2 NOTE, Due March 15, 2023
No. ____ [CUSIP][ISIN][CCN]
$_________
MORGAN STANLEY AIRCRAFT FINANCE, a business trust organized under the laws
of the State of Delaware (herein referred to as the "Issuer"), for value
received, hereby promises to pay to CEDE & CO., or registered assigns, the
principal sum of _______________________________ DOLLARS ($_________) on March
15, 2023 (the "Final Maturity Date") and to pay interest monthly in arrears on
the Outstanding Principal Balance hereof at a fluctuating interest rate per
annum equal to the sum of LIBOR plus 0.35% per annum (the "Stated Interest
Rate") from the date hereof until the Outstanding Principal Balance hereof is
paid or duly provided for, payable on each Payment Date. Interest on this
Subclass A-2 Note in each Interest Accrual Period shall be calculated on the
basis of a 360-day year and the actual number of days elapsed in such Interest
Accrual Period.
This Subclass A-2 Note is one of a duly authorized issue of Notes of the
Issuer, designated as its "Subclass A-2 Notes, due March 15, 2023", issued under
the Trust Indenture dated as of March 3, 1998 (as amended or supplemented from
time to time, the "Indenture"), between the Issuer and Bankers Trust Company, as
indenture trustee (the "Trustee"). The Indenture also provides for the issuance
of Subclass A-1 Notes, Subclass B-1 Notes, Subclass C-1 Notes and Subclass D-1
Notes (collectively, the "Initial Notes"). All capitalized terms used in this
Subclass A-2 Note and not defined herein shall have the respective meanings
assigned to such terms in the Indenture. Reference is made to the Indenture and
all indentures supplemental thereto for a statement of the respective rights and
obligations thereunder of the Issuer, the Trustee and the Subclass A-2
Noteholders. This Subclass A-2 Note is subject to all terms of the Indenture.
The Issuer will redeem the Outstanding Principal Balance of this Subclass
A-2 Note prior to the Final Maturity Date on the Payment Dates and in the
amounts specified in the Indenture, subject to the availability of the Available
Collections Amount therefor after making payments entitled to priority under
Sections 3.08 and 3.09 of the Indenture.
The Issuer may redeem all or part of the Outstanding Principal Balance of
<PAGE> 136
A-2-10
this Subclass A-2 Note prior to the Final Maturity Date on the Payment Dates,
in the amounts and under the circumstances specified in the indenture.
Other than in the case of a redemption for taxation reasons specified in
the Indenture, upon any redemption of any amount of the Outstanding Principal
Balance of this Subclass A-2 Note (i) with the application of funds other than
the Available Collections Amount (including proceeds from Refinancing Notes and
proceeds from third parties), such amount shall be redeemed at a Redemption
Price equal to the product of the applicable Redemption Premium applicable
thereto, and the Outstanding Principal Balance thereof and (ii) with the
application of the Available Collections Amount, such amount shall be redeemed
at a Redemption Price equal to the Outstanding Principal Balance thereof.
Any amount of Premium or interest on this Subclass A-2 Note that is not
paid when due shall, to the fullest extent permitted by applicable law, bear
interest at a fluctuating interest rate per annum equal to the Stated Interest
Rate from the date when due until such amount is paid or duly provided for,
payable on the next succeeding Payment Date, subject to the availability of the
Available Collections Amount therefor after making payments entitled to
priority under Section 3.08 of the Indenture.
If an exchange offer (the "Exchange Offer") registered under the
Securities Act is not consummated and a shelf registration statement (the
"Shelf Registration Statement") under the Securities Act with respect to
resales of the Notes is not declared effective by the Commission, on or before
November 30, 1998 in accordance with the terms of the Registration Rights
Agreement dated as of March 3, 1998 between the Issuer and Morgan Stanley & Co.
International Limited, thereafter an additional incremental interest amount
will accrue on each subclass of Notes, at an annual rate of 0.50%. Such
additional incremental interest amounts on the Notes will be payable in cash on
each Payment Date until the Exchange Offer is consummated or the Shelf
Registration Statement is declared effective. The Holder of this Note is
entitled to the benefits of such Registration Rights Agreement.
The indebtedness evidenced by the Subclass A-2 Notes is, to the extent and
in the manner provided in the Indenture, subordinate and subject in right of
payment to the prior payment in full of all Senior Claims (as defined in the
Indenture), and this Subclass A-2 Note is issued subject to such provisions.
Each Holder of this Subclass A-2 Note, by accepting the same, (a) agrees to and
shall be bound by such provisions, (b) authorizes and directs the Trustee on
his behalf to take such action as may be necessary or appropriate to effectuate
the subordination as provided in the Indenture and (c) appoints the Trustee his
attorney-in-fact for such purpose.
The maturity of this Subclass A-2 Note is subject to acceleration upon the
occurrence and during the continuance of the Events of Default specified in the
Indenture.
This Subclass A-2 Note is and will be secured, on a subordinated basis, by
the collateral pledged as security therefor as provided in the Security Trust
Agreement.
Subject to and in accordance with the terms of the Indenture, there will
be
<PAGE> 137
A-2-11
distributed monthly on each Payment Date commencing on April 15, 1998, to
the Person in whose name this Subclass A-2 Note is registered at the close of
business on the Record Date with respect to such Payment Date, in the manner
specified in Section 3.08 of the Indenture, such Person's pro rata share (based
on the aggregate percentage of the Outstanding Principal Balance of the
Subclass A-2 Notes held by such Person) of the aggregate amount distributable
to all Holders of Subclass A-2 Notes on such Payment Date.
All amounts payable in respect of this Subclass A-2 Note shall be payable
in U.S. dollars in immediately available funds in the manner provided in the
Indenture to the Holder hereof on the Record Date relating to such payment. The
final payment with respect to this Subclass A-2 Note, however, shall be made
only upon presentation and surrender of this Note by the Noteholder or its
agent at the Corporate Trust Office or agency of the Trustee or Paying Agent
specified in the notice given by the Trustee or Paying Agent with respect to
such final payment. At such time, if any, as this Subclass A-2 Note is issued
in the form of one or more Definitive Notes, payments on a Payment Date shall
be made by check mailed to each Noteholder of such a Definitive Note on the
applicable Record Date at its address appearing on the Register maintained with
respect to Subclass A-2 Notes. Alternatively, upon application in writing to
the Trustee, not later than the applicable Record Date, by a Noteholder of one
or more Definitive Notes of Subclass A-2 having an aggregate principal amount
of not less than $1,000,000, any such payments shall be made by wire transfer
to an account designated by such Noteholder at a financial institution in New
York, New York. The final payment with respect to any such Definitive Note,
however, shall be made only upon presentation and surrender of such Definitive
Note by the Noteholder or its agent at the Corporate Trust Office or agency of
the Trustee or Paying Agent specified in the notice of such final payment given
by the Trustee or Paying Agent. Any reduction in the principal amount of this
Subclass A-2 Note (or any one or more predecessor Subclass A-2 Notes) effected
by any payments made on any Payment Date shall be binding upon all future
Holders of this Subclass A-2 Note and of any Subclass A-2 Note issued upon the
registration of transfer of, in exchange or in lieu of or upon the refinancing
of this Subclass A-2 Note, whether or not noted hereon.
The Holder of this Subclass A-2 Note agrees, by acceptance hereof, to pay
over to the Administrative Agent any money (including principal, Premium and
interest) paid to it in respect of this Subclass A-2 Note in the event that the
Administrative Agent, acting in good faith, determines subsequently that such
monies were not paid in accordance with the priority of payment provisions of
the Indenture or as a result of any other mistake of fact or law on the part of
the Administrative Agent in making such payment.
This Subclass A-2 Note is issuable only in registered form. A Holder may
transfer this Note only by written application to the Registrar stating the
name of the proposed transferee and otherwise complying with the terms of the
Indenture. No such transfer shall be effected until, and such transferee shall
succeed to the rights of a Holder only upon, final acceptance and registration
of the transfer by the Registrar in the Register. When this Subclass A-2 Note
is presented to the Registrar with a request to register the transfer or to
exchange it for an equal principal amount of Subclass A-2 Notes of other
authorized
<PAGE> 138
A-2-12
denominations, the Registrar shall register the transfer or make the exchange
as requested if its requirements for such transactions are met (including, in
the case of a transfer, that such Note is duly endorsed or accompanied by a
written instrument of transfer in form satisfactory to the Trustee and
Registrar duly executed by the Holder thereof or by an attorney who is
authorized in writing to act on behalf of the Holder). No service charge shall
be made for any registration of transfer or exchange of this Subclass A-2 Note,
but the party requesting such new Note or Notes may be required to pay a sum
sufficient to cover any transfer tax or similar governmental charge payable in
connection therewith.
Prior to the registration of transfer of this Subclass A-2 Note, the
Issuer and the Trustee may deem and treat the Person in whose name this
Subclass A-2 Note (as of the day of determination or as of such other date as
may be specified in the Indenture) is registered as the absolute owner and
Holder hereof for the purpose of receiving payment of all amounts payable with
respect to this Subclass A-2 Note and for all other purposes, and neither the
Issuer nor the Trustee shall be affected by notice to the contrary.
The Indenture permits the amendment or modification of the Indenture and
the Subclass A-2 Notes by the issuer with the consent of the Holders of a
majority of the Outstanding Principal Balance of all Notes on the date of any
vote of such Holders (voting as a single class); provided that, without the
consent of each Swap Provider and each Holder of any Notes affected thereby, no
such amendment may (i) modify the provisions of the Indenture or the Notes
setting forth the frequency or the currency of payment of, the maturity of, or
the method of calculation of the amount of, any interest, principal and
Premium, if any, payable in respect of any subclass of Notes, (ii) reduce the
percentage of the aggregate Outstanding Principal Balance of such subclass of
Notes required to approve any amendment or waiver of Section 9.01 of the
Indenture or (iii) alter the manner or priority of payment of such subclass of
Notes (each, a "Basic Terms Modification"). Any such amendment or modification
shall be binding on every Holder hereof, whether or not notation thereof is
made upon this Subclass A-2 Note. The Indenture also permits the Trustee to
agree, without the consent of any Noteholder, (a) to any modification (other
than a Basic Terms Modification) of, or the waiver or authorization of any
breach or prospective breach of, any provision of any Related Document or of
the relevant Notes to correct a manifest error or an error which is of a
formal, minor or technical nature or (b) to modify the provisions of the
Indenture or the Administrative Agency Agreement relating to the timing of
movement of Rental Payments or other monies received or Expenses incurred among
the Accounts by the Administrative Agent.
The subordination provisions contained in Section 3.08, Section 3.09 and
Article X of the Indenture may not be amended or modified without the consent
of each Swap Provider, each provider of a Credit Facility, each Noteholder of
the subclass affected thereby and each Noteholder of any subclass of Notes
ranking senior thereto. In no event shall the provisions set forth in Section
3.08 of the Indenture relating to the priority of the Expenses, Swap Payments
and payments under all Credit Facilities be amended or modified.
The Indenture also contains provisions permitting the Holders of Notes
<PAGE> 139
A-2-13
representing a majority of the Outstanding Principal Balance of the Senior Class
of Notes, on behalf of the Holders of all of the Subclass A-2 Notes, to waive
compliance by the Issuer with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver shall be conclusive and binding upon all present and future Holders of
this Subclass A-2 Note and of any Subclass A-2 Note issued upon the registration
of transfer of, in exchange or in lieu of or upon the refinancing of this
Subclass A-2 Note, whether or not notation of such consent or waiver is made
upon this Subclass A-2 Note.
The term "Issuer" as used in this Subclass A-2 Note includes any successor
to the Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances, to
merge or consolidate, subject to the rights of the Trustee and the Holders of
Subclass A-2 Notes under the Indenture.
The Subclass A-2 Notes are issuable only in registered form in
denominations as provided in the Indenture, subject to certain limitations
therein set forth.
This Subclass A-2 Note shall in all respects be governed by, and construed
in accordance with, the laws of the State of New York, including all matters of
construction, validity and performance.
Unless the certificate of authentication hereon has been executed by the
Trustee whose name appears below by manual or facsimile signature, this Subclass
A-2
<PAGE> 140
A-2-14
Note shall not be entitled to any benefit under the Indenture, or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Issuer has caused this Subclass A-2 Note to be
signed manually or by facsimile by its Signatory Trustee.
Date: _________________ MORGAN STANLEY AIRCRAFT FINANCE
By: __________________________
Name:
Title: Signatory Trustee
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Subclass A-2 Notes due March 15, 2023 designated above
and referred to in the within-mentioned Indenture.
Date: ____________ BANKERS TRUST COMPANY, not in its
individual capacity but solely
as Trustee
By: __________________________
Authorized Signatory
<PAGE> 141
A-2-15
[FORM OF] TRANSFER NOTICE
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No. __________________
_______________________________________________________________________________
(Please print or typewrite name and address including zip code of assignee)
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing ______________________________ attorney to transfer said Note on the
books of the Issuer with full power of substitution in the premises.
Date: [Signature of Transferor]
NOTE: The signature to this assignment
must correspond with the name as written
upon the face of the within-mentioned
instrument in every particular, without
alteration or any change whatsoever.
[THE FOLLOWING PROVISIONS TO BE
INCLUDED ON ALL NOTES OTHER THAN
EXCHANGE NOTES AND PERMANENT
REGULATION S GLOBAL NOTES]
In connection with any transfer of this Note occurring prior to the date
which is the earlier of (i) the date the Shelf Registration Statement is
declared effective or (ii) the end of the period referred to in Rule 144(k)
under the Securities Act, the undersigned confirms
<PAGE> 142
A-2-16
that without utilizing any general solicitation or general advertising that:
[Check One]
[ ] (a) this Note is being transferred in compliance with the exemption from
registration under the Securities Act of 1933 provided by Rule 144A
thereunder.
or
[ ] (b) this Note is being transferred other than in accordance with (a)
above and documents are being furnished which comply with the
conditions of transfer set forth in this Note and the Indenture.
If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Note in the name of any Person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.13 of the Indenture shall have
been satisfied.
Date:
NOTICE: The signature to this assignment must
correspond with the name as written upon the face of
the within-mentioned instrument in every particular,
without alteration or any change whatsoever.
TO BE COMPLETED BY PURCHASER IF (A) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Note
for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
of 1933 and is aware that the sale to it is being made in reliance on Rule 144A
and acknowledges that it has received such information regarding the Company as
the undersigned has requested pursuant to Rule 144A or has determined not to
request such information and that it is aware that the transferor is relying
upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated:
NOTICE: To be executed by an executive officer
<PAGE> 143
EXHIBIT B
FORM OF SUBCLASS B-1 FLOATING RATE NOTE
MORGAN STANLEY AIRCRAFT FINANCE
SUBCLASS B-1 NOTE, Due March 15, 2023
No. ____ [CUSIP][ISIN][CCN]
$__________
MORGAN STANLEY AIRCRAFT FINANCE, a business trust organized under the laws
of the State of Delaware (herein referred to as the "Issuer"), for value
received, hereby promises to pay to CEDE & CO., or registered assigns, the
principal sum of ______________________________ DOLLARS ($_________) on March
15, 2023 (the "Final Maturity Date") and to pay interest monthly in arrears on
the Outstanding Principal Balance hereof at a fluctuating interest rate per
annum equal to the sum of LIBOR plus 0.65% per annum (the "Stated Interest
Rate") from the date hereof until the Outstanding Principal Balance hereof is
paid or duly provided for, payable on each Payment Date. Interest on this
Subclass B-1 Note in each Interest Accrual Period shall be calculated on the
basis of a 360-day year and the actual number of days elapsed in such Interest
Accrual Period.
This Subclass B-1 Note is one of a duly authorized issue of Notes of the
Issuer, designated as its "Subclass B-1 Notes, due March 15, 2023", issued
under the Trust Indenture dated as of March 3, 1998 (as amended or supplemented
from time to time, the "Indenture"), between the Issuer and Bankers Trust
Company, as indenture trustee (the "Trustee"). The Indenture also provides for
the issuance of Subclass A-1 and A-2 Notes, Subclass C-1 Notes and Subclass D-1
Notes (collectively, the "Initial Notes"). All capitalized terms used in this
Subclass B-1 Note and not defined herein shall have the respective meanings
assigned to such terms in the Indenture. Reference is made to the Indenture
and all indentures supplemental thereto for a statement of the respective
rights and obligations thereunder of the Issuer, the Guarantor, the Trustee and
the Subclass B-1 Noteholders. This Subclass B-1 Note is subject to all terms
of the Indenture.
The Issuer will redeem the Outstanding Principal Balance of this Subclass
B-1 Note prior to the Final Maturity Date on the dates and in the amounts
specified in the Indenture, subject to the availability of the Available
Collections Amount therefor after making payments entitled to priority under
Section 3.08 of the Indenture.
The Issuer may redeem all or part of the Outstanding Principal Balance of
this Subclass B-1 Note prior to the Final Maturity Date on the Payment Dates,
in the amounts and under the circumstances specified in the Indenture.
<PAGE> 144
B-1-18
Other than in the case of a redemption for taxation reasons specified in
the Indenture, upon any redemption of any amount of the Outstanding Principal
Balance of this Subclass B-1 Note (i) with the application of funds other than
the Available Collections Amount (including proceeds from Refinancing Notes and
proceeds from third parties), such amount shall be redeemed at a Redemption
Price equal to the product of the Applicable Redemption Premium and the
Outstanding Principal Balance thereof and (ii) with the application of the
Available Collections Amount, such amount shall be redeemed at a Redemption
Price equal to the Outstanding Principal Balance thereof.
Any amount of Premium or interest on this Subclass B-1 Note that is not
paid when due shall, to the fullest extent permitted by applicable law, bear
interest at a fluctuating interest rate per annum equal to the Stated Interest
Rate from the date when due until such amount is paid or duly provided for,
payable on the next succeeding Payment Date, subject to the availability of the
Available Collections Amount therefor after making payments entitled to priority
under Section 3.08 of the Indenture.
If an exchange offer (the "Exchange Offer") registered under the Securities
Act is not consummated and a shelf registration statement (the "Shelf
Registration Statement") under the Securities Act with respect to resales of the
Notes is not declared effective by the Commission, on or before November 30,
1998 in accordance with the terms of the Registration Rights Agreement dated as
of March 3, 1998 between the Issuer and Morgan Stanley & Co. International
Limited, thereafter an additional incremental interest amount will accrue on
each subclass of Notes, at an annual rate of 0.50%. Such additional incremental
interest amounts on the Notes will be payable in cash on each Payment Date until
the Exchange Offer is consummated or the Shelf Registration Statement is
declared effective. The Holder of this Note is entitled to the benefits of such
Registration Rights Agreement.
The indebtedness evidenced by the Subclass B-1 Notes is, to the extent and
in the manner provided in the Indenture, subordinate and subject in right of
payment to the prior payment in full of all Senior Claims (as defined in the
Indenture), and this Subclass B-1 Note is issued subject to such provisions.
Each Holder of this Subclass B-1 Note, by accepting the same, (a) agrees to and
shall be bound by such provisions, (b) authorizes and directs the Trustee on his
behalf to take such action as may be necessary or appropriate to effectuate the
subordination as provided in the Indenture and (c) appoints the Trustee his
attorney-in-fact for such purpose.
The maturity of this Subclass B-1 Note is subject to acceleration upon the
occurrence and during the continuance of the Events of Default specified in the
Indenture. The Subclass B-1 Noteholders shall not be permitted to deliver a
Default Notice or to exercise any remedy in respect of any such Event of Default
until all interest and principal on the Class A Notes have been paid in full.
This Subclass B-1 Note is and will be secured, on a subordinated basis, by
the collateral pledged as security therefor as provided in the Security Trust
Agreement.
<PAGE> 145
B-1-19
Subject to and in accordance with the terms of the Indenture, there will be
distributed monthly on each Payment Date commencing on April 15, 1998, to the
Person in whose name this Subclass B-1 Note is registered at the close of
business on the Record Date with respect to such Payment Date, in the manner
specified in Section 3.08 of the Indenture, such Person's pro rata share (based
on the aggregate percentage of the Outstanding Principal Balance of the Subclass
B-1 Notes held by such Person) of the aggregate amount distributable to all
Holders of Subclass B-1 Notes on such Payment Date.
All amounts payable in respect of this Subclass B-1 Note shall be payable
in U.S. dollars in immediately available funds in the manner provided in the
Indenture to the Holder hereof on the Record Date relating to such payment. The
final payment with respect to this Subclass B-1 Note, however, shall be made
only upon presentation and surrender of this Note by the Noteholder or its agent
at the Corporate Trust Office or agency of the Trustee or Paying Agent specified
in the notice given by the Trustee or Paying Agent with respect to such final
payment. At such time, if any, as this Subclass B-1 Note is issued in the form
of one or more Definitive Notes, payments on a Payment Date shall be made by
check mailed to each Noteholder of such a Definitive Note on the applicable
Record Date at its address appearing on the Register maintained with respect to
Subclass B-1 Notes. Alternatively, upon application in writing to the Trustee,
not later than the applicable Record Date, by a Noteholder of one or more
Definitive Notes of Subclass B-1 having an aggregate principal amount of not
less than $1,000,000, any such payments shall be made by wire transfer to an
account designated by such Noteholder at a financial institution in New York,
New York. The final payment with respect to any such Definitive Note, however,
shall be made only upon presentation and surrender of such Definitive Note by
the Noteholder or its agent at the Corporate Trust Office or agency of the
Trustee or Paying Agent specified in the notice of such final payment given by
the Trustee or Paying Agent. Any reduction in the principal amount of this
Subclass B-1 Note (or any one or more predecessor Subclass B-1 Notes) effected
by any payments made on any Payment Date shall be binding upon all future
Holders of this Subclass B-1 Note and of any Subclass B-1 Note issued upon the
registration of transfer of, in exchange or in lieu of or upon the refinancing
of this Subclass B-1 Note, whether or not noted hereon.
The Holder of this Subclass B-1 Note agrees, by acceptance hereof, to pay
over to the Administrative Agent any money (including principal, Premium and
interest) paid to it in respect of this Subclass B-1 Note in the event that the
Cash Manager, acting in good faith, determines subsequently that such monies
were not paid in accordance with the priority of payment provisions of the
Indenture or as a result of any other mistake of fact or law on the part of the
Administrative Agent in making such payment.
This Subclass B-1 Note is issuable only in registered form. A Holder may
transfer this Note only by written application to the Registrar stating the name
of the proposed transferee and otherwise complying with the terms of the
Indenture. No such transfer shall be effected until, and such transferee shall
succeed to the rights of a Holder only upon, final acceptance and registration
of the transfer by the Registrar in the Register. When this Subclass A-1 Note
is presented to the Registrar with a request to register the transfer or to
<PAGE> 146
B-1-20
exchange it for an equal principal amount of Subclass B-1 Notes of other
authorized denominations, the Registrar shall register the transfer or make the
exchange as requested if its requirements for such transactions are met
(including, in the case of a transfer, that such Note is duly endorsed or
accompanied by a written instrument of transfer in form satisfactory to the
Trustee and Registrar duly executed by the Holder thereof or by an attorney who
is authorized in writing to act on behalf of the Holder). No service charge
shall be made for any registration of transfer or exchange of this Subclass B-1
Note, but the party requesting such new Note or Notes may be required to pay a
sum sufficient to cover any transfer tax or similar governmental charge payable
in connection therewith.
Prior to the registration of transfer of this Subclass B-1 Note, the
Issuer and the Trustee may deem and treat the Person in whose name this
Subclass B-1 Note (as of the day of determination or as of such other date as
may be specified in the Indenture) is registered as the absolute owner and
Holder hereof for the purpose of receiving payment of all amounts payable with
respect to this Subclass B-1 Note and for all other purposes, and neither the
Issuer nor the Trustee shall be affected by notice to the contrary.
The Indenture permits the amendment or modification of the Indenture and
the Subclass B-1 Notes by the Issuer with the consent of the Holders of a
majority of the Outstanding Principal Balance of all Notes on the date of any
vote of such Holders (voting as a single class); provided that, without the
consent of each Swap Provider and each Holder of any Notes affected thereby, no
such amendment may (i) modify the provisions of the Indenture or the Notes
setting forth the frequency or the currency of payment of, the maturity of, or
the method of calculation of the amount of, any interest, principal and
Premium, if any, payable in respect of such subclass of Notes, (ii) reduce the
percentage of the aggregate Outstanding Principal Balance of such subclass of
Notes required to approve any amendment or waiver of Section 9.01 of the
Indenture or (iii) alter the manner or priority of payment of any subclass of
Notes (each, a "Basic Terms Modification"). Any such amendment or modification
shall be binding on every Holder hereof, whether or not notation thereof is
made upon this Subclass B-1 Note. The Indenture also permits the Trustee to
agree, without the consent of any Noteholder, (a) to any modification (other
than a Basic Terms Modification) of, or the waiver or authorization of any
breach or prospective breach of, any provision of any Related Document or of
the relevant Notes to correct a manifest error or an error which is of a
formal, minor or technical nature or (b) to modify the provisions of the
Indenture or the Administrative Agency Agreement relating to the timing of
movement of Rental Payments or other monies received or Expenses incurred among
the Accounts by the Administrative Agent.
The subordination provisions contained in Section 3.08, Section 3.09 and
Article X of the Indenture may not be amended or modified without the consent
of each Swap Provider, each provider of a Credit Facility, each Noteholder of
the subclass affected thereby and each Noteholder of any subclass of Notes
ranking senior thereto. In no event shall the provisions set forth in Section
3.08 of the Indenture relating to the priority of the Expenses, Swap Payments
and payments under all Credit Facilities be amended or modified.
<PAGE> 147
B-1-21
The Indenture also contains provisions permitting the Holders of Notes
representing a majority of the Outstanding Principal Balance of the Senior
Class of Notes, on behalf of the Holders of all of the Subclass B-1 Notes, to
waive compliance by the Issuer with certain provisions of the Indenture and
certain past defaults under the Indenture and their consequences. Any such
consent or waiver shall be conclusive and binding upon all present and future
Holders of this Subclass B-1 Note and of any Subclass B-1 Note issued upon the
registration of transfer of, in exchange or in lieu of or upon the refinancing
of this Subclass B-1 Note, whether or not notation of such consent or waiver is
made upon this Subclass B-1 Note.
The term "Issuer" as used in this Subclass B-1 Note includes any successor
to the Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances, to
merge or consolidate, subject to the rights of the Trustee and the Holders of
Subclass B-1 Notes under the Indenture.
The Subclass B-1 Notes are issuable only in registered form in
denominations as provided in the Indenture, subject to certain limitations
therein set forth.
This Subclass B-1 Note shall in all respects be governed by, and construed
in accordance with, the laws of the State of New York, including all matters of
construction, validity and performance.
Unless the certificate of authentication hereon has been executed by the
Trustee whose name appears below by manual or facsimile signature, this
Subclass B-1
<PAGE> 148
B-1-22
Note shall not be entitled to any benefit under the indenture, or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Issuer has caused this Subclass B-1 Note to be
signed manually or by facsimile by its Signatory Trustee.
Date: ________________ MORGAN STANLEY AIRCRAFT FINANCE
By:
Name:
Title: Signatory Trustee
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Subclass B-1 Notes due March 15, 2023 designated above
and referred to in the within-mentioned Indenture.
Date: ____________ BANKERS TRUST COMPANY, not in its
individual capacity but solely as Trustee
By:
Authorized Signatory
<PAGE> 149
B-1-23
[FORM OF] TRANSFER NOTICE
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No. __________________
_______________________________________________________________________________
(Please print or typewrite name and address including zip code of assignee)
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing ______________________________ attorney to transfer said Note on the
books of the Issuer with full power of substitution in the premises.
Date: [Signature of Transferor]
NOTE: The signature to this assignment
must correspond with the name as written
upon the face of the within-mentioned
instrument in every particular, without
alteration or any change whatsoever.
[THE FOLLOWING PROVISIONS TO BE
INCLUDED ON ALL NOTES OTHER THAN
EXCHANGE NOTES AND PERMANENT
REGULATION S GLOBAL NOTES]
In connection with any transfer of this Note occurring prior to the date
which is the earlier of (i) the date the Shelf Registration Statement is
declared effective or (ii) the end of the period referred to in Rule 144(k)
under the Securities Act, the undersigned confirms
<PAGE> 150
B-1-24
that without utilizing any general solicitation or general advertising that:
[Check One]
[ ] (a) this Note is being transferred in compliance with the exemption from
registration under the Securities Act of 1933 provided by Rule 144A
thereunder.
or
[ ] (b) this Note is being transferred other than in accordance with (a)
above and documents are being furnished which comply with the
conditions of transfer set forth in this Note and the Indenture.
If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this note in the name of any Person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.13 of the Indenture shall have
been satisfied.
Date:
NOTICE: The signature to this assignment must
correspond with the name as written upon the face of
the within-mentioned instrument in every particular,
without alteration or any change whatsoever.
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Note
for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
of 1933 and is aware that the sale to it is being made in reliance on Rule 144A
and acknowledges that it has received such information regarding the Company as
the undersigned has requested pursuant to Rule 144A or has determined not to
request such information and that it is aware that the transferor is relying
upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated:
NOTICE: To be executed by an executive
officer
<PAGE> 151
EXHIBIT C
FORM OF SUBCLASS C-1 FIXED RATE NOTE
MORGAN STANLEY AIRCRAFT FINANCE
6.90% SUBCLASS C-1 NOTE, Due March 15, 2023
No. ____ [CUSIP][ISIN][CCN]
$_________
MORGAN STANLEY AIRCRAFT FINANCE, a business trust organized under the laws
of the State of Delaware (herein referred to as the "Issuer"), for value
received, hereby promises to pay to CEDE & CO., or registered assigns, the
principal sum of ________________________________ DOLLARS ($________) on March
15, 2023 (the "Final Maturity Date") and to pay interest monthly in arrears on
the Outstanding Principal Balance hereof at the rate of 6.90% per annum (the
"Stated Interest Rate") from the date hereof until the Outstanding Principal
Balance hereof is paid or duly provided for, payable on each Payment Date.
Interest on this Subclass C-1 Note for each Interest Accrual Period shall be
calculated on the basis of a 360-day year and one-twelfth of an annual interest
payment and, in the case of a payment other than on an Interest Payment Date,
on the basis of a 360-day year consisting of twelve 30-day months.
This Subclass C-1 Note is one of a duly authorized issue of Notes of the
Issuer, designated as its "Subclass C-1 Notes, due March 15, 2023", issued
under the Trust Indenture dated as of March 3, 1998 (as amended or supplemented
from time to time, the "Indenture"), between the Issuer and Bankers Trust
Company, as indenture trustee (the "Trustee"). The Indenture also provides for
the issuance of Subclass A-1 and A-2 Notes, Subclass B-1 Notes and Subclass D-1
Notes (collectively, the "Initial Notes"). All capitalized terms used in this
Subclass C-1 Note and not defined herein shall have the respective meanings
assigned to such terms in the Indenture. Reference is made to the Indenture
and all indentures supplemental thereto for a statement of the respective
rights and obligations thereunder of the Issuer, the Indenture Trustee and the
Subclass C-1 Noteholders. This Subclass C-1 Note is subject to all terms of
the Indenture.
The Issuer will redeem the Outstanding Principal Balance of this Subclass
C-1 Note prior to the Final Maturity Date on the Payment Dates and in the
amounts specified in the Indenture, subject to the availability of the
Available Collections Amount therefor after making payments entitled to
priority under Section 3.08 of the Indenture.
The Issuer may redeem all or part of the Outstanding Principal Balance of
this Subclass C-1 Note prior to the Final Maturity Date on the Payment Dates,
in the amounts and under the circumstances specified in the Indenture.
<PAGE> 152
C-1-26
Other than in the case of a redemption for taxation reasons specified in
the Indenture, upon any redemption of any amount of the Outstanding Principal
Balance of this Subclass C-1 Note equal to the higher of (i) the discounted
value of the Scheduled Principal Payment Amounts and interest of this Subclass
C-1 Note from the Redemption Date to and including the Expected Final Payment
Date discounted at a rate equal to the Treasury Yield plus 0.5% and (ii) the
Outstanding Principal Balance thereof.
Any amount of Premium or interest on this Subclass C-1 Note that is not
paid when due shall, to the fullest extent permitted by applicable law, bear
interest at an interest rate per annum equal to the Stated Interest Rate from
the date when due until such amount is paid or duly provided for, payable on
the next succeeding Payment Date, subject to the availability of the Available
Collections Amount therefor after making payments entitled to priority under
Section 3.08 of the Indenture.
If an exchange offer (the "Exchange Offer") registered under the
Securities Act is not consummated and a shelf registration statement (the
"Shelf Registration Statement") under the Securities Act with respect to
resales of the Notes is not declared effective by the Commission, on or before
November 30, 1998 in accordance with the terms of the Registration Rights
Agreement dated as of March 3, 1998 between the Issuer and Morgan Stanley & Co.
International Limited, thereafter an additional incremental interest amount
will accrue on each subclass of Notes, at an annual rate of 0.50%. Such
additional incremental interest amounts on the Notes will be payable in cash on
each Payment Date until the Exchange Offer is consummated or the Shelf
Registration Statement is declared effective. The Holder of this Note is
entitled to the benefits of such Registration Rights Agreement.
The indebtedness evidenced by the Subclass C-1 Notes is, to the extent and
in the manner provided in the Indenture, subordinate and subject in right of
payment to the prior payment in full of all Senior Claims (as defined in the
Indenture), and this Subclass C-1 Note is issued subject to such provisions.
Each Holder of this Subclass C-1 Note, by accepting the same, (a) agrees to and
shall be bound by such provisions, (b) authorizes and directs the Trustee on
his behalf to take such action as may be necessary or appropriate to effectuate
the subordination as provided in the Indenture and (c) appoints the Trustee his
attorney-in-fact for such purpose.
The maturity of this Subclass C-1 Note is subject to acceleration upon the
occurrence and during the continuance of the Events of Default specified in the
Indenture. The Subclass C-1 Noteholders shall not be permitted to deliver a
Default Notice or to exercise any remedy in respect of any such Event of
Default until all interest and principal on the Class A Notes and the Class B
Notes have been paid in full.
This Subclass C-1 Note is and will be secured, on a subordinated basis, by
the collateral pledged as security therefor as provided in the Security Trust
Agreement.
<PAGE> 153
C-1-27
Subject to and in accordance with the terms of the Indenture, there will be
distributed monthly on each Payment Date commencing on April 15, 1998, to the
Person in whose name this Subclass C-1 Note is registered at the close of
business on the Record Date with respect to such Payment Date, in the manner
specified in Section 3.08 of the Indenture, such Person's pro rata share (based
on the aggregate percentage of the Outstanding Principal Balance of the Subclass
C-1 Notes held by such Person) of the aggregate amount distributable to all
Holders of Subclass C-1 Notes on such Payment Date.
All amounts payable in respect of this Subclass C-1 Note shall be payable
in U.S. dollars in immediately available funds in the manner provided in the
Indenture to the Holder hereof on the Record Date relating to such payment. The
final payment with respect to this Subclass C-1 Note, however, shall be made
only upon presentation and surrender of this Note by the Noteholder or its agent
at the Corporate Trust Office or agency of the Trustee or Paying Agent specified
in the notice given by the Trustee or Paying Agent with respect to such final
payment. At such time, if any, as this Subclass C-1 Note is issued in the form
of one or more Definitive Notes, payments on a Payment Date shall be made by
check mailed to each Noteholder of such a Definitive Note on the applicable
Record Date at its address appearing on the Register maintained with respect to
Subclass C-1 Notes. Alternatively, upon application in writing to the Trustee,
not later than the applicable Record Date, by a Noteholder of one or more
Definitive Notes of Subclass C-1 having an aggregate principal amount of not
less than $1,000,000, any such payments shall be made by wire transfer to an
account designated by such Noteholder at a financial institution in New York,
New York. The final payment with respect to any such Definitive Note, however,
shall be made only upon presentation and surrender of such Definitive Note by
the Noteholder or its agent at the Corporate Trust Office or agency of the
Trustee or Paying Agent specified in the notice of such final payment given by
the Trustee or Paying Agent. Any reduction in the principal amount of this
Subclass C-1 Note (or any one or more predecessor Subclass C-1 Notes) effected
by any payments made on any Payment Date shall be binding upon all future
Holders of this Subclass C-1 Note and of any Subclass C-1 Note issued upon the
registration of transfer of, in exchange or in lieu of or upon the refinancing
of this Subclass C-1 Note, whether or not noted hereon.
The Holder of this Subclass C-1 Note agrees, by acceptance hereof, to pay
over to the Administrative Agent any money (including principal, Premium and
interest) paid to it in respect of this Subclass C-1 Note in the event that the
Administrative Agent, acting in good faith, determines subsequently that such
monies were not paid in accordance with the priority of payment provisions of
the Indenture or as a result of any other mistake of fact or law on the part of
the Administrative Agent in making such payment.
This Subclass C-1 Note is issuable only in registered form. A Holder may
transfer this Note only by written application to the Registrar stating the name
of the proposed transferee and otherwise complying with the terms of the
Indenture. No such transfer shall be effected until, and such transferee shall
succeed to the rights of a Holder only upon, final acceptance and registration
of the transfer by the Registrar in the Register. When this Subclass C-1 Note
is presented to the Registrar with a request to register the transfer or to
<PAGE> 154
C-1-28
exchange it for an equal principal amount of Subclass C-1 Notes of other
authorized denominations, the Registrar shall register the transfer or make the
exchange as requested if its requirements for such transactions are met
(including, in the case of a transfer, that such Note is duly endorsed or
accompanied by a written instrument of transfer in form satisfactory to the
Trustee and Registrar duly executed by the Holder thereof or by an attorney who
is authorized in writing to act on behalf of the Holder). No service charge
shall be made for any registration of transfer or exchange of this Subclass C-1
Note, but the party requesting such new Note or Notes may be required to pay a
sum sufficient to cover any transfer tax or similar governmental charge payable
in connection therewith.
Prior to the registration of transfer of this Subclass C-1 Note, the
Issuer and the Trustee may deem and treat the Person in whose name this
Subclass C-1 Note (as of the day of determination or as of such other date as
may be specified in the Indenture) is registered as the absolute owner and
Holder hereof for the purpose of receiving payment of all amounts payable with
respect to this Subclass C-1 Note and for all other purposes, and neither the
Issuer nor the Trustee shall be affected by notice to the contrary.
The Indenture permits the amendment or modification of the Indenture and
the Subclass C-1 Notes by the Issuer with the consent of the Holders of a
majority of the Outstanding Principal Balance of all Notes on the date of any
vote of such Holders (voting as a single class); provided that, without the
consent of each Swap Provider and each Holder of any Notes affected thereby, no
such amendment may (i) modify the provisions of the Indenture and the Notes
setting forth the frequency or the currency of payment of, the maturity of, or
the method of calculation of the amount of, any interest, principal and
Premium, if any, payable in respect of such subclass of Notes, (ii) reduce the
percentage of the aggregate Outstanding Principal Balance of any subclass of
Notes required to approve any amendment or waiver of Section 9.01 of the
Indenture or (iii) alter the manner or priority of payment of any subclass of
Notes (each, a "Basic Terms Modification"). Any such amendment or modification
shall be binding on every Holder hereof, whether or not notation thereof is
made upon this Subclass C-1 Note. The Indenture also permits the Trustee to
agree, without the consent of any Noteholder, (a) to any modification (other
than a Basic Terms Modification) of, or the waiver or authorization of any
breach or prospective breach of, any provision of any Related Document or of
the relevant Notes to correct a manifest error or an error which is of a
formal, minor or technical nature or (b) to modify the provisions of the
Indenture or the Administrative Agency Agreement relating to the timing of
movement of Rental Payments or other monies received or Expenses incurred among
the Accounts by the Administrative Agent.
The subordination provisions contained in Section 3.08, Section 3.09 and
Article X of the Indenture may not be amended or modified without the consent
of each Swap Provider, each provider of a Credit Facility, each Noteholder of
the subclass affected thereby and each Noteholder of any subclass of Notes
ranking senior thereto. In no event shall the provisions set forth in Section
3.08 of the Indenture relating to the priority of the Expenses, Swap Payments
and payments under all Credit Facilities be amended or modified.
<PAGE> 155
C-1-29
The Indenture also contains provisions permitting the Holders of Notes
representing a majority of the Outstanding Principal Balance of the Senior
Class of Notes, on behalf of the Holders of all of the Subclass C-1 Notes, to
waive compliance by the Issuer with certain provisions of the Indenture and
certain past defaults under the Indenture and their consequences. Any such
consent or waiver shall be conclusive and binding upon all present and future
Holders of this Subclass C-1 Note and of any Subclass C-1 Note issued upon the
registration of transfer of, in exchange or in lieu of or upon the refinancing
of this Subclass C-1 Note, whether or not notation of such consent or waiver is
made upon this Subclass C-1 Note.
The term "Issuer" as used in this Subclass C-1 Note includes any successor
to the Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances, to
merge or consolidate, subject to the rights of the Trustee and the Holders of
Subclass C-1 Notes under the Indenture.
The Subclass C-1 Notes are issuable only in registered form in
denominations as provided in the Indenture, subject to certain limitations
therein set forth.
This Subclass C-1 Note shall in all respects be governed by, and construed
in accordance with, the laws of the State of New York, including all matters of
construction, validity and performance.
Unless the certificate of authentication hereon has been executed by the
Trustee whose name appears below by manual or facsimile signature, this
Subclass C-1
<PAGE> 156
C-1-30
Note shall not be entitled to any benefit under the Indenture, or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Issuer has caused this Subclass C-1 Note to be
signed manually or by facsimile by its Signatory Trustee.
Date: ______________ MORGAN STANLEY AIRCRAFT FINANCE
By: __________________________
Name:
Title: Signatory Trustee
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Subclass C-1 Notes due March 15, 2023 designated above
and referred to in the within-mentioned Indenture.
Date: ____________ BANKERS TRUST COMPANY, not in its
individual capacity but solely
as trustee
By: __________________________
Authorized Signatory
<PAGE> 157
C-1-31
[FORM OF] TRANSFER NOTICE
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No. __________________
_______________________________________________________________________________
(Please print or typewrite name and address including zip code of assignee)
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing ______________________________ attorney to transfer said Note on the
books of the Issuer with full power of substitution in the premises.
Date: [Signature of Transferor]
NOTE: The signature to this assignment
must correspond with the name as written
upon the face of the within-mentioned
instrument in every particular, without
alteration or any change whatsoever.
[THE FOLLOWING PROVISIONS TO BE
INCLUDED ON ALL NOTES OTHER THAN
EXCHANGE NOTES AND PERMANENT
REGULATION S GLOBAL NOTES]
In connection with any transfer of this Note occurring prior to the date
which is the earlier of (i) the date the Shelf Registration Statement is
declared effective or (ii) the end of the period referred to in Rule 144(k)
under the Securities Act, the undersigned confirms
<PAGE> 158
C-1-32
that without utilizing any general solicitation or general advertising that:
[Check One]
[ ] (a) this Note is being transferred in compliance with the exemption from
registration under the Securities Act of 1933 provided by Rule 144A
thereunder.
or
[ ] (b) this Note is being transferred other than in accordance with (a)
above and documents are being furnished which comply with the
conditions of transfer set forth in this Note and the Indenture.
If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Note in the name of any Person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.13 of the Indenture shall have
been satisfied.
Date:
NOTICE: The signature to this assignment must
correspond with the name as written upon the face of
the within-mentioned instrument in every particular,
without alteration or any change whatsoever.
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Note
for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
of 1933 and is aware that the sale to it is being made in reliance on Rule 144A
and acknowledges that it has received such information regarding the Company as
the undersigned has requested pursuant to Rule 144A or has determined not to
request such information and that it is aware that the transferor is relying
upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated:
NOTICE: To be executed by an executive officer
<PAGE> 159
EXHIBIT D
FORM OF SUBCLASS D-1 FIXED RATE NOTE
MORGAN STANLEY AIRCRAFT FINANCE
8.70% SUBCLASS D-1 NOTE, Due March 15, 2023
NO. ____ [CUSIP][ISIN][CCN]
$________
MORGAN STANLEY AIRCRAFT FINANCE, a business trust organized under the laws
of the State of Delaware (herein referred to as the "Issuer"), for value
received, hereby promises to pay to CEDE & CO., or registered assigns, the
principal sum of ______________________________________ DOLLARS ($_________) on
March 15, 2023 (the "Final Maturity Date") and to pay interest monthly in
arrears on the Outstanding Principal Balance hereof at the rate of 8.70% per
annum (the "Stated Interest Rate") from the date hereof until the Outstanding
Principal Balance hereof is paid or duly provided for, payable on each Payment
Date. Interest on this Subclass D-1 Note for each Interest Accrual Period
shall be calculated on the basis of a 360-day year and one-twelfth of an annual
interest payment and, in the case of a payment other than on an Interest
Payment Date, on the basis of a 360-day year consisting of twelve 30-day
months.
This Subclass D-1 Note is one of a duly authorized issue of Notes of the
Issuer, designated as its "Subclass D-1 Notes, due March 15, 2023", issued
under the Trust Indenture dated as of March 3, 1998 (as amended or supplemented
from time to time, the "Indenture"), between the Issuer and Bankers Trust
Company, as indenture trustee (the "Trustee"). The Indenture also provides for
the issuance of Subclass A-1 and A-2 Notes, Subclass B-1 Notes and Subclass C-1
Notes (collectively, the "Initial Notes"). All capitalized terms used in this
Subclass D-1 Note and not defined herein shall have the respective meanings
assigned to such terms in the Indenture. Reference is made to the Indenture
and all indentures supplemental thereto for a statement of the respective
rights and obligations thereunder of the Issuer, the Indenture Trustee and the
Subclass D-1 Noteholders. This Subclass D-1 Note is subject to all terms of
the Indenture.
The Issuer will redeem the Outstanding Principal Balance of this Subclass
D-1 Note prior to the Final Maturity Date on the Payment Dates and in the
amounts specified in the Indenture, subject to the availability of the
Available Collections Amount therefor after making payments entitled to
priority under Section 3.08 of the Indenture.
The Issuer may redeem all or part of the Outstanding Principal Balance of
this Subclass D-1 Note prior to the Final Maturity Date on the Payment Dates,
in the
<PAGE> 160
D-1-34
amounts and under the circumstances specified in the Indenture.
Other than in the case of a redemption for taxation reasons specified in
the Indenture, upon any redemption of any amount of the Outstanding Principal
Balance of this Subclass D-1 Note (i) prior to March 15, 2003, such amount
shall be redeemed at a Redemption Price equal to the higher of (A) the
discounted present value of the Scheduled Principal Payment Amounts and
interest from the Redemption Date to, but not including, March 15, 2003, plus
the product of the Redemption Premium applicable thereto and the scheduled
Outstanding Principal Balance thereof on March 15, 2003, discounted at a rate
equal to the Treasury Yield plus 1% and (B) the Outstanding Principal Balance
thereof and (ii) on or after March 15, 2003, such amount shall be redeemed at a
Redemption Price equal to the product of the Redemption Premium applicable
thereto and the Outstanding Principal Balance thereof.
Any amount of Premium or interest on this Subclass D-1 Note that is not
paid when due shall, to the fullest extent permitted by applicable law, bear
interest at an interest rate per annum equal to the Stated Interest Rate from
the date when due until such amount is paid or duly provided for, payable on
the next succeeding Payment Date, subject to the availability of the Available
Collections Amount therefor after making payments entitled to priority under
Section 3.08 of the Indenture.
If an exchange offer (the "Exchange Offer") registered under the
Securities Act is not consummated and a shelf registration statement (the
"Shelf Registration Statement") under the Securities Act with respect to
resales of the Notes is not declared effective by the Commission, on or before
November 30, 1998 in accordance with the terms of the Registration Rights
Agreement dated as of March 3, 1998 between the Issuer and Morgan Stanley & Co.
International Limited, thereafter an additional incremental interest amount
will accrue on each subclass of Notes, at an annual rate of 0.50%. Such
additional incremental interest amounts on the Notes will be payable in cash on
each Payment Date until the Exchange Offer is consummated or the Shelf
Registration Statement is declared effective. The Holder of this Note is
entitled to the benefits of such Registration Rights Agreement.
The indebtedness evidenced by the Subclass D-1 Notes is, to the extent and
in the manner provided in the Indenture, subordinate and subject in right of
payment to the prior payment in full of all Senior Claims (as defined in the
Indenture), and this Subclass D-1 Note is issued subject to such provisions.
Each Holder of this Subclass D-1 Note, by accepting the same, (a) agrees to and
shall be bound by such provisions, (b) authorizes and directs the Trustee on
his behalf to take such action as may be necessary or appropriate to effectuate
the subordination as provided in the Indenture and (c) appoints the Trustee his
attorney-in-fact for such purpose.
The maturity of this Subclass D-1 Note is subject to acceleration upon the
occurrence and during the continuance of the Events of Default specified in the
Indenture. The Subclass D-1 Noteholders shall not be permitted to deliver a
Default Notice or to
<PAGE> 161
D-1-35
exercise any remedy in respect of any such Event of Default until all interest
and principal on the Class A Notes, the Subclass B Notes and the Class C Notes
have been paid in full.
This Subclass D-1 Note is and will be secured, on a subordinated basis, by
the collateral pledged as security therefor as provided in the Security Trust
Agreement.
Subject to and in accordance with the terms of the Indenture, there will
be distributed monthly on each Payment Date commencing on April 15, 1998, to
the Person in whose name this Subclass D-1 Note is registered at the close of
business on the Record Date with respect to such Payment Date, in the manner
specified in Section 3.08 of the Indenture, such Person's pro rata share (based
on the aggregate percentage of the Outstanding Principal Balance of the
Subclass D-1 Notes held by such Person) of the aggregate amount distributable
to all Holders of Subclass D-1 Notes on such Payment Date.
All amounts payable in respect of this Subclass D-1 Note shall be payable
in U.S. dollars in immediately available funds in the manner provided in the
Indenture to the Holder hereof on the Record Date relating to such payment.
The final payment with respect to this Subclass D-1 Note, however, shall be
made only upon presentation and surrender of this Note by the Noteholder or its
agent at the Corporate Trust Office or agency of the Trustee or Paying Agent
specified in the notice given by the Trustee or Paying Agent with respect to
such final payment. At such time, if any, as this Subclass D-1 Note is issued
in the form of one or more Definitive Notes, payments on a Payment Date shall
be made by check mailed to each Noteholder of such a Definitive Note on the
applicable Record Date at its address appearing on the Register maintained with
respect to Subclass D-1 Notes. Alternatively, upon application in writing to
the Trustee, not later than the applicable Record Date, by a Noteholder of one
or more Definitive Notes of Subclass D-1 having an aggregate principal amount
of not less than $1,000,000, any such payments shall be made by wire transfer
to an account designated by such Noteholder at a financial institution in New
York, New York. The final payment with respect to any such Definitive Note,
however, shall be made only upon presentation and surrender of such Definitive
Note by the Noteholder or its agent at the Corporate Trust Office or agency of
the Trustee or Paying Agent specified in the notice of such final payment given
by the Trustee or Paying Agent. Any reduction in the principal amount of this
Subclass D-1 Note (or any one or more predecessor Subclass D-1 Notes) effected
by any payments made on any Payment Date shall be binding upon all future
Holders of this Subclass D-1 Note and of any Subclass D-1 Note issued upon the
registration of transfer of, in exchange or in lieu of or upon the refinancing
of this Subclass D-1 Note, whether or not noted hereon.
The Holder of this Subclass D-1 Note agrees, by acceptance hereof, to pay
over to the Administrative Agent any money (including principal, Premium and
interest) paid to it in respect of this Subclass D-1 Note in the event that the
Administrative Agent, acting in good faith, determines subsequently that such
monies were not paid in accordance with the priority of payment provisions of
the Indenture or as a result of any other mistake of fact or law on the part of
the Administrative Agent in making such payment.
This Subclass D-1 Note is issuable only in registered form. A Holder may
<PAGE> 162
D-1-36
transfer this Note only by written application to the Registrar stating the name
of the proposed transferee and otherwise complying with the terms of the
Indenture. No such transfer shall be effected until, and such transferee shall
succeed to the rights of a Holder only upon, final acceptance and registration
of the transfer by the Registrar in the Register. When this Subclass D-1 Note
is presented to the Registrar with a request to register the transfer or to
exchange it for an equal principal amount of Subclass D-1 Notes of other
authorized denominations, the Registrar shall register the transfer or make the
exchange as requested if its requirements for such transactions are met
(including, in the case of a transfer, that such Note is duly endorsed or
accompanied by a written instrument of transfer in form satisfactory to the
Trustee and Registrar duly executed by the Holder thereof or by an attorney who
is authorized in writing to act on behalf of the Holder). No service charge
shall be made for any registration of transfer or exchange of this Subclass D-1
Note, but the party requesting such new Note or Notes may be required to pay a
sum sufficient to cover any transfer tax or similar governmental charge payable
in connection therewith.
Prior to the registration of transfer of this Subclass D-1 Note, the Issuer
and the Trustee may deem and treat the Person in whose name this Subclass D-1
Note (as of the day of determination or as of such other date as may be
specified in the Indenture) is registered as the absolute owner and Holder
hereof for the purpose of receiving payment of all amounts payable with respect
to this Subclass D-1 Note and for all other purposes, and neither the Issuer nor
the Trustee shall be affected by notice to the contrary.
The Indenture permits the amendment or modification of the Indenture and
the Subclass D-1 Notes by the Issuer with the consent of the Holders of a
majority of the Outstanding Principal Balance of all Notes on the date of any
vote of such Holders (voting as a single class); provided that, without the
consent of each Swap Provider and Holder of any Notes affected thereby, no such
amendment may (i) modify the provisions of the Indenture and the Notes setting
forth the frequency or the currency of payment of, the maturity of, or the
method of calculation of the amount of, any interest, principal and Premium, if
any, payable in respect of such subclass of Notes, (ii) reduce the percentage of
the aggregate Outstanding Principal Balance of any subclass of Notes required to
approve any amendment or waiver of Section 9.01 of the Indenture or (iii) alter
the manner or priority of payment of any subclass of Notes (each, a "Basic Terms
Modification"). Any such amendment or modification shall be binding on every
Holder hereof, whether or not notation thereof is made upon this Subclass D-1
Note. The Indenture also permits the Trustee to agree, without the consent of
any Noteholder, (a) to any modification (other than a Basic Terms Modification)
of, or the waiver or authorization of any breach or prospective breach of, any
provision of any Related Document or of the relevant Notes to correct a manifest
error or an error which is of a formal, minor or technical nature or (b) to
modify the provisions of the Indenture or the Administrative Agency Agreement
relating to the timing of movement of Rental Payments or other monies received
or Expenses incurred among the Accounts by the Administrative Agent.
The subordination provisions contained in Section 3.08, Section 3.09 and
Article X of the Indenture may not be amended or modified without the consent of
each
<PAGE> 163
D-1-37
Swap Provider, each provider of a Credit Facility, each Noteholder of the
subclass affected thereby and each Noteholder of any subclass of Notes ranking
senior thereto. In no event shall the provisions set forth in Section 3.08 of
the Indenture relating to the priority of the Expenses, Swap Payments and
payments under all Credit Facilities be amended or modified.
The Indenture also contains provisions permitting the Holders of Notes
representing a majority of the Outstanding Principal Balance of the Senior Class
of Notes, on behalf of the Holders of all of the Subclass D-1 Notes, to waive
compliance by the Issuer with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver shall be conclusive and binding upon all present and future Holders of
this Subclass D-1 Note and of any Subclass D-1 Note issued upon the registration
of transfer of, in exchange or in lieu of or upon the refinancing of this
Subclass D-1 Note, whether or not notation of such consent or waiver is made
upon this Subclass D-1 Note.
The term "Issuer" as used in this Subclass D-1 Note includes any successor
to the Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances, to
merge or consolidate, subject to the rights of the Trustee and the Holders of
Subclass D-1 Notes under the Indenture.
The Subclass D-1 Notes are issuable only in registered form in
denominations as provided in the Indenture, subject to certain limitations
therein set forth.
This Subclass D-1 Note shall in all respects be governed by, and construed
in accordance with, the laws of the State of New York, including all matters of
construction, validity and performance.
Unless the certificate of authentication hereon has been executed by the
Trustee whose name appears below by manual or facsimile signature, this Subclass
D-1
<PAGE> 164
D-1-38
Note shall not be entitled to any benefit under the Indenture, or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Issuer has caused this Subclass D-1 Note to be
signed manually or by facsimile by its Signatory Trustee.
Date: _____________ MORGAN STANLEY AIRCRAFT FINANCE
By: __________________________
Name:
Title: Signatory Trustee
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Subclass D-1 Notes due March 15, 2023 designated above
and referred to in the within-mentioned Indenture.
Date: _____________ BANKERS TRUST COMPANY, not in its
individual capacity but solely
as Trustee
By: __________________________
Authorized Signatory
<PAGE> 165
D-1-39
[FORM OF] TRANSFER NOTICE
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No. __________________
_______________________________________________________________________________
(Please print or typewrite name and address including zip code of assignee)
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing ______________________________ attorney to transfer said Note on the
books of the Issuer with full power of substitution in the premises.
Date: [Signature of Transferor]
NOTE: The signature to this assignment
must correspond with the name as written
upon the face of the within-mentioned
instrument in every particular, without
alteration or any change whatsoever.
[THE FOLLOWING PROVISIONS TO BE
INCLUDED ON ALL NOTES OTHER THAN
EXCHANGE NOTES AND PERMANENT
REGULATION S GLOBAL NOTES]
In connection with any transfer of this Note occurring prior to the date
which is the earlier of (i) the date the Shelf Registration Statement is
declared effective or (ii) the end of the period referred to in Rule 144(K)
under the Securities Act, the undersigned confirms
<PAGE> 166
D-1-40
that without utilizing any general solicitation or general advertising that:
[Check One]
[ ] (a) this Note is being transferred in compliance with the exemption from
registration under the Securities Act of 1933 provided by Rule 144A
thereunder.
or
[ ] (b) this Note is being transferred other than in accordance with (a)
above and documents are being furnished which comply with the
conditions of transfer set forth in this Note and the Indenture.
If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Note in the name of any Person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.13 of the indenture shall have
been satisfied.
Date:
NOTICE: The signature to this assignment must
correspond with the name as written upon the face of
the within-mentioned instrument in every particular,
without alteration or any change whatsoever.
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Note
for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
of 1933 and is aware that the sale to it is being made in reliance on Rule 144A
and acknowledges that it has received such information regarding the Company as
the undersigned has requested pursuant to Rule 144A or has determined not to
request such information and that it is aware that the transferor is relying
upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated:
NOTICE: To be executed by an executive
officer
<PAGE> 167
EXHIBIT E
CONCENTRATION LIMITS
<TABLE>
<CAPTION>
Percentage of Most
Recent Appraised
Lessee Concentration Limits Value of Portfolio (1)
--------------------------- ----------------------
<S> <C>
Single Lessee rated BBB/Baa2 (or the equivalent) or better 15%
Other single Lessees...................................... 10%
Five largest Lessees...................................... 35%
</TABLE>
<TABLE>
<CAPTION>
Percentage of Most
Recent Appraised
Country Concentration Limits Value of Portfolio
---------------------------- --------------------
<S> <C>
United States............................................. 25%
Countries rated BBB/Baa2 (or the equivalent) or better (2) 20%
Other..................................................... 15%
</TABLE>
<TABLE>
<CAPTION>
Percentage of Most
Recent Appraised
Region Concentration Limits Value of Portfolio (1)
--------------------------- ----------------------
<S> <C>
Developed Market Region (3)............................... 50%
Emerging Market Region (3)................................ 25%
Other (3)................................................. 20% (4)
Asia/Pacific (3).......................................... 55%
</TABLE>
- ---------------
(1) Percentage to be obtained by dividing the aggregate most recent Appraised
Values of all Aircraft leased or to be leased to Lessees habitually based
in the applicable country by the aggregate most recent Appraised Values of
all Aircraft then owned by MSAF Group and any future MSAF Group member.
(2) Based on the sovereign foreign currency debt rating assigned by the
Rating Agencies to the country in which a Lessee is habitually based at
the time the relevant Lease is executed.
(3) The designations of Emerging Markets and Developed Markets are as
determined and published by Capital International Perspective S.A. from
time to time based on, among other things, gross domestic product levels,
regulation of foreign ownership of assets, the regulatory environment,
exchange controls and perceived investment risk. Asia/Pacific represents
the aggregate of the Aircraft leased to Lessees habitually based in the
Asia area of the Emerging Market Region and the Pacific area of the
Developed Market Region. The current designations are as set out below:
<TABLE>
<CAPTION>
Region Country
------ -------
<S> <C>
DEVELOPED MARKETS
Europe.......... European Union (except Greece and Luxembourg), Norway
and Switzerland
North America... Canada and United States
Pacific......... Australia, Hong Kong, Japan, New Zealand and Singapore
EMERGING MARKETS
</TABLE>
<PAGE> 168
<TABLE>
<S> <C>
Asia................... China, India, Indonesia, Korea, Malaysia, Pakistan,
Philippines, Sri Lanka, Taiwan and Thailand
Europe and Middle East. Czech Republic, Greece, Hungary, Israel, Jordan,
Poland, Russia and Turkey
Latin America.......... Argentina, Brazil, Chile, Colombia, Mexico, Peru and
Venezuela
</TABLE>
OTHER
All other countries (generally those that have small or under-developed capital
markets, including Iceland, Fiji and Guyana)
(4) In addition, within the Other designation, no more than 10% of the most
recent Appraised Value of the Portfolio shall be leased to Lessees
habitually based in "Other" countries rated below BBB/Baa2 (or the
equivalent) and no more than 5% of the most recent Appraised Value of the
Portfolio shall be leased to Lessees habitually based in "Other" countries
in Africa.
PRI Guidelines
(a) Prohibited Countries:
Burma
Cuba
Iran
Iraq
Libya
North Korea
Sudan
Syria
(b) Countries with respect to which PRI must be procured:
<TABLE>
<S> <C> <C>
Angola Congo Mongolia
Armenia Equatorial Guinea Niger
Azerbaijan Eritrea Sao Tome & Principe
Belarus Ethiopia Somalia
Benin Grenada Sudan
Bhutan Kazakhstan Syria
Cameroon Kirbati Turkmenistan
Cape Verde Islands Kyrgistan Uzbekistan
Chad Liberia
Comoros Moldova
</TABLE>
<PAGE> 169
EXHIBIT F
AGENTS FOR SERVICE OF PROCESS
<TABLE>
<CAPTION>
Party Jurisdiction Appointed Agent
- ----- ------------ ---------------
<S> <C> <C>
Morgan Stanley Delaware Wilmington Trust Company
Aircraft Finance 1100 North Market Street
Rodney Square North
Wilmington, Delaware
19890-1000
U.S.A.
Bankers Trust Company New York Bankers Trust Company
4 Albany Street
10th Floor
New York, NY 10006
U.S.A.
</TABLE>
<PAGE> 170
EXHIBIT G
INSURANCE PROVISIONS
<TABLE>
<CAPTION>
Model Minimum Limits
------ --------------
<S> <C>
ATP/ATR/Dash-8/RI/F50/F70 US$200 million
HS146/AVRO/F28/F100 US$300 million
B727/B737/A320/MD80/DC9 US$350 million
DC8/A310 US$450 million
B757/B767/A300 US$500 million
L1011/DC10/A330/A340/MD11/B777 US$600 million
B747 US$750 million
</TABLE>
<PAGE> 171
EXHIBIT H
FORM OF MONTHLY REPORT TO THE ISSUER
AND EACH RATING AGENCY
(i) With respect to each Payment Date,
A. The balances on deposit on the
Calculation Date immediately preceding the prior
Payment Date;
B. The aggregate amounts of deposits
and withdrawals between such Calculation Date and the
Calculation Date immediately preceding such Payment
Date; and
C. The balances on deposit in the
Expense Account, Collection Account and Lessee Funded
Account on the Calculation Date immediately preceding
such Payment Date.
(ii) Analysis of Expense Account Activity
Balance on the preceding Calculation Date
Net Transfer to the Expense Account from the Collection
Account during the period between prior Calculation Date and
the relevant Calculation Date
Payments during the period between the prior Calculation
Date and the relevant Calculation Date:
(1) Payments on prior Payment Date;
(2) Other payments;
Balance on the relevant Calculation Date
(iii) Analysis of Collection Account Activity
Balance on the preceding Calculation Date;
- Required Expense Amount (including
on preceding Payment Date);
- Net Transfer to Lessee Funded Account during period;
- Collections during period;
- Transfer from the Aircraft Purchase Account;
- Drawings under Credit Facilities;
- Aggregate Note Payments;
- Swap Payments;
- Repayments of drawings under credit or liquidity
<PAGE> 172
enhancement facilities;
Balance on relevant Calculation Date
(separately stating components of the Liquidity
Reserve Amount)
Analysis of current Payment Date distributions
(iv) Payments on the Notes
(a) Floating Rate Notes (by class and, if applicable,
subclass)
- Applicable LIBOR for the current Interest Accrual Period;
- Applicable Margin for the current Interest Accrual Period;
- Applicable Interest Rate for current Interest Accrual
Period;
- Interest Amount Payable;
- Step-Up Interest;
- Opening Outstanding Principal Balance;
- Minimum Principal Payment Amount;
- Scheduled Principal Payment Amount;
- Supplemental Principal Payment Amount;
- Redemption Amount;
- amount allocable to principal;
- amount allocable to Premium;
- Closing Outstanding Principal Balance;
(b) Fixed Rate Notes (by class and, if applicable, subclass)
- Applicable Interest Rate;
- Interest Amount Payable;
- Opening Outstanding Principal Balance;
- Minimum Principal Payment Amount;
- Scheduled Principal Payment Amount;
- Redemption Amount
- amount allocable to principal;
- amount allocable to Premium;
- Closing Outstanding Principal Balance;
(v) Floating Rate Note information for next Interest
Accrual Period (by subclass):
Applicable LIBOR;
Applicable Margin;
Applicable Interest Rate
(vi) Payments per $100,000 Initial Outstanding
Principal Balance of Notes (by subclass):
Opening Outstanding Principal Balance;
Total Principal Payments;
<PAGE> 173
Closing Outstanding Principal Balance;
Total Interest;
Total Premium
<PAGE> 174
EXHIBIT I
FORM OF CERTIFICATE
__________________ , _____
Bankers Trust Company
Four Albany Street
New York, New York 10006
Attention: Corporate Trust and Agency Group
Morgan Stanley Aircraft Finance
c/o Wilmington Trust Company
1100 North Market Street
Rodney Square North
Wilmington, Delaware 19890-1000
Re: Morgan Stanley Aircraft Finance (the "Issuer")
Subclass o Notes
Dear Sirs:
This letter relates to U.S. $ principal amount of Subclass
o Notes of the Issuer represented by a Subclass o Note which bears a legend
(the "Legended Note") outlining restrictions upon transfer of such Legended
Note. Pursuant to Section 2.01 of the Indenture dated as of March 3, 1998 (the
"Indenture") relating to the Subclass o Notes and certain other subclasses of
notes, we hereby certify that we are (or we will hold such securities on behalf
of) a person outside the United States to whom the Subclass o Notes may be
transferred in accordance with Rule 904 of Regulation S promulgated under the
U.S. Securities Act of 1933, as amended ("Regulation S"). Accordingly, you are
hereby requested to exchange the legended certificate for an unlegended
certificate representing an identical principal amount of Subclass o Notes, all
in the manner provided for in the Indenture.
Each of you is entitled to rely upon this letter and is irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceedings or official inquiry with respect to the
matters covered hereby. Terms used in this certificate have the meanings set
forth in Regulation S.
Very truly yours,
[Name of Holder]
By: ________________________
Authorized Signature
<PAGE> 175
EXHIBIT J
FORM OF CERTIFICATE TO BE DELIVERED IN
CONNECTION WITH TRANSFERS PURSUANT TO REGULATION S
Bankers Trust Company ---------,-----
Four Albany Street
New York, New York 10006
Attention: Corporate Trust and Agency Group
Morgan Stanley Aircraft Finance
c/o Wilmington Trust Company
1100 North Market Square
Rodney Square North
Wilmington, Delaware 19890-1000
Re: Morgan Stanley Aircraft Finance (the "Issuer")
Subclass o Notes
Dear Sirs:
In connection with our proposed sale of U.S.$ aggregate
principal amount of the Subclass o Notes, we confirm that such sale has been
effected pursuant to and in accordance with Regulation S under the Securities
Act of 1933, as amended ("Regulation S") and, accordingly, we represent that:
(1) the offer of the Subclass o Notes was not made to a person in the
United States;
(2) at the time the buy order was originated, the transferee was outside
the United States or we and any person acting on our behalf reasonably believed
that the transferee was outside the United States;
(3) no directed selling efforts have been made by us in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable; and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the U.S. Securities Act of 1933.
Each of you is entitled to rely upon this letter and is irrevocably
authorized
<PAGE> 176
to produce this letter or a copy hereof to any interested party in any
administrative or legal proceedings or official inquiry with respect to the
matters covered hereby. Terms used in this certificate have the meanings set
forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:_________________
Authorized Signature
<PAGE> 177
EXHIBIT K
FORM OF CERTIFICATE TO BE
DELIVERED IN CONNECTION WITH
TRANSFERS TO NON-QIB ACCREDITED INVESTORS
, 1998
Morgan Stanley Aircraft Finance
c/o Wilmington Trust Company
1100 North Market
Rodney Square North
Wilmington, Delaware 19890
Morgan Stanley & Co. International Limited
ABN AMRO Bank N.V.
Chase Manhattan International Limited
Credit Suisse First Boston (Europe) Limited
Credit Commerciale de France
Barclays de Zoete Wedd Limited
Dresdner Bank AG London Branch
Nikko Europe Plc
Tokyo -- Mitsubishi International plc
As Initial Purchasers in connection with the
Offering Memorandum referred to below
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
Ladies and Gentlemen:
In connection with our proposed purchase of Notes due 2023 (the "Notes")
of Morgan Stanley Aircraft Finance (the "Issuer"), we confirm that:
1. We have received a copy of the Offering Memorandum dated February 20,
1998 (the "Offering Memorandum") relating to the Notes and such other
information as we deem necessary in order to make our investment decision. We
acknowledge that we have read and agreed to the matters stated in the section
entitled "Purchasers' Representations and Transfer Restrictions" of such
Offering Memorandum and the restrictions on duplication and circulation of such
Offering Memorandum.
2. We understand that any subsequent transfer of the Notes is subject to
certain restrictions and conditions set forth in the Offering Memorandum under
"Purchasers'
<PAGE> 178
Representations and Transfer Restrictions" and the undersigned agrees to be
bound by, and not to resell, pledge or otherwise transfer the Notes except in
compliance with such restrictions and conditions and the Securities Act of
1933, as amended (the "Securities Act").
3. We understand that the offer and sale of the Notes have not been
registered under the Securities Act, that the Notes will only be in the form of
definitive physical certificates and that the Notes may not be offered or sold
except as permitted in the following sentence. We agree, on our own behalf and
on behalf of any accounts for which we are acting as hereinafter stated, that
if we should sell any Notes in the future, we will do so only (1) (A) to the
Issuer or any subsidiary thereof, (B) in accordance with Rule 144A under the
Securities Act to a "qualified institutional buyer" (as defined therein), (C)
to an institutional "accredited investor" (as defined below) that, prior to
such transfer, furnishes to the Trustee (as defined in the Indenture) a signed
letter containing certain representations and agreements relating to the
restrictions on transfer of the Notes (the form of which letter can be obtained
from the Trustee) and, if such transfer is in respect of an aggregate principal
amount of Notes of less than $250,000, an opinion of counsel acceptable to the
Issuer that such transfer is in compliance with the Securities Act, (D) outside
the United States in accordance with Rule 904 of Regulation S under the
Securities Act, (E) pursuant to the exemption from registration provided by
Rule 144 under the Securities Act (if available) or (F) pursuant to an
effective registration statement under the Securities Act, and we further agree
to provide to any person purchasing any of the Notes from us a notice advising
such purchaser that resales of the Notes are restricted as stated herein and
(2) in each case, in accordance with any applicable securities laws of any
state in the United States or any other applicable jurisdiction and in
accordance with the legend to be set forth in the Notes, which will reflect the
substance of this paragraph.
4. We understand that, on any proposed resale of any Notes, we will be
required to furnish to the Issuer and the Trustee such certifications, legal
opinions and other information as the Issuer and the Trustee may reasonably
require to confirm that the proposed sale complies with the foregoing
restrictions.
5. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the Notes, and
we and any accounts for which we are acting are each able to bear the economic
risks of our or their investment.
6. We are acquiring the Notes purchased by us for our own account or for
one or more accounts (each of which is an institutional "accredited investor")
as to each of which we exercise sole investment discretion.
7. We are not acquiring the Notes with a view to distribution thereof or
with any present intention of offering or selling the Notes, except as
permitted above, provided that the disposition of our property and property of
any accounts for which we are acting as fiduciary shall remain at all times
within our control.
<PAGE> 179
You, the Issuer and the Trustee are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby.
Very truly yours,
By:_________________
Name:
Title:
<PAGE> 180
EXHIBIT L
CORE LEASE PROVISIONS
1. Representations and Warranties, etc.
representations and warranties or a legal opinion or such other comfort
acceptable to the lessor as to, without limitation, the due execution of
such lease by the related lessee and the validity of such lessee's
obligations thereunder, due authorization of such lease and procurement
of relevant licenses and permits in connection therewith;
2. Subleasing
permission to sublease only if the primary lessee thereunder remains
obligated to make payments on such primary lease, except with respect to
the specific classes of sublessees and under the specific conditions
provided in such lease;
3. Permitted Encumbrances
provisions requiring the lessee not to create any Encumbrances in
respect of the aircraft or the related engines, except for exceptions
thereto consistent with the reasonable commercial practices of leading
international aircraft operating lessors, including Encumbrances not
affecting the use or operation of the aircraft arising in the ordinary
course of the lessee's business;
4. No Right to Sell
the lease shall not permit a lessee to sell any aircraft except, with
respect to an aircraft the subject of a purchase option, pursuant to an
agreement entered into by such lessee prior to the exercise of such
purchase option to sell or otherwise transfer ownership of such aircraft
upon the exercise of such purchase option;
5. Events of Loss
provisions stipulating that the lease will terminate in the event of a
Total Loss of the relevant aircraft;
6. Return of Aircraft
provisions for redelivery of the relevant aircraft, including, if
applicable, replacement engines and parts, on expiry or termination of
the lease (other than any expiration or termination coincident with the
purchase of the
<PAGE> 181
relevant aircraft pursuant to exercise of a purchase option by the
relevant lessee or in cases in which such lease provides for retention
of the relevant Aircraft by the lessee or for delivery to a third
party), specifying the required return condition and any obligation
upon the lessee to remedy or compensate the lessor, directly or
indirectly, for any material deviations from such return condition, in
each case considering the other terms of the relevant lease and to the
extent consistent with the reasonable commercial practices of leading
international aircraft operating lessors;
7. Termination Events
provisions setting forth the conditions under which the lessor may
terminate a lease and repossess the relevant aircraft, at any time after
the expiration of any agreed grace period or remedy period, in each case
consistent with the reasonable commercial practices of leading
international aircraft operating lessors;
8. Assignment
provisions prohibiting the assignment of any benefits or obligations
under the lease to any Person, subject to exceptions consistent with the
reasonable commercial practices of leading international aircraft
operating lessors;
9. Disclaimer of Conditions or Warranty
provisions acknowledging that when the Lessee gives formal notice of
acceptance of the relevant aircraft, it takes delivery of such aircraft
with no condition, warranty or representation of any kind having been
given by or on behalf of the lessor in respect of such aircraft, except
as to matters expressly set forth in the lease;
10. Net Lease
provisions stating the Lessee's obligation to make rental payments is
absolute and unconditional under any and all circumstances and
regardless of other events or similar provisions.
<PAGE> 1
Exhibit 4.3
Conformed Copy
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") is made and entered
into March 3, 1998, between MORGAN STANLEY AIRCRAFT FINANCE, a statutory
business trust organized under the laws of the State of Delaware (the
"ISSUER"), and MORGAN STANLEY & CO. INTERNATIONAL LIMITED (the
"REPRESENTATIVE").
This Agreement is made pursuant to the Purchase Agreement, dated as of
February 19, 1998 (the "PURCHASE AGREEMENT"), among the Issuer and the
Representative, on behalf of itself and the several other initial purchasers
named in Schedule I thereto (the "INITIAL PURCHASERS"), which provides for the
issue and sale by the Issuer to the Initial Purchasers of $1,050,000,000
aggregate principal amount of the Issuer's notes in the class and subclass
designations and in the respective aggregate principal amounts set forth in
Schedule I thereto (the "NOTES"). In order to induce the Initial Purchasers to
enter into the Purchase Agreement, the Issuer has agreed to provide to the
Initial Purchasers and their direct and indirect transferees the registration
rights set forth in this Agreement. The execution of this Agreement is a
condition to the closing under the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as follows:
1. Definitions.
As used in this Agreement, the following capitalized defined terms shall
have the following meanings:
"1933 ACT" shall mean the Securities Act of 1933, as amended from
time to time.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"CLOSING DATE" shall mean the Closing Date as defined in the
Purchase Agreement.
"ISSUER" shall have the meaning set forth in the preamble and shall
also include the Issuer's successors.
"EXCHANGE OFFER" shall mean the exchange offer by the Issuer of
Exchange Notes for Registrable Notes pursuant to Section 2(a) hereof.
"EXCHANGE OFFER REGISTRATION" shall mean a registration under the
1933 Act effected pursuant to Section 2(a) hereof.
<PAGE> 2
"EXCHANGE OFFER REGISTRATION STATEMENT" shall mean an exchange offer
registration statement on Form S-4 (or, if applicable, on another
appropriate form) and all amendments and supplements to such registration
statement, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"EXCHANGE NOTES" shall mean the subclasses of securities issued by
the Issuer under a supplement to the Indenture, containing terms
identical to the subclasses of Notes (except that (i) interest thereon
shall accrue from the last date on which interest was paid on the Notes
or, if no such interest has been paid, from March 3, 1998, and (ii) the
interest rate per annum on each subclass of the Exchange Notes shall be
the applicable interest rate set forth in the form of such subclass of
Notes without giving effect to any increase in such interest rate
pursuant to the definition of "Stated Interest Rate" contained in the
Indenture) and to be offered to Holders of Notes in exchange for Notes
pursuant to the Exchange Offer.
"HOLDER" shall mean the Representative, for so long as it owns any
Registrable Notes, and each of its successors, assigns and direct and
indirect transferees who become registered owners of Registrable Notes
under the Indenture; provided that for purposes of Sections 4 and 5 of
this Agreement, the term "Holder" shall include Participating
Broker-Dealers (as defined in Section 4(a)).
"INDENTURE" shall mean the Indenture relating to the Notes dated as
of March 3, 1998 between the Issuer and Bankers Trust Company, as
trustee, as the same may be amended, supplemented or otherwise modified
from time to time in accordance with the terms thereof.
"MAJORITY HOLDERS" shall mean the Holders of a majority of the
aggregate principal amount of outstanding Registrable Notes; provided
that whenever the consent or approval of Holders of a specified
percentage of Registrable Notes is required hereunder, Registrable Notes
held by the Issuer shall not be counted in determining whether such
consent or approval was given by the Holders of such required percentage
or amount.
"REPRESENTATIVE" shall have the meaning set forth in the preamble.
"PERSON" shall mean an individual, partnership, corporation, trust
or unincorporated organization, or a government or agency or political
subdivision thereof.
"PURCHASE AGREEMENT" shall have the meaning set forth in the
preamble.
"PROSPECTUS" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus
as amended or supplemented by any prospectus supplement, including a
prospectus supplement with respect to the terms of the offering of any
portion of the Registrable Notes covered by a Shelf Registration
Statement, and by all other amendments and supplements to such
<PAGE> 3
prospectus, and in each case including all material incorporated by
reference therein.
"REGISTRABLE NOTES" shall mean the Notes; provided, however, that
the Notes shall cease to be Registrable Notes (i) when a Registration
Statement with respect to such Notes shall have been declared effective
under the 1933 Act and such Notes shall have been disposed of pursuant to
such Registration Statement, (ii) when such Notes have been sold to the
public pursuant to Rule 144(k) (or any similar provision then in force,
but not Rule 144A) under the 1933 Act or (iii) when such Notes shall have
ceased to be outstanding.
"REGISTRATION EXPENSES" shall mean any and all expenses incident to
performance of or compliance by the Issuer with this Agreement, including
without limitation: (i) all SEC, stock exchange or National Association
of Securities Dealers, Inc. registration and filing fees, (ii) all fees
and expenses incurred in connection with compliance with state securities
or "blue sky" laws (including reasonable fees and disbursements of
counsel for any underwriters or Holders in connection with "blue sky"
qualification of any of the Exchange Notes or Registrable Notes), (iii)
all expenses of any Persons in preparing or assisting in preparing, word
processing, printing and distributing any Registration Statement, any
Prospectus, any amendments or supplements thereto, any underwriting
agreements, securities sales agreements and other documents relating to
the performance of and compliance with this Agreement, (iv) all rating
agency fees, (v) all fees and disbursements relating to the qualification
of the Indenture under applicable securities laws, (vi) the fees and
disbursements of the Trustee and its counsel, (vii) the fees and
disbursements of counsel for the Issuer and, in the case of a Shelf
Registration Statement, the fees and disbursements of one counsel for the
Holders which counsel shall be counsel for the Initial Purchasers and
(viii) the fees and disbursements of the independent public accountants
of the Issuer, including the expenses of any special audits or "cold
comfort" letters required by or incident to such performance and
compliance, but excluding fees and expenses of counsel to the
underwriters (other than fees and expenses set forth in clause (ii)
above) or the Holders and underwriting discounts and commissions and
transfer taxes, if any, relating to the sale or disposition of
Registrable Notes by a Holder.
"REGISTRATION STATEMENT" shall mean any registration statement of
the Issuer that covers any of the Exchange Notes or Registrable Notes
pursuant to the provisions of this Agreement and all amendments and
supplements to any such Registration Statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"SEC" shall mean the Securities and Exchange Commission.
"SHELF REGISTRATION" shall mean a registration effected pursuant to
Section 2(b) hereof.
"SHELF REGISTRATION STATEMENT" shall mean a "shelf" registration
statement of the Issuer pursuant to the provisions of Section 2(b) of
this Agreement which covers all of the Registrable Notes (but no other
securities unless approved by the Holders
<PAGE> 4
whose Registrable Notes are covered by such Shelf Registration Statement)
on an appropriate form under Rule 415 under the 1933 Act, or any similar
rule that may be adopted by the SEC, and all amendments and supplements
to such registration statement, including post-effective amendments, in
each case including the Prospectus contained therein, all exhibits
thereto and all material incorporated by reference therein.
"TRUSTEE" shall mean the trustee with respect to the Notes under the
Indenture.
"UNDERWRITTEN REGISTRATION" or "UNDERWRITTEN OFFERING" shall mean a
registration in which Registrable Notes are sold to an Underwriter (as
hereinafter defined) for reoffering to the public.
2. Registration Under the 1933 Act.
(a) To the extent not prohibited by any applicable law or applicable
interpretation of the Staff of the SEC, the Issuer shall use its best efforts
to cause to be filed an Exchange Offer Registration Statement covering the
offer by the Issuer to the Holders to exchange all of the Registrable Notes for
Exchange Notes and to have such Registration Statement remain effective until
the closing of the Exchange Offer. The Issuer shall commence the Exchange
Offer promptly after the Exchange Offer Registration Statement has been
declared effective by the SEC and use its best efforts to have the Exchange
Offer consummated not later than 60 days after such effective date. The Issuer
shall commence the Exchange Offer by mailing the related exchange offer
Prospectus and accompanying documents to each Holder stating, in addition to
such other disclosures as are required by applicable law:
(i) that the Exchange Offer is being made pursuant to this
Registration Rights Agreement and that all Registrable Notes validly
tendered will be accepted for exchange;
(ii) the dates of acceptance for exchange (which shall be a period
of not less than 20 business days commencing from the date such notice is
mailed) (the "EXCHANGE DATES");
(iii) that any Registrable Security not tendered will remain
outstanding and continue to accrue interest, but will not retain any
rights under this Registration Rights Agreement;
(iv) that Holders electing to have a Registrable Security exchanged
pursuant to the Exchange Offer will be required to surrender such
Registrable Security, together with the enclosed letters of transmittal,
to the institutions and at the addresses (located in the Borough of
Manhattan, The City of New York and in Luxembourg) specified in the
notice prior to the close of business on the last Exchange Date; and
(v) that Holders will be entitled to withdraw their election, not
later than
<PAGE> 5
the close of business on the last Exchange Date, by sending to the
applicable institution and at the address (located in either the Borough
of Manhattan, The City of New York or Luxembourg) specified in the notice
a telegram, telex, facsimile transmission or letter setting forth the
name of such Holder, the principal amount of Registrable Notes delivered
for exchange and a statement that such Holder is withdrawing his election
to have such Notes exchanged.
As soon as practicable after the last Exchange Date, the Issuer shall:
(i) accept for exchange Registrable Notes or portions thereof
tendered and not validly withdrawn pursuant to the Exchange Offer; and
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Registrable Notes or portions thereof so accepted for
exchange by the Issuer and issue, and cause the Trustee to promptly
authenticate and mail to each Holder, an Exchange Security equal in
principal amount to the principal amount of the Registrable Notes
surrendered by such Holder.
The Issuer shall use its best efforts to complete the Exchange Offer as
provided above and shall comply with the applicable requirements of the 1933
Act, the 1934 Act and other applicable laws and regulations in connection with
the Exchange Offer. The Exchange Offer shall not be subject to any conditions,
other than that the Exchange Offer does not violate applicable law or any
applicable interpretation of the Staff of the SEC. The Issuer shall inform the
Representative of the names and addresses of the Holders to whom the Exchange
Offer is made, and the Representative shall have the right, subject to
applicable law, to contact such Holders and otherwise facilitate the tender of
Registrable Notes in the Exchange Offer.
(b) In the event that (i) the Issuer determines that the Exchange Offer
Registration provided for in Section 2(a) above is not available or may not be
consummated as soon as practicable after the last Exchange Date because it
would violate applicable law or the applicable interpretations of the Staff of
the SEC, (ii) the Exchange Offer is not for any other reason consummated by the
date that is 270 days after the Closing Date or (iii) the Exchange Offer has
been completed and in the opinion of counsel for the Initial Purchasers a
Registration Statement must be filed and a Prospectus must be delivered by the
Representative in connection with any offering or sale of Registrable Notes,
the Issuer shall use its best efforts to cause to be filed as soon as
practicable after such determination, date or notice of such opinion of counsel
is given to the Issuer, as the case may be, a Shelf Registration Statement
providing for the sale by the Holders of all of the Registrable Notes and to
have such Shelf Registration Statement declared effective by the SEC. The
Issuer agrees to use its best efforts to keep the Shelf Registration Statement
continuously effective until the second anniversary of the Closing Date or such
shorter period that will terminate when all of the Registrable Notes covered by
the Shelf Registration Statement have been sold pursuant to the Shelf
Registration Statement. The Issuer further agrees to supplement or amend the
Shelf Registration Statement if required by the rules, regulations or
instructions applicable to the registration form used by the Issuer for such
Shelf Registration Statement or by the 1933 Act or by any other rules and
regulations thereunder for shelf registration or if reasonably requested by a
Holder with respect to information relating to such Holder, and to
<PAGE> 6
use its best efforts to cause any such amendment to become effective and such
Shelf Registration Statement to become usable as soon as thereafter
practicable. The Issuer agrees to furnish to the Holders of Registrable Notes
copies of any such supplement or amendment promptly after its being used or
filed with the SEC.
(c) The Issuer shall pay all Registration Expenses in connection with the
registration pursuant to Section 2(a) or Section 2(b). Each Holder shall pay
all underwriting discounts and commissions and transfer taxes, if any, relating
to the sale or disposition of such Holder's Registrable Notes pursuant to the
Shelf Registration Statement.
(d) An Exchange Offer Registration Statement pursuant to Section 2(a)
hereof or a Shelf Registration Statement pursuant to Section 2(b) hereof will
not be deemed to have become effective unless it has been declared effective by
the SEC; provided, however, that, if, after it has been declared effective, the
offering of Registrable Notes pursuant to a Shelf Registration Statement is
interfered with by any stop order, injunction or other order or requirement of
the SEC or any other governmental agency or court, such Registration Statement
will be deemed not to have become effective during the period of such
interference until the offering of Registrable Notes pursuant to such
Registration Statement may legally resume. As provided for in the Indenture,
from and after the date that is 270 days after the Closing Date, the interest
rate on each subclass of Notes will be increased by 0.50% per annum until the
completion of an Exchange Offer or the date a Shelf Registration Statement is
declared effective by the SEC, whereupon the interest rate on each subclass of
Notes will permanently decrease to the applicable interest rate provided for
such subclass of Note.
(e) Without limiting the remedies available to the Representative and the
Holders, the Issuer acknowledges that any failure by the Issuer to comply with
its obligations under Section 2(a) and Section 2(b) hereof may result in
material irreparable injury to the Representative or the Holders for which
there is no adequate remedy at law, that it will not be possible to measure
damages for such injuries precisely and that, in the event of any such failure,
the Representative or any Holder may obtain such relief as may be required to
specifically enforce the Issuer's obligations under Section 2(a) and Section
2(b) hereof.
3. Registration Procedures.
In connection with the obligations of the Issuer with respect to the
Registration Statements pursuant to Section 2(a) and Section 2(b) hereof, the
Issuer shall as expeditiously as possible:
(a) prepare and file with the SEC a Registration Statement on the
appropriate form under the 1933 Act, which form (x) shall be selected by
the Issuer and (y) shall, in the case of a Shelf Registration, be
available for the sale of the Registrable Notes by the selling Holders
thereof and (z) shall comply as to form in all material respects with the
requirements of the applicable form and include all financial statements
required by the SEC to be filed therewith, and use its best efforts to
cause such Registration Statement to become effective and remain
effective in accordance with Section 2 hereof;
<PAGE> 7
(b) prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary to keep
such Registration Statement effective for the applicable period and cause
each Prospectus to be supplemented by any required prospectus supplement
and, as so supplemented, to be filed pursuant to Rule 424 under the 1933
Act; to keep each Prospectus current during the period described under
Section 4(3) and Rule 174 under the 1933 Act that is applicable to
transactions by brokers or dealers with respect to the Registrable Notes
or Exchange Notes;
(c) in the case of a Shelf Registration, furnish to each Holder of
Registrable Notes, to counsel for the Representative, to counsel for the
Holders and to each Underwriter of an Underwritten Offering of
Registrable Notes, if any, without charge, as many copies of each
Prospectus, including each preliminary Prospectus, and any amendment or
supplement thereto and such other documents as such Holder or Underwriter
may reasonably request, in order to facilitate the public sale or other
disposition of the Registrable Notes; and the Issuer consents to the use
of such Prospectus and any amendment or supplement thereto in accordance
with applicable law by each of the selling holders of Registrable Notes
and any such Underwriters in connection with the offering and sale of the
Registrable Notes covered by and in the manner described in such
Prospectus or any amendment or supplement thereto in accordance with
applicable law;
(d) use its best efforts to register or qualify the Registrable
Notes under all applicable state securities or "blue sky" laws of such
jurisdictions as any Holder of Registrable Notes covered by a
Registration Statement shall reasonably request in writing by the time
the applicable Registration Statement is declared effective by the SEC,
to cooperate with such Holders in connection with any filings required to
be made with the National Association of Securities Dealers, Inc. and do
any and all other acts and things which may be reasonably necessary or
advisable to enable such Holder to consummate the disposition in each
such jurisdiction of such Registrable Notes owned by such Holder;
provided, however, that the Issuer shall not be required to (i) qualify
as a foreign corporation or as a dealer in securities in any jurisdiction
where it would not otherwise be required to qualify but for this Section
3(d), (ii) file any general consent to service of process or (iii)
subject itself to taxation in any such jurisdiction if it is not so
subject;
(e) in the case of a Shelf Registration, notify each Holder of
Registrable Notes, counsel for the Holders and counsel for the
Representative promptly and, if requested by any such Holder or counsel,
confirm such advice in writing (i) when a Registration Statement has
become effective and when any post-effective amendment thereto has been
filed and becomes effective, (ii) of any request by the SEC or any state
securities authority for amendments and supplements to a Registration
Statement and Prospectus or for additional information after the
Registration Statement has become effective, (iii) of the issuance by the
SEC or any state securities authority of any stop order suspending the
effectiveness of a Registration Statement or the initiation of any
proceedings for that purpose, (iv) if, between the effective date of a
Registration Statement and the closing of any sale of Registrable Notes
covered
<PAGE> 8
thereby, the representations and warranties of the Issuer contained in
any underwriting agreement, securities sales agreement or other similar
agreement, if any, relating to the offering cease to be true and correct
in all material respects or if the Issuer receives any notification with
respect to the suspension of the qualification of the Registrable Notes
for sale in any jurisdiction or the initiation of any proceeding for such
purpose, (v) of the happening of any event during the period a Shelf
Registration Statement is effective which makes any statement made in
such Registration Statement or the related Prospectus untrue in any
material respect or which requires the making of any changes in such
Registration Statement or Prospectus in order to make the statements
therein not misleading and (vi) of any determination by the Issuer that a
post-effective amendment to a Registration Statement would be
appropriate;
(f) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement at the
earliest possible moment and provide immediate notice to each Holder of
the withdrawal of any such order;
(g) in the case of a Shelf Registration, furnish to each Holder of
Registrable Notes, without charge, at least one conformed copy of each
Registration Statement and any post-effective amendment thereto (without
documents incorporated therein by reference or exhibits thereto, unless
requested);
(h) in the case of a Shelf Registration, cooperate with the selling
Holders of Registrable Notes to facilitate the timely preparation and
delivery of certificates representing Registrable Notes to be sold and
not bearing any restrictive legends and enable such Registrable Notes to
be in such denominations (consistent with the provisions of the
Indenture) and registered in such names as the selling Holders may
reasonably request at least two business days prior to the closing of any
sale of Registrable Notes;
(i) in the case of a Shelf Registration, upon the occurrence of any
event contemplated by Section 3(e)(v) hereof, use its best efforts to
prepare and file with the SEC a supplement or post-effective amendment to
a Registration Statement or the related Prospectus or any document
incorporated therein by reference or file any other required document so
that, as thereafter delivered to the purchasers of the Registrable Notes,
such Prospectus will not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The Issuer agrees to notify the Holders to suspend use of
the Prospectus as promptly as practicable after the occurrence of such an
event, and the Holders hereby agree to suspend use of the Prospectus
until the Issuer has amended or supplemented the Prospectus to correct
such misstatement or omission;
(j) a reasonable time prior to the filing of any Registration
Statement, any Prospectus, any amendment to a Registration Statement or
amendment or supplement to a Prospectus or any document which is to be
incorporated by reference into a Registration Statement or a Prospectus
after initial filing of a Registration Statement,
<PAGE> 9
provide copies of such document to the Representative and its counsel
(and, in the case of a Shelf Registration Statement, the Holders and
their counsel) and make such of the representatives of the Issuer as
shall be reasonably requested by the Representative or its counsel (and,
in the case of a Shelf Registration Statement, the Holders or their
counsel) available for discussion of such document, and shall not at any
time file or make any amendment to the Registration Statement, any
Prospectus or any amendment of or supplement to a Registration Statement
or a Prospectus or any document which is to be incorporated by reference
into a Registration Statement or a Prospectus, of which the
Representative and its counsel (and, in the case of a Shelf Registration
Statement, the Holders and their counsel) shall not have previously been
advised and furnished a copy or to which the Representative or its
counsel (and, in the case of a Shelf Registration Statement, the Holders
or their counsel) shall object;
(k) obtain a CUSIP number and such other identification numbers as
may be necessary for all Exchange Notes or Registrable Notes, as the case
may be, not later than the effective date of a Registration Statement;
(l) use its best efforts to list the Exchange Notes, if any, on the
Luxembourg Stock Exchange not later than the Effective Date of an
Exchange Offer Registration Statement;
(m) cause the Indenture to be qualified under the Trust Indenture
Act of 1939, as amended (the "TIA"), in connection with the registration
of the Exchange Notes or Registrable Notes, as the case may be, cooperate
with the Trustee and the Holders to effect such changes to the Indenture
as may be required for the Indenture to be so qualified in accordance
with the terms of the TIA and execute, and use its best efforts to cause
the Trustee to execute, all documents as may be required to effect such
changes and all other forms and documents required to be filed with the
SEC to enable the Indenture to be so qualified in a timely manner;
(n) in the case of a Shelf Registration, make available for
inspection by a representative of the Holders of the Registrable Notes,
any Underwriter participating in any disposition pursuant to such Shelf
Registration Statement, and attorneys and accountants designated by the
Holders, at reasonable times and in a reasonable manner, all financial
and other records, pertinent documents and properties of the Issuer, and
cause the respective officers, directors and employees of the Issuer to
supply all information reasonably requested by any such representative,
Underwriter, attorney or accountant in connection with a Shelf
Registration Statement;
(o) in the case of a Shelf Registration, use its best efforts to
cause all Registrable Notes to be listed on any securities exchange or
any automated quotation system on which similar securities issued by the
Issuer are then listed if requested by the Majority Holders, to the
extent such Registrable Notes satisfy applicable listing requirements;
(p) use its best efforts to cause the Exchange Notes or Registrable
Notes,
<PAGE> 10
as the case may be, to be rated by Standard Poor's Ratings Group, Moody's
Investors Service, Inc. and Duff & Phelps Credit Rating Co. or two other
nationally recognized statistical rating organizations (as such term is
defined in Rule 436(g)(2) under the 1933 Act);
(q) if reasonably requested by any Holder of Registrable Notes
covered by a Registration Statement, (i) promptly incorporate in a
Prospectus supplement or post-effective amendment such information with
respect to such Holder as such Holder reasonably requests to be included
therein and (ii) make all required filings of such Prospectus supplement
or such post-effective amendment as soon as the Issuer has received
notification of the matters to be incorporated in such filing; and
(r) in the case of a Shelf Registration, enter into such customary
agreements and take all such other actions in connection therewith
(including those requested by the Holders of a majority of the
Registrable Notes being sold) in order to expedite or facilitate the
disposition of such Registrable Notes including, but not limited to, an
Underwritten Offering and in such connection, (i) to the extent possible,
make such representations and warranties to the Holders and any
Underwriters of such Registrable Notes with respect to the business of
the Issuer and its subsidiaries, the Registration Statement, Prospectus
and documents incorporated by reference or deemed incorporated by
reference, if any, in each case, in form, substance and scope as are
customarily made by issuers to underwriters in underwritten offerings and
confirm the same if and when requested, (ii) obtain opinions of counsel
to the Issuer (which counsel and opinions, in form, scope and substance,
shall be reasonably satisfactory to the Holders and such Underwriters and
their respective counsel) addressed to each selling Holder and
Underwriter of Registrable Notes, covering the matters customarily
covered in opinions requested in underwritten offerings, (iii) obtain
"cold comfort" letters from the independent certified public accountants
of the Issuer (and, if necessary, any other certified public accountant
of any subsidiary of the Issuer, or of any business acquired by the
Issuer for which financial statements and financial data are or are
required to be included in the Registration Statement) addressed to each
selling Holder and Underwriter of Registrable Notes, such letters to be
in customary form and covering matters of the type customarily covered in
"cold comfort" letters in connection with underwritten offerings, and
(iv) deliver such documents and certificates as may be reasonably
requested by the Holders of a majority in principal amount of the
Registrable Notes being sold or the Underwriters, and which are
customarily delivered in underwritten offerings, to evidence the
continued validity of the representations and warranties of the Issuer
made pursuant to clause (i) above and to evidence compliance with any
customary conditions contained in an underwriting agreement.
In the case of a Shelf Registration Statement, the Issuer may require each
Holder of Registrable Notes to furnish to the Issuer such information regarding
the Holder and the proposed distribution by such Holder of such Registrable
Notes as the Issuer may from time to time reasonably request in writing.
In the case of a Shelf Registration Statement, each Holder agrees that,
upon
<PAGE> 11
receipt of any notice from the Issuer of the happening of any event of the kind
described in Section 3(e)(v) hereof, such Holder will forthwith discontinue
disposition of Registrable Notes pursuant to a Registration Statement until
such Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 3(i) hereof, and, if so directed by the Issuer, such
Holder will deliver to the Issuer (at its expense) all copies in its
possession, other than permanent file copies then in such Holder's possession,
of the Prospectus covering such Registrable Notes current at the time of
receipt of such notice. If the Issuer shall give any such notice to suspend
the disposition of Registrable Notes pursuant to a Registration Statement, the
Issuer shall extend the period during which the Registration Statement shall be
maintained effective pursuant to this Agreement by the number of days during
the period from and including the date of the giving of such notice to and
including the date when the Holders shall have received copies of the
supplemented or amended Prospectus necessary to resume such dispositions. The
Issuer may give any such notice only twice during any 365 day period and any
such suspensions may not exceed 30 days for each suspension and there may not
be more than two suspensions in effect during any 365 day period.
The Holders of Registrable Notes covered by a Shelf Registration Statement
who desire to do so may sell such Registrable Notes in an Underwritten
Offering. In any such Underwritten Offering, the investment banker or
investment bankers and manager or managers (the "UNDERWRITERS") that will
administer the offering will be selected by the Majority Holders of the
Registrable Notes included in such offering.
4. Participation of Broker-Dealers in Exchange Offer.
(a) The Issuer shall require each holder of Notes who wishes to exchange
any such Notes for Exchange Notes in the Exchange Offer to represent that (i)
it is neither an affiliate of the Issuer nor a broker-dealer tendering Notes
acquired directly from the Issuer for its own account, (ii) any Exchange Notes
to be received by it are being acquired in the ordinary course of its business
and (iii) at the time of commencement of the Exchange Offer, it has no
arrangement with any person to participate in a distribution (within the
meaning of the 1933 Act) of the Exchange Notes.
The Staff of the SEC has taken the position that any broker-dealer that
receives Exchange Notes for its own account in the Exchange Offer in exchange
for Notes that were acquired by such broker-dealer as a result of market-making
or other trading activities (a "PARTICIPATING BROKER-DEALER"), may be deemed to
be an "underwriter" within the meaning of the 1933 Act and must deliver a
prospectus meeting the requirements of the 1933 Act in connection with any
resale of such Exchange Notes.
The Issuer understands that it is the Staff's position that if the
Prospectus contained in the Exchange Offer Registration Statement includes a
plan of distribution containing a statement to the above effect and the means
by which Participating Broker-Dealers may resell the Exchange Notes, without
naming the Participating Broker-Dealers or specifying the amount of Exchange
Notes owned by them, such Prospectus may be delivered by Participating
Broker-Dealers to satisfy their prospectus delivery obligation under the 1933
Act in connection with resales of Exchange Notes for their own
<PAGE> 12
accounts, so long as the Prospectus otherwise meets the requirements of the
1933 Act.
(b) In light of the above, notwithstanding the other provisions of this
Agreement, the Issuer agrees that the provisions of this Agreement as they
relate to a Shelf Registration shall also apply to an Exchange Offer
Registration to the extent, and with such reasonable modifications thereto as
may be reasonably requested by the Representative or by one or more
Participating Broker-Dealers, in each case as provided in clause (ii) below, in
order to expedite or facilitate the disposition of any Exchange Notes by
Participating Broker-Dealers consistent with the positions of the Staff recited
in Section 4(a) above; provided that:
(i) the Issuer shall not be required to amend or supplement the
Prospectus contained in the Exchange Offer Registration Statement, as
would otherwise be contemplated by Section 3(i), for a period exceeding
180 days after the last Exchange Date (as such period may be extended
pursuant to the penultimate paragraph of Section 3 of this Agreement) and
Participating Broker-Dealers shall not be authorized by the Issuer to
deliver and shall not deliver such Prospectus after such period in
connection with the resales contemplated by this Section 4; and
(ii) the application of the Shelf Registration procedures set forth
in Section 3 of this Agreement to an Exchange Offer Registration, to the
extent not required by the positions of the Staff of the SEC or the 1933
Act and the rules and regulations thereunder, will be in conformity with
the reasonable request to the Issuer by the Representative or with the
reasonable request in writing to the Issuer by one or more broker-dealers
who certify to the Representative and the Issuer in writing that they
anticipate that they will be Participating Broker-Dealers; and provided
further that, in connection with such application of the Shelf
Registration procedures set forth in Section 3 to an Exchange Offer
Registration, the Issuer shall be obligated (x) to deal only with one
entity representing the Participating Broker-Dealers, which shall be the
Representative unless it elects not to act as such representative, (y) to
pay the fees and expenses of only one counsel representing the
Participating Broker-Dealers, which shall be counsel to the
Representative unless such counsel elects not to so act and (z) to cause
to be delivered only one, if any, "cold comfort" letter with respect to
the Prospectus in the form existing on the last Exchange Date and with
respect to each subsequent amendment or supplement, if any, effected
during the period specified in clause (i) above.
(c) The Representative shall have no liability to the Issuer or any Holder
with respect to any request that it may make pursuant to Section 4(b) above.
5. Indemnification and Contribution.
(a) The Issuer agrees to indemnify and hold harmless the Representative,
each Holder and each person, if any, who controls the Representative or any
Holder within the meaning of either Section 15 of the 1933 Act or Section 20 of
the 1934 Act, or is under common control with, or is controlled by, the
Representative or any Holder, from and against all losses, claims, damages and
liabilities (including, without limitation, any legal or other
<PAGE> 13
expenses reasonably incurred by the Representative, any Holder or any such
controlling or affiliated person in connection with defending or investigating
any such action or claim) caused by any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement (or any
amendment thereto) pursuant to which Exchange Notes or Registrable Notes were
registered under the 1933 Act, including all documents incorporated therein by
reference, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or caused by any untrue statement or alleged untrue
statement of a material fact contained in any Prospectus (as amended or
supplemented if the Issuer shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact necessary to make the statements therein in light of the
circumstances under which they were made not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission or alleged untrue statement or omission based upon information
relating to an Initial Purchaser or any Holder furnished to the Issuer in
writing by the Representative or any selling Holder expressly for use therein.
In connection with any Underwritten Offering permitted by Section 3, the Issuer
will also indemnify the Underwriters, if any, selling brokers, dealers and
similar securities industry professionals participating in the distribution,
their officers and directors and each Person who controls such Persons (within
the meaning of the Securities Act and the Exchange Act) to the same extent as
provided above with respect to the indemnification of the Holders, if requested
in connection with any Registration Statement.
(b) Each Holder agrees, severally and not jointly, to indemnify and hold
harmless the Issuer, the Representative and the other selling Holders, and each
of their respective trustees, directors, officers who sign the Registration
Statement and each Person, if any, who controls the Issuer, the Representative
and any other selling Holder within the meaning of either Section 15 of the
1933 Act or Section 20 of the 1934 Act to the same extent as the foregoing
indemnity from the Issuer to the Representative and the Holders, but only with
reference to information relating to such Holder furnished to the Issuer in
writing by such Holder expressly for use in any Registration Statement (or any
amendment thereto) or any Prospectus (or any amendment or supplement thereto).
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to either paragraph (a) or paragraph (b) above, such person
(the "INDEMNIFIED PARTY") shall promptly notify the person against whom such
indemnity may be sought (the "INDEMNIFYING PARTY") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding
and shall pay the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel, but the fees and expenses of such counsel shall be
at the expense of such indemnified party unless (i) the indemnifying party and
the indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. It
is understood that
<PAGE> 14
the indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for (a) the fees and expenses
of more than one separate firm (in addition to any local counsel) for the
Representative and all persons, if any, who control the Representative within
the meaning of either Section 15 of the 1933 Act or Section 20 of the 1934 Act,
(b) the fees and expenses of more than one separate firm (in addition to any
local counsel) for the Issuer, its directors, its officers who sign the
Registration Statement and each person, if any, who controls the Issuer within
the meaning of either such Section and (c) the fees and expenses of more than
one separate firm (in addition to any local counsel) for all Holders and all
persons, if any, who control any Holders within the meaning of either such
Section, and that all such fees and expenses shall be reimbursed as they are
incurred. In such case involving the Representative and persons who control
the Representative, such firm shall be designated in writing by the
Representative. In such case involving the Holders and such persons who
control Holders, such firm shall be designated in writing by the Majority
Holders. In all other cases, such firm shall be designated by the Issuer. The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent but, if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by
reason of such settlement or judgment. No indemnifying party shall, without
the prior written consent of the indemnified party, effect any settlement of
any pending or threatened proceeding in respect of which such indemnified party
is or could have been a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional
release of such indemnified party from all liability on claims that are the
subject matter of such proceeding.
(d) If the indemnification provided for in paragraph (a) or paragraph (b)
of this Section 4 is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities, then each indemnifying
party under such paragraph, in lieu of indemnifying such indemnified party
thereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or liabilities in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party or parties on the one hand and of the indemnified party or parties on the
other hand in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the Issuer and the Holders shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Issuer or by the
Holders and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Holders'
respective obligations to contribute pursuant to this Section 5(d) are several
in proportion to the respective number of Registrable Notes of such Holder that
were registered pursuant to a Registration Statement.
(e) The Issuer and each Holder agree that it would not be just or
equitable if contribution pursuant to this Section 5 were determined by pro
rata allocation or by any other method of allocation that does not take account
of the equitable considerations referred to in paragraph (d) above. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages and liabilities referred to in paragraph (d) above shall be deemed to
include, subject to the limitations set forth above, any legal or other
expenses reasonably
<PAGE> 15
incurred by such indemnified party in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of this
Section 5, no Holder shall be required to indemnify or contribute any amount in
excess of the amount by which the total price at which Registrable Notes were
sold by such Holder exceeds the amount of any damages that such Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall
be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The remedies provided for in this Section 5 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
The indemnity and contribution provisions contained in this Section 5
shall remain operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of
the Representative, any Holder or any person controlling the Representative or
any Holder, or by or on behalf of the Issuer, its officers or directors or any
person controlling the Issuer, (iii) acceptance of any of the Exchange Notes
and (iv) any sale of Registrable Notes pursuant to a Shelf Registration
Statement.
6. Miscellaneous.
(a) No Inconsistent Agreements. The Issuer has not entered into, and on
or after the date of this Agreement will not enter into, any agreement which is
inconsistent with the rights granted to the Holders of Registrable Notes in
this Agreement or otherwise conflicts with the provisions hereof. The rights
granted to the Holders hereunder do not in any way conflict with and are not
inconsistent with the rights granted to the holders of the Issuer's other
issued and outstanding securities under any such agreements.
(b) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given unless the Issuer has obtained the written consent of Holders of at least
a majority in aggregate principal amount of the outstanding Registrable Notes
affected by such amendment, modification, supplement, waiver or consent;
provided, however, that no amendment, modification, supplement, waiver or
consents to any departure from the provisions of Section 5 hereof shall be
effective as against any Holder of Registrable Notes unless consented to in
writing by such Holder.
(c) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (i) if to a Holder, at the most current address given by such Holder
to the Issuer by means of a notice given in accordance with the provisions of
this Section 6(c), which address initially is, with respect to the
Representative, the address set forth in the Purchase Agreement; and (ii) if to
the Issuer, initially at the Issuer's address set forth in the Purchase
Agreement and thereafter at such other address, notice of which is given in
accordance with the provisions of this Section 6(c).
All such notices and communications shall be deemed to have been duly
<PAGE> 16
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt is acknowledged, if telecopied; and on
the next business day if timely delivered to an air courier guaranteeing
overnight delivery.
Copies of all such notices, demands, or other communications shall be
concurrently delivered by the person giving the same to the Trustee, at the
address specified in the Indenture.
(d) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders; provided that nothing herein shall be deemed to
permit any assignment, transfer or other disposition of Registrable Notes in
violation of the terms of the Purchase Agreement. If any transferee of any
Holder shall acquire Registrable Notes, in any manner, whether by operation of
law or otherwise, such Registrable Notes shall be held subject to all of the
terms of this Agreement, and by taking and holding such Registrable Notes such
person shall be conclusively deemed to have agreed to be bound by and to
perform all of the terms and provisions of this Agreement and such person shall
be entitled to receive the benefits hereof. The Representative (in its
capacity as Representative) shall have no liability or obligation to the Issuer
with respect to any failure by a Holder to comply with, or any breach by any
Holder of, any of the obligations of such Holder under this Agreement.
(e) Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Issuer, on the one
hand, and the Representative, on the other hand, and shall have the right to
enforce such agreements directly to the extent it deems such enforcement
necessary or advisable to protect its rights or the rights of Holders
hereunder.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York.
(i) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
<PAGE> 17
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
MORGAN STANLEY AIRCRAFT FINANCE
By /s/ C. Scott Peterson
----------------------
Name: C. Scott Peterson
Alternate Signatory Trustee
Confirmed and accepted as of
the date first above written:
MORGAN STANLEY & CO. INTERNATIONAL
LIMITED
By /s/ Maurice Mason
------------------
Name: Maurice Mason
Title: Executive Director
<PAGE> 1
EXHIBIT 5.1
DAVIS POLK & WARDWELL
<TABLE>
<S> <C> <C>
450 LEXINGTON AVENUE 1 FREDERICK'S PLACE 17-22, AKASAKA 2-CHOME
NEW YORK, N.Y. 10017 LONDON EC2R 8AB MINATO-KU, TOKYO 107
------ TELEPHONE 0171-418 1300 ------
1300 I STREET, N.W. FAX 0171-418 1400 MESSKTURM
WASHINGTON, D.C. 20005 60308 FRANKFURT AM MAIN
------ WRITER'S DIRECT: ------
4, PLACE DE LA CONCORDE 3A CHATER ROAD
75000 PARIS HONG KONG
------
PARTNERS RESIDENT IN LONDON
CHARLES S. WHITMAN, III
DAVID M. WELLS
PAUL KUMLEBEN
RANDALL D. GUYNN
THOMAS J. REID
JOHN D. PATON
MARGARET E. TAHYAR
</TABLE>
June 11, 1998
Morgan Stanley Aircraft Finance
c/o Wilmington Trust Company
1100 North Market Street
Rodney Square North
Wilmington, Delaware 19890-1000
Dear Sirs:
We have acted as counsel to Morgan Stanley Aircraft Finance ("MSAF") in
connection with MSAF's offer (the "Exchange Offer") to exchange five subclasses
of its Notes due March 15, 2023 (the "New Notes") for any and all of its
outstanding subclasses of Notes due March 15, 2023 (the "Old Notes").
We have examined originals or copies, certified or otherwise identified to
our satisfaction, of such documents, corporate records, certificates of public
officials and other instruments as we have deemed necessary or advisable for the
purpose of rendering this opinion.
Based on the foregoing, we are of the opinion as follows:
(1) Assuming the due execution and delivery of the New Notes, the New
Notes, when executed, authenticated and delivered in exchange for the Old Notes
in accordance with the Exchange Offer will constitute valid and binding
obligations of MSAF enforceable in accordance with their terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and similar laws affecting creditors' rights generally and equitable
principles.
THE PRINCIPAL PLACE OF BUSINESS OF THE PARTNERSHIP IN GREAT BRITAIN IS THE
ADDRESS SET FORTH ABOVE AT WHICH A LIST OF THE PARTNERS' NAMES IS OPEN FOR
INSPECTION.
<PAGE> 2
Morgan Stanley Aircraft Finance 2 June 11, 1998
(2) The statements in the Prospectus under the captions "Taxation -- U.S.
Federal Income Tax Considerations", "Taxation -- Taxation of U.S. Holders" and
"Legal Matters" insofar as such statements constitute summaries of the legal
matters, documents or proceedings under the laws of the United States, fairly
summarize the matters referred to therein.
We are members of the Bar of the State of New York and we express no
opinion as to the laws of any jurisdiction other than the laws of the State of
New York and the federal laws of the United States of America.
We hereby consent to the use of our name under the captions "Taxation" and
"Legal Matters" in the Prospectus forming a part of the Registration Statement,
and to the filing of this opinion as an exhibit to the Registration Statement.
Very truly yours,
/s/ Davis Polk & Wardwell
<PAGE> 1
===============================================================================
CONFORMED COPY
Exhibit 10.1
ADMINISTRATIVE AGENCY AGREEMENT
among
MORGAN STANLEY AIRCRAFT FINANCE,
CABOT AIRCRAFT SERVICES LIMITED,
BANKERS TRUST COMPANY
and
THE ENTITIES LISTED ON APPENDIX A HERETO
Dated as of March 3, 1998
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
PAGE
----
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions....................................... 2
ARTICLE 2
APPOINTMENT; ADMINISTRATIVE SERVICES
SECTION 2.01. Appointment....................................... 6
SECTION 2.02. Limitations....................................... 6
SECTION 2.03. Administrative Services........................... 8
SECTION 2.04. Bank Account Management and Calculation Services.. 15
SECTION 2.05. Accounting Services............................... 19
SECTION 2.06. Additional Administrative Services................ 22
SECTION 2.07. Additional Aircraft............................... 22
SECTION 2.08. New Subsidiaries.................................. 22
SECTION 2.09. MSAF Group Responsibility......................... 23
ARTICLE 3
STANDARD OF PERFORMANCE; LIABILITY AND INDEMNITY
SECTION 3.01. Standard of Performance........................... 23
SECTION 3.02. Liability and Indemnity........................... 23
ARTICLE 4
ADMINISTRATIVE AGENT UNDERTAKINGS
SECTION 4.01. Administrative Agent Undertakings................. 25
ARTICLE 5
UNDERTAKINGS OF MSAF GROUP
SECTION 5.01. Cooperation....................................... 28
SECTION 5.02. Information....................................... 28
SECTION 5.03. Scope of Services................................. 28
SECTION 5.04. Ratification...................................... 29
SECTION 5.05. Covenants......................................... 29
SECTION 5.06. Ratification by Subsidiaries...................... 30
<PAGE> 3
ARTICLE 6
ADMINISTRATION FEES, EXPENSES AND SUBORDINATION
SECTION 6.01. Administration Fees............................... 31
SECTION 6.02. Expenses.......................................... 31
SECTION 6.03. Taxes............................................. 32
SECTION 6.04. Payment of Expenses............................... 32
ARTICLE 7
TERM; REMOVAL OF OR TERMINATION BY THE ADMINISTRATIVE AGENT
SECTION 7.01. Term.............................................. 32
SECTION 7.02. Right to Terminate................................ 32
SECTION 7.03. Consequences of Termination....................... 34
SECTION 7.04. Survival.......................................... 35
ARTICLE 8
ASSIGNMENT AND DELEGATION
SECTION 8.01. Assignment and Delegation......................... 35
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Notices........................................... 35
SECTION 9.02. Governing Law..................................... 37
SECTION 9.03. Jurisdiction...................................... 37
SECTION 9.04. WAIVER OF JURY TRIAL.............................. 37
SECTION 9.05. Counterparts; Third Party Beneficiaries........... 37
SECTION 9.06. Entire Agreement.................................. 37
SECTION 9.07. Power of Attorney................................. 38
SECTION 9.08. Table of Contents; Headings....................... 38
SECTION 9.09. Restrictions on Disclosure........................ 38
SECTION 9.10. No Partnership.................................... 39
SECTION 9.11. Concerning the Security Trustee................... 40
SCHEDULES
APPENDIX A ........................................... Subsidiaries
SCHEDULE 1 ........................................... Accounts
EXHIBIT A ............................................ Certificates
ii
<PAGE> 4
ADMINISTRATIVE AGENCY AGREEMENT dated as of March 3, 1998, among Morgan
Stanley Aircraft Finance ("MSAF"), a statutory trust established under the laws
of the State of Delaware, Cabot Aircraft Services Limited, a company
incorporated under the laws of Ireland (the "ADMINISTRATIVE AGENT"), Bankers
Trust Company, a New York banking corporation, not in its individual capacity
but solely as trustee under the Security Trust Agreement (the "SECURITY
TRUSTEE") and the subsidiaries of MSAF, each listed on Appendix A hereto
(collectively with MSAF, the "MSAF GROUP").
For the consideration set forth herein and other good and valuable
consideration, the receipt of which is hereby acknowledged, the Administrative
Agent, MSAF and the other MSAF Group Members agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. The following terms, as used herein, have the
following meanings. Unless otherwise defined herein, all capitalized terms used
but not defined herein have the meanings assigned to such terms in the
Indenture.
"ADMINISTRATIVE FEE" has the meaning assigned to such term in Section 6.01
hereof.
"AFFILIATE" means a Person that directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control with,
the Person specified; provided, however, that MSAF and the other MSAF Group
Members, on the one part, and the Administrative Agent and its subsidiaries on
the other part, shall not be considered to be Affiliates of each other.
"AFTER-TAX BASIS" means on a basis such that any payment received, deemed
to have been received or receivable by any Person shall, if necessary, be
supplemented by a further payment to that Person so that the sum of the two
payments shall, after deduction of all U.S. federal, state, local and foreign
Taxes, penalties, fines, interest, additions to Tax and other charges resulting
from the receipt (actual or constructive) or accrual of such payments imposed by
or under any U.S. federal, state, local or foreign law or Governmental Authority
(after taking into account any current deduction to which such Person shall be
entitled with respect to the amount that gave rise to the underlying payment) be
equal to the payment received, deemed to have been received or receivable.
2
<PAGE> 5
"AIRCRAFT" has the meaning assigned to such term in the Purchase Agreement.
"AIRCRAFT ASSETS" has the meaning assigned to such term in the Servicing
Agreement.
"ANNUAL APPRAISED VALUE" means initially the average Base Value of an
Aircraft at the time acquired by an MSAF Group Member and thereafter as
determined annually by the Appraisers.
"ASSET EXPENSES BUDGET" has the meaning assigned to such term in Section
7.05(a)(i) of the Servicing Agreement.
"APPROVED BUDGET" has the meaning assigned to such term in Section 7.05(c)
of the Servicing Agreement.
"CLOSING DATE" means March 3, 1998.
"CONCENTRATION THRESHOLDS" has the meaning assigned to such term in Section
2.02(a) of Schedule 2.02(a) of the Servicing Agreement.
"CONFLICTS STANDARD" has the meaning assigned to such term in Section
3.02(b) of the Servicing Agreement.
"CONSOLIDATED QUARTERLY DRAFT ACCOUNTS" has the meaning assigned to such
term in Section 2.05(b)(ii) hereof.
"CONSOLIDATING QUARTERLY DRAFT ACCOUNTS" has the meaning assigned to such
term in Section 2.05(b)(iii) hereof.
"DELAWARE TRUSTEE" means the Wilmington Trust Company, as Delaware trustee
of MSAF.
"DOLLARS" or "$" means the lawful money of the United States of America.
"DRAFT ACCOUNTS" has the meaning assigned to such term in Section
2.05(b)(iii) hereof.
"EU" means the European Union.
"FEE PERIOD" has the meaning assigned to such term in Section 6.01(a)
hereof.
3
<PAGE> 6
"GOVERNMENTAL AUTHORITY" means any court, administrative agency or
commission or other governmental agency or instrumentality (or any officer or
representative thereof) domestic, foreign or international, of competent
jurisdiction including, without limitation, the EU.
"INDENTURE" means the Indenture dated as of March 3, 1998, between MSAF and
the Trustee.
"INITIAL PERIODS" has the meaning assigned to such term in Section
7.05(a)(i) of the Servicing Agreement.
"LEASE" means any lease or other agreement or arrangement pursuant to which
any Person (other than a MSAF Group Member) has the right to possession and use
of any Aircraft.
"LEDGERS" has the meaning assigned to such term in Section 2.05(b)(i)
hereof.
"MAINTENANCE RESERVES" has the meaning assigned to such term in the Asset
Purchase Agreement.
"ONE YEAR PERIOD" has the meaning assigned to such term in Section
7.05(a)(i) of the Servicing Agreement.
"OPERATING BUDGET" has the meaning assigned to such term in Section
7.05(a)(i) of the Servicing Agreement.
"QUARTER" means the fiscal quarter of each MSAF Group Member, as
applicable.
"RATINGS" means the ratings assigned to the Notes by the Rating Agencies.
"REIMBURSABLE EXPENSES" has the meaning assigned to such term in Section
6.02(b) hereof.
"REPRESENTATIVES" with respect to any Person means the officers, directors,
employees, advisors and agents of such Person.
"SCHEDULE 2.02 (A)" has the meaning assigned to such term in Section
2.03(k)(ii) hereof.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
4
<PAGE> 7
"SERVICE PROVIDERS" has the meaning assigned to such term in Section
2.02(c) hereof.
"STANDARD OF CARE" has the meaning assigned to such term in Section 3.01 of
the Servicing Agreement.
"STANDARD OF PERFORMANCE" has the meaning assigned to such term in Section
3.01 hereof.
"SUBSIDIARY" of any Person means a corporation, company or other entity (i)
more than 50% of whose outstanding shares or securities (representing the right
to vote for the election of directors or other managing authority) are, or (ii)
which does not have outstanding shares or securities (as may be the case in a
partnership, joint venture or unincorporated association), but more than 50% of
whose ownership interest representing the right to make decisions for such other
entity is, now or hereafter owned or controlled, directly or indirectly, by such
Person, but such corporation, company or other entity shall be deemed to be a
Subsidiary only so long as such ownership or control exists.
"THREE YEAR PERIOD" has the meaning assigned to such term in Section
7.05(a) of the Servicing Agreement.
"U.S. BANKRUPTCY CODE" has the meaning assigned to such term in Section
7.02 hereof.
"U.S. GAAP" means generally accepted accounting principles and practices in
United States as in effect from time to time and applied consistently throughout
the periods involved.
"YEAR" has the meaning assigned to such term in the Servicing Agreement.
5
<PAGE> 8
ARTICLE 2
APPOINTMENT; ADMINISTRATIVE SERVICES
SECTION 2.01. Appointment. (a) Each of MSAF and the other MSAF Group
Members hereby appoints the Administrative Agent as the provider of the
administrative and related services set forth in Section 2.03, the accounting
services set forth in Section 2.05 and the additional administrative services
set forth in Section 2.06 (together with the Bank Account Management Services
referred to in subsection (b) below, collectively referred to herein as the
"ADMINISTRATIVE SERVICES") to each MSAF Group Member on the terms and subject to
the conditions set forth in this Agreement.
(b) The Security Trustee, on behalf of the Secured Parties, having been
duly authorized by MSAF, hereby appoints the Administrative Agent as the
provider of the bank account management and calculation services set forth in
Section 2.04 and in the Indenture (the "BANK ACCOUNT MANAGEMENT SERVICES") and
delegates to the Administrative Agent its authority to administer the Accounts
and to otherwise perform the Bank Account Management Services on behalf of each
MSAF Group Member on the terms and subject to the conditions set forth in this
Agreement.
(c) The Administrative Agent hereby accepts such appointments and agrees to
perform the Administrative Services on the terms and subject to the conditions
set forth in this Agreement.
(d) The Administrative Services do not include any service or matter which
is the responsibility of the Servicer under the Servicing Agreement, the Cash
Manager under the Cash Management Agreement, the Financial Advisor under the
Financial Advisory Agreement or the company secretaries of any MSAF Group
Member.
(e) The Administrative Services do not include any service or matter that
falls under the categories of "investment business services" or "investment
advice" under the Investment Intermediaries Act, 1995 or any other applicable
provision of Irish law that would require such services to be performed by an
entity that has obtained prior authorization from the Central Bank of Ireland.
SECTION 2.02. Limitations. (a) The Administrative Agent agrees (with
respect to the Administrative Services agreed by it to be carried out hereunder)
to comply with the terms of the articles of incorporation, by-laws, trust
agreements or similar constituting documents of each MSAF Group Member and all
agreements to which any MSAF Group Member is a party (including all Relevant
Documents), provided that copies of such documents and agreements have been
delivered to the Administrative Agent and, without prejudice to the foregoing,
not to enter into, on behalf of any MSAF Group Member, any commitments, loans or
obligations or
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charge, mortgage, pledge, encumber or otherwise restrict or dispose of the
property or assets or expend any funds of any MSAF Group Member save (i) as
expressly permitted by the terms of this Agreement or (ii) upon the express
direction of the Controlling Trustees.
(b) In connection with the performance of the Administrative Services, the
Administrative Agent shall (i) have no responsibility for the failure of any
other Person (other than any Person acting as a delegate of the Administrative
Agent under this Agreement pursuant to Section 8.01 hereof) providing services
directly to MSAF Group to perform its obligations to MSAF Group, (ii) in all
cases be entitled to rely upon the instructions of MSAF Group with respect to
any Administrative Services other than the Bank Account Management Services or
the Security Trustee on behalf of MSAF Group with respect to any Bank Account
Management Services, and upon notices, reports or other communications made by
any Person providing services to MSAF Group (other than any Affiliate of the
Administrative Agent) and shall not be responsible for the accuracy or
completeness of any such notices, reports or other communications except to the
extent that the Administrative Agent has actual notice of any matter to the
contrary and (iii) not be obligated to act in any manner which is reasonably
likely to (A) violate any Applicable Law, (B) lead to an investigation by any
Governmental Authority or (C) expose the Administrative Agent to any liabilities
for which, in the Administrative Agent's good faith opinion, adequate bond or
indemnity has not been provided.
(c) Subject to the limitations set forth in Section 2.02(a), in connection
with the performance of the Administrative Services, the Administrative Agent is
expressly authorized by MSAF and each other MSAF Group Member, (i) to engage in
and conclude commercial negotiations with the Persons providing services to MSAF
Group, including, without limitation, where the context admits, the Servicer,
the Cash Manager, the Financial Advisor and other Persons performing similar
services or advising MSAF Group (the "SERVICE PROVIDERS") and with their
Representatives, and (ii) after such consultation, if any, as the Administrative
Agent deems necessary under the circumstances, to act on such MSAF Group
Member's behalf with regard to any and all matters requiring any action on the
part of the Administrative Agent under the Servicing Agreement. MSAF Group
agrees that it will give the Administrative Agent and the Servicer 60 days prior
written notice of any limitation or modification of the authority set forth in
this Section 2.02(c).
(d) The Administrative Agent may rely on the advice of any law firm,
accounting firm, risk management adviser, tax adviser, insurance adviser,
technical adviser, aircraft appraiser or other professional adviser appointed by
MSAF and any Person appointed in good faith by the Administrative Agent and
shall not be
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liable for any claim by any MSAF Group Member to the extent that it was acting
in good faith upon the advice of any such persons.
(e) Notwithstanding the appointment of, and the delegation of authority and
responsibility to, the Administrative Agent hereunder, MSAF and each other MSAF
Group Member shall continue to have and exercise through its respective
controlling trustees or board real and effective central control and management
of all matters related to its ongoing business, operations, assets and
liabilities, subject to matters that are expressly the responsibility of the
Administrative Agent in accordance with the terms of this Agreement, and each
MSAF Group Member shall at all times conduct its separate ongoing business in
such a manner as the same shall at all times be readily identifiable from the
separate business of the Administrative Agent, and none of the MSAF Group
Members is merely lending its name to decisions taken by others.
SECTION 2.03. Administrative Services. The Administrative Agent hereby
agrees to perform and provide the following services for each MSAF Group Member
and its respective governing bodies:
(a) administrative services:
(i) except in such instances in which such preparation and
distribution is required to be done by another party by Applicable Law,
preparation and distribution, at such time as shall be agreed with the
Administrative Agent, of draft trustees or board meeting agendas and any
other papers required in connection with such meetings;
(ii) maintaining, or monitoring the maintenance of, the books,
records, registers and associated filings of each MSAF Group Member, other
than those required to be maintained by the Delaware Trustee;
(iii) providing any administrative assistance reasonably necessary to
assist any MSAF Group Member in carrying out its obligations, including
providing timely notice of decisions to be made, or actions to be taken,
under any of the Relevant Documents; provided, that if the obligations of
any MSAF Group Member under any of the Relevant Documents are only required
upon receipt of notice to such MSAF Group Member or the Administrative
Agent, then the Administrative Agent shall provide such administrative
assistance only to the extent it has received such notice or is otherwise
aware of such obligations;
(iv) assisting MSAF Group in: making its aircraft lease, sale and
capital investment decisions including to the extent (i) such assistance is
not contemplated to be provided by the Servicer pursuant to the Servicing
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Agreement and (ii) such decisions are not required to be made by the
Controlling Trustees;
(v) procuring, when the Administrative Agent considers in good faith
that it is appropriate or necessary to do so, and coordinating the advice
of, legal counsel, accounting, tax and other professional advisers at the
expense of the relevant MSAF Group Member, to assist such MSAF Group Member
in carrying out its obligations, and supervising, in accordance with
instructions from such MSAF Group Member, such legal counsel and other
advisers;
(vi) as frequently as is necessary for each MSAF Group Member to
comply with its obligations under the Relevant Documents, arranging for the
Appraisals to be made and providing the Appraisals to the relevant Service
Providers; and
(vii) providing assistance to the Servicer with respect to matters for
which such assistance is contemplated by the Servicing Agreement or is
reasonably necessary in order for the Servicer to perform its duties in
accordance with the Servicing Agreement.
(b) to monitor the performance of the Service Providers and to report on
such performance to the Controlling Trustees on a quarterly basis, including:
(i) with respect to the Servicer:
(A) monitoring and reviewing the information and other reports
provided by the Servicer pursuant to the Servicing Agreement,
including with respect to the status of Lease payments, Lessee
receivables, Maintenance Reserves, security deposits, adjustments of
rentals and claims against Maintenance Reserves in accordance with
Lease terms (to the extent provided to the Administrative Agent);
(B) assisting in evaluating the Servicer's performance relative
to the Standard of Care and the Conflicts Standard;
(C) assisting in establishing standards for evaluating the
Servicer's performance relative to the terms of the Servicing
Agreement generally, assisting in evaluating such performance against
such standards and recommending action with respect thereto;
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(D) reviewing and providing advice with respect to
recommendations made by the Servicer for approval by any MSAF Group
Member; and
(E) monitoring the compliance of the Servicer with its
obligations under the Servicing Agreement;
(ii) with respect to the other Service Providers:
(A) to the extent not provided for in the relevant agreement,
assisting in establishing standards for performance evaluation and
compliance with the terms of such agreement;
(B) assisting in evaluating the performance and compliance of
each Service Provider against its obligations under the relevant
agreement or such standards as are established pursuant to subsection
2.03(b)(ii)(A) above;
(C) monitoring and reviewing the information and reports provided
by the Cash Manager to the Administrative Agent and the relevant MSAF
Group Member and reviewing and providing advice with respect to such
reports; and
(D) implementing any other request by MSAF Group to evaluate the
performance of the Service Providers under the relevant agreements
with MSAF Group, which shall be at the expense of MSAF Group, to the
extent services are required that are materially greater in scope than
those being provided pursuant to the express terms of this Agreement;
(c) to the extent that (i) the following services are not provided by the
other Service Providers, and (ii) the relevant information is provided to the
Administrative Agent by MSAF Group or the Service Providers, to act as liaison
with the Rating Agencies with respect to the rating impact of any decisions on
behalf of MSAF Group, including:
(i) advising the Rating Agencies from time to time of any material
changes in the Portfolio, coordinating with MSAF Group and the Service
Providers and providing the Rating Agencies with such statistical and other
information as they may from time to time request (such information to be
provided at MSAF Group's expense to the extent that providing such
information requires services that are materially greater in scope than
those being provided pursuant to the express terms of this Agreement);
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(ii) providing the Rating Agencies with the Outstanding Principal
Balances of each class or subclass of Notes and loan-to-value ratios (i.e.,
ratio of debt to Annual Appraised Value of MSAF Group's assets); and
(iii) coordinating among MSAF Group, the Servicer and the Appraisers
to ensure that the Appraisals are received as required;
(d) to provide assistance to MSAF Group in procuring lessee consents,
novations and other documentation and in taking all other actions necessary in
connection with the reissue or amendment of letters of credit;
(e) to provide assistance to MSAF Group in the structuring, negotiation and
execution of (1) the re-lease and/or sale of the Aircraft, (2) the acquisition
of Additional Aircraft and (3) financing transactions relating to MSAF Group
after the Closing Date, including:
(i) coordinating with the Service Providers, legal and other
professional advisers to monitor the protection of MSAF Group's interests
and rights and coordinating the execution of documentation required at
closings;
(ii) providing qualified personnel to attend and provide
administrative support (including the preparation of any certificates
required pursuant to the Servicing Agreement) at the closings in connection
with sales or re-leases of the Aircraft and the acquisition of any
Additional Aircraft, if required (it being understood that the
Administrative Agent will not be obligated to provide legal counsel or
legal or technical services to MSAF Group);
(iii) coordinating with MSAF Group and the Service Providers and
assisting in the management of the closing process so that closings will
occur on a timely basis;
(iv) providing all necessary administrative support to complete any
documentation and other related matters; and
(v) appointing counsel and other appropriate professional advisers to
represent MSAF Group in connection with any such closings;
(f) to coordinate with the Cash Manager, including reviewing the effect on
the cash flows required for payment of the Notes of investments and
reinvestments of cash by the Cash Manager pursuant to the Cash Management
Agreement;
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(g) based on information produced or provided to it, to prepare, file
and/or distribute, with the assistance of outside counsel and auditors, if
appropriate, all reports to be prepared, filed and/or distributed by any MSAF
Group Member or its governing bodies, subject to the approval of the
Controlling Trustees in the case of any exchange offer documents filed by MSAF
under the Securities Act and the Exchange Act, and any reports filed by MSAF on
Form 10-K and 10-Q and, if such form is being filed with any information other
than the monthly report to noteholders, any Form 8-K under the Exchange Act,
including:
(i) filings any MSAF Group Member is required to make in various
jurisdictions and preparing such filings or monitoring counsel and advisers
in connection with the preparation and filing of such materials;
(ii) filings MSAF is required to make under the Securities Act and the
Exchange Act in connection with the preparation and filing of any exchange
offer documents;
(iii) compliance by MSAF with applicable periodic reporting
requirements of the Exchange Act, in particular, working with necessary
professional advisers to MSAF and the Service Providers, as appropriate, to
prepare on behalf of MSAF and to arrange for the filing and distribution of
an annual report on Form 10-K in respect of MSAF and, as periodic reporting
requirements of the Exchange Act, quarterly reports on Form 10-Q and any
required reports on Form 8-K in respect of MSAF;
(iv) reports required or recommended to be distributed to investors
(including press releases), and managing investor relations on behalf of
MSAF Group, and preparing or arranging for the preparation and distribution
of such reports at MSAF Group's expense; and
(v) reports required to be filed with any Governmental Authorities,
and preparing on behalf of any MSAF Group Member or arranging for the
preparation of and arranging for the filing of any reports required to be
filed with any other entity in order for such MSAF Group Member not to be
in violation of Applicable Law or any applicable covenants;
(h) with respect to amendments,
(i) to report on the substance of any proposed amendments to any
Relevant Documents;
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(ii) to the extent requested by MSAF Group or by the parties to
Relevant Documents and subject to approval by the appropriate controlling
trustees or board, to coordinate with MSAF Group's legal counsel, the other
parties thereto and their counsel the preparation and execution of any
amendments to the Relevant Documents (other than amendments relating to the
Aircraft or the Leases), and to provide assistance in the implementation of
such amendments; and
(iii) to the extent reasonably requested by the Servicer, to
coordinate and provide assistance on behalf of MSAF Group with the Servicer
and seek to obtain appropriate approvals to take any action which may be
required to amend the terms of the Leases;
(i) to the extent reasonably requested by the Servicer, to coordinate and
provide assistance on behalf of MSAF Group with the Servicer and outside
counsel in a Lessee default or repossession situation;
(j) to authorize payment of certain bills and expenses (i) payable to
legal and professional advisers authorized to be engaged or consulted pursuant
to this Agreement or (ii) approved by the Controlling Trustees;
(k) providing assistance to MSAF with respect to matters for which action
by MSAF is required under the Servicing Agreement or the Indenture, including
such assistance that may be necessary for MSAF to:
(i) comply with Sections 6.07, 7.05(a)(i) and 7.06 of the Servicing
Agreement;
(ii) provide such instructions to the Servicer as the Servicer may
require in interpreting the Indenture, the Concentration Thresholds and
Annex 1 to Schedule 2.02(a) to the Servicing Agreement ("SCHEDULE
2.02(A)");
(iii) direct the Servicer to amend the minimum hull and liability
insurance coverage amounts set forth in Schedule 1.03(a) to Schedule
2.02(a);
(iv) direct the Servicer that settlement offers received by the
Servicer with respect to claims for damage or loss in excess of $2,000,000
with respect to an Aircraft Asset are acceptable;
(v) request periodic reports from the Servicer regarding insurance
matters;
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(vi) grant approvals when such approvals are required by Section
7.06(a) and Schedule 2.02(a) of the Servicing Agreement;
(vii) provide the Servicer with such information as the Servicer may
reasonably request in connection with the Concentration Thresholds and
certify to the Servicer that proposed Aircraft-related transactions will
not result in the violation of such Concentration Thresholds;
(viii) advise the Servicer as required by Section 3(c) of Schedule
2.02(a);
(ix) direct the Servicer to arrange for the sale of an Aircraft Asset
and certify to the Servicer that such sale complies with the terms of the
Indenture;
(x) make any discretionary decisions, judgments or assumptions
necessary in connection with the preparation of any projections, and
provide the Servicer with any written policies and guidelines that the
Servicer shall require in connection with such preparation; and
(xi) request information and assistance from the Servicer in regard to
valuations of Aircraft Assets in accordance with Section 5.01 of Schedule
2.02(a).
(l) to inform the Controlling Trustees as soon as is reasonably
practicable if the Administrative Agent believes that (i) net revenues
generated by the Leases will be insufficient to satisfy the payment obligations
of MSAF Group and (ii) an Event of Default will result from such insufficiency,
and to advise the Controlling Trustees as to any appropriate action to be taken
(subject to the provisions of the Relevant Documents) with respect to such
insufficiency and to cause the actions directed by the Controlling Trustees to
be implemented so as to avoid an Event of Default, if it is possible to do so;
(m) to advise the Controlling Trustees as to the appropriate levels of the
Liquidity Reserve Amount;
(n) to oversee the general operation of any credit or liquidity
enhancement facility provided for the benefit of MSAF, including without
limitation the Morgan Stanley Loan Agreement and the Custody and Loan Agreement
(including without limitation monitoring the amounts committed and available
for drawing, and outstanding and required to be repaid, under each such
facility); and
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(o) to determine whether it is necessary or appropriate at any time that
MSAF make a drawing under any back-up letter of credit of which MSAF is the
beneficiary and, if so, to administer such drawing on MSAF's behalf.
SECTION 2.04. Bank Account Management and Calculation Services. The
Administrative Agent hereby agrees to perform and provide the following bank
account management and calculation services:
(a) Establishment of Accounts. (i) Operating Bank. The Operating Bank
shall be the Senior Trustee, initially Bankers Trust Company.
(ii) Establishment of Accounts. The Administrative Agent shall
establish and maintain each of the Accounts set forth on Schedule 1 hereto,
in each case in the manner described herein and in Section 3.01 of the
Indenture. The Administrative Agent shall take all actions necessary to
establish, and shall establish, additional or replacement Accounts from
time to time as required by and in accordance with the terms of Section
3.01 of the Indenture. In addition, the Administrative Agent shall take
all actions necessary to cause the Security Trustee to be granted, to the
extent possible, a security interest pursuant to Section 2.08 of the
Security Trust Agreement in the interest of each MSAF Group Member in the
cash balances from time to time deposited in the Accounts.
(iii) Successor Operating Bank. If the Operating Bank should change
as a result of (A) the resignation of the Senior Trustee or replacement of
the Senior Trustee by an Eligible Institution pursuant to the terms of the
Indenture, (B) the repayment in full of the Senior Class of Notes or (C)
such Operating Bank's failure to meet the criteria necessary to qualify as
an Eligible Institution, then the Administrative Agent, acting on behalf of
the Security Trustee, shall thereupon promptly establish replacement
accounts as necessary at the successor Operating Bank and transfer the
balance of funds in each Account then maintained at the former Operating
Bank to such successor Operating Bank.
(b) Description of Accounts. (i) Collection Account. The Administrative
Agent shall establish and maintain the Collection Account in
accordance with Section 3.01(b) of the Indenture.
(ii) The Lessee Funded Account. The Administrative Agent shall
establish and maintain the Lessee Funded Account in accordance with Section
3.01(c) of the Indenture.
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(iii) Expense Account. The Administrative Agent shall establish and
maintain the Expense Account in accordance with Section 3.01(c) of the
Indenture.
(iv) Rental Accounts. The Administrative Agent shall establish and
maintain the Rental Accounts, and from time to time shall establish and
maintain one or more additional Rental Accounts (including one or more
Non-Trustee Accounts that, for tax or other regulatory or legal purposes,
cannot be established in the name of the Security Trustee), each in
accordance with Section 3.01(e) of the Indenture.
(v) Refinancing Account. The Administrative Agent shall establish and
maintain a Refinancing Account with respect to each class or subclass of
Notes in accordance with Section 3.01(f) of the Indenture.
(vi) Defeasance/Redemption Account. The Administrative Agent shall
establish and maintain the Defeasance/Redemption Account in accordance with
Section 3.01(g) and Article XI of the Indenture.
(vii) Remaining Aircraft Deposit Account. The Administrative Agent
shall establish and maintain the Remaining Aircraft Deposit Account in
accordance with Section 3.01(h) of the Indenture.
(viii) Lessee Payment Instructions. The Administrative Agent shall
take all necessary steps to ensure that all funds on deposit in each Rental
Account are transferred from such Rental Account to the Collection Account
within one Business Day of receipt thereof.
(ix) Bank Account Statements. The Administrative Agent shall take all
necessary steps to ensure that the Operating Bank and each other bank at
which a Rental Account is located shall furnish as of the close of business
on each Calculation Date a statement providing the then current balance of
each applicable Account to the Security Trustee, MSAF, the Trustee, the
Servicer and the Cash Manager.
(x) Maintaining the Non-Trustee Accounts. So long as any Secured
Obligations remain Outstanding:
(A) The Administrative Agent shall maintain, or cause to be
maintained, each Non-Trustee Account in the name of the related
Grantor (as defined in the Security Trust Agreement) only with a bank
(an "ACCOUNT BANK") that has entered into a letter agreement in
substantially the form of Exhibit B to the Security Trust Agreement
(or made such other arrangements as are acceptable to
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the Administrative Agent and the Security Trustee) with such Grantor
and the Security Trustee (an "ACCOUNT LETTER").
(B) The Administrative Agent (x) shall promptly instruct each
Person obligated at any time to make any payment to any Grantor for
any reason (an "OBLIGOR") to make such payment to a Non-Trustee
Account meeting the requirements of clause 2.04(b)(x)(A) above, (y)
shall instruct each such Account Bank to transfer to the Collection
Account, in immediately available funds, within one Business Day of
receipt thereof, an amount equal to the credit balance of the
Non-Trustee Account in such Account Bank (other than any amount
required to be left on deposit in such Account Bank for local tax or
other regulatory or legal purposes), and (z) shall transfer or cause
each such Account Bank to transfer to the Security Trustee for deposit
in the Collection Account, within one Business Day of receipt thereof,
all other Cash Collateral and any proceeds of any of the Collateral.
(C) Upon the termination of any Account Letter or other
arrangement with respect to the maintenance of a Non-Trustee Account
by any Grantor or any Account Bank, the Administrative Agent shall
immediately notify all Obligors that were making payments to such
Non-Trustee Account to make all future payments to another Non-Trustee
Account meeting the requirements of clause (i) above or, if
practicable at such time, to an Account in the name of the Security
Trustee.
(c) Calculations. Pursuant to Section 3.06 of the Indenture, the
Administrative Agent shall, at the times and in the manner set forth therein,
determine or calculate each of the amounts required to be determined or
calculated by it pursuant to Sections 3.06(a) through (f) of the Indenture.
(d) Withdrawals and Transfers. The Administrative Agent shall make the
following withdrawals and transfers in accordance with the terms of the
Indenture:
(i) Closing Date Deposits, Withdrawals and Transfers. On the Closing
Date, the Administrative Agent shall make each of the transfers described
in Section 3.03 of the Indenture.
(ii) Interim Withdrawals and Transfers for Expenses, Certain Lease
Obligations [and Other Obligations]. From time to time, the Administrative
Agent shall make the withdrawals and transfers provided for in Section 3.04
of the Indenture in accordance with such Section.
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(iii) Interim Deposits and Withdrawals for Modification Payments or
Dispositions of Aircraft. From time to time, the Administrative Agent
shall make the withdrawals and transfers provided for in Section 3.05 of
the Indenture in accordance with such Section.
(iv) Payment Date First Step Withdrawals and Transfers. On each
Payment Date, the Administrative Agent shall make the withdrawals and
transfers provided for in Section 3.07 of the Indenture in accordance with
such Section.
(v) Payment Date Second Step Withdrawals. Subject to Section
2.04(d)(vi) hereof, on each Payment Date, after the withdrawals and
transfers provided for in Section 2.04(d)(iv) hereof have been made, the
Administrative Agent shall distribute funds on deposit in the Collections
Account and the Expense Account as provided in Section 3.08(a) of the
Indenture; provided, that any such direct funds transfer shall have been
authorized on or prior to the date thereof by the Administrative Agent in
the form of a certificate, substantially in the form of Exhibit A hereto,
delivered to and acknowledged by the Trustee.
(vi) Event of Default and Default Notice Withdrawals and Transfers.
Notwithstanding anything to the contrary contained in Section 2.04(d)(iv)
or (v) hereof, following the delivery of a Default Notice to the
Administrative Agent or MSAF pursuant to the Indenture, after the
withdrawals and transfers provided for in Section 2.04(d)(iv) hereof have
been made, the Administrative Agent shall distribute funds on deposit in
the Collection Account and the Expense Account in the amounts and in the
order of priority provided for in Section 3.08(b) of the Indenture.
(vii) Defeasance/Redemption Transfers. The Administrative Agent shall
transfer from time to time amounts on deposit in the Defeasance/Redemption
Account to the applicable Note Account in connection with either the
redemption of any class or subclass of Notes in accordance with Section
3.10 of the Indenture or the exercise of the defeasance provisions set
forth in Article XI of the Indenture.
(viii) Refinancing Transfers. The Administrative Agent shall transfer
from time to time amounts on deposit in the Refinancing Account to the Note
Accounts in connection with any Refinancing in accordance with Section 2.10
of the Indenture.
(ix) Currency Conversions. If and to the extent that MSAF incurs any
payment obligation or other cost in a currency other than U.S. dollars, the
Administrative Agent shall, to the extent practicable, convert U.S.
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dollars into such other currency at the then prevailing market rate as
necessary to discharge such payment obligations or costs, at the expense of
MSAF in accordance with Section 13.07 of the Indenture.
(e) Ratings and the Accounts. Each Account shall at all times be
maintained at the Operating Bank or another Eligible Institution selected by
the Administrative Agent in accordance with the Security Trust Agreement and
the Indenture; provided that one or more Rental Accounts may be maintained at
any other reputable and responsible bank in accordance with Section 3.01 of the
Indenture.
(f) Records. The Administrative Agent shall provide such information
relating to the Accounts to the Security Trustee, the Trustee, the Cash Manager
or the Rating Agencies as any of them may reasonably request from time to time.
(g) Reports. The Administrative Agent shall provide the reports and other
information required to be provided by it pursuant to Section 3.06(g) of the
Indenture, together with copies of such additional reports or other information
as the Security Trustee or the Trustee may reasonably request, all in
accordance with the terms of the Indenture.
SECTION 2.05. Accounting Services. The Administrative Agent hereby agrees
to perform and provide the following accounting services:
(a) Budgeting Process. The Administrative Agent shall, in accordance with
the procedures, policies and guidelines described below and on the basis of
information generated by the Administrative Agent and information provided by
the Service Providers and MSAF Group:
(i) in respect of each One Year Period and Three Year Period after the
Initial Periods during the term of the Servicing Agreement, and on behalf
of MSAF Group, prepare and deliver to the Servicer, no later than the
September 30 immediately preceding the commencement of each Year proposed
One Year and Three Year Operating Budgets and One Year and Three Year Asset
Expenses Budgets for each such period together with reasonably detailed
supporting information and the assumptions underlying such proposed
Operating Budgets or Asset Expenses Budgets, such proposed Operating
Budgets and Asset Expenses Budgets to be based, in part, on the information
provided by the Servicer pursuant to Section 7.05(c) of the Servicing
Agreement;
(ii) on behalf of MSAF Group, review, discuss and negotiate with the
Servicer such proposed Operating Budgets and Asset Expenses
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Budgets, and make such adjustments proposed by the Servicer as the
Administrative Agent shall deem appropriate; and
(iii) submit to the Servicer no later than the November 10 immediately
preceding the commencement of such Year the Approved Budgets together with
reasonably detailed information regarding MSAF's underlying assumptions.
(b) Management Accounts and Financial Statements. The Administrative
Agent shall, in accordance with the procedures, policies and guidelines
described below and on the basis of information generated by the Administrative
Agent and information provided by the Service Providers and MSAF Group:
(i) establish an accounting system and maintain the accounting ledgers
of and for each MSAF Group Member in accordance with accounting principles
generally accepted in the United States, unless otherwise required by
Applicable Law and specified by the Controlling Trustees (collectively, the
"LEDGERS");
(ii) prepare and deliver (within 40 days after the end of the relevant
Quarter or, if the end of such Quarter coincides with the end of a Year,
within 75 days after the end of such Year), with respect to MSAF Group, on
a consolidated basis, a draft balance sheet and draft statement of changes
in shareholders' equity or residual trust interest as of the end of each
Quarter and Year, as applicable, and draft statements of income and cash
flows for each Quarter and Year, as applicable (the "CONSOLIDATED QUARTERLY
DRAFT ACCOUNTS");
(iii) to the extent required by Applicable Law, prepare and deliver
(within 40 days after the end of the relevant Quarter or, if the end of
such Quarter coincides with the end of a Year, within 90 days after the end
of such Year), with respect to MSAF Group on a combined basis and such of
MSAF and the other MSAF Group Members as specified by the Controlling
Trustees in a written schedule provided to the Administrative Agent (which
schedule may be updated by the Controlling Trustees to the Administrative
Agent delivered at least 30 days prior to the commencement of the relevant
Quarter), on a consolidating company-by-company basis, a draft balance
sheet and statement of changes in shareholders' equity or residual trust
interest as of the end of each Quarter and Year, as applicable, with
respect to such MSAF Group Member and draft statements of income and cash
flows for such Quarter and Year, as applicable (the "CONSOLIDATING
QUARTERLY DRAFT ACCOUNTS" and, together with the Consolidated Quarterly
Draft Accounts the "DRAFT ACCOUNTS"). The
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Controlling Trustees shall specify the applicable legal requirements
mandating the preparation of such Consolidating Quarterly Draft Accounts in
the written schedule provided to the Administrative Agent pursuant to this
section;
(iv) as required by the Controlling Trustees, arrange and manage the
quarterly review of the Draft Accounts by MSAF Group's auditors;
(v) arrange for, coordinate with and assist MSAF Group's auditors in
preparing annual audits;
(vi) prepare or arrange for the preparation of and arrange for the
filing of MSAF Group's tax returns in conjunction with MSAF Group's tax
advisers after submission to the Controlling Trustees to the extent
required by the Controlling Trustees or Applicable Law;
(vii) liaise with the Servicer for the purpose of preparing the weekly
and monthly reports in accordance with Sections 8.01 and 8.02 of Schedule
2.02(a); and
(viii) compare the expected cash flows of MSAF Group and the budgets
to actual results.
(c) The Administrative Agent shall prepare the Draft Accounts in
accordance with U.S. GAAP unless otherwise required by Applicable Law and
specified by the Controlling Trustees. In connection with the preparation of
the Consolidated Quarterly Draft Accounts, the Controlling Trustees will,
provide to the Administrative Agent, at such times as the Administrative Agent
may require, a review report (as defined by the Statements on Standards for
Accounting and Review Services issued by the American Institute of Certified
Public Accountants) of MSAF Group's independent public accountants with respect
to the financial statements of such MSAF Group Members for, or as of the end of,
such Quarter, including in such report such accountants' statement that, based
on its review of such financial statements, it is not aware of any material
modifications that should be made to such financial statements in order for them
to be in conformity with U.S. GAAP or other applicable accounting principles;
provided, however, that, with respect to such financial statements for, or as of
the end of, any Quarter (other than the last Quarter of any Year), in the event
that MSAF Group does not include (or cause to be included) any material
disclosure required by U.S. GAAP or other applicable accounting principles to be
included within footnotes to such financial statements, such review report may
be qualified solely by stating that the only modification that should be made to
such financial statements in order for them to be in conformity with U.S. GAAP
or other applicable accounting principles is the
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inclusion of such disclosure; provided further, however, that such
qualification may not relate to any footnote to such financial statements.
(d) The Administrative Agent shall be entitled to request instructions from
the Controlling Trustees as to general guidelines or principles to be followed
in preparing Draft Accounts and as to amending or supplementing any such
guidelines or principles.
SECTION 2.06. Additional Administrative Services. The Administrative
Agent will provide additional Administrative Services, including (a) providing
assistance in (i) arranging one or more Refinancings of all or a portion of the
Notes, and (ii) arranging for the payment of any purchase price adjustment
necessary to be paid pursuant to the Asset Purchase Agreement and (b)
undertaking efforts to avoid any adverse change in the tax status of any MSAF
Group Member. In addition, upon a request by any MSAF Group Member, the
Administrative Agent will take such other actions as may be appropriate to
facilitate such MSAF Group Member's business operations and assist the
Controlling Trustees in carrying out their obligations; provided, however, that
the Administrative Agent will not be obligated or permitted to take any action
that might reasonably be expected to result in the business of such MSAF Group
Member ceasing to be separate and readily identifiable from, and independent of,
the Administrative Agent, and any of its Affiliates.
SECTION 2.07. Additional Aircraft. In the event that MSAF Group shall
acquire any Additional Aircraft and notwithstanding that MSAF Group may retain
different service providers for such Additional Aircraft, the Administrative
Agent hereby agrees to provide the same Administrative Services with respect to
all such Additional Aircraft.
SECTION 2.08. New Subsidiaries. The Administrative Agent shall be
responsible for coordinating with outside legal counsel, auditors, tax advisers
and other professional advisers with respect to all corporate and administrative
matters relating to the formation, operation, corporate affairs and related
matters with respect to all Subsidiaries which are or may become members of MSAF
Group, including identifying such outside advisers, a potential company
secretary and candidates for trustee to the extent necessary, and shall be
permitted to incur expenses in respect of such Subsidiaries without MSAF Group's
consent up to such aggregate amount as shall be authorized from time to time.
To the extent that the Administrative Agent shall deem it necessary or desirable
in order for MSAF Group to carry on its business, the Administrative Agent shall
have the authority to assist in the formation of new Subsidiaries of MSAF and to
appoint any director to any such Subsidiary without the consent of MSAF Group;
provided, that such directors are the same directors of MSAF then in office
unless otherwise required by applicable local law mandating a particular
citizenship for directors. The
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Administrative Agent and its personnel may act as company secretary for any
Subsidiary.
SECTION 2.09. MSAF Group Responsibility. (a ) The obligations of the
Administrative Agent hereunder are limited to those matters that are expressly
the responsibility of the Administrative Agent in accordance with the terms of
this Agreement. Notwithstanding the appointment of the Administrative Agent to
perform the Administrative Services, each MSAF Group Member shall remain
responsible for all matters and decisions related to its business, operations,
assets and liabilities.
(b) Without derogating from the authority and responsibility of the
Administrative Agent with respect to the performance of certain of the
Administrative Services as set forth in this Agreement, it is hereby expressly
agreed and acknowledged that the Administrative Agent is not authorized or
empowered to make or enter into any agreement, contract or other legally binding
arrangement, in respect of or relating to the business or affairs of any MSAF
Group Member, or pledge the credit of, incur any indebtedness on behalf of or
expend any funds of any MSAF Group Member other than as expressly permitted in
accordance with the terms of this Agreement, all such authority and power being
reserved to the appropriate MSAF Group Member or the Security Trustee, as the
case may be.
ARTICLE 3
STANDARD OF PERFORMANCE; LIABILITY AND INDEMNITY
SECTION 3.01. Standard of Performance. The Administrative Agent
will devote the same amount of time and attention to and will be required to
exercise the same level of skill, care and diligence in the performance of its
services as it would if it were administering such services on its own behalf
(the "STANDARD OF PERFORMANCE").
SECTION 3.02. Liability and Indemnity. (a The Administrative Agent shall
not be liable for any Losses or Taxes to or of, or payable by any MSAF Group
Member at any time from any cause whatsoever or any Losses or Taxes directly or
indirectly arising out of or in connection with or related to the performance by
the Administrative Agent of this Agreement unless such Losses or Taxes are the
result of the Administrative Agent's own wilful misconduct, deceit or fraud or
that of any of its directors, officers, agents or employees, as the case may be.
(b) Notwithstanding anything to the contrary set forth in any other
agreement to which any MSAF Group Member is a party, MSAF and the other
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MSAF Group Members, do hereby assume liability for and do hereby jointly and
severally agree to indemnify, reimburse and hold harmless on an After-Tax Basis
the Administrative Agent, its directors, officers, employees and agents and each
of them from any and all Losses or Taxes that may be imposed on, incurred by or
asserted against any of them arising out of, in connection with or related to
the Administrative Agent's performance under this Agreement (including any
Losses or Taxes incurred by the Administrative Agent as a result of indemnifying
any Person to whom it shall have delegated its obligations hereunder in
accordance with Section 8.01, but only to the extent the Administrative Agent
would have been indemnified had it performed such obligations), except as a
result of the wilful misconduct, deceit or fraud of the Administrative Agent or
any of its directors, officers, employees or agents. This indemnity shall not
apply to:
(i) Taxes imposed on net income by the revenue authorities of Ireland
in respect of any payment by any MSAF Group Member to the Administrative
Agent due to the performance of the Administrative Services; and
(ii) Taxes imposed on net income of the Administrative Agent by any
Government Authority other than the revenue authorities of Ireland to the
extent such Taxes would not have been imposed in the absence of any
connection of the Administrative Agent with such jurisdiction imposing such
Taxes other than any connection that results from the performance by the
Administrative Agent of its obligations under this Agreement.
This indemnity shall expressly inure to the benefit of any director,
officer, agent or employee of the Administrative Agent now existing or in the
future and to the benefit of any successor of the Administrative Agent and shall
survive the expiration of this Agreement.
(c) The Administrative Agent agrees to indemnify, reimburse and hold
harmless on an After-Tax Basis each MSAF Group Member and its respective
trustees, directors and agents for any Losses whatsoever which they or any of
them may incur or be subject to in consequence of the performance of the
Administrative Services or any breach of the terms of this Agreement by the
Administrative Agent, but only to the extent such Losses arise due to the wilful
misconduct, deceit or fraud of the Administrative Agent or any of its directors,
officers or employees, as the case may be; provided, however, that this
indemnity shall not apply and the Administrative Agent shall have no liability
in respect of Losses to the extent that they arise from (i) the wilful
misconduct, deceit or fraud of any MSAF Group Members or their respective
directors, trustees or agents, (ii) any breach by the Administrative Agent of
its obligations under this Agreement to the extent such breach is a result of a
Service Provider's failure to perform its obligations to MSAF Group or a failure
by MSAF Group to comply with its
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obligations under this Agreement, (iii) any action that MSAF Group requires the
Administrative Agent to take pursuant to a direction but only to the extent
that the Administrative Agent takes such action in accordance with such
direction and in accordance with the provisions hereof or (iv) a refusal by
MSAF Group to take action upon a recommendation made in good faith by the
Administrative Agent in accordance with the terms hereof.
(d) The Administrative Agent, MSAF and the other MSAF Group Members and the
Security Trustee acknowledge and agree that the terms of this Agreement
contemplate that the Administrative Agent shall receive the Relevant Information
in order for the Administrative Agent to make required credit and debit entries
and to make the calculations and supply the information and reports required
herein, and that the Administrative Agent will do the foregoing to the extent
such information is so provided by such relevant parties and on the basis of
such information, without undertaking any independent verification or
recalculation of such information.
ARTICLE 4
ADMINISTRATIVE AGENT UNDERTAKINGS
SECTION 4.01. Administrative Agent Undertakings. The Administrative Agent
hereby covenants with MSAF Group that it will conduct its business such that it
is a separate and readily identifiable business from, and independent of, each
MSAF Group Member and further covenants as follows (it being understood that
these covenants shall not prevent any Affiliate of the Administrative Agent from
publishing financial statements that are consolidated with those of the MSAF
Group, if to do so is required by Applicable Law or accounting principles from
time to time in effect, and that Affiliates of the Administrative Agent and
certain MSAF Group Members may file a consolidated tax return for United States
federal, state and local income tax purposes):
(a) if the Administrative Agent receives any money whatsoever, which money
belongs to any MSAF Group Member, the Trustee or the Security Trustee or is to
be paid to any MSAF Group Member, the Trustee or the Security Trustee or into
any account pursuant to any Relevant Document or otherwise, it will hold such
money in trust for such MSAF Group Member, the Trustee or the Security Trustee,
as the case may be, and shall keep such money separate from all other money
belonging to the Administrative Agent and shall as promptly as practicable
thereafter pay the same into the relevant account in accordance with the terms
thereof without exercising any right of setoff;
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(b) it will comply with any proper directions, orders and instructions
which any MSAF Group Member or the Security Trustee may from time to time give
to it in accordance with the provisions of this Agreement and the Indenture;
provided, that to the extent any conflicts arise between instructions received
from a MSAF Group Member and the Security Trustee, the Administrative Agent
shall comply with such MSAF Group Member's instructions, unless such
instructions relate to the Bank Account Management and Calculation Services
described in Section 2.04 and then in such case the Administrative Agent shall
comply only with the instructions of the Security Trustee.
(c) it will not knowingly fail to comply with any legal requirements in the
performance of the Administrative Services;
(d) it will make all payments required to be made by it at any time and
from time to time pursuant to this Agreement on the required date for payment
thereof and shall turn over any amounts owed to the Security Trustee, MSAF or
the Trustee without set-off or counterclaim;
(e) it will not take any steps for the purpose of procuring the
appointment of any administrative receiver or the making of an administrative
order or for instituting any bankruptcy, reorganization, arrangement,
insolvency, winding up, liquidation, composition or any like proceedings under
the laws of any jurisdiction in respect of any MSAF Group Member or in respect
of any of their respective liabilities, including, without limitation, as a
result of any claim or interest of the Administrative Agent or any of its
Affiliates;
(f) it will cooperate with each MSAF Group Member and its respective
trustees, directors and agents and the Security Trustee and the Trustee,
including by providing such information as may reasonably be requested, to
permit MSAF Group or its authorized agents to monitor the Administrative
Agent's compliance with its obligations under this Agreement;
(g) during the term of this Agreement, it will observe all corporate
formalities necessary to remain a legal entity separate and distinct from, and
independent of, each MSAF Group Member;
(h) during the term of this Agreement, it will maintain its assets and
liabilities separate and distinct from each MSAF Group Member;
(i) during the term of this Agreement, it will maintain records, books,
accounts and minutes separate from those of each MSAF Group Member;
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(j) during the term of this Agreement, it will pay its obligations in the
ordinary course of its business as a legal entity separate from each MSAF Group
Member;
(k) during the term of this Agreement, it will keep its funds separate and
distinct from the funds of each MSAF Group Member, and it will receive,
deposit, withdraw and disburse such funds separately from the funds of each
MSAF Group Member;
(l) during the term of this Agreement, it will conduct its business in its
own name, and not in the name of any MSAF Group Member;
(m) during the term of this Agreement, it will not pay or become liable
for any debt of any MSAF Group Member, other than to make payments in the form
of indemnity as required by the express terms of this Agreement;
(n) during the term of this Agreement, it will not hold out that it is a
division of any MSAF Group Member or that any MSAF Group Member is a division
of it;
(o) during the term of this Agreement, it will not induce any third party
to rely on the creditworthiness of any MSAF Group Member in order that such
third party will be induced to contract with it;
(p) during the term of this Agreement, it will not enter into any
agreements between it and any MSAF Group Member that are more favorable to
either party than agreements that the parties would have been able to enter
into at such time on an arm's-length basis with a non-affiliated third party,
other than any Relevant Documents in effect on the date hereof (it being
understood that the parties hereto do not intend by this covenant to ratify any
self-dealing transactions); and
(q) during the term of this Agreement, it will (i) forward promptly to the
Servicer a copy of any material communication received from any Person in
relation to any Lease or Aircraft; (ii) grant such access to the Servicer to
its books of account, documents and other records and to its employees as may
be reasonably necessary for the Servicer to perform its obligations in respect
of any Lease or Aircraft under the Servicing Agreement; provided, however,
that the Servicer shall not have access to the minutes of the Administrative
Agent's board meetings and other confidential business information; and (iii)
execute and deliver such documents and do such acts and things as the Servicer
may reasonably request in order to effect the purposes of the Servicing
Agreement.
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ARTICLE 5
UNDERTAKINGS OF MSAF GROUP
SECTION 5.01. Cooperation. MSAF and the other MSAF Group Members shall use
commercially reasonable efforts to cause any Service Provider to, at all times
cooperate with the Administrative Agent to enable the Administrative Agent to
provide the Administrative Services, including providing the Administrative
Agent with all powers of attorney as may be reasonably necessary or appropriate
for the Administrative Agent to perform the Administrative Services in
accordance with this Agreement.
SECTION 5.02. Information. MSAF will provide the Administrative Agent with
the following information in respect of itself and each other MSAF Group Member:
(a) copies of all Relevant Documents, including the articles of
incorporation, by-laws, trust agreements (or equivalent documents) of each MSAF
Group Member, and copies of all books and records maintained on behalf of each
such MSAF Group Member;
(b) details of all bank accounts and bank mandates maintained by any MSAF
Group Member;
(c) names of and contact information with respect to the controlling
trustees or board for each MSAF Group Member;
(d) such other information as is necessary to the Administrative Agent's
performance of the Administrative Services; and
(e) a copy of any information provided to MSAF Group pursuant to the
Servicing Agreement;
provided, that such information as is referred to in this Section 5.02
(with the exception of paragraphs (d) and (e)) shall be provided to the
Administrative Agent upon execution of this Agreement and, in respect of any
amendment or changes to the information provided to the Administrative Agent
upon execution of this Agreement, promptly following the effectiveness of such
amendments or changes.
SECTION 5.03. Scope of Services.
(a) In the event that any MSAF Group Member shall enter into any agreement,
amendment or other modification of any Lease or shall take any other action that
has the effect of increasing in any material respect the scope, nature or
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level of the Administrative Services to be provided under this Agreement without
the Administrative Agent's express prior written consent, MSAF Group shall so
notify the Administrative Agent and the Administrative Agent shall not be
obligated to perform the affected Administrative Service to the extent of such
increase unless and until the Administrative Agent and MSAF Group shall agree on
the terms of such increased Administrative Service (it being understood that (i)
the Administrative Agent shall have no liability to any MSAF Group Member
directly or indirectly arising out of, in connection with or related to the
Administrative Agent's failure to perform such increased Administrative Service
prior to any such agreement and (ii) MSAF Group shall not be permitted to engage
another Person to perform the affected Administrative Service without the prior
written consent of the Administrative Agent unless the Administrative Agent has
indicated it is unable or unwilling to act in respect of the affected
Administrative Service or the Administrative Agent requires payment of more than
reasonable additional compensation for such additional Administrative Service).
(b) In the event that MSAF Group shall acquire Additional Aircraft, MSAF
Group shall so notify the Administrative Agent and the Administrative Agent
shall be obligated to provide the Administrative Services with respect to such
Additional Aircraft in accordance with Section 2.07 hereof.
SECTION 5.04. Ratification. MSAF and the other MSAF Group Members hereby
ratify and confirm and agree to ratify and confirm (and shall furnish written
evidence thereof upon request of the Administrative Agent) any act or omission
by the Administrative Agent in accordance with this Agreement in the exercise of
any of the powers or authorities conferred upon the Administrative Agent under
the terms of this Agreement, it being expressly understood and agreed that none
of the foregoing shall have any obligation to ratify and confirm, and expressly
does not ratify and confirm, any act or omission of the Administrative Agent in
violation of this Agreement, the Standard of Performance or for which the
Administrative Agent is obligated to indemnify any MSAF Group Member under
Article III hereof.
SECTION 5.05. Covenants. Each of MSAF and the other MSAF Group Members
covenants with the Administrative Agent that it will conduct its business such
that it is a separate and readily identifiable business from, and independent
of, the Administrative Agent and any of its Affiliates and further covenants as
follows:
(a) during the term of this Agreement, it will observe all corporate
formalities necessary to remain legal entities separate and distinct from, and
independent of, the Administrative Agent, and any of its subsidiaries;
(b) during the term of this Agreement, it will maintain its assets and
liabilities separate and distinct from those of the Administrative Agent;
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(c) during the term of this Agreement, it will maintain records, books,
accounts, and minutes separate from those of the Administrative Agent;
(d) during the term of this Agreement, it will pay its obligations in the
ordinary course of business as a legal entity separate from the Administrative
Agent;
(e) during the term of this Agreement, it will keep its funds separate and
distinct from any funds of the Administrative Agent, and will receive, deposit,
withdraw and disburse such funds separately from any funds of the
Administrative Agent;
(f) during the term of this Agreement, it will conduct its business in its
own name, and not in the name of the Administrative Agent;
(g) during the term of this Agreement, it will not agree to pay or become
liable for any debt of the Administrative Agent, other than to make payments in
the form of indemnity as required by the express terms of this Agreement;
(h) during the term of this Agreement, it will not hold out that it is a
division of the Administrative Agent, or that the Administrative Agent is a
division of it;
(i) during the term of this Agreement, it will not induce any third party
to rely on the creditworthiness of the Administrative Agent in order that such
third party will be induced to contract with it;
(j) during the term of this Agreement, it will not enter into any
transaction between it and the Administrative Agent that are more favorable to
either party than transactions that the parties would have been able to enter
into at such time on an arm's-length basis with a non-affiliated third party,
other than any agreements in effect on the date hereof (it being understood
that the parties hereto do not intend by this covenant to ratify any
self-dealing transactions); and
(k) during the term of this Agreement, it will observe all material
corporate or other procedures required under Applicable Law and under its
constitutive documents.
SECTION 5.06. Ratification by Subsidiaries. MSAF hereby undertakes to
procure that, if so requested by the Administrative Agent, any subsidiary of
MSAF formed or acquired after the date hereof, shall execute an agreement with
the Administrative Agent adopting and confirming, as regards such subsidiary,
the
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terms of this Agreement, and agreeing to ratify anything done by the
Administrative Agent in connection herewith on the terms of Section 5.04.
ARTICLE 6
ADMINISTRATION FEES, EXPENSES AND SUBORDINATION
SECTION 6.01. Administration Fees. (a) In consideration of the
Administrative Agent's performance of the Administrative Services, MSAF agrees
to pay to the Administrative Agent a monthly fee (an "ADMINISTRATIVE FEE") equal
to 1.5% of the aggregate amount of the rent (as defined in each Lease, but for
the avoidance of doubt, not including any amounts reimbursable to Lessees)
actually paid by each Lessee for each Fee Period or portion of a Fee Period in
which the related Aircraft (and Additional Aircraft, if any) is owned by MSAF
Group; provided, that the aggregate of the fees actually received by the
Administrative Agent shall be at least $200,000 per annum.
The Administrative Fee shall be payable monthly in arrears for each period
commencing on and including the Closing Date (or, thereafter, the most recent
Calculation Date) and ending on but excluding the first and each succeeding
Calculation Date during the term of this Agreement (each such period, a "FEE
PERIOD"), such payment to be made no later than the Payment Date immediately
following the end of each such Fee Period.
SECTION 6.02. Expenses. (a) The Administrative Agent shall be responsible
for all telephone, facsimile and communications costs and expenses directly
relating to or associated with the Administrative Agent's performance of its
duties as set forth in this Agreement up to an annual amount of $125,000.
(b) Subject to the provisions of Section 6.02(a), MSAF Group shall be
responsible for the following expenses incurred by the Administrative Agent in
the performance of its obligations ("REIMBURSABLE EXPENSES"):
(i) reasonable out of pocket expenses, including travel,
accommodation and subsistence and approved expenditures in respect of
insurance coverage for the Administrative Agent;
(ii) annual telephone, fax and communication costs and expenses
necessarily and directly incurred in connection with the performance of
the Administrative Services in excess of $125,000;
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(iii) expenses expressly authorized by (i) the Controlling Trustees
or (ii) any Person to whom such authority has been delegated, other than
the Administrative Agent or its Affiliates; and
(iv) expenses expressly authorized pursuant to other provisions of
this Agreement.
SECTION 6.03. Taxes. The fees specified in Section 6.01 are net of any
value added tax required to be accounted for by the Administrative Agent. Where
the Administrative Agent is required to account for value added tax in respect
of any amounts payable by or on behalf of MSAF Group to the Administrative
Agent, MSAF Group, shall cause to be paid to the Administrative Agent such
additional amounts as are necessary to discharge such value added tax upon
production of a valid value added tax invoice.
SECTION 6.04. Payment of Expenses. No later than each Calculation Date, the
Administrative Agent shall deliver a notice to the MSAF Group, setting forth the
amounts of expenses paid by the Administrative Agent pursuant to Section 6.02 of
this Agreement through and including such Calculation Date (it being understood
that if there are no such expenses the Administrative Agent will be under no
obligation to provide such notice). On the next Payment Date following such
Calculation Date, MSAF Group agrees to pay to the Administrative Agent all such
amounts.
ARTICLE 7
TERM; REMOVAL OF OR TERMINATION BY THE ADMINISTRATIVE AGENT
SECTION 7.01. Term. This Agreement shall have a term commencing on the
Closing Date and expiring on the date of payment in full of all amounts
outstanding to be paid on the MSAF Group Notes.
SECTION 7.02. Right to Terminate. (a) At any time during the term of this
Agreement, MSAF Group shall be entitled to terminate this Agreement on 120 days
written notice.
(b) Following the delivery of a Default Notice or during the continuance
of an Acceleration Default, the Security Trustee, on behalf of the Secured
Parties, shall be entitled to terminate on 5 days' written notice the authority
granted to the Administrative Agent to perform the Bank Account Management
Services set forth in Section 2.04 and in the Indenture.
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(c) At any time during the term of this Agreement the Administrative Agent
shall be entitled to terminate this Agreement on 120 days' written notice if:
(i) any MSAF Group Member shall fail to pay in full when due (A)
any Administrative Fee or any Reimbursable Expenses in an aggregate
amount in excess of $50,000 and such failure continues for a period of
30 days, in either case, after the effectiveness of written notice from
the Administrative Agent of such failure or (B) any other amount payable
to the Administrative Agent hereunder, and such failure continues for a
period of 60 days after written notice from the Administrative Agent of
such failure.
(ii) any MSAF Group Member shall fail to perform or observe or
shall violate in any material respect any material term, covenant,
condition or agreement to be performed or observed by it in respect of
this Agreement and such failure continues for a period of 30 days after
MSAF Group shall have received notice of such failure (other than with
respect to payment obligations referred to in clause (b)(i) of this
Section 7.02);
(iii) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent jurisdiction
seeking relief in respect of MSAF or any Guarantor, or of a substantial
part of the property or assets of MSAF or any Guarantor, under Title 11
of the United States Code, as now constituted or hereafter amended (the
"U.S. BANKRUPTCY CODE"), or any other U.S. federal or state or foreign
bankruptcy, insolvency, receivership or similar law, and such proceeding
or petition shall continue undismissed for 120 days or an order or
decree approving or ordering any of the foregoing shall be entered or
MSAF or any Guarantor shall go into liquidation, suffer a receiver or
mortgagee to take possession of all or substantially all of its assets
or have an examiner appointed over it or if a petition or proceeding is
presented for any of the foregoing and not discharged within 120 days;
or
(iv) MSAF or any Guarantor shall (A) voluntarily commence any
proceeding or file any petition seeking relief under the U.S. Bankruptcy
Code, or any other U.S. federal or state or foreign bankruptcy,
insolvency, receivership or similar law, (B) consent to the institution
of, or fail to contest the filing of, any petition described in clause
(b)(iii) above, (C) file an answer admitting the material allegations of
a petition filed against it in any such proceeding or (D) make a general
assignment for the benefit of its creditors.
(d) No termination of this Agreement by MSAF Group pursuant to Section
7.02(a) and no termination by the Administrative Agent pursuant to
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Section 7.02(c) shall become effective prior to the date of appointment by MSAF
Group of a successor Administrative Agent and the acceptance of such
appointment by such successor Administrative Agent; provided, however, that in
the event that a successor Administrative Agent shall not have been appointed
within 90 days after such termination, the Administrative Agent may petition
any court of competent jurisdiction for the appointment of a successor
Administrative Agent. Upon action by either party pursuant to the provisions
of this Section 7.02(d), the Administrative Agent shall be entitled to the
payment of any compensation owed to it hereunder and to the reimbursement of
all Reimbursable Expenses incurred in connection with all services rendered by
it hereunder, as provided in Section 8 hereof, and for so long as the
Administrative Agent is continuing to perform any of the Administrative
Services for any MSAF Group Member, the Administrative Agent shall be entitled
to continue to be paid all amounts due to it hereunder, net of any amounts that
shall have been finally adjudicated by a court of competent jurisdiction to be
owed by the Administrative Agent to MSAF Group or not to be due to the
Administrative Agent, until a successor Administrative Agent shall have been
appointed and shall have accepted such appointment in accordance with the
provisions of Section 7.03(c).
SECTION 7.03. Consequences of Termination. (a) Notices. (i) Following the
termination of this Agreement by MSAF Group or by the Administrative Agent
pursuant to Section 7.02, the Administrative Agent will promptly forward to MSAF
Group any notices received by it during the year immediately after termination.
(ii) MSAF Group will notify promptly any relevant third party,
including each Rating Agency, the Trustee, and the Servicer, of the
termination of this Agreement by MSAF Group or by the Administrative
Agent and will request that any such notices and accounting reports and
communications thereafter be made or given directly to the entity
engaged to serve as Administrative Agent, and to MSAF Group.
(b) Accrued Rights. A termination of this Agreement by MSAF Group or by
the Administrative Agent hereunder shall not affect the respective rights and
liabilities of any party accrued prior to such termination in respect of any
prior breaches hereof or otherwise.
(c) Replacement. If this Agreement is terminated by MSAF Group or by the
Administrative Agent under Section 7.02, the Administrative Agent will
cooperate with any person appointed to perform the Administrative Services,
including providing such person with all information and documents reasonably
requested.
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<PAGE> 37
SECTION 7.04. Survival. Notwithstanding any termination or the expiration
of this Agreement, the obligations of MSAF Group and the Administrative Agent
under Section 3.02 shall survive such termination or expiration, as the case may
be.
ARTICLE 8
ASSIGNMENT AND DELEGATION
SECTION 8.01. Assignment and Delegation. (a) Except as provided in
subsection (b) below, no party to this Agreement shall assign or delegate or
otherwise subcontract this Agreement or all or any part of its rights or
obligations hereunder to any Person without the prior written consent of the
other parties, such consent not to be unreasonably withheld.
(b) The Administrative Agent may assign its right to receive compensation
for the performance of all or any part of the services set forth in Article 2,
including without limitation, the establishment and maintenance of the Ledgers
and the preparation of the Draft Accounts.
(c) Without limiting the foregoing, any Person who shall become a successor
by assignment or otherwise of any party hereto shall be required as a condition
to the effectiveness of any such assignment or other arrangement to become a
party to this Agreement.
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Notices. All notices, consents, directions, approvals,
instructions, requests and other communications required or permitted by such
agreement to be given to any Person shall be in writing, and any such notice
shall become effective ten days after being deposited in the mails, certified or
registered, return receipt requested, with appropriate postage prepaid for first
class mail, or if delivered by hand or courier service or in the form of a
facsimile, when received (and, in the case of a facsimile, receipt of such
facsimile is confirmed to the sender), and shall be directed to the address or
facsimile number of such Person set forth below:
If to MSAF and the other MSAF Group Members, to:
Morgan Stanley Aircraft Finance
c/o Wilmington Trust Company Attention:
Corporate Trust Administration
35
<PAGE> 38
1100 North Market Street
Rodney Square North
Wilmington, Delaware 19890
Fax: (302) 651-8882
With a copy to:
Davis Polk & Wardwell
1 Frederick's Place
London EC2R 8AB
Attention: Mr. Tom Reid
Fax: + 44-171-418 1400
and
Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf London E14 4QA
Attention: Mr. Scott Peterson
Fax: + 44-171-415 4328
If to the Administrative Agent, to it at:
Cabot Aircraft Services Limited
Attention: Mr. Kieran O'Keefe
Fourth Floor
Europa House
Harcourt Street
Dublin 2
Ireland
Tel: +353 1 475 4778
If to the Security Trustee, to it at:
Bankers Trust Company
Attention: Corporate Trust and Agency Services Structured Finance
Four Albany Street, 10th Floor
New York, NY 10006
Fax: +1 212 250 6439
36
<PAGE> 39
From time to time any party to such agreement may designate a new address
or number for purposes of notice thereunder by notice to each of the other
parties thereto.
SECTION 9.02. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 9.03. Jurisdiction. Except as otherwise expressly provided in
this Agreement, the parties hereto agree that any suit, action or proceeding
seeking to enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby may be
brought in the United States District Court for the Southern District of New
York or any other New York State court sitting in New York City, and each of the
parties hereby consents to the jurisdiction of such courts (and of the
appropriate appellate courts therefrom) in any such suit, action or proceeding
and irrevocably waives, to the fullest extent permitted by law, any objection
which it may now or hereafter have to the laying of the venue of any such suit,
action or proceeding in any such court or that any such suit, action or
proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be
served on any party anywhere in the world, whether within or without the
jurisdiction of any such court. Without limiting the foregoing, each party
agrees that service of process on such party as provided in Section 9.01 shall
be deemed effective service of process on such party.
SECTION 9.04. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
SECTION 9.05. Counterparts; Third Party Beneficiaries. This Agreement may
be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received a counterpart hereof signed by the other party hereto. No
provision of this Agreement is intended to confer upon any Person other than the
parties hereto any rights or remedies hereunder.
SECTION 9.06. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter of this
Agreement and supersedes all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter of this
Agreement.
37
<PAGE> 40
SECTION 9.07. Power of Attorney. Each of MSAF and the other MSAF Group
Members shall appoint the Administrative Agent and its successors, and its
permitted designees, as their true and lawful attorney-in-fact. All services to
be performed and actions to be taken by pursuant to this Agreement shall be
performed to and on behalf of each of MSAF and the other MSAF Group Members.
The Administrative Agent shall be entitled to seek and obtain from each of MSAF
and the other MSAF Group Members a power of attorney in respect of the execution
of any specific action as the Administrative Agent deems appropriate.
SECTION 9.08. Table of Contents; Headings. The table of contents and
headings of the various articles, sections and other subdivisions of such
agreement are for convenience of reference only and shall not modify, define or
limit any of the terms or provisions of such agreement.
SECTION 9.09. Restrictions on Disclosure. The Administrative Agent agrees
that it shall not, prior to the termination or expiration of this Agreement or
within the three years after such termination or expiration, disclose to any
Person any confidential or proprietary information, whether of a technical,
financial, commercial or other nature, received directly or indirectly from MSAF
Group regarding MSAF Group or its business or the Aircraft, except as authorized
in writing by MSAF Group or otherwise permitted by this Agreement, and except:
(a) to Representatives of the Administrative Agent and any of its
Affiliates in furtherance of the purposes of this Agreement, provided that any
such Representatives shall have agreed to be bound by the restrictions on
disclosure set forth in this Section 9.09;
(b) to the extent (i) required by Applicable Law or by judicial or
administrative process or (ii) reasonably necessary in order to enable the
Administrative Agent to perform the Administrative Services, but in the case of
clause (i) above, in the event of proposed disclosure, the Administrative Agent
shall use reasonable efforts to protect information in which MSAF Group has an
interest to the maximum extent achievable; and
(c) to the extent that the information:
(i) was generally available in the public domain;
(ii) was lawfully obtained from a source under no obligation of
confidentiality, directly or indirectly, to MSAF Group;
(iii) was disclosed to the general public with the approval of MSAF
Group;
38
<PAGE> 41
(iv) was in the files, records or knowledge of the Administrative
Agent or any Affiliates of the Administrative Agent prior to initial
disclosure thereof to the Administrative Agent or any Affiliates of the
Administrative Agent by MSAF Group;
(v) was provided by a member of a governing body of any MSAF Group
Member to the Administrative Agent or any Affiliates of the Administrative
Agent without any express written (or, to the extent such information was
provided in an oral communication, oral) restriction on use of or access to
such information, and such information would not reasonably be expected to
be confidential, proprietary or otherwise privileged; or
(vi) was developed independently by the Administrative Agent or any
Affiliates of the Administrative Agent; and
(vii) to the extent the Administrative Agent reasonably deems
necessary to protect and enforce its rights and remedies under this
Agreement; provided, however, that in such an event the Administrative
Agent shall act in a manner reasonably designed to prevent disclosure of
such confidential information; and provided further, that prior to
disclosure of such information the Administrative Agent shall inform MSAF
Group of such disclosure.
SECTION 9.10. No Partnership. (a) It is expressly recognized and
acknowledged that this Agreement is not intended to create a partnership, joint
venture or other similar arrangement between any MSAF Group Member or Members on
the one part and the Administrative Agent on the other part. It is also
expressly understood that any actions taken on behalf of any MSAF Group Member
by the Administrative Agent shall be taken as agent for such MSAF Group Member,
either naming the relevant MSAF Group Member, or naming the Administrative Agent
as agent for an undisclosed principal. No MSAF Group Member shall hold itself
out as a partner of the Administrative Agent, and the Administrative Agent will
not hold itself out as a partner of any MSAF Group Member.
(b) The Administrative Agent shall not have any fiduciary duty or other
implied obligations or duties to any MSAF Group Member, any Lessee or any other
Person arising out of this Agreement.
39
<PAGE> 42
SECTION 9.11. Concerning the Security Trustee. In respect of the Security
Trustee's performance of appointing the Administrative Agent to provide the Bank
Account Management Services set forth in Section 2.04 and in the Indenture, the
Security Trustee shall be afforded all of the rights, protections, immunities
and indemnities contained in the Security Trust Agreement as if such rights,
protections, immunities and indemnities were specifically set forth herein.
40
<PAGE> 43
IN WITNESS WHEREOF, this Agreement has been duly executed on the date
first written above.
MORGAN STANLEY AIRCRAFT FINANCE
By: /s/ Karl Essig
------------------------
Name: Karl Essig
Title: Signatory Trustee
/s/ Kieran O'Keefe
----------------------------
SIGNED SEALED AND DELIVERED
for and on behalf of
CABOT AIRCRAFT SERVICES LIMITED,
as Administrative Agent
by Kieran O'Keefe
its duly authorized attorney in fact in the
presence of: /s/ Bernadette Martin
BANKERS TRUST COMPANY, not in its individual
capacity but solely as Security Trustee
By: /s/ Patricia M.F. Russo
-------------------------
Name: Patricia M.F. Russo
Title: Vice President
MSA I
By: /s/ Scott Peterson
-------------------------
Name: Scott Peterson
Title: Signatory Trustee
REDFLY (UK) LIMITED
By: /s/ Maurice Mason
-------------------------
Name: Maurice Mason
Title: Chairman
41
<PAGE> 44
/s/ Maurice Mason
----------------------------
SIGNED SEALED AND DELIVERED
for and on behalf of
GREENFLY (IRELAND) LIMITED,
by Maurice Mason
its duly authorized attorney in fact in the
presence of:
AIRCRAFT SPC-5, INC.
By: /s/ Maurice Mason
------------------------
Name: Maurice Mason
Title: President
42
<PAGE> 45
Appendix A
MSA I
Aircraft SPC-5, Inc.,
Greenfly (Ireland) Limited
Redfly (UK) Limited
A-1
<PAGE> 46
SCHEDULE 1
ACCOUNTS
<TABLE>
<S> <C> <C> <C>
BANKERS TRUST ACCOUNTS TRUSTEE ACCOUNT NUMBER
1. Collection Account 25254
2. Rental Account 00365296
3. Expense Account 25257
4. Aircraft Purchase Account 25256
</TABLE>
1
<PAGE> 47
EXHIBIT A
FORM OF CERTIFICATE REQUESTING DIRECT
FUNDS TRANSFER
[Date]
Bankers Trust Company, as
trustee under the Indenture
Four Albany Street
New York, New York 10006
Attention: Corporate Trust and Agency Group
Structured Finance Team
Re: Administrative Agency Agreement:
Request for Direct Funds Transfer
Sirs:
The undersigned hereby requests that all amounts distributable to the
Expense payee named below pursuant to Section 2.04(d)(v) of the Administrative
Agency Agreement dated as of March 3, 1998 (the "Administrative Agency
Agreement"; terms used herein but not otherwise defined herein being used
herein as therein defined), among Cabot Aircraft Services Limited, as
administrative agent, Morgan Stanley Aircraft Finance, Bankers Trust Company,
as security trustee and certain other entities named therein, be transferred on
each Payment Date to the following account:
[Name of Expense payee]
[Name of Bank]
Account No: ________________________________________________________
[Location]
Attention: ________________________________________________________
Please acknowledge your approval of the foregoing payment instructions by
executing a copy of this letter and returning it to __________ at _____________.
CABOT AIRCRAFT SERVICES LIMITED
By: __________________________
Name:
Title:
A-1
<PAGE> 48
Acknowledged and Approved:
BANKERS TRUST COMPANY, not in its individual
capacity, but solely as trustee under the Indenture
By: _________________________
Name:
Title:
A-2
<PAGE> 1
================================================================================
CONFORMED COPY
Exhibit 10.2
CASH MANAGEMENT AGREEMENT
among
MORGAN STANLEY AIRCRAFT FINANCE
BANKERS TRUST COMPANY
and
THE ENTITIES LISTED ON APPENDIX A HERETO
Dated as of March 3, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
_____________
PAGE
----
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions ............................................... 2
ARTICLE 2
APPOINTMENT; CASH MANAGEMENT SERVICES
SECTION 2.01. Appointment ............................................... 4
SECTION 2.02. Investments of Cash ....................................... 4
SECTION 2.03. Additional Aircraft ....................................... 4
ARTICLE 3
STANDARD OF PERFORMANCE; LIABILITY AND INDEMNITY
SECTION 3.01. Standard of Performance ................................... 4
SECTION 3.02. Liability and Indemnity ................................... 4
ARTICLE 4
CASH MANAGER UNDERTAKINGS
SECTION 4.01. Cash Manager Undertakings ................................. 5
ARTICLE 5
UNDERTAKINGS OF MSAF GROUP
SECTION 5.01. Cooperation ............................................... 7
SECTION 5.02. Information ............................................... 7
SECTION 5.03. Scope of Services ......................................... 7
SECTION 5.04. Ratification .............................................. 8
ARTICLE 6
CASH MANAGEMENT FEES AND EXPENSES
SECTION 6.01. Cash Management Fees ...................................... 8
SECTION 6.02. Expenses .................................................. 8
<PAGE> 3
PAGE
ARTICLE 7
TERM; REMOVAL OF OR TERMINATION BY THE CASH MANAGER
SECTION 7.01. Term ...................................................... 9
SECTION 7.02. Right to Terminate ........................................ 9
SECTION 7.03. Consequences of Termination ............................... 9
SECTION 7.04. Survival .................................................. 10
ARTICLE 8
ASSIGNMENT AND DELEGATION
SECTION 8.01. Assignment and Delegation ................................. 10
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Notices ................................................... 11
SECTION 9.02. Governing Law ............................................. 12
SECTION 9.03. Jurisdiction .............................................. 12
SECTION 9.04. WAIVER OF JURY TRIAL ...................................... 12
SECTION 9.05. Counterparts; Third Party Beneficiaries ................... 12
SECTION 9.06. Entire Agreement .......................................... 13
SECTION 9.07. Table of Contents; Headings ............................... 13
SECTION 9.08. Restrictions on Disclosure ................................ 13
SECTION 9.09. No Partnership ............................................ 13
SECTION 9.10. Duties and Liabilities of the Cash Manager Generally ...... 14
SECTION 9.11. Concerning the Security Trustee ........................... 16
ii
<PAGE> 4
CASH MANAGEMENT AGREEMENT dated as of March 3, 1998, among Morgan Stanley
Aircraft Finance ("MSAF"), a statutory trust established under the laws of the
State of Delaware, Bankers Trust Company, a New York banking corporation, in its
capacity as trustee under the Security Trust Agreement (the "SECURITY TRUSTEE")
and in its capacity as cash manager (the "CASH MANAGER") and the subsidiaries of
MSAF, each listed on Appendix A hereto (collectively with MSAF, the "MSAF
GROUP").
For the consideration set forth herein and other good and valuable
consideration, the receipt of which is hereby acknowledged, the Cash Manager,
MSAF and the other MSAF Group Members agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. The following terms, as used herein, have the
following meanings. Unless otherwise defined herein, all capitalized terms used
but not defined herein have the meanings assigned to such terms in the
Indenture.
"AIRCRAFT" has the meaning assigned to such term in the Asset Purchase
Agreement.
"AFTER-TAX BASIS" means on a basis such that any payment received, deemed
to have been received or receivable by any Person shall, if necessary, be
supplemented by a further payment to that Person so that the sum of the two
payments shall, after deduction of all U.S. federal, state, local and foreign
Taxes, penalties, fines, interest, additions to Tax and other charges resulting
from the receipt (actual or constructive) or accrual of such payments imposed by
or under any U.S. federal, state, local or foreign law or Governmental Authority
(after taking into account any current deduction to which such Person shall be
entitled with respect to the amount that gave rise to the underlying payment) be
equal to the payment received, deemed to have been received or receivable.
"ASSET PURCHASE AGREEMENT" means the Asset Purchase Agreement dated as of
November 10, 1997 between International Lease Finance Corporation and MSAF.
"CASH MANAGEMENT SERVICES" has the meaning assigned to such term in Section
2.01 hereof.
2
<PAGE> 5
"CLOSING DATE" means March 3, 1998.
"GOVERNMENTAL AUTHORITY" means any court, administrative agency or
commission or other governmental agency or instrumentality (or any officer or
representative thereof) domestic, foreign or international, of competent
jurisdiction including, without limitation, the European Union.
"INDENTURE" means the Indenture dated as of March 3, 1998, between MSAF and
the Trustee.
"REPRESENTATIVES" with respect to any Person means the officers, directors,
employees, advisors and agents of such Person.
"STANDARD OF PERFORMANCE" has the meaning assigned to such term in Section
3.01 hereof.
3
<PAGE> 6
ARTICLE 2
APPOINTMENT; CASH MANAGEMENT SERVICES
SECTION 2.01. Appointment. (a) The Security Trustee, on behalf of the
MSAF Group Members, and is hereby directed by the MSAF Group Members to so
appoint, hereby appoints the Cash Manager as the provider to MSAF Group of the
cash management services set forth in Section 2.02 below herein and in Section
3.02 of the Indenture (the "CASH MANAGEMENT SERVICES").
(b) The Cash Manager hereby accepts such appointment and agrees to perform
the Cash Management Services on the terms and subject to the conditions set
forth in this Agreement.
SECTION 2.02. Investments of Cash. In connection with MSAF's acquisition
of the Aircraft and the issuance of the Notes, the Cash Manager shall at the
direction of MSAF (or, following the giving of a Default Notice at the direction
of the Security Trustee) invest and reinvest the funds on deposit in the
Accounts as permitted by and in accordance with Section 3.02 of the Indenture.
SECTION 2.03. Additional Aircraft. In the event that MSAF Group shall
acquire any Additional Aircraft and notwithstanding that MSAF Group may retain
different Service Providers for such Additional Aircraft, the Cash Manager, upon
receipt of written notice of such purchase, hereby agrees to provide the same
Cash Management Services with respect to all such Additional Aircraft.
ARTICLE 3
STANDARD OF PERFORMANCE; LIABILITY AND INDEMNITY
SECTION 3.01. Standard of Performance. The Cash Manager will devote the
same amount of time and attention to, and shall be required to exercise the same
level of skill, care and diligence in the performance of its services as a
prudent businessperson would in administering such services on its own behalf
(the "STANDARD OF PERFORMANCE").
SECTION 3.02. Liability and Indemnity. (a) The Cash Manager shall not be
liable for any Losses or Taxes to or of, or payable by, any MSAF Group Member at
any time from any cause whatsoever or any Losses or Taxes directly or indirectly
arising out of or in connection with or related to the performance by the Cash
Manager of this Agreement, including Losses resulting from any investments in
any Permitted Account Investment or any investment losses resulting from such
investments or from the liquidation of such investments prior to the stated
maturity thereof unless such Losses or Taxes are the result of the
4
<PAGE> 7
Cash Manager's own gross negligence (or simple negligence in the handling of
funds), willful misconduct, deceit or fraud or that of any of its directors,
officers, agents or employees, as the case may be.
(b) Subject to and in accordance with the provisions of the Indenture, MSAF
and the other MSAF Group Members do hereby assume liability for and do hereby
jointly and severally agree to indemnify, reimburse and hold harmless on an
After-Tax Basis the Cash Manager, its directors, officers, agents and employees
and each of them from any and all Losses or Taxes of any nature that may be
imposed on, incurred by or asserted against any of them arising out of, in
connection with or related to the Cash Manager's performance under this
Agreement or any agreement, instrument or document executed in connection
herewith (including any Losses or Taxes incurred by the Cash Manager as a result
of indemnifying any Person to whom it shall have delegated its obligations
hereunder in accordance with Section 8.01, but only to the extent the Cash
Manager would have been indemnified had it performed such obligations), except
as a result of the gross negligence (or simple negligence in the handling of
funds), willful misconduct, deceit or fraud of the Cash Manager or any of its
directors, officers, agents or employees, as the case may be. This indemnity
shall expressly inure to the benefit of any director, officer, agent or employee
of the Cash Manager and to the benefit of any successor of the Cash Manager and
shall survive the expiration or termination of this Agreement and the
resignation of or the earlier removal of the Cash Manager.
ARTICLE 4
CASH MANAGER UNDERTAKINGS
SECTION 4.01. Cash Manager Undertakings. The Cash Manager hereby
covenants with MSAF Group as follows:
(a) if the Cash Manager receives any funds whatsoever under this Agreement
or any Relevant Document, which funds have been clearly identified as belonging
to any MSAF Group Member or are to be paid to any MSAF Group Member or into any
Account pursuant to this Agreement, any Relevant Document or otherwise, then the
Cash Manager shall (i) hold such funds in trust for the Security Trustee, (ii)
keep such funds separate from all other funds belonging to the Cash Manager and
(iii) as soon as administratively practicable following receipt thereof, pay the
same into the appropriate Account in accordance with the terms hereof;
5
<PAGE> 8
(b) the Cash Manager shall comply with all lawful directions, orders and
instructions which the Security Trustee may from time to time give to it in
writing which are in accordance with the provisions of this Agreement and the
Indenture;
(c) the Cash Manager shall not knowingly fail to comply with any legal
requirements in the performance of the Cash Management Services;
(d) the Cash Manager shall make all payments required to be made by it at
anytime and from time to time pursuant to this Agreement on the required date
for payment thereof and shall turn over any amounts owed to the Security Trustee
or the MSAF Group without set-off or counterclaim;
(e) the Cash Manager shall cooperate with MSAF Group, the Administrative
Agent and the Trustee and their respective agents, directors or trustees
(including by providing such information as may reasonably be requested at any
time and from time to time) to permit MSAF Group and the Administrative Agent to
monitor the Cash Manager's compliance with its obligations under this Agreement;
(f) the Cash Manager is acting hereunder as the agent of the Security
Trustee and, except in relation to any money erroneously received by the Cash
Manager by way of deposit into any of the Cash Manager's bank accounts (which
shall be held in trust by the Cash Manager on behalf of the Security Trustee and
deposited into the appropriate Account as soon as reasonably practicable),
neither the Cash Manager nor any of its affiliates shall be under any fiduciary
duty or other implied obligation or duty to any MSAF Group Member or any holder
of any securities issued by any MSAF Group Member, any Lessee or any other
Person arising out of this Agreement; and
(g) the Cash Manager shall not take any steps for the purpose of procuring
the appointment of any administrative receiver or the making of any
administrative order or for instituting any bankruptcy, reorganization,
arrangement, insolvency, winding up, liquidation, composition or any like
proceedings under the laws of any jurisdiction in respect of any MSAF Group
Member or in respect of any of their respective liabilities, including, without
limitation, as a result of any claim or interest of the Cash Manager or any of
its affiliates.
6
<PAGE> 9
ARTICLE 5
UNDERTAKINGS OF MSAF GROUP
SECTION 5.01. Cooperation. MSAF and the other MSAF Group Members shall
use commercially reasonable efforts to cause each other Service Provider,
including, without limitation, the Administrative Agent, to cooperate at all
times with the Cash Manager to enable the Cash Manager to provide the Cash
Management Services, including providing the Cash Manager with all powers of
attorney and such information as may be reasonably necessary or appropriate for
the Cash Manager to perform the Cash Management Services.
SECTION 5.02. Information. MSAF will provide the Cash Manager with the
following information in respect of itself and each other MSAF Group Member:
(a) names of and contact information with respect to the controlling
trustees or board for each MSAF Group Member and the Administrative Agent; and
(b) such other information as is necessary to the Cash Manager's
performance of the Cash Management Services;
provided, that such information referred to in paragraph (a) shall be
provided to the Cash Manager upon execution of this Agreement and, with respect
to the information noted in paragraph (b), upon request and, in respect of any
amendment or changes to the information provided to the Cash Manager upon
execution of this Agreement, promptly following the effectiveness of such
amendments or changes.
SECTION 5.03. Scope of Services. (a) In the event that any MSAF Group
Member enters into any agreement, amendment or other modification of any
Relevant Document or shall take any other action that has the effect of
increasing in any material respect the scope, nature or level of the Cash
Management Services, MSAF shall provide written notice thereof to the Cash
Manager, and the Cash Manager shall not be obligated to perform such affected
Cash Management Services to the extent of such increase unless and until the
Cash Manager and MSAF Group shall agree on the terms on which such increased
Cash Management Services shall be provided. MSAF Group shall engage another
Person, at its sole cost and expense, to perform the affected or increased Cash
Management Services without the prior written consent of the Cash Manager if
they determine, in their discretion, that timely agreement with the Cash Manager
for the performance of such services cannot be reached on commercially
reasonable terms.
7
<PAGE> 10
(b) In the event that MSAF Group shall acquire Additional Aircraft, MSAF
Group shall so notify in writing the Cash Manager and the Cash Manager shall be
obligated to provide the Cash Management Services with respect to such
Additional Aircraft in accordance with Section 2.03 hereof.
SECTION 5.04. Ratification. (a) MSAF and the other MSAF Group Members
hereby ratify and confirm, and agree to ratify and confirm (and shall furnish
written evidence thereof upon request of the Cash Manager), of any act or
omission of the Cash Manager in accordance with this Agreement in the exercise
of any of the powers or authorities conferred upon the Cash Manager under the
terms of this Agreement, it being expressly understood and agreed that none of
the foregoing shall have any obligation to ratify and confirm, and expressly do
not ratify and confirm, any act or omission of the Cash Manager in violation of
the this Agreement or the Standard of Performance.
(b) MSAF hereby undertakes to procure that any subsidiary of MSAF formed or
acquired after the date hereof shall execute an agreement with the Cash Manager
adopting and confirming, as regards such subsidiary, the terms of this Agreement
and agreeing to ratify anything done by the Cash Manager in connection herewith.
ARTICLE 6
CASH MANAGEMENT FEES AND EXPENSES
SECTION 6.01. Cash Management Fees. (a) In consideration of the Cash
Manager's performance of the Cash Management Services, MSAF shall pay to the
Cash Manager an annual fee (the "CASH MANAGEMENT FEE") as agreed pursuant to a
separate agreement between the Cash Manager and MSAF.
SECTION 6.02. Expenses. The Cash Manager shall be responsible for all
costs and expenses relating to or associated with the Cash Manager's performance
of its duties as set forth in this Agreement, other than such costs as are
expressly stated herein to be an expense or cost of MSAF Group.
8
<PAGE> 11
ARTICLE 7
TERM; REMOVAL OF OR TERMINATION BY THE CASH MANAGER
SECTION 7.01. Term. This Agreement shall have a term commencing on the
Closing Date and expiring on the date of payment in full of all amounts
outstanding to be paid on the MSAF Group Notes. During such term, this
Agreement shall not be terminable by either party except as expressly provided
in this Article 7.
SECTION 7.02. Right to Terminate. (a) At any time during the term of this
Agreement, MSAF Group shall be entitled to terminate this Agreement on 90 days
notice.
(b) At any time during the term of this Agreement, the Cash Manager shall
be entitled to terminate this Agreement on 90 days notice.
(c) No termination of this Agreement by MSAF Group pursuant to Section
7.02(a) and no termination by the Cash Manager pursuant to Section 7.02(b) shall
become effective prior to the date of appointment by MSAF Group of a successor
cash manager and the acceptance of such appointment by such successor cash
manager; provided, however, that in the event that a successor cash manager
shall not have been appointed within 90 days after such termination, the Cash
Manager may petition any court of competent jurisdiction for the appointment of
a successor cash manager. Upon action by either party pursuant to the
provisions of this Section 7.02(c), the Cash Manager shall be entitled to the
payment of any compensation owed to it hereunder in connection with all services
rendered by it hereunder, as provided in Article 6 hereof, and for so long as
the Cash Manager is continuing to perform any of the Cash Management Services
for any MSAF Group Member, the Cash Manager shall be entitled to continue to be
paid all amounts due to it hereunder, net of any amounts that shall have been
finally adjudicated by a court of competent jurisdiction to be owed by the Cash
Manager to MSAF Group or not to be due to the Cash Manager, until a successor
cash manager shall have been appointed and shall have accepted such appointment
in accordance with the provisions of Section 7.02(c).
SECTION 7.03. Consequences of Termination. (a) Notices. (i) Following
the termination of this Agreement by MSAF Group or the Cash Manager pursuant to
Section 7.02 and the replacement of the Cash Manager by a successor cash manager
pursuant to Section 7.02, the former Cash Manager will promptly forward to the
successor cash manager and MSAF Group any notices and accounting reports (or
copies thereof) received by it during the year immediately after termination.
9
<PAGE> 12
(ii) MSAF Group will promptly notify any relevant third party,
including the Rating Agencies, the Trustee and the Administrative Agent, of
the removal of the Cash Manager or the termination of this Agreement by
MSAF Group or by the Cash Manager and will request that all such notices
and accounting reports and communications to the Cash Manager thereafter be
made or given directly to the successor Cash Manager and MSAF Group.
(b) Accrued Rights. A termination of this Agreement by MSAF Group or by
the Cash Manager hereunder shall not affect the respective rights and
liabilities of any party accrued prior to such termination in respect of any
prior breaches hereof or otherwise.
(c) Replacement. If this Agreement is terminated by MSAF Group or by the
Cash Manager under Section 7.02 and the Cash Manager is replaced by a successor
cash manager under Section 7.02, such former Cash Manager will cooperate with
such successor cash manager, including providing such successor cash manager
with all information and documents reasonably requested.
SECTION 7.04. Survival. Notwithstanding any termination or the expiration
of this Agreement, the obligations of MSAF Group and the Cash Manager under
Sections 3.02 and 6.01 (to the extent any fees due and owing through such date
of termination remain unpaid) shall survive such termination or expiration, as
the case may be.
ARTICLE 8
ASSIGNMENT AND DELEGATION
SECTION 8.01. Assignment and Delegation. (a) No party to this Agreement
shall assign or delegate or otherwise subcontract this Agreement or all or any
part of its rights or obligations hereunder to any other person without the
prior written consent of the other parties, such consent not to be unreasonably
withheld.
(b) Without limiting the foregoing, any Person who shall become a successor
by assignment or otherwise of any party hereto shall be required, as a condition
to the effectiveness of any such assignment or other arrangement to become a
party to this Agreement.
10
<PAGE> 13
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Notices. All notices, consents, directions, approvals,
instructions, requests and other communications required or permitted by this
Agreement to be given to any Person shall be in writing, and any such notice
shall become effective five Business Days after being deposited in the mails,
first-class, certified or registered, return receipt requested, with
appropriate postage prepaid for first class mail, or if delivered by hand or
courier service or in the form of a facsimile, when received (and, in the case
of a facsimile, receipt of such facsimile is confirmed to the sender), and
shall be directed to the address or facsimile number of such Person set forth
below:
If to MSAF and the other MSAF Group Members, to:
Morgan Stanley Aircraft Finance
c/o Wilmington Trust Company
Attention: Corporate Trust Administration
1100 North Market Street
Rodney Square North
Wilmington, Delaware 19890
Fax: (302) 651-8882
with a copy to:
Davis Polk & Wardwell
1 Frederick's Place
London EC2R 8AB
Attention: Mr. Tom Reid
Fax: + 44-171-418 1400
and
Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
Attention: Mr. Scott Peterson
Fax: + 44-171-415 4328
If to the Cash Manager, to it at:
11
<PAGE> 14
Bankers Trust Company
Attention: Corporate Trust and Agency Services Structured Finance
Four Albany Street, 10th Floor
New York, NY 10006
Fax: +1 212 250 6439
From time to time any party to such agreement may designate a new address
or number for purposes of notice thereunder by notice to each of the other
parties thereto.
SECTION 9.02. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 9.03. Jurisdiction. Except as otherwise expressly provided in
this Agreement, the parties hereto agree that any suit, action or proceeding
seeking to enforce any provision of, or based on any matter arising out of or
in connection with, this Agreement or the transactions contemplated hereby may
be brought in the United States District Court for the Southern District of New
York or any other New York State court sitting in New York City, and each of
the parties hereby consents to the jurisdiction of such courts (and of the
appropriate appellate courts therefrom) in any such suit, action or proceeding
and irrevocably waives, to the fullest extent permitted by law, any objection
which it may now or hereafter have to the laying of the venue of any such suit,
action or proceeding in any such court or that any such suit, action or
proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be
served on any party anywhere in the world, whether within or without the
jurisdiction of any such court. Without limiting the foregoing, each party
agrees that service of process on such party as provided in Section 9.01 shall
be deemed effective service of process on such party.
SECTION 9.04. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
SECTION 9.05. Counterparts; Third Party Beneficiaries. This Agreement
may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were
upon the same instrument. This Agreement shall become effective when each
party hereto shall have received a counterpart hereof signed by the other party
hereto. No provision of this Agreement is intended to confer upon any Person
other than the parties hereto any rights or remedies hereunder.
12
<PAGE> 15
SECTION 9.06. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter of this
Agreement and supersedes all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter of this
Agreement.
SECTION 9.07. Table of Contents; Headings. The table of contents and
headings of the various articles, sections and other subdivisions of such
agreement are for convenience of reference only and shall not modify, define or
limit any of the terms or provisions of such agreement.
SECTION 9.08. Restrictions on Disclosure. The Cash Manager agrees that
it shall not, prior to the termination or expiration of this Agreement or
within the three years after such termination or expiration, disclose to any
Person any confidential or proprietary information, whether of a technical,
financial, commercial or other nature, received directly or indirectly from
MSAF Group regarding MSAF Group or its business or the Aircraft.
Notwithstanding anything herein to the contrary, the foregoing shall not
be construed to prohibit (i) disclosure of any and all information that is or
becomes publicly known, or information obtained by the Cash Manager from
sources other than a MSAF Group Member, (ii) disclosure of any and all
information (A) if required to do so by any applicable statute, law, rule or
regulation, (B) to any government agency or regulatory body having or claiming
authority to regulate or oversee any respects of the Cash Manager's business or
that of its affiliates, (C) pursuant to any subpoena, civil investigative
demand or similar demand or request of any court, regulatory authority,
arbitrator or arbitration to which the Cash Manager or an affiliate or an
officer, director, employer or shareholder thereof is a party, (D) in any
preliminary or final offering circular, registration statement or contract or
other document pertaining to the transactions contemplated by the Agreement
approved in advance by any MSAF Group Member or (E) to any affiliate,
independent or internal auditor, agent, employee or attorney of the Cash
Manager having a need to know the same, provided that the Cash Manager advises
such recipient of the confidential nature of the information being disclosed,
or (iii) any other disclosure authorized by any MSAF Group Member.
SECTION 9.9. No Partnership. (a) It is expressly recognized and
acknowledged that this Agreement is not intended to create a partnership, joint
venture or other similar arrangement between any MSAF Group Member or Members
on the one part and the Cash Manager on the other part. It is also expressly
understood that any actions taken on behalf of any MSAF Group Member by the
Cash Manager shall be taken as agent for such MSAF Group Member, either naming
the relevant MSAF Group Member, or naming the Cash Manager as agent for an
undisclosed principal. No MSAF Group Member shall
13
<PAGE> 16
hold itself out as a partner of the Cash Manager, and the Cash Manager will not
hold itself out as a partner of any MSAF Group Member.
(b) The Cash Manager shall not have any fiduciary duty or other implied
obligations or duties to any MSAF Group Member, any Lessee or any other Person
arising out of this Agreement.
SECTION 9.10. Duties and Liabilities of the Cash Manager Generally. (a)
The Cash Manager undertakes to perform such duties and only such duties as are
specifically set forth in this Agreement. The Cash Manager shall not have any
duties or responsibilities except those expressly set forth in this Agreement
or be a trustee for or have any fiduciary obligation to any party hereto.
(b) In the absence of bad faith on the part of the Cash Manager, the Cash
Manager may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any certificates or
opinions furnished to the Cash Manager which conform to the requirements of
this Agreement.
(c) The Cash Manager shall not be liable for any error of judgment made in
good faith by an officer or officers of the Cash Manager, unless it shall be
conclusively determined by a court of competent jurisdiction that the Cash
Manager was grossly negligent in ascertaining the pertinent facts (or simply
negligent in the handling of funds).
(d) The Cash Manager shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with any direction of
the Security Trustee or any MSAF Group Member, as the case may be, given under
this Agreement.
(e) None of the provisions of this Agreement shall require the Cash
Manager to expend or risk its own funds or otherwise to incur any liability,
financial or otherwise, in the performance of any of its rights or powers if it
shall have reasonable grounds for believing that repayment of such funds or
indemnity satisfactory to it against such risk or liability is not assured to
it.
(f) The Cash Manager may conclusively rely and shall be fully protected in
acting or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval or other
paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties.
(g) Whenever in the administration of the provisions of this Agreement the
Cash Manager shall deem it necessary or desirable that a matter be proved or
14
<PAGE> 17
established prior to taking or suffering any action to be taken hereunder, such
matter (unless other evidence in respect thereof be herein specifically
prescribed) may, in the absence of gross negligence or bad faith on the part of
the Cash Manager, be deemed to be conclusively proved and established by an
Officer's Certificate of the Security Trustee or a MSAF Group Member, and
delivered to the Cash Manager and such certificate, in the absence of gross
negligence, willful misconduct, deceit or fraud on the part of the Cash
Manager, shall be full warrant to the Cash Manager for any action taken,
suffered or omitted by it under the provisions of this Agreement upon the faith
thereof.
(h) The Cash Manager may consult with counsel and the advice or any
opinion of counsel shall be full and complete authorization and protection in
respect of any action taken or omitted by it hereunder in good faith and in
accordance with such advice or opinion of counsel.
(i) The Cash Manager shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, entitlement order, approval or other
paper or document.
(j) Any corporation into which the Cash Manager may be merged or converted
or with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Cash Manager shall be a party,
or any corporation succeeding to the business of the Cash Manager shall be the
successor of the Cash Manager hereunder without the execution or filing of any
paper with any party hereto or any further act on the part of any of the
parties hereto except where an instrument of transfer or assignment is required
by law to effect such succession, anything herein to the contrary
notwithstanding.
(k) Neither the Cash Manager nor any of its officers, directors, employees
or agents shall be liable for any action taken or omitted under this Agreement
or in connection therewith except to the extent caused by the Cash Manager's
gross negligence (or simple negligence in the handling of funds), willful
misconduct, deceit or fraud, as determined by the final judgment of a court of
competent jurisdiction, no longer subject to appeal or review. The parties
each (for itself and any person or entity claiming through it) hereby releases,
waives, discharges, exculpates and covenants not to sue the Cash Manager for
any action taken or omitted under this Agreement except to the extent caused by
the Cash Manager's gross negligence (or simple negligence in the handling of
funds), willful misconduct, deceit or fraud. Anything in this Agreement to the
contrary notwithstanding, in no event shall the Cash Manager be liable for
special, indirect or consequential losses or damages of any kind whatsoever
(including but not limited to lost profits), even if the Cash Manager has been
advised of the likelihood of such losses or damages and regardless of the form
of action.
15
<PAGE> 18
SECTION 9.11. Concerning the Security Trustee. In respect of the
Security Trustee's performance of appointing the Cash Manager to provide the
Cash Management Services, the Security Trustee shall be afforded all of the
rights, protections, immunities and indemnities contained in the Security Trust
Agreement as if such rights, protections, immunities and indemnities were
specifically set forth herein.
16
<PAGE> 19
IN WITNESS WHEREOF, this Agreement has been duly executed on the date first
written above.
MORGAN STANLEY AIRCRAFT FINANCE
By: /s/ Karl Essig
---------------------------
Name: Karl Essig
Title: Signatory Trustee
BANKERS TRUST COMPANY, as Cash Manager
By: /s/ Patricia M.F. Russo
---------------------------
Name: Patricia M.F. Russo
Title: Vice President
BANKERS TRUST COMPANY, not in its individual
capacity, but solely as Security Trustee
By: /s/ Patricia M.F. Russo
---------------------------
Name: Patricia M.F. Russo
Title: Vice President
MSA I
By: /s/ Scott Peterson
---------------------------
Name: Scott Peterson
Title: Signatory Trustee
REDFLY (UK) LIMITED
By: /s/ Maurice Mason
---------------------------
Name: Maurice Mason
Title: Chairman
17
<PAGE> 20
/s/ Maurice Mason
-------------------------------
SIGNED SEALED AND DELIVERED for and on behalf of
GREENFLY (IRELAND) LIMITED,
by Maurice Mason
its duly authorized attorney in fact in the
presence of:
AIRCRAFT SPC-5, INC.
By: /s/ Maurice Mason
---------------------------
Name: Maurice Mason
Title: President
18
<PAGE> 21
APPENDIX A
MSA I
Aircraft SPC-5, Inc.,
Greenfly (Ireland) Limited
Redfly (UK) Limited
19
<PAGE> 1
Morgan Stanley & Co. Incorporated
CONFORMED COPY
Exhibit 10.3
March 3, 1998
Morgan Stanley Aircraft Finance
c/o Wilmington Trust Company
1100 North Market Street
Rodney Square North
Wilmington, Delaware 19890
Attention: Emmett R. Harman
Dear Sirs:
In connection with Morgan Stanley Aircraft Finance's ("MSAF") aircraft
securitization program, we hereby undertake to provide advice to MSAF with
respect to developing its interest rate risk management policies and developing
financial models, cash flow projections and forecasts to analyze the financial
impact of aircraft lease, sale and capital investment decisions. Upon receiving
approval from MSAF, we will undertake to implement such proposed policies,
models, forecasts and projections to the extent required by MSAF.
In consideration of the performance of the above services, MSAF shall pay
to Morgan Stanley & Co. Incorporated ("Morgan Stanley") an annual fee equal to
$50,000, payable monthly in arrears in equal installments.
Morgan Stanley shall not be liable for any losses to or payable by MSAF at
any time from any cause whatsoever or any losses directly or indirectly arising
out of or in connection with or related to performance by Morgan Stanley under
this letter agreement unless such losses are the result of Morgan Stanley's own
gross negligence, willful misconduct, deceit or fraud or that of any of its
directors, officers, agents or employees.
MSAF does hereby assure liability for and agree to indemnify, reimburse and
hold harmless Morgan Stanley, its directors, officers, employees and agents and
each of them from any and all losses that may be imposed on, incurred by or
asserted against any of them arising out of, in connection with or related to
Morgan Stanley's performance under this letter agreement, except as a result of
<PAGE> 2
the gross negligence, willful misconduct, deceit or fraud of Morgan Stanley or
any of its directors, officers, agents, or employees.
Morgan Stanley hereby covenants with MSAF that it will not take any steps
for the purpose of procuring the appointment of any administrative receiver or
the making of an administrative order or instituting any bankruptcy,
reorganization, arrangement, insolvency, winding up, liquidation, composition or
any like proceedings under the laws of any jurisdiction in respect of MSAF or
any of its subsidiaries or in respect of any of their respective liabilities,
including, without limitation, as a result of any claim or interest of Morgan
Stanley or any of its affiliates.
Unless terminated earlier by either party on 30 days' written notice, this
letter agreement shall be valid and remain in full force and effect until the
payment in full of all amounts outstanding to be paid on the notes issued by
MSAF under its aircraft securitization program.
This letter agreement shall be governed by and construed in accordance with
the laws of the State of New York.
Sincerely yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ Alexander C. Frank
----------------------------
Name: Alexander C. Frank
Title: Managing Director and
Assistant Treasurer
Agreed to by:
MORGAN STANLEY AIRCRAFT FINANCE
By: /s/ Karl Essig
------------------------
Name: Karl Essig
Title: Signatory Trustee
2.
<PAGE> 1
================================================================================
CONFORMED COPY
Exhibit 10.4
CUSTODY AND LOAN AGREEMENT
dated as of
March 3, 1998
among
MORGAN STANLEY AIRCRAFT FINANCE,
the other
MSAF LESSORS
(as defined herein)
and
INTERNATIONAL LEASE FINANCE CORPORATION
================================================================================
<PAGE> 2
TABLE OF CONTENTS
_________________
PAGE
ARTICLE 1
DEFINITIONS
<TABLE>
<S> <C> <C>
SECTION 1.01. Definitions...................................................1
ARTICLE 2
CUSTODY
SECTION 2.01. Custody.......................................................7
SECTION 2.02. Change of Required Security Deposits..........................7
SECTION 2.03. Interest on the Required Security Deposits....................7
SECTION 2.04. Termination of Custody........................................7
ARTICLE 3
LOANS
SECTION 3.01. Loans.........................................................8
SECTION 3.02. Borrowings....................................................8
SECTION 3.03. Change of Commitment Amount...................................9
SECTION 3.04. Termination of Commitment and Maturity of Loans...............9
SECTION 3.05. Interest......................................................10
SECTION 3.06. Repayment of Interest and Loans...............................10
SECTION 3.07. Aircraft Acquisition Covenant.................................11
SECTION 3.08. MSAF Facility Covenant........................................11
SECTION 3.09. Amounts Disbursed in Error....................................11
SECTION 3.10. Amounts Repayed in Error......................................11
SECTION 3.11. General Provisions as to Payments.............................12
ARTICLE 4
CREDIT ENHANCEMENT FACILITY
SECTION 4.01. Credit Enhancement Facility...................................12
SECTION 4.02. Drawings under the Credit Enhancement Facility................12
SECTION 4.03. Amount Available under the Credit Enhancement Facility........12
SECTION 4.04. Change of Amount Available under Letter of Credit Facility....12
SECTION 4.05. Non-Replacement of Letter of Credit...........................13
</TABLE>
<PAGE> 3
ARTICLE 5
SUSPENSION EVENT
<TABLE>
<S> <C> <C>
SECTION 5.01. Suspension Loan or Drawing 13
SECTION 5.02. Set-off and Deemed Repayment of Loans Upon
Suspension Event 14
SECTION 5.03. Termination of Suspension Event 14
ARTICLE 6
MISCELLANEOUS
SECTION 6.01. Notices 15
SECTION 6.02. Amendments and Waivers 16
SECTION 6.03. Accession 16
SECTION 6.04. No Bankruptcy Petition 16
SECTION 6.05. Successors and Assigns 16
SECTION 6.06. Governing Law; Submission to Jurisdiction 17
SECTION 6.07. Counterparts; Effectiveness; Third Party Beneficiaries 17
SECTION 6.08. WAIVER OF JURY TRIAL 17
SECTION 6.09. Entire Agreement 18
SECTION 6.10. Captions 18
SCHEDULE I - Changes of Commitment Amount I-1
EXHIBIT A - Form of Notice of Change of Required
Security Deposits A-1
EXHIBIT B - Form of Accession Agreement B-1
</TABLE>
<PAGE> 4
CUSTODY AND LOAN AGREEMENT dated as of March 3, 1998 among MORGAN STANLEY
AIRCRAFT FINANCE, a Delaware statutory business trust ("MSAF"), the other MSAF
LESSORS (as defined below) and INTERNATIONAL LEASE FINANCE CORPORATION, a
California corporation ( "ILFC").
WHEREAS, MSAF, ILFC and certain other Persons are parties to a Servicing
Agreement dated as of November 10, 1997 (as amended and in effect from time to
time, the "SERVICING AGREEMENT");
WHEREAS, pursuant to Section 5.06 of the Servicing Agreement, ILFC is to
hold certain security deposits on behalf of the MSAF Lessors and pursuant to
Section 5.05 of the Servicing Agreement, ILFC is to provide a credit facility to
MSAF; and
WHEREAS, ILFC and MSAF have agreed to set forth in this Agreement the
arrangements concerning ILFC's holding of such security deposits and provision
of such credit facility to MSAF;
NOW, THEREFORE, the parties agree as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.01. Definitions. The following terms, as used in this
Agreement, have the following meanings:
"ACCESSION AGREEMENT" means an Accession Agreement substantially in the
form of Exhibit B.
"AGREEMENT" means this Custody and Loan Agreement, as amended and in effect
from time to time.
"AIRCRAFT" means the "Aircraft" as defined in, and acquired by MSAF or its
designee pursuant to, the Asset Purchase Agreement.
"ASSET PURCHASE AGREEMENT" means the Asset Purchase Agreement dated as of
November 10, 1997 between MSAF and ILFC.
1
<PAGE> 5
"BUSINESS DAY" means any day on which United States dollar deposits may be
traded on the London inter-bank market and commercial banks and foreign exchange
markets are open in New York, New York and London, England.
"CHANGE OF COMMITMENT AMOUNT" means any increase or decrease in the
Commitment Amount.
"CHANGE OF REQUIRED SECURITY DEPOSITS" means any increase or decrease in
the aggregate amount of Required Security Deposits.
"COMMITMENT" means ILFC's obligation to make Loans to MSAF at any time, up
to a maximum of the Commitment Amount at such time.
"COMMITMENT AMOUNT" means (i) at any time before the Reduction Date, the
sum of (A) $10,000,000 plus (B) Required Security Deposits at such time less (C)
the aggregate amount of outstanding Loans (including the amount of any Drawings,
as provided by Section 3.01(c)) at such time and (ii) at any time from and after
the Reduction Date, the sum of (A) $10,000,000 less (B) the aggregate amount of
outstanding Loans (including the amount of any Drawings, as provided by Section
3.01(c)) at such time; provided that in each of cases (i) and (ii), the
"Commitment Amount" shall not be less than zero.
"CREDIT ENHANCEMENT FACILITY" means, at any time, the credit enhancement
facility provided at such time by ILFC, in its capacity as Servicer under the
Servicing Agreement, for the benefit of MSAF, pursuant to Section 4.01 of this
Agreement.
"DCR" means Duff & Phelps Credit Rating Co.
"DRAWING" means any drawing by MSAF under the letter of credit issued in
MSAF's favor under the Credit Enhancement Facility or, if the Credit Enhancement
Facility is not a letter of credit facility, any drawing by MSAF under the
Credit Enhancement Facility.
"ELIGIBLE PROVIDER" means ILFC, American International Group, Inc. or a
bank or other financial institution, in each case whose short-term unsecured
debt is rated at least A1+ by S&P, at least D1+ by DCR or at least P1 by
Moody's.
"ILFC" has the meaning specified in the preamble to this Agreement.
"ILFC DRAWING SHARE" means on the occasion of any MSAF Facilities Drawing,
the amount which is equal to the product of (x) the applicable Total
2
<PAGE> 6
MSAF Facilities Drawing Amount multiplied by (y) the fraction which is the
quotient of (A) the Commitment Amount immediately before such MSAF Facilities
Drawing divided by (B) the aggregate amounts committed and available for drawing
under the MSAF Facilities immediately before such MSAF Facilities Drawing.
"ILFC REPAYMENT SHARE" means, on each Payment Date, the amount which is
equal to the product of (x) the applicable Total MSAF Facilities Repayment
Amount multiplied by (y) the fraction which is the quotient of (A) outstanding
Loans immediately before the applicable repayment divided by (B) the aggregate
amounts outstanding and required to be repaid under the MSAF Facilities
immediately before such repayment.
"ILFC INSOLVENCY EVENT" means the occurrence of one of the following
events: (i) an involuntary proceeding is commenced or an involuntary petition is
filed in a court of competent jurisdiction seeking relief in respect of ILFC or
in respect of a substantial part of the property or assets of ILFC, under Title
11 of the United States Code, as now constituted or hereafter amended, or any
other United States federal or state or foreign bankruptcy, insolvency,
receivership or similar law, and such proceeding or petition continues
undismissed for 120 days or an order or decree approving or ordering any of the
foregoing is entered or ILFC goes into liquidation, suffers a receiver or
mortgagee to take possession of all or substantially all of its assets or has an
examiner appointed over it or a petition or proceeding is presented for any of
the foregoing and not discharged within 120 days; or (ii) ILFC voluntarily
commences any proceeding or file any petition seeking relief under Title 11 of
the United States Code, as now constituted or hereafter amended, or any other
United States federal or state or foreign bankruptcy, insolvency, receivership
or similar law, consents to the institution of, or fails within 120 days to
contest the filing of, any petition described in clause (i) above, files an
answer admitting the material allegations of a petition filed against it in any
such proceeding or makes a general assignment for the benefit of its creditors.
"INDENTURE" means the indenture dated as of March 3, 1998 between MSAF and
Bankers Trust Company, pursuant to which the securitization debt of MSAF is
issued.
"INDENTURE DEFAULT" means any time following the delivery of a "Default
Notice" (as defined in the Indenture) under the Indenture or during the
continuance of an "Acceleration Default" (as defined in the Indenture).
3
<PAGE> 7
"INTERCREDITOR AGREEMENT" means the Intercreditor Agreement dated as of
March 3, 1998 among Morgan Stanley, Dean Witter, Discover & Co., ILFC and the
other MSAF Facility Providers (as defined therein).
"LC NON-REPLACEMENT ELECTION" has the meaning specified in Section 4.04(a).
"LEASE" means, with respect to any Aircraft, the aircraft or engine lease
agreement relating to such Aircraft between the applicable MSAF Lessor and the
applicable Lessee, together with all supplements and amendments to such
agreement, pursuant to which such Aircraft is leased to such Lessee.
"LEASE DOCUMENTS" means, with respect to each Aircraft, all agreements
(other than the Lease itself) (including any side letters, assignments of
warranties or option agreements) delivered in connection with, or relating to,
the Lease of such Aircraft.
"LESSEE" means, with respect to each Aircraft, the operating lessee of such
Aircraft.
"LESSEE-INTEREST SECURITY DEPOSIT" means, at any time, a Security Deposit
on which interest earned is required under the terms of the relevant Lease (to
the extent stipulated in such Lease) to be paid by the applicable MSAF Lessor,
in its capacity as lessor, to the applicable Lessee.
"LOAN" means any loan made or deemed made by ILFC to MSAF pursuant to this
Agreement.
"MORGAN STANLEY AGREEMENT" means the Loan Agreement dated as of March 3,
1998 between MSAF and Morgan Stanley, Dean Witter, Discover & Co.
"MSAF" has the meaning specified in the preamble to this Agreement.
"MSAF FACILITIES DRAWING" means any borrowing that MSAF makes under the
MSAF Facilities in order to make a payment of principal of or interest on MSAF's
securitization debt.
"MSAF FACILITY" means (i) this Agreement, (ii) the Morgan Stanley Agreement
and (iii) any other credit or liquidity enhancement facility provided to MSAF
that ranks pari passu with this Agreement and the Morgan Stanley Agreement.
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"MSAF LESSOR" means MSAF or the Subsidiary of MSAF that is the Person for
whose benefit the Lessee pays Security Deposits under a Lease.
"MOODY'S" means Moody's Investors Service, Inc.
"NOTICE OF ADDITIONAL BORROWING" has the meaning specified in Section
3.02(c).
"NOTICE OF BORROWING" has the meaning specified in Section 3.02(a).
"NOTICE OF CHANGE OF REQUIRED SECURITY DEPOSITS" means a notice from ILFC
to MSAF, substantially in the form of Exhibit A to this Agreement.
"NOTICE OF REPAYMENT" has the meaning specified in Section 3.06(a).
"PAYMENT DATE" means the 15th day of each month (or, if such day is not a
Business Day, the next succeeding Business Day), commencing April 1998.
"PERSON" means an individual, a corporation, a limited liability company, a
partnership, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
of such government or political subdivision.
"PROVIDER" means (i) at any time when ILFC is required to have a Credit
Enhancement Facility in place pursuant to Section, the provider of the Credit
Enhancement Facility and (ii) at any other time, ILFC.
"QUARTERLY LC REPLACEMENT DATE" means the 15th day of each April, July,
October and January (or, if such day is not a Business Day, the next succeeding
Business Day), commencing April 1998.
"REDUCTION DATE" means the date of the termination of the Servicing
Agreement pursuant to any provision of Section 10.02 of the Servicing Agreement
(other than Section 10.02(b) (iii) or Section 10.02(b) (iv)).
"REQUIRED SECURITY DEPOSITS" means, at any time, the aggregate amount of
Security Deposits at such time, other than (i) any amount determined in good
faith by ILFC, in its capacity as Servicer under the Servicing Agreement, to be
no longer held as security for the obligations of a Lessee under a Lease,
whether upon expiry of or default under such Lease or otherwise, and (ii)
Security Deposits in an amount exceeding three months' rent with respect to a
single Aircraft and paid by a single Lessee.
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"S&P" means Standard & Poor's Rating Group, a division of The McGraw-Hill
Companies, Inc.
"SECURITY DEPOSIT" means, at any time, with respect to each Aircraft, all
cash amounts and security deposits in the form of prepayments of rent paid by
the Lessee for the benefit of the applicable MSAF Lessor under the relevant
Lease, as security for the obligations of the Lessee under such Lease and under
any related Lease Documents.
"SERVICING AGREEMENT" has the meaning specified in the preamble to this
Agreement.
"SUBSIDIARY" means, as to any Person, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by such Person.
"SUSPENSION EVENT" means (i) at any time when ILFC is required to have a
Credit Enhancement Facility in place pursuant to Section 4.01, a failure by ILFC
to renew the Credit Enhancement Facility, or any letter of credit issued under
the Credit Enhancement Facility, on its scheduled expiration, (ii) a downgrade
in the rating of the short-term unsecured debt of the Provider such that it is
no longer an Eligible Provider or (iii) at any time when ILFC is required to
have a Credit Enhancement Facility in place pursuant to Section 4.01, any other
event that causes ILFC to fail to cause the Credit Enhancement Facility to
remain outstanding and in full force and effect.
"SUSPENSION DRAWING" has the meaning specified in Section 5.01(b).
"SUSPENSION LOAN" has the meaning specified in Section 5.01(a).
"TERMINATION DATE" means the date of the termination of the Servicing
Agreement pursuant to Section 10.01 thereof or by MSAF upon the repayment or
defeasance (but not refinancing) of all of MSAF's securitization debt, or of the
sale by MSAF and its Subsidiaries of all the Aircraft.
"TOTAL MSAF FACILITIES DRAWING AMOUNT" means, at the time of each MSAF
Facilities Drawing, the total amount to be drawn by MSAF under the MSAF
Facilities in order to make a payment of principal of or interest on MSAF's
securitization debt on the next Payment Date.
"TOTAL MSAF FACILITIES REPAYMENT AMOUNT" means, on each Payment Date, the
total amount available to MSAF for the repayment of amounts
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outstanding under the MSAF Facilities, after the payment of all amounts required
to be paid on such Payment Date pursuant to Section 3.08(a)(x) or, during an
Indenture Default, Section 3.08(b)(vi) of the Indenture.
"UNITED STATES" means the United States of America.
ARTICLE 2
CUSTODY
SECTION 2.01. Custody. (a) Under this Agreement, ILFC shall hold the
Required Security Deposits in custody for the benefit of the applicable MSAF
Lessor (subject to Section 2.03) and as the agent of the applicable MSAF Lessor.
(b) At the time at which this Agreement becomes effective in accordance
with Section 6.07(b), the amount of Required Security Deposits held by ILFC at
such time shall be deemed to have been delivered as the initial amount in
custody under this Agreement by the MSAF Lessors to ILFC.
SECTION 2.02. Change of Required Security Deposits. (a) On the date of any
Change of Required Security Deposits, ILFC shall give MSAF a Notice of Change of
Required Security Deposits.
(b) On the date of any Change of Required Security Deposits that occurs
because amounts previously held by ILFC are to be returned to any Lessee or to
MSAF pursuant to the terms of this Agreement or the Servicing Agreement, ILFC
shall immediately redeliver such amounts to MSAF.
SECTION 2.03. Interest on the Required Security Deposits. Any interest
earned by ILFC on the Required Security Deposits shall be for the account of
ILFC, except to the extent that interest earned on a Lessee-Interest Security
Deposit is expressly set forth in writing under the applicable Lease to be for
the account of the applicable Lessee, in which case interest to such extent
shall be for the account of such Lessee and ILFC shall be responsible for the
remittance of such interest to the applicable Lessee in accordance with the
terms of the relevant Lease.
SECTION 2.04. Termination of Custody. Upon the termination of the
Servicing Agreement for any reason, ILFC's agency as custodian on behalf of the
MSAF Lessors shall terminate and ILFC shall redeliver the full amount of any
remaining Required Security Deposits at such time to MSAF.
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ARTICLE 3
LOANS
SECTION 3.01. Loans. (a) ILFC agrees, on the terms and conditions set
forth in this Agreement, to make Loans to MSAF from time to time during the term
of this Agreement to enable MSAF to make a payment of principal of or interest
on MSAF's securitization debt; provided that the amount of any such Loan shall
not exceed the Commitment Amount in effect immediately before such Loan is made.
(b) ILFC agrees to make a Loan to MSAF during the continuance of any
Suspension Event, as set forth in Section 5.01(a).
(c) ILFC agrees that any Drawing made pursuant to Section 4.02 or Section
5.01(b) shall be deemed to constitute a Loan made to MSAF by ILFC in a principal
amount equal to the amount of such Drawing.
(d) ILFC agrees that any delivery to MSAF of the amount of an increase in
Required Security Deposits made pursuant to Section 4.05(b) shall be deemed to
constitute a Loan made to MSAF by ILFC in a principal amount equal to the amount
of Required Security Deposits delivered.
(e) MSAF may borrow under this Section 3.01, repay Loans as provided in
Section 3.06 and reborrow under this Section 3.01, at any time during the term
of this Agreement.
SECTION 3.02. Borrowings. (a) Not later than 8:00 P.M. (New York City
time) on the Business Day before the date of any Loan that MSAF wishes ILFC to
make pursuant to Section 3.01(a), MSAF shall give ILFC notice (a "NOTICE OF
BORROWING") (provided that such notice may be given orally by telephone if MSAF
provides written confirmation of such notice by 8:30 P.M. (New York City time)),
stating that the purpose of such Loan is to enable MSAF to make a payment of
principal of or interest on MSAF's securitization debt and specifying:
(i) the applicable Total MSAF Facilities Drawing Amount;
(ii) the amount of such Loan, which shall be equal to the related ILFC
Drawing Share; and
(iii) the date (which shall be a Business Day) of such Loan.
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(b) Not later than 5:30 P.M. (New York City time) on the date of any Loan
specified in a Notice of Borrowing given pursuant to Section 3.02(a), ILFC shall
make available the amount of such Loan to MSAF, in lawful money of the United
States in Federal or other funds immediately available in New York City.
(c) If, for any reason, on the date of any Loan MSAF does not receive the
full applicable Total MSAF Facilities Drawing Amount under the MSAF Facilities,
not later than 8:30 P.M. (New York City time) on the date of such Loan, MSAF may
give ILFC notice of an additional Loan (a "NOTICE OF ADDITIONAL BORROWING"),
specifying:
(i) the shortfall in such Total MSAF Facilities Drawing Amount; and
(ii) the amount of such additional Loan, which may be any amount up to the
Commitment Amount; and
(iii)the date (which shall be the next Business Day) of such additional
Loan.
(d) Not later than 5:30 P.M. (New York City time) on the date of any
additional Loan specified in a Notice of Additional Borrowing, ILFC shall make
available the amount of the applicable additional Loan to MSAF, in lawful money
of the United States in Federal or other funds immediately available in New York
City.
SECTION 3.03. Change of Commitment Amount. On the date of each Change of
Commitment Amount, MSAF and ILFC shall jointly agree: (i) the reason for such
Change of Commitment Amount, (ii) the amount of such Change of Commitment
Amount, (iii) after giving effect to such Change of Commitment Amount, the
amount of Required Security Deposits, (iv) after giving effect to such Change of
Commitment Amount, the amount of outstanding Loans and (v) after giving effect
to such Change of Commitment Amount, the Commitment Amount. MSAF and ILFC shall
complete and each sign Schedule I (or a continuation thereof) to this Agreement
to evidence such agreement.
SECTION 3.04. Termination of Commitment and Maturity of Loans. On the
Termination Date, the Commitment shall terminate and on the next Payment Date,
unless repaid earlier pursuant to Section or deemed repaid earlier pursuant to
Section , each Loan shall mature, and its principal amount shall, to the extent
that there are amounts available to MSAF on such Payment Date after the payment
of all amounts required to be paid on such Payment Date pursuant to Section
3.08(a)(x) or, during an Indenture Default, Section 3.08(b)(vi)
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of the Indenture, be due and payable (together with any and all interest
accrued thereon).
SECTION 3.05. Interest. Each Loan shall bear interest on its outstanding
principal amount, for each day from the date such Loan is made until it is
repaid or deemed repaid, at a rate of 3% per annum, calculated on the basis of a
360-day year consisting of twelve 30-day months.
SECTION 3.06. Repayment of Interest and Loans. On each Payment Date, to
the extent that there are amounts available to MSAF on such Payment Date after
the payment of all amounts required to be paid on such Payment Date pursuant to
Section 3.08(a)(x) or, during an Indenture Default, Section 3.08(b)(vi) of the
Indenture, MSAF shall repay interest on and principal of outstanding Loans in
accordance with Section 3.08 (a) (xi) or, during an Indenture Default, Section
3.08(b)(vii) of the Indenture. Not later than 12:30 P.M. (New York City time)
on the second Business Day before each Payment Date on which MSAF intends to
repay any interest or principal of Loans, MSAF shall give ILFC notice (a "NOTICE
OF REPAYMENT"), specifying:
(i) the Total MSAF Facilities Repayment Amount that it intends to repay on
such Payment Date; and
(ii) the ILFC Repayment Share.
(b) On each Payment Date following a Notice of Repayment, MSAF shall pay
to ILFC the ILFC Repayment Share specified in such Notice of Repayment, which
shall be applied to repay:
(i) first, all interest then accrued in accordance with Section
3.05; and
(ii) second, except during the continuance of a Suspension Event,
the principal amount of any Loans then outstanding;
provided that at any time when ILFC is required to have a Credit Enhancement
Facility in place pursuant to Section , notwithstanding the amount of the ILFC
Repayment Share specified in any Notice of Repayment, MSAF shall not be
obligated to repay Loans in any amount such that (after giving effect to such
repayment) the Commitment Amount would be greater than the face amount of the
Credit Enhancement Facility on such Payment Date (before giving effect to such
repayment), unless MSAF shall first have received (A) if the Credit Enhancement
Facility is a letter of credit, a replacement letter of credit in the full
amount of the Commitment Amount, after giving effect to the repayment
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<PAGE> 14
specified in the applicable Notice of Repayment (provided that facsimile
evidence of the issuance of such replacement letter of credit shall be
sufficient; and provided further that despite receipt of such evidence, such
replacement letter of credit shall be deemed to be held in escrow by MSAF on
ILFC's behalf until ILFC's receipt of the applicable repayment) or (B) if the
Credit Enhancement Facility is not a letter of credit, notice from the Provider
that upon the making by MSAF of the repayment specified in the Notice of
Repayment, the amount available under the Credit Enhancement Facility shall be
the Commitment Amount, after giving effect to such repayment; and
provided further that if MSAF does not repay Loans in an amount such that
the Commitment Amount immediately after such repayment is greater than the then
face amount of the Credit Enhancement Facility, ILFC shall have no obligation to
increase the face amount of the Credit Enhancement Facility.
SECTION 3.07. Aircraft Acquisition Covenant. MSAF covenants with ILFC
that it shall not, and shall not permit any of its Subsidiaries to, purchase or
otherwise acquire any aircraft (other than the Aircraft) or any interest
therein, unless at the time of such purchase or other acquisition there are no
Loans outstanding.
SECTION 3.08. MSAF Facility Covenant. MSAF covenants with ILFC that it
shall not at any time enter into any MSAF Facility unless the provider of such
MSAF Facility simultaneously becomes a party to the Intercreditor Agreement.
SECTION 3.09. Amounts Disbursed in Error. If for any reason MSAF, in a
Notice of Borrowing given pursuant to Section 3.02(a), requests an amount that
is greater than the Commitment Amount at the time of such Notice of Borrowing,
and ILFC disburses the full amount requested, on the next Payment Date MSAF
shall, to the extent that there are amounts available to MSAF on such Payment
Date, repay to ILFC the amount of the excess of such disbursement over such
Commitment Amount as an "Expense" under the Indenture, in accordance with
Section 3.08(a)(i) or, during an Indenture Default, of the Indenture. Such
repayment will not affect MSAF's obligation to make any other repayment under
Section 3.06 on such Payment Date.
SECTION 3.10. Amounts Repaid in Error. If for any reason, on any Payment
Date MSAF pays to any MSAF Facility Provider an amount that is greater than
the"Repayment Share" (as defined in the Intercreditor Agreement) of such MSAF
Facility Provider applicable to such Payment Date, and consequently MSAF pays to
ILFC an amount that is less than the ILFC Repayment Share applicable to such
Payment Date, on the next Payment Date MSAF shall, to the extent that there are
amounts available to MSAF on such Payment Date, repay to
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ILFC the amount of the shortfall in such repayment as an "Expense" under the
Indenture, pursuant to Section 3.08(b)(i).
SECTION 3.11. General Provisions as to Payments. MSAF shall make each
payment of interest on, and principal of, the Loans at the times specified in
Section 3.08 of the Indenture and at such place as ILFC shall specify by notice
to MSAF.
ARTICLE 4
CREDIT ENHANCEMENT FACILITY
SECTION 4.01. Credit Enhancement Facility. At any time when ILFC is not
an Eligible Provider, ILFC will be required to have an Eligible Provider provide
MSAF with the Credit Enhancement Facility described in this Article 4. At any
time when ILFC is an Eligible Provider, ILFC will not be required to have an
Eligible Provider or any other Person provide MSAF with the Credit Enhancement
Facility described in this Article 4.
SECTION 4.02. Drawings under the Credit Enhancement Facility. If ILFC
fails for any reason to make a Loan under Section by 12:00 noon (New York City
time) on the date specified in a Notice of Borrowing, MSAF shall, upon prior
notice to ILFC, be entitled to make a Drawing in the full amount available under
the Credit Enhancement Facility, up to the Commitment Amount at such time.
SECTION 4.03. Amount Available under the Credit Enhancement Facility.
Subject to Section 4.04 and Section 4.05, the total amount available to MSAF for
Drawings under the Credit Enhancement Facility at any time shall be equal to the
Commitment Amount at such time.
SECTION 4.04. Change of Amount Available under Letter of Credit Facility.
(a) If the Credit Enhancement Facility is a letter of credit facility, on the
occasion of each Change of Commitment Amount, ILFC may elect either (i) to give
notice to the Provider (with a copy to MSAF) of such Change of Commitment
Amount, and cause the Provider to issue a replacement letter of credit in favor
of MSAF on the date of such Change of Commitment Amount so that the total amount
available to MSAF under all such letters of credit is equal to the new
Commitment Amount or (ii) provided that it complies with Section , to leave in
place the letter of credit outstanding at such time (an "LC NON-REPLACEMENT
ELECTION").
(b) If the Credit Enhancement Facility at any time is not a letter of
credit facility, on the occasion of each Change of Commitment Amount, ILFC shall
give
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notice to the Provider (with a copy to MSAF) of such Change of Commitment
Amount, and shall cause the Provider to make the new Commitment Amount available
to MSAF under the Credit Enhancement Facility on the date of such Change of
Commitment Amount.
SECTION 4.05. Non-Replacement of Letter of Credit. (a) If a Change of
Commitment Amount (i) is a decrease in the Commitment Amount that results in the
face amount of the outstanding letter of credit exceeding the Commitment Amount
and (ii) ILFC makes an LC Non-Replacement Election, notwithstanding the face
amount of the outstanding letter of credit, the maximum Drawing that MSAF shall
at any time be entitled to make on such letter of credit shall be the Commitment
Amount.
(b) If a Change of Commitment Amount (i) is an increase in the Commitment
Amount resulting from an increase in Required Security Deposits that results in
the Commitment Amount exceeding the face amount of the outstanding letter of
credit and (ii) ILFC makes an LC Non-Replacement Election, ILFC shall
immediately deliver the amount of such increase to MSAF, and such delivery
shall, in accordance with Section 3.01(c), be deemed to constitute a Loan in a
principal amount equal to the amount delivered. On the next succeeding
Quarterly LC Replacement Date, ILFC shall cause the Provider to issue a
replacement letter of credit in the full amount of the Commitment Amount on such
Quarterly LC Replacement Date (calculated after giving effect to any borrowings
or repayments of principal of Loans specified by MSAF in a Notice of Borrowing
or a Notice of Repayment as intended to be made on such Quarterly LC Replacement
Date).
ARTICLE 5
SUSPENSION EVENT
SECTION 5.01. Suspension Loan or Drawing. From and after the fifth
Business Day after the date on which any Suspension Event occurs, if such
Suspension Event is continuing, MSAF may request that ILFC make a Loan (a
"SUSPENSION LOAN") in the full amount of the Commitment Amount at such time, by
giving ILFC notice of such Suspension Loan not later than 12:00 noon (New York
City time) on the second Business Day before the date (which shall be a Business
Day) of such Suspension Loan. Not later than 12:00 noon (New York City time) on
the date of the requested Suspension Loan, ILFC shall make available the amount
of such Suspension Loan to MSAF, in lawful money of the United States in Federal
or other funds immediately available in New York City.
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(b) If ILFC fails for any reason to make a Suspension Loan by 12:00 noon
(New York City time) on the date specified in the notice given by MSAF pursuant
to Section 5.01(a) or if an ILFC Insolvency Event has occurred and is continuing
at such time, MSAF shall, without further notice to ILFC, immediately be
entitled to make a Drawing (a "SUSPENSION DRAWING") in the full amount of the
Commitment Amount at such time.
SECTION 5.02. Set-off and Deemed Repayment of Loans Upon Suspension Event.
(a) On the date of any Suspension Loan or Suspension Drawing, after giving
effect to (i) such Suspension Loan or Suspension Drawing, as applicable, and
(ii) any Change of Required Security Deposits effective on the date of such
Suspension Loan or Suspension Drawing, ILFC shall set off and apply any Required
Security Deposits held by it pursuant to Section 2.01 on such date against the
principal amount of any Loans then outstanding, which shall be deemed repaid in
the amount of such set-off and application.
(b) After giving effect to the set-off and application to be made pursuant
to Section 5.02(a), if any Loans shall still be outstanding, notwithstanding any
Suspension Event, such Loans shall remain outstanding until repaid in accordance
with Section 3.06, and shall accrue interest payable in accordance with Section
3.05.
SECTION 5.03. Termination of Suspension Event. On the first Payment Date
following both (a) the termination of a Suspension Event and (b) if ILFC is not
an Eligible Provider, ILFC's once again procuring and causing to remain in full
force and effect a Credit Enhancement Facility provided by an Eligible Provider,
and upon (i) receipt by MSAF from ILFC of the applicable Notice of Change of
Required Security Deposits under Section 2.02 and, if ILFC is not an Eligible
Provider, receipt by MSAF of the applicable letter of credit or other evidence
satisfactory to MSAF that the full Commitment Amount at such time is available
to it under the Credit Enhancement Facility, and (ii) the applicable joint
endorsement of Schedule I to this Agreement by ILFC and MSAF pursuant to Section
3.03, MSAF shall deliver to ILFC an amount equal to the amount of the Required
Security Deposits at such time. Upon making delivery of such amount, MSAF shall
be deemed to have delivered the full amount of the Required Security Deposits
back to ILFC, to be held in custody pursuant to Section 2.01 by ILFC on behalf
of the MSAF Lessors.
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ARTICLE 6
MISCELLANEOUS
SECTION 6.01. Notices. Any notice, request or information required or
permissible under this Agreement will be in writing and in English. Notices
will be delivered in person or sent by fax, letter (mailed airmail, certified
and return receipt requested), or by expedited delivery addressed to the parties
as set forth below in this Section . In the case of a fax, notice will be
deemed received upon the date set forth on the confirmation of receipt produced
by the sender's fax machine immediately after the fax is sent. In the case of a
mailed letter, notice will be deemed received on the tenth day after mailing.
In the case of a notice sent by expedited delivery, notice will be deemed
received on the date of delivery set forth in the records of the Person which
accomplished the delivery. If any notice is sent by more than one of the above
listed methods, notice will be deemed received on the earliest possible date in
accordance with the above provisions. Notices will be addressed as follows:
if to MSAF, to:
Morgan Stanley Aircraft Finance
c/o Cabot Aircraft Services Limited
4th Floor, Europa House
Harcourt Street
Dublin 2
Ireland
Attention: Mr. Kieran O'Keefe
Fax: 353-1-475 4778
with a copy to:
Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
Attention: Mr. Scott Peterson
Fax: 44-171-425 4328
if to ILFC, to:
International Lease Finance Corporation
1999 Avenue of the Stars
39th Floor
Los Angeles, CA 90067
Attention: Legal Department
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Fax: 1-310-788 1990
or to such other address as any party shall from time to time designate in
writing to the other parties.
SECTION 6.02. Amendments and Waivers. (a) Any provision of this Agreement
may be amended or waived if, but only if, such amendment or waiver is in writing
and is signed, in the case of an amendment, by each party to this Agreement, or
in the case of a waiver, by the party against whom the waiver is to be
effective.
(b) No failure or delay by any party in exercising any right, power or
privilege under this Agreement shall operate as a waiver of such right, power or
privilege nor shall any single or partial exercise of such right, power or
privilege preclude any other or further exercise of such right, power or
privilege or the exercise of any other right, power or privilege. The rights
and remedies provided in this Agreement shall be cumulative and not exclusive of
any rights or remedies provided by law.
SECTION 6.03. Accession. MSAF shall immediately cause any Subsidiary of
MSAF that becomes an MSAF Lessor after the date of this Agreement to become a
party to this Agreement by executing an Accession Agreement. Upon the execution
of such Accession Agreement by such MSAF Lessor and the acceptance and
acknowledgement of such execution by the other parties to this Agreement, such
MSAF Lessor shall become a party to this Agreement for all purposes and shall be
bound by the terms of this Agreement as if it were an original signatory to this
Agreement.
SECTION 6.04. No Bankruptcy Petition. ILFC agrees that it shall not take
any steps for the purposes of procuring the appointment of any administrative
receiver or the making of any administrative order or for instituting any
bankruptcy, reorganization, arrangement, insolvency, winding-up, liquidation,
composition or any like proceedings under the laws of any jurisdiction in
respect of any MSAF Lessor or in respect of any of their respective liabilities,
as a result of any claim or interest of ILFC under this Agreement.
SECTION 6.05. Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties to this Agreement
and their respective successors and assigns; provided that no party may assign,
delegate or otherwise transfer any of its rights and obligations under this
Agreement without the consent of the other parties.
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SECTION 6.06. Governing Law; Submission to Jurisdiction. (a) This
Agreement shall be governed by and construed in accordance with the laws of the
State of New York.
(b) The parties to this Agreement agree that any suit, action or proceeding
seeking to enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated by this
Agreement may be brought in the United States District Court for the Southern
District of New York or any other New York State court sitting in New York City,
and each of the parties hereby consents to the jurisdiction of such courts (and
of the appropriate appellate courts therefrom) in any such suit, action or
proceeding and irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or in the future have to the laying of the venue of
any such suit, action or proceeding in any such court or that any such suit,
action or proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be
served on any party anywhere in the world, whether within or without the
jurisdiction of any such court. Without limiting the foregoing, each party
agrees that service of process on such party as provided in Section 6.01 shall
be deemed effective service of process on such party.
SECTION 6.07. Counterparts; Effectiveness; Third Party Beneficiaries. (a)
This Agreement may be signed in any number of counterparts, each of which shall
be an original, with the same effect as if the signatures to each such
counterpart were upon the same instrument.
(b) This Agreement shall become effective when (i) each party has received
a counterpart of this Agreement signed by each other party or facsimile or other
satisfactory confirmation that each other party has signed a counterpart of this
Agreement, (ii) if ILFC is not an Eligible Provider on the date of this
Agreement, MSAF has received the initial letter of credit issued under the
Credit Enhancement Facility and (iii) both ILFC and MSAF have received a copy of
Schedule I to this Agreement, appropriately endorsed by each of them to reflect
the initial Commitment Amount.
(c) No provision of this Agreement is intended to confer upon any Person
other than the parties to this Agreement any rights or remedies under this
Agreement.
SECTION 6.08. WAIVER OF JURY TRIAL. EACH PARTY TO THIS AGREEMENT HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY
THIS AGREEMENT.
17
<PAGE> 21
SECTION 6.09. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter of this
Agreement and supersedes all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter of this
Agreement.
SECTION 6.10. Captions. The captions used in this Agreement are included
for convenience of reference only and shall be ignored in the construction or
interpretation of this Agreement.
18
<PAGE> 22
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed by its authorized representative or officer, as applicable, as of
the day and year first above written.
MORGAN STANLEY AIRCRAFT FINANCE
By: /s/ Karl Essig
----------------
Name: Karl Essig
Title: Signatory Trustee
INTERNATIONAL LEASE FINANCE CORPORATION
By: /s/ Alan H. Lund
------------------
Name: Alan H. Lund
Title: Executive Vice President
MSA I
By: /s/ Scott Peterson
--------------------
Name: Scott Peterson
Title: Signatory Trustee
/s/ Maurice Mason
-----------------
SIGNED SEALED AND DELIVERED
for and on behalf of
GREENFLY (IRELAND) LIMITED,
by Maurice Mason
its duly authorized attorney
in fact in the presence of:
<PAGE> 23
REDFLY (UK) LIMITED
By: /s/ Maurice Mason
-------------------
Name: Maurice Mason
Title: Chairman
<PAGE> 24
SCHEDULE I
CHANGES OF COMMITMENT AMOUNT
<TABLE>
<CAPTION>
Reason for Amount of
Change of Change of (1) (2) ((1)+10,000,000)-(2))
Commitment Commitment Required Security Outstanding Commitment Signature for Signature for
Date Amount* Amount ** Deposits*** Loans Amount MSAF ILFC
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
_______________________
</TABLE>
* Specify (i) deemed initial delivery of Required Security Deposits, (ii)
Change of Required Security Deposits, (iii) Loan, (iv) repayment of Loan,
(v) occurrence of Reduction Date, (vi) occurrence of Suspension Event or
(vii) termination of Suspension Event.
** Specify the amount of the applicable increase (expressed as a positive) or
decrease (expressed as a negative) in the Commitment Amount.
*** As detailed in the Notice of Change of Required Security Deposits from ILFC
to MSAF given on the date of the applicable Change of Commitment Amount.
I-1
<PAGE> 25
EXHIBIT A
FORM OF NOTICE OF CHANGE OF
REQUIRED
SECURITY DEPOSITS
[Date of Change
of Required Security
Deposits]
Morgan Stanley Aircraft Finance
c/o Cabot Aircraft Services Limited
4th Floor, Europa House
Harcourt Street
Dublin 2
Ireland
Attention: Mr. Kieran O'Keefe
Fax: 353-1-475 4778
Ladies and Gentlemen:
Re: Custody and Loan Agreement (the "CUSTODY AND LOAN AGREEMENT") dated as
of March 3, 1998 among Morgan Stanley Aircraft Finance ( "MSAF"), the
other MSAF Lessors and International Lease Finance Corporation ("ILFC")
This notice is given to MSAF pursuant to Section 2.02 of the Custody and
Loan Agreement. Capitalized terms used and not defined in this notice have the
meanings specified in the Custody and Loan Agreement.
ILFC hereby notifies MSAF that as of the date of this notice, there has
been a Change of Required Security Deposits, as detailed below.
DETAILS OF CHANGE
<TABLE>
<CAPTION>
Aircraft(1) Reason for Change(2) Amount(3)
<S> <C> <C>
[Name of Lessee] $
MSN[_____]
</TABLE>
A1
<PAGE> 26
<TABLE>
<S> <C> <C>
Total
</TABLE>
________________
(1) List each Aircraft with respect to the Lease of which the applicable
Required Security Deposit held by ILFC has increased or decreased.
(2) Specify the cause of such increase or decrease.
(3) Specify the amount of the applicable increase (expressed as a
positive) or decrease (expressed as a negative) in the Required Security
Deposit.
As a result of the above Change of Required Security Deposits, the
amount of Required Security Deposits is $________.
Sincerely,
INTERNATIONAL LEASE FINANCE CORPORATION
By:
------------------------------------
Name:
Title:
cc: Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
Attention: Mr. Scott Peterson
Fax: 44-171-425 4328
A-2
<PAGE> 27
EXHIBIT B
FORM OF ACCESSION AGREEMENT
[Date]
We refer to the Custody and Loan Agreement dated as of March 3, 1998 among
Morgan Stanley Aircraft Finance, the other MSAF Lessors and International Lease
Finance Corporation (the "CUSTODY AND LOAN AGREEMENT"). Capitalized terms used
and not defined in this Accession Agreement have the meanings specified in the
Custody and Loan Agreement.
We agree, as of the date of this Accession Agreement, to be considered a
party to the Custody and Loan Agreement for all purposes, as if an original
signatory to the Custody and Loan Agreement, and to be bound, as an MSAF Lessor,
by the terms of the Custody and Loan Agreement.
[NAME OF ACCEDING MSAF LESSOR]
By:
---------------------------------
Name:
Title:
ACCEPTED AND ACKNOWLEDGED
MORGAN STANLEY AIRCRAFT FINANCE
By:
----------------------------
Name:
Title:
B-1
<PAGE> 28
INTERNATIONAL LEASE FINANCE CORPORATION
By:
---------------------------
Name:
Title:
MSA I
By:
---------------------------
Name:
Title:
GREENFLY (IRELAND) LIMITED
By:
---------------------------
Name:
Title:
REDFLY (UK) LIMITED
By:
---------------------------
Name:
Title:
[OTHER MSAF LESSORS PREVIOUSLY ACCEDED]
B-2
<PAGE> 1
Exhibit 10.5 CONFORMED COPY
LOAN AGREEMENT
dated as of
March 3, 1998
between
MORGAN STANLEY AIRCRAFT FINANCE
and
MORGAN STANLEY,
DEAN WITTER, DISCOVER & CO.
<PAGE> 2
TABLE OF CONTENTS
_________________
PAGE
____
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions................................................. 1
ARTICLE 2
LOANS
SECTION 2.01. Loans....................................................... 4
SECTION 2.02. Borrowings.................................................. 4
SECTION 2.03. Termination of Commitment and Maturity of Loans............. 5
SECTION 2.04. Interest.................................................... 5
SECTION 2.05. Repayment of Interest and Loans............................. 5
SECTION 2.06. MSAF Facility Covenant...................................... 6
SECTION 2.07. General Provisions as to Payments........................... 6
SECTION 2.08. Note........................................................ 6
ARTICLE 3
MISCELLANEOUS
SECTION 3.01. Notices..................................................... 6
SECTION 3.02. Amendments and Waivers...................................... 7
SECTION 3.03. No Bankruptcy Petition...................................... 8
SECTION 3.04. Successors and Assigns...................................... 8
SECTION 3.05. Governing Law; Submission to Jurisdiction................... 8
SECTION 3.06. Counterparts; Effectiveness; Third Party Beneficiaries...... 8
SECTION 3.07. WAIVER OF JURY TRIAL........................................ 9
SECTION 3.08. Entire Agreement............................................ 9
SECTION 3.09. Captions.................................................... 9
EXHIBIT A - Form of Note........................................ A-1
<PAGE> 3
LOAN AGREEMENT dated as of March 3, 1998 between MORGAN STANLEY AIRCRAFT
FINANCE, a Delaware statutory business trust ("MSAF") and MORGAN STANLEY, DEAN
WITTER, DISCOVER & CO., a Delaware corporation ( "MORGAN STANLEY").
WHEREAS, Morgan Stanley has agreed to make loans to MSAF;
NOW, THEREFORE, the parties agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. The following terms, as used in this
Agreement, have the following meanings:
"AGREEMENT" means this Loan Agreement, as amended and in effect from time
to time.
"BUSINESS DAY" means any day on which United States dollar deposits may be
traded on the London inter-bank market and commercial banks and foreign
exchange markets are open in New York, New York and London, England.
"COMMITMENT" means Morgan Stanley's obligation to make Loans to MSAF at
any time, up to a maximum of the Commitment Amount at such time.
"COMMITMENT AMOUNT" means, at any time, the sum of (A) $10,000,000 less
(B) the aggregate amount of outstanding Loans at such time.
"DRAWING" means any borrowing that MSAF makes under the MSAF Facilities in
order to make a payment of principal of or interest on MSAF's securitization
debt.
"ILFC AGREEMENT" means the Custody and Loan Agreement dated as of March 3,
1998 among MSAF, the other MSAF Lessors (as defined therein) and International
Lease Finance Corporation.
"INDENTURE" means the indenture dated as of March 3, 1998 between MSAF and
Bankers Trust Company, pursuant to which the securitization debt of MSAF is
issued.
1
<PAGE> 4
"INDENTURE DEFAULT" means any time following the delivery of "Default
Notice" (as defined in the indenture) under the Indenture or during the
continuance of an "Acceleration Default" (as defined in the Indenture).
"INTERCREDITOR AGREEMENT" means the Intercreditor Agreement dated as of
March 3, 1998 among Morgan Stanley, International Lease Finance Corporation and
the other MSAF Facility Providers (as defined therein).
"LOAN" means any loan made by Morgan Stanley to MSAF pursuant to Section
2.01(a) of this Agreement.
"MORGAN STANLEY" has the meaning specified in the preamble to this
Agreement.
"MORGAN STANLEY DRAWING SHARE" means on the occasion of any Drawing, the
amount which is equal to the product of (x) the applicable Total MSAF
Facilities Drawing Amount multiplied by (y) the fraction which is the quotient
of (A) the Commitment Amount immediately before such Drawing divided by (B) the
aggregate amounts committed and available for drawing under the MSAF Facilities
immediately before such Drawing.
"MORGAN STANLEY REPAYMENT SHARE" means, on each Payment Date, the amount
which is equal to the product of (x) the applicable Total MSAF Facilities
Repayment Amount multiplied by (y) the fraction which is the quotient of (A)
outstanding Loans immediately before the applicable repayment divided by (B)
the aggregate amounts outstanding and required to be repaid under the MSAF
Facilities immediately before such repayment.
"MSAF" has the meaning specified in the preamble to this Agreement.
"MSAF FACILITY" means (i) this Agreement, (ii) the ILFC Agreement and
(iii) any other credit or liquidity enhancement facility provided to MSAF that
ranks pari passu with this Agreement and the ILFC Agreement.
"MSAF FACILITY PROVIDER" means the provider of any MSAF Facility.
"NOTE" means the promissory note of MSAF payable to the order of Morgan
Stanley substantially in the form of Exhibit A, evidencing MSAF's obligation to
repay the Loans.
2
<PAGE> 5
"NOTICE OF ADDITIONAL BORROWING" has the meaning specified in Section
2.02(c).
"NOTICE OF BORROWING" has the meaning specified in Section 2.02(a).
"NOTICE OF REPAYMENT" has the meaning specified in Section 2.05(a).
"PAYMENT DATE" means the 15th day of each month (or, if such day is not a
Business Day, the next succeeding Business Day), commencing April 1998.
"PERSON" means an individual, a corporation, a limited liability company,
a partnership, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
of such government or political subdivision.
"SUBSIDIARY" means, as to any Person, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by such Person.
"TERMINATION DATE" means the earlier of the date (i) of the repayment or
defeasance (but not refinancing) of all of MSAF's securitization debt and (ii)
of the sale at any time by MSAF and its Subsidiaries of all aircraft owned by
MSAF and its Subsidiaries at such time.
"TOTAL MSAF FACILITIES DRAWING AMOUNT" means, at the time of each Drawing,
the total amount to be drawn by MSAF under the MSAF Facilities in order to make
a payment of principal of or interest on MSAF's securitization debt on the next
Payment Date.
"TOTAL MSAF FACILITIES REPAYMENT AMOUNT" means, on each Payment Date, the
total amount available to MSAF for the repayment of amounts outstanding under
the MSAF Facilities, after the payment of all amounts required to be paid on
such Payment Date pursuant to Section 3.08(a)(x) or, during an Indenture
Default, Section 3.08(b)(vi) of the Indenture.
"UNITED STATES" means the United States of America.
3
<PAGE> 6
ARTICLE 2
LOANS
SECTION 2.01. Loans. (a) Morgan Stanley agrees, on the terms and
conditions set forth in this Agreement, to make Loans to MSAF from time to time
during the term of this Agreement to enable MSAF to make a payment of principal
of or interest on MSAF's securitization debt; provided that the amount of any
such Loan shall not exceed the Commitment Amount in effect immediately before
such Loan is made.
(b) MSAF may borrow under this Section 2.01, repay Loans as provided in
Section 2.05 and reborrow under this Section 2.01, at any time during the term
of this Agreement.
SECTION 2.02. Borrowings. (a) Not later than 8:30 P.M. (New York City
time) on the Business Day before the date of any Loan that MSAF wishes Morgan
Stanley to make, MSAF shall give Morgan Stanley notice (a "NOTICE OF
BORROWING"), specifying:
(i) the applicable Total MSAF Facilities Drawing Amount;
(ii) the amount of such Loan, which shall be equal to the related
Morgan Stanley Drawing Share; and
(iii) the date (which shall be a Business Day) of such Loan.
(b) Not later than 5:30 P.M. (New York City time) on the date of any Loan
specified in a Notice of Borrowing, Morgan Stanley shall make available the
amount of such Loan to MSAF, in lawful money of the United States in Federal or
other funds immediately available in New York City.
(c) If, for any reason, on the date of any Loan MSAF does not receive the
full applicable Total Drawing Amount under the MSAF Facilities, not later than
8:30 P.M. (New York City time) on the date of such Loan, MSAF may give Morgan
Stanley notice of an additional Loan (a "NOTICE OF ADDITIONAL BORROWING"),
specifying:
(i) the shortfall in such Total MSAF Facilities Drawing Amount; and
(ii) the amount of such additional Loan, which may be any amount up
to the Commitment Amount; and
4
<PAGE> 7
(iii) the date (which shall be the next Business Day) of such additional
Loan.
(d) Not later than 5:30 P.M. (New York City time) on the date of any
additional Loan specified in a Notice of Additional Borrowing, Morgan Stanley
shall make available the amount of the applicable additional Loan to MSAF, in
lawful money of the United States in Federal or other funds immediately
available in New York City.
SECTION 2.03. Termination of Commitment and Maturity of Loans. On the
Termination Date, the Commitment shall terminate and on the next Payment Date,
unless repaid earlier pursuant to Section 2.05, each Loan shall mature, and its
principal amount shall, to the extent that there are amounts available to MSAF
on such Payment Date after the payment of all amounts required to be paid on
such Payment Date pursuant to Section 3.08(a)(x) or, during an Indenture
Default, Section 3.08(b)(vi) of the Indenture, be due and payable (together
with any and all interest accrued thereon).
SECTION 2.04. Interest. Each Loan shall bear interest on its outstanding
principal amount, for each day from the date such Loan is made until it is
repaid, at a rate of 3% per annum, on the basis of a 360-day year consisting of
twelve 30-day months.
SECTION 2.05. Repayment of Interest and Loans. (a) On each Payment Date,
to the extent that there are amounts available to MSAF on such Payment Date
after the payment of all amounts required to be paid on such Payment Date
pursuant to Section 3.08(a)(x) or, during an Indenture Default, Section
3.08(b)(vi) of the Indenture, MSAF shall repay interest on and principal of
outstanding Loans in accordance with Section 3.08(a)(xi) or, during an
Indenture Default, Section 3.08(b)(vii) of the Indenture. Not later than 12:30
P.M. (New York City time) on the second Business Day before each Payment Date
on which MSAF intends to repay any interest on or principal of Loans, MSAF
shall give Morgan Stanley notice (a "NOTICE OF REPAYMENT"), specifying:
(i) the Total MSAF Facilities Repayment Amount that it intends to
repay on such Payment Date; and
(ii) the Morgan Stanley Repayment Share.
(b) On each Payment Date following a Notice of Repayment, MSAF shall pay
to Morgan Stanley the Morgan Stanley Repayment Share specified in such Notice
of Repayment, which shall be applied to repay:
5
<PAGE> 8
(i) first, all interest then accrued in accordance with Section
2.04; and
(ii) second, the principal amount of any Loans then outstanding.
SECTION 2.06. MSAF Facility Covenant. MSAF covenants with Morgan Stanley
that it shall not at any time enter into any MSAF Facility unless the
applicable MSAF Facility Provider simultaneously becomes a party to the
Intercreditor Agreement.
SECTION 2.07. General Provisions as to Payments. MSAF shall make each
payment pursuant to Section 2.05 at the times specified in Section 3.06(d) of
the Indenture and at such place as Morgan Stanley shall specify by notice to
MSAF.
SECTION 2.08. Note. (a) MSAF's obligation to repay any Loans shall be
evidenced by the Note.
(b) Morgan Stanley shall record the date and amount of each Loan and the
date and amount of each payment of principal made by MSAF with respect to each
such Loan by endorsing on the schedule forming a part of the Note appropriate
notations to evidence such information with respect to each such Loan then
outstanding; provided that Morgan Stanley's failure to make (or any error in
making) any such endorsement shall not affect MSAF's obligations under this
Agreement or under the Note. Morgan Stanley is hereby irrevocably authorized
by MSAF so to endorse the Note and to attach to and make a part of the Note a
continuation of such schedule as and when required.
ARTICLE 3
MISCELLANEOUS
SECTION 3.01. Notices. Any notice, request or information required or
permissible under this Agreement will be in writing and in English. Notices
will be delivered in person or sent by fax, letter (mailed airmail, certified
and return receipt requested), or by expedited delivery addressed to the
parties as set forth below in this Section 3.01. In the case of a fax, notice
will be deemed received upon the date set forth on the confirmation of receipt
produced by the sender's fax machine immediately after the fax is sent. In the
case of a mailed letter, notice will be deemed received on the tenth day after
mailing. In the case of a notice sent by expedited delivery, notice will be
deemed received on the date of delivery set forth in the records of the Person
which accomplished the delivery. If any
6
<PAGE> 9
notice is sent by more than one of the above listed methods, notice will be
deemed received on the earliest possible date in accordance with the above
provisions. Notices will be addressed as follows:
if to MSAF, to:
Morgan Stanley Aircraft Finance
c/o Cabot Aircraft Services Limited
4th floor, Europa House
Harcourt Street
Dublin 2
Ireland
Attention: Mr. Kieran O'Keefe
Fax: 353-1-475 4778
with a copy to:
Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England, United Kingdom
Attention: Mr. Scott Peterson
Fax: 44-171-425 4328
if to Morgan Stanley, to:
Morgan Stanley, Dean Witter, Discover & Co.
1585 Broadway
New York, New York 10036
United States of America
Attention: Ms. Dian Packard
Fax: 1-212-762-7337
or to such other address as either party shall from time to time designate in
writing to the other party.
SECTION 3.02. Amendments and Waivers. (a) Any provision of this Agreement
may be amended or waived if, but only if, such amendment or waiver is in writing
and is signed, in the case of an amendment, by each party to this Agreement, or
in the case of a waiver, by the party against whom the waiver is to be
effective.
7
<PAGE> 10
(b) No failure or delay by either party in exercising any right, power or
privilege under this Agreement shall operate as a waiver of such right, power
or privilege nor shall any single or partial exercise of such right, power or
privilege preclude any other or further exercise of such right, power or
privilege or the exercise of any other right, power or privilege. The rights
and remedies provided in this Agreement shall be cumulative and not exclusive
of any rights or remedies provided by law.
SECTION 3.03. No Bankruptcy Petition. Morgan Stanley agrees that it
shall not take any steps for the purposes of procuring the appointment of any
administrative receiver or the making of any administrative order or for
instituting any bankruptcy, reorganization, arrangement, insolvency,
winding-up, liquidation, composition or any like proceedings under the laws of
any jurisdiction in respect of MSAF or in respect of any of MSAF's liabilities,
as a result of any claim or interest of Morgan Stanley under this Agreement.
SECTION 3.04. Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties to this Agreement
and their respective successors and assigns; provided that neither party may
assign, delegate or otherwise transfer any of its rights and obligations under
this Agreement without the consent of the other party.
SECTION 3.05. Governing Law; Submission to Jurisdiction. (a) This
Agreement shall be governed by and construed in accordance with the laws of the
State of New York.
(b) The parties to this Agreement agree that any suit, action or
proceeding seeking to enforce any provision of, or based on any matter arising
out of or in connection with, this Agreement or the transactions contemplated
by this Agreement may be brought in the United States District Court for the
Southern District of New York or any other New York State court sitting in New
York City, and each of the parties hereby consents to the jurisdiction of such
courts (and of the appropriate appellate courts therefrom) in any such suit,
action or proceeding and irrevocably waives, to the fullest extent permitted by
law, any objection which it may now or in the future have to the laying of the
venue of any such suit, action or proceeding in any such court or that any such
suit, action or proceeding which is brought in any such court has been brought
in an inconvenient forum. Process in any such suit, action or proceeding may
be served on any party anywhere in the world, whether within or without the
jurisdiction of any such court. Without limiting the foregoing, each party
agrees that service of process on such party as provided in Section 3.01 shall
be deemed effective service of process on such party.
8
<PAGE> 11
SECTION 3.06. Counterparts; Effectiveness; Third Party Beneficiaries. (a)
This Agreement may be signed in any number of counterparts, each of which shall
be an original, with the same effect as if the signatures to each such
counterpart were upon the same instrument.
(b) This Agreement shall become effective when (i) each party has received
a counterpart of this Agreement signed by the other party or facsimile or other
satisfactory confirmation that the other party has signed a counterpart of this
Agreement and (ii) Morgan Stanley has received the duly executed Note.
(c) No provision of this Agreement is intended to confer upon any Person
other than the parties to this Agreement any rights or remedies under this
Agreement.
SECTION 3.07. WAIVER OF JURY TRIAL. EACH PARTY TO THIS AGREEMENT HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
BY THIS AGREEMENT.
SECTION 3.08. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter of this
Agreement and supersedes all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter of this
Agreement.
SECTION 3.09. Captions. The captions used in this Agreement are included
for convenience of reference only and shall be ignored in the construction or
interpretation of this Agreement.
9
<PAGE> 12
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed by its authorized representative or officer, as applicable, as of
the day and year first above written.
MORGAN STANLEY AIRCRAFT
FINANCE
By: /s/ Karl Essig
Name: Karl Essig
Title: Signatory Trustee
MORGAN STANLEY, DEAN WITTER,
DISCOVER & CO.
By: /s/ Alexander C. Frank
Name: Alexander C. Frank
Title: Assistant Treasurer
<PAGE> 13
EXHIBIT A
FORM OF NOTE
Wilmington, Delaware
March 3, 1998
For value received, MORGAN STANLEY AIRCRAFT FINANCE, a Delaware statutory
business trust ("MSAF"), promises to pay to the order of MORGAN STANLEY, DEAN
WITTER, DISCOVER & CO., a Delaware corporation ("MORGAN STANLEY"), the unpaid
principal amount of each Loan made by Morgan Stanley to MSAF pursuant to the
Loan Agreement referred to below, as provided in the Loan Agreement. MSAF
promises to pay interest on the unpaid principal amount of each such Loan on
the dates and at the rate provided for in the Loan Agreement. All such
payments of principal and interest shall be made in lawful money of the United
States in Federal or other immediately available funds at Morgan Stanley's
address specified in or pursuant to Section 3.01 of the Loan Agreement.
All Loans made by Morgan Stanley and all repayments of the principal
thereof shall be recorded by Morgan Stanley by endorsing appropriate notations
to evidence such information with respect to each such Loan then outstanding on
the schedule forming a part of this Note, or on a continuation of such schedule
attached to and made a part of this Note; provided that the failure of Morgan
Stanley to make (or any error in making) any such endorsement shall not affect
MSAF's obligations under this Note or the Loan Agreement.
This note is the Note referred to in the Loan Agreement dated as of March
3, 1998 between MSAF and Morgan Stanley (as amended and in effect from time to
time, the "LOAN AGREEMENT"). MSAF's obligations under this Note are
subordinated to various other obligations of MSAF, as set forth in the
Indenture. Capitalized terms used and not defined in this Note have the
meanings specified in the Loan Agreement.
MORGAN STANLEY AIRCRAFT
FINANCE
By: ________________________________
Name:
Title:
A-1
<PAGE> 14
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<S> <C> <C> <C>
______________________________________________________________________
AMOUNT OF
PRINCIPAL
DATE AMOUNT OF LOAN REPAID NOTATION MADE BY
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
</TABLE>
<PAGE> 1
Exhibit 10.6
Conformed Copy
SECURITY TRUST AGREEMENT
Dated as of March 3, 1998
<PAGE> 2
T A B L E O F C O N T E N T S
SECTIONPAGE
<TABLE>
<CAPTION>
ARTICLE I
DEFINITIONS
<S> <C> <C>
1.01. Definitions 3
1.02. Construction and Usage 10
ARTICLE II
SECURITY
2.01. Grant of Security 11
2.02. Security for Obligations 14
2.03. Grantors Remain Liable 14
2.04. Delivery of Collateral 14
2.05. Maintenance of Accounts 15
2.06. Maintaining the Non-Trustee Accounts 15
2.07. Representations and Warranties of the Grantors 16
2.08. Further Assurances 17
2.09. Place of Perfection; Records 18
2.10. Voting Rights; Dividends; Etc. 18
2.11. As to the Assigned Agreements and Assigned Leases 19
2.12. Transfers and Other Encumbrances; Additional Shares or Interests 20
2.13. Security Trustee Appointed Attorney-in-Fact 20
2.14. Security Trustee May Perform 21
2.15. Covenant to Pay 21
2.16. As to Permitted Account Investments 21
2.17. As to Irish Law 22
ARTICLE III
REMEDIES
3.01. Remedies 23
ARTICLE IV
REGISTRATION RIGHTS
4.01. Registration Rights 24
ARTICLE V
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
SECURITY INTEREST ABSOLUTE
5.01. Security Interest Absolute 25
ARTICLE VI
THE SECURITY TRUSTEE
6.01. Authorization and Action 26
6.02. Absence of Duties 26
6.03. Representations or Warranties 26
6.04. Reliance; Agents; Advice of Counsel 27
6.05. Not Acting in Individual Capacity 28
ARTICLE VII
SUCCESSOR TRUSTEES
7.01. Resignation and Removal of Security Trustee 28
7.02. Appointment of Successor 29
ARTICLE VIII
AGREEMENT AMONG SECURED PARTIES
8.01. Subordination and Priority 30
8.02. Exercise of Remedies 30
8.03. Further Agreements of Subordination 31
8.04. Possession of Collateral 32
8.05. Rights of Subrogation 33
8.06. Further Assurances of Subordinated Representatives 33
8.07. No Change in Rights in Collateral 33
8.08. Waiver of Marshalling and Similar Rights 33
8.09. Enforcement 33
8.10. Obligations Hereunder Not Affected 33
8.11. Waiver 34
8.12. Senior Obligations and Subordinated Obligations Unimpaired 34
8.13. Upon Discharge of Obligations 34
ARTICLE IX
INDEMNITY AND EXPENSES
9.01. Indemnity 35
9.02. Noteholders' Indemnity 35
9.03. No Compensation from Secured Parties 36
9.04. Security Trustee Fees 36
ARTICLE X
MISCELLANEOUS
10.01. Amendments; Waivers; Etc 36
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
10.02. Addresses for Notices 37
10.03. No Waiver; Remedies 37
10.04. Severability 37
10.05. Continuing Security Interest; Assignments 37
10.06. Release and Termination 38
10.07. Currency Conversion 38
10.08. Governing Law 39
10.09. Jurisdiction 39
10.10. Counterparts 40
10.11. Table of Contents, Headings, Etc 40
</TABLE>
SCHEDULES
<TABLE>
<S> <C>
Schedule I Pledged Stock, Pledged Beneficial Interest and Pledged Debt
Schedule II Non-Trustee Account Information
Schedule III Trade Names
Schedule IV Chief Place of Business and Chief Executive or Registered Office
</TABLE>
EXHIBITS
<TABLE>
<S> <C>
Exhibit A Form of Credit Facility Provider Supplement
Exhibit B Form of Swap Provider Supplement
Exhibit C Form of Security Trust Agreement Supplement
Exhibit D Form of Account Letter
Exhibit E Form of Consent and Agreement
Exhibit F Form of Service Provider Supplement
</TABLE>
<PAGE> 5
SECURITY TRUST AGREEMENT
SECURITY TRUST AGREEMENT dated as of March 3, 1998, among MORGAN STANLEY
AIRCRAFT FINANCE, a business trust organized under the laws of the State of
Delaware (the "Issuer") pursuant to the Third Amended and Restated Trust
Agreement, dated as of March 3, 1998, among MS Financing Inc., as depositor,
Wilmington Trust Company, as the Delaware Trustee (the "Delaware Trustee"), the
Independent Trustees, the Alternate Controlling Trustee and the Controlling
Trustees party thereto, the ISSUER SUBSIDIARIES (as defined below) listed on
the signature pages hereof (together with the Issuer, the "Grantors"), CABOT
AIRCRAFT SERVICES LIMITED, a company incorporated under the laws of Ireland
(the "Administrative Agent"), BANKERS TRUST COMPANY, a New York banking
corporation (the "Cash Manager"), INTERNATIONAL LEASE FINANCE CORPORATION, a
corporation incorporated under the laws of the State of California ("ILFC"), in
its capacity as servicer (the "Servicer") under the Servicing Agreement (as
defined in the Indenture), INTERNATIONAL LEASE FINANCE CORPORATION, in its
capacity as credit facility provider under the Custody and Loan Agreement (as
defined in the Indenture), MORGAN STANLEY, DEAN WITTER, DISCOVER & CO., as
credit facility provider (together with ILFC as credit facility provider, the
"Initial Credit Facility Providers") under the Loan Agreement (as defined in
the Indenture), BANKERS TRUST COMPANY, not in its individual capacity (except
as otherwise provided in the Indenture (as defined below)), but solely in its
capacity as trustee under the Indenture (in such capacity, the "Trustee"),
BANKERS TRUST COMPANY, as the initial Reference Agent under the Reference
Agency Agreement (as defined in the Indenture) (the "Reference Agent"), and
BANKERS TRUST COMPANY, not in its individual capacity (except as otherwise
provided pursuant to Sections 6.03(i) and (ii)), but solely as the initial
Security Trustee (the "Security Trustee"). All defined terms used herein but
not defined herein shall have meanings given to such terms in the Indenture.
PRELIMINARY STATEMENTS:
(1) The Trustee has entered into an Indenture dated as of the date hereof
with the Issuer (the "Indenture"), pursuant to which the Issuer is issuing the
Notes.
(2) The Issuer is the owner of (i) all of the beneficial interest (the
"Pledged Beneficial Interest") in MSA I, a business trust organized under the
laws of the State of Delaware ("MSA I"), as described in Schedule I hereto,
(ii) the indebtedness of MSA I and the other Issuer Subsidiaries (the "Pledged
Debt") described in Schedule I hereto and (iii) all of the outstanding shares
of common stock (the "SPC-5 Shares") of Aircraft SPC-5, Inc., a corporation
organized under the laws of the State of California ("SPC-5 "), all of the
outstanding ordinary shares (the "Redfly Shares") of Redfly (UK) Limited, a
limited liability company organized under the laws of the United Kingdom
("Redfly"), and all of the outstanding ordinary shares (the "Greenfly Shares")
of Greenfly (Ireland) Limited, a limited liability company organized under the
laws of the Republic of Ireland ("Greenfly"), described in Schedule I hereto.
The SPC-5 Shares, the Redfly Shares and the Greenfly Shares are referred to
herein as the "Pledged Stock".
<PAGE> 6
(3) In accordance with the terms of the Indenture, the Issuer may enter
into one or more Credit Facilities from time to time providing that each
provider thereunder is entitled to the benefits of this Agreement. Upon the
execution and delivery to the Security Trustee of a supplement to this
Agreement in substantially the form of Exhibit A hereto (a "Credit Facility
Provider Supplement") by each provider of any such Credit Facility, such
facility shall, together with each Credit Facility provided by each Initial
Credit Facility Provider, be a "Secured Credit Facility" hereunder and each
provider party thereto shall, together with each Initial Credit Facility
Provider, be a "Secured Credit Facility Provider" hereunder.
(4) MSA I, SPC-5, Redfly and Greenfly are parties to lease and sub-lease
contracts with respect to the Initial Aircraft and may enter into lease and
sub-lease contracts with respect to Additional Aircraft.
(5) In accordance with Section 9.05(a) of the Indenture, the Issuer may
enter into one or more Swap Agreements from time to time providing that each
Swap Provider party thereto is entitled to the benefits of the security under
this Agreement. Upon the execution and delivery to the Security Trustee of a
supplement to this Agreement in substantially the form of Exhibit B hereto (a
"Swap Provider Supplement") by each Swap Provider party to any such Swap
Agreement, such Swap Agreement shall be a "Secured Swap Agreement" hereunder
and each Swap Provider party thereto shall be a "Secured Swap Provider"
hereunder.
(6) In accordance with the terms of the Indenture, the Issuer may enter
into one or more agreements providing for services to MSAF Group in addition to
the Service Provider Documents from time to time providing that each provider
thereunder is entitled to the benefits of this Agreement. Upon the execution
and the delivery to the Security Trustee of a supplement to this Agreement in
substantially the form of Exhibit F hereto by each such party to any such
Agreement, such agreement shall be a "Service Provider Supplement" hereunder
and each provider thereto shall be a "Secured Service Provider" hereunder.
(7) In accordance with the terms of the Indenture, the Guarantor
Noteholders are entitled to the benefits of the security under this Agreement
upon the fulfillment of certain conditions. Upon the execution and delivery to
the Security Trustee of a supplement to this Agreement in substantially the
form of Exhibit C hereto (a "Security Trust Agreement Supplement") by the
Guarantor and/or any Guarantor Subsidiary, the Guarantee in respect of such
Guarantor Noteholders shall be a "Secured Guarantee" hereunder and such
Guarantor Noteholders shall be "Secured Guarantor Noteholders" hereunder.
(8) The Issuer and the Issuer Subsidiaries may from time to time grant
additional security for the benefit of the Noteholders and the other Secured
Parties (as defined below). Upon the execution and delivery to the Security
Trustee of a Security Trust Agreement Supplement by the Issuer or any Issuer
Subsidiary, the Secured Parties shall be entitled to the benefit of the
Collateral thereunder.
<PAGE> 7
(9) It is a condition precedent to the issuance of the Notes by the Issuer
that each Grantor shall have granted the assignments and security interests and
made the pledges and assignments contemplated by this Agreement.
(10) Each Grantor shall derive substantial direct and indirect benefit
from the transactions contemplated by the Indenture and the other Relevant
Documents.
NOW, THEREFORE, in consideration of the premises, each Grantor hereby
agrees with the Security Trustee for its benefit and the benefit of the other
Service Providers, the Noteholders, the Secured Credit Facility Providers, the
Secured Swap Providers, the Secured Service Providers and the Secured Guarantor
Noteholders (each, a "Secured Party" and, collectively, the "Secured Parties")
as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. (a) Certain Defined Terms. As used herein,
the following terms have the meanings set forth below:
"1881 Act" has the meaning specified in Section 2.17.
"Acceleration Default" means any Event of Default of the type
described in Section 4.01(f) or 4.01(g) of the Indenture.
"Account Letters" has the meaning specified in Section 2.06(a).
"Additional Grantor" has the meaning specified in Section 10.01.
"Administrative Agent" has the meaning specified in the recital of
parties to this Agreement.
"Agreed Currency" has the meaning specified in Section 10.07.
"Agreement Collateral" has the meaning specified in Section 2.01.
"Assigned Leases" has the meaning specified in Section 2.01.
"Bankers Trust Fee Letter" means the fee agreement dated as of March
3, 1998 between the Issuer and Bankers Trust.
"Beneficial Interest Collateral" has the meaning specified in
Section 2.01.
"Cash Collateral" has the meaning specified in Section 2.01.
"Cash Manager" has the meaning specified in the recital of parties
to this
<PAGE> 8
Agreement.
"Certificated Security" means (i) a certificated security as defined
in Section 8-102(a)(4) of the UCC and (ii) any security entitlement as
defined in Section 8-102(a)(17) of the UCC with respect thereto, but does
not include any Government Security.
"Class" means any class of MSAF Group Notes.
"Collateral" has the meaning specified in Section 2.01.
"Credit Facility Provider Supplement" has the meaning specified in
the preliminary statements to this Agreement or such other agreement
approved by the Administrative Agent providing for a credit facility
provider to become a Secured Party hereunder.
"Delaware Trustee" has the meaning specified in the recital of
parties to this Agreement.
"Delaware Trustee Fee Agreements" means the fee agreements dated as
of March 3, 1998 between the Delaware Trustee and, respectively, the
Issuer and MSA I.
"Government Security" means (i) any security issued or guaranteed by
the United States of America or an agency or instrumentality thereof that
is maintained in book-entry on the records of the Federal Reserve Bank of
New York and (ii) any security entitlement as defined in Section
8-102(a)(17) of the UCC with respect thereto.
"Grantors" has the meaning specified in the recital of parties to
this Agreement.
"Greenfly" has the meaning specified in the preliminary statements
to this Agreement.
"Greenfly Shares" has the meaning specified in the preliminary
statements to this Agreement.
"ILFC" has the meaning specified in the recital of parties to this
Agreement.
"Indenture" has the meaning specified in the preliminary statements
to this Agreement.
"Indenture Obligations" means, in respect of any Class of MSAF Group
Notes, all obligations of the Issuer and any Guarantor under and in
respect of such Class of MSAF Group Notes and the Guarantees, if any, of
such Class of MSAF Group Notes, including, without limitation, all
obligations of the Issuer and any
<PAGE> 9
Guarantor to make payments of principal of, interest on (including
interest following the filing of a petition initiating any proceeding
referred to in Section 8.03(a)) and Premium, if any, on such Class of
MSAF Group Notes, all obligations to pay any fees, expenses or other
amounts under or in respect of such Class of MSAF Group Notes, the
Indenture, any Guarantor Indenture or any Relevant Document in respect of
such Class of MSAF Group Notes, and all obligations in respect of any
amendment, modification, extension, renewal or refinancing of such Class
of MSAF Group Notes.
"Initial Credit Facility Providers" has the meaning specified in the
recital of parties to this Agreement.
"Instrument" means any "instrument" as defined in Section
9-105(1)(i) of the UCC.
"Investment Collateral" has the meaning specified in Section 2.01.
"Issuer" has the meaning specified in the recital of parties to this
Agreement.
"Lease Collateral" has the meaning specified in Section 2.01.
"MSA I" has the meaning specified in the preliminary statements to
this Agreement.
"Non-Trustee Account Banks" has the meaning specified in Section
2.06.
"Non-Trustee Account Collateral" has the meaning specified in
Section 2.01.
"Noteholder" means any Person in whose name an MSAF Group Note is
registered from time to time in the register for the MSAF Group Notes.
"Obligor" has the meaning specified in Section 2.06.
"Pledged Beneficial Interest" has the meaning specified in the
preliminary statements to this Agreement.
"Pledged Debt" has the meaning specified in the preliminary
statements to this Agreement.
"Pledged Stock" has the meaning specified in the preliminary
statements to this Agreement.
"Primary Eligible Credit Facility Obligations" means the obligations
of the Issuer and any Guarantor now or hereafter existing under any
Primary Eligible Credit Facilities.
"Received Currency" has the meaning specified in Section 10.07.
<PAGE> 10
"Redfly" has the meaning specified in the preliminary statements to
this Agreement.
"Redfly Shares" has the meaning specified in the preliminary
statements to this Agreement.
"Reference Agent" has the meaning specified in the recital of
parties to this Agreement.
"Secured Credit Facility" has the meaning specified in the
preliminary statements to this Agreement.
"Secured Credit Facility Provider" has the meaning specified in the
preliminary statements to this Agreement.
"Secured Guarantee" has the meaning specified in the preliminary
statements to this Agreement.
"Secured Guarantor Noteholders" has the meaning specified in the
preliminary statements to this Agreement.
"Secured Obligations" has the meaning specified in Section 2.02.
"Secured Other Credit Facility Obligations" means the obligations of
the Issuer and any Guarantor now or hereafter existing under any Credit
Facilities other than the Primary Eligible Credit Facilities.
"Secured Party" has the meaning specified in the preliminary
statements to this Agreement.
"Secured Service Provider" has the meaning specified in the
preliminary statements to this Agreement.
"Secured Subordinated Swap Provider Obligations" means the
obligations of the Issuer and any Guarantor now or hereafter existing
under the Secured Swap Agreements that are subordinated to payments
having the priorities specified in Section 3.08 of the Indenture or any
Guarantor Indenture.
"Secured Swap Agreement" has the meaning specified in the
preliminary statements to this Agreement.
"Secured Swap Provider" has the meaning specified in the preliminary
statements to this Agreement.
"Secured Swap Provider Obligations" means the obligations of the
Issuer now or hereafter existing under the Secured Swap Agreements other
than Secured Subordinated Swap Provider Obligations.
<PAGE> 11
"Securities Account" means a securities account as defined in
Section 8-501 of the UCC maintained in the name of the Trustee with a
Securities Intermediary in the State of New York.
"Securities Intermediary" means any "securities intermediary" of the
Security Trustee as defined in 31 C.F.R. Section 357.2, Section
8-102(a)(14) of the UCC or any similar provision of state or federal law.
"Security Collateral" has the meaning specified in Section 2.01(a).
"Security Trust Agreement Supplement" has the meaning specified in
the preliminary statements to this Agreement.
"Security Trustee" has the meaning specified in the recital of
parties to this Agreement.
"Senior Creditors" means, at any time, the holders and owners of
Senior Obligations.
"Senior Obligations" means:
(i) with respect to the Secured Primary Eligible Credit
Facility Obligations, the Service Provider Obligations;
(ii) with respect to the Indenture Obligations in respect of
the MSAF Group Class A Notes and the Secured Swap Provider
Obligations, (A) the Secured Primary Eligible Credit Facility
Obligations and (B) the Service Provider Obligations;
(iii) with respect to the Indenture Obligations in respect of
the MSAF Group Class B Notes, (A) the Indenture Obligations in
respect of the MSAF Group Class A Notes, (B) the Secured Swap
Provider Obligations, (C) the Secured Primary Eligible Credit
Facility Obligations and (D) the Service Provider Obligations;
(iv) with respect to the Indenture Obligations in respect of
the MSAF Group Class C Notes, (A) the Indenture Obligations in
respect of the MSAF Group Class B Notes, (B) the Indenture
Obligations in respect of the MSAF Group Class A Notes, (C) the
Secured Swap Provider Obligations, (D) the Secured Primary Eligible
Credit Facility Obligations and (E) the Service Provider
Obligations;
(v) with respect to the Indenture Obligations in respect of
the MSAF Group Class D Notes, (A) the Indenture Obligations in
respect of the MSAF Group Class C Notes, (B) the Indenture
Obligations in respect of the MSAF Group Class B Notes, (C) the
Indenture Obligations with respect to
<PAGE> 12
the MSAF Group Class A Notes, (D) the Secured Swap Provider
Obligations, (E) the Secured Primary Eligible Credit Facility
Obligations and (F) the Service Provider Obligations;
(vi) with respect to the Secured Other Credit Facility
Obligations, (A) the Indenture Obligations in respect of the MSAF
Group Class D Notes, (B) the Indenture Obligations in respect of
the MSAF Group Class C Notes, (C) the Indenture Obligations in
respect of the MSAF Group Class B Notes, (D) the Indenture
Obligations in respect of the MSAF Group Class A Notes, (E) the
Secured Swap Provider Obligations, (F) the Secured Primary Eligible
Credit Facility Obligations and (G) the Service Provider
Obligations; and
(vii) with respect to the Secured Subordinated Swap Provider
Obligations, (A) the Secured Other Credit Facility Obligations, (B)
the Indenture Obligations in respect of the MSAF Group Class D
Notes, (C) the Indenture Obligations in respect of the MSAF Group
Class C Notes, (D) the Indenture Obligations in respect of the MSAF
Group Class B Notes, (E) the Indenture Obligations in respect of
the MSAF Group Class A Notes, (F) the Secured Swap Provider
Obligations, (G) the Secured Primary Eligible Credit Facility
Obligations and (H) the Service Provider Obligations.
"Senior Representative" means the Senior Trustee; provided, however,
that if, at any time prior to the payment in full of the Service Provider
Obligations, the holders of a majority in interest of the accrued and
unpaid Service Provider Obligations at such time agree upon another
Person to serve as Senior Representative, such Person shall be the Senior
Representative until the payment in full of the Service Provider
Obligations.
"Service Provider Documents" means the Administrative Agency
Agreement, the Trust Agreement, the Cash Management Agreement, the
Indenture, any Guarantor Indenture, the Reference Agency Agreement, the
Servicing Agreement, the Financial Advisory Agreement, any Additional
Servicing Agreement, the Bankers Trust Fee Agreement, the Delaware
Trustee Fee Agreements and this Agreement.
"Service Provider Obligations" means, collectively, the obligations
now or hereafter existing of the Issuer or any MSAF Group Member to pay
fees, expenses, indemnities and other amounts under the Service Provider
Documents (other than the Secured Primary Eligible Credit Facility
Obligations, the Secured Swap Provider Obligations, the Indenture
Obligations in respect of the MSAF Group Class A Notes, the Indenture
Obligations in respect of the MSAF Group Class B Notes, the Indenture
Obligations in respect of the Class C Notes, the Indenture Obligations in
respect of the MSAF Group Class D Notes, the Secured Other Credit
Facility Obligations and the Secured Subordinated Swap Provider
Obligations).
"Service Provider Supplement" has the meaning given to such term in
the preliminary statements to this Agreement.
<PAGE> 13
"Servicer" has the meaning specified in the preliminary statements
to this Agreement.
"SPC-5" has the meaning specified in the preliminary statements to
this Agreement.
"SPC-5 Shares" has the meaning specified in the preliminary
statements to this Agreement.
"Subordinated Creditors" means, at any time, the holders and owners
of Subordinated Obligations.
"Subordinated Obligations" means:
(i) with respect to the Service Provider Obligations, (A) the
Secured Primary Eligible Credit Facility Obligations, (B) the
Indenture Obligations in respect of the MSAF Group Class A Notes
and the Secured Swap Provider Obligations, (C) the Indenture
Obligations in respect of the MSAF Group Class B Notes, (D) the
Indenture Obligations in respect of the MSAF Group Class C Notes,
(E) the Indenture Obligations in respect of the MSAF Group Class D
Notes, (F) the Secured Other Credit Facility Obligations and (G)
the Secured Subordinated Swap Provider Obligations;
(ii) with respect to the Secured Primary Eligible Credit
Facility Obligations, (A) the Indenture Obligations in respect of
the MSAF Group Class A Notes and the Secured Swap Provider
Obligations, (B) the Indenture Obligations in respect of the MSAF
Group Class B Notes, (C) the Indenture Obligations in respect of
the MSAF Group Class C Notes, (D) the Indenture Obligations in
respect of the MSAF Group Class D Notes, (E) the Secured Other
Credit Facility Obligations and (F) the Secured Subordinated Swap
Provider Obligations;
(iii) with respect to the Indenture Obligations in respect of
the MSAF Group Class A Notes and the Secured Swap Provider
Obligations, (A) the Indenture Obligations in respect of the MSAF
Group Class B Notes, (B) the Indenture Obligations in respect of
the MSAF Group Class C Notes, (C) the Indenture Obligations in
respect of the MSAF Group Class D Notes, (D) the Secured Other
Credit Facility Obligations and (E) the Secured Subordinated Swap
Provider Obligations;
(iv) with respect to the Indenture Obligations in respect of
the MSAF Group Class B Notes, (A) the Indenture Obligations in
respect of the MSAF Group Class C Notes, (B) the Indenture
Obligations in respect of the MSAF Group Class D Notes, (C) the
Secured Other Credit Facility Obligations and (D) the Secured
Subordinated Swap Provider Obligations;
<PAGE> 14
(v) with respect to the Indenture Obligations in respect of
the MSAF Group Class C Notes, (A) the Indenture Obligations in
respect of the MSAF Group Class D Notes, (B) the Secured Other
Credit Facility Obligations and (C) the Secured Subordinated Swap
Provider Obligations;
(vi) with respect to the Indenture Obligations in respect of
the MSAF Group Class D Notes, (A) the Secured Other Credit Facility
Obligations and (B) the Secured Subordinated Swap Provider
Obligations; and
(vii) with respect to the Secured Other Credit Facility
Obligations, the Secured Subordinated Swap Provider Obligations.
"Subordinated Representative" means, at any time, any trustee or
representative of any holders or owners of any obligations other than the
Senior Representative at such time.
"Swap Provider Supplement" has the meaning specified in the
preliminary statements to this Agreement or such other agreement approved
by the Administrative Agent providing for a Swap Provider to become a
Secured Party hereunder.
"Trustee" has the meaning specified in the recital of parties to
this Agreement.
"UCC" means the Uniform Commercial Code as in effect on the date
hereof in the State of New York; provided that if by reason of mandatory
provisions of law, the perfection or the effect of perfection or
non-perfection of the security interest in any Collateral is governed by
the Uniform Commercial Code as in effect in a jurisdiction other than New
York, "UCC" means the Uniform Commercial Code as in effect in such other
jurisdiction for purposes of the provisions hereof relating to such
perfection or effect of perfection or non-perfection.
"Uncertificated Security" means (i) an uncertificated security as
defined in Section 8-102(a)(18) of the UCC and (ii) any security
entitlement as defined in Section 8-102(a)(17) of the UCC with respect
thereto, but does not include any Government Security.
(b) Terms Defined in the Indenture. For all purposes of this Agreement,
all capitalized terms used herein but not defined herein shall have the
respective meanings assigned to such terms in the Indenture.
SECTION 1.02. Construction and Usage.02. Construction and Usage. The
conventions of construction and usage set forth in the Indenture are hereby
incorporated by reference herein.
ARTICLE II
<PAGE> 15
SECURITY
SECTION 2.01. Grant of Security. Each Grantor hereby assigns and pledges
to the Security Trustee for its benefit and the benefit of the Secured Parties,
and hereby grants to the Security Trustee for its benefit and the benefit of
the Secured Parties a security interest in all of its right, title and interest
in and to the following (collectively, the "Collateral"):
(a) with respect to each Grantor, all of the following (the
"Security Collateral"):
(i) the Pledged Stock and the certificates representing such
Pledged Stock, and all dividends, cash, instruments and other
property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the
Pledged Stock;
(ii) the Pledged Debt and the instruments evidencing the
Pledged Debt, and all interest, cash, instruments and other
property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the
Pledged Debt;
(iii) all additional shares of Stock from time to time
acquired by such Grantor in any manner, including the Stock of any
MSAF Group Member that may be formed from time to time, and the
certificates representing such additional shares and all dividends,
cash, instruments and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange
for any or all such additional shares; and
(iv) all additional indebtedness from time to time owed to
such Grantor by any MSAF Group Member and the instruments
evidencing such indebtedness, and all interest, cash, instruments
and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all
of such indebtedness;
(b) with respect to each Grantor, all of the following (the
"Beneficial Interest Collateral"):
(i) the Pledged Beneficial Interest, all certificates, if any,
from time to time representing all of such Grantor's right, title
and interest in the Pledged Beneficial Interest and all
distributions, cash, instruments and other property from time to
time received, receivable or otherwise distributed in respect of or
in exchange for any or all of the Pledged Beneficial Interest; and
(ii) all of such Grantor's right, title and interest in all
additional
<PAGE> 16
beneficial interests from time to time acquired by such Grantor in
any manner, all certificates, if any, from time to time
representing such additional beneficial interests and all
distributions, cash, instruments and other property from time to
time received, receivable or otherwise distributed in respect of or
in exchange for any or all such additional beneficial interests;
(c) with respect to each Grantor, all of the following
(collectively, the "Non-Trustee Account Collateral"):
(i) all of the Non-Trustee Accounts in such Grantor's name,
all funds or any other interest held or required by the terms of
the Indenture or any Guarantor Indenture to be held therein and all
certificates and instruments, if any, from time to time
representing or evidencing such Non-Trustee Accounts;
(ii) all notes, certificates of deposit, deposit accounts,
checks and other instruments from time to time hereafter delivered
to or otherwise possessed by the Security Trustee for or on behalf
of such Grantor in substitution for or in addition to any or all of
the then existing Non-Trustee Account Collateral; and
(iii) all interest, dividends, cash, instruments and other
property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the then
existing Non-Trustee Account Collateral;
(d) with respect to each Grantor, all of the following
(collectively, the "Cash Collateral"):
(i) all funds or any other interest of such Grantor held or
required by the terms of the Indenture or any Guarantor Indenture
to be held in the Accounts and all certificates and instruments, if
any from time to time representing or evidencing such funds;
(ii) all notes, certificates of deposit, deposit accounts,
checks and other instruments from time to time hereafter delivered
to or otherwise possessed by the Security Trustee for or on behalf
of such Grantor in substitution for or in addition to any or all of
the then existing Cash Collateral; and
(iii) all interest, dividends, instruments and other property
from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the then existing Cash
Collateral;
(e) all "investment property" (as defined in Section 9-115(1)(f) of
the UCC) of each Grantor and all of the following (the "Investment
Collateral"):
<PAGE> 17
(i) all Permitted Account Investments made or acquired from or
with the proceeds of any Non-Trustee Account Collateral or Cash
Collateral of such Grantor from time to time and all certificates
and instruments, if any, from time to time representing or
evidencing such Permitted Account Investments;
(ii) all notes, certificates of deposit, deposit accounts,
checks and other instruments from time to time hereafter delivered
to or otherwise possessed by the Security Trustee for or on behalf
of such Grantor in substitution of or in addition to any or all of
the then existing Investment Collateral; and
(iii) all interest, dividends, instruments and other property
from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the then existing
Investment Collateral;
(f) with respect to the Issuer, all of the following (the "Agreement
Collateral"):
(i) all of such Grantor's right, title and interest in and to
all security assignments, cash deposit agreements and other
security agreements executed in its favor by any Issuer Subsidiary,
in each case as such agreements may be amended or otherwise
modified from time to time (collectively, the "Assigned
Agreements"); and
(ii) all of such Grantor's right, title and interest in and to
all deposit accounts, all funds held therein, all certificates and
instruments, if any from time to time representing or evidencing
such deposit accounts and all other property of whatever nature, in
each case pledged, assigned or transferred to it or mortgaged or
charged in its favor pursuant to any Assigned Agreement;
(g) with respect to each of MSA I, SPC-5, Redfly and Greenfly, all
of the following (the "Lease Collateral"):
(i) all of such Grantor's right, title and interest in and to
all Leases to which such Grantor is or may from time to time be
party and any leasing arrangements among MSAF Group Members with
respect to such Leases (all such Leases, the "Assigned Leases"),
including without limitation, (A) all rights of such Grantor to
receive moneys due and to become due under or pursuant to such
Assigned Leases, (B) all rights of such Grantor to receive proceeds
of any insurance, indemnity, warranty or guaranty with respect to
such Assigned Leases, (C) claims of such Grantor for damages
arising out of or for breach or default under such Assigned Leases
and (D) the right of such Grantor to terminate such Assigned
Leases, to perform thereunder and to compel performance and
otherwise exercise all
<PAGE> 18
remedies thereunder, whether arising under such Assigned Leases or
by statute or at law or in equity; and
(h) all proceeds of any and all of the foregoing Collateral
(including, without limitation, proceeds that constitute property of the
types described in subsections (a), (b), (c), (d), (e), (f) and (g) of
this Section 2.01).
SECTION 2.02. Security for Obligations. This Agreement secures the
payment and performance of all obligations of the Issuer and each other
Grantor, now or hereafter existing under the Service Provider Documents, the
MSAF Group Notes, the Secured Guarantee, the Secured Credit Facilities and the
Secured Swap Agreements, whether for principal, interest, fees, expenses or
otherwise (all such obligations of each Grantor being, collectively, the
"Secured Obligations"). Without limiting the generality of the foregoing, this
Agreement secures the payment of all amounts that constitute part of the
Secured Obligations and would be owed by any Grantor to the Secured Parties
under the Secured Obligations but for the fact that they are unenforceable or
not allowable due to the existence of a bankruptcy, reorganization or similar
proceeding involving such Grantor.
SECTION 2.03. Grantors Remain Liable. Anything contained herein to the
contrary notwithstanding, (a) each Grantor shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the
Security Trustee of any of its rights hereunder shall not release any Grantor
from any of its duties or obligations under the contracts and agreements
included in the Collateral, and (c) no Secured Party shall have any obligation
or liability under the contracts and agreements included in the Collateral by
reason of this Agreement, nor shall any Secured Party be obligated to perform
any of the obligations or duties of any Grantor thereunder or to take any
action to collect or enforce any claim for payment assigned hereunder.
SECTION 2.04. Delivery of Collateral. All certificates or instruments
representing or evidencing any Collateral shall be delivered to and held by or
on behalf of the Security Trustee pursuant hereto and shall be in suitable form
for transfer by delivery, or shall be accompanied by duly executed instruments
of transfer or assignment in blank, all in form and substance satisfactory to
the Security Trustee. The Security Trustee shall have the right, at any time in
its discretion and without notice to the Issuer, to transfer to or to register
in the name of the Security Trustee or any of its nominees any or all of the
Pledged Stock and Pledged Beneficial Interest, subject only to the revocable
rights specified in Section 2.10(a). In addition, the Security Trustee shall
have the right at any time to exchange certificates or instruments representing
or evidencing any Collateral for certificates or instruments of smaller or
larger denominations.
SECTION 2.05. Maintenance of Accounts. So long as any Secured
Obligations shall remain unpaid, the Security Trustee shall have sole dominion
and control over each Account other than any Non-Trustee Account, and no
Grantor shall, at any time, establish any bank account other than pursuant to
Article III of the Indenture, any Guarantor Indenture or in compliance with
Section 2.06(a).
<PAGE> 19
SECTION 2.06. Maintaining the Non-Trustee Accounts. So long as any
Secured Obligations shall remain unpaid:
(a) Each Grantor shall maintain each Non-Trustee Account in its name
only with banks ("Non-Trustee Account Banks") that have entered into
letter agreements in substantially the form of Exhibit D hereto (or made
such other arrangements as are acceptable to the Administrative Agent)
with such Grantor and the Security Trustee (the "Account Letters").
(b) Each Grantor (i) shall immediately instruct each Person
obligated at any time to make any payment to such Grantor for any reason
(an "Obligor") to make such payment to an Account or a Non-Trustee
Account meeting the requirements of Section 2.06(a), (ii) shall instruct
each of its Non-Trustee Account Banks to transfer to the Collection
Account, in immediately available funds, within one Business Day of
receipt thereof, an amount equal to the credit balance of the Non-Trustee
Account in such Non-Trustee Account Bank (other than any amount required
to be left on deposit for local tax or other regulatory or legal
purposes), and (iii) shall transfer or cause its Non-Trustee Account
Banks to transfer to the Security Trustee for deposit in the Collection
Account, within each Business Day, all other proceeds of Non-Trustee
Account Collateral, Cash Collateral and proceeds of Collateral.
(c) Upon any termination of any Account Letter or other agreement
with respect to the maintenance of a Non-Trustee Account by any Grantor
or any Non-Trustee Account Bank, such Grantor shall immediately notify
all Obligors that were making payments to such Non-Trustee Account to
make all future payments to an Account or to another Non-Trustee Account
meeting the requirements of Section 2.06(a). Subject to the terms of any
Lease, upon request by the Security Trustee, each Grantor shall, and if
prohibited from so doing by the terms of any Lease, shall use its best
efforts to seek the consent of the relevant lessee to, terminate any or
all of its Non-Trustee Accounts.
SECTION 2.07. Representations and Warranties of the Grantors. Each
Grantor represents and warrants as of the date of this Agreement and as of each
subsequent Closing Date as follows:
(a) Each Grantor is the legal and beneficial owner of the Collateral
pledged and assigned by it hereunder free and clear of any Encumbrance,
other than the security interest created by this Agreement. No effective
financing statement or other instrument similar in effect covering all or
any part of the Collateral is on file in any recording office, except
such as may have been filed in favor of the Security Trustee relating to
this Agreement.
(b) This Agreement, the pledge of the Security Collateral pursuant
hereto and the pledge and assignment on the date hereof and from time to
time hereafter of the other Collateral pursuant hereto create a valid and
perfected security interest
<PAGE> 20
therein, securing the payment of the Secured Obligations, subject in
priority to no other claims, and all filings and other actions necessary
or desirable to perfect and protect such security interest have been duly
taken.
(c) No Grantor has any trade names except as set forth on Schedule
III hereto.
(d) No consent of any other Person and no authorization, approval or
other action by, and no notice to or filing with, any governmental
authority or regulatory body or other third party is required either (i)
for the grant by such Grantor of the assignment and security interest
granted hereby, for the execution, delivery or performance of this
Agreement by such Grantor or (ii) for the perfection or maintenance of
the pledge, assignment and security interest created hereby, except for
the filing of financing and continuation statements under the Uniform
Commercial Code.
(e) The chief place of business and chief executive or registered
office of such Grantor and the office where such Grantor keeps records of
each Assigned Lease to which it is a party are located at the address
specified opposite the name of such Grantor on Schedule IV hereto.
(f) The Pledged Stock constitutes the percentage of the issued and
outstanding shares of stock of the issuers thereof indicated on Schedule
I hereto. The Pledged Beneficial Interest constitutes the percentage of
the beneficial interest of the issuer thereof indicated on Schedule I
hereto.
(g) The Pledged Stock and the Pledged Beneficial Interest have been
duly authorized and validly issued and are fully paid up and
nonassessable. The Pledged Debt has been duly authorized, authenticated
or issued and delivered, is the legal, valid and binding obligation of
each obligor thereunder and is not in default.
(h) The Assigned Agreements and the Assigned Leases, true and
complete copies of which have been furnished to the Security Trustee,
have been duly authorized, executed and delivered by the relevant
Grantors, have not been amended or otherwise modified, are in full force
and effect and are binding upon and enforceable against all parties
thereto in accordance with their terms. There exists no default under
any Assigned Agreement or any Assigned Lease by any Grantor party
thereto. Each party to any Assigned Agreements (there being none as of
the date of this Agreement) other than the Issuer and the Security
Trustee has executed and delivered to the Security Trustee a consent, in
substantially the form of Exhibit E (or any other form approved in
writing by the Administrative Agent), to the assignment of the relevant
Agreement Collateral to the Security Trustee pursuant to this Agreement.
Each party other than any Grantor to any Assigned Lease which by its
terms requires the lessor thereof to obtain the consent of the lessee
thereof, has executed and delivered to the Security Trustee a consent, in
substantially the form of Exhibit E (or any other form approved in
writing by the Administrative Agent), to the assignment of the relevant
Lease Collateral to the
<PAGE> 21
Security Trustee pursuant to this Agreement. Each party to any other
Assigned Lease other than any Grantor has been given due notice of the
assignment of the relevant Lease Collateral to the Security Trustee
pursuant to this Agreement.
SECTION 2.08. Further Assurances. (a) Each Grantor agrees that from
time to time, at the expense of such Grantor, such Grantor shall promptly
execute and deliver all further instruments and documents, and take all further
action, that may be necessary or desirable, or that the Security Trustee may
request, in order to perfect and protect any pledge, assignment or security
interest granted or purported to be granted hereby or to enable the Security
Trustee to exercise and enforce its rights and remedies hereunder with respect
to any Collateral. Without limiting the generality of the foregoing, each
Grantor shall: (i) mark conspicuously each Assigned Agreement and Assigned
Lease to which it is a party and each of its records pertaining to the
Collateral with a legend, indicating that such Collateral is subject to the
security interest granted hereby; (ii) if any Collateral shall be evidenced by
a promissory note or other instrument or chattel paper, deliver and pledge to
the Security Trustee hereunder such note or instrument or chattel paper duly
indorsed and accompanied by duly executed instruments of transfer or
assignment; and (iii) execute and file such financing or continuation
statements, or amendments thereto, and such other instruments or notices, as
may be necessary or desirable, or as the Security Trustee may request, in order
to perfect and preserve the pledge, assignment and security interest granted or
purported to be granted hereby.
(b) Each Grantor hereby authorizes the Security Trustee to file one or
more financing or continuation statements, and amendments thereto, relating to
all or any part of the Collateral without the signature of such Grantor where
permitted by law. A photocopy or other reproduction of this Agreement or any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law.
(c) Each Grantor shall furnish to the Security Trustee from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Security Trustee
may reasonably request, all in reasonable detail.
(d) Each Grantor shall, immediately upon the organization or acquisition
by such Grantor of any Issuer Subsidiary or Guarantor Subsidiary, cause such
Issuer Subsidiary or Guarantor Subsidiary, as the case may be, to enter into a
Security Trust Agreement Supplement.
SECTION 2.09. Place of Perfection; Records. Each Grantor shall keep its
chief place of business and chief executive office and the office where it
keeps its records concerning the Collateral at the location therefor specified
in Schedule IV or, upon 30 days' prior written notice to the Security Trustee,
at such other locations in a jurisdiction where all actions required by Section
2.07(e) shall have been taken with respect to the Collateral. Each Grantor
shall hold and preserve such records and shall permit representatives of the
Security Trustee at any time during normal business hours to inspect and make
abstracts from such records, all at the sole cost and expense of such Grantor.
<PAGE> 22
SECTION 2.10. Voting Rights; Dividends; Etc. (a) So long as no Default
Notice shall have been delivered to the Issuer or any Guarantor and no
Acceleration Default shall have occurred and be continuing:
(i) Each of the Grantors shall be entitled to exercise any and all
voting and other consensual rights pertaining to the Security Collateral
and Beneficial Interest Collateral pledged by such Grantor or any part
thereof for any purpose not inconsistent with the terms of this
Agreement, the charter documents of such Grantor, the Indenture and any
Guarantor Indenture; provided, however, that such Grantor shall not
exercise or refrain from exercising any such right if in its judgment
such action would have a material adverse effect on the value of the
Security Collateral or the Beneficial Interest Collateral or any part
thereof.
(ii) The Security Trustee shall execute and deliver (or cause to be
executed and delivered) to such Grantor all such proxies and other
instruments as such Grantor may reasonably request for the purpose of
enabling such Grantor to exercise the voting and other rights that it is
entitled to exercise pursuant to Section 2.10(a)(i).
(iii) Each Grantor shall be entitled to receive and retain any and
all distributions, dividends and interest paid in respect of the Security
Collateral and Beneficial Interest Collateral pledged by such Grantor;
provided, however, that any and all
(A) distributions, dividends and interest paid or payable
other than in cash in respect of, and instruments and other
property received, receivable or otherwise distributed in respect
of, or in exchange for, such Security Collateral or Beneficial
Interest Collateral;
(B) distributions, dividends and other distributions paid or
payable in cash in respect of such Security Collateral or
Beneficial Interest Collateral in connection with a partial or
total liquidation or dissolution or in connection with a reduction
of capital, capital surplus or paid-in surplus; and
(C) cash paid, payable or otherwise distributed in respect of
principal of, or in redemption of, or in exchange for, such
Security Collateral or Beneficial Interest Collateral
shall be, and shall be forthwith delivered to the Security Trustee to
hold as, Security Collateral or Beneficial Interest Collateral, as the
case may be, and, if received by such Grantor, shall be received in trust
for the benefit of the Security Trustee, be segregated from the other
property or funds of the Security Trustee and be forthwith delivered to
the Security Trustee as Security Collateral or Beneficial Interest
Collateral, as the case may be, in the same form as so received (with any
necessary indorsement).
<PAGE> 23
(b) Upon notice to such Grantor by the Security Trustee following the
delivery of a Default Notice to such Grantor or following the occurrence and
during the continuance of an Acceleration Default, all rights of such Grantor
(i) to exercise or refrain from exercising the voting and other consensual
rights that it would otherwise be entitled to exercise pursuant to Section
2.10(a)(i) and (ii) to receive the distributions, dividends and interest
payments that it would otherwise be entitled to receive and retain pursuant to
Section 2.10(a)(iii) shall cease, and all such rights shall thereupon become
vested in the Security Trustee, which shall thereupon have the sole right to
exercise or refrain from exercising such voting and other consensual rights.
(c) All distributions, dividends and interest payments that are received
by such Grantor contrary to the provisions of Section 2.10(a) or (b) shall be
received in trust for the benefit of the Security Trustee, shall be segregated
from other funds of such Grantor and shall be forthwith paid over to the
Security Trustee as Security Collateral or Beneficial Interest Collateral, as
the case may be, in the same form as so received (with any necessary
indorsement).
SECTION 2.11. As to the Assigned Agreements and Assigned Leases. (a)
Each Grantor shall at its expense:
(i) perform and observe all the terms and provisions of the Assigned
Agreements and Assigned Leases to be performed or observed by it,
maintain the Assigned Agreements and Assigned Leases in full force and
effect, enforce the Assigned Agreements and Assigned Leases in accordance
with their terms and take all such action to such end as may be from time
to time requested by the Security Trustee; and
(ii) furnish to the Security Trustee promptly upon receipt thereof
copies of all notices, requests and other documents received by such
Grantor under or pursuant to the Assigned Agreements or Assigned Leases,
and from time to time (A) furnish to the Security Trustee such
information and reports regarding the Collateral as the Security Trustee
may reasonably request and (B) upon request of the Security Trustee make
to each other party to any Assigned Agreement or Assigned Lease such
demands and requests for information and reports or for action as such
Grantor is entitled to make thereunder.
(b) No Grantor shall cancel or terminate any Assigned Agreement or consent
to or accept any cancellation or termination thereof or amend or otherwise
modify any Assigned Agreement.
SECTION 2.12. Transfers and Other Encumbrances; Additional Shares or
Interests. (a) No Grantor shall (i) sell, assign (by operation of law or
otherwise) or otherwise dispose of, or grant any option with respect to, any of
the Collateral or (ii) create or suffer to exist any Encumbrance upon or with
respect to any of the Collateral of such Grantor, other than the pledge,
assignment and security interest created by this Agreement.
(b) Except as otherwise provided pursuant to Section 5.02(l) of the
<PAGE> 24
Indenture, MSA I, SPC-5, Greenfly and Redfly shall not, and the Issuer shall
not permit MSA I, SPC-5, Greenfly and Redfly to, issue, deliver or sell any
shares, interests, participations or other equivalents. Any beneficial
interest or stock or other securities or interests issued in respect of or in
substitution for the Pledged Stock or the Pledged Beneficial Interest shall be
issued to the Security Trustee.
SECTION 2.13. Security Trustee Appointed Attorney-in-Fact. Each Grantor
hereby irrevocably appoints the Security Trustee such Grantor's
attorney-in-fact, with full authority in the place and stead of such Grantor
and in the name of such Grantor or otherwise, from time to time in the Security
Trustee's discretion, to take any action and to execute any instrument that the
Security Trustee may deem necessary or advisable to accomplish the purposes of
this Agreement, including, without limitation:
(a) to ask for, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become
due under or in respect of any of the Collateral;
(b) to receive, indorse and collect any drafts or other instruments
and documents in connection with Section 2.12(a);
(c) to file any claims or take any action or institute any
proceedings that the Security Trustee may deem necessary or desirable for
the collection of any of the Collateral or otherwise to enforce the
rights of the Security Trustee with respect to any of the Collateral; and
(d) to execute and file any financing or continuation statements, or
amendments thereto, and such other instruments or notices, as may be
necessary or desirable, in order to perfect and preserve the pledge,
assignment and security interest granted hereby.
SECTION 2.14. Security Trustee May Perform. If any Grantor fails to
perform any agreement contained herein, the Security Trustee may (but shall not
be obligated to) itself perform, or cause performance of, such agreement, and
the expenses of the Security Trustee incurred in connection therewith shall be
payable by such Grantor.
SECTION 2.15. Covenant to Pay. Each Grantor covenants with the Security
Trustee (for the benefit of the Security Trustee and the Secured Parties) that
it will pay or discharge any monies and liabilities whatsoever that are now, or
at any time hereafter may be, due, owing or payable by such Grantor in any
currency, actually or contingently, solely and/or jointly, and/or severally
with another or others, as principal or surety on any account whatsoever
pursuant to the Service Provider Documents, the Indenture, any Guarantor
Indenture, the MSAF Group Notes, the Secured Guarantee and the Secured Swap
Agreements in accordance with their terms.
SECTION 2.16. As to Permitted Account Investments. (A) The Cash Manager,
acting on behalf of the Security Trustee, shall cause each Permitted Account
Investment made or acquired from or with the proceeds of any Non-Trustee
Account
<PAGE> 25
Collateral or Cash Collateral to be delivered to the Security Trustee as
follows (or shall take any and all other actions necessary to create in favor
of the Security Trustee a valid, perfected, first-priority security interest in
each Permitted Account Investment made or acquired in accordance with this
Agreement under laws and regulations (including without limitation Articles 8
and 9 of the UCC and regulations of the U.S. Department of the Treasury
governing transfers of interests in Government Securities) in effect at the
time of such making or acquisition):
(i) in the case of each Certificated Security or Instrument, by (A)
causing the delivery of such Certificated Security or Instrument to the
Security Trustee in the State of New York, registered in the name of the
Security Trustee or duly endorsed by an appropriate person to the
Security Agent or in blank and, in each case, held by the Security
Trustee in the State of New York, or (B) if such Certificated Security or
Instrument is registered in the name of the Securities Intermediary on
the books of the issuer thereof or on the books of any securities
intermediary of the Securities Intermediary, by requesting the Securities
Intermediary to continuously credit by book entry such Certificated
Security or Instrument to the Securities Account and confirming that it
has been credited;
(ii) in the case of each Uncertificated Security, by (A) causing
such Uncertificated Security to be continuously registered on the books
of the issuer thereof in the name of the Security Trustee or (B) if such
Uncertificated Security is registered in the name of the Securities
Intermediary on the books of the issuer thereof or on the books of any
securities intermediary of the Securities Intermediary, by requesting the
Securities Intermediary to continuously credit by book entry such
Uncertificated Security to the Securities Account and confirming that it
has been credited; and
(iii) in the case of each Government Security registered in the name
of the Securities Intermediary on the books of the Federal Reserve Bank
of New York or on the books of any securities intermediary of the
Securities Intermediary, by requesting the Securities Intermediary to
continuously credit by book entry such security to the Securities Account
and confirming that it has been credited.
(b) Each of the Issuer and Security Trustee hereby represents that it has
not entered into, and hereby agrees that it will not enter into, any agreement
(i) with any of the other parties hereto or any Securities Intermediary
specifying any jurisdiction other than the State of New York as the Securities
Intermediary's jurisdiction in connection with the Securities Account with the
Securities Intermediary referred to in Section 2.16(a) for purposes of 31
C.F.R. Section 357.11(b), Section 8-110(e) of the UCC or any similar state or
federal law, or (ii) with any other person relating to such account pursuant to
which it has agreed that the Securities Intermediary may comply with
entitlement orders made by such person. The Security Trustee represents that
it will, by express agreement with the Securities Intermediary, provide for
each item of property held in the Securities Account, other than cash, to be
treated as a "financial asset" within the meaning of Section 8-102(a)(9) of the
UCC.
<PAGE> 26
(c) Without limiting the foregoing, the Issuer and the Cash Manager on
behalf of the Security Trustee agree, and the Security Trustee shall cause the
Securities Intermediary, to take such different or additional action as the
Security Trustee may reasonably request in order to maintain the perfection and
priority of the security interest of the Security Trustee in the event of any
change in applicable law or regulation, including without limitation Articles 8
and 9 of the UCC and regulations of the U.S. Department of the Treasury
governing transfers of interests in Government Securities.
SECTION 2.17. As to Irish Law. Notwithstanding anything to the contrary
contained in this Agreement and in addition to and without prejudice to any
other rights or power of the Security Trustee under this Agreement or under
general law in any relevant jurisdiction, at any time that the Collateral shall
become enforceable, the Security Trustee shall be entitled to appoint a
receiver under this Agreement or under the Conveyancing and Law of Property
Act, 1881 (as amended and as the same may be amended, modified or replaced from
time to time, the "1881 Act") and such receiver shall have all such powers,
rights and authority conferred under the 1881 Act, this Agreement and otherwise
under the laws of Ireland without any limitation or restriction imposed by the
1881 Act or otherwise under the laws of Ireland which may be excluded or
removed. Sections 17 and 20 of the 1881 Act shall not apply to the Collateral
or any receiver appointed under this Agreement or under the 1881 Act and
section 24(b) of the Act shall not apply to the Collateral or to any receiver
appointed under this Agreement.
ARTICLE III
REMEDIES
SECTION 3.01. Remedies. Upon delivery of a Default Notice pursuant to
Section 4.02 of the Indenture or any Guarantor Indenture or if any Acceleration
Default under the Indenture or any Guarantor Indenture shall have occurred and
be continuing:
(a) The Security Trustee may exercise in respect of the Collateral,
in addition to other rights and remedies provided for herein, all the
rights and remedies of a secured party upon default under the UCC
(whether or not the UCC applies to the affected Collateral) and also may
(i) require any Grantor to, and such Grantor hereby agrees that it shall
at its expense and upon request of the Security Trustee forthwith,
assemble all or part of the Collateral as directed by the Security
Trustee and make it available to the Security Trustee at a place to be
designated by the Security Trustee that is reasonably convenient to both
parties and (ii) without notice except as specified below, sell or cause
the sale of the Collateral or any part thereof in one or more parcels at
public or private sale, at any of the Security Trustee's offices or
elsewhere, for cash, on credit or for future delivery, and upon such
other terms as the Security Trustee may deem commercially reasonable.
Each Grantor agrees that, to the extent notice of sale shall be required
by law, at least ten days' notice to such Grantor of the time and place
of any public sale or the time
<PAGE> 27
after which any private sale is to be made shall constitute reasonable
notification. The Security Trustee shall not be obligated to make any
sale of Collateral regardless of notice of sale having been given. The
Security Trustee may adjourn any public or private sale from time to time
by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned.
(b) All cash proceeds received by the Security Trustee in respect of
any sale of, collection from, or other realization upon all or any part
of the Collateral may, in the discretion of the Security Trustee, be held
by the Security Trustee as collateral for, and/or then or at any time
thereafter applied in whole or in part by the Security Trustee for the
benefit of the Secured Parties against, all or any part of the Secured
Obligations in accordance with Article VIII of this Agreement and Article
III of the Indenture or any Guarantor Indenture. Any surplus of such
cash or cash proceeds held by the Security Trustee and remaining after
payment in full of all the Secured Obligations shall be paid over to the
relevant Grantors or whomsoever may be lawfully entitled to receive such
surplus. Any amount received for any sale or sales conducted in
accordance with the terms of this Section 3.01 shall be deemed conclusive
and binding on the Issuer, each Grantor and the Secured Parties.
ARTICLE IV
REGISTRATION RIGHTS
SECTION 4.01. Registration Rights. If the Security Trustee shall
determine to exercise its right to sell all or any of the Security Collateral
pursuant to Section 3.01, the Issuer agrees that, upon request of the Security
Trustee, the Issuer will, at its own expense:
(a) execute and deliver, and cause each issuer of the Security
Collateral pledged by it, and the directors and officers thereof to
execute and deliver, all such instruments and documents, and do or cause
to be done all such other acts and things, as may be necessary or, in the
opinion of the Security Trustee, advisable to register such Security
Collateral under the provisions of the Securities Act, to cause the
registration statement relating thereto to become effective and to remain
effective for such period as prospectuses are required by law to be
furnished and to make all amendments and supplements thereto and to the
related prospectus that, in the opinion of the Security Trustee, are
necessary or advisable, all in conformity with the requirements of the
Securities Act and the rules and regulations of the Securities and
Exchange Commission applicable thereto;
(b) use its best efforts to qualify the Security Collateral under
the state securities or "Blue Sky" laws and to obtain all necessary
governmental approvals for the sale of the Security Collateral, as
requested by the Security Trustee;
(c) cause each issuer to make available to its security holders, as
soon as
<PAGE> 28
practicable, an earnings statement that shall satisfy the provisions of
Section 11(a) of the Securities Act;
(d) provide the Security Trustee with such other information and
projections as may be necessary or, in the opinion of the Security
Trustee, advisable to enable the Security Trustee to effect the sale of
such Security Collateral; and
(e) do or cause to be done all such other acts and things as may be
necessary to make such sale of the Security Collateral or any part
thereof valid and binding and in compliance with applicable law.
The Security Trustee is authorized, in connection with any sale of the Security
Collateral pursuant to Section 3.01, to deliver or otherwise disclose to any
prospective purchaser of the Security Collateral (i) any registration statement
or prospectus, and all supplements and amendments thereto, prepared pursuant to
Section 4.01(a), (ii) any information and projections provided to it pursuant
to Section 4.01(d) and (iii) any other information in its possession relating
to the Security Collateral.
ARTICLE V
SECURITY INTEREST ABSOLUTE
SECTION 5.01. Security Interest Absolute. The obligations of each
Grantor under this Agreement are independent of the Secured Obligations, and a
separate action or actions may be brought and prosecuted against such Grantor
to enforce this Agreement, irrespective of whether any action is brought
against any other Grantor or whether any other Grantor is joined in any such
action or actions. All rights of the Security Trustee and the pledge,
assignment, and security interest hereunder, and all obligations of each
Grantor hereunder, shall be absolute and unconditional, irrespective of:
(a) any lack of validity or enforceability of any Relevant Document,
Service Provider Document, Secured Credit Facility, Secured Guarantee or
Secured Swap Agreement or any other agreement or instrument relating
thereto;
(b) any change in the time, manner or place of payment of, the
security for, or in any other term of, all or any of the Secured
Obligations, or any other amendment or waiver of or any consent to any
departure from any Relevant Document, Service Provider Document, Secured
Credit Facility, Secured Guarantee or Secured Swap Agreement or any other
agreement or instrument relating thereto;
(c) any taking, exchange, release or non-perfection of the
Collateral or any other collateral or taking, release or amendment or
waiver of or consent to departure from any guaranty, for all or any of
the Secured Obligations;
(d) any manner of application of collateral, or proceeds thereof, to
all or any of the Secured Obligations, or any manner of sale or other
disposition of any collateral for all or any of the Secured Obligations
or any other assets of the
<PAGE> 29
Grantors;
(e) any change, restructuring or termination of the corporate
structure or existence of any Grantor; or
(f) any other circumstance that might otherwise constitute a defense
available to, or a discharge of, any Grantor or a third-party grantor of
a security interest.
ARTICLE VI
THE SECURITY TRUSTEE
SECTION 6.01. Authorization and Action. (a) The Issuer hereby appoints
and authorizes Bankers Trust as the initial Security Trustee to take such
action as trustee on behalf of the Secured Parties and to exercise such powers
and discretion under this Agreement and the other Relevant Documents as are
specifically delegated to the Security Trustee by the terms hereof and thereof
and no implied duties and covenants shall be deemed to arise hereunder against
the Security Trustee.
(b) The Security Trustee accepts such appointment and agrees to perform
the same but only upon the terms of this Agreement and agrees to receive and
disburse all moneys received by it in accordance with the terms hereof. The
Security Trustee in its individual capacity shall not be answerable or
accountable under any circumstances, except for its own willful misconduct or
gross negligence (or simple negligence in the handling of funds or breach of
any of its representations or warranties set forth herein) and the Security
Trustee shall not be liable for any action or inaction of any Grantor or any
other parties to any of the Relevant Documents.
SECTION 6.02. Absence of Duties. The powers conferred on the Security
Trustee hereunder with respect to the Collateral are solely to protect its
interest herein and shall not impose any duty upon it to exercise any such
powers. Except for the safe custody of any Collateral in its possession and
the accounting for moneys actually received by it hereunder, the Security
Trustee shall have no duty as to any Collateral, as to ascertaining or taking
action with respect to calls, conversions, exchanges, maturities, tenders or
other matters relative to any Collateral, whether or not any Secured Party has
or is deemed to have knowledge of such matters, or as to the taking of any
necessary steps to preserve or perfect rights against any parties or any other
rights pertaining to any Collateral. The Security Trustee shall have no duty
to ascertain or inquire as to the performance or observance of any covenants,
conditions or agreements on the part of any Grantor or Lessee.
SECTION 6.03. Representations or Warranties. The Security Trustee does
not make and shall not be deemed to have made any representation or warranty as
to the validity, legality or enforceability of this Agreement, any other
Relevant Document or any other document or instrument or as to the correctness
of any statement contained in any thereof, or as to the validity or sufficiency
of any of the pledge and security interests
<PAGE> 30
granted hereby, except that the Security Trustee in its individual capacity
hereby represents and warrants (i) that each such specified document to which
it is a party has been or will be duly executed and delivered by one of its
officers who is and will be duly authorized to execute and deliver such
document on its behalf, and (ii) this Agreement is the legal, valid and binding
obligation of Bankers Trust, enforceable against Bankers Trust in accordance
with its terms, subject to the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors' rights
generally.
SECTION 6.04. Reliance; Agents; Advice of Counsel. (a) The Security
Trustee shall incur no liability to anyone as a result of acting upon any
signature, instrument, notice, resolution, request, consent, order,
certificate, report, opinion, bond or other document or paper believed by it to
be genuine and believed by it to be signed by the proper party or parties. The
Security Trustee may accept a copy of a resolution of the Board of any party to
this Agreement or any Relevant Document, certified by the Secretary or an
Assistant Secretary thereof or other duly authorized Person of such party as
duly adopted and in full force and effect, as conclusive evidence that such
resolution has been duly adopted by said Board and that the same is in full
force and effect. As to any fact or matter the manner of ascertainment of
which is not specifically described herein, the Security Trustee shall be
entitled to receive and may for all purposes hereof conclusively rely on a
certificate, signed by an officer of any duly authorized Person, as to such
fact or matter, and such certificate shall constitute full protection to the
Security Trustee for any action taken or omitted to be taken by it in good
faith in reliance thereon. The Security Trustee shall furnish to each Service
Provider upon request such information and copies of such documents as the
Security Trustee may have and as are necessary for such Service Provider to
perform its duties under the applicable Relevant Documents. The Security
Trustee shall assume, and shall be fully protected in assuming, that each other
party hereto is authorized by its constitutional documents to enter into this
Agreement and to take all action permitted to be taken by it pursuant to the
provisions hereof, and shall not inquire into the authorization of such party
with respect thereto.
(b) The Security Trustee may execute any of the powers hereunder or
perform any duties hereunder either directly or by or through agents, including
without limitation, financial advisors, or attorneys or a custodian or nominee,
and the Security Trustee shall not be responsible for any misconduct or
negligence on the part of, or for the supervision of, any such agent, attorney,
custodian or nominee appointed with due care by it hereunder.
(c) The Security Trustee may consult with counsel and any opinion of
counsel or any advice of such counsel shall be full and complete authorization
and protection in respect of any action taken or suffered or omitted by it
hereunder in good faith and in accordance with such advice or opinion of
counsel.
(d) The Security Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Agreement, or to institute, conduct
or defend any litigation hereunder or in relation hereto, at the request, order
or direction of any of the Secured Parties, pursuant to the provisions of this
Agreement, unless such Secured Party shall have offered to the Security Trustee
reasonable security or indemnity satisfactory to it
<PAGE> 31
against the costs, expenses and liabilities which may be incurred therein or
thereby.
(e) The Security Trustee shall not be required to expend or risk its own
funds or otherwise incur any financial liability in the performance of any of
its duties hereunder, or in the exercise of any of its rights or powers, if
there is reasonable ground for believing that the repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it, and none of the provisions contained in this Agreement shall in any event
require the Security Trustee to perform, or be responsible or liable for the
manner of performance of, any obligations of the Issuer or the Administrative
Agent under any of the Relevant Documents.
(f) The Security Trustee shall not be liable for any Losses, Taxes or the
selection of Permitted Account Investments or for any investment losses
resulting from Permitted Account Investments.
(g) When the Security Trustee incurs expenses or renders services in
connection with an exercise of remedies specified in Section 3.01 or during a
proceeding described in Section 8.03(a), such expenses (including the fees and
expenses of its counsel) and the compensation for such services are intended to
constitute expenses of administration under any bankruptcy law or law relating
to creditors' rights generally.
(h) The Security Trustee shall not be charged with knowledge of an Event
of Default unless a Responsible Officer of the Security Trustee obtains actual
knowledge of such event or the Security Trustee receives written notice of such
event from any of the Secured Parties or the Administrative Agent.
(i) The Security Trustee shall have no duty to monitor the performance of
the Issuer, the Administrative Agent or any other party to the Relevant
Documents, nor shall it have any liability in connection with the malfeasance
or nonfeasance by such parties. The Security Trustee shall have no liability
in connection with compliance by the Issuer, any Guarantor, the Administrative
Agent or any lessee under a Lease with statutory or regulatory requirements
related to the Collateral, any Aircraft or any Lease. The Security Trustee
shall not make or be deemed to have made any representations or warranties with
respect to the Collateral, any Aircraft or any Lease or the validity or
sufficiency of any assignment or other disposition of the Collateral, any
Aircraft or any Lease.
SECTION 6.05. Not Acting in Individual Capacity. The Security Trustee
acts hereunder solely as trustee unless otherwise expressly provided; and all
Persons having any claim against the Security Trustee by reason of the
transactions contemplated hereby shall look, subject to the lien and priorities
of payment provided herein and in the Indenture, only to the property of the
Grantors for payment or satisfaction thereof.
ARTICLE VII
SUCCESSOR TRUSTEES
<PAGE> 32
SECTION 7.01. Resignation and Removal of Security Trustee. The Security
Trustee may resign at any time without cause by giving at least 30 days' prior
written notice to the Issuer, any Guarantor and the Senior Representative. The
Senior Representative may at any time remove the Security Trustee without cause
by an instrument in writing delivered to the Secured Parties and the Security
Trustee. No termination of this Agreement by the Security Trustee or the
Senior Representative pursuant to this Section 7.01 shall become effective
prior to the date of appointment by the Senior Representative of a successor
Security Trustee and the acceptance of such appointment by such successor
Security Trustee.
SECTION 7.02. Appointment of Successor. (a) In the case of the
resignation or removal of the Security Trustee, the Senior Representative, on
behalf of the Secured Parties, shall promptly appoint a successor Security
Trustee. If a successor Security Trustee shall not have been appointed and
accepted its appointment hereunder within 60 days after the Security Trustee
gives notice of resignation as to such class or subclass, the retiring Security
Trustee or the Secured Parties may petition any court of competent jurisdiction
for the appointment of a successor Security Trustee. Any successor Security
Trustee so appointed by such court shall immediately and without further act be
superseded by any successor Security Trustee appointed as provided in the first
sentence of this paragraph within one year from the date of the appointment by
such court.
(b) Any successor Security Trustee shall execute and deliver to the
Secured Parties an instrument accepting such appointment. Upon the acceptance
of any appointment as Security Trustee hereunder a successor Security Trustee
and upon the execution and filing or recording of such financing statements, or
amendments thereto, and such amendments or supplements to this Agreement, and
such other instruments or notices, as may be necessary or desirable, or as the
Senior Trustee may request, in order to continue the perfection of the liens
granted or purported to be granted hereby, such Security Trustee shall succeed
to and become vested with all the rights, powers, discretion, privileges and
duties of the retiring Security Trustee, and the retiring Security Trustee
shall be discharged from its duties and obligations under this Agreement and
the other Relevant Documents. After any retiring Security Trustee's
resignation or removal hereunder as to any actions taken or omitted to be taken
by it while it was Security Trustee, the provisions of all of Article VIII
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Security Trustee under this Agreement.
(c) Each Security Trustee shall be an Eligible Institution, if there be
such an institution willing, able and legally qualified to perform the duties
of a Security Trustee hereunder.
(d) Any corporation into which the Security Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Security Trustee
shall be a party, or any corporation to which substantially all the business of
the Security Trustee may be transferred, shall be the Security Trustee under
this Agreement without further act.
<PAGE> 33
ARTICLE VIII
AGREEMENT AMONG SECURED PARTIES
SECTION 8.01. Subordination and Priority. (a) Notwithstanding the date,
manner or order of attachment or perfection or the description of any
collateral or security interests, liens, claims or encumbrances covered or
granted by Section 2.01, each Subordinated Representative agrees that the
respective rights and interest of the Subordinated Creditors in the Collateral
are and shall be subordinate, to the extent and in the manner hereinafter set
forth, to all rights and interest of the Senior Creditors in the Collateral,
and that the Senior Creditors shall have at all times interests prior and
senior to that of the Subordinated Creditors in all Collateral until the
payment in full of all Senior Obligations owed to such Senior Creditors.
(b) For the purposes of this Agreement, no Senior Obligations shall be
deemed to have been paid in full until and unless the Senior Representative in
respect of such Senior Obligations shall have received payment in full in cash
of such Senior Obligations.
(c) Notwithstanding anything contained herein to the contrary, payments
from any property (or the proceeds thereof) deposited in the
Defeasance/Redemption Account pursuant to Article XI of the Indenture and any
Guarantor Indenture shall not be subordinated to the prior payment of any
Senior Creditors in respect of any Senior Obligations or subject to any other
restrictions set forth in this Article VIII, and none of the Holders shall be
obligated to pay over any payments from any such property to the Security
Trustee or any other creditor of any of the Grantors.
SECTION 8.02. Exercise of Remedies. (a) Until the date on which all the
Senior Obligations shall have been paid in full, the Senior Representative, in
its sole discretion and to the exclusion of the Subordinated Representatives,
shall have, whether or not any default under the Indenture or any Guarantor
Indenture shall have occurred and be continuing and both before and after the
commencement of any proceeding referred to in Section 8.03(a), the sole and
exclusive right (as between the Senior Representative, on the one hand, and the
Subordinated Representatives, on the other) to direct the Security Trustee to
take all action with respect to the Collateral, including, without limitation,
the right to exercise or direct voting or other consensual rights, to foreclose
or forebear from foreclosure in respect of the Collateral and to accept the
Collateral in full or partial satisfaction of any Senior Obligation, all in
accordance with the terms of this Agreement. The Subordinated Representatives
agree that, until the Senior Obligations have been paid in full, the only right
of the Subordinated Creditors under this Agreement is for the Subordinated
Obligations to be secured by the Collateral for the period and to the extent
provided for herein and to receive a share of the proceeds of the Collateral,
if any.
(b) The Subordinated Representatives agree that, so long as any of the
Senior Obligations shall remain unpaid, they and the Subordinated Creditors
will not commence, or join with any creditor other than the Security Trustee
and the Senior
<PAGE> 34
Creditors in commencing, any enforcement, collection, execution, levy or
foreclosure proceeding with respect to the Collateral or proceeds of
Collateral. Upon request by the Senior Representative, the Subordinated
Representatives and the Subordinated Creditors will, at the expense of the
Issuer, join in enforcement, collection, execution, levy or foreclosure
proceedings and otherwise cooperate fully in the maintenance of such
proceedings by the Security Trustee, including without limitation by executing
and delivering all such consents, pleadings, releases and other documents and
instruments as the Security Trustee may reasonably request in connection
therewith, it being understood that the conduct of such proceedings shall at
all times be under the exclusive control of the Security Trustee.
(c) The Subordinated Representatives agree, upon written request by the
Senior Representative, to release the liens and security interests in favor of
the Subordinated Creditors in any Collateral and to execute and deliver all
such directions, consents, pleadings, releases and other documents and
instruments as the Senior Representative may reasonably request in connection
therewith, upon any sale, lease, transfer or other disposition of such
Collateral or part thereof in accordance with, or for application of proceeds
pursuant to, Section 8.01(a).
(d) The Subordinated Representatives agree that neither they nor any
Subordinated Creditors will contest, or bring (or join in) any action or
proceeding for the purpose of contesting, the validity, perfection or priority
of, or seeking to avoid, the rights of the Senior Representative or the Senior
Creditors in or with respect to the Collateral.
SECTION 8.03. Further Agreements of Subordination. The Subordinated
Representatives agree as follows:
(a) Upon any distribution of all or any of the Collateral or
proceeds of Collateral to creditors of any Grantor upon the dissolution,
winding-up, liquidation, arrangement, reorganization, adjustment,
protection, relief, or composition of such Grantor or its debts, whether
in any bankruptcy, insolvency, arrangement, reorganization, receivership,
relief or similar proceedings or upon an assignment for the benefit of
creditors or any other marshalling of the assets and liabilities of such
Grantor, or otherwise, any distribution of any kind of Collateral or
proceeds of Collateral that otherwise would be deliverable upon or with
respect to the Subordinated Obligations shall be delivered directly to
the Security Trustee for application (in the case of cash) to or as
collateral (in the case of non-cash property or securities) for the
payment or prepayment of the Senior Obligations until the Senior
Obligations shall have been paid in full.
(b) If any proceeding referred to in Section 8.03(a) is commenced by
or against any Grantor,
(i) the Security Trustee is hereby irrevocably authorized and
empowered (in its own name or in the name of the Secured Parties or
otherwise), but shall have no obligation, to demand, sue for,
collect and receive every distribution referred to in subsection
(a) above and give
<PAGE> 35
acquittance therefor and to file claims and proofs of claim and
take such other action (including without limitation enforcing this
Agreement) as it may deem necessary or advisable, or as the Senior
Representative may direct, for the exercise or enforcement of any
of the rights or interests of the Senior Creditors hereunder; and
(ii) the Subordinated Representatives shall duly and promptly
take such action, at the expense of the Issuer, as the Senior
Representative may request (A) to collect Collateral and proceeds
of Collateral for the account of the Senior Creditors and to file
appropriate claims or proofs of claim in respect of Collateral and
proceeds of Collateral, (B) to execute and deliver to the Security
Trustee such powers of attorney, assignments, or other instruments
as the Senior Representative may request in order to enable it to
enforce any and all claims with respect to the Collateral and
proceeds of Collateral and (C) to collect and receive any and all
payments or distributions that may be payable or deliverable upon
or with respect to the Collateral or proceeds of Collateral.
(c) All payments or distributions upon or with respect to the
Collateral or proceeds of Collateral that are received by the
Subordinated Representatives or the Subordinated Creditors contrary to
the provisions of this Agreement shall be received for the benefit of the
Senior Creditors, shall be segregated from other funds and property held
by the Subordinated Representatives or the Subordinated Creditors and
shall be forthwith paid over to the Security Trustee in the same form as
so received (with any necessary indorsement) to be applied (in the case
of cash) to or held as collateral (in the case of non-cash property or
securities) for the payment or prepayment of the Senior Obligations in
accordance with the terms thereof.
(d) The Senior Representative is hereby authorized to demand
specific performance of this Agreement at any time when any of the
Subordinated Representatives or the Subordinated Creditors shall have
failed to comply with any of the provisions of this Agreement applicable
to them. The Subordinated Representatives hereby irrevocably waive, on
their own behalf and on behalf of the Subordinated Creditors, any defense
based on the adequacy of a remedy at law that might be asserted as a bar
to such remedy of specific performance.
SECTION 8.04. Possession of Collateral. The Security Trustee agrees to
hold any Collateral received by it, in or against which a security interest or
lien may be perfected by possession, as bailee on behalf of the Secured
Parties.
SECTION 8.05. Rights of Subrogation. The Subordinated Representatives
agree that no payment or distributions to the Senior Representative or the
Senior Creditors pursuant to the provisions of this Agreement shall entitle any
Subordinated Representative or any Subordinated Creditor to exercise any rights
of subrogation in respect thereof until all Obligations constituting Senior
Obligations with respect to such Person shall have been paid in full.
<PAGE> 36
SECTION 8.06. Further Assurances of Subordinated Representatives. Each
of the Subordinated Representatives shall, at the expense of the Issuer, at any
time and from time to time promptly execute and deliver all further instruments
and documents, and take all further action, that the Senior Representative or
the Security Trustee may reasonably request, in order to protect any right or
interest granted or purported to be granted hereby or to enable the Senior
Representative and the Security Trustee to exercise and enforce their rights
and remedies hereunder.
SECTION 8.07. No Change in Rights in Collateral. The Subordinated
Representatives and the Subordinated Creditors will not sell, assign, pledge,
encumber or otherwise dispose of any of their rights in the Collateral as such
or in proceeds of Collateral as such, without the prior written consent of the
Senior Representative. Nothing in this Section 8.07 shall limit the right of
any Subordinated Creditor to transfer any Subordinated Obligation including,
without limitation, any Note.
SECTION 8.08. Waiver of Marshalling and Similar Rights. Each of the
Subordinated Representatives waives, on its own behalf and on behalf of the
Subordinated Creditors, to the fullest extent permitted by applicable law, any
requirement regarding, and agrees not to demand, request, plead or otherwise
claim the benefit of, any marshalling, appraisement, valuation or other similar
right with respect to the Collateral that may otherwise be available under
applicable law or any other similar rights a junior creditor or junior secured
creditor may have under applicable law.
SECTION 8.09. Enforcement. Each of the Subordinated Representatives
agrees that this Agreement shall be enforceable against it and the Subordinated
Creditors under all circumstances, including without limitation in any
proceeding referred to in Section 8.03(a).
SECTION 8.10. Obligations Hereunder Not Affected. All rights and
interests of the Senior Representative, the Senior Creditors and the Security
Trustee hereunder, and all agreements and obligations of the Subordinated
Representatives under this Agreement, shall remain in full force and effect
irrespective of:
(i) any lack of validity or enforceability of this Agreement, any
Service Provider Document, MSAF Group Note, Secured Credit Facility,
Secured Guarantee or Secured Swap Agreement or any other agreement or
instrument relating thereto;
(ii) any change in the time, manner or place of payment of, the
security for, or in any other term of, all or any of the Senior
Obligations, or any other amendment or waiver of or any consent to any
departure from this Agreement, any Service Provider Document, MSAF Group
Note, Secured Credit Facility, Secured Guarantee or Secured Swap
Agreement or any other agreement or instrument relating thereto;
(iii) any taking, exchange, release or non-perfection of the
Collateral or any other collateral, or any release or amendment or waiver
of or consent to
<PAGE> 37
departure from any guaranty, for all or any of the Senior Obligations; or
(iv) any other circumstance that might otherwise constitute a
defense available to, or a discharge of, the Subordinated
Representatives, the Subordinated Creditors, a subordinated creditor or a
secured subordinated creditor.
This Agreement shall continue to be effective or shall be revived or
reinstated, as the case may be, if at any time any payment of any of the Senior
Obligations is rescinded or must otherwise be returned by any Senior Creditor
upon the insolvency, bankruptcy or reorganization of any Grantor, or otherwise,
all as though such payment had not been made.
SECTION 8.11. Waiver. The Subordinated Representatives hereby waive, on
their own behalf and on behalf of the Subordinated Creditors, to the fullest
extent permitted by law, any right under Section 9-504(1)(c) of the N.Y.
Uniform Commercial Code to application of the proceeds of disposition (other
than as contemplated by this Agreement), any right to notice and objection
under Section 9-505(2) of the N.Y. Uniform Commercial Code and promptness,
diligence, notice of acceptance and any other notice with respect to any of the
Senior Obligations and this Agreement and any requirement that the Security
Trustee protect, secure, perfect or insure any security interest or lien
hereunder or otherwise or any Collateral or any other property subject thereto
or exhaust any right or take any action against the Grantors or any other
person or entity or any Collateral or any other collateral.
SECTION 8.12. Senior Obligations and Subordinated Obligations Unimpaired.
Nothing in this Agreement shall impair (i) as between the Issuer and any party
hereto, the obligations of the Issuer to such party, including without
limitation the Senior Obligations and the Subordinated Obligations, or (ii) as
between the Senior Creditors and the Subordinated Creditors, the provisions
relating to the priority of payments in the Indenture; provided that it is
understood that the enforcement of rights and remedies against the Collateral
shall be subject to the terms of this Agreement.
SECTION 8.13. Upon Discharge of Obligations. Upon the payment in full of
the Senior Obligations in respect of which it is acting as Senior
Representative, the Security Trustee shall, without any further action on its
part, be relieved of any obligation under this Agreement with respect to such
discharged Senior Obligations and this Agreement shall continue in effect as an
agreement among the remaining Secured Parties.
ARTICLE IX
INDEMNITY AND EXPENSES
SECTION 9.01. Indemnity. (a) The Issuer shall indemnify the Security
Trustee (and its officers, directors, employees and agents) for, and hold it
harmless against, any loss, liability or expense (including reasonable legal
fees and expenses) incurred by it without negligence or bad faith on its part
in connection with the acceptance or administration of this Agreement and its
duties hereunder, including the costs and expenses
<PAGE> 38
of defending itself against any claim or liability and of complying with any
process served upon it or any of its officers in connection with the exercise
or performance of any of its powers or duties and hold it harmless against, any
loss, liability or reasonable expense incurred without negligence or bad faith
on its part. The Security Trustee shall notify the Issuer promptly of any
claim asserted against the Security Trustee for which it may seek indemnity;
provided, however, that failure to provide such notice shall not invalidate any
right to indemnity hereunder. The Issuer shall defend the claim and the
Security Trustee shall cooperate in the defense. The Security Trustee may have
separate counsel and the Issuer shall pay reasonable fees and expenses of such
counsel. The Issuer need not pay for any settlements made without its consent;
provided that such consent shall not be unreasonably withheld. The Issuer need
not reimburse any expense or indemnity against any loss or liability incurred
by the Security Trustee through negligence or bad faith.
(b) The Issuer shall upon demand pay to the Security Trustee the amount of
any and all reasonable expenses, including the reasonable fees and expenses of
its counsel and of any experts and agents, that the Security Trustee may incur
in connection with (i) the administration of this Agreement, (ii) the custody,
preservation, use or operation of, or the sale of, collection from or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the rights of the Security Trustee or any other Secured Party against
any Grantor hereunder or (iv) the failure by any Grantor to perform or observe
any of the provisions hereof.
SECTION 9.02. Noteholders' Indemnity. The Security Trustee shall be
entitled, subject to such Security Trustee's duty during a default to act with
the required standard of care, to be indemnified by the Senior Creditors to the
sole satisfaction of the Security Trustee before proceeding to exercise any
right or power under this Agreement at the request or direction of the Senior
Representative.
The provisions of Section 9.01 and Section 9.02 shall survive the
termination of this Agreement or the earlier resignation or removal of the
Security Trustee.
SECTION 9.03. No Compensation from Secured Parties. The Security Trustee
agrees that it shall have no right against the Secured Parties for any fee as
compensation for its services hereunder.
SECTION 9.04. Security Trustee Fees. In consideration of the Security
Trustee's performance of the services provided for under this Agreement, the
Issuer shall pay to the Security Trustee an annual fee set forth under a
separate agreement between the Issuer and the Security Trustee.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Amendments; Waivers; Etc. (a) No amendment or waiver of
any provision of this Agreement, and no consent to any departure by any party
herefrom, shall in any event be effective unless the same shall be in writing
and signed by
<PAGE> 39
each Service Provider, the Senior Trustee and, in the event it is adversely
affected thereby, the Subordinated Representative, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given. No failure on the part of the Security Trustee to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any such right
preclude any other or further exercise thereof or the exercise of any other
right. In executing and delivering any amendment or modification to this
Agreement, the Security Trustee shall be entitled to (i) an Opinion of Counsel
stating that such amendment is authorized and permitted pursuant to the
Indenture and this Agreement and complies therewith and herewith and (ii) an
Officer's Certificate stating that all conditions precedent to the execution,
delivery and performance of such amendment have been satisfied in full. The
Security Trustee may, but shall have no obligation to, execute and deliver any
amendment or modification which would affect its duties, powers, rights,
immunities or indemnities hereunder.
(b) Upon the execution and delivery by any Person of a security agreement
supplement in substantially the form of Exhibit C hereto, (i) such Person shall
be referred to as an "Additional Grantor" and shall be and become a Grantor
hereunder, and each reference in this Agreement to "Grantor" shall also mean
and be a reference to such Additional Grantor, (ii) the annexes attached to
each Security Trust Agreement Supplement shall be incorporated into and become
a part of and supplement Schedule III and Schedule IV, and the Security Trustee
may attach such annexes as supplements to such Schedules; and each reference to
such Schedules shall mean and be a reference to such Schedules as supplemented
pursuant hereto and (iii) such Additional Grantor shall be a Grantor for all
purposes under this Agreement and shall be bound by the obligations of the
Grantors hereunder.
SECTION 10.02. Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing (including
telecopier, telegraphic, telex or cable communication) and mailed, telegraphed,
telecopied, telexed, cabled or delivered to the Issuer, the Administrative
Agent, the Cash Manager, the Servicer, the Trustee, the Initial Credit Facility
Providers or the Security Trustee, as the case may be, in each case addressed
to it at its address specified in Section 13.05 of the Indenture or, in the
case of the Initial Credit Facility Providers, as follows:
if to ILFC, to:
International Lease Finance Corporation
1999 Avenue of the Stars
39th Floor
Los Angeles, CA 90067
Attention: Legal Department
Facsimile: (+1 310) 788-1990
if to Morgan Stanley, Dean Witter, Discover & Co., to:
Morgan Stanley, Dean Witter, Discover & Co.
<PAGE> 40
25 Cabot Square
Canary Wharf
London E14 4QA
Attention: Mr. Scott Peterson
Facsimile: (+44 171) 415-4328
or, as to each party, at such other address as shall be designated by such
party in a written notice to each other party complying as to delivery with the
terms of this Section 10.02. All such notices and other communications shall,
when mailed, telecopied, telegraphed, telexed or cabled, respectively, be
effective when deposited in the mails, telecopied, delivered to the telegraph
company, confirmed by telex answerback or delivered to the cable company,
respectively, addressed as aforesaid.
SECTION 10.03. No Waiver; Remedies. No failure on the part of the
Security Trustee to exercise, and no delay in exercising, any right hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right hereunder preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and
not exclusive of any remedies provided by law.
SECTION 10.04. Severability. If any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions hereof shall not in any way be affected or impaired.
SECTION 10.05. Continuing Security Interest; Assignments. Subject to the
Section 10.06(c), this Agreement shall create a continuing security interest in
the Collateral and shall (a) remain in full force and effect until the earlier
of the payment in full in cash of the Secured Obligations and the circumstances
specified in Section 10.06(c), (b) be binding upon each Grantor, its successors
and assigns and (c) inure, together with the rights and remedies of the
Security Trustee hereunder, to the benefit of the Secured Parties and their
respective successors, transferees and assigns. Without limiting the
generality of the foregoing subsection (c), any Secured Party may assign or
otherwise transfer all or any portion of its rights and obligations under any
Relevant Document to which it is a party in accordance with the terms thereof
to any other Person or entity, and such other Person or entity shall thereupon
become vested with all the rights in respect thereof granted to such Secured
Party herein or otherwise.
SECTION 10.06. Release and Termination. (a) Upon any sale, lease,
transfer or other disposition of any item of Collateral in accordance with the
terms of the Indenture, the Security Trustee will, at the Issuer's expense,
execute and deliver to the Grantor of such item of Collateral such documents as
such Grantor shall reasonably request and provide to the Security Trustee to
evidence the release of such item of Collateral from the assignment and
security interest granted hereby.
(b) Except as otherwise provided in Section 10.06(c), upon the payment in
full in cash of the Secured Obligations, the pledge, assignment and security
interest granted hereby shall terminate and all rights to the Collateral shall
revert to the Grantors. Upon any such termination, the Security Trustee will,
at the Issuer's expense, execute and
<PAGE> 41
deliver to each relevant Grantor such documents as such Grantor shall prepare
and reasonably request to evidence such termination.
(c) If at any time all Notes have been defeased pursuant to Article XI of
the Indenture, the pledge, assignment and security interest in the Pledged
Stock shall be released and the certificates representing the Pledged Stock
shall be returned to the Issuer and the Security Trustee shall, at the expense
of the Issuer, execute and deliver to the Issuer such documents as the Issuer
shall prepare and reasonably request to evidence such termination.
SECTION 10.07. Currency Conversion. If any amount is received or
recovered by the Security Trustee in respect of this Agreement or any part
thereof in a currency (the "Received Currency") other than the currency in
which such amount was expressed to be payable (the "Agreed Currency"), then the
amount in the Received Currency actually received or recovered by the Security
Trustee, to the extent permitted by law, shall only constitute a discharge of
the relevant Grantor to the extent of the amount of the Agreed Currency which
the Security Trustee was or would have been able in accordance with its or his
normal procedures to purchase on the date of actual receipt or recovery (or, if
that is not practicable, on the next date on which it is so practicable), and,
if the amount of the Agreed Currency which the Security Trustee is or would
have been so able to purchase is less than the amount of the Agreed Currency
which was originally payable by the relevant Grantor, such Grantor shall pay to
the Security Trustee such amount as it shall determine to be necessary to
indemnify the Security Trustee against any Loss sustained by it as a result
(including the cost of making any such purchase and any premiums, commissions
or other charges paid or incurred in connection therewith) and so that, to the
extent permitted by law, (i) such indemnity shall constitute a separate and
independent obligation of each Grantor distinct from its obligation to
discharge the amount which was originally payable by such Grantor and (ii)
shall give rise to a separate and independent cause of action and apply
irrespective of any indulgence granted by the Security Trustee and continue in
full force and effect notwithstanding any judgment, order, claim or proof for a
liquidated amount in respect of the amount originally payable by any Grantor or
any judgment or order and no proof or evidence of any actual loss shall be
required.
SECTION 10.08. Governing Law. THIS AGREEMENT SHALL IN ALL RESPECTS BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY
INTERESTS HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR
COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF
NEW YORK. UNLESS OTHERWISE DEFINED HEREIN OR IN THE INDENTURES, TERMS USED IN
ARTICLE 9 OF THE UCC ARE USED HEREIN AS THEREIN DEFINED.
SECTION 10.09. Jurisdiction. (a) Each of the parties hereto irrevocably
agrees that the courts of New York shall have jurisdiction to hear and
determine any suit, action or proceeding, and to settle any disputes, which may
arise out of or in connection
<PAGE> 42
with this Agreement and, for such purposes, irrevocably submits to the
jurisdiction of such courts. Each of the parties hereto irrevocably waives any
objection which it might now or hereafter have to the federal U.S. or New York
State courts located in New York, New York being nominated as the forum to hear
and determine any suit, action or proceeding, and to settle any disputes, which
may arise out of or in connection with this Agreement and agrees not to claim
that any such court is not a convenient or appropriate forum. Each of the
parties hereto agrees that the process by which any suit, action or proceeding
is begun may be served on it by being delivered in connection with any suit,
action or proceeding in New York, New York to the Person named as the process
agent of such party in Exhibit F to the Indenture at the address set out
therein or at the principal New York City office of such process agent, if not
the same.
(b) Each of the parties hereto hereby consents generally in respect of any
legal action or proceeding arising out of or in connection with this Agreement
to the giving of any relief or the issue of any process in connection with such
action or proceeding, including the making, enforcement or execution against
any property whatsoever (irrespective of its use or intended use) of any order
or judgment which may be made or given in such action or proceeding.
SECTION 10.10. Counterparts. This Agreement may be executed in two or
more counterparts by the parties hereto, and each such counterpart shall be
considered an original and all such counterparts shall constitute one and the
same instrument.
SECTION 10.11. Table of Contents, Headings, Etc. The Table of Contents
and headings of the Articles and Sections of this Agreement have been inserted
for convenience of reference only, are not to be considered a part hereof and
shall in no way modify or restrict any of the terms and provisions hereof.
<PAGE> 43
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by its representative or officer thereunto duly
authorized as of the date first above written.
MORGAN STANLEY AIRCRAFT FINANCE
By /s/ C. Scott Peterson
Name: C. Scott Peterson
Title: Alternative Signatory Trustee
MSA I
By /s/ Alexander Frank
Name: Alexander Frank
Title: Signatory Trustee
AIRCRAFT SPC-5, INC.
By /s/ Maurice Mason
Name: Maurice Mason
Title: Chairman
REDFLY (UK) LIMITED
By /s/ Maurice Mason
Name: Maurice Mason
Title: Chairman
SIGNED AND SEALED AND DELIVERED
for and on behalf of
GREENFLY (IRELAND) LIMITED
By /s/ Maurice Mason
its duly authorized attorney in fact in
the presence of:-
<PAGE> 44
SIGNED AND SEALED AND DELIVERED
for and on behalf of
CABOT AIRCRAFT SERVICES LIMITED, as
Administrative Agent
By /s/ Kieran O'Keefe
Name: Kieran O'Keefe
Title:
BANKERS TRUST COMPANY, not in its
individual capacity but solely as Cash
Manager
By /s/ Patricia M.F. Russo
Name: Patricia M.F. Russo
Title: Vice President
INTERNATIONAL LEASE FINANCE
CORPORATION, as Servicer
By /s/ Grant Levy
Name: Grant Levy
Title: Vice President
BANKERS TRUST COMPANY, not in its
individual capacity, but solely as
Trustee
By /s/ Patricia M.F. Russo
Name: Patricia M.F. Russo
Title: Vice President
BANKERS TRUST COMPANY, not in its
individual capacity, but solely as
Reference Agent
<PAGE> 45
By /s/ Patricia M.F. Russo
Name: Patricia M.F. Russo
Title: Vice President
BANKERS TRUST COMPANY, not in its
individual capacity, but solely as
Security Trustee
By /s/ Patricia M.F. Russo
Name: Patricia M.F. Russo
Title: Vice President
INTERNATIONAL LEASE FINANCE
CORPORATION, as Initial Credit Facility
Provider
By /s/ Grant Levy
Name: Grant Levy
Title: Vice President
MORGAN STANLEY, DEAN WITTER,
DISCOVER & CO., as Initial Credit
Facility Provider
By /s/ Alexander Frank
Name: Alexander Frank
Title: Assistant Treasurer
<PAGE> 46
SCHEDULE I
SECURITY TRUST AGREEMENT
PLEDGED STOCK
<TABLE>
<CAPTION>
Percentage of
Stock Issuer Par Value Certificate No(s). Number of Shares Outstanding Shares
- -------------------- ---------- ------------------ ---------------- ------------------
<S> <C> <C> <C> <C>
Aircraft SPC-5, Inc. None 2 1,000 100%
Redfly (UK) Limited pound
sterling 1 3 2 100%
Greenfly (Ireland)
Limited IR pound 1 None 2 100%
</TABLE>
PLEDGED BENEFICIAL INTERESTS
<TABLE>
<CAPTION>
Percentage of
Beneficial
Issuer Certificate No. Interests
- ------ --------------- ---------------
<S> <C> <C>
MSA I 1 100%
</TABLE>
PLEDGED DEBT
<TABLE>
<CAPTION>
Debt Issuer Description of Debt Date
- ----------- ------------------------ -----------------
<S> <C> <C>
MSA I Revolving Loan Agreement November 10, 1997
</TABLE>
<PAGE> 47
SCHEDULE II
SECURITY TRUST AGREEMENT
<TABLE>
<CAPTION>
NON-TRUSTEE ACCOUNT INFORMATION
NAME AND ADDRESS OF
NAME AND ADDRESS OF BANK NON-TRUSTEE ACCOUNT HOLDER ACCOUNT NUMBER
- ------------------------ -------------------------- --------------
<S> <C> <C>
</TABLE>
None
<PAGE> 48
SCHEDULE III
SECURITY TRUST AGREEMENT
TRADE NAMES
None.
<PAGE> 49
SCHEDULE IV
SECURITY TRUST AGREEMENT
CHIEF PLACE OF BUSINESS
AND
CHIEF EXECUTIVE OR REGISTERED OFFICE
<TABLE>
<CAPTION>
<S> <C> <C>
CHIEF EXECUTIVE OR
NAME OF GRANTOR PLACE OF BUSINESS REGISTERED OFFICE
- ----------------------- ---------------------------- ----------------------------
Morgan Stanley Aircraft c/o Wilmington Trust Company c/o Wilmington Trust Company
Finance 100 North Market Street 100 North Market Street
Rodney Square North Rodney Square North
Wilmington, Delaware 19890 Wilmington, Delaware 19890
USA USA
MSA I c/o Wilmington Trust Company c/o Wilmington Trust Company
100 North Market Street 100 North Market Street
Rodney Square North Rodney Square North
Wilmington, Delaware 19890 Wilmington, Delaware 19890
USA USA
Greenfly (Ireland) Limited 2 Harbourmaster Place 2 Harbourmaster Place
Custom House Dock Custom House Dock
Dublin 1 Dublin 1
Ireland Ireland
Redfly (UK) Limited 21 St. Thomas Street 21 St. Thomas Street
Bristol BS1 6JS Bristol BS1 6JS
England, UK England, UK
Aircraft SPC-5, Inc. c/o International Lease Finance c/o International Lease Finance
Corporation Corporation
1999 Avenue of the Stars 1999 Avenue of the Stars
39th Floor 39th Floor
Los Angeles, California 90067 Los Angeles, California 90067
USA USA
</TABLE>
<PAGE> 50
EXHIBIT A
SECURITY TRUST AGREEMENT
FORM OF CREDIT FACILITY PROVIDER SUPPLEMENT
Bankers Trust Company, as Security Trustee
Four Albany Street
New York, New York 10006 [Date]
Attention: [ ]
Re: Security Trust Agreement, dated as of March 3, 1998
Reference is made to the Security Trust Agreement, dated as of March 3,
1998 (the "Security Trust Agreement"), among MORGAN STANLEY AIRCRAFT FINANCE, a
Delaware business trust created under the Third Amended and Restated Trust
Agreement, dated as of March 3, 1998, among MS Financing Inc., as depositor,
Wilmington Trust Company, as the Delaware Trustee, the Independent Trustees,
the Alternate Controlling Trustee and the Controlling Trustees party thereto,
the ISSUER SUBSIDIARIES party thereto, CABOT AIRCRAFT SERVICES LIMITED, a
company incorporated under the laws of Ireland, as the Administrative Agent,
BANKERS TRUST COMPANY, a New York banking corporation, as the Cash Manager,
INTERNATIONAL LEASE FINANCE CORPORATION, a corporation incorporated under the
laws of the State of California, as the Servicer, INTERNATIONAL LEASE FINANCE
CORPORATION, as credit facility provider under the Custody and Loan Agreement,
MORGAN STANLEY, DEAN WITTER, DISCOVER & CO., as credit facility provider under
the Loan Agreement, BANKERS TRUST COMPANY, not in its individual capacity
(except as otherwise provided in the Indenture), but solely in its capacity as
trustee under the Indenture, BANKERS TRUST COMPANY, not in its individual
capacity, but solely as the initial Reference Agent, and BANKERS TRUST COMPANY,
not in its individual capacity (except as otherwise provided pursuant to
Sections 6.03(i) and 6.03(ii) of the Security Trust Agreement), but solely as
the initial Security Trustee (the "Security Trustee"). Capitalized terms used
herein and not otherwise defined herein shall have the meanings assigned to
them in the Security Trust Agreement.
The undersigned hereby:
1. confirms that attached hereto is a true and complete copy of the
_________ Agreement, between the Issuer and the undersigned, dated as of
____ (the "Credit Facility Agreement"), which Credit Facility Agreement
constitutes a [Primary] [Secondary] [Eligible] Credit Facility under the
Indenture;
<PAGE> 51
2. confirms that it has received a copy of the Security Trust
Agreement and such other documents and information as it deems
appropriate to make a decision to enter into this Credit Facility
Provider Supplement;
3. confirms that upon entering into this Credit Facility Provider
Supplement, the undersigned shall become a party to the Security Trust
Agreement, subject to the terms and provisions thereof, including
Sections 8.01(c) and 8.03(c) thereof, and each reference in the Security
Trust Agreement to a "Secured Party" shall also mean and be a reference
to the undersigned;
4. appoints and authorizes the Senior Trustee to take any and all
actions in respect of the Collateral as are delegated to the Senior
Trustee by the terms of the Relevant Documents, together with any such
powers and discretion as are reasonably incidental thereto;
5. confirms its agreement to the limitations and qualifications of
the Security Trustee's obligations set forth in Article VI of the
Security Trust Agreement;
6. confirms that this Credit Facility Provider Supplement shall be
governed by, and construed in accordance with, the laws of the State of
New York.
Very truly yours,
[SECURED CREDIT FACILITY PROVIDER]
By
Name:
Title:
Acknowledged and Agreed to
as of the date first above written:
BANKERS TRUST COMPANY,
not in its individual capacity, but
solely as the Security Trustee
By
Name:
Title:
<PAGE> 52
EXHIBIT B
SECURITY TRUST AGREEMENT
FORM OF SWAP PROVIDER SUPPLEMENT
Bankers Trust Company, as Security Trustee
Four Albany Street
New York, New York 10006 [Date]
Attention: [ ]
Re: Security Trust Agreement, dated as of March 3, 1998
Reference is made to the Security Trust Agreement, dated as of March 3,
1998 (the "Security Trust Agreement"), among MORGAN STANLEY AIRCRAFT FINANCE, a
Delaware business trust created under the Third Amended and Restated Trust
Agreement, dated as of March 3, 1998, among MS Financing Inc., as depositor,
Wilmington Trust Company, as the Delaware Trustee, the Independent Trustees,
the Alternate Controlling Trustee and the Controlling Trustees party thereto,
the ISSUER SUBSIDIARIES party thereto, CABOT AIRCRAFT SERVICES LIMITED, a
company incorporated under the laws of Ireland, as the Administrative Agent,
BANKERS TRUST COMPANY, a New York banking corporation, as the Cash Manager,
INTERNATIONAL LEASE FINANCE CORPORATION, a corporation incorporated under the
laws of the State of California, as the Servicer, INTERNATIONAL LEASE FINANCE
CORPORATION, as credit facility provider under the Custody and Loan Agreement,
MORGAN STANLEY, DEAN WITTER, DISCOVER & CO., as credit facility provider under
the Loan Agreement, BANKERS TRUST COMPANY, not in its individual capacity
(except as otherwise provided in the Indenture), but solely in its capacity as
trustee under the Indenture, BANKERS TRUST COMPANY, not in its individual
capacity, but solely as the initial Reference Agent, and BANKERS TRUST COMPANY,
not in its individual capacity (except as otherwise provided pursuant to
Sections 6.02(i) and 6.03(ii) of the Security Trust Agreement), but solely as
the initial Security Trustee (the "Security Trustee"). Capitalized terms used
herein and not otherwise defined herein shall have the meanings assigned to
them in the Security Trust Agreement.
The undersigned hereby:
1. confirms that attached hereto is a true and complete copy of the
_________ Agreement, between the Issuer and the undersigned, dated as of
____ (the "Swap Agreement"), which Swap Agreement meets the requirements
of Section 9.05 of the Indenture;
<PAGE> 53
2. confirms that it has received a copy of the Security Trust
Agreement and such other documents and information as it deems
appropriate to make a decision to enter into this Swap Provider
Supplement;
3. confirms that upon entering into this Swap Provider Supplement,
the undersigned shall become a party to the Security Trust Agreement,
subject to the terms and provisions thereof, including Sections 8.01(c)
and 8.03(c) thereof, and each reference in the Security Trust Agreement
to a "Secured Party" shall also mean and be a reference to the
undersigned;
4. appoints and authorizes the Senior Trustee to take any and all
actions in respect of the Collateral as are delegated to the Senior
Trustee by the terms of the Relevant Documents, together with any such
powers and discretion as are reasonably incidental thereto;
5. confirms its agreement to the limitations and qualifications of
the Security Trustee's obligations set forth in Article VI of the
Security Trust Agreement;
6. confirms that this Swap Provider Supplement shall be governed by,
and construed in accordance with, the laws of the State of New York.
Very truly yours,
[SECURED SWAP PROVIDER]
By
Name:
Title:
Acknowledged and Agreed to
as of the date first above written:
BANKERS TRUST COMPANY,
not in its individual capacity, but
solely as the Security Trustee
By
Name:
Title:
<PAGE> 54
EXHIBIT C
SECURITY TRUST AGREEMENT
[FORM OF SECURITY TRUST AGREEMENT SUPPLEMENT]
Bankers Trust Company, as Security Trustee
Four Albany Street
New York, New York 10006 [Date]
Attention: [ ]
Re: Security Trust Agreement, dated as of March 3, 1998
Gentlemen/Women:
Reference is made to the Security Trust Agreement, dated as of March 3,
1998 (the "Security Trust Agreement"), among MORGAN STANLEY AIRCRAFT FINANCE, a
Delaware business trust created under the Third Amended and Restated Trust
Agreement, dated as of March 3, 1998, among MS Financing Inc., as depositor,
Wilmington Trust Company, as the Delaware Trustee, the Independent Trustees,
the Alternate Controlling Trustee and the Controlling Trustees party thereto,
the ISSUER SUBSIDIARIES party thereto, CABOT AIRCRAFT SERVICES LIMITED, a
company incorporated under the laws of Ireland, as the Administrative Agent,
BANKERS TRUST COMPANY, a New York banking corporation, as the Cash Manager,
INTERNATIONAL LEASE FINANCE CORPORATION, a corporation incorporated under the
laws of the State of California, as the Servicer, INTERNATIONAL LEASE FINANCE
CORPORATION, as credit facility provider under the Custody and Loan Agreement,
MORGAN STANLEY, DEAN WITTER, DISCOVER & CO., as credit facility provider under
the Loan Agreement, BANKERS TRUST COMPANY, not in its individual capacity
(except as otherwise provided in the Indenture), but solely in its capacity as
trustee under the Indenture, BANKERS TRUST COMPANY, not in its individual
capacity, but solely as the initial Reference Agent, and BANKERS TRUST COMPANY,
not in its individual capacity (except as otherwise provided pursuant to
Sections 6.03(i) and 6.03(ii) of the Security Trust Agreement), but solely as
the initial Security Trustee (the "Security Trustee"). Capitalized terms used
herein and not otherwise defined herein shall have the meanings assigned to
them in the Security Trust Agreement.
The undersigned hereby agrees, as of the date first above written, to
become a Grantor under the Security Trust Agreement as if it were an original
party thereto and agrees that each reference in the Security Trust Agreement to
"Grantor" shall also mean and be a reference to the undersigned.
The undersigned hereby assigns and pledges to the Security Trustee for its
benefit and the benefit of the Secured Parties, and hereby grants to the
Security Trustee for
<PAGE> 55
its benefit and the benefit of the Secured Parties a security interest in, all
of its right, title and interest in and to:
(a) all of the following (collectively, the "Non-Trustee Account
Collateral"):
(i) all of the Non-Trustee Accounts (to the extent permitted
by applicable law) in such Grantor's name, all funds held or
required by the terms of the Indenture and any Guarantor Indenture
to be held therein and all certificates and instruments, if any,
from time to time representing or evidencing such Non-Trustee
Accounts;
(ii) all notes, certificates of deposit, deposit accounts,
checks and other instruments from time to time hereafter delivered
to or otherwise possessed by the Security Trustee for or on behalf
of such Grantor in substitution for or in addition to any or all of
the then existing Non-Trustee Account Collateral; and
(ii) all interest, dividends, cash, instruments and other
property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the then
existing Non-Trustee Account Collateral;
(b) all of the following (collectively, the "Cash Collateral"):
(i) all funds of such Grantor held or required by the terms of
the Indenture to be held in the Accounts and all certificates and
instruments, if any, from time to time representing or evidencing
such funds;
(ii) all notes, certificates of deposit, deposit accounts,
checks and other instruments from time to time hereafter delivered
to or otherwise possessed by the Security Trustee for or on behalf
of such Grantor in substitution for or in addition to any or all of
the then existing Cash Collateral; and
(iii) all interest, dividends, instruments and other property
from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the then existing Cash
Collateral;
(c) all "investment property" (as defined in Section 9-115(1)(f) of
the UCC) of such Grantor, and all of the following (the "Investment
Collateral"):
(i) all Permitted Account Investments made or acquired from or
with the proceeds of any Non-Trustee Account Collateral or Cash
Collateral of such Grantor from time to time and all certificates
and instruments, if any, from time to time representing or
evidencing such Permitted Account
<PAGE> 56
Investments;
(ii) all notes, certificates of deposit, deposit accounts,
checks and other instruments from time to time hereafter delivered
to or otherwise possessed by the Security Trustee for or on behalf
of such Grantor in substitution of or in addition to any or all of
the then existing Investment Collateral; and
(iii) all interest, dividends, instruments and other property
from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the then existing
Investment Collateral; and
(d) all of the following (the "Security Collateral"):
(i) [ENUMERATE THE STOCK OF THE SUBSIDIARIES PLEDGED BY SUCH
GRANTOR] (the "Pledged Stock") held by it and the certificates
representing such Pledged Stock, and all dividends, cash,
instruments and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange
for any or all of such Pledged Stock;
(ii) [ENUMERATE THE DEBT OF THE SUBSIDIARIES PLEDGED BY SUCH
GRANTOR] (the "Pledged Debt") and the instruments evidencing the
Pledged Debt, and all interest, cash, instruments and other
property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the
Pledged Debt;
(iii) all additional shares of Stock from time to time
acquired by such Grantor in any manner, and the certificates
representing such additional shares and all dividends, cash,
instruments and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange
for any or all such additional shares; and
(iv) all additional indebtedness from time to time owed to
such Grantor by any MSAF Group Member and the instruments
evidencing such indebtedness, and all interest, cash, instruments
and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all
of such indebtedness;
(e) all of the following (the "Beneficial Interest Collateral"):
(i) all of such Grantor's right, title and interest in
[ENUMERATE BENEFICIAL INTEREST PLEDGED BY SUCH GRANTOR] (the
"Pledged Beneficial Interest") held by it, all certificates, if
any, from time to time representing the Pledged Beneficial Interest
and all distributions, cash, instruments and other property from
time to time received, receivable or otherwise distributed in
respect of or in exchange for
<PAGE> 57
any or all of such Pledged Beneficial Interest; and
(ii) all of such Grantor's right, title and interest in all
additional beneficial interests in any MSAF Group members from time
to time acquired by such Grantor in any manner, all certificates,
if any, from time to time representing all such beneficial
interests and all distributions, cash, instruments and other
property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all such
additional beneficial interests;
(f) all of such Grantor's right, title and interest in and to all
Leases to which Grantor is or may from time to time be party and any
leasing arrangements among MSAF Group Members with respect to such Leases
(the "Assigned Leases"), including without limitation, (A) all rights of
such Grantor to receive moneys due and to become due under or pursuant to
such Assigned Leases, (B) all rights of such Grantor to receive proceeds
of any Insurance, indemnity, warranty or guaranty with respect to such
Assigned Leases, (C) claims of such Grantor for damages arising out of or
for breach or default under such Assigned Leases and (D) the right of
such Grantor to terminate such Assigned Leases, to perform thereunder and
to compel performance and otherwise exercise all remedies thereunder,
whether arising under such leases or by statute or at law or in equity;
[(g) enumerate any other collateral granted by the Grantor]; and
(h) all proceeds of any and all of the foregoing collateral
(including, without limitation, proceeds that constitute property of the
types described in subsections (a), (b), and (c), above).
The undersigned hereby makes each representation and warranty set forth in
Section 2.07 of the Security Trust Agreement (as supplemented by the attached
Annexes) and hereby agrees to be bound as a Grantor by all of the terms and
provisions of the Security Trust Agreement. Each reference in the Security
Trust Agreement to the Pledged Stock, the Pledged Debt, the Security
Collateral, the Assigned Leases, the Pledged Beneficial Interest and the
Beneficial Interest Collateral shall be construed to include a reference to the
corresponding Collateral hereunder.
The undersigned hereby agrees, together with the Issuer, jointly and
severally to indemnify the Security Trustee, its officers, directors, employees
and agents in the manner set forth in Section 9.01 of the Security Trust
Agreement.
Attached is (i) an Account Letter in substantially the form of Exhibit D
to the Security Trust Agreement from the Non-Trustee Account Bank at which such
Non-Trustee Account is located and (ii) duly completed copies of Annex I and
Annex II hereto.
This Security Trust Agreement Supplement shall be governed by, and
construed in accordance with, the laws of the State of New York.
<PAGE> 58
Very truly yours,
[NAME OF GRANTOR]
By
Name:
Title:
Acknowledged and agreed to
as of the date first above written:
BANKERS TRUST COMPANY,
not in its individual capacity, but
solely as the initial Security Trustee
By
Name:
Title:
<PAGE> 59
ANNEX I
SECURITY AGREEMENT SUPPLEMENT
TRADE NAMES
<PAGE> 60
ANNEX II
SECURITY AGREEMENT SUPPLEMENT
CHIEF PLACE OF BUSINESS
AND
CHIEF EXECUTIVE OR REGISTERED OFFICE
<PAGE> 61
EXHIBIT D
SECURITY TRUST AGREEMENT
FORM OF NON-TRUSTEE ACCOUNT LETTER
_______________, 1998
[Name and address
of Account Bank]
[Name of the Grantor]
Gentlemen/women:
Reference is made to Account No. __________ into which certain monies,
instruments and other properties are deposited from time to time (the "Pledged
Account") maintained with you by ____________________ (the "Grantor").
Pursuant to the Security Trust Agreement, dated as of March 3, 1998 (the
"Security Trust Agreement"), among the Grantor, Bankers Trust Company, as the
Administrative Agent (the "Administrative Agent"), various other parties and
Bankers Trust Company, not in its individual capacity (except as otherwise
provided pursuant to Sections 6.03(i) and 6.03(ii) of the Security Trust
Agreement), but solely as the initial Security Trustee (the "Security
Trustee"). Capitalized terms used herein, unless otherwise defined herein,
have the meanings assigned to them in the Security Trust Agreement.
Pursuant to the Security Trust Agreement, the Grantor has granted to the
Security Trustee a security interest in certain property of the Grantor,
including, among other things, the following (the "Collateral"): the Pledged
Account, all funds held or required by the terms of the Indenture or any
Guarantor Indenture to be held therein and all certificates and instruments, if
any, from time to time representing or evidencing such Pledged Account, all
notes, certificates of deposit, deposit accounts, checks and other instruments
from time to time hereafter delivered to or otherwise possessed by the Security
Trustee for or on behalf of such Grantor in substitution for or in addition to
any or all of the then existing Collateral, and all interest, dividends, cash,
instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the then
existing Collateral, and all proceeds of any and all of the foregoing
Collateral. It is a condition to the continued maintenance of the Pledged
Account with you that you agree to this letter agreement.
By signing this letter agreement, you acknowledge notice of, and consent
to the terms and provisions of, the Security Trust Agreement and confirm to the
Security Trustee that you have received no notice of any other pledge or
assignment of the Pledged Account. Further, you hereby agree with the Security
Trustee that:
(a) Notwithstanding anything to the contrary in any other agreement
relating to the Pledged Account, the Pledged Account is and will be
subject to the
<PAGE> 62
terms and conditions of the Security Trust Agreement, and will be
subject to written instructions only from an officer of the Security
Trustee or from an officer of the Administrative Agent.
(b) You will follow your usual operating procedures for the handling
of any remittance received in the Pledged Account, including any
remittance that contains restrictive endorsements, irregularities (such
as a variance between the written and numerical amounts), undated or
postdated items, missing signatures, incorrect payees, etc.
(c) You will transfer, in same day funds, on each of your business
days, an amount equal to the credit balance of the Pledged Account (other
than any amount required to be left on deposit for local tax or other
regulatory or legal purposes) on such day to the following account (the
"Collection Account"):
[Insert address of Operating Bank and
account number of the Collection Account]
Each such transfer of funds shall neither comprise only part of a
remittance nor reflect the rounding off of any funds so transferred.
(d) All service charges and fees with respect to the Pledged Account
shall be payable by the Grantor, and deposited checks returned for any
reason shall not be charged to such account.
(e) The Security Trustee and the Administrative Agent shall be
entitled to exercise any and all rights of the Grantor in respect of the
Pledged Account in accordance with the terms of the Security Trust
Agreement, and the undersigned shall comply in all respects with such
exercise.
This letter agreement shall be binding upon you and your successors and
assigns and shall inure to the benefit of the Security Trustee, the Secured
Parties and their successors, transferees and assigns. You may terminate this
letter agreement only upon 30 days' prior written notice to the Grantor and the
Security Trustee. Upon such termination you shall close the Pledged Account
and transfer all funds in the Pledged Account to the Collection Account. After
any such termination, you shall nonetheless remain obligated promptly to
transfer to the Collection Account all funds and other property received in
respect of the Pledged Account.
This letter agreement shall be governed by and construed in accordance
with the laws of the State of New York.
Very truly yours,
[NAME OF GRANTOR]
<PAGE> 63
By
Name:
Title:
BANKERS TRUST COMPANY,
not in its individual capacity,
but solely as the initial
Security Trustee
By
Name:
Title:
Acknowledged and agreed to as of
the date first above written:
[NAME OF PLEDGED ACCOUNT BANK]
By
Name:
Title:
<PAGE> 64
EXHIBIT E
SECURITY TRUST AGREEMENT
FORM OF CONSENT AND AGREEMENT
_______________, 1998
[Name of the Grantor]
Gentlemen/women:
Reference is made to the agreement between you and the Grantor dated
[(the "Assigned Agreement")] [(the "Assigned Lease")].
Pursuant to the Security Trust Agreement, dated March 3, 1998 (the
"Security Trust Agreement"), among the Grantor, Bankers Trust Company, not in
its individual capacity (except as otherwise provided pursuant to Sections
6.03(i) and 6.03(ii) of the Security Trust Agreement), but solely as the
initial Security Trustee (the "Security Trustee"), and various parties thereto,
the Grantor has granted to the Security Trustee a security interest in certain
property of the Grantor, including, among other things, the following (the
"Collateral"): [all of such Grantor's right, title and interest in and to the
Assigned Agreement] [all of such Grantor's right, title and interest in and to
the Assigned Lease, including without limitation, all rights of such Grantor to
receive moneys due and to become due under or pursuant to the Assigned Lease,
all rights of such Grantor to receive proceeds of any insurance, indemnity,
warranty or guaranty with respect to the Assigned Lease, claims of such Grantor
for damages arising out of or for breach or default under the Assigned Lease
and the right of such Grantor to terminate the Assigned Lease, to perform
thereunder and to compel performance and otherwise exercise all remedies
thereunder, whether arising under the Assigned Lease or by statute or at law or
in equity.] Capitalized terms used herein, unless otherwise defined herein,
have the meanings assigned to them in the Security Trust Agreement.
By signing this Consent and Agreement, you acknowledge notice of, and
consent to the terms and provisions of, the Security Trust Agreement and
confirm to the Security Trustee that you have received no notice of any other
pledge or assignment of the [Assigned Agreement] [Assigned Lease]. Further,
you hereby agree with the Security Trustee that:
(a) You will make all payments to be made by you under or in connection
with the [Assigned Agreement] [Assigned Lease] directly to the [Rental Account]
[Collection Account] or otherwise in accordance with the instructions of the
Security Trustee.
(b) The Security Trustee shall be entitled to exercise any and all rights
and remedies of the Grantor under the [Assigned Agreement] [Assigned Lease] in
<PAGE> 65
accordance with the terms of the Security Trust Agreement, and you will
comply in all respects with such exercise.
(c) [ONLY WITH RESPECT TO ASSIGNED AGREEMENTS] You will not, without the
prior written consent of the Security Trustee, (i) cancel or terminate the
Assigned Agreement or consent to or accept any cancellation or termination
thereof or (ii) amend or otherwise modify the Assigned Agreement.
This Consent and Agreement shall be binding upon you and your successors
and assigns and shall inure to the benefit of the Security Trustee, the Secured
Parties and their successors, transferees and assigns.
This Consent and Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
Very truly yours,
[NAME OF GRANTOR]
By
Name:
Title:
BANKERS TRUST COMPANY,
not in its individual capacity,
but solely as the initial
Security Trustee
By
Name:
Title:
Acknowledged and agreed to as of
the date first above written:
[NAME OF OBLIGOR/LESSEE]
By
Name:
Title:
<PAGE> 66
EXHIBIT F
SECURITY TRUST AGREEMENT
FORM OF SERVICE PROVIDER SUPPLEMENT
Bankers Trust Company, as Security Trustee
Four Albany Street
New York, New York 10006 [Date]
Attention: [ ]
Re: Security Trust Agreement, dated as of March 3, 1998
Reference is made to the Security Trust Agreement, dated as of March 3,
1998 (the "Security Trust Agreement"), among MORGAN STANLEY AIRCRAFT FINANCE, a
Delaware business trust created under the Third Amended and Restated Trust
Agreement, dated as of March 3, 1998, among MS Financing Inc., as depositor,
Wilmington Trust Company, as the Delaware Trustee, the Independent Trustees,
the Alternate Controlling Trustee and the Controlling Trustees party thereto,
the ISSUER SUBSIDIARIES party thereto, CABOT AIRCRAFT SERVICES LIMITED, a
company incorporated under the laws of Ireland, as the Administrative Agent,
BANKERS TRUST COMPANY, a New York banking corporation, as the Cash Manager,
INTERNATIONAL LEASE FINANCE CORPORATION, a corporation incorporated under the
laws of the State of California, as the Servicer, INTERNATIONAL LEASE FINANCE
CORPORATION, as credit facility provider under the Custody and Loan Agreement,
MORGAN STANLEY, DEAN WITTER, DISCOVER & CO., as credit facility provider under
the Loan Agreement, BANKERS TRUST COMPANY, not in its individual capacity
(except as otherwise provided in the Indenture), but solely in its capacity as
trustee under the Indenture, BANKERS TRUST COMPANY, not in its individual
capacity, but solely as the initial Reference Agent, and BANKERS TRUST COMPANY,
not in its individual capacity (except as otherwise provided pursuant to
Sections 6.02(i) and 6.03(ii) of the Security Trust Agreement), but solely as
the initial Security Trustee (the "Security Trustee"). Capitalized terms used
herein and not otherwise defined herein shall have the meanings assigned to
them in the Security Trust Agreement.
The undersigned hereby:
1. confirms that attached hereto is a true and complete copy of the
_________ Agreement, between the Issuer and the undersigned, dated as of
____ (the "Service Provider Agreement");
<PAGE> 67
2. confirms that it has received a copy of the Security Trust
Agreement and such other documents and information as it deems
appropriate to make a decision to enter into this Service Provider
Supplement;
3. confirms that upon entering into this Service Provider
Supplement, the undersigned shall become a party to the Security Trust
Agreement, subject to the terms and provisions thereof, including
Sections 8.01(c) and 8.03(c) thereof, and each reference in the Security
Trust Agreement to a "Secured Party" shall also mean and be a reference
to the undersigned;
4. appoints and authorizes the Senior Trustee to take any and all
actions in respect of the Collateral as are delegated to the Senior
Trustee by the terms of the Relevant Documents, together with any such
powers and discretion as are reasonably incidental thereto;
5. confirms its agreement to the limitations and qualifications of
the Security Trustee's obligations set forth in Article VI of the
Security Trust Agreement;
6. confirms that this Service Provider Supplement shall be governed
by, and construed in accordance with, the laws of the State of New York.
Very truly yours,
[SERVICE SWAP PROVIDER]
By
Name:
Title:
Acknowledged and Agreed to
as of the date first above written:
BANKERS TRUST COMPANY,
not in its individual capacity, but
solely as the Security Trustee
By
Name:
Title:
<PAGE> 1
Exhibit 10.7
CONFORMED COPY
REFERENCE AGENCY AGREEMENT
Dated as of March 3, 1998
<PAGE> 2
REFERENCE AGENCY AGREEMENT
REFERENCE AGENCY AGREEMENT, dated as of March 3, 1998 among Morgan Stanley
Aircraft Finance, a business trust organized under the laws of Delaware (the
"Issuer") pursuant to the Third Amended and Restated Trust Agreement dated as
of February 27, 1998 (the "Trust Agreement"), among Wilmington Trust Company, a
Delaware banking corporation, as Delaware trustee, MS Financing Inc., a
Delaware corporation, as depositor, the Controlling Trustees and the
Independent Trustees named therein; Bankers Trust Company, a New York banking
corporation ("Bankers Trust"), not in its individual capacity but solely in its
capacities as Trustee (the "Trustee") under the Indenture, dated as of the date
hereof (the "Indenture"), among the Issuer and Bankers Trust, as Trustee;
Bankers Trust, in its capacity as reference agent (the "Reference Agent"); and
Cabot Aircraft Services Limited, in its capacity as administrative agent (the
"Administrative Agent") pursuant to the Administrative Agency Agreement, dated
as of the date hereof, among the Issuer, the Security Trustee, the
Administrative Agent and the subsidiaries of the Issuer as specified therein.
W I T N E S S E T H:
WHEREAS, on the date hereof, pursuant to the terms of the Indenture, the
Issuer is issuing and selling five separate subclasses of notes: the Subclass
A-1 Notes, the Subclass A-2 Notes, the Subclass B-1 Notes, the Subclass C-1
Notes and the Subclass D-1 Notes (such notes of the Issuer being, collectively,
the "Initial Notes");
WHEREAS, from time to time, the Issuer may issue additional subclasses of
notes (the "Issuer Additional Notes" and, together with the Initial Notes, the
"Notes");
WHEREAS, the Subclass A-1 Notes, the Subclass A-2 Notes and the Subclass
B-1 Notes are, and certain subclasses of Issuer Additional Notes may be,
entitled to receive interest at floating rates, which will be determined in
accordance with Section 6 hereof (all such subclasses of Notes, collectively,
the "Floating Rate Notes");
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties hereto hereby agree as
follows:
SECTION 1.01. Definitions. Unless otherwise defined herein, all
capitalized terms used but not defined herein have the meanings assigned to
such terms in the Indenture.
SECTION 1.02. Construction and Usage. The conventions of construction
and usage set forth in the Indenture are incorporated by reference herein.
SECTION 2. Appointment of Reference Agent. The Issuer hereby appoints
<PAGE> 3
Bankers Trust as the Reference Agent, and Bankers Trust hereby accepts such
appointment and agrees to perform the duties and obligations of Reference Agent
set forth in Section 6.
SECTION 3. Status of Reference Agent. Any acts taken by the Reference
Agent under this Agreement or in connection with any Floating Rate Note,
including the calculation of any interest rate for such Floating Rate Note,
shall be deemed to have been taken by the Reference Agent solely in its
capacity as an agent acting on behalf of the Issuer and shall not create or
imply any obligation to, or any agency, fiduciary or trust relationship with,
any of the owners or holders of the Floating Rate Notes.
SECTION 4. Reference Agent Fees and Expenses. In consideration of the
Reference Agent's performance of the services provided for under this
Agreement, the Issuer shall pay to the Reference Agent an annual fee set forth
under a separate agreement between the Issuer and Bankers Trust. In addition,
the Issuer shall reimburse the Reference Agent for all reasonable out-of-pocket
expenses, disbursements and advances (including reasonable legal fees and
expenses) incurred or made by the Reference Agent from time to time in
connection with the services rendered by it under this Agreement, except any
expenses, disbursements, or advances attributable to its negligence or wilful
misconduct.
SECTION 5. Rights and Liabilities of Reference Agent. In the absence of
negligence or wilful misconduct on the part of the Reference Agent, its
directors, officers, employees and agents, such persons may conclusively rely,
as to the truth of the statements expressed in, and shall be fully protected
and shall incur no liability for, or in respect of, any action taken, omitted
to be taken, or suffered to be taken by it, in reliance upon, any written
order, instruction, notice, request, direction, statement, certificate,
consent, report, affidavit or other instrument, paper, document or
communication, reasonably believed by it in good faith to be genuine, from the
Issuer or the Administrative Agent on behalf of the Issuer and conforming to
the requirements of this Agreement. Any written order, instruction, notice,
request, direction, statement, certificate, consent, report, affidavit or other
instrument, paper, document or communication from the Issuer or the
Administrative Agent or given by it and sent, delivered or directed to the
Reference Agent under, pursuant to, or as permitted by, any provision of this
Agreement shall be sufficient for purposes of this Agreement if such written
order, instruction, notice, request, direction, statement, certificate,
consent, report, affidavit or other instrument, paper, document or
communication is in writing and signed by any Signatory Trustee of the Issuer
or by the Administrative Agent, as the case may be. The Reference Agent may
consult with counsel satisfactory to it and the advice (to be confirmed in
writing) or opinion of such counsel shall constitute full and complete
authorization and protection of the Reference Agent with respect to any action
taken, omitted to be taken, or suffered to be taken by it hereunder in good
faith and in accordance with and in reliance upon the advice to be confirmed in
writing or opinion of such counsel. The Reference Agent shall not be liable
for any error resulting from use of or reliance on a source or publication
required to be used under Section 6 to the extent such use of or reliance on
such source or publication is contemplated by Section 6. No party shall be
liable for any default resulting from force
<PAGE> 4
majeure.
SECTION 6. Duties of Reference Agent. (a) The duties and obligations of
the Reference Agent shall be determined solely by the express provisions of
this Agreement and no implied covenants or obligations shall be read into this
Agreement against the Reference Agent. Subject to their duty to act without
negligence, neither the Reference Agent nor its directors, officers, employees
and agents guarantee the correctness or completeness of any data or other
information furnished hereunder.
(b) For the purpose of calculating the rate of interest payable on any
subclass of Floating Rate Notes, the Reference Agent shall determine LIBOR (a)
for the period beginning on (and including) the relevant Closing Date and
ending on (but excluding) the first Payment Date (the "initial Interest Accrual
Period"), on the date that is two Business Days before such Closing Date, and
(b) for each Interest Accrual Period following the initial Interest Accrual
Period, on the relevant Reference Date, in each case on the basis of a 360-day
year and the actual number of days elapsed in such Interest Accrual Period.
The Reference Agent shall determine LIBOR in accordance with the following
provisions:
(i) On each Reference Date, the Reference Agent will determine LIBOR
as the per annum offered rate for deposits in U.S. dollars for a period
of one month that appears on the display designated as page 3750 on the
Telerate Monitor (or such other page or service as may replace it for the
purpose of displaying LIBOR of major banks for U.S. dollar deposits) at
approximately 11:00 a.m. (London time).
(ii) If the offered LIBOR rate so appearing is replaced by the
corresponding rates of more than one bank, then paragraph (i) above shall
be applied, with any necessary consequential changes, to the arithmetic
mean of the rates (being at least two) which so appear, as determined by
the Reference Agent. If for any other reason such offered rate does not
so appear or if the relevant page is unavailable, the Reference Agent
will request that each of the banks whose offered rates would have been
used for the purposes of the relevant page if the event leading to the
application of this sentence had not happened or any duly appointed
substitute reference bank acting in each case through its principal
London office (the "Reference Banks"), to provide the Reference Agent
with its offered quotation to prime banks for dollar deposits in London
for the next Interest Accrual Period concerned as at 11:00 a.m. (London
time) on the applicable Reference Date. The floating rate of interest
for such Interest Accrual Period for each subclass of Floating Rate Notes
shall be the aggregate of the arithmetic mean of such quotations (or of
such of them, being at least two, as are so provided), as determined by
the Reference Agent, plus the applicable interest rate spread over LIBOR
as set forth in the Indenture, plus Step-Up Interest, if applicable.
(iii) If, on any Reference Date, only one or none of the Reference
Banks provides such quotation, the floating rate of interest for the next
Interest Accrual Period for each subclass of Floating Rate Notes shall be
the rate per annum which
<PAGE> 5
the Reference Agent determines to be the aggregate of the arithmetic mean
of the U.S. dollar lending rates which New York City banks selected by the
Reference Agent are quoting on the relevant Reference Date to leading
European banks for loans in London for the next Interest Accrual Period,
plus the applicable interest rate spread over LIBOR as set forth in the
Indenture, plus, if applicable, any Step-up Interest, except that, if the
banks so selected by the Reference Agent are not quoting as mentioned
above, the applicable rate of interest shall be the floating rate of
interest in effect for the last preceding Interest Accrual Period for such
subclass of Floating Rate Notes.
(c) As soon as practicable after 11:00 A.M. London time on each Reference
Date, the Reference Agent will calculate the interest rate for each subclass of
Floating Rate Notes and calculate the amount of interest payable on the
relevant Payment Date in respect of each subclass of Floating Rate Notes. The
interest amount for each subclass of Floating Rate Notes shall be calculated by
the Reference Agent by multiplying the rate of interest for such subclass for
the relevant Interest Accrual Period by the estimated Outstanding Principal
Balance of such subclass of Floating Rate Notes on the first day of such
Interest Accrual Period and by multiplying the product by the actual number of
days in such Interest Accrual Period divided by 360 and rounding the resulting
amount to the nearest cent (with half a cent being rounded upward). The
Reference Agent's determination of LIBOR, the interest rate and the interest
amount for each subclass of Floating Rate Notes (in the absence of negligence,
wilful default, bad faith or manifest error) shall be conclusive and binding
upon all parties.
(d) As promptly as is practicable after the determination thereof, the
Reference Agent shall give notice of the applicable LIBOR, the Payment Date,
the interest rate for each subclass of Floating Rate Notes for the relevant
Interest Accrual Period and the amount of interest on each subclass of Floating
Rate Notes to the Issuer, the Listing Agent, the Luxembourg Stock Exchange, the
Trustee and the Administrative Agent.
(e) If the Reference Agent does not determine the interest rate for any
subclass of Floating Rate Notes or calculate the amount of interest on any
subclass of Floating Rate Notes for any Interest Accrual Period in accordance
with the provisions of Section 6(b) hereof by the end of the relevant Reference
Date, the Administrative Agent will determine such rate of interest or
calculate such interest amount in accordance with the provisions described
above, and each such determination or calculation shall be deemed to have been
made by the Reference Agent.
SECTION 7. Amendment of the Floating Rate Notes. The Issuer shall
deliver to the Reference Agent, at least ten Business Days prior to the
effective date of any amendment of the payment terms of the Floating Rate
Notes, written notice of such amendment describing the terms of such amendment
in reasonable detail, and a certification by the Issuer that such amendment is
in compliance with the terms of the Indenture.
SECTION 8. Ownership of Notes. The Reference Agent, its officers,
<PAGE> 6
directors, employees and shareholders may become the owners of or acquire any
interest in any Notes, with the same rights that it or they would have if it
were not the Reference Agent, and may engage or be interested in any financial
or other transaction with the Issuer as freely as if it were not the Reference
Agent.
SECTION 9. Term; Termination, Resignation or Removal of Reference Agent.
(a) This Agreement shall have a noncancellable term commencing on March 3,
1998 and expiring on March 15, 2023. During such term, this Agreement shall
not be terminable by any party hereto except as expressly provided in Section
9(b).
(b) The Reference Agent may at any time resign by giving written notice to
the Issuer, the Trustee and the Administrative Agent, specifying therein the
date on which its desired resignation shall become effective; provided that
such notice shall be given no less than 30 days prior to said effective date
unless the Reference Agent, the Issuer, the Trustee and the Administrative
Agent otherwise agree in writing. The Issuer may remove the Reference Agent at
any time by giving written notice to the Reference Agent and to the holders of
the Floating Rate Notes and specifying the effective date of such removal,
which shall be at least 30 days after the date of notice; provided, however,
that no resignation by or removal of the Reference Agent shall become effective
prior to the date of appointment by the Issuer, as provided in Section 10, of a
successor reference agent and the acceptance of such appointment by such
successor reference agent; and provided, further, that in the event that an
instrument of acceptance by a successor reference agent shall not have been
delivered pursuant to Section 10 within 90 days after the giving of such notice
of resignation or removal, the Reference Agent may petition any court of
competent jurisdiction for the appointment of a successor reference agent with
respect to the Floating Rate Notes. The provisions of Sections 5, 11 and 14
hereof shall remain in effect following termination of this Agreement or the
earlier resignation or removal of the Reference Agent.
SECTION 10. Appointment of Successor Reference Agent. In the event of
the resignation by or removal of the Reference Agent pursuant to Section 9, the
Issuer shall promptly appoint a successor reference agent. Any successor
reference agent appointed by the Issuer following resignation by or removal of
the Reference Agent pursuant to the provisions of Section 9 shall execute and
deliver to the original Reference Agent, the Issuer, the Trustee and the
Administrative Agent an instrument accepting such appointment. Thereupon, such
successor reference agent shall, without any further act, deed or conveyance,
become vested with all the authority, rights, powers, immunities, duties and
obligations of the Reference Agent and with like effect as if originally named
as Reference Agent hereunder, and the original Reference Agent shall thereupon
be obligated to transfer and deliver such relevant records or copies thereof
maintained by the Reference Agent in connection with the performance of its
obligations hereunder. The Issuer shall notify the Rating Agencies of any
resignation by or removal of the Reference Agent under Section 9 and of the
appointment of and acceptance by any successor Reference Agent pursuant to this
Section 10.
<PAGE> 7
SECTION 11. Indemnification. The Issuer shall indemnify and hold
harmless the Reference Agent, its directors, officers, employees and agents
from and against any and all actions, claims, damages, liabilities, judgments,
losses, costs, charges and expenses (including reasonable legal fees and
expenses) relating to or arising out of actions or omissions from actions in
any capacity hereunder, except actions, claims, damages, liabilities,
judgments, losses, costs, charges and expenses caused by the negligence or
wilful misconduct of the Reference Agent, its directors, officers, employees or
agents. The Reference Agent shall be indemnified and held harmless by the
Issuer for any error resulting from use of or reliance on a source or
publication required to be used under Section 6. The Reference Agent shall be
indemnified and held harmless by the Issuer for, or in respect of, any actions
taken, omitted to be taken or suffered to be taken in good faith by the
Reference Agent in reliance upon (a) advice to be confirmed in writing or
opinion of counsel or (b) a written instruction from the Issuer or the
Administrative Agent.
SECTION 12. Merger, Consolidation or Sale of Business by Reference Agent.
Any corporation into which the Reference Agent may be merged or consolidated
or any corporation resulting from any merger or consolidation to which the
Reference Agent may be a party, or any corporation to which the Reference Agent
may sell or otherwise transfer all or substantially all of its assets and
corporation trust business, shall, to the extent permitted by applicable law,
become the Reference Agent under this Agreement without the execution or filing
of any paper or any further act by the parties hereto. The Reference Agent
shall give notice in writing to the Issuer, the Trustee and the Administrative
Agent of any such merger, consolidation or sale.
SECTION 13. Restrictions on Exercise of Certain Rights. The Reference
Agent hereby agrees with the Issuer that it shall not take any steps for the
purpose of procuring the appointment of an administrative receiver or the
making of an administrative order or for instituting any bankruptcy,
reorganization, arrangement, insolvency, winding up, liquidation, composition
or any like proceedings under the laws of Delaware or any other jurisdiction in
respect of the Issuer or in respect of any of its properties or liabilities.
SECTION 14. Miscellaneous. (a) If there should develop any conflict
between the Reference Agent and any other Person relating to the rights or
obligations of the Reference Agent in connection with calculation of the
interest rate on any subclass of Floating Rate Notes, the terms of this
Agreement shall govern such rights and obligations.
(b) The Reference Agent agrees to cooperate with the Issuer and its
agents, including the Administrative Agent, and their respective trustees or
directors and officers, including by providing such information as may
reasonably be requested to permit the Issuer or such authorized agents to
monitor the Reference Agent's compliance with its obligations under this
Agreement.
(c) No party to this Agreement shall assign or delegate or otherwise
subcontract this Agreement or all or any part of its rights or obligations
hereunder to any Person without the prior written consent of the Issuer.
<PAGE> 8
(d) THIS AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE.
(e) This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together
shall constitute one and the same agreement. Delivery of an executed
counterpart of a signature page to this Agreement by telecopier shall be
effective as delivery of a manually executed counterpart of this Agreement.
<PAGE> 9
IN WITNESS WHEREOF, this Agreement has been entered into on the 3rd day of
March, 1998.
MORGAN STANLEY AIRCRAFT FINANCE
By /s/ C. Scott Peterson
Name: C. Scott Peterson
Title: Alternate Signatory Trustee
BANKERS TRUST COMPANY, not in its
individual capacity, but solely as
Trustee and Reference Agent
By /s/ Patricia M.F. Russo
Name: Patricia M.F. Russo
Title: Vice President
SIGNED AND SEALED AND DELIVERED
for and on behalf of
CABOT AIRCRAFT SERVICES LIMITED,
as Administrative Agent
By /s/ Kieran O'Keefe
Its duly authorized attorney in fact in the
presence of: /s/ Bernadette Martin
<PAGE> 1
Exhibit 10.8
SERVICING AGREEMENT
among
INTERNATIONAL LEASE FINANCE CORPORATION,
MORGAN STANLEY AIRCRAFT FINANCE ("MSAF"),
THE ENTITIES LISTED ON APPENDIX A HERETO
AND
SUBJECT TO THE EXECUTION OF AN AGREEMENT SUBSTANTIALLY
IN THE FORM OF EXHIBIT A ATTACHED HERETO, THE
ADMINISTRATIVE AGENT AND THE CALCULATION AGENT
AND CERTAIN OTHER ENTITIES
Dated as of November 10, 1997
<PAGE> 2
TABLE OF CONTENTS
PAGE
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions..........................2
ARTICLE 2
APPOINTMENT, SERVICES
SECTION 2.01. Appointment..........................9
SECTION 2.02. Services............................10
SECTION 2.03. Compliance with Applicable Laws.....10
SECTION 2.04. Limitations.........................10
ARTICLE 3
STANDARD OF CARE; CONFLICTS OF INTEREST; STANDARD OF LIABILITY
SECTION 3.01. Standard of Care....................10
SECTION 3.02. Conflicts of Interest...............10
SECTION 3.03. Standard of Liability...............11
SECTION 3.04. Waiver of Implied Standard..........12
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Aircraft Assets.....................12
SECTION 4.02. Aircraft Assets Related Documents...12
SECTION 4.03. Accounts and Cash flow..............12
ARTICLE 5
SERVICER UNDERTAKINGS
SECTION 5.01. Staff and Resources.................13
SECTION 5.02. Access..............................13
SECTION 5.03. Compliance with Law.................13
SECTION 5.04. Commingling.........................13
SECTION 5.05. Credit Enhancement..................13
SECTION 5.06. Security Deposits...................15
SECTION 5.07. Notes Offering......................15
<PAGE> 3
ARTICLE 6
UNDERTAKINGS OF MSAF AND THE SUBSIDIARIES
PAGE
SECTION 6.01. Cooperation...................................... 16
SECTION 6.02. No Representation with Respect to Third Parties.. 16
SECTION 6.03. Related Document Amendments...................... 16
SECTION 6.04. Other Servicing Arrangements..................... 17
SECTION 6.05. Communications................................... 17
SECTION 6.06. Ratification..................................... 17
SECTION 6.07. Execution, Amendment, Modification or Termination
of Aircraft Assets Related Documents............. 17
SECTION 6.08. MSAF Group Accounts and Cash Arrangements........ 18
SECTION 6.09. Notification of Bankruptcy....................... 18
SECTION 6.10. Further Assurances............................... 18
ARTICLE 7
MSAF GROUP RESPONSIBILITY; BUDGETS
SECTION 7.01. MSAF Group Responsibility........................ 19
SECTION 7.02. Instructions by the MSAF Group................... 19
SECTION 7.03. Request for Authority............................ 19
SECTION 7.04. Overall Business Objectives with Respect to
Aircraft Assets.................................. 19
SECTION 7.05. Operating Budget; Aircraft Asset Expenses Budget. 20
SECTION 7.06. Transaction Approval Requirements................ 21
ARTICLE 8
EFFECTIVENESS
SECTION 8.01. Effectiveness.................................... 23
ARTICLE 9
SERVICING FEES; EXPENSES
SECTION 9.01. Servicing Fees................................... 24
SECTION 9.02. Base Fees........................................ 24
SECTION 9.03. Rent Fees........................................ 24
SECTION 9.04. Incentive Fee.................................... 25
SECTION 9.05. Sales Fees....................................... 25
SECTION 9.06. Expenses......................................... 26
SECTION 9.07. Default Interest................................. 28
ii
<PAGE> 4
ARTICLE 10
TERMS; RIGHTS TO TERMINATE; CONSEQUENCES OF TERMINATION; SURVIVAL
SECTION 10.01. Term......................................... 28
SECTION 10.02. Right to Terminate........................... 28
SECTION 10.03. Consequences of Termination.................. 32
SECTION 10.04. Survival..................................... 33
ARTICLE 11
INDEMNIFICATION
SECTION 11.01. Indemnity.................................... 33
SECTION 11.02. Procedures for Defense of Claims............. 34
SECTION 11.03. Reimbursement of Costs....................... 34
ARTICLE 12
ASSIGNMENT AND DELEGATION
SECTION 12.01. Assignment and Delegation.................... 35
ARTICLE 13
MISCELLANEOUS
SECTION 13.01. Best Efforts................................. 35
SECTION 13.02. Notices...................................... 35
SECTION 13.03. Governing Law................................ 37
SECTION 13.04. Jurisdiction................................. 37
SECTION 13.05. WAIVER OF JURY TRIAL......................... 37
SECTION 13.06. Counterparts; Third Party Beneficiaries...... 37
SECTION 13.07. Entire Agreement............................. 37
SECTION 13.08. Power of Attorney............................ 38
SECTION 13.09. Restrictions on Disclosure................... 38
SECTION 13.10. Rights of Setoff............................. 39
SCHEDULES
APPENDIX A..........................................Subsidiaries
SCHEDULE 2.02(a)........................................Services
SCHEDULE 4.01...........................................Aircraft
iii
<PAGE> 5
SCHEDULE 4.02...................................Documents
SCHEDULE 4.03...............................Bank Accounts
SCHEDULE 1.03(a) to Schedule 2.02(a)............Insurance
SCHEDULE 8.01 to Schedule 2.02(a)...........Weekly Report
EXHIBIT A............................ Accession Agreement
EXHIBIT B.................................Pro-Forma Lease
<PAGE> 6
SERVICING AGREEMENT dated as of November 10, 1997 among INTERNATIONAL
LEASE FINANCE CORPORATION, a corporation incorporated under the laws of
California (the "SERVICER"), MSAF, a statutory trust established under the laws
of the State of Delaware, and, upon execution of an agreement substantially in
form of Exhibit A attached hereto, the Administrative Agent and Calculation
Agent, and the entities listed on Appendix A hereto organized as set forth
therein (together, the "SUBSIDIARIES").
For the consideration set forth herein and other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties each
agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. The following terms, as used herein, have the
following meanings. Unless otherwise defined herein, all capitalized terms used
but not defined herein have the meanings assigned to such terms in the Asset
Purchase Agreement between International Lease Finance Corporation, MSAF and
the Subsidiaries dated the date hereof (the "PURCHASE AGREEMENT").
"ADMINISTRATIVE AGENCY AGREEMENT" means the Administrative Agency
Agreement to be dated as of the date hereof, among the Administrative Agent,
MSAF and the Subsidiaries.
"ADMINISTRATIVE AGENT" means the administrative agent under the
Administrative Agency Agreement as set out in the executed agreement
substantially in the form of Exhibit A attached hereto.
"AFFILIATE" means a Person that directly, or indirectly through one or
more intermediaries, controls or is controlled by, or is under common control
with, the Person specified; provided, however, that MSAF and the Subsidiaries,
on the one part, and International Lease Finance Corporation and its
subsidiaries, on the other part, shall not be considered to be Affiliates of
each other.
"AFTER-TAX BASIS" means on a basis such that any payment received, deemed
to have been received or receivable by any Person shall, if necessary, be
supplemented by a further payment to that Person so that the sum of the two
payments shall, after deduction of all U.S. federal, state, local or foreign
Taxes, penalties, fines, interest, additions to Tax and other charges resulting
from the receipt (actual or constructive) or accrual of such payments imposed
by or under any U.S. federal, state, local or other foreign law or Governmental
Authority
2
<PAGE> 7
(after taking into account any current deduction to which such Person shall be
entitled with respect to the amount that gave rise to the underlying payment),
be equal to the payment received, deemed to have been received or receivable.
"AIRCRAFT" means the Aircraft as defined in the Purchase Agreement.
"AIRCRAFT ASSETS" means all Aircraft and related lease interests owned by
any Person within the MSAF Group as of the applicable Delivery Date; provided,
however, that Aircraft Assets shall not include any Aircraft Asset (x) that
shall have ceased to be an Aircraft Asset pursuant to this Agreement, or (y) in
respect of which the Servicer or MSAF shall have terminated the Servicer's
obligation to provide Services in accordance with Article 10 of this Agreement.
"AIRCRAFT ASSET EXPENSES" has the meaning assigned to such term in Section
9.06(b)(i) of this Agreement.
"AIRCRAFT ASSETS RELATED DOCUMENTS" means all Lease Documents (as defined
in the Purchase Agreement) and other contracts and agreements of Persons within
the MSAF Group the terms of which relate to or affect any of the Aircraft
Assets.
"AIRCRAFT MONTHLY BASE FEE" has the meaning assigned to such term in
Section 9.02(a) of this Agreement.
"AIRCRAFT MONTHLY BASE FEE FRACTION" has the meaning assigned to such term
in Section 9.02(a) of this Agreement.
"APPLICABLE LAW" with respect to any Person means any law, statute,
ordinance, rule or regulation or code of conduct or practice of any U.S.
federal, state or local Governmental Authority, the foreign or international
Governmental Authority that applies to such Person or any of its properties or
assets.
"ASSET EXPENSES BUDGET" has the meaning assigned to such term in Section
7.05(a)(i) of this Agreement.
"APPROVED BUDGET" has the meaning assigned to such term in Section 7.05(c)
of this Agreement.
"BANK ACCOUNTS" has the meaning assigned to such term in Section 6.01(b)
of Schedule 2.02(a) to this Agreement.
"BASE FEES" has the meaning assigned to such term in Section 9.01(a) of
this Agreement.
3
<PAGE> 8
"BASE SALES FEE" has the meaning assigned to such term in Section 9.01(d)
of this Agreement.
"BUSINESS DAY" means a day on which U.S. dollar deposits may be traded on
the London inter-bank market and commercial banks and foreign exchange markets
are open in New York, New York and London, England.
"CALCULATION DATE" means the calculation date as defined in the
Calculation Agency Agreement.
"CALCULATION AGENCY AGREEMENT" means the Calculation Agency Agreement to
be dated as of the date hereof, among the Calculation Agent, MSAF and Bankers
Trust, solely in its capacity as indenture trustee and security trustee.
"CALCULATION AGENT" means the calculation agent under the Calculation
Agency Agreement as set out in the executed agreement substantially in the form
of Exhibit A attached hereto.
"CHANGE IN CONTROL" has the meaning assigned to such term in Section
10.02(b) of this Agreement.
"CONCENTRATION THRESHOLDS" has the meaning assigned to such term in
Section 2.02(a) of Schedule 2.02(a).
"CONFLICTS STANDARD" has the meaning assigned to such term in Section
3.02(b) of this Agreement.
"CONTROL" (including, with its correlative meanings, "CONTROLLED BY" and
"UNDER COMMON CONTROL WITH") means possession, directly or indirectly, of the
power to direct or cause the direction of management or policies (whether
through ownership of securities or partnership or other ownership interests, by
contract or otherwise).
"CONTROLLING TRUSTEES" means the controlling trustees of MSAF as specified
in the trust agreement constituting MSAF.
"CREDIT ENHANCEMENT FACILITY" has the meaning assigned to such term in
Section 5.05 of this Agreement.
"DELIVERY DATE" means, with respect to each Aircraft, the date on which
Buyer (as defined in the Purchase Agreement) obtains title to such Aircraft
(or, in the case of the B767-300 Aircraft MSN 24798, the SPC-5 Shares) and the
related
4
<PAGE> 9
Purchased Assets (in each case as defined in the Purchase Agreement) in
accordance with the Purchase Agreement.
"EFFECTIVENESS DATE" has the meaning assigned to such term in Section
10.02(c)(ii) of this Agreement.
"GOVERNMENTAL AUTHORITY" means any court, administrative agency or
commission or other governmental agency or instrumentality (or any officer or
representative thereof) domestic, foreign or international, of competent
jurisdiction including the EU.
"GROUP" has the meaning assigned to such term in Section 10.02 of this
Agreement.
"ILFC" means International Lease Finance Corporation, a California
corporation, and its successors.
"INCENTIVE FEE" has the meaning assigned to such term in Section 9.01(c)
of this Agreement.
"INDENTURE" has the meaning assigned to such term in Section 7.06(a) of
this Agreement.
"INITIAL APPROVED BUDGETS" has the meaning assigned to such term in
Section 7.05(a)(i) of this Agreement.
"INITIAL PERIODS" has the meaning assigned to such term in Section
7.05(a)(i) of this Agreement.
"LEASE" means each Lease as defined in the Purchase Agreement, including
future leases entered into in accordance with the terms of this Agreement.
"LESSEE" means each Lessee as defined in the Purchase Agreement, including
future lessees with respect to future leases entered into in accordance with
the terms of this Agreement.
"LOSS" means any and all damage, loss, liability and expense (including
reasonable legal fees, expenses and related charges and costs of
investigation); provided, however, the term "Loss" shall not include any
indemnified party's management time or overhead expenses except for
non-ordinary course management time or overhead expenses relating to such
damage, loss, liability or expense.
5
<PAGE> 10
"MSAF GROUP" has the meaning assigned to such term in Section 2.01(a) of
this Agreement.
"MSAF GROUP LIABILITIES" means any obligations or liabilities of any
Person within the MSAF Group (whether accrued, absolute, contingent,
unasserted, known or unknown or otherwise).
"NET GAINS" has the meaning assigned to such term in Section 9.05(b) of
this Agreement.
"NOTES OFFERING" has the meaning assigned to such term in Section 5.07 of
this Agreement.
"OFFICER'S CERTIFICATE" means, as to any Person, a certificate of the
President, any Vice President or Assistant Vice President or the Treasurer.
"ONE YEAR INITIAL PERIOD" has the meaning assigned to such term in Section
7.05(a)(i) of this Agreement.
"ONE YEAR PERIOD" has the meaning assigned to such term in Section
7.05(a)(i) of this Agreement.
"OPERATING BUDGET" has the meaning assigned to such term in Section
7.05(a)(i) of this Agreement.
"OTHER ASSETS" has the meaning assigned to such term in Section 3.02 of
this Agreement.
"OVERHEAD EXPENSES" has the meaning assigned to such term in Section 9.06
of this Agreement.
"PERSON" means an individual, corporation, partnership, limited liability
company, association, statutory business trust, common law trust or other
entity or organization, including a government or political subdivision or an
agency or instrumentality thereof.
"PRECEDENT LEASE" has the meaning assigned to such term in Article 3 of
Schedule 2.02(a) to this Agreement.
"PRO FORMA LEASE" has the meaning assigned to such term in Article 3 of
Schedule 2.02(a) to this Agreement.
6
<PAGE> 11
"PURCHASE AGREEMENT" has the meaning assigned to such term in the preamble
to Section 1.01 of this Agreement.
"RATING AGENCY" has the meaning assigned to such term in Section 5.05 of
this Agreement.
"RATING DECLINE" has the meaning assigned to such term in Section 10.02 of
this Agreement.
"REIMBURSABLE EXPENSES" has the meaning assigned to such term in Section
9.06(b) of this Agreement.
"RELATED PERSON" has the meaning assigned to such term in Section 10.02 of
this Agreement.
"RENT COLLECTED FEE" has the meaning assigned to such term in Section
9.01(b) of this Agreement.
"RENT FEES" has the meaning assigned to such term in Section 9.01(b) of
this Agreement.
"RENT PAYABLE FEE" has the meaning assigned in such term in Section
9.01(b) of this Agreement.
"REPLACEMENT SERVICER" means a replacement servicer to perform some or all
of the Services under the Servicing Agreement formerly performed by the
Servicer, which is appointed in accordance with Section 10.03(c) of this
Agreement.
"SALES FEES" has the meaning assigned to such term in Section 9.05(b) of
this Agreement.
"SALES INCENTIVE FEE" has the meaning assigned to such term in Section
9.05(b) of this Agreement.
"SECURITY DEPOSITS" means, at the time of calculation, with respect to
each Aircraft, all cash amounts, prepayments of rent, letters of credit and
guarantees paid by or issued on behalf of the Lessee for the benefit of the
lessor under the relevant Lease as security for obligations of such Lessee
under such Lease and related Lease Documents.
"SERVICER" means International Lease Finance Corporation.
7
<PAGE> 12
"SERVICES" has the meaning assigned to such term in Section 2.02(a) of
this Agreement.
"STANDARD OF CARE" has the meaning assigned to such term in Section 3.01
of this Agreement.
"STANDARD OF LIABILITY" has the meaning assigned to such term in Section
3.03 of this Agreement.
"SUBSIDIARIES" means those entities listed on Appendix A hereto.
"TARGET NET RESULTS" has the meaning assigned to such term in Section 9.04
of this Agreement.
"TARGET SALES PRICE" has the meaning assigned to such term in Section
9.05(a) of this Agreement.
"TAX" or "TAXES" means (i) any net income, alternative or add-on minimum
tax, gross income, gross receipts, sales, use, ad valorem, value added,
transfer, franchise, profits, license, registration, recording, documentary,
conveyancing, gains, withholding on amounts paid to or by any Person, payroll,
employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom duty or other tax, governmental
fee or other like assessment or charge of any kind whatsoever, together with
any interest, penalty, addition to tax or additional amount imposed by any
governmental authority responsible for the imposition of any such tax (domestic
or foreign) (a "TAXING AUTHORITY"), or (ii) liability for the payment of any
amounts of the type described in (i) as a result of being party to any
agreement or any express or implied obligation to indemnify any other Person.
"TERMINATION NOTICE" has the meaning assigned to such term in Section
10.02(c)(i) of this Agreement.
"THIRD PARTY CLAIM" means a claim by a third party arising out of a matter
for which an indemnified party is entitled to be indemnified pursuant to the
indemnity provisions of this Agreement.
"THREE YEAR INITIAL PERIOD" has the meaning assigned to such term in
Section 7.05(a) of this Agreement.
"THREE YEAR PERIOD" has the meaning assigned to such term in Section
7.05(a) of this Agreement.
8
<PAGE> 13
"TRANSACTION APPROVAL REQUIREMENTS" has the meaning assigned to such term
in Section 7.06(c) of this Agreement.
"YEAR" means each twelve month period commencing on December 1 and ending
on November 30.
ARTICLE 2
APPOINTMENT, SERVICES
SECTION 2.01. Appointment. (a) Each of MSAF and the Subsidiaries hereby
appoints the Servicer as the exclusive provider of the Services (as defined in
Section 2.02 below) to MSAF and the Subsidiaries (collectively, the "MSAF
GROUP") in respect of the Aircraft Assets on the terms and subject to the
conditions set forth in this Agreement.
(b) The Servicer hereby accepts such appointment and agrees to perform the
Services on the terms and subject to the conditions set forth in this
Agreement. In connection with the provision of the Services with respect to
the Aircraft Assets, the Servicer generally shall, where and to the extent
practicable, contract for or otherwise obtain goods and services from third
party providers the cost of which is an Aircraft Asset Expense in the name of,
or as disclosed agent for, MSAF and/or the relevant Subsidiary as applicable;
if the Servicer shall not have contracted for or otherwise obtained such goods
and services in the name of or as disclosed agent for MSAF or the relevant
Subsidiary, as the case may be, the Servicer shall cause MSAF or the relevant
Subsidiary, as the case may be, to be in a position to have direct recourse
against any such third party provider providing goods and services for MSAF or
the relevant Subsidiary, as the case may be, for any breaches by such third
party provider related to the provision of such goods and services. Any third
party provider discount or rebate related directly or indirectly to the
Aircraft Assets shall be made available to MSAF Group on a pro-rated basis.
(c) MSAF has advised the Servicer that each Person within the MSAF Group
has appointed or will appoint the Administrative Agent to act as its
representative with respect to any matter in respect of which MSAF or any other
Person within the MSAF Group is required or permitted to take any action
pursuant to the terms of this Agreement. Accordingly, in connection with the
performance of the Services, unless earlier notified in writing by MSAF that
the Administrative Agent's appointment to act on behalf of the MSAF Group has
not become effective or has been revoked or terminated, the Servicer shall in
all cases
9
<PAGE> 14
be entitled to rely on the instructions (or other actions) of the
Administrative Agent as representative of each Person within the MSAF Group.
(d) MSAF has advised the Servicer that the Calculation Agent is expected
to be appointed to perform certain calculation services on behalf of the MSAF
Group in accordance with the terms of the Calculation Agency Agreement.
SECTION 2.02. Services. (a) The services to be provided by the Servicer
in respect of the Aircraft Assets (the "SERVICES") are as set forth in Schedule
2.02(a).
(b) In connection with the performance of the Services, the Servicer shall
in all cases only be obliged to act upon, and shall be entitled to rely on, the
instructions of MSAF or, as provided above in Section 2.01(c), the
Administrative Agent on behalf of the MSAF Group. The Servicer shall not be
liable to any of MSAF, the Subsidiaries or any other Person for any act or
omission to act taken in accordance with such instructions, except to the
extent provided in Section 3.03 (other than if MSAF or the Administrative Agent
has instructed the Servicer to breach the terms of this Agreement or take any
action or omit to take any action required by the terms of this Agreement or
misstate any information).
SECTION 2.03. Compliance with Applicable Laws. Notwithstanding anything
to the contrary in this Agreement, the Servicer shall not be obligated to take
or refrain from taking any action which would violate any Applicable Law.
SECTION 2.04. Limitations. Without prejudice to any provision of the
Purchase Agreement, including the indemnity set out in Article 10 thereof,
neither the Servicer nor any of its Affiliates shall assume any MSAF Group
Liabilities.
ARTICLE 3
STANDARD OF CARE; CONFLICTS OF INTEREST; STANDARD OF LIABILITY
SECTION 3.01. Standard of Care. The Servicer shall use reasonable care
and diligence at all times in the performance of the Services as if it were the
owner of the Aircraft Assets (the "STANDARD OF CARE").
SECTION 3.02. Conflicts of Interest. (a) Each of MSAF and the
Subsidiaries acknowledges and agrees that (i) in addition to managing the
Aircraft Assets under this Agreement, the Servicer may manage, and shall be
entitled to manage, from time to time, the separate assets of
International Lease Finance Corporation, its Affiliates and third parties
("OTHER ASSETS"); (ii) notwithstanding
10
<PAGE> 15
Section 3.02(b) below, in the course of conducting such activities, the
Servicer may from time to time have conflicts of interest in performing its
duties on behalf of the various entities to whom it provides management
services and with respect to the various assets in respect of which it provides
management services; and (iii) the Controlling Trustees of MSAF have approved
the transactions contemplated by this Agreement and desire that such
transactions be consummated and, in giving such approval, the Controlling
Trustees of MSAF have expressly recognized that such conflicts of interest may
arise and that when such conflicts of interest arise the Servicer shall perform
the Services in accordance with the Standard of Care and the Conflicts
Standard.
(b) The Servicer shall affirmatively seek to avoid conflicts of interest
with respect to the Aircraft Assets; however, if conflicts of interest arise
regarding the management of (i) a particular Aircraft Asset, on the one hand,
and another Aircraft Asset, on the other hand, or (ii) any Aircraft Assets, on
the one hand, and Other Assets, on the other hand, the Servicer shall (A)
notify MSAF in the weekly report as set forth in Section 8.01 of Schedule
2.02(a) and (B) perform the Services in good faith and to the extent (i) such
Aircraft Assets or (ii) such Aircraft Asset and such Other Asset are
substantially similar in terms of objectively identifiable characteristics
relevant for purposes of the particular Services to be performed, the Servicer
shall not discriminate among such Aircraft Assets or between such Aircraft
Assets and such Other Assets (the standard set forth in this Section 3.02(b)
shall be referred to collectively as the "CONFLICTS STANDARD").
SECTION 3.03. Standard of Liability. The Servicer shall not be liable to
MSAF or any of the Subsidiaries for any Losses arising (i) as a result of an
Aircraft Asset sold, leased or purchased on less favorable terms than might
have been achieved at any time provided such transactions were entered into on
the basis of a commercial decision of the Servicer, or (ii) in respect of the
Servicer's obligation to apply the Conflicts Standard in respect of its
performance of the Services, except, in either case, in the case of wilful
misconduct or fraud on the part of the Servicer. MSAF and the Subsidiaries
shall indemnify, reimburse and hold harmless the Servicer on an After-Tax Basis
in accordance with the provisions of Article 11 for any Loss arising as a
result of the performance of any of the Servicer's obligations as Servicer or
as a result of any action which the Servicer is requested to take or refrain
from taking by MSAF, unless (i) such Loss has arisen as a result of the wilful
misconduct of the Servicer, (ii) such Loss has directly resulted from a breach
by the Servicer of the express terms and conditions of this Agreement or (iii)
such Loss is a Loss for which the Servicer has indemnified MSAF and its
Affiliates and arises as a result of any material misstatements or omissions in
any public filings relating to information on the Aircraft Assets, Services and
the Servicer provided by the Servicer for disclosure
11
<PAGE> 16
in such public filings (the liability standards set forth in this Section 3.03,
the "STANDARD OF LIABILITY").
SECTION 3.04. Waiver of Implied Standard. Except as expressly stated
above in this Article 3, all other warranties, conditions and representations,
express or implied, statutory or otherwise, arising under, Delaware, New York
or California law in relation to either the skill, care, diligence or otherwise
in respect of any service to be performed hereunder or to the quality or
fitness for any particular purpose of any goods are hereby excluded and the
Servicer shall not be liable in contract, tort or otherwise under Delaware, New
York or California law for any loss, damage, expense or injury of any kind
whatsoever, arising out of or in connection with the services to be supplied
pursuant to this Agreement or any goods to be provided or sold in conjunction
with such services.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
Each of MSAF and the Subsidiaries jointly and severally represents and
warrants to the Servicer as follows:
SECTION 4.01. Aircraft Assets. Schedule 4.01 contains a true and complete
list of all Aircraft intended to be Aircraft Assets as of the date hereof.
SECTION 4.02. Aircraft Assets Related Documents. Schedule 4.02 sets
forth a true and complete list of all material Aircraft Assets Related
Documents. The Aircraft Assets Related Documents relating to a particular
Aircraft will be delivered to the Servicer on the applicable Delivery Date.
The MSAF Group will deliver to the Servicer any Aircraft Assets Related
Document received after the relevant Delivery Date that has not previously been
delivered to the Servicer from time to time after the relevant Delivery Date.
The Servicer shall not be required to perform any service provided for in any
Aircraft Assets Related Documents not delivered to it.
SECTION 4.03. Accounts and Cash flow. The MSAF Group shall, prior to the
first Delivery Date, provide to the Servicer a true and complete list of all
the MSAF Group's bank or other similar accounts relating to the Aircraft
Assets, with respect to which the MSAF Group has authority and has provided a
reasonably detailed written description to the Servicer of all material
arrangements and procedures relating to the flow of cash related to the
Aircraft Assets, which list shall become Schedule 4.03 hereto as if part of
this Agreement on the date hereof.
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ARTICLE 5
SERVICER UNDERTAKINGS
SECTION 5.01. Staff and Resources. The Servicer shall employ or otherwise
engage such staff (including in-house legal staff) and maintain such supporting
resources as the Servicer shall deem necessary in accordance with its usual
business practices with respect to its own aircraft, both in number and in
quality, to enable the Servicer to perform the Services in accordance with the
terms of this Agreement.
SECTION 5.02. Access. The Servicer at such times as MSAF may reasonably
request (which requests shall be no more frequent than quarterly) shall make
available to the MSAF Group and its agents (including the Administrative Agent,
Calculation Agent and auditors) reports, ledgers, documents, reports and other
records (including without limitation, transaction reports, invoice books,
receipts, receipt records, journals and journal entries) and other information
on a "READ ONLY" basis (by way of hard copy or computer disc) related to the
Aircraft Assets or the MSAF Group's business (copies of which MSAF Group shall
be entitled to take) and to officers and employees of the Servicer, subject to
their reasonable availability, to enable the MSAF Group to monitor the
performance of the Servicer under this Agreement.
SECTION 5.03. Compliance with Law. The Servicer shall, in connection with
the performance of the Services, comply with all laws, rules and regulations
applicable to the Servicer and with the laws, rules and regulations applicable
to the Aircraft Assets.
SECTION 5.04. Commingling. The Servicer shall not commingle with its own
funds, any funds of any Person within the MSAF Group other than Security
Deposits held pursuant to Section 5.06 hereof and misdirected funds from
Lessees and others which shall be promptly redirected to a Bank Account.
SECTION 5.05. Credit Enhancement. (a) (i) From and after the time of the
consummation of the first Notes Offering, the Servicer shall, at the Servicer's
expense, procure, for MSAF's benefit and in a form approved by MSAF, a letter
of credit, credit facility or similar credit enhancement instrument (a "CREDIT
ENHANCEMENT FACILITY") provided by an Eligible Provider. The Credit
Enhancement Facility shall be in two parts; (A) the first part shall be in an
amount equal to the sum of, at any time, (x) $10,000,000 plus (y) the amount of
cash Security Deposits with respect to the Aircraft Assets held by the Servicer
from time to time pursuant to Section 5.06 of this Agreement, which amount
shall be available to be drawn for the purpose of paying principal and interest
on debt
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issued in any Notes Offering; and (B) the second part shall be in an amount
equal to the sum of, at any time, (x) the amount of all non-cash Security
Deposits relating to any Aircraft delivered to MSAF or its designee and which
non-cash Security Deposit has not been reissued in the name of MSAF or its
designee on or prior to the Delivery Date relating to such Aircraft, less (y)
the amount of all non-cash Security Deposits relating to any Aircraft delivered
to MSAF or its designee and not reissued in the name of MSAF or its designee on
or prior to such Delivery Date but that have been so reissued after such
Delivery Date, which amount shall be available to be drawn only if the drawing
conditions under such non-cash Security Deposits are satisfied in accordance
with their terms.
The Credit Enhancement Facility will name any Person within MSAF Group as
beneficiaries as MSAF shall designate. Amounts drawn by a beneficiary under
the Credit Enhancement Facility shall be notified to the Servicer not less than
four Business Days prior to the draw date and shall accrue interest compounded
daily and calculated on a bond equivalent basis in favor of the Servicer at 3%
per annum and shall be repaid monthly to the Servicer by such beneficiary after
the payment of any interest due and payable on the most junior public
securitization debt of such Person or its Affiliates, pursuant to the priority
of payments provisions set out in the instrument governing the issuance of such
debt. Any amounts drawn and not so repaid shall continue to accrue interest on
the basis set forth above. Amounts drawn under the Credit Enhancement Facility
will be drawn and repaid on a pari passu basis with any other such credit
facilities providing liquidity to MSAF at the equivalent priority level as
determined by the priority of payments set out in any Indenture.
An "ELIGIBLE PROVIDER" means ILFC, American International Group, Inc. or a
bank or other financial institution, in each case whose short-term unsecured
debt is rated at least A1+ by Standard & Poor's Rating Group, D1+ by Duff &
Phelps Credit Rating Co. (if Duff & Phelps Credit Rating Co. is then rating the
short-term unsecured debt of such institution) or P1 by Moody's Investors
Service, Inc. (each such credit rating agency, together with any successors, a
"RATING AGENCY").
(ii) If at any time the provider of the Credit Enhancement Facility is not
an Eligible Provider, the Servicer shall provide cash collateral for the amount
of the Credit Enhancement Facility at such time to the commercially reasonable
satisfaction of MSAF.
(iii) The Servicer agrees to maintain the Credit Enhancement Facility
until the earliest of (1) twenty-five years from the last Delivery Date, (2)
termination of this Agreement pursuant to Section 10.02(b)(iii) or 10.02 (iv),
and (3) as otherwise agreed between MSAF and the Servicer; provided that, if
this
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Agreement terminates pursuant to any provision of Section 10.02 other than
subsections 10.02(b)(iii) and (iv) thereof, the Servicer shall continue to
provide a Credit Enhancement Facility in an amount equal to only $10,000,000
and otherwise on the terms set out in this Section 5.05 until repayment or
defeasance (but not refinancing) of all of the public securitization debt.
(b) At any time before the consummation of the first Notes Offering, the
Servicer shall provide credit support (the "SERVICER CREDIT ENHANCEMENT
FACILITY") to MSAF in the amount and for the purposes that would otherwise be
required for the Credit Enhancement Facility at such time pursuant to Section
5.05(a). MSAF may at any such time designate a beneficiary under the Servicer
Credit Enhancement Facility. Amounts drawn by a beneficiary under the
Servicer Credit Enhancement Facility shall accrue interest in favor of the
Servicer at 3% per annum compounded daily and calculated on a bond equivalent
basis and shall be repaid monthly to the Servicer by such beneficiary after the
payment of any interest due and payable by MSAF on its financial indebtedness
(including indebtedness to an Affiliate of MSAF).
SECTION 5.06. Security Deposits. For so long as the Servicer is servicing
the Aircraft Assets under this Agreement, the Servicer shall hold, for the
benefit of MSAF or its designee, all cash Security Deposits paid by Lessees
with respect to the Aircraft Assets and any interest accruing on such Security
Deposits shall be for the benefit of the Servicer unless such interest is
required to be paid to the Lessee pursuant to the terms of any Lease. The
Servicer agrees to return to MSAF or its designee Security Deposits that are
(a) determined in good faith by the Servicer to be no longer held on behalf of
any Lessee, whether upon expiry or breach of the Lease or otherwise, (b) in an
amount exceeding three months rent with respect to a single Aircraft and paid
by a single Lessee, and (c) held by the Servicer on the earliest of (i) the
termination of this Agreement and (ii) a date agreed by MSAF and the Servicer.
Interest on Security Deposits payable to Lessees under the applicable Lease
shall be paid by the party holding such Security Deposits.
SECTION 5.07. Notes Offering. The Servicer agrees to use its best efforts
to cooperate with MSAF and its Affiliates in connection with the public or
private offering and sale after the last Delivery Date of any securities of
MSAF or any of its Affiliates (a "NOTES OFFERING") including participating in
customary marketing activities relating to a Notes Offering in the Servicer's
capacity as Servicer of the Aircraft Assets (including road shows and investor
meetings); attending, on reasonable prior notice, and subject to the reasonable
availability of the Servicer's officers and employees, all meetings with Rating
Agencies relating to any Notes Offering; providing MSAF and its Affiliates,
underwriters, Rating Agencies and other advisors with reasonable opportunities
to conduct legal and business due
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<PAGE> 20
diligence with respect to the Servicer and provision of Services and with
respect to the Aircraft Assets and Leases including providing any historical
financial information, the names of prior lessees and repossession and
restructuring information (including costs and expenses related thereto that
are reasonably available) with respect to the Aircraft (which information shall
not include any lease document to which MSAF or any of its Affiliates was not a
party); procuring, at MSAF's expense, opinions of counsel with respect to
matters requested by the Rating Agencies and relating to the Aircraft Assets,
Leases and related documents and related collateral and payments thereunder;
assisting with respect to the preparation by the Administrative Agent of
financial statements for the Aircraft Assets as if the Aircraft Assets had been
operated as a business, if and to the extent such financial statements are
required by any regulatory authority; and providing, reviewing, commenting on
and providing customary indemnities against material misstatements or omissions
with respect to, written information regarding the Aircraft Assets, the
Servicer and provision of Services for inclusion in any securities offering
document related to the Aircraft Assets.
ARTICLE 6
UNDERTAKINGS OF MSAF AND THE SUBSIDIARIES
SECTION 6.01. Cooperation. Each of MSAF and the Subsidiaries shall at all
times use their best efforts to cooperate with the Servicer to enable the
Servicer to provide the Services, including providing the Servicer with all
powers of attorney as may be reasonably necessary or appropriate to perform the
Services.
SECTION 6.02. No Representation with Respect to Third Parties. Each of
MSAF and the Subsidiaries agrees that as between the Servicer, on the one hand,
and any Person within the MSAF Group, on the other hand, no representation is
made as to the financial condition and affairs of any Lessee of, or purchaser
of, any Aircraft Asset or any manufacturer, representative, maintenance
facility, contractor, vendor or supplier utilized by the Servicer in connection
with its performance of the Services and, subject to the Standard of Liability,
the Servicer shall have no liability with respect to such third parties.
SECTION 6.03. Related Document Amendments. Each of MSAF and the
Subsidiaries shall not take any action that would increase in any respect the
scope, nature or level of the Services to be provided under this Agreement
without the Servicer's prior written consent.
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SECTION 6.04. Other Servicing Arrangements. Without the prior written
consent of the Servicer, MSAF and the Subsidiaries shall not (a) enter into, or
cause or permit any Person (other than the Servicer) to enter into on their
behalf, any transaction for the lease or sale of any Aircraft Asset in respect
of which the Servicer is at such time performing Services, or (b) employ any
Person other than the Servicer to perform any of the Services with respect to
the Aircraft Assets.
SECTION 6.05. Communications. Each of MSAF and the Subsidiaries shall
forward promptly to the Servicer a copy of any written communication received
from any Person in relation to any Aircraft Asset.
SECTION 6.06. Ratification. Each of MSAF and the Subsidiaries hereby
ratifies and confirms and agrees to ratify and confirm whatever the Servicer
does in accordance with this Agreement in the exercise of any of the powers or
authorities conferred upon the Servicer under the terms of this Agreement.
SECTION 6.07. Execution, Amendment, Modification or Termination of
Aircraft Assets Related Documents. (a) No later than five Business Days after
the date that (i) any agreement, instrument or other document becomes an
Aircraft Assets Related Document or (ii) any Aircraft Assets Related Document
shall have been amended, modified or terminated, MSAF shall deliver written
notice thereof to the Servicer together with (A) in the case of any newly
executed Aircraft Assets Related Document, a true and complete copy of such
Aircraft Assets Related Document, a list of all Aircraft Assets to which it
relates and a description, in reasonable detail, of the relevance of such
Aircraft Assets Related Document to such assets or (B) in the case of any
amendment, modification or termination, a true and complete copy of any related
agreement, instrument or other document; provided, however, that such notice or
such document shall not be required to be delivered if the Servicer was
substantially involved in the preparation and execution of such new, amended,
modified or terminated agreement, instrument or other document.
(b) MSAF shall promptly deliver to the Servicer a complete copy of each
executed Indenture (which shall include a definition of the relevant
calculation date) , Calculation Agency Agreement and Administrative Agency
Agreement or similar agreements, and any amendments, changes, modifications or
waivers relating to any of the aforementioned agreements, in each case
excluding any confidential pricing information contained therein.
(c) MSAF shall promptly notify the Servicer of the name, identity and
contact details of the Administrative Agent, the Calculation Agent and
Controlling Trustees and of any changes thereto and any other relevant
information relating to such parties reasonably requested by the Servicer.
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SECTION 6.08. MSAF Group Accounts and Cash Arrangements. MSAF shall
promptly notify the Servicer of any new bank or similar account established by
or on behalf of MSAF or any of the Subsidiaries or otherwise relating to the
Aircraft Assets and of any such account relating to any Aircraft Assets that
become Aircraft Assets after the date of this Agreement and the closing of any
such account. When MSAF notifies the Servicer that it has established a new
bank or similar account by or on behalf of MSAF or any of the Subsidiaries or
otherwise relating to the Aircraft Assets, MSAF shall provide the Servicer with
an updated list of all material arrangements and procedures relating to the
flow of cash related to the Aircraft Assets.
SECTION 6.09. Notification of Bankruptcy. If any of MSAF or the
Subsidiaries shall consider taking any action to:
(a) file any petition or application, commence any proceeding, pass any
resolution or convene a meeting with respect to itself or any of its Affiliates
under any United States federal, state or foreign or international law relating
to the appointment of a trustee in bankruptcy, liquidator or receiver with
respect to any of MSAF or the Subsidiaries or over the whole or any part of any
properties or assets of any of MSAF or the Subsidiaries or any bankruptcy,
reorganization, compromise arrangements or insolvency of any of MSAF or the
Subsidiaries; or
(b) make an assignment for the benefit of its creditors generally;
then MSAF shall notify the Servicer, to the extent practicable, of such
consideration a reasonable period of time prior to taking any such action, but
in any event, prior to taking any such action (it being understood that the
foregoing notice requirement shall not be construed to prohibit or restrain the
taking of any action described in (a) or (b) above). If any of MSAF or the
Subsidiaries becomes aware of the intent or action of any Person (whether a
creditor or member of any of MSAF or the Subsidiaries) to appoint a trustee in
bankruptcy, liquidator or receiver, MSAF shall promptly notify the Servicer.
SECTION 6.10. Further Assurances. Each of MSAF and the Subsidiaries
agrees that at any time and from time to time upon the written request of the
Servicer, it will execute and deliver such further documents and do such
further acts and things as the Servicer may reasonably request in order to
effect the purposes of this Agreement.
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ARTICLE 7
MSAF GROUP RESPONSIBILITY; BUDGETS
SECTION 7.01. MSAF Group Responsibility. Notwithstanding the appointment
of the Servicer to perform the Services and the related delegation of authority
and responsibility to the Servicer pursuant to this Agreement, each of MSAF and
the Subsidiaries shall remain responsible for all matters related to its
business, operations, assets and liabilities.
SECTION 7.02. Instructions by the MSAF Group. MSAF may at any time
deliver written notice to the Servicer directing the Servicer to limit or
terminate any action being taken by it under this Agreement or to take any
action authorized or contemplated by this Agreement (including sale or disposal
of any Aircraft Asset) or the applicable Lease which is described in reasonable
detail in such notice and, upon receipt of such written notice, the Servicer
shall use commercially reasonable efforts to comply with the terms thereof.
SECTION 7.03. Request for Authority. (a) Subject to Section 7.03(b), if
the Servicer wishes to take or approve any action which it is not expressly
authorized under this Agreement to take or approve, it shall request authority
from MSAF to take or approve the action. The Servicer's request for authority
shall be in writing, and shall include a reasonably detailed explanation of the
reason for the request. If on or prior to the last day for a response by MSAF
as specified by the Servicer in its request (being not less than five Business
Days after the request), MSAF does not expressly refuse such request, the
Servicer may be deemed to be authorized in writing to take or to approve such
action on behalf of the MSAF Group.
(b) If the Servicer reasonably determines that an action to protect the
interests of the MSAF Group is required before the expiration of the relevant
time period specified in Section 7.03(a), then the Servicer shall send
notification to MSAF of such determination and, unless otherwise directed by
MSAF, the action proposed may be deemed to be authorized in writing on behalf
of the MSAF Group.
(c) In relation to each payment required to be made in relation to an
Aircraft Asset and not certified under any other provision of this Agreement,
the Servicer will submit a certificate to the Administrative Agent with a copy
to MSAF giving reasonable details for such payment.
SECTION 7.04. Overall Business Objectives with Respect to Aircraft Assets.
The Servicer will perform the Services with a view towards maximizing the
present value of the cash flows over the life of the Aircraft Assets from
leasing
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and re-leasing or selling or otherwise disposing of Aircraft Assets taking into
account the then-existing and anticipated market conditions affecting the
operating lease of used aircraft and the commercial aviation industry generally
and any restrictions within any Indenture.
SECTION 7.05. Operating Budget; Aircraft Asset Expenses Budget. (a) (i)
MSAF, on behalf of the MSAF Group, shall adopt with respect to the Initial
Periods, each one Year period (a "ONE YEAR PERIOD") and each three Year period
(a "THREE YEAR PERIOD") during the term of this Agreement:
(A) a separate cash operating budget with respect to the
Aircraft Assets (each, an "OPERATING BUDGET"); and
(B) a separate cash budget with respect to Aircraft Asset
Expenses related to the Aircraft Assets (each, an "ASSET EXPENSES
BUDGET").
The initial Operating Budgets for the period from the first Delivery Date
through November 30, 1998 (the "ONE YEAR INITIAL PERIOD") and through November
30, 2000 (the "THREE YEAR INITIAL PERIOD" and together with the One Year
Initial Period, the "INITIAL PERIODS"), and the initial Asset Expenses Budgets
for the One Year Initial Period and the Three Year Initial Period, shall be
substantially in a form to be agreed by the parties following execution of this
Agreement but no later than the first Delivery Date (together, the "INITIAL
APPROVED BUDGETS").
The Operating Budgets and Asset Expenses Budgets for each Initial Period,
One Year Period and Three Year Period during the term of this Agreement shall
be adopted by MSAF Group in accordance with Section 7.05(b).
The Servicer shall use best efforts to achieve the Initial Approved
Budgets and the Approved Budgets for any One Year Period and Three Year Period.
(b) In respect of each One Year Period and Three Year Period after the
Initial Periods during the term of this Agreement, MSAF shall prepare, and
deliver to the Servicer no later than the September 30 immediately preceding
the commencement of each Year, proposed One Year and Three Year Operating
Budgets and One Year and Three Year Asset Expenses Budgets for each such period
together with reasonably detailed supporting information and the assumptions
underlying such proposed Operating Budgets or Asset Expenses Budgets. The
proposed Operating Budget and Asset Expenses Budget for the following Year
shall include the Target Net Results amount.
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(c) In connection with the preparation of such proposed One Year and Three
Year Operating Budgets and One Year and Three Year Asset Expenses Budgets for
each period, the Servicer shall provide MSAF and the Administrative Agent, not
later than the August 30 immediately preceding the commencement of each Year,
information in a form to be agreed from time to time relating to (i) lease
rates, (ii) downtime, (iii) technical expenditures (including any costs to be
capitalized) relating to the Aircraft Assets, (iv) costs relating to insurance,
legal, consulting and other similar expenses and (v) such other Aircraft Assets
expense-related information as may be requested to prepare such budgets, in
each case including the assumptions relating thereto.
The Servicer shall have the right during the 30-day period following its
receipt of MSAF's proposed Operating Budgets and Asset Expenses Budgets to
express any objections it may reasonably have to such budgets. During such
30-day period, MSAF shall negotiate in good faith with the Servicer to agree on
a final one Year and three Year Operating Budget and a final one Year and three
Year Asset Expenses Budgets for each Period; provided that MSAF shall not be
obligated to agree to any changes to its proposed Operating Budgets and Asset
Expenses Budgets for any One Year Period or Three Year Period. Not later than
the November 10 immediately preceding the commencement of such Year, MSAF
shall deliver to the Servicer final Operating Budgets and Asset Expenses
Budgets for each One Year Period and Three Year Period (the "APPROVED BUDGETS")
together with reasonably detailed information regarding MSAF's underlying
assumptions.
(d) If at any time the Servicer reasonably believes that the incurrence of
any Aircraft Asset Expense is reasonably likely to result in the actual
aggregate Aircraft Asset Expenses of the same category as such Aircraft Asset
Expense (taking into account all Aircraft Asset Expenses of such category
incurred to date) exceeding 110% of the line item amount included in the then
applicable Approved Budget for any One Year Period for such category of
Aircraft Asset Expenses, the Servicer shall not incur such Asset Expense
without prior notification to MSAF. In connection with the foregoing, the
Servicer may request that the related line item amount included in the then
applicable Approved Budget be increased to the reasonably anticipated level in
such category for the balance of the relevant One Year Period or One Year
Initial Period, as the case may be.
SECTION 7.06. Transaction Approval Requirements. (a) Consistent with the
overall business objectives of the MSAF Group with respect to the Aircraft
Assets, and with the delegation to the Servicer by the MSAF Group of a
practicable and workable level of autonomy, responsibility and authority
regarding the performance of the Services, the Servicer shall not do any of the
following without the express prior written approval of MSAF.
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(i) Except as required in accordance with the terms of any Lease or
other agreement with the Lessee, sell (or enter into any commitment or
agreement to sell) or otherwise dispose of any Aircraft or any Engine;
(ii) Enter into any new Lease (or any renewal or extension of an
existing Lease or other agreement with a Lessee) of Aircraft Assets if
such new Lease shall not comply with the applicable provision of any
indenture or similar agreement binding MSAF or any of its Affiliates and
related to a Notes Offering (each such agreement, an "INDENTURE").
(iii) Terminate any Lease or Leases to any single Lessee with
respect to any Aircraft having an aggregate depreciated net book value
on the books of the relevant Person (or Persons) in MSAF Group in excess
of $100,000,000.
(iv) Unless provided for in the then current One Year Approved
Budget, enter into any contract for the modification or maintenance of
Aircraft Assets forming part of the Aircraft Assets (A) if the costs to
be incurred thereunder by the MSAF Group exceed the greater of (1) the
estimated aggregate cost of a heavy maintenance "D" check for the
airframe and a full restoration shop visit for the engines for Aircraft
Assets of the type in question and (2) the amount of the available
maintenance reserve or other collateral under the applicable Lease or
(B) outside the ordinary course of the MSAF Group's business.
(v) Enter into on behalf of MSAF or any of the Subsidiaries, any
capital commitment or confirm any order or commitment to acquire, or
acquire on behalf of the MSAF Group, aircraft or; subject to Section (e)
of Article 4 of Schedule 2.02(a), engines with any aircraft or engine
manufacturers except Servicer may enter into any capital commitment or
order or commitment to acquire a replacement engine or spare part for an
Aircraft so long as the same is provided for in the then applicable One
Year Approved Budget.
(vi) Issue any guarantee on behalf of, or otherwise pledge the
credit of any Person within the MSAF Group.
(vii) Unless permitted by any other provision of this Section 7.06,
enter into any agreement for services to be provided in respect of
Aircraft Assets by third parties outside the ordinary course of ILFC's
business, the cost of which is to be borne by the MSAF Group, except in
each case to the extent that the same is an Asset Expense provided for
in the then applicable One Year Approved Budget.
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(viii) Incur on behalf of any Person within the MSAF Group any
liability (actual or contingent) or cause any such liability to be
incurred, except for a liability (A) contemplated in the then applicable
One Year Approved Budget, (B) pursuant to a transaction of a type which
is subject to another Transaction Approval Requirement or which would be
subject to another Transaction Approval Requirement if the threshold set
forth in such Transaction Approval Requirement were met or (C) incurred
in the ordinary course of MSAF Group's business.
(ix) On behalf of any Person within the MSAF Group enter into,
amend or grant a waiver with respect to any transaction with the
Servicer or any of its Affiliates including without limitation for the
acquisition, sale or lease of any Aircraft Assets from or to, or the
obtaining or provision of services by, any such Person.
(b) Any transaction entered into by the Servicer on behalf of the MSAF
Group shall be on an arm's length basis and on market terms, unless otherwise
agreed by the MSAF Group or directed by the MSAF Group in accordance with
Section 7.02.
(c) The transaction approval requirements (the "TRANSACTION APPROVAL
REQUIREMENTS") set forth in this Section 7.06 may only be amended by mutual
agreement of the parties, and shall not in any event be amended to reduce or
circumscribe the delegation to the Servicer of the level of autonomy, authority
and responsibility contemplated by the Transaction Approval Requirements with
respect to the performance of the Services.
ARTICLE 8
EFFECTIVENESS
SECTION 8.01. Effectiveness. The effectiveness of this Agreement and all
obligations of the parties hereunder with respect to each Aircraft Asset shall
be conditioned upon (a) the delivery of such Aircraft Asset to MSAF or one of
the Subsidiaries, (b) with respect to MSAF, the Servicer and the entities
listed on Appendix A to this Agreement the execution hereof by those parties
and (c) with respect to the parties signing the Accession Agreement attached as
Exhibit A to this Agreement, the execution of the Accession Agreement by those
parties.
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ARTICLE 9
SERVICING FEES; EXPENSES
SECTION 9.01. Servicing Fees. In consideration of the Servicer's
performance of the Services, MSAF shall pay to the Servicer servicing fees
consisting of the fees set forth in (a) Section 9.02 ("BASE FEES"), (b) Section
9.03, the "RENT PAYABLE FEE" and "RENT COLLECTED FEE", together, the "RENT
FEES"), (c) Section 9.04 (the "INCENTIVE FEE") and (d) Section 9.05 (the "BASE
SALES FEE" and "SALES INCENTIVE FEE", together, the "SALES FEES").
SECTION 9.02. Base Fees. (a) A Base Fee shall be paid by MSAF to the
Servicer of (i) $2,000,000 on December 1, 1997 and (ii) an amount with respect
to each Aircraft for each month (the "AIRCRAFT MONTHLY BASE FEE") equal to the
amount set forth below opposite the period during which such month occurs,
multiplied by the Aircraft Monthly Base Fee Fraction with respect to such
Aircraft for such month:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
December 1, 1997 -- November 30, 1998 $83,333.33
December 1, 1998 -- November 30, 1999 250,000.00
From December 1, 1999 until the termination or
expiration of this Agreement 166,666.66
</TABLE>
The "AIRCRAFT MONTHLY BASE FEE FRACTION" for any month means, with respect
to each Aircraft, the fraction which is the product of (x) the quotient of (A)
the number of days during such month that MSAF Group owned such Aircraft
(including the relevant Delivery Date and excluding the date of disposal of
such Aircraft) divided by (B) the total number of days in such month,
multiplied by (y) the quotient of (A) the Base Purchase Price of such Aircraft,
as set forth on Exhibit A-1 to the Purchase Agreement divided by (B) the sum of
the Base Purchase Prices of all the Aircraft.
(b) For any month in which an Aircraft is initially delivered under the
Purchase Agreement or disposed of, the Aircraft Monthly Base Fee payable with
respect to such Aircraft shall be paid in arrears on the fifteenth day (or, if
not a Business Day, the next succeeding Business Day) of the month following
such month. For any other month, all Aircraft Monthly Base Fees shall be paid
in advance on the fifteenth day (or, if not a Business Day, the next succeeding
Business Day) of the month immediately preceding such month.
SECTION 9.03. Rent Fees. (a) A Rent Payable Fee shall be paid for each
month during the term of this Agreement by MSAF to the Servicer equal to 1% of
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the aggregate amount of the rent (as defined in each Lease, but, for the
avoidance of doubt, not including any amounts reimbursable to Lessees) due to
the lessor by each Lessee attributable to any such month, or portion of a month
in which the related Aircraft is owned by MSAF Group and shall be paid on the
fifteenth day (or, if not a Business Day, the next succeeding Business Day) of
such month. If any Aircraft shall be initially delivered under the Purchase
Agreement or disposed of during any such month, the Rent Payable Fee with
respect to the related Lessee shall be pro-rated by multiplying the amount of
rent attributable to the relevant month by a fraction, the numerator of which
is the actual number of days the related Aircraft has been owned by MSAF Group
in such month (including the relevant Delivery Date and excluding the date of
disposal of such Aircraft) and the denominator of which is the actual number of
days in such month. If the date of initial delivery or date of disposition
occurs after the tenth day of such month or if any or all of the rent for such
Aircraft is based on a number of flight hours flown by such Aircraft or any
other variable rate (a "power-by-the-hour amount"), the fee in relation to such
Aircraft or power-by-the-hour amount shall be paid on the fifteenth day (or, if
not a Business Day, the next succeeding Business Day) of the next succeeding
month.
(b) A Rent Collected Fee shall be paid for each month during the term of
this Agreement by MSAF to the Servicer equal to 1% of the aggregate amount of
the rent (as defined in each Lease but for the avoidance of doubt, not
including any amounts reimbursable to Lessees) actually paid by each Lessee for
such month or portion of a month the related Aircraft is owned by MSAF Group.
All payments of the Rent Collected Fee shall be payable in arrears on the
fifteenth day (or, if not a Business Day, the next succeeding Business Day) of
the month next succeeding the month in which the rental payment is made.
SECTION 9.04. Incentive Fee. An Incentive Fee shall be payable during the
term of this Agreement by MSAF to the Servicer for the One Year Initial Period
and each subsequent One Year Period in the amount of (i) 10% of (ii) the amount
(if any) by which the actual net results for such Year (calculated on the same
basis as net results is calculated in the Approved Budget for such Year) shall
have exceeded the Target Net Results. "TARGET NET RESULTS" for any Year shall
be as specified in the Approved Budget for such Year, taking into account,
among other things, cash amounts required to repay security holders of MSAF.
All payments of the Incentive Fee shall be payable in arrears on the fifteenth
day (or, if not a Business Day, the next succeeding Business Day) of the month
next succeeding the end of the One Year Initial Period and each subsequent One
Year Period.
SECTION 9.05. Sales Fees. (a) A Base Sales Fee shall be payable at any
time during the term of this Agreement by MSAF to the Servicer in the amount of
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(i) 1.5% of (ii) the lesser of (x) Net Cash Proceeds (including relating to a
disposition of an Aircraft as a result of a total loss of such Aircraft) and
(y) the Target Sales Price for the sale of any Aircraft provided that no Sales
Fees shall be payable with respect to sales in connection with a refinancing,
restructuring or reorganization with respect to MSAF Group or the Aircraft
after which the Servicer shall remain as servicer of such Aircraft. "TARGET
SALES PRICE" means, with respect to a sale or disposition of any Aircraft, an
amount agreed by MSAF and Servicer, subject to any restrictions imposed by any
Indenture. "NET CASH PROCEEDS" means the gross cash proceeds of any sale or
disposition of Aircraft net of any transaction costs (including transaction
taxes and the Servicer's out-of-pocket expenses) and brokers' commissions.
(b) A Sales Incentive Fee shall be payable at any time during the term of
this Agreement by MSAF to the Servicer equal to (i) five percent multiplied by
(ii) Net Gains earned on the sale or disposition of any Aircraft. "NET GAINS"
means, with respect to the sale of any Aircraft, an amount (not less than zero)
of the Net Cash Proceeds in excess of the Target Sales Price in connection with
such sale.
SECTION 9.06. Expenses. (a) The Servicer shall be responsible for, and
shall not be entitled to reimbursement for, the Servicer's overhead expenses
("OVERHEAD EXPENSES") which shall include, without limitation:
(i) salary, bonuses, company cars and benefits of the Servicer's
employees;
(ii) travel and entertainment expenses of the Servicer's employees;
(iii) office, office equipment and rental expenses other than
office and office equipment rental expense charged by independent
advisors retained by the Servicer with respect to the Aircraft Assets;
(iv) telecommunications expenses;
(v) advertising and promotional expenses; and
(vi) taxes on the income, receipts, profits, gains, net worth or
franchise of the Servicer and payroll, employment and social security
taxes for employees of the Servicer.
(b) (i) Without limiting the Servicer's obligations as Seller under the
Purchase Agreement, the MSAF Group shall be responsible for all costs and
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expenses relating to or associated with the Aircraft Assets other than Overhead
Expenses, ("AIRCRAFT ASSET EXPENSES") which shall include, without limitation,
(A) storage, maintenance, test flight, navigation, landing,
ferry flights, fuel, repossession (whether or not successful),
reconfiguration, refurbishment and repaid expenses related to
Aircraft Assets, including all expenses incurred by the Servicer
relating to compliance with airworthiness directives and service
bulletins, which includes the fees and expenses of independent
technicians and other experts retained for any of the foregoing
purposes other than with respect to expenditures specifically
agreed to be borne by the Servicer in or in connection with the
Lease Novations (as defined in the Purchase Agreement);
(B) insurance expense related to Aircraft Assets, including
all fees and expenses of insurance advisors and brokers;
(C) expenses incurred in connection with the acceptance of
delivery of any Aircraft Asset, whether being sold or leased by
any Person within the MSAF Group;
(D) fees and expenses of independent advisors including
office and office equipment rental expense charged by such
advisors retained by the Servicer with respect to the Aircraft
Assets;
(E) outside legal counsel fees and expenses and other
professional fees and expenses, (i) related to litigation
concerning any Aircraft Asset, (ii) in the case of an Aircraft
being leased in a jurisdiction other than a jurisdiction with
respect to which the Servicer has both leased an aircraft
previously and received an opinion of outside legal counsel
(which may be lessee's outside counsel) and (iii) relating to out
of the ordinary course of business situations; except as provided
in Section 11.02(b)(i); and
(F) taxes reimbursable to the Servicer pursuant to this
Section 9.06;
In the event that MSAF does not approve the payment of any Asset Expense,
the Servicer shall be entitled to make such payment on behalf of the MSAF Group
and to the extent the Servicer does so, the funds so advanced ("REIMBURSABLE
EXPENSES") shall be repaid by MSAF to the Servicer in accordance with paragraph
9.06(b)(ii) of this Section 9.06, provided that:
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(G) The Servicer believes that failure to make such payment
is reasonably likely to prejudice or otherwise adversely affect
the Servicer or its Affiliates' business relationship with the
relevant payee;
(H) The relevant Asset Expense (when added to all the
Aircraft Asset Expenses of the same category incurred to date
during such Year) shall not exceed 110% of the line item amount
in the applicable One Year Approved Budget for such Year or the
Asset Expense shall otherwise have been approved by MSAF; and
(I) The Servicer shall have contracted for or otherwise
committed for such Asset Expense prior to such time.
(ii) Reimbursable Expenses shall be paid by MSAF to the Servicer on
the fifteenth day of the month (or, if such date is not a Business Day,
the next succeeding Business Day) following the month in which payment
of such Reimbursable Expenses was made by the Servicer.
SECTION 9.07. Default Interest. Any late payment of fees and Reimbursable
Expenses under this Agreement shall accrue default interest at One Month LIBOR
until payment thereof, other than late payments arising from an administrative
or technical bank payment error or the amount of which MSAF is contesting in
good faith.
ARTICLE 10
TERMS; RIGHTS TO TERMINATE; CONSEQUENCES OF TERMINATION; SURVIVAL
SECTION 10.01. Term. This Agreement shall expire on the twenty-fifth
anniversary of the last Delivery Date. During such term, this Agreement shall
not be terminable by either party except as expressly provided in this Article
10.
SECTION 10.02. Right to Terminate. (a) At any time during the term of
this Agreement, the Servicer shall in accordance with Section 10.02(a) be
entitled to terminate this Agreement if:
(i) MSAF fails to make any payment it is required to make to the
Servicer within five days after written notice from the Servicer of such
failure;
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(ii) MSAF or the Subsidiaries shall materially breach any of their
obligations under this Agreement other than payment obligations;
(iii) all of the public debt of MSAF is repaid or defeased in full
in accordance with the terms of any Indenture;
(iv) all of the Aircraft of the MSAF Group are sold;
(v) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking
relief in respect of MSAF or the Subsidiaries or in respect of a
substantial part of the property or assets of MSAF or the Subsidiaries
under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other U.S. federal or state or foreign
bankruptcy, insolvency, receivership or similar law, and such proceeding
or petition shall continue undismissed for 120 days or an order or
decree approving or ordering any of the foregoing shall be entered or
MSAF or the Subsidiaries shall go into liquidation, suffer a receiver or
mortgagee to take possession of all or substantially all of its assets
or have an examiner appointed over it, or if a petition or proceeding is
presented for any of the foregoing and not discharged within 120 days;
or
(vi) MSAF or the Subsidiaries shall (A) voluntarily commence any
proceeding or file any petition seeking relief under Title 11 of the
United States Code, as now constituted or hereafter amended, or any
other U.S. federal or state or foreign bankruptcy, insolvency,
receivership or similar law, (B) consent to the institution of, or fail
within 120 days to contest the filing of, any petition described in
clause 10.02(a)(v) above, (C) file an answer admitting the material
allegations of a petition filed against it in any such proceeding or (D)
make a general assignment for the benefit of its creditors.
(b) At any time during the term of this Agreement, MSAF and the
Subsidiaries shall in accordance with Section 10.02(c) be entitled to terminate
this Agreement with respect to one or more Aircraft if:
(i) the Servicer shall materially breach any of its obligations
under this Agreement;
(ii) the Servicer fails to, within a reasonable period of time,
re-lease an Aircraft upon the termination of any Lease or sell an
Aircraft upon commercially reasonable written direction from MSAF;
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(iii) all of the public debt of MSAF is repaid or defeased in full
in accordance with the terms of any Indenture;
(iv) all of the Aircraft of the MSAF Group are sold;
(v) a Change of Control has occurred and, as a result thereof, a
Rating Decline occurs. A "CHANGE OF CONTROL" will be deemed to have
occurred at such time as either (A) any Person or any Persons acting
together that would constitute a "group" (a "GROUP") for purposes of
Section 13(d) of the Securities Exchange Act of 1934, or any successor
provision thereto, together with any Affiliates or Related Persons
thereof, shall beneficially own (within the meaning of Rule 13d-3 under
the Securities Exchange Act of 1934, or any successor provision thereto
("RULE 13D-3") at least 50% of the aggregate voting power of all classes
of voting stock of the Servicer; or (B) any Person or Group, together
with any Affiliates or Related Persons thereof, shall succeed in having
a sufficient number of its nominees elected to the Board of Directors of
the Servicer such that such nominees, when added to any existing
director remaining on the Board of Directors of the Servicer after such
election who was a nominee of or is an Affiliate or Related Person of
such Person or Group, will constitute a majority of the Board of
Directors of the Servicer; provided that with respect to both clauses
(A) and (B) above, a Change of Control shall not be deemed to have
occurred if AIG continues to beneficially own (within the meaning of
Rule 13d-3) at least 51% of the aggregate voting power of all classes of
voting stock of the Servicer.
A "RATING DECLINE" will be deemed to have occurred if at any time
between (a) the date of public notice of a Change of Control, or of the
intention of the Servicer or of any Person to effect a Change of Control
and (b) 90 days after the occurrence of the Change in Control (which
period shall in either event be extended so long as the rating of the
outstanding senior unsecured long-term debt securities of the Servicer
is under publicly announced consideration for possible downgrade by a
Rating Agency), the rating of the outstanding senior unsecured long-term
debt securities of the Servicer is decreased by any Rating Agency from
the rating given by any such Rating Agency on the date hereof.
A "RELATED PERSON" of any Person means any other Person directly or
indirectly owning (a) 5% or more of the outstanding common stock of such
Person, (or, in the case of a Person that is not a corporation, 5% or
more of the equity interest in such Person) or (b) 5% or more of the
combined voting power of the voting stock of such Person.
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(vi) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking
relief in respect of the Servicer or in respect of a substantial part of
the property or assets of the Servicer, under Title 11 of the United
States Code, as now constituted or hereafter amended, or any other U.S.
federal or state or foreign bankruptcy, insolvency, receivership or
similar law, and such proceeding or petition shall continue undismissed
for 120 days or an order or decree approving or ordering any of the
foregoing shall be entered or the Servicer shall go into liquidation,
suffer a receiver or mortgagee to take possession of all or
substantially all of its assets or have an examiner appointed over it or
if a petition or proceeding is presented for any of the foregoing and
not discharged within 120 days; or
(vii) the Servicer shall (A) voluntarily commence any proceeding
or file any petition seeking relief under Title 11 of the United States
Code, as now constituted or hereafter amended, or any other U.S. federal
or state or foreign bankruptcy, insolvency, receivership or similar law,
(B) consent to the institution of, or fail within 120 days to contest
the filing of, any petition described in clause 10.02(b)(vi) above, (C)
file an answer admitting the material allegations of a petition filed
against it in any such proceeding or (D) make a general assignment for
the benefit of its creditors.
(c) (i) A terminating party may, at any time during the term of this
Agreement, by written notice ("TERMINATION NOTICE") to the terminated party,
set forth its determination to terminate this Agreement pursuant to this
Section 10.02 Any Termination Notice shall set forth in reasonable detail the
basis for such termination.
(ii) No later than the fifth Business Day following the delivery of
the Termination Notice (the "EFFECTIVENESS DATE"), the terminated party
shall advise the terminating party in writing whether the terminated
party (A) intends to cure the basis for such termination and, if so, the
action it intends to take to effectuate such cure or (B) does not intend
to cure the basis for such termination (it being understood that failure
of the terminated party to deliver such written advice by such day shall
be deemed to constitute notice that it does not intend to cure the basis
for termination). In the event that the terminated party notifies (or
is deemed to have notified) the terminating party that it does not
intend to cure the basis for such termination, then this Agreement shall
terminate, subject to Section 10.03(c)(ii), immediately or on such
later date that the terminating party shall have indicated in the
Termination Notice. In the event that the terminated party notifies the
terminating party by such fifth Business Day
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that it intends to cure the basis for such termination, then the
terminated party shall (A) have 30 days from the Effectiveness Date to
effectuate such cure to the satisfaction of the terminating party or (B)
if such cure cannot reasonably be expected to be effectuated within a
30-day period, (1) demonstrate to the satisfaction of the terminating
party that substantial progress is being made toward the effectuation of
such cure and (2) effectuate such cure to the reasonable satisfaction of
the terminating party no later than the sixtieth day following the
Effectiveness Date. Upon the failure of the terminated party to
effectuate a cure in accordance with the immediately preceding sentence,
this Agreement shall terminate on the latest of (A) the day immediately
following the expiration of such 30 or 60-day period, as the case may
be, (B) such later date as shall be indicated in the Termination Notice
and (C) the date as of which a Replacement Servicer has been engaged to
perform the Services with respect to the Aircraft and has accepted such
appointment in accordance with the provisions of Section 10.03(c).
SECTION 10.03. Consequences of Termination.
(a) (i) Upon the expiration or termination of this Agreement in accordance
with this Article 10, or upon the removal of the Servicer with respect to the
performance of the Services for any Aircraft, the Servicer will promptly
forward to MSAF any notices, reports and communications received by it from any
relevant Lessee after termination or expiration.
(ii) MSAF will notify promptly each relevant Lessee and any
relevant third party of the termination or expiration of the Servicer
under this Agreement in relation to any of the Aircraft and will request
that all such notices, reports and communications thereafter be made or
given directly to or as directed by MSAF.
(b) A termination or resignation in relation to any or all Aircraft shall
not affect the respective rights and liabilities of either party accrued prior
to such termination in respect of any prior breaches hereof or otherwise.
(c) (i) Upon the expiration or termination of this Agreement in accordance
with this Article 10, or upon the removal of the Servicer with respect to the
performance of the Services for any Aircraft, the Servicer will cooperate with
any Replacement Servicer, including providing all information, documents and
records relating to the Aircraft.
(ii) Other than pursuant to a termination of this Agreement in
accordance with Section 10.02(a)(i), this Agreement may not be
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terminated with respect to the Servicer, in whole or in part, unless a
Replacement Servicer has been appointed and has accepted such
appointment; provided, however, that in the event that a Replacement
Servicer shall not have been appointed within 90 days after any
termination of this Agreement with respect to the Servicer or any
resignation by the Servicer, the Servicer may petition any court of
competent jurisdiction for the appointment of a Replacement Servicer.
(d) Upon the termination of this Agreement in accordance with this Article
10, or upon the removal of the Servicer with respect to the performance of the
Services for any Aircraft, MSAF shall continue to pay the Servicing Fees and
Reimbursable Expenses to the Servicer until a Replacement Servicer shall have
been appointed and shall have accepted such appointment in accordance with the
provisions of Section 10.03(c) and such appointment has become effective.
(e) Upon the termination of this Agreement in accordance with this Article
10, or upon the removal of the Servicer with respect to the performance of the
Services for any Aircraft, the Servicer shall promptly return the Security
Deposits and the originals within its possession of all applicable Aircraft
Assets Related Documents and other documents related to the Aircraft Assets to
MSAF and shall provide access to other documentation and information relating
to the business of the MSAF Group (and, to the extent practicable, copies
thereof) within its possession as is reasonably necessary to the conduct of the
MSAF Group's business.
(f) Upon the expiration or termination of this Agreement in accordance
with this Article 10, the parties shall, subject to Section 10.04 and Section
10.03(b), be relieved of any obligations hereunder.
SECTION 10.04. Survival. Notwithstanding any termination or the
expiration of this Agreement, the obligations of MSAF, and the Subsidiaries
under Section 3.03, Section 3.04, Section 10.03, Section 10.04, and Article 11
and the Servicer's obligations under Section 3.03, Section 5.05, Section 10.03,
Section 10.04, Article 11.01 and 13.09 shall survive such termination or
expiration, as the case may be.
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ARTICLE 11
INDEMNIFICATION
SECTION 11.01. Indemnity. (a) MSAF and the Subsidiaries do hereby assume
liability for, and do hereby jointly and severally agree to indemnify reimburse
and hold harmless on an After-Tax Basis, the Servicer from any and all Losses
that arise as a result of the Servicer's performance of any of its obligations
as Servicer or as a result of any action which the Servicer is requested to
take or requested to refrain from taking by MSAF; provided that such indemnity
shall not extend to (i) any Loss which arises as a result of the willful
misconduct of the Servicer, (ii) any Loss which directly results from a breach
by the Servicer of the express terms and conditions of this Agreement or (iii)
any Loss for which the Servicer indemnifies MSAF and its Affiliates arising as
a result of any material misstatements or omissions in any public filings
relating to written information on the Aircraft and the Servicer provided by
the Servicer for disclosure in such public filings.
(b) The Servicer agrees to give MSAF prompt notice of any action, claim,
demand, discovery of fact, proceeding or suit for which the Servicer intends to
assert a right to indemnification under this Agreement; provided, however, that
failure to give such notification shall not affect the Servicer's entitlement
to indemnification under this Section 11.01 unless and only to the extent such
failure results in actual material prejudice to any of MSAF or the Subsidiaries
with respect to the action, claim, demand, discovery of fact, proceeding or
suit for which a right of indemnification is asserted.
SECTION 11.02. Procedures for Defense of Claims. (a) If a Third Party
Claim is made against the Servicer, the Servicer shall promptly notify MSAF in
writing of such claim (which notice shall include all relevant information
reasonably necessary for MSAF to understand such claim which is in the
possession or under the control of, or can be obtained by, the Servicer at the
time of such notice, subject to Applicable Laws and confidentiality
obligations), and the Servicer or MSAF (as agreed between them) will undertake
the defense thereof. The failure to notify MSAF promptly shall not relieve it
of its obligations under this Article 11 unless such failure results in actual
material prejudice to any of MSAF or the Subsidiaries with respect to the
action, claim, demand, discovery of fact, proceeding or suit for which a right
of indemnification is asserted.
(b) If agreed and accepted by the Servicer, MSAF shall within 30
days, undertake the conduct and control, through counsel of its own
choosing (subject to the consent of the Servicer, such consent not to be
unreasonably withheld or delayed) and at the MSAF Group's sole risk and
expense, of the good faith settlement or defense of such claim, and the
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Servicer shall cooperate fully with MSAF in connection therewith;
provided that (i) at all times the Servicer shall be entitled to
participate in such settlement or defense through counsel chosen by it
(after reasonable consultation with MSAF), and the fees and expenses of
such counsel shall be borne by the Servicer, and (ii) none of MSAF or
the Subsidiaries shall be entitled to settle such claims unless it shall
have confirmed in writing the obligation of MSAF or the Subsidiaries to
indemnify the Servicer for the liability asserted in such claim.
(c) So long as MSAF is reasonably contesting any such claim in good faith,
the Servicer shall fully cooperate with MSAF in the defense of such claim as
reasonably required by MSAF, and MSAF shall reimburse the Servicer for
reasonable out-of-pocket expenses incurred in connection with such cooperation.
Such cooperation shall include the retention and the provision of records and
information which are reasonably relevant to such Third Party Claim and the
availability on a mutually convenient basis of directors, officers and
employees to provide additional information. The Servicer shall not settle or
compromise any claim without the written consent of MSAF unless the Servicer
agrees in writing to forego any and all claims for indemnification from MSAF
and the Subsidiaries with respect to such claims.
SECTION 11.03. Reimbursement of Costs. The costs and expenses, including
fees and disbursements of counsel (except as provided in Section 11.02(b)(i))
and expenses of investigation, incurred by the Servicer in connection with any
Third Party Claim, shall be reimbursed on the fifteenth of each month (or if
not a Business Day, the next succeeding Business Day) by MSAF upon the
submission of evidence reasonably satisfactory to MSAF that such expenses have
been incurred in the preceding month, without prejudice to MSAF's right to
contest the Servicer's right to indemnification and subject to refund in the
event that MSAF, and the Subsidiaries are ultimately held not to be obligated
to indemnify the Servicer.
ARTICLE 12
ASSIGNMENT AND DELEGATION
SECTION 12.01. Assignment and Delegation. (a) No party to this Agreement
shall assign or delegate this Agreement or all or any part of its rights or
obligations hereunder to any Person without the prior written consent of each
of the other parties; provided, however, the foregoing provisions on assignment
and delegation shall not limit the ability of (i) the Servicer to contract with
any Person, including any of its Affiliates, for services in respect of
Aircraft Assets or
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(ii) MSAF to transfer or assign the benefit of the Servicer's representations,
warranties, covenants and indemnity obligations to a special purpose entity or
entities established by it in connection with a securitization of the Aircraft
Assets.
(b) Without limiting the foregoing, any Person who shall become a
successor by assignment or otherwise of any of MSAF, the Subsidiaries or the
Servicer (or any of their respective successors) in accordance with this
Section 12.01 shall be required as a condition to the effectiveness of any such
assignment or other arrangement to become a party to this Agreement.
ARTICLE 13
MISCELLANEOUS
SECTION 13.01. Best Efforts. In this Agreement the term "best efforts"
shall mean reasonable best efforts under the commercial circumstances at the
time.
SECTION 13.02. Notices. Any notice, request or information required or
permissible under this Agreement will be in writing and in English. Notices
will be delivered in person or sent by fax, letter (mailed airmail, certified
and return receipt requested), or by expedited delivery addressed to the
parties as set forth below in this Section. In the case of a fax, notice will
be deemed received upon the date set forth on the confirmation of receipt
produced by the sender's fax machine immediately after the fax is sent. In the
case of a mailed letter, notice will be deemed received on the tenth (10th) day
after mailing. In the case of a notice sent by expedited delivery, notice will
be deemed received on the date of delivery set forth in the records of the
person which accomplished the delivery. If any notice is sent by more than one
of the above listed methods, notice will be deemed received on the earliest
possible date in accordance with the above provisions. Notices will be
addressed as follows:
if to MSAF, to:
Administrative Agent
c/o KPMG Corporate Finance
Russell Court
St. Stephen's Green
Dublin 2 Ireland
Attention: Kieran O'Keefe
Fax: +353 1 708 1500
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with a copy to:
Davis Polk & Wardwell
1 Frederick's Place
London EC2R 8AB
Attention: Mr. Tom Reid
Fax: +44-171-418 1400
and
Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
Attention: Mr. Scott Peterson
Fax: +44-171-415 4328
if to the Servicer, to:
International Lease Finance Corporation
1999 Avenue of the Stars
39th Floor
Los Angeles, CA 90067
Attention: Legal Department
Fax: +1 310 788 1990
or to such other address as any party hereto shall from time to time designate
in writing to the other parties.
All such notices, requests and other communications shall be deemed received on
the date of receipt by the recipient thereof if received prior to 7 p.m. in the
place of receipt and such day is a business day in the place of receipt.
Otherwise, any such notice, request or communication shall be deemed not to
have been received until the next succeeding business day in the place of
receipt.
SECTION 13.03. Governing Law. This agreement shall be governed by and
construed in accordance with the law of the State of New York.
SECTION 13.04. Jurisdiction. Except as otherwise expressly provided in
this Agreement, the parties hereto agree that any suit, action or proceeding
seeking to enforce any provision of, or based on any matter arising out of or
in connection with, this Agreement or the transactions contemplated hereby may
be brought in the United States District Court for the Southern District of New
York
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or any other New York State court sitting in New York City, and each of the
parties hereby consents to the jurisdiction of such courts (and of the
appropriate appellate courts therefrom) in any such suit, action or proceeding
and irrevocably waives, to the fullest extent permitted by law, any objection
which it may now or hereafter have to the laying of the venue of any such suit,
action or proceeding in any such court or that any such suit, action or
proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be
served on any party anywhere in the world, whether within or without the
jurisdiction of any such court. Without limiting the foregoing, each party
agrees that service of process on such party as provided in Section 13.02 shall
be deemed effective service of process on such party.
SECTION 13.05. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
SECTION 13.06. Counterparts; Third Party Beneficiaries. This Agreement
may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were
upon the same instrument. This Agreement shall become effective when each
party hereto shall have received a counterpart hereof signed by the other party
hereto. No provision of this Agreement is intended to confer upon any Person
other than the parties hereto any rights or remedies hereunder.
SECTION 13.07. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter of this
Agreement and supersedes all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter of this
Agreement.
SECTION 13.08. Power of Attorney. Each of MSAF and the Subsidiaries shall
appoint the Servicer and its successors, and its permitted designees and shall
assign, as their true and lawful attorney-in-fact. All services to be
performed and actions to be taken by the Servicer pursuant to this Agreement
shall be performed to and on behalf of each of MSAF and the Subsidiaries. The
Servicer shall be entitled to seek and obtain from each of MSAF and the
Subsidiaries a power of attorney in respect of the execution of any specific
action as the Servicer deems appropriate.
SECTION 13.09. Restrictions on Disclosure. The Servicer agrees that it
shall not, prior to the termination or expiration of this Agreement or within
the three years after such termination or expiration, disclose to any Person
any
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confidential or proprietary information, whether of a technical, financial,
commercial or other nature, received directly or indirectly from any Person
within the MSAF Group regarding the MSAF Group's business or the Aircraft
Assets or the Leases, except as authorized in writing by MSAF, and except:
(a) to Representatives of the Servicer and any of its Affiliates in
furtherance of the purpose of this Agreement;
(b) to the extent required by Applicable Law or by judicial or
administrative process, but in the event of proposed disclosure, the Servicer
shall seek the assistance of MSAF to protect information, in which MSAF has an
interest, to the maximum extent achievable;
(c) to the extent that the information:
(i) was generally available in the public domain;
(ii) was lawfully obtained from a source under no obligation or
confidentiality, directly or indirectly, to any Person within the MSAF
Group;
(iii) was disclosed to the general public with the approval of any
Person within the MSAF Group;
(iv) was in the files, records or knowledge of the Servicer or any
of the Servicer's Affiliates prior to initial disclosure thereof to the
Servicer or any of the Servicer's Affiliates by any Person within the
MSAF Group;
(v) was provided by any Person within the MSAF Group to the
Servicer or any of the Servicer's Affiliates without any express written
restriction on use of or access to such information; or
(vi) was developed independently by the Servicer or any of the
Servicer's Affiliates; and
(d) to the extent the Servicer deems necessary to protect and enforce its
rights and remedies under this Agreement.
SECTION 13.10. Rights of Setoff. To the extent permitted by Applicable
Law, the Servicer hereby waives any right it may have under Applicable Law to
exercise any rights of setoff it has under Applicable Law with respect to any
assets it holds owned by, or money or monies it owes to, any Person within the
MSAF Group pursuant to and in accordance with the terms and conditions of this
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Agreement; provided, however, that this Section 13.10 shall not affect any
rights of setoff or other rights that the Servicer has or may have under the
express terms and conditions of this Agreement.
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IN WITNESS WHEREOF, this Agreement has been duly executed on the date
first written above.
INTERNATIONAL LEASE FINANCE
CORPORATION
By: /s/ Alan H. Lund
Name: Alan H. Lund
Title: Executive Vice President
MORGAN STANLEY AIRCRAFT FINANCE
By: /s/ Karl Essig
Name: Karl Essig
Title: Attorney-in-Fact
THE ENTITIES LISTED ON APPENDIX A HERETO
By: /s/ Karl Essig
Name: Karl Essig
Title: Attorney-in-Fact
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APPENDIX A
MSA I, a Delaware business trust
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Aircraft Assets Services
The provision of the Services set forth in this Schedule 2.02(a) will be
subject in all cases to such approval as may be required or such limitations as
may be imposed pursuant to Section 7.06 of this Agreement and the provisions of
this Schedule 2.02(a) shall be deemed to be so qualified.
Unless otherwise defined herein, all capitalized terms used in this
Schedule 2.02(a) have the meanings assigned to such terms in the Purchase
Agreement.
ARTICLE 1
LEASE SERVICES
SECTION 1.01. Collections and Disbursements.
In connection with each Lease of an Aircraft Asset under which any Person
within the MSAF Group is the lessor, the Servicer will:
(a) invoice the Lessee (if contemplated by the applicable Lease) or
otherwise arrange, on behalf of such Person within the MSAF Group, for all
payments due from the Lessee, including Rents, Security Deposits, Maintenance
Reserves, late payment charges and any payments in respect of Taxes and other
payments (including technical, engineering, insurance and other recharges) due
under the relevant lease, direct the Lessee, subject to the terms of the lease,
to make such payments to such accounts as are specified in writing by the
Calculation Agent and enforce the payment thereof in the event of a nonpayment
by the relevant due date;
(b) review from time to time, as deemed necessary by the Servicer, the
level of rents, Security Deposits, Maintenance Reserves and other amounts that
may be adjusted under the Lease and propose to the relevant Lessee or make such
adjustments to the rents, Security Deposits, Maintenance Reserves and other
amounts as are required or that the terms of the relevant Lease and practices
that the Servicer believes are prevalent in the operating lease market;
(c) maintain appropriate records regarding payments under the Leases;
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(d) subject to the terms of any applicable Aircraft Asset Related
Document, take such actions as are necessary to apply any payments of any type
received from any Lessee on a basis consistent with the directions of such
Lessee, or as otherwise reasonably determined by the Servicer, and, to the
extent that any such payments are made to an account other than the account to
which such payment should have been directed pursuant to such Lessee's
direction, to take such further actions as are necessary to give effect to such
directions; and
(e) provide for the safekeeping and recording of any letters of credit,
guarantees or other credit support (other than cash and cash equivalents) held
as part of Security Deposits or Maintenance Reserves and the timely renewal or
drawing on or disbursement thereof as provided under the applicable Lease or
other Aircraft Asset Related Document or otherwise in accordance with Section
1.05 of this Schedule 2.02(a).
SECTION 1.02. Maintenance. The Servicer will perform the following
technical services relating to the maintenance of the Aircraft Assets:
(a) monitor the performance of maintenance obligations by Lessees under
all Leases relating to the Aircraft Assets by including the Aircraft Assets in
the Servicer's technical audit program (which shall include, if deemed
necessary based on the reasonable determination of the Servicer, inspection of
each Aircraft Asset and maintenance of a record of all written reports
generated in connection with such inspections) consistent with practices
employed from time to time by International Lease Finance Corporation and its
Affiliates with respect to their own Aircraft; the Servicer shall advise MSAF
as to the content of such technical audit program and shall advise MSAF as to
any material change to such technical audit program from time to time;
(b) in connection with a termination or expiration of a Lease under which
any Person within the MSAF Group is the lessor:
(i) arrange for the appropriate technical inspection of the
Aircraft Asset for the purpose of determining if the re-delivery
conditions under the Lease have been satisfied;
(ii) maintain a record of the return acceptance certificate and
related written materials normally received and retained or generated by
the Servicer in connection with such inspection and provide reasonable
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access to such certificates and written materials to the relevant
Persons within the MSAF Group;
(iii) on the basis of the final inspection and available records,
determine whether the Lessee has complied with the return condition and
maintenance requirements of the applicable Lease;
(iv) (A) determine whether the Lessee has satisfied the re-delivery
conditions applicable to the Aircraft Asset specified in the Lease and
negotiate any modifications, repairs, refurbishments, inspections or
overhauls to or compromises of such conditions that the Servicer deems
reasonably necessary or appropriate, (B) determine the application of
any available Security Deposits, Maintenance Reserves or other payments
under the Lease and (C) maintain a record of the satisfaction of such
conditions and accept redelivery of the Aircraft Asset; and
(v) determine the need for and procure any maintenance or
refurbishment of the Aircraft Asset upon redelivery, including
compliance with applicable airworthiness directives, service bulletins
and other modifications in all cases which the Servicer may deem
reasonably necessary or appropriate for the marketing of the Aircraft
Asset consistent with its own practice with respect to its own aircraft;
(c) consider and, to the extent the Servicer deems reasonably necessary or
appropriate, approve any Lessee-originated modifications to any Aircraft Asset
submitted by any Lessee:
(i) to the extent authorized by the terms of the relevant Lease; or
(ii) which the Servicer reasonably determines would not result in a
material diminution in value of the Aircraft Asset;
(d) estimate the amount (if any) MSAF is obliged to contribute pursuant to
the provisions of a Lease (taking into account the amount of Maintenance
Reserves available with respect to such Lease and the receivables position of
the related Lessee) to maintenance work performed, the cost of complying with
any modification requirements, airworthiness directives and similar
requirements; and
(e) arrange appropriate storage and any required on-going maintenance of
any Aircraft Asset, at the expense of MSAF, following termination of a Lease
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for any reason and redelivery of the Aircraft Asset thereunder and prior to
delivery of such Aircraft Asset to a new lessee or purchaser, consistent with
the Servicer's own practice with respect to its own aircraft.
The Servicer shall generally provide the technical/maintenance advisory
services set forth in this Section 1.02 of this Schedule 2.02(a) through the
use of its own staff, consistent with the Servicer's own practice with respect
to its own aircraft; provided that it shall utilize third parties to provide
such technical/maintenance services where it shall deem appropriate (it being
understood that while the obligations set forth in Section 1.02 of this
Schedule 2.02(a) are, to the extent possible, generally anticipated to be
discharged by the Servicer without resorting to third party service providers,
the Servicer retains the flexibility to engage third party service providers as
it reasonably determines in its sole discretion to be appropriate).
SECTION 1.03. Insurance. (a) The Servicer will provide the following
insurance services:
(i) negotiate the insurance provisions of any proposed lease or
other agreement affecting any of the Aircraft Assets, with such
provisions to include such minimum coverage amounts with respect to hull
and liability insurance as are consistent with ILFC's commercially
reasonable practice with respect to its own aircraft with any
differences in such amounts and the amounts set forth on Schedule
1.03(a) to this Schedule 2.02(a) to be notified to MSAF by the Servicer;
(ii) monitor the performance of the obligations of Lessees relating
to insurance under Leases of any Aircraft Assets and ensure that
appropriate evidence of insurance exists with respect to any Aircraft
Assets maintenance facilities providing maintenance work on the Aircraft
paid for by the Servicer;
(iii) assist in arranging, through MSAF's broker, a group aviation
insurance program covering the Aircraft Assets (it being understood that
any savings resulting from a group policy covering both Aircraft Assets
and Other Assets shall be shared equitably based on the amount of
insurance obtained and premium paid thereunder with respect to the
covered Aircraft Assets, on the one hand, and the Other Assets, on the
other hand), with such minimum coverage amounts with respect to hull and
liability insurance as are consistent with ILFC's commercially
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reasonable practice with respect to its own aircraft with any
differences in such amounts and the amounts set forth on Schedule
1.03(a) to this Schedule 2.02(a) to be notified to MSAF by the Servicer;
(iv) arrange, through MSAF's broker, at the expense and written
direction of MSAF, such political risk insurance for Aircraft Assets
habitually based or registered in those countries in a list to be
determined by MSAF from time to time by MSAF and such other insurance
related thereto from the sources and with such minimum coverage amounts
with respect to hull insurance as are consistent with ILFC's
commercially reasonable practice with respect to its own aircraft with
any differences in such amounts and the amounts set forth on Schedule
1.03(a) to this Schedule 2.02(a) to be notified to MSAF by the Servicer;
(v) if at any time any Aircraft Asset ceases to be insured or any
Person within the MSAF Group requires insurance coverage relating to an
Aircraft for any reason, including default by the lessee or an Aircraft
Asset not being leased upon termination of a Lease, the Servicer will
arrange through MSAF's broker, at the direction and expense of MSAF,
alternative insurance coverage, with such minimum coverage amounts with
respect to hull and liability insurance as are set forth on Schedule
1.03(a) to this Schedule 2.02(a), except as notified to MSAF by the
Servicer;
(vi) advise MSAF of any settlement offers received by the Servicer
from a Lessee or its insurer with respect to any claim of damage or loss
in excess of the damage notification threshhold in the relevant Lease
with respect to an Aircraft Asset, provide MSAF with copies of all
relevant documentation related thereto and such other additional
information and advice from the Lessee's or the insurer's agents,
brokers or adjusters as MSAF may reasonably request and, upon direction
from MSAF that any settlement offer received by the Servicer related
thereto is acceptable (which direction, if not received 15 days after
such advisement, shall be deemed to be a direction not to accept such
settlement offer), forward to MSAF's insurance broker the appropriate
documentation, including releases and any indemnities required in
connection with such releases, to give effect to such settlement offer
and procure the execution of such documentation by MSAF.
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provided, however, that, in each case where insurance is to be obtained by the
Servicer through MSAF's broker, such insurance is reasonably available in the
relevant insurance market using reasonable sourcing techniques consistent with
the techniques for the Servicer's then current practice for obtaining such
insurance. Any decision or action implemented by or on behalf of MSAF as a
result of the insurance services provided by the Servicer is solely the decision
of MSAF. The foregoing provisions shall apply to any arrangements in which
Persons other than Lessees have possession of, or insurance responsibility for,
an Aircraft Asset (including in the event that an Aircraft Asset has been sold
pursuant to a mortgage, deferred payment agreement or any similar arrangement).
(b) The Servicer shall provide to MSAF such periodic reports regarding
insurance matters relating to the Aircraft Assets as the Servicer shall
generate internally or deliver to MSAF's insurance broker from time to time or
as MSAF shall request.
SECTION 1.04. Administration. The Servicer is authorized to administer
each Lease in accordance with its terms and as otherwise specifically addressed
herein.
SECTION 1.05. Enforcement. The Servicer is authorized to enforce the
obligations owed to the relevant Person within the MSAF Group by the Lessee and
any other parties under each Lease and under any ancillary agreements thereto
delivered by MSAF to the Servicer (including any guarantees of the obligations
of the Lessee). Following any default by a Lessee under the applicable Lease,
the Servicer will take all steps as it deems reasonably necessary or
appropriate to preserve and enforce the rights of the relevant Person within
the MSAF Group under the applicable Lease, including entering into negotiations
with such Lessee with respect to the restructuring of such Lease or declaration
of an event of default under the applicable Lease, drawing on or making
disbursement of any Security Deposits, Maintenance Reserves or any letters of
credit, guarantees or other credit support thereunder, voluntary or involuntary
termination of the Lease and repossession of the Aircraft Asset that is the
subject of the Lease, and pursuing such legal action with respect thereto as
the Servicer deems reasonably necessary or appropriate.
SECTION 1.06. Lease Modifications. (a) The Servicer shall be authorized
to make such amendments and modifications to any Lease as it shall deem
reasonably necessary or appropriate; provided, however, that such amendment or
modification shall require the approval of MSAF pursuant to
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Section 7.06 of this Agreement if the provisions of such amendment or
modification, were they to be included in a new Lease to be entered into after
the date hereof, would, on their own, cause the entering into of such new Lease
to require the approval of MSAF pursuant to Section 7.06(a)(ii) of this
Agreement. Such amendments or modifications may be made without regard to
whether there is a default by the Lessee or other party under or with respect
to any such Lease.
(b) The Servicer may waive, in its absolute discretion, overdue interest
due from any Lessee under any Lease on any default in payment of rent,
maintenance reserves or other amount thereunder if any such default is cured
within one month of the date on which such payment was due and such amount is
less than or equal to $50,000.
SECTION 1.07. Options and Other Rights. The Servicer shall be authorized
to take such action as it shall deem reasonably necessary or appropriate with
respect to:
(a) the exercise by any Lessee of any option or right affecting the
applicable Aircraft Asset or the applicable Lease, consistent with the terms of
any such option or right; and
(b) the exercise on behalf of any Person within the MSAF Group of any
right or option that such Person may have with respect to any of the Aircraft
Assets or the Leases provided such exercise is in accordance with the terms of
the relevant Lease.
SECTION 1.08. Lessee Solicitations. Upon MSAF's request, with respect to
the Aircraft Assets, the Servicer shall provide assistance to the relevant
Persons within the MSAF Group with respect to (a) obtaining Lessee consents,
novations, assignments, amendments and related documentation (including
insurance certificates, title transfer documents and legal opinions) and (b)
the issue (or reissue) or amendment of letters of credit, guarantees and
related documentation.
ARTICLE 2
COMPLIANCE WITH COVENANTS
SECTION 2.01. Compliance Generally. The Servicer shall take such actions
as it shall deem reasonably necessary or appropriate to keep MSAF in compliance
with its obligations and covenants under any Indenture solely to the extent
that such obligations and covenants specifically relate to the status,
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insurance, maintenance or operation of the relevant Aircraft Asset; provided,
however, that the foregoing shall only apply to any indenture covenants that
are set forth in full in copies of such Indenture delivered by MSAF to the
Servicer, each certified by MSAF as a true and complete copy thereof (and MSAF
shall promptly provide the Servicer with all amendments, supplements and
waivers thereto, so certified).
SECTION 2.02. Certain Matters Relating to Concentration Thresholds.
(a) Concentration Thresholds Generally. The Servicer shall comply with any
covenants specifically relating to limitations on Lessee concentration set forth
in any Indenture ("CONCENTRATION THRESHOLDS") and shall promptly inform MSAF of
any proposed transaction that it determines may result in such Concentration
Thresholds being exceeded, and MSAF shall promptly provide to the Servicer any
information that the Servicer may reasonably require in connection with such
Concentration Thresholds in order to comply with the provisions of this Section
2.02 of this Schedule 2.02(a). The Servicer shall not enter into any such
transaction other than pursuant to the terms of Section 2.02(b) below.
(b) Directions to Servicer. The Servicer shall not enter into any
transaction with respect to which it has provided notice pursuant to Section
2.02(a) of this Schedule 2.02(a) until MSAF has provided a written
certification to the Servicer to the effect that such transaction will not
result in any violation of the Concentration Thresholds and the Servicer shall
be entitled to rely upon such certification for all purposes of this Agreement
and this Schedule 2.02(a); provided that if the Servicer has not received such
written certification within fifteen Business Days of notification by the
Servicer to MSAF, the Servicer shall not enter into any such transaction.
ARTICLE 3
LEASE MARKETING
(a) The Servicer shall provide and perform lease marketing services with
respect to the Aircraft Assets and in connection therewith is authorized:
(i) to negotiate and enter into any commitment for a lease of an
Aircraft Asset on behalf of and (through a power of attorney) in the
name of the relevant Person within the MSAF Group; and
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(ii) to include within any commitment for a Lease of an Aircraft
Asset any intermediate Lease or Leases through any Person within the
MSAF Group that the Servicer deems reasonably necessary or appropriate.
(b) The Servicer shall commence the negotiation of any commitment for a
Lease or Leases of Aircraft Assets in a manner consistent with the practices
employed by the Servicer with respect to its aircraft operating leasing
services business generally and shall commence the drafting of, and negotiation
with respect to, any Leases for Aircraft Assets on the following basis:
(i) in the case of any proposed Lessee that is not and has not been
a lessee of an aircraft managed or serviced by the Servicer, the
Servicer shall commence the drafting of, and negotiation with respect
to, a Lease for Aircraft Assets based on the form of lease agreement or
agreements to be agreed by the parties following execution of this
Agreement and attached hereto as Exhibit B (as such form of lease shall
be amended from time to time by the Servicer, subject to Section (c) of
this Article 3 of this Schedule 2.02(a) below, the "PRO FORMA LEASE") or
with a form of lease agreement, the material provisions of which are
generally economically and legally no worse from the point of view of
the lessor than the Pro Forma Lease; and
(ii) in the case of any proposed Lessee that is or was a lessee of
an aircraft managed or serviced by the Servicer, the Servicer may
commence the drafting of, and negotiation with respect to, a Lease for
Aircraft Assets based on a form of lease substantially similar to the
lease previously used with respect to such Lessee (the "PRECEDENT
LEASE") or a Lease in the form set out in clause (b)(i) above.
Provided that the Servicer commences the negotiation of a Lease of any
Aircraft Asset in accordance with clauses (b)(i) and (b)(ii) above, the terms
of any executed Lease may vary from the terms of the Pro Forma Lease or the
Precedent Lease. Section (b) of this Schedule 2.02(a) of this Article 3 shall
not be applicable to the negotiation with respect to, or execution of, any
Lease for Aircraft Assets in which negotiations commenced on or prior to the
Delivery Date for such Aircraft Asset. Subject to Section (c) of this Article
3 of this Schedule 2.02(a), the Servicer is authorized to execute and deliver
binding leases and related agreements on behalf of the relevant Person within
the MSAF Group based on the foregoing procedures. It is the intention of the
parties that following the execution and delivery of any Lease with respect to
Aircraft Assets the
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Servicer shall deliver a copy of the executed Lease, together with a copy
thereof marked to reflect changes from the Pro Forma Lease or the Precedent
Lease, as applicable, to MSAF within 25 Business Days of such execution and
delivery (it being understood that in any event such executed (and marked)
Leases shall be delivered in such a manner so as not to materially adversely
impair MSAF's ability to satisfy its obligations with respect to the core lease
provision requirements of any Indenture.
(c) (i) On an annual basis, upon ten Business Days' prior written notice
from MSAF (the "ANNUAL REVIEW"), the Servicer shall provide MSAF with a copy of
its then current Pro Forma Lease, together with a copy thereof marked to
reflect changes from the version of the Pro Forma Lease that was produced by
the Servicer following the immediately preceding Annual Review to give effect
to the terms of Section (c)(ii) of this Article 3 of this Schedule 2.02(a)
below (or from the Pro Forma Lease utilized as of the last Delivery Date in the
case of the first such Annual Review.)
(ii) On or prior to each anniversary of the last Delivery Date and
following the Annual Review, MSAF shall advise the Servicer in writing
whether any provisions in the then current Pro Forma Lease that
correspond to any core lease provisions or similar provisions are
required in accordance with the terms of any Indenture to be deleted
from such Pro Forma Lease and replaced with the provision corresponding
thereto in the most recent Pro Forma Lease in which such provision was
determined to be in accordance with the terms of such Indenture.
Following any such written advice from MSAF, the Servicer shall amend
the Pro Forma Lease accordingly and shall commence the negotiation of
any Lease thereafter with the Pro Forma Lease as so amended in respect
of any such provision.
(d) The Servicer shall deliver any Aircraft Asset pursuant to the terms of
the documentation of the Lease or Leases of such Aircraft Asset, including upon
an extension of such Lease or Leases.
(e) The Servicer shall generally provide the marketing services set forth
in this Article 3 through the use of its own marketing staff where it shall
deem appropriate and shall utilize third parties to provide such marketing
services where it shall deem appropriate (it being understood that while the
obligations set forth in Article 3 are, to the extent possible, generally
anticipated to be discharged by the Servicer without resorting to third party
service providers, the Servicer
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retains the flexibility to engage third party service providers as it
determines in its sole discretion to be appropriate).
ARTICLE 4
PURCHASES AND SALES OF AIRCRAFT AND ENGINES
(a) The Servicer shall provide and perform sales services with respect to
the Aircraft Assets at, and on a basis consistent with, the direction from time
to time of MSAF, and, in connection therewith, is authorized:
(i) to enter into any commitment for a sale of an Aircraft Asset on
behalf and (through a power of attorney) in the name of the relevant
Person within the MSAF Group; and
(ii) to include within any sale any intermediate Lease or Leases
through any Person within the MSAF Group that the Servicer deems
reasonably necessary or appropriate; provided, however, that, except as
otherwise required in accordance with the terms of a Lease, the Servicer
shall not enter into any sale of any Aircraft Asset or agreement to sell
any Aircraft Assets without obtaining the approval of MSAF pursuant to
Section 7.06(a) of this Agreement.
(b) The Servicer shall negotiate documentation of any sale and, subject to
Section (a) of this Article 4 of this Schedule 2.02(a), is authorized to
execute and deliver binding agreements on behalf and (through a power of
attorney) in the name of the relevant Person within the MSAF Group.
(c) The Servicer shall deliver any Aircraft Asset pursuant to the terms of
the documentation of the sale.
(d) In the event that MSAF directs the Servicer to arrange for the sale of
any Aircraft Asset, the Servicer will not be required to take any such action
until MSAF shall provide the Servicer with an Officer's Certificate certifying
that such sale complies with the terms of any Indenture and that the Servicer
is entitled to rely upon such certification for all purposes of this Agreement
and this Schedule 2.02(a).
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(e) Notwithstanding any other provision in Section 7.06 of this Agreement
to the contrary, the Servicer shall be permitted to purchase, sell or exchange
any Engine relating to an Aircraft or any part or components thereof or spare
parts or ancillary equipment or devices furnished with an Aircraft at such
times and on such terms and conditions as the Servicer deems reasonably
necessary or appropriate in connection with its performance of the Services;
provided, however, the Servicer shall not be permitted to purchase, or enter
into any order to purchase, Engines or spare parts in a quantity in excess of
that quantity then required to enable the Aircraft Assets to be leased without
obtaining the prior written consent of MSAF.
ARTICLE 5
MARKET AND OTHER RESEARCH
SECTION 5.01. Valuations. From time to time, including on a regular
basis, MSAF may obtain current or projected valuations of the Aircraft Assets
from any internationally recognized independent appraiser chosen by MSAF and
the Servicer shall, upon such request, provide such information and assistance
relating to such valuation services with respect to the Aircraft Assets as
shall be reasonably necessary or appropriate in connection with such
valuations.
SECTION 5.02. Regulatory Changes. The Servicer shall (a) advise MSAF on a
timely basis in summary form of such information regarding legal and regulatory
material changes and developments with respect to each Aircraft Asset after the
relevant Delivery Date, of which the Servicer has knowledge, but only if such
legal or regulatory developments are applicable to the Aircraft Assets, and (b)
take such action as may be necessary or appropriate to comply therewith.
SECTION 5.03. Market Research. The Servicer shall provide reasonable face
to face or telephone access to executives, officers and employees of the
Servicer as reasonably requested by MSAF concerning market information with
respect to commercial aviation demand in terms of traffic growth, new aircraft
requirements and other information relevant to the MSAF Group's long-term
planning with respect to Leases, purchases and sales, market conditions,
industry trends and the Aircraft Assets.
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SECTION 5.04. Lessee Information. The Servicer shall provide on a timely
basis in summary form such information regarding default history or other
material Lessee information of which the Servicer has knowledge.
ARTICLE 6
AIRCRAFT ASSET CASH SERVICES
SECTION 6.01. Accounts and Account Information. (a) Existing Accounts.
In the event that the Calculation Agent or MSAF desires to modify any of the
arrangements relating to any of the bank accounts set forth on Schedule 4.03 to
this Agreement (the "EXISTING ACCOUNTS"), the Calculation Agent or MSAF shall
deliver a certificate to the Servicer specifying in reasonable detail the
modifications to be made with respect to any such Existing Accounts and the
Servicer shall, to the extent necessary to transfer signing and related
authority, cooperate with the MSAF Group and the relevant banking institution
to effect such modifications and shall take such other actions as are
incidental thereto in order to give effect to the foregoing.
(b) New Accounts. The Servicer shall notify MSAF and the Calculation
Agent in the event that any new bank accounts need to be established on behalf
of any Person within the MSAF Group in connection with the execution of a Lease
with a new Lessee and MSAF or the Calculation Agent shall deliver a certificate
to the Servicer specifying in reasonable detail (v) the name and location of
the bank at which such account should be established, (w) the name(s) in which
such account should be established, (x) the names of the beneficiaries of such
account, (y) the names of the Persons authorized to make withdrawals from such
account and (z) such other information (including with respect to any security
arrangements) as the Calculation Agent or MSAF deems appropriate. The Servicer
shall, to the extent necessary to create signing and related authority,
cooperate with MSAF and the relevant banking institution and take such other
actions as are incidental thereto in order to give effect to the foregoing (the
"NEW ACCOUNTS" and, together with the Existing Accounts, the "BANK ACCOUNTS").
In the event that the Servicer is required to transfer funds from any Bank
Account to the account of another Person (other than any Person within MSAF
Group) in order to give effect to the directions of any Lessee in accordance
with Section 1.01(d) of this Schedule 2.02(a), the Servicer shall provide the
Calculation Agent or MSAF with written notice setting forth the (i) name of the
55
<PAGE> 60
transferor, (ii) name of the transferee, (iii) accounts from and to which funds
are to be transferred, (iv) amounts to be transferred, (v) amount of the
initial payment from the Lessee and (vi) anticipated date of transfer. No
later than the next following Business Day, the Calculation Agent or MSAF shall
notify the Servicer in writing whether the proposed transfer is approved or
disapproved. If approved, the Servicer shall cause such transfer to be made in
accordance with the terms of such written notice. If not approved, the
Calculation Agent or MSAF shall advise the Servicer in writing as to the
reasons therefor and the Servicer shall not proceed with such transfer.
SECTION 6.02. Payments. (a) Anticipated Payments. For purposes of the
calculation of the required expenses by the Calculation Agent pursuant to the
Calculation Agency Agreement, not less than one Business Day prior to each
Calculation Date, the Servicer shall deliver to the Calculation Agent a written
projection of payment obligations (including projected expenditures, or return
to Lessees, of security deposits or maintenance reserves in accordance with the
terms of any Lease) reasonably anticipated by the Servicer to be necessary to
be paid in connection with the Servicer's performance of the Services under
this Agreement during the period extending from the Payment Date immediately
following such Calculation Date to but not including the next succeeding
Payment Date (the "MONTHLY PAYMENT PERIOD").
Not less than five Business Days prior to the first Business Day of each
week, the Servicer shall deliver to the Calculation Agent a list specifying
each cash payment projected to be made during such week (whether or not such
cash payment was reflected in the projection referred to in this Section
6.02(a) of this Schedule 2.02(a)), and shall state the (i) anticipated date of
such payment, (ii) payee, (iii) amount of such payment, (iv) obligation in
respect of which such payment is to be made (the "STATED SERVICES OBLIGATION")
and (v) the account from which such payment should be made. Not later than two
Business Days prior to the date of each payment set forth on such list, the
Servicer shall deliver to the Calculation Agent a written notice of such
payment, restating the date, payee and amount relating to such payment. No
later than the Business Day prior to the date of such payment, the Calculation
Agent shall notify the Servicer in writing whether the proposed payment is
approved or disapproved. If approved, the Servicer shall pay or cause such
payment to be made to the payee for the Stated Services Obligation from the
funds then available in the relevant account, as the case may be. If not
approved, the Calculation Agent shall advise the Servicer in writing as to
reasons therefor and the Servicer shall not proceed with such transfer.
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<PAGE> 61
(b) Unanticipated Payments. During any Monthly Payment Period the
Servicer may request in writing the Calculation Agent's approval for the
Servicer to pay or cause to be paid expenses that had not been reasonably
anticipated by the Servicer at the time the projection required to be provided
to the Calculation Agent pursuant to Section 6.02(a) of this Schedule 2.02(a)
with respect to such Monthly Payment Period was delivered to the Calculation
Agent (whether or not such expense was reflected in the weekly list of
projected payments referenced in Section 6.02(a) of this Schedule 2.02(a)).
Any such request shall specify for each such payment obligation the (i)
anticipated date of such payment, (ii) payee, (iii) amount of such payment,
(iv) Stated Services Obligation and (v) the account from which such payment
should be made. No later than the Business Day next following such request by
the Servicer, the Calculation Agent shall notify the Servicer in writing
whether such payment request is approved or disapproved. If approved, the
Servicer shall pay or cause such payment to be made to the payee for the Stated
Services Obligation from the funds then available in the relevant account. In
the event that the funds then available in such account are insufficient to
make any such payment, pursuant to the Calculation Agency Agreement, the
Calculation Agent shall take such actions as are necessary to cause funds
sufficient to make any such payments to be transferred as soon as practicable
from the Collection Account to such account. Following the transfer of such
funds, the Servicer shall pay or cause such payments to be made in accordance
with the foregoing provisions.
(c) Other Payments. In connection with the calculation of the required
expenses by the Calculation Agent pursuant to the Calculation Agency Agreement,
not less than two days prior to each Calculation Date, the Calculation Agent
shall deliver to the Servicer a written projection of non-Aircraft Assets
related payment obligations that are reasonably anticipated by the Calculation
Agent to be necessary to be paid during the next following Monthly Payment
Period. Not less than five Business Days prior to the first Business Day of
each week, the Calculation Agent shall deliver to the Servicer a list
specifying each cash payment projected to be made during such week (whether or
not such cash payment was reflected in the projection referred to in Section
6.02(a) of this Schedule 2.02(a)) and shall state the (i) anticipated date of
such payment, (ii) payee (together with relevant account information), (iii)
amount of such payment and (iv) obligation in respect of which such payment is
to be made (the "STATED NON-AIRCRAFT OBLIGATION") and certifying that payment
of each amount so specified to the applicable payee is in accordance with the
applicable provisions of any Indenture and the Calculation Agency Agreement.
Not later than two Business Days prior to the date of each payment set forth on
such list, the
57
<PAGE> 62
Calculation Agent shall deliver to the Servicer a certificate with respect to
each non-Aircraft Assets related payment obligation restating the date, payee
and amount relating to such payment. Following receipt of such certificate
from the Calculation Agent, the Servicer shall pay or cause such payment to be
made to the payee for the Stated Non-Aircraft Obligation from the funds then
available in the relevant expense account.
(d) Delegation of Authority. The Calculation Agent hereby authorizes the
Servicer to make, or cause to be made payments from the specified accounts in
accordance with the foregoing procedures. In order to give effect to the
foregoing provisions of this Article 6 of this Schedule 2.02(a), the
Calculation Agent shall take such other actions as are necessary or
appropriate, including by delegation or otherwise, pursuant to the terms of the
Calculation Agency Agreement, the Indentures, the agreements between any Person
within the MSAF Group and the relevant banking institutions with respect to the
Bank Accounts or otherwise, or as the Servicer shall reasonably request, to
authorize the Servicer to take such actions with respect to such accounts as
the Calculation Agent determines to be necessary or appropriate as are set
forth above.
ARTICLE 7
PROFESSIONAL AND OTHER SERVICES
SECTION 7.01. Legal Services. The Servicer shall provide or procure legal
services, in all relevant jurisdictions, on behalf of the relevant Persons
within the MSAF Group with respect to the lease, sale or financing of the
Aircraft Assets, any amendment or modification of any Lease, the enforcement of
the rights of any Person within the MSAF Group under any Lease, any disputes
that arise with respect to the Aircraft Assets or for any other purpose that
the Servicer reasonably determines is necessary in connection with the
performance of the Services. The Servicer shall provide such legal services by
using its in-house legal staff where it shall deem appropriate and shall
authorize outside counsel to provide such legal services where it shall deem
appropriate (including litigation). Each Person within the MSAF Group
recognizes that from time to time the Servicer will retain legal counsel to
provide legal services on behalf of Persons within the MSAF Group and, in the
event that a dispute arises between any Person within the MSAF Group and the
Servicer, each agrees to waive any conflict of interest any such counsel may
have with respect to any such dispute or otherwise to enable the Servicer to
retain such counsel on its own behalf.
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<PAGE> 63
SECTION 7.02. Accounting and Tax Services. The Servicer shall arrange for
such accounting and tax services and advice (which may be provided by the
Servicer's internal staff, to the extent available) as shall be reasonably
necessary or appropriate in connection with the structuring of lease, sale or
financing transactions with respect to the Aircraft Assets or for any other
purpose that the Servicer reasonably determines is necessary in connection with
the performance of the Services.
ARTICLE 8
INFORMATION; REPORTS; CUSTODY
SECTION 8.01. Weekly Reports. On the last Business Day of each week the
Servicer shall provide to MSAF a report in the form attached hereto as Schedule
8.01.
SECTION 8.02. Monthly Reports. Five Business Days after the first
Business Day of each month (or, to the extent impracticable, promptly
thereafter), the Servicer shall provide to MSAF:
(a) A written report of (i) the leasing, sales and purchasing activities
that were completed during the preceding month, which shall include a summary
of the principal financial terms related to any new or amended lease
transactions, including floating rate and fixed rates of interest applicable
thereto (attaching a copy of the factual portions of the applicable transaction
overview, if any), and (ii) any default notices issued, in each case with
respect to the Aircraft Assets, in such detail as MSAF may request from time to
time.
(b) A detailed statement of the cash receipts and disbursements with
respect to the Aircraft Assets for the preceding month in such details as MSAF
may request from time to time.
(c) A detailed statement of certain expected cash disbursements in respect
of technical and other leasing expenditures, overheads and Maintenance Reserve
expenditures on a monthly basis for six months (a "FORECAST") (it being
understood that any such Forecast may be based upon historical cash flow
patterns), in such details as MSAF and the Servicer may agree from time to
time.
59
<PAGE> 64
(d) A detailed statement of receivables (including details, if any, of any
set-offs among Lessee receivables, Lessee Maintenance Reserves and Security
Deposits) analyzed by Lessee and by region for each account balance outstanding
(including with respect to restructured Leases), categorized by number of days
outstanding, in such details as MSAF may request from time to time.
(e) A report on all pending and potential (with respect to which the
Servicer has received written notice threatening litigation, which, in the sole
judgment of the Servicer, is material) litigation involving any Aircraft Assets
or Leases of which the Servicer has written notice.
(f) A report of any claims being made with respect to any of the Aircraft
Assets of which the Servicer is aware with an actual or potential liability in
excess of $100,000.
SECTION 8.03. Other Information. (a) To the extent the Servicer is in
possession of the relevant information, the Servicer shall prepare and submit
to MSAF the following information with respect to each Person within the MSAF
Group:
(i) reasonable information with respect to annual use of the
Aircraft within the United States on a state-by-state basis and, if
requested by MSAF, transactions relating to Aircraft Assets necessary
for each Person within the MSAF Group to prepare tax returns;
(ii) promptly after the occurrence thereof, notify MSAF of any
accident or incident of which the Servicer has notice involving any
Aircraft Asset where the potential loss in connection therewith exceeds
the damage notification threshold under the relevant Lease; and
(iii) information with respect to transactions relating to Aircraft
Assets necessary for any Person within the MSAF Group to prepare
statutory returns with respect to contractors engaged by the Servicer on
behalf of such Person.
(b) The Servicer will make available to MSAF and its advisers and
designees, subject to their reasonable availability, and at reasonable
times and upon reasonable notice, the Servicer's directors, officers,
employees, representatives, advisers and other agents, in order to
provide to MSAF and its advisers and designees information with regard
to the
60
<PAGE> 65
Aircraft Assets and Leases (including in response to inquiries with
respect to the reports provided to MSAF by the Servicer pursuant to
Sections 8.01, 8.02 and 8.03 of this Schedule 2.02(a)) which may be
required by MSAF. In furtherance thereof, in order to facilitate each
Person within the MSAF Group carrying out its responsibilities upon the
request of MSAF, the Servicer shall make available (through physical
attendance or telephonic conference) such officers and employees,
depending on such person's reasonable availability, that MSAF shall
reasonably deem appropriate for regular weekly meetings with MSAF's
representatives to provide to MSAF information, and response to
inquiries, with respect to the reports provided to MSAF by the Servicer
pursuant to Sections 8.01, 8.02 and 8.03 of this Schedule 2.02(a).
SECTION 8.04. Ratings Information. Upon request by MSAF, the Servicer
shall provide to MSAF such information and data about the Aircraft Assets and
other assistance relating to the Aircraft Assets as MSAF and the Servicer shall
deem reasonably necessary or appropriate in connection with providing
information to the ratings agencies for MSAF's debt ratings or the ratings of
any public securitization debt issued by an Affiliate of MSAF.
SECTION 8.05. Public Filing Information. The Servicer shall provide to
MSAF such information and data relating to the Servicer, the Services and the
Aircraft Assets as MSAF shall reasonably request to comply with its public or
statutory reporting and filing obligations; provided that, if the Securities
and Exchange Commission (the "SEC") seeks to require MSAF to disclose any such
information and data that the Servicer considers in good faith to be
confidential, MSAF agrees to include the Servicer in any discussions or
correspondence with the SEC concerning the confidential treatment of such
information.
SECTION 8.06. Custody of Documents. The Servicer agrees to hold all
original documents of any Person within the MSAF Group that relate to the
Aircraft Assets in the possession of the Servicer in safe custody.
SECTION 8.07. Accession. Until the Calculation Agent and the
Administrative Agent accede to this Agreement, all obligations of those
entities shall be performed by MSAF.
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<PAGE> 66
SCHEDULE 4.01(a)
AIRCRAFT
Aircraft
A300-600R MSN 555
A310-300 MSN 409
A310-300 MSN 410
A310-300 MSN 437
A320-200 MSN 279
A320-200 MSN 393
A320-200 MSN 414
A321-100 MSN 597
B737-382 MSN 25161
B737-3K2 MSN 27635
B737-3Q8 MSN 24299
B737-3Q8 MSN 26295
B737-3S3F MSN 23811
B737-3S3QC MSN 23788
B737-4Q8 MSN 24234
B737-4Q8 MSN 25104
B737-4Q8 MSN 25371
B737-4Q8 MSN 25372
B737-548 MSN 25165
B747-341B MSN 24106
B757-28A MSN 24367
B757-28AER MSN 24260
B757-2Q8ER MSN 26272
B767-204ER MSN 23807
B767-300 MSN 24798
B767-39HER MSN 26256
B767-3X2ER MSN 26260
F-70 MSN 11564
F-70 MSN 11565
F-70 MSN 11569
MD-82 MSN 49825
MD-83 MSN 49822
MD-83 MSN 49824
CF6-80C2-B6F MSN 704279
62
<PAGE> 67
SCHEDULE 4.02
DOCUMENTS
See Schedule 3.09 to the Purchase Agreement.
63
<PAGE> 68
SCHEDULE 4.03
BANK ACCOUNTS
Account number 00365173
Bankers Trust Company
(ABA 021001033)
Account Name: Wilmington Trust Company, as owner trustee
for Morgan Stanley Aircraft Finance
64
<PAGE> 69
SCHEDULE 1.03(a)
TO SCHEDULE 2.02(a)
INSURANCE
MINIMUM COVERAGE AMOUNTS
1. Hull Insurance: With respect to any Aircraft, hull insurance shall be
maintained by the Lessee and MSAF in an amount equal to the greatest of (a) the
Note Target Price for such Aircraft (as such Note Target Price is defined in
any Indenture, as the same shall be amended in writing from time to time by
MSAF), (b) the appraised value for such Aircraft, (c) the Agreed Value of such
Aircraft (as such Agreed Value is defined in the applicable Lease), and (d)
such greater amounts as may be directed in writing by MSAF from time to time;
provided, however, that in the event that an agreement with respect to hull
insurance cannot be reached with any particular Lessee pursuant to which such
Lessee will pay the premiums to procure such insurance in amounts consistent
with the foregoing, hull insurance shall be maintained in an amount equal to
the greater of clauses (a) and (d) above. Spare engines and parts, if any,
shall be insured on the basis of their "replacement costs".
2. Liability Insurance: Liability insurance shall be maintained by the
Lessee and MSAF for each Aircraft Asset and occurrence in an amount equal to
that set forth below, as the same shall be amended in writing from time to time
by MSAF. Liability insurance shall be maintained for each non-passenger
(cargo) Aircraft Asset and occurrence in an amount equal to 75% of the amounts
set forth below:
<TABLE>
<CAPTION>
MODEL MINIMUM LIMIT
- ----- -------------
<S> <C>
F70 US $250 million
B737/MD80 US $500 million
A320 US $550 million
A310 US $650 million
B767/A300/B757 US $800 million
</TABLE>
3. Insurance Deductibles
(a) Deductibles and self-insurance for Aircraft Assets subject to a
Lease may be maintained in an amount pursuant to deductible and
self-insurance arrangements (taking into account, inter alia, the
creditworthiness and experience of the Lessee, the type of aircraft and
65
<PAGE> 70
market practices in the aircraft insurance industry generally)
consistent with ILFC's commercially reasonable practices for its own
aircraft.
(b) Deductibles for Aircraft Assets off-lease shall be maintained
in respect of any one occurrence in respect of such Aircraft Assets in
an amount consistent with ILFC's commercially reasonable practice for
its own aircraft with any difference between such amount and $200,000
(or such other amount as MSAF may direct in writing from time to time),
taking into account any deductible insurance procured, to be notified to
MSAF by the Servicer.
4. Other Insurance Matters: Apart from the matters set forth above, the
coverage and terms of any insurance with respect to any Aircraft Assets not
subject to a Lease, shall be substantially consistent with the reasonable
commercial practices of ILFC with respect to its own aircraft.
5. Additional Insureds: Any insurance arrangements entered into with
respect to any Aircraft Assets shall include as named insureds such persons as
are reasonably requested by MSAF.
6. Currencies: Any insurance requirement stated in U.S. dollar terms shall
be interpreted to include the foreign currency equivalent thereto from time to
time if any such insurance related thereto is denominated in a currency other
than U.S. dollars.
7. Availability: The insurance guidelines set forth herein are subject to
such insurance being generally available in the relevant insurance market at
commercially reasonable rates from time to time.
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<PAGE> 71
SCHEDULE 8.01 TO
SCHEDULE 2.02(a)
WEEKLY REPORT
1. Notification of maintenance claims received but not yet approved for
reimbursement giving dollar amount, brief description, Lessee name and MSN.
2. Update on previously reported maintenance claims awaiting approval.
3. Copies of newly signed letters of intent.
4. Notification of return of deposits to Lessees.
5. Confirmation of any drawings of expenses.
6. Notification of drawing down on Lessee letters of credit and/or
Security Deposits or other guarantees.
7. List of any recently signed Leases, amendments or sideletters with full
copies to follow.
8. Notification of any insurance claims.
9. Notification of any Event of Default under any Lease.
10. Notification of any claim or alleged claim by a Lessee against MSAF or
its affiliates.
11. Notification of any contingent liabilities.
12. Notification of any payments relating to an Aircraft in excess of
$50,000 (not included elsewhere in this report).
13. Any other matters reasonably requested by MSAF.
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EXHIBIT A
ACCESSION AGREEMENT
[ ], 1997
We refer to the Servicing Agreement among International Lease Finance
Corporation, Morgan Stanley Aircraft Finance, and the other entities listed
therein dated as of November 10, 1997 (the "Servicing Agreement"). We agree,
as of the date hereof, as [Administrative Agent/Calculation Agent under the
Administration Agency Agreement/Calculation Agency Agreement] [a subsidiary of
MSAF] to be bound as such by the terms of the Servicing Agreement and to be
considered a party thereto for all purposes hereafter.
[ ]
By:
------------------------------
Name:
Title:
ACCEPTED AND ACKNOWLEDGED,
MORGAN STANLEY AIRCRAFT
FINANCE
By:
------------------------
Name:
Title:
INTERNATIONAL LEASE FINANCE
CORPORATION
By:
------------------------
Name:
Title:
[OTHERS ACCEDED]
68
<PAGE> 73
EXHIBIT B
PRO FORMA LEASE
[FORM TO BE MUTUALLY AGREED BY SERVICER AND MSAF NO LATER THAN TWO WEEKS AFTER
THE LAST DELIVERY DATE
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of MSAF
--------------------
MSA I
Aircraft SPC-5, Inc.
Greenfly (Ireland) Limited
Redfly (UK) Limited
<PAGE> 1
EXHIBIT 23.2
AIRCRAFT INFORMATION SERVICES, INC.
CONSENT OF APPRAISER
We consent to the use of our reports included herein and the references to our
firm in the Morgan Stanley Aircraft Finance Registration Statement on Form S-4
to be filed with the Securities and Exchange Commission.
Dated: June 11, 1998
AIRCRAFT INFORMATION SERVICES, INC.
BY: /s/ Fred E. Bearden
_______________________________
Name: Fred E. Bearden
Title: President
<PAGE> 1
EXHIBIT 23.3
BK ASSOCIATES, INC.
CONSENT OF APPRAISER
We consent to the use of our reports included herein and the references to our
firm in the Morgan Stanley Aircraft Finance Registration Statement on Form S-4
to be filed with the Securities and Exchange Commission.
Dated: June 11, 1998
BK ASSOCIATES, INC.
BY: /s/ John F. Keitz
_______________________________
Name: John F. Keitz
Title: President
<PAGE> 1
EXHIBIT 23.4
AIRCLAIMS LIMITED
CONSENT OF APPRAISER
We consent to the use of our reports included herein and the references to our
firm in the Morgan Stanley Aircraft Finance Registration Statement on Form S-4
to be filed with the Securities and Exchange Commission.
Dated: June 11, 1998
AIRCLAIMS LIMITED
BY: /s/ Edward Pieniazek
_______________________________
Name: Edward Pieniazek
Title: Director
<PAGE> 1
EXHIBIT 25.1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE
PURSUANT TO SECTION 305(b)(2) _______________
_________________________
BANKERS TRUST COMPANY
(Exact name of trustee as specified in its charter)
NEW YORK 13-4941247
(Jurisdiction of Incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification no.)
FOUR ALBANY STREET
NEW YORK, NEW YORK
(Address or principal 10006
executive offices) (Zip Code)
BANKERS TRUST COMPANY
Legal Department
130 Liberty Street, 31st Floor
New York, New York 10006
(212) 250-2201
(Name, address and telephone number of agent for service)
_________________________
MORGAN STANLEY AIRCRAFT FINANCE
(Exact name of obligor as specified in its charter)
DELAWARE 13-3375162
(State or other jurisdiction of (I.R.S. employer
Incorporation or organization) Identification no.)
1100 NORTH MARKET STREET
Wilmington, Delaware 19890
(Address of principal executive offices)
MORGAN STANLEY AIRCRAFT FINANCE
Subclass Notes
(Title of the indenture securities)
<PAGE> 2
ITEM 1. GENERAL INFORMATION
Furnish the following information as to the trustee.
(a) Name and address of each examining or supervising authority to which it
is subject.
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
Federal Reserve Bank (2nd District) New York, NY
Federal Deposit Insurance Corporation Washington, D.C.
New York State Banking Department Albany, NY
</TABLE>
(b) Whether it is authorized corporate trust powers.
Yes.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
If the obligor is an affiliate of the Trustee, describe each such
affiliation.
None.
ITEM 3.-15. NOT APPLICABLE
ITEM 16. LIST OF EXHIBITS.
Exhibit 1 - Restated Organization Certificate of Bankers Trust Company
dated August 7, 1990, Certificate of Amendment of the
Organization Certificate of Bankers Trust Company dated June
21, 1995, - Incorporated herein by reference to Exhibit 1 filed
with Form T-1 Statement, Registration No. 33-65171, Certificate
of Amendment of the Organization Certificate of Bankers Trust
Company dated March 20, 1996, incorporate by referenced to
Exhibit 1 filed with Form T-1 Statement, Registration No.
333-25843 and Certificate of Amendment of the Organization
Certificate of Bankers Trust Company dated June 19, 1997, copy
attached.
Exhibit 2 - Certificate of Authority to commence business - Incorporated
herein by reference to Exhibit 2 filed with Form T-1 Statement,
Registration No. 33-21047.
Exhibit 3 - Authorization of the Trustee to exercise corporate trust powers
- Incorporated herein by reference to Exhibit 2 filed with Form
T-1 Statement, Registration No. 33-21047.
Exhibit 4 - Existing By-Laws of Bankers Trust Company, as amended on
November 18, 1997. Copy attached.
- 2 -
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
Exhibit 5- Not applicable.
Exhibit 6- Consent of Bankers Trust Company required by Section 321(b)
of the Act - Incorporated herein by reference to Exhibit 4
filed with Form T-1 Statement, Registration No. 22-18864.
Exhibit 7- The latest report of condition of Bankers Trust Company
dated as of December 31, 1997. Copy attached.
Exhibit 8- Not Applicable.
Exhibit 9- Not Applicable.
</TABLE>
- 3 -
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Bankers Trust Company, a corporation organized and
existing under the laws of the State of New York, has duly caused this statement
of eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized,all in The City of New York, and State of New York, on the 8th day of
April, 1998.
BANKERS TRUST COMPANY
By:_____________________________________
Patricia M.F. Russo
Vice President
- 4 -
<PAGE> 5
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Bankers Trust Company, a corporation organized and
existing under the laws of the State of New York, has duly caused this statement
of eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in The City of New York, and State of New York, on the 8th day
of April, 1998.
BANKERS TRUST COMPANY
By: Patricia M.F. Russo
-------------------
Patricia M.F. Russo
Vice President
-5-
<PAGE> 6
STATE OF NEW YORK,
BANKING DEPARTMENT
I, MANUEL KURSKY,Deputy Superintendent of Banks of the State of New York,
DO HEREBY APPROVE the annexed Certificate entitled "CERTIFICATE OF AMENDMENT OF
THE ORGANIZATION CERTIFICATE OF BANKERS TRUST COMPANY UNDER SECTION 8005 OF THE
BANKING LAW," dated June 19, 1997, providing for an increase in authorized
capital stock from $1,601,666,670 consisting of 100,166,667 shares with a par
value of $10 each designated as Common Stock and 600 shares with a par value of
$1,000,000 each designated as Series Preferred Stock to $2,001,666,670
consisting of 100,166,667 shares with a par value of $10 each designated as
Common Stock and 1,000 shares with a par value of $1,000,000 each designated as
Series Preferred Stock.
WITNESS, my hand and official seal of the Banking Department at the City of
New York, this 27th day of June in the Year of our Lord one thousand nine
hundred and ninety-seven.
MANUEL KURSKY
______________________________
Deputy Superintendent of Banks
<PAGE> 7
CERTIFICATE OF AMENDMENT
OF THE
ORGANIZATION CERTIFICATE
OF BANKERS TRUST
Under Section 8005 of the Banking Law
--------------------------------
We, James T. Byrne, Jr. and Lea Lahtinen, being respectively a Managing
Director and an Assistant Secretary of Bankers Trust Company, do hereby certify:
1. The name of the corporation is Bankers Trust Company.
2. The organization certificate of said corporation was filed by the
Superintendent of Banks on the 5th of March, 1903.
3. The organization certificate as heretofore amended is hereby amended to
increase the aggregate number of shares which the corporation shall have
authority to issue and to increase the amount of its authorized capital
stock in conformity therewith.
4. Article III of the organization certificate with reference to the
authorized capital stock, the number of shares into which the capital
stock shall be divided, the par value of the shares and the capital
stock outstanding, which reads as follows:
"III. The amount of capital stock which the corporation is hereafter to
have is One Billion, Six Hundred and One Million, Six Hundred Sixty-Six
Thousand, Six Hundred Seventy Dollars ($1,601,666,670), divided into One
Hundred Million, One Hundred Sixty-Six Thousand, Six Hundred Sixty-Seven
(100,166,667) shares with a par value of $10 each designated as Common
Stock and 600 shares with a par value of One Million Dollars ($1,000,000)
each designated as Series Preferred Stock."
is hereby amended to read as follows:
"III. The amount of capital stock which the corporation is hereafter to
have is Two Billion One Million, Six Hundred Sixty-Six Thousand, Six
Hundred Seventy Dollars ($2,001,666,670), divided into One Hundred Million,
One Hundred Sixty-Six Thousand, Six Hundred Sixty-Seven (100,166,667)
shares with a par value of $10 each designated as Common Stock and 1000
shares with a par value of One Million Dollars ($1,000,000) each designated
as Series Preferred Stock."
<PAGE> 8
5. The foregoing amendment of the organization certificate was authorized
by unanimous written consent signed by the holder of all outstanding shares
entitled to vote thereon.
IN WITNESS WHEREOF, we have made and subscribed this certificate this 19th
day of June, 1997.
James T. Byrne, Jr.
------------------------------------
James T. Byrne, Jr.
Managing Director
Lea Lahtinen
------------------------------------
Lea Lahtinen
Assistant Secretary
State of New York )
) ss:
County of New York )
Lea Lahtinen, being fully sworn, deposes and says that she is an Assistant
Secretary of Bankers Trust Company, the corporation described in the foregoing
certificate; that she has read the foregoing certificate and knows the contents
thereof, and that the statements herein contained are true.
Lea Lahtinen
--------------------------
Lea Lahtinen
Sworn to before me this 19th day
of June, 1997.
Sandra L. West
- ---------------------------
Notary Public
SANDRA L. WEST
Notary Public State of New York
No. 31-4942101
Qualified in New York County
Commission Expires September 19, 1998
<PAGE> 9
BY-LAWS
NOVEMBER 18, 1997
BANKERS TRUST COMPANY
NEW YORK
<PAGE> 10
BY-LAWS
of
Bankers Trust Company
ARTICLE I
MEETINGS OF STOCKHOLDERS
SECTION 1. The annual meeting of the stockholders of this Company shall be
held at the office of the Company in the Borough of Manhattan, City of New
York, on the third Tuesday in January of each year, for the election of
directors and such other business as may properly come before said meeting.
SECTION 2. Special meetings of stockholders other than those regulated by
statute may be called at any time by a majority of the directors. It shall be
the duty of the Chairman of the Board, the Chief Executive Officer or the
President to call such meetings whenever requested in writing to do so by
stockholders owning a majority of the capital stock.
SECTION 3. At all meetings of stockholders, there shall be present, either in
person or by proxy, stockholders owning a majority of the capital stock of the
Company, in order to constitute a quorum, except at special elections of
directors, as provided by law, but less than a quorum shall have power to
adjourn any meeting.
SECTION 4. The Chairman of the Board or, in his absence, the Chief Executive
Officer or, in his absence, the President or, in their absence, the senior
officer present, shall preside at meetings of the stockholders and shall direct
the proceedings and the order of business. The Secretary shall act as secretary
of such meetings and record the proceedings.
ARTICLE II
DIRECTORS
SECTION 1. The affairs of the Company shall be managed and its corporate powers
exercised by a Board of Directors consisting of such number of directors, but
not less than ten nor more than twenty-five, as may from time to time be fixed
by resolution adopted by a majority of the directors then in office, or by the
stockholders. In the event of any increase in the number of directors,
additional directors may be elected within the limitations so fixed, either by
the stockholders or within the limitations imposed by law, by a majority of
directors then in office. One-third of the number of directors, as fixed from
time to time, shall constitute a quorum. Any one or more members of the Board of
Directors or any Committee thereof may participate in a meeting of the Board of
Directors or Committee thereof may participate in a meeting of the Board of
Directors or Committee thereof by means of a conference telephone or similar
communications equipment which allows all persons participating in the meeting
to hear each other at the same time. Participation by such means shall
constitute presence in person at such a meeting.
All directors hereafter elected shall hold office until the next annual meeting
of the stockholders and until their successors are elected and have qualified.
No person who
<PAGE> 11
shall have attained age 72 shall be eligible to be elected or re-elected a
director. Such director may, however, remain a director of the Company until the
next annual meeting of the stockholders of Bankers Trust New York Corporation
(the Company's parent) so that such director's retirement will coincide with the
retirement date from the Bankers Trust New York Corporation.
No Office-Director who shall have attained age 65, or earlier relinquishes his
responsibilities and title, shall be eligible to serve as a director.
SECTION 2. Vacancies not exceeding one-third of the whole number of the Board
of Directors may be filled by the affirmative vote of a majority of the
directors then in office, and the directors so elected shall hold office for the
balance of the unexpired term.
SECTION 3. The Chairman of the Board shall preside at meetings of the Board of
Directors. In his absence, the Chief Executive or, in his absence, such other
director as the Board of Directors from time to time may designate shall preside
at such meetings.
SECTION 4. The Board of Directors may adopt such Rules and Regulations for the
conduct of its meetings and the management of the affairs of the Company as it
may deem proper, not inconsistent with the laws of the State of New York, or
these By-Laws, and all officers and employees shall strictly adhere to, and be
bound by, such Rules and Regulations.
SECTION 5. Regular meetings of the Board of Directors shall be held from time
to time on the third Tuesday of the month. If the day appointed for holding such
regular meetings shall be a legal holiday, the regular meeting to be held on
such day shall be held on the next business day thereafter. Special meetings of
the Board of Directors may be called upon at least two day's notice whenever it
may be deemed proper by the Chairman of the Board or, the Chief Executive
Officer or, in their absence, by such other director as the Board of Directors
may have designated pursuant to Section 3 of this Article, and shall be called
upon like notice whenever any three of the directors so request in writing.
SECTION 6. The compensation of directors as such or as members of committees
shall be fixed from time to time by resolution of the Board of Directors.
<PAGE> 12
ARTICLE III
COMMITTEES
SECTION 1. There shall be an Executive Committee of the Board consisting of
not less than five directors who shall be appointed annually by the Board of
Directors. The Chairman of the Board shall preside at meetings of the Executive
Committee. In his absence, the Chief Executive Officer or, in his absence, such
other member of the Committee as the Committee from time to time may designate
shall preside at such meetings.
The Executive Committee shall possess and exercise to the extent permitted by
law all of the powers of the Board of Directors, except when the latter is in
session, and shall keep minutes of its proceedings, which shall be presented to
the Board of Directors at its next subsequent meeting. All acts done and powers
and authority conferred by the Executive Committee from time to time shall be
and be deemed to be, and may be certified as being, the act and under the
authority of the Board of Directors.
A majority of the Committee shall constitute a quorum, but the Committee may act
only by the concurrent vote of not less than one-third of its members, at least
one of whom must be a director other than an officer. Any one or more
directors, even though not members of the Executive Committee, may attend any
meeting of the Committee, and the member or members of the Committee present,
even though less than a quorum, may designate any one or more of such
directors as a substitute or substitutes for any absent member or members of
the Committee, and each such substitute or substitutes shall be counted for
quorum, voting, and all other purposes as a member or members of the Committee.
SECTION 2. There shall be an Audit Committee appointed annually by resolution
adopted by a majority of the entire Board of Directors which shall consist of
such number of directors, who are not also officers of the Company, as may from
time to time be fixed by resolution adopted by the Board of Directors. The
Chairman shall be designated by the Board of Directors, who shall also from
time to time fix a quorum for meetings of the Committee. Such Committee shall
conduct the annual directors' examinations of the Company as required by the
New York State Banking Law; shall review the reports of all examinations made
of the Company by public authorities and report thereon to the Board of
Directors; and shall report to the Board of Directors such other matters as it
deems advisable with respect to the Company, its various departments and the
conduct of its operations.
In the performance of its duties, the Audit Committee may employ or retain,
from time to time, expert assistants, independent of the officers or personnel
of the Company, to make studies of the Company's assets and liabilities as the
Committee may request and to make an examination of the accounting and auditing
methods of the Company and its system of internal protective controls to the
extent considered necessary or advisable in order to determine that the
operations of the Company, including its fiduciary departments, are being
audited by the General Auditor in such a manner as to provide prudent and
adequate protection. The Committee also may direct the General Auditor to make
such investigation as it deems necessary or advisable with respect to the
Company, its various departments and the conduct of its operations. The
Committee shall hold regular quarterly meetings and during the intervals
thereof shall meet at other times on call of the Chairman.
<PAGE> 13
SECTION 3. The Board of Directors shall have the power to appoint any other
Committees as may seem necessary, and from time to time to suspend or continue
the powers and duties of such Committees. Each Committee appointed pursuant to
this Article shall serve at the pleasure of the Board of Directors.
ARTICLE IV
OFFICERS
SECTION 1. The Board of Directors shall elect from among their number a
Chairman of the Board and a Chief Executive Officer; and shall also elect a
President, and may also elect a Senior Vice Chairman, one or more Vice
Chairmen, one or more Executive Vice Presidents, one or more Senior Managing
Directors, one or more Managing Directors, one or more Senior Vice Presidents,
one or more Principals, one or more Vice Presidents, one or more General
Managers, a Secretary, a Controller, a Treasurer, a General Counsel, one or
more Associate General Counsels, a General Auditor, a General Credit Auditor,
and one or more Deputy Auditors, who need not be directors. The officers of the
corporation may also include such other officers or assistant officers as shall
from time to time be elected or appointed by the Board. The Chairman of the
Board or the Chief Executive Officer or, in their absence, the President, the
Senior Vice Chairman or any Vice Chairman, may from time to time appoint
assistant officers. All officers elected or appointed by the Board of Directors
shall hold their respective offices during the pleasure of the Board of
Directors, and all assistant officers shall hold office at the pleasure of the
Board or the Chairman of the Board or the Chief Executive Officer or, in their
absence, the President, the Senior Vice Chairman or any Vice Chairman. The
Board of Directors may require any and all officers and employees to give
security for the faithful performance of their duties.
SECTION 2. The Board of Directors shall designate the Chief Executive Officer
of the Company who may also hold the additional title of Chairman of the Board,
President, Senior Vice Chairman or Vice Chairman and such person shall have,
subject to the supervision and direction of the Board of Directors or the
Executive Committee, all of the powers vested in such Chief Executive Officer
by law or by these By-Laws, or which usually attach or pertain to such office.
The other officers shall have, subject to the supervision and direction of the
Board of Directors or the Executive Committee or the Chairman of the Board or,
the Chief Executive Officer, the powers vested by law or by these By-Laws in
them as holders of their respective offices and, in addition, shall perform such
other duties as shall be assigned to them by the Board of Directors or the
Executive Committee or the Chairman of the Board or the Chief Executive Officer.
The General Auditor shall be responsible, through the Audit Committee, to the
Board of Directors for the determination of the program of the internal audit
function and the evaluation of the adequacy of the system of internal controls.
Subject to the Board of Directors, the General Auditor shall have and may
exercise all the powers and shall perform all the duties usual to such office
and shall have such other powers as may be prescribed or assigned to him from
time to time by the Board of Directors or vested in him by law or by these
By-Laws. He shall perform such other duties and shall make such investigations,
examinations and reports as may be prescribed or required by the Audit
Committee. The General Auditor shall have unrestricted access to all records
and premises of the Company and shall delegate such authority to his
subordinates. He shall have the duty to report to the Audit Committee on all
matters concerning the internal audit program and the adequacy of the system of
internal controls of the Company which he deems advisable or which the Audit
Committee may request. Additionally, the General
<PAGE> 14
Auditor shall have the duty of reporting independently of all officers of the
Company to the Audit Committee at least quarterly on any matters concerning the
internal audit program and the adequacy of the system of internal controls of
the Company that should be brought to the attention of the directors except
those matters responsibility for which has been vested in the General Credit
Auditor. Should the General Auditor deem any matter to be of special immediate
importance, he shall report thereon forthwith to the Audit Committee. The
General Auditor shall report to the Chief Financial Officer only for
administrative purposes.
The General Credit Auditor shall be responsible to the Chief Executive Officer
and, through the Audit Committee, to the Board of Directors for the systems of
internal credit audit, shall perform such other duties as the Chief Executive
Officer may prescribe, and shall make such examinations and reports as may be
required by the Audit Committee. The General Credit Auditor shall have
unrestricted access to all records and may delegate such authority to
subordinates.
SECTION 3. The compensation of all officers shall be fixed under such plan or
plans of position evaluation and salary administration as shall be approved from
time to time by resolution of the Board of Directors.
SECTION 4. The Board of Directors, the Executive Committee, the Chairman of the
Board, the Chief Executive Officer or any person authorized for this purpose by
the Chief Executive Officer, shall appoint or engage all other employees and
agents and fix their compensation. The employment of all such employees and
agents shall continue during the pleasure of the Board of Directors or the
Executive Committee or the Chairman of the Board or the Chief Executive Officer
or any such authorized person; and the Board of Directors, the Executive
Committee, the Chairman of the Board, the Chief Executive Officer or any such
authorized person may discharge any such employees and agents at will.
<PAGE> 15
ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
SECTION 1. The Company shall, to the fullest extent permitted by Section 7018 of
the New York Banking Law, indemnify any person who is or was made, or threatened
to be made, a party to an action or proceeding, whether civil or criminal,
whether involving any actual or alleged breach of duty, neglect or error, any
accountability, or any actual or alleged misstatement, misleading statement or
other act or omission and whether brought or threatened in any court or
administrative or legislative body or agency, including an action by or in the
right of the Company to procure a judgment in its favor and an action by or in
the right of any other corporation of any type or kind, domestic or foreign, or
any partnership, joint venture, trust, employee benefit plan or other
enterprise, which any director or officer of the Company is servicing or served
in any capacity at the request of the Company by reason of the fact that he, his
testator or intestate, is or was a director or officer of the Company, or is
serving or served such other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise in any capacity, against judgments,
fines, amounts paid in settlement, and costs, charges and expenses, including
attorneys' fees, or any appeal therein; provided, however, that no
indemnification shall be provided to any such person if a judgment or other
final adjudication adverse to the director or officer establishes that (i) his
acts were committed in bad faith or were the result of active and deliberate
dishonesty and, in either case, were material to the cause of action so
adjudicated, or (ii) he personally gained in fact a financial profit or other
advantage to which he was not legally entitled.
SECTION 2. The Company may indemnify any other person to whom the Company is
permitted to provide indemnification or the advancement of expenses by
applicable law, whether pursuant to rights granted pursuant to, or provided by,
the New York Banking Law or other rights created by (i) a resolution of
stockholders, (ii) a resolution of directors, or (iii) an agreement providing
for such indemnification, it being expressly intended that these By-Laws
authorize the creation of other rights in any such manner.
SECTION 3. The Company shall, from time to time, reimburse or advance to any
person referred to in Section 1 the funds necessary for payment of expenses,
including attorneys' fees, incurred in connection with any action or proceeding
referred to in Section 1, upon receipt of a written undertaking by or on behalf
of such person to repay such amount(s) if a judgment or other final adjudication
adverse to the director or officer establishes that (i) his acts were committed
in bad faith or were the result of active and deliberate dishonesty and, in
either case, were material to the cause of action so adjudicated, or (ii) he
personally gained in fact a financial profit or other advantage to which he was
not legally entitled.
SECTION 4. Any director or officer of the Company serving (i) another
corporation, of which a majority of the shares entitled to vote in the election
of its directors is held by the Company, or (ii) any employee benefit plan of
the Company or any corporation referred to in clause (i) in any capacity shall
be deemed to be doing so at the request of the Company. In all other cases, the
provisions of this Article V will apply (i) only if the person serving another
corporation or any partnership, joint venture, trust, employee benefit plan or
other enterprise so served at the specific request of the Company, evidenced by
a written communication signed by the Chairman of the Board, the Chief Executive
Officer or the President, and (ii) only if and to the extent that, after making
such efforts as the Chairman of the Board, the Chief Executive Officer or the
President shall deem adequate
<PAGE> 16
in the circumstances, such person shall be unable to obtain indemnification from
such other enterprise or its insurer.
SECTION 5. Any person entitled to be indemnified or to the reimbursement or
advancement of expenses as a matter of right pursuant to this Article V may
elect to have the right to indemnification (or advancement of expenses)
interpreted on the basis of the applicable law in effect at the time of
occurrence of the event or events giving rise to the action or proceeding, to
the extent permitted by law, or on the basis of the applicable law in effect at
the time indemnification is sought.
SECTION 6. The right to be indemnified or to the reimbursement or advancement of
expense pursuant to this Article V (i) is a contract right pursuant to which the
person entitled thereto may bring suit as if the provisions hereof were set
forth in a separate written contract between the Company and the director or
officer, (ii) is intended to be retroactive and shall be available with respect
to events occurring prior to the adoption hereof, and (iii) shall continue to
exist after the rescission or restrictive modification hereof with respect to
events occurring prior thereto.
SECTION 7. If a request to be indemnified or for the reimbursement or
advancement of expenses pursuant hereto is not paid in full by the Company
within thirty days after a written claim has been received by the Company, the
claimant may at any time thereafter bring suit against the Company to recover
the unpaid amount of the claim and, if successful in whole or in part, the
claimant shall be entitled also to be paid the expenses of prosecuting such
claim. Neither the failure of the Company (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of or
reimbursement or advancement of expenses to the claimant is proper in the
circumstance, nor an actual determination by the Company (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant is
not entitled to indemnification or to the reimbursement or advancement of
expenses, shall be a defense to the action or create a presumption that the
claimant is not so entitled.
SECTION 8. A person who has been successful, on the merits or otherwise, in the
defense of a civil or criminal action or proceeding of the character described
in Section 1 shall be entitled to indemnification only as provided in Sections 1
and 3, notwithstanding any provision of the New York Banking Law to the
contrary.
ARTICLE VI
SEAL
SECTION 1. The Board of Directors shall provide a seal for the Company, the
counterpart dies of which shall be in the charge of the Secretary of the Company
and such officers as the Chairman of the Board, the Chief Executive Officer or
the Secretary may from time to time direct in writing, to be affixed to
certificates of stock and other documents in accordance with the directions of
the Board of Directors or the Executive Committee.
SECTION 2. The Board of Directors may provide, in proper cases on a specified
occasion and for a specified transaction or transactions, for the use of a
printed or engraved facsimile seal of the Company.
<PAGE> 17
ARTICLE VII
CAPITAL STOCK
SECTION 1. Registration of transfer of shares shall only be made upon the books
of the Company by the registered holder in person, or by power of attorney, duly
executed, witnessed and filed with the Secretary or other proper officer of the
Company, on the surrender of the certificate or certificates of such shares
properly assigned for transfer.
ARTICLE VIII
CONSTRUCTION
SECTION 1. The masculine gender, when appearing in these By-Laws, shall be
deemed to include the feminine gender.
ARTICLE IX
AMENDMENTS
SECTION 1. These By-Laws may be altered, amended or added to by the Board of
Directors at any meeting, or by the stockholders at any annual or special
meeting, provided notice thereof has been given.
<PAGE> 18
1.__________________________________, Assistant Secretary of Bankers Trust
Company, New York, New York, hereby certify that the foregoing is a complete,
true and correct copy of the By-Laws of Bankers Trust Company, and that the same
are in full force and effect at this date.
____________________________________
ASSISTANT SECRETARY
DATED:_______________________________
<PAGE> 19
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Legal Title of Bank: Bankers Trust Company Call Date: 12/31/97 ST-BK: 36-4840 FFIEC 031
Address: 130 Liberty Street Vendor ID: D CERT: 00623 Page RC-1
City, State ZIP: New York, NY 10006 11
FDIC Certificate No.: 0 0 6 2 3
</TABLE>
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR DECEMBER 31, 1997
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, reported the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC--BALANCE SHEET
<TABLE>
<CAPTION>
C400
----
Dollar Amounts in Thousands RCED Bil Mil Thou
---- ------------
<S> <C> <C> <C> <C>
ASSETS
1. Cash and balances due from depository institutions (from Schedule RC-A):
a. Noninterest-bearing balances and currency and coin(1) .................... 0081 2,121,000 1.a
b. Interest-bearing balances(2) ............................................. 0071 4,770,000 1.b.
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A ................ 1754 0 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D) ............. 1773 4,015,000 2.b.
3. Federal funds sold and securities purchased under agreements to resell ........ 1350 28,927,000 3.
4. Loans and lease financing receivable:
a. Loans and leases, not of unearned income (from Schedule RC-C) ...RCFD 2122 17,692,000 4.a.
b. LESS: Allowance for loan and lease losses .......................RCFD 3123 659,000 4.b.
c. LESS: Allocated transfer risk reserve ...........................RCFD 3128 0 4.c.
d. Loans and leases, net of unearned income,
allowance, and reserve (item 4a, minus 4.b and 4c.) ...................... 2125 17,033,000 4.d.
5. Trading Assets (from schedule RC-D) ........................................... 3545 45,488,000 5.
6. Premises and fixed assets (including capitalized leases) ...................... 2145 766,000 6.
7. Other real estate owned (from Schedule RC-M) .................................. 2150 188,000 7.
8. Investments in unconsolidated subsidiaries and associated companies
(from Schedule RC-M) .......................................................... 2130 58,000 8.
9. Customers' liability to this bank on acceptances outstanding .................. 2155 633.000 9.
10. Intangible assets (from Schedule RC-M) ........................................ 2143 83,000 10.
11. Other assets (from Schedule RC-F).............................................. 2160 5,957,000 11.
12. Total assets (sum of items 1 through 11)....................................... 2170 110,039,900 12.
==== ===========
</TABLE>
- ---------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE> 20
<TABLE>
<S> <C> <C> <C> <C>
Legal Title of Bank: Bankers Trust Company Call Date: 12/3/97 ST-BK: 36,4840 FFIEC 031
Address: 130 Liberty Street Vendor ID: D CERT: 00623 Page RC-2
City, State Zip: New York, NY 10006 12
FDIC Certificate No.: 0 0 6 2 3
</TABLE>
SCHEDULE RC--CONTINUED
<TABLE>
<CAPTION>
Dollar Amounts in Thousands Bil Mil Thou
--------------
<S> <C> <C> <C>
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part 1) RCON 2200 24,608,000
(1) Noninterest-bearing(1)...............RCON 6631 2,856,000.............
(2) Interest-bearing.....................RCON 6636 21,752,000.............
b. In foreign offices, Edge and Agreement subsidiaries, and IRFs (from Schedule RC-E
part II) RCFN 2200 20,529,000 13.b.
(1) Noninterest-bearing..................RCFN 6631 2,122,000.............
(2) Interest-bearing.....................RCFN 6636 16,407,000............. 13.b.
14. Federal funds purchased and securities sold under agreements to repurchase RCFD 2800 13,777,000 14.
15. a. Demand notes issued to the U.S. Treasury......................................... RCON 2840 0
b. Trading liabilities (from Schedule RC-D)......................................... RCFD 3548 24,968,000 15.b.
16. Other borrowed money (includes mortgage indebtedness and obligations under
capitalized leases):
a. With a remaining maturity of one year or less.................................... RCFD 2332 5,810,000
b. With a remaining maturity of more than one year through three years.............. A547 4,702,000 16.b.
c. With a reamining maturity of more than three years............................... A548 1,750,000 16.c.
17. Not applicable.
18. Bank's liability on acceptances executed and outstanding............................. RCFD 2920 633,000
19. Subordinated notes and debentures(2)................................................. RCFD 3200 1,307,000
20. Other liabilities (than Schedule RC-G)............................................... RCFD 2930 5,961,000
21. Total liabilities (sum of items 13 through 20)....................................... RCFD 2948 104,045,000
22. Not Applicable
22.
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus........................................ RCFD 3838 1,000,000
24. Common stock......................................................................... RCFD 3230 1,352,000
25. Surplus (exclude all surplus related to preferred stock)............................. RCFD 3839 540,000
26. a. Undivided profits and capital reserves........................................... RCFD 3632 3,526,000
b. Net unrealized holding gains (losses) on available-for-sale securities........... RCFD 8434 (45,000)
27. Cumulative foreign currency translation adjustments.................................. RCFD 3284 (379,000) 27.
28. Total equity capital (sum of items 23 through 27).................................... RCFD 3210 5,994,000 28.
29. Total liabilities and equity capital (sum of items 21 and 28)........................ RCFD 3300 110,039,000
</TABLE>
Memorandum
To be reported only with the March Report of Condition.
<TABLE>
<S> <C> <C> <C>
1. Indicate in the box at the right the number of the statement below that best describes the Number
most comprehensive level of auditing work performed for the bank by independent external -----------
auditors as of any date during 1996......................................................... RCFD 6724 N/A M.1
1 = Independent audit of the bank conducted in accordance 4 = Directors' examinations of the bank performed by other
with generally accepted auditing standards by a certified external auditors (may be required by state chartering
public accounting firm which submits a report on the bank authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external
conducted in accordance with generally accepted auditing auditors
standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by
submits a report on the consolidated holding company external auditors
(but not on the bank separately) 7 = Other audit procedures (excluding tax preparation work)
3 = Directors' examination of the bank conducted in 8 = No external audit work
accordance with generally accepted auditing standards
by a certified public accounting firm (may be required by
state chartering authority)
- ----------------
(1) Including total demand deposits and noninterest-bearing time and savings deposits.
(2) Includes limited-life preferred stock and related surplus.
</TABLE>
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
MORGAN STANLEY AIRCRAFT FINANCE
OFFER TO EXCHANGE NOTES DUE MARCH 15, 2023
FOR ANY AND ALL OUTSTANDING NOTES DUE MARCH 15, 2023
PURSUANT TO THE PROSPECTUS DATED , 1998
THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , , 1998, UNLESS EXTENDED (THE "EXPIRATION DATE").
TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE.
Delivery To: Bankers Trust Company
If by Mail, Hand or Overnight Courier:
Bankers Trust Company
Four Albany Street
Mail Stop 5091
New York, New York 10006
Attention: Structured Finance Group
or
If by Facsimile:
+1 212 250 6439
Confirm by Telephone:
+ 1 212 250 6549
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE,
OR TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE
A VALID DELIVERY.
The undersigned acknowledges receipt and reviewed the Prospectus dated ,
1998 (the "Prospectus"), of Morgan Stanley Aircraft Finance ("MSAF"), and this
letter of transmittal (the "Letter"), which together constitute MSAF's offer
(the "Exchange Offer") to exchange $1,000 in principal amount of
<PAGE> 2
five subclass of Notes due March 15, 2023 (the "New Notes") for each $1,000
in principal amount of the five subclasses of issued and outstanding Notes due
March 15, 2023 (the "Old Notes"). Capitalized terms used but not defined herein
have the meanings given to them in the Prospectus.
For each Old Note accepted for exchange and not validly withdrawn, the
holder of such Old Note will receive a New Note having a principal amount at
maturity equal to that of the surrendered Old Note. If the Exchange Offer is not
consummated by November 30, 1998, interest will accrue from and including
December 1, 1998 and will be payable in cash monthly in arrears on the 15th day
of each month, at a rate per annum equal to 0.50% per annum over the rate then
applicable to each subclass of Old Notes (the ""Additional Interest"). Upon the
consummation of the Exchange Offer after November 30, 1998, the Additional
Interest payable on the Old Notes will cease to accrue from the date of such
consummation and all accrued and unpaid Additional Interest as of the
consummation of the Exchange Offer shall be paid promptly thereafter to the
holders of record of the Old Notes immediately prior to the time of such
occurrence. Following the consummation of the Exchange Offer the interest terms
of the Old Notes that are not exchanged shall revert to the original terms set
forth in the Notes as described on the cover page of the Offering Memorandum
dated February 20, 1998 with respect to the Old Notes. Holders of Old Notes
accepted for exchange will be deemed to have waived the right to receive any
other payments or accrued interest on the Old Notes. MSAF expressly reserves the
right, at any time or from time to time, to extend the period of time during
which the Exchange Offer is open, and thereby delay acceptance of any Old Notes,
by giving oral or written notice of such extension to the Exchange Agent and
notice of such extension to the holders as described in the next sentence, in
which event the term "Expiration Date" shall mean the latest time and date to
which the Exchange Offer is extended. MSAF shall notify the holders of the Old
Notes of any extension by means of a press release or other public announcement
prior to 9:00 A.M., New York City time, on the next business day after the
previously scheduled Expiration Date. Notwithstanding the foregoing, pursuant to
the Registration Rights Agreement, MSAF has agreed to keep the Exchange Offer
open for not less than 20 business days after the date notice thereof is mailed
to the holders of the Old Notes (or longer if required by applicable law).
Either this Letter or an Agent's Message is to be completed by a holder of
Old Notes (which term, for purposes of the Exchange Offer, includes any
participant in the Book-Entry Transfer Facility system whose name appears on a
security position listing as the holder of such Old Notes) in order to tender
Old Notes. All deliveries of Old Notes must be made by book-entry transfer to
the account maintained by the Exchange Agent at The Depositary Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedures set forth in the
2
<PAGE> 3
Prospectus under "The Exchange Offer -- Book-Entry Transfer". Holders of Old
Notes who are unable to deliver confirmation of the book-entry tender of their
Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility
(a "Book-Entry Confirmation") or all other documents required by this Letter to
the Exchange Agent on or prior to the Expiration Date, must tender their Old
Notes according to the guaranteed delivery procedures set forth in the
Prospectus under "The Exchange Offer -- Guaranteed Delivery Procedures". See
Instruction 1. Delivery of documents to the Book-Entry Transfer Facility does
not constitute delivery to the Exchange Agent.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer.
List below the subclass(es) of Old Notes to which this Letter relates. If
the space provided below is inadequate, the principal amount at maturity of such
subclass of Old Notes should be listed on a separate signed schedule affixed
hereto.
<TABLE>
<CAPTION>
DESCRIPTION OF OLD NOTES
1 2 3
- - -
Aggregate
Principal Amount Principal Amount
Name(s) and Address(es) of Holder(s) Subclass of Old at Maturity of Old at Maturity
(Please fill in, if blank) Notes Tendered Note(s) Tendered*
- ------------------------------------ --------------- ------------------ ----------------
<S> <C> <C> <C>
- ------------------------------------ --------------- ------------------ ----------------
- ------------------------------------ --------------- ------------------ ----------------
- ------------------------------------ --------------- ------------------ ----------------
- ------------------------------------ --------------- ------------------ ----------------
Total
</TABLE>
* Unless otherwise indicated in this column, a holder will be deemed to have
tendered ALL of the Old Notes represented by the Old Notes indicated in column
1. See instruction 2. Old Notes tendered hereby must be in denominations of
principal amount at maturity of $1,000 and any integral multiple thereof. See
Instruction 1.
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
3
<PAGE> 4
Name of Tendering Institution: _________________________________________
The Depository Trust Company
Account Number __________________ Transaction Code Number ______________
By crediting the Old Notes to the Exchange Agent's account at the
Book-Entry Transfer Facility in accordance with the Book-Entry Transfer
Facility's Automated Tender Offer program ("ATOP") and by complying with
applicable ATOP procedures with respect to the Exchange Offer, including
transmitting a computer-generated message (an "Agent's Message") to the Exchange
Agent in which the holder of the Old Notes acknowledges and agrees to be bound
by the terms of this Letter, the participant in the Book-Entry Transfer Facility
confirms on behalf of itself and the beneficial owners of such Old Notes all
provisions of this Letter applicable to it and such beneficial owners as fully
as if it had completed the information required herein and executed and
transmitted this Letter of the Exchange Agent.
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name(s) of Holder(s)____________________________________________________
Name of Institution which guaranteed delivery___________________________
The Depositary Trust Company
Account Number __________________ Transaction Code Number ______________
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:___________________________________________________________________
Address:________________________________________________________________
________________________________________________________________
4
<PAGE> 5
You are entitled to receive as many copies as you may reasonably request
and if you need more than 10 copies, please, please so indicate by a notation
below.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
LADIES AND GENTLEMEN:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to MSAF the aggregate principal amount at maturity of
each subclass of Old Notes indicated above. Subject to, and effective upon, the
acceptance for exchange of the Old Notes tendered hereby, the undersigned hereby
sells, assigns and transfers to, or upon the order of, MSAF all right, title and
interest in and to such Old Notes as are being tendered hereby. Each participant
in the Book-Entry Transfer Facility transmitting by means of the Book-Entry
Transfer Facility a computer-generated message forming part of a Book-Entry
Confirmation, on behalf of itself and the beneficial owner of the Old Notes
tendered hereby, acknowledges receipt of the Prospectus and this Letter and
agrees to be bound by the terms and conditions of the Exchange Offer as set
forth in the Prospectus and this Letter.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Old Notes
tendered hereby and that MSAF will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim when the same are accepted by MSAF. The undersigned
hereby irrevocably constitutes and appoints the Exchange Agent its agent and
attorney-in-fact with full power of substitution, for purposes of delivering
this Letter and the Old Notes to MSAF. The Power of Attorney granted in this
paragraph shall be deemed irrevocably from and after the Expiration Date and
coupled with an interest.
The undersigned also acknowledges that this Exchange Offer is being made by
MSAF in reliance on an interpretation by the staff of the Securities and
Exchange Commission (the "SEC"), as set forth in no-action letters issued to
third parties, that the New Notes issued in exchange for the Old Notes pursuant
to the Exchange Offer may be offered for resale, resold and otherwise
transferred by holders thereof (other than a broker-dealer, as set forth below,
or any such holder that is an "affiliate" of MSAF within the meaning of Rule 405
under the Securities Act of 1933, as amended (the "Securities Act")), without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such holders' business and such holders have no arrangement with any person
to participate in the distribution (within the meaning of the Securities Act) of
such New Notes. By
5
<PAGE> 6
tendering, each holder of Old Notes represents to MSAF that (i) the New Notes
acquired pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such New Notes, whether or not such
person is such holder, (ii) neither the holder of Old Notes nor any such other
person has an arrangement or understanding with any person to participate in the
distribution of such New Notes, (iii) if the holder is not a broker-dealer or is
a broker-dealer but will not receive New Notes for its own account in exchange
for Old Notes, neither the holder nor any such other person is engaged in or
intends to participate in a distribution of such New Notes and (iv) neither the
holder nor any such other person is an "affiliate" of MSAF within the meaning of
Rule 405 under the Securities Act. By tendering each holder of Old Notes that is
a broker-dealer (whether or not it is also an "affiliate" of MSAF) that will
receive New Notes for its own account pursuant to the Exchange Offer, represents
that the Old Notes to be exchanged for the New Notes were acquired by it as a
result of market-making activities or other trading activities, and acknowledges
that it will deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of such New Notes; however, by so acknowledging
and by delivering a prospectus, the undersigned will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. The undersigned
acknowledges that in reliance on an interpretation by the staff of the SEC, a
broker-dealer may fulfill his prospectus delivery requirements with respect to
the New Notes (other than a resale of an unsold allotment from the original sale
of the Old Notes) with the Prospectus which constitutes part of this Exchange
Offer.
The undersigned will, upon request, execute and deliver any additional
documents deemed by MSAF to be necessary or desirable to complete the sale,
assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. The tender may be withdrawn only in accordance
with the procedure set forth in "The Exchange Offer--Withdrawal Rights" section
of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instruction" below, please credit the account indicated above maintained at the
Book-Entry Transfer Facility.
6
<PAGE> 7
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS
SET FORTH IN SUCH BOX ABOVE.
SPECIAL ISSUANCE INSTRUCTIONS
(See Instructions 3 and 4)
To be completed ONLY if New Notes and/or if Old Notes
delivered by book-entry transfer which are not accepted for
exchange are to be credited to an account maintained at the
Book-Entry Transfer Facility other than the account
indicated above.
Issue: New Notes and/or Old Notes to:
Name(s) ____________________________________________________
(Please Type or Print)
____________________________________________________________
(Please Type or Print)
Address ____________________________________________________
_____________________________________________________________
(Zip Code)
_____________________________________________________________
(Tax Identification or Social Security No.)
[ ] Credit New Notes and/or unexchanged Old Notes to the
Book-Entry Transfer Facility account set forth below.
_____________________________________________________________
(Book-Entry Transfer Facility Account Number)
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF OR AN AGENT'S MESSAGE
(TOGETHER WITH A BOOK-ENTRY CONFIRMATION AND ANY OTHER REQUIRED DOCUMENTS OR THE
NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO
5:00 P.M., NEW YORK CITY TIME, ON OR PRIOR TO THE EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
7
<PAGE> 8
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
Dated:______________________________________________, 1998
X________________________ ______________, 1998
X________________________ ______________, 1998
Signature(s) of Owner Date
Area Code and Telephone Number ___________________________
If a holder is tendering any Old Notes, this Letter
must be signed by the person in whose name such Old Notes
are registered on the security position listing maintained
by DTC or by any person(s) authorized to become holder(s) by
documents transmitted herewith. If the signature is by a
trustee, executor, administrator, guardian, officer or other
person acting in a fiduciary or representative capacity,
please set forth full title. See instruction 3.
Name(s): _________________________________________________
__________________________________________________________
(Please Type or Print)
Capacity:_________________________________________________
Address:__________________________________________________
__________________________________________________________
(Including Zip Code)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by
and Eligible Institution:_________________________________
(Authorized Signature)
__________________________________________________________
(Title)
__________________________________________________________
(Name and Firm)
8
<PAGE> 9
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER FOR THE
NOTES DUE MARCH 15, 2023 IN EXCHANGE FOR THE
NOTES DUE MARCH 15, 2023 OF MSAF
1. DELIVERY OF THIS LETTER AND NOTES; GUARANTEED DELIVERY PROCEDURES
Either this Letter or an Agent's Message is to be completed by holders
(which term, for purposes of the Exchange Offer, includes any participant in the
Book-Entry Transfer Facility system whose name appears on a security position
listing as the holder of such Old Notes) in order to tender Old Notes. All
tenders must be made pursuant to the procedures for delivery by book-entry
transfer set forth in the Prospectus under "The Exchange Offer--Book-Entry
Transfer". Book-Entry Confirmation, as well as either (i) a properly completed
and duly executed Letter (or manually signed facsimile hereof) and all other
documents required by this Letter or (ii) an Agent's Message, must be received
by the Exchange Agent on or prior to the Expiration Date, or the tendering
holder must comply with the guaranteed delivery procedures set forth below. Old
Notes tendered hereby must be in denominations of principal amount at maturity
of $1,000 and any integral multiple thereof.
Noteholders who cannot deliver all required documents to the Exchange Agent
on or prior to the Expiration Date, or who cannot complete the procedure for
book-entry transfer on a timely basis, may tender their Old Notes pursuant to
the guaranteed delivery procedures set forth in the Prospectus under "The
Exchange Offer--Guaranteed Delivery Procedures". Pursuant to such procedures,
(i) such tender must be made through an Eligible Institution, (ii) on or prior
to the Expiration Date, the Exchange Agent must receive from such Eligible
Institution either a properly completed and duly executed Letter (or a facsimile
thereof) or a properly transmitted Agent's Message and Notice of Guaranteed
Delivery, substantially in the form provided by MSAF (by telegram, telex
facsimile transmission, mail or hand delivery), setting forth the name and
address of such holder of Old Notes and the amount of each subclass of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing that
within five New York Stock Exchange ("NYSE") trading days after the date of
execution of the Notice Of Guaranteed Delivery, a Book-Entry Confirmation, and
all other documents required by the Letter will be deposited by the Eligible
Institution with the Exchange Agent, and (iii) Book-Entry Confirmation and all
other documents required by this Letter, are received by the Exchange Agent,
within five NYSE trading days after the date of execution of the Notice of
Guaranteed Delivery.
9
<PAGE> 10
The method of delivery of this Letter, the Old Notes and all other
documents required by this Letter is at the election and risk of the tendering
holders, but the delivery will be deemed made only when actually received or
confirmed by the Exchange Agent. If required documents are sent by mail, it is
suggested that the mailing be made sufficiently in advance of the Expiration
Date to permit delivery to the Exchange Agent prior to 5:00 p.m., New York City
time, on or prior to the Expiration Date. No Letters should be sent to MSAF.
See the Prospectus under "The Exchange Offer".
2. TENDER BY HOLDER
Only a holder of record as of -, 1998 may tender such Old Notes in the
Exchange Offer. Any beneficial owner of Old Notes who wishes to tender should
arrange with The Depository Trust Company ("DTC"), a participant whose name
appears on a security position maintained by DTC or the owner of the Old Notes
to execute and deliver this Letter or an Agent's Message on his or her behalf.
3. SIGNATURES OF THIS LETTER; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES.
If this Letter is signed by the DTC participant whose name appears on a
security position maintained by DTC, the signature must correspond exactly with
such participant's name as it appears on a security position maintained by DTC
listing such participant as the owner of the Old Notes, without any change
whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all of such owners must sign this Letter.
When this Letter is signed by the holders of the Old Notes specified herein
and tendered hereby, no separate bond powers are required. If, however, the New
Notes are to be issued, or any untendered Old Notes are to be reissued, to a
person other than the holder, then separate bond powers are required. Signatures
on such bond powers must be guaranteed by an Eligible Institution.
If this Letter or any bond powers are signed by the trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by MSAF, proper evidence satisfactory
to MSAF of their authority to so act must be submitted.
SIGNATURES ON BOND POWERS REQUIRED BY THIS INSTRUCTION 3 MUST BE
GUARANTEED BY A FIRM WHICH IS A MEMBER OF A REGISTERED NATIONAL SECURITIES
10
<PAGE> 11
EXCHANGE OR A MEMBER OF THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. OR
BY A COMMERCIAL BANK OR TRUST COMPANY HAVING AN OFFICE OR CORRESPONDENT IN THE
UNITED STATES (AN "ELIGIBLE INSTITUTION").
SIGNATURES ON THIS LETTER NEED NOT BE GUARANTEED BY AN ELIGIBLE INSTITUTION
IF: (I) THIS LETTER IS SIGNED BY ANY PARTICIPANT IN DTC WHOSE NAME APPEARS ON A
SECURITY POSITION LISTING MAINTAINED BY DTC AS THE OWNER OF THE OLD NOTES AND
SUCH PERSON HAS NOT COMPLETED THE BOX ENTITLED "SPECIAL ISSUANCE INSTRUCTIONS"
ON THIS LETTER, OR (II) THE OLD NOTES ARE TENDERED FOR THE ACCOUNT OF AN
ELIGIBLE INSTITUTION.
4. SPECIAL ISSUANCE INSTRUCTION.
Tendering holders of Old Notes should indicate in the box the DTC account
to which New Notes issued pursuant to the Exchange Offer and/or substitute Old
Notes not exchanged are to be issued, if different from the DTC account of the
person signing this Letter. The employer identification or social security
number of the person named must also be indicated. If no such instructions are
given, such New Notes and/or Old Notes not exchanged will be credited to the DTC
account of the person signing this Letter.
5. TRANSFER TAXES.
MSAF will pay all transfer taxes, if any, applicable to the transfer of Old
Notes to it or its order pursuant to the Exchange Offer. If, however, a transfer
tax is imposed for any reason other than the transfer of Old Notes to MSAF or
its order pursuant to the Exchange Offer, the amount of any such transfer taxes
(whether imposed on the holder or any other person) will be payable by the
tendering holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted herewith, the amount of such transfer taxes will be
billed directly to such tendering holder.
6. WAIVER OF CONDITIONS.
MSAF reserves the absolute right to waive satisfaction of any or all
conditions enumerated in the Prospectus.
7. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Old Notes, by execution of this Letter, shall
waive any right to receive notice of the acceptance of their Old Notes for
exchange.
11
<PAGE> 12
Neither MSAF, the Exchange Agent nor any other person is obligated to give
notice of any defect or irregularity with respect to any tender of Old Notes nor
shall any of them incur any liability for failure to give any such notice.
8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter, may be directed to the
Exchange Agent, at the address and telephone and facsimile numbers indicated
above.
9. INCORPORATION OF LETTER AND TRANSMITTAL.
This Letter shall be deemed to be incorporated in and acknowledged and
accepted by any tender through the Book-Entry Transfer Facility's ATOP
procedures by any participant in the Book-Entry Transfer Facility on behalf of
itself and the beneficial owners of any Old Notes so tendered.
12
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF NOTES DUE MARCH 15, 2023
IN EXCHANGE FOR NOTES DUE MARCH 15, 2023
OF
MORGAN STANLEY AIRCRAFT FINANCE
As set forth in the Prospectus dated - , 1998 (the "Prospectus")
of Morgan Stanley Aircraft Finance ("MSAF") and in the accompanying Letter of
Transmittal and instructions thereto (the "Letter of Transmittal"), this form or
one substantially equivalent hereto must be used to accept MSAF's Exchange Offer
(the "Exchange Offer") to exchange all five subclasses of its outstanding Notes
due March 15, 2023 (the "Old Notes") for each subclass of its Notes due March
15, 2023 which have been registered under the Securities Act of 1933, as
amended, if the Letter of Transmittal or any other documents required thereby
cannot be delivered to the Exchange Agent, or the procedure for book-entry
transfer cannot be completed, prior to 5:00 P.M., New York City time, on the
Expiration Date (as defined in the Prospectus). This form may be delivered by an
Eligible Institution by hand or transmitted by facsimilie transmission,
overnight courier or mail to the Exchange Agent as set forth below. Capitalized
terms used but not defined herein have the meaning given to them in the
Prospectus.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1998 UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS OF OLD NOTES MAY BE
WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M. ON THE LAST BUSINESS DAY PRIOR TO THE
EXPIRATION DATE
Delivery to: Bankers Trust Company, as Exchange Agent
If by Mail, hand or Overnight Courier:
Bankers Trust Company
Four Albany Street
Mail Stop 5091
New York, New York 10006
or
If by Facsimilie
+1 212 250 6439
Confirm by Telephone:
+1 212 250 6549
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION VIA A
FACSIMILIE, OTHER THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY.
<PAGE> 2
This Notice of Guaranteed Delivery is not be used to guarantee signatures.
If a signature on the Letter of Transmittal to be used to tender Old Notes is
required to be guaranteed by an "Eligible Institution" under the instructions
thereto, such signature guarantee must appear in the applicable space provided
in the Letter of Transmittal.
Ladies and Gentlemen:
The undersigned hereby tenders to MSAF, upon the terms and subject to the
conditions set forth in the Prospectus and the Letter of Transmittal (which
together constitute the "Exchange Offer"), receipt of which is hereby
acknowledged, ______________________ Subclass ____ Old Notes pursuant to the
(amount of Old Notes)
guaranteed delivery procedures set forth in Instruction 1 of the Letter of
Transmittal.
The undersigned understands that tenders of Old Notes will be accepted only
in principal amounts equal to $1,000 or integral multiples thereof. The
undersigned understands that tenders of Old Notes pursuant to the Exchange offer
may not be withdrawn after 5:00 p.m., New York City time, on the last business
day prior to the Expiration Date. Tenders of Old Notes may also be withdrawn if
the Exchange Offer is terminated without any such Old Notes being purchased
thereunder or as otherwise provided in the Prospectus.
All authority thereto conferred or agreed to be conferred by Notice of
Guaranteed Delivery shall survive the death, incapacity or dissolution of the
undersigned and every obligation of the undersigned under this Notice of
Guaranteed Delivery shall be binding upon the heirs, personal representatives,
executors, administrators, successors, assigns, trustees in bankruptcy and other
legal representatives of the undersigned.
NOTE: SIGNATURES MUST BE PROVIDED WHERE INDICATED BELOW
Principal Amount and Subclass of Name(s) of Holder(s)
Old Notes Tendered
- -------------------------------- ----------------------------------------
________________________________________
Please Print or Type
Address_________________________________
________________________________________
Area Code and Telephone No.
________________________________________
Signature(s)____________________________
________________________________________
Dated:__________________________________
The Depository Trust Company
Account No._____________________________
2
<PAGE> 3
This Notice of Guaranteed Delivery must be signed by (i) the Holder(s) of
Old Notes exactly as its (their) name(s) appear on a security position listing
maintained by DTC as the owner of Old Notes or (ii) by person(s) authorized to
become Holder(s) by documents transmitted with this Notice of Guaranteed
Delivery. If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer or other person acting in a fiduciary or a
representative capacity, such person must provide the following information:
PLEASE PRINT NAME(S) AND ADDRESS(ES) OF PERSON SIGNING ABOVE
Name(s) ________________________________________________________________
________________________________________________________________
Capacity: ________________________________________________________________
Address(es) ________________________________________________________________
________________________________________________________________
________________________________________________________________
3
<PAGE> 4
THE FOLLOWING GUARANTEE MUST BE COMPLETED
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., or a
commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of
Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), hereby (a) represents that the above named person(s) "own(s)"
the Old Note tendered hereby within the meaning of Rule 14e-4 under the
Exchange Act, (b) represents that such tender of Old Notes complies with Rule
14e-4 under the Exchange Act and (c) guarantees that delivery to the Exchange
Agent of a Depositary Trust Company, pursuant to the procedures for book-entry
transfer set forth in the Prospectus, with delivery of either a properly
completed and duly executed Letter of Transmittal (or manually signed facsimile
thereof) with any required signatures and any other documents required by the
Letter of Transmittal or an Agent's Message, will be received by the Exchange
Agent within five New York Stock Exchange trading days after the Expiration
Date.
THE UNDERSIGNED ACKNOWLEDGES THAT IT MUST DELIVER THE LETTER OF TRANSMITTAL
OR AGENT'S MESSAGE AND OLD NOTES TENDERED HEREBY TO THE EXCHANGE AGENT WITHIN
THE TIME PERIOD SET FORTH THEREIN AND THAT FAILURE TO DO SO COULD RESULT IN
FINANCIAL LOSS TO THE UNDERSIGNED.
Name of Firm ______________________ ___________________________________
Authorized Signature
Address ___________________________ Name ______________________________
Please Print or Type
___________________________________ Title _____________________________
Zip Code
Area Code and Telephone Number
___________________________________ Date ______________________________
Dated: ______________________ , 1998
4
<PAGE> 1
EXHIBIT 99.3
Offer to Exchange
Notes due March 15, 2023
for Any and All Outstanding
Notes due March 15, 2023
of
Morgan Stanley Aircraft Finance
To The Depository Trust Company Participants:
We are enclosing herewith the materials listed below relating to the offer
by Morgan Stanley Aircraft Finance ("MSAF") to exchange five subclasses of its
Notes due March 15, 2023 (the "New Notes"), pursuant to an offering registered
under the Securities Act of 1933, as amended (the "Securities Act"), for a
like principal amount of each subclass of its issued and outstanding Notes due
March 15, 2023 (the "Old Notes") upon the terms and subject to the conditions
set forth in MSAF's Prospectus, dated , 1998, and the related Letter of
Transmittal (which together constitute the "Exchange Offer").
Enclosed herewith are copies of the following documents:
1. Prospectus dated , 1998;
2. Letter of Transmittal;
3. Notice of Guaranteed Delivery;
4. Instruction to Book-Entry Transfer Participant from Owner; and
5. Letter which may be sent to your clients for whose account you hold
Old Notes in your name or in the name of your nominee, to accompany
the instruction form referred to above, for obtaining such client's
instruction with regard to the Exchange Offer.
<PAGE> 2
WE URGE YOU TO CONTACT YOUR CLIENTS PROMPTLY. PLEASE NOTE THAT THE EXCHANGE
OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON - , 1998, UNLESS
EXTENDED.
The Exchange Offer is not conditioned upon any minimum number of Old Notes
being tendered.
To participate in the Exchange Offer, a beneficial holder must cause a DTC
Participant to tender such holder's Old Notes to Bankers Trust Company (the
"Exchange Agent") account maintained at the Depository Trust Company ("DTC") for
the benefit of the Exchange Agent through DTC's Automated Tender Offer Program
("ATOP"), including transmission of a computer-generated message that
acknowledges and agrees to be bound by the terms of the Letter of Transmittal.
By complying with DTC's ATOP procedures with respect to the Exchange Offer, the
DTC Participant confirms on behalf of itself and the beneficial owners of
tendered Old Notes all provisions of the Letter of Transmittal applicable to it
and such beneficial owners as fully as if it completed, executed and returned
the Letter of Transmittal to the Exchange Agent.
Pursuant to the Letter of Transmittal, each holder of Old Notes will
represent to MSAF that (i) the New Notes acquired in the Exchange Offer are
being obtained in the ordinary course of business of the person receiving such
New Notes, whether or not such person is such holder, (ii) neither the holder of
the Old Notes nor any such other person has an arrangement or understanding with
any person to participate in the distribution of such New Notes, (iii) if the
holder is not a broker-dealer or is a broker-dealer but will not receive New
Notes for its own account in exchange for Old Notes, neither the holder nor any
such other person is engaged in or intends to participate in a distribution of
the New Notes and (iv) neither the holder nor any such other person is an
"affiliate" of MSAF within the meaning of Rule 405 under the Securities Act of
1933, as amended. If the tendering holder is a broker-dealer that will receive
New Notes for its own account pursuant to the Exchange Offer, you will represent
on behalf of such broker-dealer that the Old Notes to be exchanged for the New
Notes were acquired by it as a result of market-making activities or other
trading activities, and acknowledge on behalf of such broker-dealer that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes. By acknowledging that it will
deliver and by delivering a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes, such
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
2
<PAGE> 3
The enclosed Instruction to the Book-Entry Transfer Participant from Owner
contains an authorization by the beneficial owners of the Old Notes for you to
make the foregoing representations.
MSAF will not pay any fee or commission to any broker or dealer or to any
other persons (other than the Exchange Agent) in connection with the
solicitation of tenders of Old Notes pursuant to the Exchange Offer. MSAF will
pay or cause to be paid any transfer taxes payable on the transfer of Old Notes
to it, except as otherwise provided in Instruction 5 of the enclosed Letter of
Transmittal.
Additional copies of the enclosed material may be obtained from Bankers
Trust Company, Four Albany Street, Mail Stop 5091, New York, New York 10006.
Very truly yours,
MORGAN STANLEY AIRCRAFT FINANCE
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU THE
AGENT OF MORGAN STANLEY AIRCRAFT FINANCE OR BANKERS TRUST COMPANY OR AUTHORIZE
YOU TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON THEIR BEHALF IN CONNECTION WITH
THE EXCHANGE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS
CONTAINED THEREIN.
3
<PAGE> 1
EXHIBIT 99.4
Offer to Exchange
Notes due March 15, 2023
for Any and All Outstanding
Notes due March 15, 2023
of
Morgan Stanley Aircraft Finance
To Our Clients:
We are enclosing herewith a Prospectus dated , 1998, of Morgan Stanley
Aircraft Finance ("MSAF") and a related Letter of Transmittal (which together
constitute the "Exchange Offer") relating to the offer by MSAF to exchange five
subclasses of its Notes due March 15, 2023 (the "New Notes"), pursuant to an
offering registered under the Securities Act of 1933, as amended (the
"Securities Act"), for a like principal amount of each of the five subclasses of
its issued and outstanding Notes due March 15, 2023 (the "Old Notes") upon the
terms and subject to the conditions set forth in the Exchange Offer.
PLEASE NOTE THAT THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON , 1998, UNLESS EXTENDED.
The Exchange Offer is not conditioned upon any minimum number of Old Notes
being tendered.
We are the participants in the book-entry transfer facility of Old Notes
held by us for your account. A tender of such Old Notes can be made only by us
as the participant in the book-entry transfer facility and pursuant to your
instructions. The Letter of Transmittal is furnished to you for your information
only and cannot be used by you to tender Old Notes held by us for your account.
We request instruction as to whether you wish to tender any or all of any
subclass of Old Notes held by us for your account pursuant to the terms and
conditions of the Exchange Offer. We also request that you confirm that we may
on your behalf make the representations contained in the Letter of Transmittal
that are to be made with respect to you as beneficial owner.
Pursuant to the Letter of Transmittal, each holder of Old Notes will
represent to MSAF that (i) the New Notes acquired in the Exchange Offer are
<PAGE> 2
being obtained in the ordinary course of business of the person receiving such
New Notes, (ii) the holder of the Old Notes has no arrangement or understanding
with any person to participate in the distribution of such New Notes, (iii) if
the holder is not a broker-dealer or is a broker-dealer but will not receive New
Notes for its own account in exchange for Old Notes, the holder is not engaged
in and does not intend to participate in a distribution of the New Notes and
(iv) the holder is not an "affiliate" of MSAF within the meaning of Rule 405
under the Securities Act. If the tendering holder is a broker-dealer (whether or
not it is also an "affiliate" of MSAF) that will receive New Notes for its own
account pursuant to the Exchange Offer, we will represent on behalf of such
broker-dealer that the Old Notes to be exchanged for the New Notes were acquired
by it as a result of marketing-making activities or other trading activities,
and acknowledge on behalf of such broker-dealer that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such New Notes. By acknowledging that it will deliver and by
delivering a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes, such broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
2
<PAGE> 3
EXHIBIT 99.4
INSTRUCTION TO
BOOK-ENTRY TRANSFER PARTICIPANT FROM OWNER
OF
Morgan Stanley Aircraft Finance
Notes due March 15, 2023
To Participant of the
Book-Entry Transfer Facility
The undersigned hereby acknowledges receipt of the Prospectus dated
- - , 1998 (the "Prospectus") of Morgan Stanley Aircraft Finance ("MSAF"), and
the accompanying Letter of Transmittal (the "Letter of Transmittal"), that
together constitute MSAF's offer (the "Exchange Offer"). Capitalized terms used
but not defined herein have the meanings ascribed to them in the Prospectus.
This will instruct you, the book-entry transfer facility participant, as to
the action to be taken by you relating to the Exchange Offer with respect to the
Old Notes held by you for the account of the undersigned.
The aggregate face amount of each subclass of Old Notes held by you for the
account of the undersigned is (fill in amount):
$ of the Subclass ________ Notes due March 15, 2023
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate box):
[ ] to TENDER the following subclass of Old Notes held by you for the
account of the undersigned (insert principal amount of Old Notes to be
tendered, (if any):
$ of the Subclass ________ Notes due March 15, 2023
<PAGE> 4
[ ]NOT to tender any Old Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Old notes held by you for
the account of the undersigned, it is understood that you are authorized to
make, on behalf of the undersigned (and the undersigned, by its signature below,
hereby makes to you), the representation and warranties contained in the Letter
of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including but not limited to the representations, that (i) the
New Notes acquired pursuant to the Exchange Offer are being obtained in the
ordinary course of business of the undersigned, (ii) the undersigned has no
arrangement or understanding with any person to participate in the distribution
of such New Notes, (iii) if the undersigned is not a broker-dealer, or is a
broker-dealer but will not receive New Notes for its own account in exchange for
Old Notes, the undersigned is not engaged in and does not intend to participate
in the distribution of such New notes and (iv) the undersigned is not an
"affiliate" of MSAF within the meaning of Rule 405 under the Securities Act of
1933, as amended (the "Securities Act"). If the undersigned is a broker-dealer
(whether or not it is also an "affiliate" of MSAF) that will receive New Notes
for its own account pursuant to the Exchange Offer, it represents that such Old
Notes were acquired as a result of market-making activities or other trading
activities, and it acknowledges that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes. By acknowledging that it will deliver and by delivering a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such New Notes, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
2
<PAGE> 5
SIGN HERE
Name of beneficial owner(s):____________________________________________________
Signature(s): __________________________________________________________________
Name(s) (please print):_________________________________________________________
Address: _______________________________________________________________________
Telephone Number: ______________________________________________________________
Taxpayer identification or Social Security Number:
________________________________________________________________________________
________________________________________________________________________________
Date: __________________________________________________________________________
3
<PAGE> 1
Exhibit 99.5
[LOGO] AIRCRAFT
INFORMATION
SERVICES, INC.
08 December 1997
Mr. Kieran O'Keefe
Morgan Stanley Aircraft Finance ("MSAF")
c/o Wilmington Trust
One Rodney Square
PO Box 551
Wilmington, Delaware 19899
USA
Subject: Adjusted Base Market Value Opinion - 33 Aircraft Fleet
AISI File number: A7S041BVO
Reference: (a) Morgan Stanley Facsimile Message, 24 November 1997
Dear Mr. O'Keefe:
In response to your request, Aircraft Information Services, Inc. (AISI) is
pleased to offer our opinion to Morgan Stanley Aircraft Finance ("MSAF") of the
adjusted base market values of the 33 aircraft fleet as identified in Table I
(the "Aircraft").
1. METHODOLOGY AND DEFINITIONS
The historical standard term of reference for commercial aircraft value has been
'half-life fair market value' of an 'average' aircraft. However, 'fair market
value' could mean a fair value in the given market or a value in a hypothetical
'fair' or balanced market, and the two definitions are not equivalent. Recently,
the term 'base value' has been created to describe the theoretical balanced
market condition and to avoid the potentially misleading term 'fair market
value' which has now become synonymous with the term 'current market value' or a
'fair' value in the actual current market. AISI value definitions are consistent
with those of the International Society of Transport Aircraft Trading (ISTAT) of
01 January 1994; AISI is a member of that organization and employs an ISTAT
Certified Senior Aircraft Appraiser.
AISI defines a 'base value' as that of a transaction between equally willing
and informed buyer and seller, neither under compulsion to buy or sell, for a
single unit cash transaction with no hidden value or liability, and with supply
and demand of the sale item roughly in balance. Base values are typically given
for aircraft in 'new' condition, 'average half-life' condition, or in a
specifically described condition unique to a single aircraft at a specific
time. An 'average'
Headquarter, 23232 Peralta Drive, Suite 115, Laguna Hills, CA 92653
TEL: 714-830-0101 FAX: 714-830-1101
<PAGE> 2
[LOGO]
08 December 1997
AISI File No. A7S041BVO
Page - 2 -
aircraft is an operable airworthy aircraft in average physical condition and
with average accumulated flight hours and cycles, with clear title and standard
unrestricted certificate of airworthiness, and registered in an authority which
does not represent a penalty to aircraft value or liquidity, with no damage
history and with inventory configuration and level of modification which is
normal for its intended use and age. AISI assumes average condition unless
otherwise specified in this report. 'Half-life' condition assumes that every
component or maintenance service which has a prescribed interval that determines
its service life, overhaul interval or interval between maintenance services, is
at a condition which is one-half of the total interval. It should be noted that
AISI and ISTAT value definitions apply to a transaction involving a single
aircraft, and that transactions involving more than one aircraft are often
executed at considerable and highly variable discounts to a single aircraft
price, for a variety of reasons relating to an individual buyer or seller.
AISI defines a 'current market value' or 'fair market value' as that value which
reflects the real market conditions, whether at, above or below the base value
conditions. Assumption of a single unit sale and definitions of aircraft
condition, buyer/seller qualifications and type of transaction remain unchanged
from that of base value. Current market value takes into consideration the
status of the economy in which the aircraft is used, the status of supply and
demand for the particular aircraft type, the value of recent transactions and
the opinions of informed buyers and sellers. Current market value assumes that
there is no short term time constraint to buy or sell.
AISI encourages the use of base values to consider historical trends, to
establish a consistent baseline for long term value comparisons and future value
considerations, or to consider how actual market values vary from theoretical
base values. Base values are less volatile than current market values and tend
to diminish regularly with time. Base values are normally inappropriate to
determine near term values. AISI encourages the use of current market values to
consider the probable near term value of an aircraft.
AISI determines an 'adjusted market value' by determining the value of known
deviations from half-life condition, which may be better or worse than half-life
condition, and to account for better or worse than average physical condition,
and the inclusion of additional equipment, or absence of standard equipment.
No physical inspection of the Aircraft or their essential records was made by
AISI for the purposes of this report, nor has any attempt been made to verify
information provided to us, which is assumed to be correct and applicable to the
Aircraft.
<PAGE> 3
[LOGO]
08 December 1997
AISI File No. A7S041BVO
Page - 3 -
2. VALUATION
Our opinion of the adjusted base market value of the Aircraft is derived from
information and specifications supplied by Morgan Stanley in reference (a).
Adjustments are calculated in accordance with standard AISI methods. Adjustments
are calculated only where there is sufficient information to do so, or where
reasonable assumptions can be made.
With regard to airframe maintenance, if no time between check/overhaul (TBO) or
time since check/overhaul (TSO) information was provided, and if the total
hours/cycles of the airframe do not exceed the TBO limits then the total
hours/cycles of the airframe were assumed to be the TSO. This is typical of
newer aircraft. If no information was provided and if the TSO could not be
calculated, then half life was assumed.
With regard to the engines, due to the amount of information provided, all
engines are considered to be in half life condition.
All hours and cycle information provided for airframe, C Check, D Check, gear
and engines have been projected from the Aircraft Specification sheet dates to
30 September 1997 based on a daily utilization factor calculated for each
aircraft.
It is our considered opinion that the adjusted base values of the Aircraft as of
30 September 1997 are as follows in Table I subject to the assumptions,
definitions, and disclaimers herein.
<PAGE> 4
[LOGO]
08 December 1997
AISI File No. A7S041BVO
Page - 4 -
Unless otherwise agreed by Aircraft Information Services, Inc. (AISI) in
writing, this report shall be for the sole use of the client/addressee. This
report is offered as a fair and unbiased assessment of the subject aircraft or
equipment. AISI has no past, present, or anticipated future interest in the
subject aircraft or equipment. The conclusions and opinions expressed in this
report are based on published information, information provided by others,
reasonable interpretations and calculations thereof and are given in good faith.
Such conclusions and opinions are judgments that reflect conditions and values
which are current at the time of this report. The values and conditions reported
upon are subject to any subsequent change. AISI shall not be liable to any party
for damages arising out of reliance or alleged reliance on this report, or for
any parties action or failure to act as a result of reliance or alleged reliance
on this report.
Sincerely,
AIRCRAFT INFORMATION SERVICES, INC.
[SIG] Fred E. Bearden
__________________________________
Fred E. Bearden
President
FEB/JMC/jm
<PAGE> 5
[LOGO]
Table 1 - AISI File A7S041BVO - Report Date 8 December 1997
Values as of 30 September 1997
Fleet Valuation - ILFC Fleet
<TABLE>
<CAPTION>
HALF LIFE BASE ADJUSTED BASE
VALUE VALUE
TYPE MSN DOM YOB ENGINE MTOW 1997 USDOLLARS 1997 USDOLLARS
- -------------- ------ ------ --------- ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
A300-600R 555 Mar-90 1990 PW4158 378,530 56,300,000 58,200,000
A310-300 409 Nov-85 1985*(1) JT9D-7R4E1 330,690 25,100,000 25,170,000
A310-300 410 Nov-85 1985*(2) JT9D-7R4E1 330,690 25,100,000 25,150,000
A310-322 437 Feb-87 1987 JT9D-7R4E1 337,304 30,550,000 32,340,000
A320-200 279 Feb-92 1992 CFM56-5A3 169,756 31,910,000 32,240,000
A320-200 393 Feb-93 1993 V2500-A1 166,447 33,040,000 32,530,000
A320-200 414 Mar-93 1993 V2500-A1 166,447 33,040,000 32,610,000
A321-100 597 May-96 1996 V2530-A5 182,982 47,690,000 48,120,000
B737-300 25161 Feb-92 1992 CFM56-3B2 138,500 25,400,000 24,870,000
B737-3K2 27635 May-95 1995 CFM56-3C1 139,000 30,900,000 31,020,000
B737-3Q8 24299 Nov-88 1988 CFM56-3B2 137,000 22,070,000 23,240,000
B737-300 26295 Dec-93 1993 CFM56-3C1 135,000 26,750,000 26,950,000
B737-353F 23811 Sep-87 1987 CFM56-3B2 138,500 22,840,000 23,000,000
B737-300QC 23788 May-87 1987 CFM56-3C1 139,500 23,080,000 23,010,000
B737-4Q8 24234 Oct-88 1988 CFM56-3B2 143,500 24,600,000 24,630,000
B737-4Q8 25104 May-93 1993 CFM56-3C1 143,500 29,350,000 29,090,000
B737-4Q8 25371 Jan-92 1992 CFM56-3C1 150,000 28,460,000 27,780,000
B737-400 25372 May-92 1992 CFM56-3C1 150,000 28,460,000 28,240,000
B737-500 25165 Apr-93 1993 CFM56-3B1 121,254 21,990,000 21,970,000
B747-300 24106 Apr-88 1988 CF6-80C2B1 833,000 71,500,000 71,990,000
B757-200ER 24367 Feb-89 1989 RB211-535E4 250,000 41,160,000 41,220,000
B757-200ER 24260 Dec-88 1988 RB211-535E4 250,000 39,350,000 40,100,000
B757-200ER *(3) 26272 Mar-94 1994 PW2037 230,000 49,100,000 49,160,000
B767-200ER *(4) 23807 Aug-87 1987 CF6-80A 345,000 43,950,000 44,780,000
B767-300ER *(5) 24798 Oct-90 1990 CF6-80C2B6F 345,000 63,020,000 62,250,000
B767-300ER 26256 Apr-93 1993 CF6-80C2B6F 407,000 74,900,000 75,670,000
B767-300ER 26260 Sep-94 1994 CF6-80C2B4 380,000 77,340,000 77,340,000
Fokker 70 11564 Dec-95 1995 TAY MK620-15 80,997 16,140,000 16,210,000
Fokker 70 11565 Feb-96 1996 TAY MK620-15 80,997 17,820,000 17,890,000
Fokker 70 11569 Mar-96 1996 TAY MK620-15 80,997 17,820,000 17,880,000
MD-82 *(6) 49825 Mar-89 1989 JT8D-217C 149,500*(6) 21,110,000 20,740,000
MD-83 49822 Dec-88 1988 JT8D-219 160,000 22,220,000 21,690,000
MD-83 49824 Mar-89 1989*(7) JT8D-219 160,000 23,070,000 23,480,000
Engine 704279 Jan-95 1995 CF6-80C2B6F Basic QEC 6,050,000 6,050,000
-------------- --------------
Total $1,151,180,000 $1,156,610,000
-------------- --------------
</TABLE>
*Notes: (1) Manufacturer's data shows as a 1986 year of build aircraft.
Clients data indicates 1985 YOB.
(2) Manufacturer's data shows as a 1986 year of build aircraft.
Clients data indicates 1985 YOB.
(3) Manufacturer's data shows as a H757-200 NON BR aircraft.
Clients data indicates -200ER.
(4) Manufacturer's data shows as a B767-200 NON ER. Clients data
indicates converted to -200ER.
(5) Although manufacturer's data shows this as a B767-300 NON ER
aircraft, client advises there are funds provided attached
as asset value sufficient for ER capability.
(6) Manufacturer's data shows as an MD-83 aircraft/160,000 lb MTOW.
Clients data shows MD-82.
(7) Manufacturer's data shows this as a 1988 year of build aircraft.
Clients data indicates 1989 YOB.
<PAGE> 6
<PAGE> 1
EXHIBIT 99.6
[LOGO] BK Associates
Aviation Appraisal, Planning and Consulting Services
<PAGE> 2
CURRENT BASE VALUES OF
AIRCRAFT IN THE INTERNATIONAL
LEASE FINANCE CORP. PORTFOLIO
Prepared for: Prepared by:
Morgan Stanley Aircraft Finance BK Associates, Inc.
London, England Manhasset, New York
December 1997
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
1. INTRODUCTION.................................................. 1
2. CONCLUSIONS................................................... 2
3. DISCUSSION OF MARKET.......................................... 5
3.1 Suitability of the Aircraft............................... 6
3.2 Regulatory Factors........................................ 11
3.2.1 Noise Regulations................................... 11
3.2.2 Regulatory Restrictions for Aging Aircraft.......... 12
3.3 Aircraft Sales Data....................................... 13
3.3.1 Forecast Values..................................... 13
3.4 Remaining Economic Useful Life............................ 16
4. VALUE METHODOLOGY............................................. 19
4.1 Definitions............................................... 19
4.2 Base Value Assumptions.................................... 20
5. QUALIFICATIONS OF BK ASSOCIATES, INC.......................... 22
</TABLE>
<PAGE> 4
SECTION 1
<PAGE> 5
1. INTRODUCTION
*******************
<PAGE> 6
1. INTRODUCTION
*****************
In response to a request from Morgan Stanley Aircraft finance (MSAF), BK
Associates, Inc. is pleased to present this report on the base values (BV) as of
September 30, 1997 of some of the aircraft in the International Lease Finance
Corporation (Portfolio). The Portfolio is comprised of 33 various types or
models of narrow- and wide-body jets and one spare engine. The aircraft are
identified in Figure 2-1 by aircraft type, serial number, date of manufacture,
and engine model.
It should be understood that the aircraft have not been inspected for this
appraisal. MSAF has provided BK Associates with data on each aircraft including
specifications and current maintenance status. These data were used to adjust
base values to account for utilization and current maintenance status.
Section 2 of this report presents the conclusions regarding the values of the
aircraft. Other sections describe the methodology used by BK Associates in
determining appraised values, discuss the factors affecting the market for
aircraft, and describe the experience and qualifications of BK Associates in
undertaking appraisals.
1
<PAGE> 7
SECTION 2
<PAGE> 8
2. CONCLUSIONS
******************
<PAGE> 9
2. CONCLUSIONS
*****************
Based upon our familiarity with airline transport aircraft, our knowledge of
their capabilities and the uses to which they are put, our knowledge of the
marketing and leasing of new and used aircraft, and our familiarity with
aircraft generally, it is our opinion that the base values as of September 30,
1997 for the aircraft in the Portfolio are as stated in Figure 2-1, expressed in
millions of dollars.
According to the International Society of Transport Aircraft Trading's (ISTAT)
definition of Base Value, to which BK Associates subscribes, base value is the
Appraiser's opinion of the underlying economic value of an aircraft in an open,
unrestricted, stable market environment with a reasonable balance of supply and
demand, and assumes full consideration of its "highest and best use". An
aircraft's Base Value is founded in the historical trend of values and in the
projection of value trends and presumes an arm's length, cash transaction
between willing, able and knowledgeable parties, acting prudently, with an
absence of duress and with a reasonable period of time available for marketing.
The values given in Figure 2-1 are based upon certain definitions and
assumptions regarding aircraft condition, maintenance status, and market
conditions which are described more fully below and later in this report. THESE
VALUES SHOULD NOT BE USED OUTSIDE THE CONTEXT OF, OR WITHOUT KNOWLEDGE OF, THOSE
ASSUMPTIONS AND DEFINITIONS.
The values given in Figure 2-1 include adjustments to account for the current
maintenance status. These adjustments are approximate, based on industry average
costs, and normally would include an adjustment for the time remaining to a
"C" check, time remaining to a "D" check, time remaining to landing gear
overhaul and time remaining to a heavy shop visit on engines. Where estimates of
time to a check were provided by months or
2
<PAGE> 10
calendar date, industry average utilization figures were used to convert to an
equivalent hourly rate. Where "C" checks and "D" checks are accomplished on a
phased basis the aircraft is assumed to be at half-time and no adjustment is
included. In those cases, where sufficient relevant data were not available to
make adjustments for engines, they were assumed to be at half-time. Where data
were available adjustments were included for engines.
Also, no consideration has been given to cash maintenance reserve payments or
security deposits that are likely paid by the lessees on nearly all of the
aircraft in the Portfolio. These payments are intended to offset the very costs
for which the maintenance adjustments are applied to the half-time values.
BK Associates, Inc. has no present or contemplated future interest in the
aircraft, nor any interest that would preclude our making a fair and unbiased
estimate. This appraisal represents the opinion of BK Associates, Inc. and
reflects our best judgment based on the information available to us at the time
of preparation. It is not given as a recommendation, or as an inducement, for
any financial transaction and further, BK Associates assumes no responsibility
or legal liability for any action taken or not taken by the addressee, or any
other party, with regard to the appraised equipment. By accepting this
appraisal, the addressee agrees that BK Associate shall bear no such
responsibility or legal liability. This appraisal is prepared for the use of the
addressee and shall not be provided to other parties without the express consent
of the addressee.
BK ASSOCIATES, INC.
[Signature]
John F. Keitz
President
ISTAT Senior Certified Appraiser
3
<PAGE> 11
FIGURE 2-1
ILFC PORTFOLIO 1997
<TABLE>
<CAPTION>
HALF-TIME MAINTENANCE ADJ.
AIRCRAFT SERIAL MFGR. ENGINE BASE VALUE BASE VALUE
# TYPE NUMBER YEAR MODEL $ MIL # MIL
- ----- ---------- ------ ---- ------ ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
1 A300-600R 555 1990 PW4158 52.55 53.95
2 A310-300 409 1985 JT9D-7R4 29.85 29.97
3 A310-300 410 1985 JT9D-7R4 29.85 29.86
4 A310-322 437 1987 JT9D-7R4 36.80 38.42
5 A320-200 279 1992 CFM56-5A3 33.25 33.16
6 A320-200 393 1993 V2500-A1 32.40 32.18
7 A320-200 414 1993 V2500-A1 32.40 32.23
8 A321-100 597 1996 V2530-A5 49.95 51.00
9 B737-300 25161 1992 CFM56-3B2 28.50 28.06
10 B737-3K2 27635 1995 CFM56-3C1 33.50 33.86
11 B737-3Q8 24299 1988 CFM56-3B2 21.75 22.88
12 B737-300 26295 1993 CFM56-3C1 29.60 29.18
13 B737-353F 23811 1987 CFM56-3B2 21.30 22.36
14 B737-300 23788 1987 CFM56-3C1 20.20 20.26
15 B737-4Q8 24234 1988 CFM56-3B2 23.60 23.37
16 B737-4Q8 25371 1992 CFM56-3C1 30.25 30.05
17 B737-400 25372 1992 CFM56-3C1 30.25 30.00
18 B737-4Q8 25104 1993 CFM56-3C1 31.60 31.42
19 B737-500 25165 1993 CFM56-3B1 22.50 21.91
20 B747-300 24106 1998 CFG-80C2 66.00 66.67
21 B757-200ER 24367 1989 RB211-535E4 36.50 36.55
22 B757-200ER 24260 1988 RB211-535E4 34.40 34.40
23 B757-200ER 26272 1994 PW2037 47.35 47.67
24 B767-200ER 23807 1987 CF6-80A 36.50 37.05
25 B767-300ER 24798 1990 CF6-80C2 55.69 55.70
26 B767-300ER 26256 1993 CF6-80C2 65.94 66.54
27 B767-300ER 26260 1994 CF6-80C2 69.02 69.01
28 F70 11564 1995 TAY620-15 19.50 19.56
29 F70 11565 1996 TAY620-15 21.00 21.06
30 F70 11569 1996 TAY620-15 21.00 21.08
31 MD82 49825 1989 JT8D-217 19.90 20.42
32 MD83 49822 1988 JT8D-219 22.05 21.89
33 MD83 49824 1989 JT8D-219 23.45 24.44
34 SPARE 704279 1995 CF6-80C2 5.90 5.90
TOTAL 1,134.30 1,142.06
</TABLE>
<PAGE> 12
SECTION 3
<PAGE> 13
3. DISCUSSION OF MARKET
***************************
<PAGE> 14
3. DISCUSSION OF MARKET
***********************
The aircraft values presented in this report are based on careful consideration
of the impact of many factors that affect the market for new and used aircraft.
Ultimately, aircraft values depend almost entirely on supply and demand. A
shortage of aircraft or an unexpected increase in demand for air transportation
tends to increase values of aircraft, and conversely, a decline in passenger
demand for air transportation will bring about surplus aircraft with decreased
values. If the market is balanced between supply and demand, the long term trend
of the base value is determined from historical and project value trends,
adjusted to account for factors that influence the base value. These factors
include:
- - Suitability of available aircraft to the operator's requirements.
- - The cost of newly manufactured aircraft.
- - Operating cost and purchase price.
- - Regulatory factors.
- - Remaining useful life.
In one way, these factors are merely a subset of the supply and demand analysis.
For example, a regulation that requires a certain aircraft type to be retired
from the fleet has an end result of reduced supply, as does anticipated end of
useful life.
Actual aircraft sales data are a most important factor in the determination of
values. Recent sales, in addition to influencing current asking and offering
prices, document and support current market values. In addition, they become the
database on which base value trends are developed. The cost of newly
manufactured aircraft will also have an influence on the value that the
marketplace sets for an aircraft, the production of which is almost always
associated with equal demand from an order having been placed.
5
<PAGE> 15
These sales data, our analysis of the other market factors along with current
and projected supply and demand are discussed in this section of the report.
3.1 Suitability of the Aircraft
The subject of suitability of the aircraft to an operator's requirements cannot
be readily separated from the demand for lift and operating costs. To create any
demand for a particular aircraft type there must be a buyer with requirements
that are satisfied by that type of aircraft. Range and seating capacity or
payload, along with operating costs, are normally the parameters crucial to the
buyer's decision.
BK Associates regularly reviews the U.S. airlines' operating statistics as
reported to the U.S. Department of Transportation. The data are sometimes
incomplete or may reflect some irregularities in a single reporting period, such
as an extremely high maintenance cost for a particular aircraft. Even with the
anomalies cited above the statistics are reliable over time and a good
statistical base. The table in Figure 3-1 shows the typical seating capacity,
range and direct operating costs of the aircraft types in the Portfolio.
The range and operating cost data shown in the table are derived from U.S.
airline reports to the Department of Transportation and are meant to give a
rough estimate of the relative operating cost advantage or disadvantage between
competing models. These data for passenger aircraft are based on the average of
the quarterly reports for the last four quarters that are available. Since
quarterly data can be distorted by, for example, a period of bad weather delays
which increase fuel expenditures, the average of the annual data is more
meaningful. It should be understood they include only U.S. airlines and are
averages. Any one airline may have costs above or below the average and in some
cases, there may be only one airline operating that type. The data include only
crew, fuel, insurance, taxes, and maintenance costs. Depreciation and rentals
are excluded since they
6
<PAGE> 16
FIGURE 3-1
EXAMPLES OF PAYLOAD, RANGE & OPERATING COST
FOR SELECTED AIRCRAFT
<TABLE>
<CAPTION>
TYPICAL RANGE DIRECT OPERATING COST
AIRCRAFT TYPICAL SEATING FULLY LOADED ------------------------------------
MODEL CAPACITY (N. MI.) $/BLOCK HR. $/BLOCK HR./SEAT
- -------- --------------- ------------ ----------- ----------------
<S> <C> <C> <C> <C>
A300-600R 267 4,250 3,035 11.37
A310-300 218 4,850 2,482 11.38
A320-200 150 2,850 1,446 9.77
B737-300 131 2,200 1,418 10.82
B737-400 144 2,400 1,379 9.58
B737-500 110 2,800 1,318 11.98
B747-200 342 6,150 5,791 16.93
B757-200 186 2,800 1,834 9.86
B767-200 176 3,900 2,494 14.17
B767-300ER 262 6,200 2,070 7.90
MD82 155 2,150) 1,490 10.64
MD83 155 2,500)
</TABLE>
7
<PAGE> 17
are not costs that are a function of the aircraft's performance or
specifications. The data do not suggest cost comparisons between specific
aircraft but rather more general comparisons such as cost per seat-hour
comparisons.
Cargo operators look at similar performance characteristics of payload and range
when evaluating the usefulness of a particular aircraft type. Since most
freighter aircraft were originally used as passenger aircraft and later
converted to freighter configurations, most of the aircraft in this type of
service are used models.
Another measure of the suitability of an aircraft is indicated by its customer
base. The more orders a manufacturer receives for an aircraft and the size of
its worldwide operator base are an indication of the aircraft's popularity and
suitability. More important, it is an indication of the extent of the potential
market were it necessary to sell or lease an aircraft. The more operators and
aircraft of a type, the more likely one could be required as an addition to a
fleet.
Figure 3-2 presents data on selected twin-aisle aircraft types and Figure 3-3
presents data on selected single-aisle aircraft types that indicate the extent
of the acceptability of each model. In each case the number of aircraft in
service or on order is plotted against the number of airlines that operate that
aircraft type. The data are as of October 1996.
The presentation suggests that an aircraft's acceptability or popularity is
better the further to the right and to the top is its position on the chart.
Thus, the widest acceptance is for aircraft in the upper right quadrant and the
least is for those in the lower left. Therefore, those aircraft like the B747,
B737-300 and A320 plotted in the upper right quarter should obviously be the
ones which will be most attractive to a buyer, especially a second or third tier
carrier who needs to be assured there will be a good chance spare parts and
technical assistance can be readily obtained from a third party if the plane
goes unserviceable in a remote station.
8
<PAGE> 18
TWIN AISLE AIRCRAFT
FLEET & OPERATORS
[FIGURE 3-2]
[Table setting forth number of operators and number of aircraft for Twin Aisle
Aircraft]
Source: INDUSTRY DATA (OCTOBER 1996)
<PAGE> 19
SINGLE AISLE AIRCRAFT
FLEET & OPERATORS
[FIGURE 3-3]
[Table setting forth number of operators and number of aircraft for Single Aisle
Aircraft Fleet]
Source: INDUSTRY DATA (OCTOBER 1996)
<PAGE> 20
3.2 REGULATORY FACTORS
While most factors that affect aircraft values are market related, there are
others that are purely geopolitical (such as fuel supplies) or regulatory (such
as noise; airport access and airport slot restrictions; and regulatory
maintenance procedures required for aging aircraft). It is not possible to
predict the occurrence of geopolitical events such as an interruption in fuel
supplies by producing nations, and for the present, there does not appear to be
any threat of a fuel supply or fuel cost related crisis that would affect
aircraft values.
3.2.1 NOISE REGULATIONS
The International Civil Aviation Organization (ICAO), the European Civil
Aviation Conference (ECAC), the European Economic Community (EEC), and the
United States have adopted or proposed regulations that would restrict the
operations of noisier aircraft.
The regulatory noise restrictions are a threat to the retention of values for
all aircraft that are perceived to be excessively noisy and, particularly, ICAO
Annex 16 Chapter 2 and Federal Aviation Regulations (FAR) Part 36 Stage 2
aircraft. Conversely, values of quiet aircraft could be greatly enhanced by such
restrictions.
All of the Aircraft addressed in this report can be operated as Stage 3
equipment. The Stage 3 aircraft could be positively affected by more stringent
noise regulations. Stage 2 narrow-body aircraft values could be negatively
affected by more stringent noise regulations and base values of these aircraft
have already decreased in anticipation of noise restrictions.
On alternative to permanent retirement is selling an aircraft to an operator in
a non-noise sensitive country. Historically many nations, particularly in the
Third World, have exercised their right to abrogate ICAO regulations and adopt
others of their own. There
11
<PAGE> 21
are still ICAO member states that have no noise restrictions, even on Stage 1
aircraft. These countries represent a market, albeit one with generally poor
credit and little cash, for Stage 2 aircraft that are retired from the world
fleet.
For operators and owners who have Stage 2 aircraft, there are alternatives to
retiring the aircraft. Several companies have certified or are developing hush
kits or re-engining programs which will make it possible for most of the Stage 2
fleet to meet Stage 3 requirements.
As the deadline approaches, the number of aircraft that are hushed or re-engined
and the timing of the decision will have a significant effect on values. Boeing
has forecast that 35 percent of the Stage 2 fleet in the U.S. will be hushed. If
that number increases dramatically, there are obvious implications on the
forecast production rate.
3.2.2 REGULATORY RESTRICTIONS FOR AGING AIRCRAFT
During past years, several airline accidents have focused attention on the issue
of the structural integrity of aging airliners. Engineering studies have long
predicted that increased age and exposure to various environmental factors
coupled with ever accumulating landing/takeoff cycles eventually result in metal
fatigue that can weaken airframe structures. Experience with aircraft such as
B707s, DC8s, B737s and B747s has shown that constant surveillance is required to
combat the effects of age, pressurization cycles, atmospheric conditions and
intensive utilization. Indeed many Airworthiness Directives (ADs) and Service
Bulletins (SBs) have been issued by the FAA and aircraft manufacturers for
inspection and repair of structural components.
During 1989, the FAA issued reports on the findings of several industry task
forces which recommended mandatory implementation of Service Bulletins
concerning fatigue related problems. Subsequently, these recommendations have
been adopted in the form of Airworthiness Directives. The original Service
Bulletins recommended inspection of an
12
<PAGE> 22
area where the failure is predicted to occur and require a repair or
modification only when the crack actually appears. The industry groups
recommended that airlines terminate these inspections at some point in the
airplane's life by modifying the airplane in the affected area.
The impact of these ADs will vary from aircraft to aircraft depending on
production line number and previous voluntary implementation of some of the
Service Bulletins. Some of the SBs have calendar limits and others are flight
hour or cycle controlled.
The cost of complying with these directives will vary between the aircraft types
but also within a type to the extent that some may have been previously
implemented. In any event, they will affect the value to some extent of any
aircraft that is approaching a threshold for implementation.
3.3 AIRCRAFT SALES DATA
As noted in the introduction to this section, price data from actual aircraft
sales are an essential ingredient in the appraisal process. Recent sales
document current market values but the data also contribute to the development
of forecast base values from historic data. This process is discussed below.
3.3.1 FORECAST VALUES
Past sales are not directly relevant to future values, but they are an indicator
of what might be expected in the future. The methodology used in future value
forecasts and in determining base values is largely based on analysis of
historic sales data for comparable aircraft sold under similar market
conditions. These values must then be adjusted to account for the expected
impact of the factors discussed in this section, such as, supply, demand, and
regulatory restrictions.
13
<PAGE> 23
In the past, BK Associates has partly relied on historic sales of 500 B707 and
DC8 transactions during the period between 1970 and 1989 as part of the basis
for future value projections. These data represent a long-term historical trend
with many data points and can be utilized to establish a relationship between
aircraft age and sale price which may be considered a good starting point for
future value forecasts. The relationship must be modified at two levels,
however, to be a realistic predictor of future values. First, the relationship
must be adjusted to account for known or expected differences in the value
trends of today's generation of aircraft when compared to the B707/DC8. Second,
more specific adjustments must be made to account for variations between
aircraft types and for the expected impact of market factors at certain future
dates.
More recently, BK Associates has done further analysis of historic sales of
narrow- and wide-body aircraft. Since some of these B727 narrow-body aircraft
have now been in service for as much as 28 years, they now represent another
generation of available sales data with some 823 data points of sales between
1970 and 1992. Many L1011s, DC10-10s and B747s are now 25 years of age and they
represent another set of useful historic data. However, since so many of the new
data points were ''agreed values'', ''SLVs'', etc. rather than actual sales, it
was feared that their use would distort the outcome. Therefore, the recent
adjustments we have made to our model are more likely the result of revised
analysis of performance and market comparisons between aircraft types.
The relationship between B747-100, B727-100 and B727-200 sales as a percentage
of their original price between 1972 and 1992 showed similar trends and
confirmed our earlier prediction that as technology and economic life improved,
the curve represented by the B707/DC8s retained its overall shape but moved
toward the later years with higher residual values.
These data led to our conclusions that the average aircraft has a relationship
between age and value as represented by Figure 3-4. This, of course, is for the
average aircraft. More
14
<PAGE> 24
COMBINED ALL MODELS SALE PRICES
AS AVERAGE PERCENTAGE OF NEW PRICE
CORRECTED FOR INFLATION
[FIGURE 3-4]
[Table setting forth combined sales prices of all models of aircraft by age in
years, expressed as average percentage of new price, corrected for inflation]
SALES PERIOD: 1980-93
AIRCRAFT BUILD: 1963-92
<PAGE> 25
popular models in strong demand or those with longer useful lives would be
above the curve and others could be below. Further short-term fluctuations will
occur due to current market conditions.
The analysis of historic data also gives some indication of the expected range
of values in good and poor markets. The high-low ranges indicate that the low
range of values can be up to 50 percent below the average. In 1981, for
example, which was a poor market for B727s as discussed earlier in this report,
the lowest sale price for a 1969 B727-200 was 53 percent below the average
price of B727-200s sold that year. In 1989-1990, when the market was still
strong for such aircraft, the highest B727-200 sale price was about 35 percent
above the average price for all B727-200s sold at that time.
The relationship presented in Figure 3-4 forms the basis for determining the
trends upon which base values are based. They suggest a relationship between an
aircraft's age and its new price but the values must be adjusted to account for
the factors discussed previously. Aircraft with good payload/range performance,
operating cost and a wide customer base should have base values above the
curve. Those that face noise deadlines, aging aircraft work or shorter useful
lives are below the curve.
3.4 REMAINING ECONOMIC USEFUL LIFE
While most of the other factors affecting aircraft values are subject to
fluctuations in varying market conditions, end of economic useful life is often
the result of a single event or set of circumstances that rapidly and
irrevocably reduces an aircraft's value to scrap. The end of economic life
occurs when some cost factor or regulatory factor makes it no longer possible
to operate an aircraft in productive service. Regulatory factors, which were
discussed earlier in this report, can result in the abrupt end of life if, for
example, a prohibitively expensive AD is required or noise regulations ban the
continued operation of certain aircraft. Historically, however, it has usually
been the increasing cost of maintaining or operating an older aircraft that has
caused the end of its life. Since that
16
<PAGE> 26
cause, whatever it may be, usually affects all aircraft of a certain type, most
of the fleet of affected aircraft are usually scrapped over a relatively short
time period regardless of the ages of the individual aircraft.
Remaining useful life has no effect on the current value of a new aircraft. It
is a factor in determining the value of a used aircraft that could be nearing
the end of its economic life and in forecasting residual values for any
aircraft.
With residual values on new aircraft often projected to 25 years, it is not
possible to predict exactly what factors may affect the remaining useful life.
We do know from history that the economic factors most likely to precipitate end
of life for an aircraft are related to fuel cost, technology and maintenance
cost.
A sustained increase in the price of fuel or a shortfall in fuel supplies can
rapidly end the lives of older less fuel efficient aircraft. In the early 1980s
it was increasing fuel cost, more than noise regulations, that sounded the death
knell for the B707 and DC8. The subsequent stabilization of fuel costs and the
development of hush kits saved some of these aircraft which are still productive
today. As noted earlier in this report, interruptions in fuel supplies are
unpredictable but, it appears for now that fuel supplies alone are not likely to
cause a premature end of life for any aircraft type.
Regarding new technology, the best example of its impact on useful life was the
development of the engine in the late 1950s which resulted in the rapid
disappearance of DC6s and DC7s, some of which were only a few years old. Nothing
as revolutionary has happened since then and nothing is likely in the
foreseeable future. Technological gains in engine performance, materials and
aerodynamics have continued in increments but nothing is currently expected that
would make an entire generation of aircraft obsolete. Any such radical
development, at this point, would likely take 20 years from concept to
production aircraft.
17
<PAGE> 27
Thus, it is likely that the remaining useful life of an aircraft is most
influenced by increasing maintenance costs as it becomes older. While there are
certainly other factors involved, maintenance costs on an airframe are usually
related to flight cycles and it is widely accepted that an aircraft reaches a
practical limit in flight cycles beyond which maintenance costs become
prohibitive. This was long considered to be 90,000 to 120,000 cycles for the
small narrow-bodied aircraft and 25,000 to 40,000 for the wide-bodies. The
issuance of ADs on aging aircraft discussed earlier in this report plus
increasing costs for other regular maintenance, tends to confirm the hypothesis
that there is a practical limit on cycles.
Considering that the typical utilization of small narrow-body aircraft is about
3,000 cycles per year, one could expect these aircraft to reach their limits in
30 and 35 years. The fact that many 30-year old small narrow-bodies are still in
service confirms the approximate range of life expectancy for them. For the
wide-bodies which average about 800 cycles per year, the oldest ones are now 27
years old and there is no indication that large scale retirements are imminent.
Now wide-bodied aircraft represent a considerable technological advance over the
first generation non-fan jet transports and the second generation turbofan
powered aircraft. The technology advances are represented in both the airframe
and the engine design concepts, which result in substantially improved operating
cost characteristics per unit of available capacity. In addition, the technology
has enabled lower sound characteristics which meet current limits for airport
noise levels.
Considering pending aging aircraft AD deadlines and noise regulations, there are
some aircraft in the Portfolio for which remaining useful life has an increasing
impact on current base value. While no specific deduction to any value in the
Portfolio was made on the basis of remaining life, it should be understood that
the relatively short remaining life for some of the aircraft models is
influencing supply and demand and operating cost considerations.
18
<PAGE> 28
SECTION 4
<PAGE> 29
4. VALUE METHODOLOGY
************************
<PAGE> 30
4. VALUE METHODOLOGY
********************
The methodology used by BK Associates, Inc. in reaching the conclusions
presented in this report is consistent with aviation industry standards as well
as with appraisal industry practices such as those recommended by the American
Society of Appraisers (ASA) and the Principles of Appraisal Practice of the
International Society of Transport Aircraft Trading (ISTAT).
4.1 DEFINITIONS
The following definitions are reproduced verbatim from the ISTAT appraiser's
handbook. While BK Associates complies with the substance of the ISTAT
definitions, where there are some differences in interpretation or a need for
further clarification, our comments are added after the definition.
Base Value is the Appraiser's opinion of the underlying economic value of an
aircraft in an open, unrestricted, stable market environment with a reasonable
balance of supply and demand, and assumes full consideration of its "highest
and best use". An aircraft's Base Value is founded in the historical trend of
values and in the projection of value trends and presumes an arm's length, cash
transaction between willing, able and knowledgeable parties, acting prudently,
with an absence of duress and with a reasonable period of time available for
marketing.
BK Associates further believes that the "reasonable period of time available
for marketing" is 12 to 18 months.
19
<PAGE> 31
4.2 BASE VALUE ASSUMPTIONS
Consistent with, or in addition to, the definition above, in determining base
values for used aircraft, BK Associates applies the following assumptions:
- - The aircraft has half-time remaining to its next major overhaul or scheduled
shop visit on its airframe, engines, landing gear, and APU. If the airframe
is on a progressive maintenance system this, in effect, keeps it always at
half-time.
- - It is under a civil aviation authority-approved airline maintenance program
of international standards of airworthiness, with all Airworthiness
Directives, mandatory modifications and applicable Service Bulletins
currently to industry standard.
- - The specifications of the aircraft are the standard, or most common, for that
model in terms of gross weight, fuel capacity and engine model.
- - The interior is in a standard configuration for its specific type, with the
buyer-furnished equipment and options of the types and models generally
accepted and utilized in the industry.
- - It is in current flight operations.
- - The aircraft is sold for cash without seller financing.
Adjustments are made to the value of a specific appraised aircraft to account
for variations from the assumptions stated above for a standard aircraft, as
well as for date of delivery, total hours and cycles and ratio of hours to
cycles, increased weight or fuel capacity capability, engine model and high
density configurations.
20
<PAGE> 32
Values determined according to the above assumptions are often referred to as
"half-time" values as in the "half-time base value". Values that include
adjustments for deviations from half-time for the current maintenance status are
referred to as "adjusted values" or "maintenance adjusted values".
Changes in the aforementioned parameters and assumptions, as well as
availability of long-term financing by the seller, can easily increase or
decrease the market price by 25 percent or more. Compliance with modifications
and high cost inspections can also affect price and marketability. Aircraft with
higher approved operating weights or the eligibility to be certified for such
increases will bring premiums when specific operations requiring such
capabilities are to be the purpose for the acquisition of any given used
airplane. Sales of aircraft under distress conditions will often decrease the
market price and in the case of a "fire sale" due to a bankruptcy, still lower
values would apply, often as much as 50 percent below the probable value defined
above.
Aircraft that have been out of service for prolonged periods, or are not
currently certified as airworthy, usually incur lower market and appraised
values. Similar penalties will also apply to aircraft which have
disproportionately high cycle-to-hour ratios relative to the average achieved by
the industry in operating the specific type of aircraft.
21
<PAGE> 33
SECTION 5
<PAGE> 34
5. QUALIFICATIONS OF BK ASSOCIATES, INC.
********************************************
<PAGE> 35
5. QUALIFICATIONS OF BK ASSOCIATES, INC.
****************************************
BK Associates was established in 1984 by William H. Bath and John F. Keitz to
provide professional consulting services in virtually every facet of aviation.
Although we specialize in aircraft appraisals and related services, the aviation
experience of our staff and associates is varied and includes such disciplines
as aircraft performance analysis, air traffic control, maintenance facility
design, audits of corporate flight operations, airline schedule analysis, noise
studies, transportation economics, and management and organization planning. We
continue to maintain the resources and database to provide these services.
BK Associates regularly provides professional services to airlines; airframe,
engine and component manufacturers; legal and financial institutions; industrial
firms; and governments. The range of services include:
- - Aircraft Appraisals and Residual Value Forecasts
- - Aircraft Inspections
- - Maintenance Audits for Compliance with Lease Provisions
- - Appraisals of Airships, Engines, Simulators, Spare Parts & Ground Equipment
- - Aircraft Supply & Demand Studies
- - Market Studies
- - Expert Witness Testimony
All BK Associates aircraft appraisers are certified by the International Society
of Transport Aircraft Trading (ISTAT). ISTAT is a non-profit society whose
members have common interests in the manufacture, purchase, brokerage, leasing,
maintenance and appraisal of transport aircraft. International in structure, it
is self-supporting and unaffiliated. Within ISTAT is a core group of
professional aircraft appraisers who work
22
<PAGE> 36
cooperatively for the elevation of the appraisal profession within the world
aviation community.
Each ISTAT member, who has satisfactorily demonstrated that he is qualified to
appraise aircraft, has been granted the right to use one of the professional
designations established by ISTAT. Certification by the Society is based on
written examinations, submission of representative appraisal reports, full-time
valuation experience, personal background check and participation in the
Society's program of on-going education.
Ethical practices and conduct required of the appraisers accredited by the
Society are clearly defined by ISTAT.
BK Associates has developed a unique inventory of resources to assist in
providing its services. When the company was founded, the founders acquired the
assets of their former employer, PRC Speas (formerly R. Dixon Speas Associates,
Inc.). This included an extensive technical library with aircraft specifications
and performance data for nearly all aircraft manufactured since the 1950s. The
library includes airline and airport traffic data from the 1950s onward, copies
of annual government industry and manufacturer's forecasts, entire historic
collections of significant aviation publications, such as, Aviation Daily,
Aviation Week & Space Technology and Jane's All the Worlds Aircraft plus
complete reference sets of U.S. Federal Air Regulations, Type Certificate Data
Sheets and Airworthiness Directives.
Our database of aircraft sales transactions includes all those reported on U.S.
Department of Transportation Form 41 reports by U.S. Airlines since 1971. In
addition, while the ISTAT ethics code forbids us to divulge the details, we are
aware of the transaction prices of many more sales because of appraisals we have
conducted. These historic data contribute to the statistical bases of aircraft
value models and future value forecasts.
23
<PAGE> 37
Since 1984, BK Associates has completed over 4,000 specific appraisal
assignments which have included over 20,000 aircraft. (Some aircraft have been
appraised more than once.) We have appraised all airline transport types and
models of Airbus, Boeing, McDonnell Douglas, Lockheed, British Aerospace,
Fokker, ATR, Convair, Fairchild, Embraer, deHavilland of Canada, Dornier,
Canadair, Saab and Short Brothers. We have appraised most business jet models of
Gulfstream, Canadair, Falcon Jet, Cessna and British Aerospace.
Mr. John F. Keitz is President of BK Associates. Mr. Keitz has 35 years of
experience in aviation. He held various positions in PRC Speas during 19 years
with the firm including Manager of the Computer Services Division and Manager of
the Aviation Consulting Division. In addition to aircraft appraisals, his
consulting activities have consisted primarily of analyses and forecasts of the
future demand for aircraft and other aviation products, aircraft performance
comparisons, and fleet plans.
Dick Britton, Vice President, joined BK Associates in 1992 after 25 years
in various technical positions with Pan American ending as Assistant Director
Aircraft Sales and Leasing. He was responsible for all Pan Am leased aircraft
transactions and implemented the return of all aircraft to lessors when Pan Am
ceased operations.
Mr. Keitz has been certified as a Senior Aircraft Appraiser by the
International Society of Transport Aircraft Trading and abides by the
"Principles of Appraisal Practice and Code of Ethics" of the Society. ISTAT has
established the principles to improve aircraft appraisal standards and
techniques; encourage sound professional practices and ethical conduct. Mr.
Britton is also an ISTAT certified appraiser.
William H. Bath retired as President of BK Associates, Inc. on December 31,
1996. He held various maintenance, engineering and aircraft sales positions at
Pan American World Airways before he joined PRC Speas in 1978 as its Director of
Technical Services.
<PAGE> 1
[AIRCLAIMS LOGO]
Exhibit 99.7
Our Ref: 97377/BV/EP/kw
Morgan Stanley Aircraft Finance (MSAF) 30th November, 1997
c/o Wilmington Trust
One Rodney Square
P O Box 551
Wilmington
Delaware 19899
USA
Attention: Mr Kieran O'Keefe
Dear Sirs,
BASE VALUATION OF 33 AIRCRAFT PLUS ONE ENGINE
AS AT 30TH SEPTEMBER, 1997
Further to the instructions of Mr Kieran O'Keefe, Morgan Stanley & Co., we
are pleased to be able to provide our opinion of the adjusted "Base Value" of
each aircraft in the enclosed portfolio of aircraft managed by ILFC as indicated
in the attached table, reference 97377-3009/EP/ADJBV. Our valuation is based on
the portfolio details as provided by Morgan Stanley in the course of the
assignment. The point of valuation is 30th September, 1997.
Airclaims' valuation of the portfolio takes into account data supplied by
Morgan Stanley, including updated information made available in November 1997,
regarding the specification of the subject aircraft, including their type and
variants, years of build, engine types and variants, accumulated airframe and
engine hours and cycles, and serial/line number (where relevant). Information
has also been provided in many cases concerning the airframe and engine
maintenance status, and, where possible or necessary this has been interpreted
or extrapolated and our value opinion adjusted accordingly.
We have additionally referred to the data held in the Airclaims CASE
Aviation Database to supplement and complete the data required for the
valuation, including cumulative airframe hours and cycles and have assumed that,
unless otherwise advised, each aircraft is a typical example of its type, model
and age, and is generally in good condition, with all airworthiness directives
and significant service bulletins complied with.
Airclaims Limited
Cardinal Point, Newall Road, Heathrow Airport, London TW6 2AS
Telephone (44) 181 897 1066 Facsimile (44) 181 897 0300
[LOGO] Telex 934679 http://www.airclaims.co.uk
Registered Head Office as above. Registered in England No. 710284.
VAT Reg. No. 224 196 87
<PAGE> 2
[AIRCLAIMS LOGO]
As requested by MSAF, we have provided our value opinion under BASE VALUE
scenario. Airclaims believes it to be very important that value definitions are
understood by all parties and that such values are always considered in
conjunction with their definitions.
BASE VALUE (TO ISTAT DEFINITION)
The Base Values presented in the attached table are based on the
definitions as outlined by the International Society of Transport Aircraft
Trading (ISTAT). ISTAT's definition of Base Value equates in principle to the
previously used appraisal term, Fair Market Value.
The ISTAT definition is as follows:
A Base Value is the Appraiser's opinion of the underlying economic value of
an aircraft in an open, unrestricted, stable market environment with a
reasonable balance of supply and demand, and assumes full consideration of its
"highest and best use". An aircraft's Base Value is founded in the historical
trend of values and in the projection of value trends and presumes an arm's
length, cash transaction between willing, able and knowledgeable parties, acting
prudently, with an absence of duress and with a reasonable period of time
available for marketing.
In most cases, the BASE VALUE of an aircraft assumes its physical condition
is average for an aircraft of its type and age, and its maintenance time status
is at mid-life, mid-time (or benefiting from an above average maintenance status
if it is new or nearly new, as the case may be).
In this instance, because of the relative youth of the portfolio, all the
Base Values pertaining to the fleet have been adjusted for maintenance status
where available and appropriate.
No physical inspection of the subject aircraft has been undertaken by
Airclaims in conjunction with this assignment, and no attempt made to verify the
information available to us, which therefore assumed to be correct as given.
Abbreviations used on the tabulated valuation pages include:
<TABLE>
<S> <C>
Type Aircraft type, model and variant
Eng. Engine Type and Variant
MSN Manufacturers Serial Number
REGN Registration
MTOW Maximum Take-Off Weight
ADJ BV Adjusted Base Value
H-L BV Half Life Base Value
</TABLE>
Morgan Stanley Aircraft Finance (MSAF)
Page 2
<PAGE> 3
[AIRCLAIMS LOGO]
Whilst the tabulated values are given as single figures, it must be borne
in mind that the determination of such values involves a multiplicity of
variables, and that some variation in perceived values must be expected, due to
for example, any potential inaccuracies in the data provided, and also because
the aircraft have been valued "sight unseen". In this case we consider that a
tolerance of +/- 4% may reasonably apply to the aforementioned calculated
values.
Please note that valuations given by Airclaims are valid only as at the
date of issue. Subsequent to that date there may be alterations in the world
aviation market, or in the status and physical condition of the subject aircraft
or other general factors that may affect Airclaims' valuation opinion.
I trust the foregoing is satisfactory and to your requirements.
Yours faithfully,
/s/ Edward Pieniazek
Edward Pieniazek
Director, Consultancy & Information Services
Encl.
Morgan Stanley Aircraft Finance (MSAF)
Page 3
<PAGE> 4
[LOGO]
AIRCLAIMS LTD.
MSAF -- FLEET ASSESSMENT 30 SEP 1997
<TABLE>
<CAPTION>
ID VAR. MSN REG'N ENG E.VAR MTOW SEATS BUILD* TTAF TCSN
TYPE (ILFC DATA)
- ----- ---- ---- ----- --- ----- ---- ----- ----------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0
1 A300-600R 555 N8888P PW4000 4158 378,530 324 Mar-90 18,243 5,568
2 A310 300 409 HB-IPH PW JT9D 7R4E1 330,750 175 Nov-85 35,463 13,271
3 A310 300 410 HB-IPI PW JT9D 7R4E1 330,750 175 Nov-85 36,950 13,522
4 A310 300 437 OO-SCC PW JT9D 7R4E1 337,300 181 Feb-87 44,314 8,888
5 A320 200 279 G-MONY CFM56 6A3 169,756 180 Feb-92 21,901 8,237
6 A320 200 393 B-HYO IAE V2500 A1 166,447 156 Feb-93 9,934 4,223
7 A320 200 414 B-HYR IAE V2500 A1 166,447 156 Mar-93 9,435 5,340
8 A321 100 597 TC-ONI IAE V2530 A5 183,000 220 May-96 4,822 1,868
9 B737 300 24299 N956WP CFM56 3B2 137,000 138 Nov-88 25,391 13,614
10 B737 300 25161 CS-TIK CFM56 3B2 138,500 132 Feb-92 15,980 9,138
11 B737 300 26295 B-2937 CFM56 3C1 135,000 148 Dec-93 9,795 6,885
12 B737 300 27635 PH-TSZ CFM56 3C1 139,000 149 May-95 8,167 2,989
13 B737 400 24234 N403KW CFM56 3B2 143,500 170 Oct-88 23,558 9,918
14 B737 400 25104 N771AS CFM56 3C1 143,500 140 May-93 15,520 9,370
15 B737 400 25371 N404KW CFM56 3C1 150,000 159 Jan-92 14,736 6,889
16 B737 400 25372 TC-JDI CFM56 3C1 150,000 150 May-92 14,343 7,508
17 B737 500 25165 EI-CDT CFM56 3B1 121,500 117 Apr-93 11,112 10,307
18 B737 300F 23811 N731LF CFM56 3B2 138,500 F Sep-87 25,790 13,705
19 B737 300QC 23788 F-GIXH CFM56 3C1 139,500 126 May-87 24,972 14,340
20 B747 300 24106 PP-VOA GE CF6 80C2 833,000 395 Apr-88 42,306 8,250
21 B757 200 24260 N757GA RR RB211 535E4 250,000 202 Dec-88 31,976 7,842
22 B767 200 24367 EI-CLM RR RB211 535E4-37 250,000 179 Feb-89 29,945 7,908
23 B757 200 26272 N806AM PW2000 2037 230,000 180 Mar-94 12,041 5,366
24 B767 200 23807 VH-RMO GE CF6 80A2 345,000 290 Aug-87 35,523 14,304
25 B767 300(ER) 24798 HL7284 GE CF6 80C2B6F 345,000 249 Oct-80 19,054 11,456
26 B767 300ER 26256 G-UKLH GE CF6 80C2B6F 407,000 327 Apr-93 24,588 3,569
27 B767 300ER 26260 DQ-FJC GE CF6 80C2B6F 407,000 263 Sep-94 13,225 2,683
28 F-70 11564 HA-LMA RR TAY620 15 81,000 75 Dec-95 3,088 2,211
29 F-70 11565 HA-LMB RR TAY620 15 81,000 75 Feb-96 3,044 2,135
30 F-70 11569 HA-LMC RR TAY620 15 81,000 75 Mar-96 2,988 2,070
31 MD-89 83 49822 F-GHEB PW JT8D 219 160,000 159 Dec-88 19,260 11,088
32 MD-80 82 49825 N940AS PW JT8D 219 149,500 135 Mar-89 25,416 16,131
33 MD-80 83 49824 N942OD PW JT8D 219 160,000 130 Mar-88 22,073 16,941
34 ENGINE 704279 GE CF6 80C2B6F (QEC) 1995 8,546 2,372
</TABLE>
<TABLE>
<CAPTION>
ID AS AT...OPR 30-SEP-97 30-SEP-97 MAINT
TYPE ADJ. BV BV (HL) ADJ.
- ----- ----------- --------- --------- -----
<S> <C> <C> <C> <C>
0
1 30-Apr-97 CHINA AIRLINES $51.15m $49.77m $1.38
2 31-Jul-97 SWISSAIR $23.79m $23.76m $0.03
3 30-Sep-97 SWISSAIR $23.81m $23.76m $0.05
4 13-Nov-97 PASSAREDO $26.97m $25.60m $1.37
5 02-Sep-97 MONARCH $31.36m $30.96m $0.40
6 30-May-97 DRAGONAIR $32.22m $32.27m -$0.05
7 31-Jul-97 DRAGONAIR $32.72m $32.81m -$0.09
8 20-Oct 97 ONUR AIR $41.97m $41.26m $0.71
9 16-Oct-97 WESTERN PACIFIC $22.80m $21.61m $1.19
10 31-Jul-97 TAP AIR PORTUGAL $26.00m $25.98m $0.02
11 05-OCT-97 CHINA HAINAN $28.09m $28.15n -$0.06
12 30-Jun-97 TRANSAVIA $31.28m $30.60m $0.68
13 30-Jun-97 CARNIVAL $22.58m $22.43m $0.15
14 21-Oct-97 ALASKA $28.63m $28.54m $0.09
15 31-Jul-97 CARNIVAL $26.96m $27.26m -$0.30
16 31-May-97 THY $28.22m $26.67m -$0.45
17 15-Oct-97 AER LINGUS $22.04m $22.53m -$0.49
18 28-Aug-97 ILFC (STORED) $22.73m $21.87m $0.86
19 30-Sep-97 L'AEROSPOSTALE $22.65m $22.49m $0.16
20 15-Oct-97 VARIG $65.19m $64.47m $0.72
21 07-Sep-97 GUYANA AIRWAYS $33.60m $33.08m $0.52
22 31-May-97 TRANSAERO $33.53m $33.13m $0.40
23 14-Oct-97 AEROMEXICO $38.15m $38.04m $0.12
24 31-Jul-97 ANSETT/BRITANNIA $35.37m $34.70m $0.67
25 31-May-97 ASIANA $54.93m $54.54m $0.39
26 16-Oct-97 AIR UK $67.13m $66.01m $1.12
27 08-Oct-97 AIR PACIFIC $58.83m $68.25m $0.58
28 07-Sep-97 MALEV $16.82m $16.22m $0.60
29 07-Sep-97 MALEV $16.32m $15.71m $0.61
30 07-Sep-97 MALEV $16.64m $16.01m $0.63
31 17-Nov-97 AIR LIBERTE $16.71m $16.78m -$0.07
32 30-Jun-97 ALASKA $15.87m $16.21m -$0.34
33 17-Oct-97 TWA $16.96m $16.58m $0.38
34 30-Sep-97 KLM $6.16m $5.70m $0.46
---------- ----------
$1,048.21m $1,035.75m
---------- ----------
</TABLE>
<PAGE> 5
<PAGE> 6
