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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998
Commission File No. 1-9259
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
California 94-3008908
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(State of Organization) (I.R.S. Employer Identification No.)
555 California Street, Fourth Floor, San Francisco, CA 94104
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 765-1814
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS: NAME OF EACH EXCHANGE
Depositary Units Representing ON WHICH REGISTERED:
Limited Partner Interests New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Aggregate market value of Depositary Units, held by non-affiliates of
the registrant as of the close of business at March 12, 1999 was $44,504,213.00.
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TABLE OF CONTENTS
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Page
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PART I
ITEM 1. BUSINESS......................................................... 3
ITEM 2. PROPERTIES....................................................... 14
ITEM 3. LEGAL PROCEEDINGS................................................ 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............. 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.......................................................... 15
ITEM 6. SELECTED FINANCIAL DATA.......................................... 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................ 19
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK...................................................... 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................... 24
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE............................................. 24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............... 24
ITEM 11. EXECUTIVE COMPENSATION........................................... 26
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT... 26
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................... 27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
FORM 8-K......................................................... 28
SIGNATURES..................................................................... 31
INDEX TO EXHIBITS.............................................................. A-14
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AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
PART I
ITEM 1. BUSINESS
GENERAL
Airlease Ltd., A California Limited Partnership (the "Partnership" or
"Airlease"), was formed in 1986. The General Partner of the Partnership (the
"General Partner") is Airlease Management Services, Inc., a Delaware
corporation. Until October 31, 1996 the General Partner was a wholly owned
subsidiary of USL Capital Corporation ("USL Capital"), which in turn was an
indirect subsidiary of Ford Motor Company. On October 31, 1996, BA Leasing &
Capital Corporation, a California corporation ("BALCAP") purchased the stock of
the General Partner from USL Capital and now the General Partner is a wholly
owned subsidiary of BALCAP and USL Capital no longer has any affiliation with
the Partnership. BALCAP is a wholly owned indirect subsidiary of BankAmerica
Corporation. A total of 4,625,000 Depository Units representing limited
Partnership interests ("Units") in the partnership are outstanding, of which
3,600,000 are held by the public and 1,025,000 are owned by BALCAP and its
subsidiaries.
The Partnership invests in commercial aircraft and leases the aircraft
to others, primarily airlines, pursuant to finance (full payout) or operating
leases.
PRINCIPAL INVESTMENT OBJECTIVES
The business of the Partnership is to acquire and own, either directly
or through joint ventures, aircraft and to lease such aircraft primarily to
airlines. The Partnership's principal investment objectives are to generate
income for quarterly cash distributions to Unitholders and to own a portfolio of
leased aircraft. The Partnership's original intent was that until January 1,
2005, it would use a substantial portion of the cash derived from the sale,
refinancing or other disposition of aircraft to purchase additional aircraft if
attractive investment opportunities were available.
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As previously reported, as part of a plan to mitigate the adverse
financial effects of changes in tax law, in 1997 unitholders authorized the
General Partner to decide not to make new aircraft investments, to sell aircraft
when attractive opportunities arise, to distribute the proceeds and to liquidate
the Partnership when all assets are sold. The General Partner will consider
whether it is in the best interest of unitholders to cease making new aircraft
investments as opportunities arise, in light of market conditions and the
Partnership's competitive position. Based on its investment experience and its
knowledge of the market, the General Partner believes that attractive investment
opportunities like those made by the Partnership in the past probably will not
be available. In the event that aircraft are sold and appropriate alternative
investments are not available, the Partnership would distribute sale proceeds to
unitholders (after repaying debt and establishing appropriate reserves), and
this would result in a further reduction of the Partnership's portfolio.
AIRCRAFT PORTFOLIO
The Partnership's aircraft portfolio consists of narrow-body
(single-aisle) twin and tri-jet commercial aircraft which were acquired as used
aircraft. Although the Partnership is permitted to do so, the Partnership does
not own interests in aircraft which were acquired as new aircraft; nor does the
Partnership own any wide-body aircraft, such as the Boeing 747 and MD-11, or any
turboprop or prop-fan powered aircraft.
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The following table describes the Partnership's aircraft portfolio at
December 31, 1998:
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Number & Current Purchase
type; year Ownership Acquired by lease price Type of Noise
Lessee of Delivery Interest Partnership expiration (in millions) lease compliance(1)
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<S> <C> <C> <C> <C> <C> <C> <C>
USAirways 5 MD-82 100% 1986 2001 $91.0 Direct Stage III
1981 (2) finance
FedEx 1 727-200FH 100% 1987 2006 $18.5(3) Direct Stage III
1979 finance
TWA 1 MD-82 100%(5) 1988(5) 2002 $15.8(4) Direct Stage III
1984 finance
</TABLE>
(1) See "Government Regulations-Aircraft Noise" below, for a description of
laws and regulations governing aircraft noise.
(2) The investment tax credits and the accelerated depreciation originally
available upon delivery of the aircraft on lease to USAirways, Inc.
(formerly USAir, Inc.) ("USAirways") were sold in 1981 pursuant to a tax
benefit transfer lease, which terminated November, 1991. See Note 9 of
Notes to Financial Statements.
(3) The purchase price includes $6.9 million of conversion costs for the
upgrade of the aircraft from a Stage II passenger to a Stage III
freighter aircraft.
(4) The Partnership originally acquired a 50% interest in this aircraft in
1988 for a purchase price of $10.1 million. On January 31, 1997 the
Partnership purchased the remaining 50% interest from USL Capital for a
purchase price of $5.7 million.
At December 31, 1998, the book value of aircraft by lessee as a percent
of total assets was as follows: US Airways, 71.9%; FedEx, 12.8%; and TWA, 14.8%.
Revenues by lessee as a percentage of total revenue for 1998 and 1997,
respectively, were as follows: US Airways, 77.4% and 73.5%; TWA, 17.0% and
15.2%; FedEx, 5.6% and 5.3%.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" for a further discussion of the Partnership's lessees.
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The Partnership's lessees have the following fair market value renewal
options: US Airways has the right to renew its lease as to any of the aircraft
for up to three additional renewal terms of one year each at a fair market value
rental, provided that the number of aircraft to be returned at the end of any
renewal term may not be less than two; FedEx has the right to renew its lease
for one six-month term at the current rent payable under the lease, and
thereafter for four successive one year terms at a fair market value rental; and
TWA has the right to renew its lease for one term of one, two, three or four
years at fair market value rentals.
COMPETITIVE POSITION OF THE PARTNERSHIP
The aircraft leasing industry has become increasingly competitive. In
making aircraft investments, leasing aircraft to lessees, and seeking purchasers
of aircraft, the Partnership competes with large leasing companies, aircraft
manufacturers, airlines and other operators, equipment managers, financial
institutions and other parties engaged in leasing, managing, marketing or
remarketing aircraft. Affiliates of the General Partner are engaged in many of
these businesses and may be deemed to be in competition with the Partnership.
There are many large leasing companies which have the financial strength to
borrow at very low rates and to obtain significant discounts when purchasing
large quantities of aircraft. The lower capital and acquisition costs enjoyed by
these large leasing companies permit them to offer airlines lower lease rates
than smaller leasing companies can offer. The Partnership does not have the
resources to purchase newer aircraft or to purchase aircraft at volume discounts
and has only a limited ability to use tax deferrals in its pricing.
As previously reported to Unitholders, the Partnership's access to
capital is limited. Since all Cash Available from Operations, as defined in the
Limited Partnership Agreement, is distributed, there is no build up of equity
capital, and acquisitions must be funded from proceeds available when aircraft
are sold or from debt. Access to debt is limited because most of the
Partnership's aircraft are being used to collateralize existing borrowings. In
general, the Partnership's pricing is uncompetitive for new acquisitions because
of its limited sources and high cost of capital.
Because of these factors, finding new aircraft investments like those
made by the Partnership in the past and that offer an appropriate balance of
risk and reward has been difficult. During the past six years the Partnership
has made only two aircraft investments, both of which were possible because of
special circumstances.
In 1996 and 1997, the Partnership sold interests in eight aircraft (a
50% interest in an aircraft on lease to Finnair, a one-third interest in six
aircraft on lease to Continental, and a 50% interest in one aircraft leased to
Sun Jet International, Inc.) at a profit. See "Disposition of Aircraft" below.
However because of the factors described above, the Partnership was unable to
reinvest the proceeds in aircraft at an acceptable return, and the General
Partner determined that the best use of the net proceeds was to distribute them
to Unitholders. These sales and distributions have reduced the size of the
Partnership's portfolio.
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EXISTING PARTICIPANTS IN LEASES
USL Capital originally participated equally with the Partnership in all
aircraft now owned by the Partnership except the aircraft on lease to US Airways
(the "US Airways Aircraft"). In April 1993 the Partnership leased two aircraft
(held jointly with USL Capital), which were previously off lease, to FedEx. In
September 1993 the Partnership exchanged its 50% interest in the two aircraft
for a 100% interest in one aircraft and pledged the aircraft and the lease as
collateral to obtain funds to upgrade the aircraft from a Stage II passenger
aircraft to a Stage III freighter. In January 1997, the Partnership purchased a
50% interest in the TWA Aircraft formerly owned by USL Capital, and now owns a
100% interest in this aircraft.
DESCRIPTION OF LEASES
All aircraft now owned by the Partnership are leased to third parties
pursuant to full-payout leases (direct finance). The Sun Jet Aircraft was
jointly owned by BALCAP (which purchased USL Capital's interest in this aircraft
in 1996) and the Partnership until it was sold on September 29, 1997. Generally,
operating leases are for a shorter term than full-payout leases and, therefore,
it is necessary to remarket the aircraft in order to recover the full
investment. Full-payout leases are generally for a longer term and hence provide
more predictable revenue than do operating leases.
All of the Partnership's leases are net leases, which provide that the
lessee will bear the direct operating costs and the risk of physical loss of the
aircraft; pay sales, use or other similar taxes relating to the lease or use of
the aircraft; maintain the aircraft; indemnify the Partnership-lessor against
any liability suffered by the Partnership as the result of any act or omission
of the lessee or its agents; maintain casualty insurance in an amount equal to
the specific amount set forth in the lease (which may be less than the market
value of the aircraft); and maintain liability insurance naming the Partnership
as an additional insured with a minimum coverage which the General Partner deems
appropriate. In general, substantially all obligations connected with the
ownership and operation of the leased aircraft are assumed by the lessee and
minimal obligations are imposed upon the Partnership. Default by a lessee may
cause the Partnership to incur unanticipated expenses. See "Government
Regulation" below.
Certain provisions of the Partnership's leases may not be enforceable
upon a default by a lessee or in the event of a lessee's bankruptcy. The
enforceability of leases will be subject to limitations imposed by Federal,
California, or other applicable state law and equitable principles.
In order to encourage equipment financing to certain transportation
industries, Federal bankruptcy laws traditionally have afforded special
treatment to certain lenders or lessors who have provided such financing.
Section 1110 ("Section 1110") of the United States Bankruptcy Code, as amended
(the "Bankruptcy Code"), implements this policy by creating a category of
aircraft lenders and lessors whose rights to repossession are substantially
improved. If a
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transaction complies with Section 1110, the transaction is not affected by the
automatic stay provisions of the Bankruptcy Code (and thus, the lender or lessor
may repossess the equipment), unless within 60 days after commencement of a
bankruptcy proceeding the trustee agrees to perform all obligations of the
debtor under the agreement or lease and all defaults (except those relating to
insolvency or insolvency proceedings) are cured within such 60-day period. One
court has recently held that section 1110 does not apply after the 60-day
period, and thus the automatic stay may apply after such 60-day period.
On October 22, 1994, the President signed the Bankruptcy Reform Act of
1994 (the "Reform Act"). The Reform Act made several changes to Section 1110,
such that it now protects all transactions involving qualifying equipment,
whether the transaction is a lease, conditional sale, purchase money financing
or customary refinancing. For equipment first placed in service on or prior to
the date of enactment, the requirement that the lender provide purchase money
financing continues to apply, but there is a "safe harbor" definition for
leases, so that Section 1110 benefits will be available to the lessor without
regard to whether or not the lease is ultimately determined to be a "true"
lease. This safe harbor is not the exclusive test so that other leases which do
not qualify under the safe harbor, but which are true leases, will continue to
be covered as leases by Section 1110. The Partnership may not be entitled to the
benefits of Section 1110 upon insolvency of a lessee airline under all of its
leases.
In the past, the Partnership had interests in aircraft leased to
operators based outside the United States. It is possible that the Partnership's
aircraft could be leased or subleased to foreign airlines. Aircraft on lease to
such foreign operators are not registered in the United States and it is not
possible to file liens on such foreign aircraft with the Federal Aviation
Administration (the "FAA"). Further, in the event of a lessee default or
bankruptcy, repossession and claims would be subject to laws other than those of
the United States.
AIRCRAFT REMARKETING
On termination of a lease and return of the aircraft to the Partnership,
the Partnership must remarket the aircraft to realize its full investment. Under
the Amended and Restated Agreement of Limited Partnership, as amended ("Limited
Partnership Agreement"), the remarketing of aircraft may be through a lease or
sale. The terms and conditions of any such lease would be determined at the time
of the re-lease, and it is possible (although not anticipated at this time) that
the lease may not be a net lease. The General Partner will evaluate the risks
associated with leases which are not net leases prior to entering into any such
lease. The General Partner has not established any standards for lessees to
which it will lease aircraft and, as a result, there is no investment
restriction prohibiting the Partnership from doing business with any lessee,
including "start-up" airlines. However, the General Partner will analyze the
credit of a potential lessee and evaluate the aircraft's potential value prior
to entering into any lease.
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DISPOSITION OF AIRCRAFT
The Partnership's original intent was to dispose of all its aircraft by
the year 2011, subject to prevailing market conditions and other factors.
However, in 1997 unitholders authorized the General Partner not to make new
investments, to sell aircraft when attractive opportunities arise, to distribute
the proceeds and to liquidate the Partnership when all assets are sold. See
"Principal Investment Objectives."
Under the Limited Partnership Agreement, aircraft may be sold at any
time whether or not the aircraft are subject to leases if, in the judgment of
the General Partner, it is in the best interest of the Partnership to do so.
In March 1996, the Partnership sold its 50% interest in one MD-82 on
lease to Finnair to a third party for approximately $6.9 million, resulting in a
net gain of approximately $556,000. The Partnership had acquired its interest in
this aircraft in April 1992, for approximately $8.5 million. A portion of the
sale proceeds were used to pay off the outstanding balance under a non-recourse
loan which was collateralized by this aircraft and the balance, after retaining
a reserve for liquidity purposes, was distributed to Unitholders. See
"Competitive Position of the Partnership" above.
The Partnership sold its one-third interest in six 737-200 aircraft on
lease to Continental at lease expiration on December 31, 1996, at a sale price
of approximately $3.1 million, resulting in a net gain of approximately $1.9
million. The proceeds were distributed to Unitholders in the first quarter of
1997. See "Competitive Position of the Partnership" above.
On September 29, 1997 the Partnership sold its one-half ownership
interest in a DC9-51 aircraft on lease to Sun Jet International, Inc. The sale
price was $1.2 million, resulting in a gain of $393,000 even though the lessee
had filed for bankruptcy in June 1997, and had ceased making the rent payments.
The proceeds were distributed to Unitholders in the fourth quarter of 1997. See
"Competitive Position of the Partnership" above.
The Partnership is permitted to sell aircraft to affiliates of the
General Partner at the fair market value of the aircraft at the time of sale as
established by an independent appraisal. The General Partner will receive a
Disposition or Remarketing Fee for any such sale.
JOINT VENTURES/GENERAL ARRANGEMENTS
Under the Limited Partnership Agreement, the Partnership may enter into
joint ventures with third parties to acquire or own aircraft. No such joint
ventures presently exist. Generally, each party to a joint venture is jointly
responsible for all debts and obligations incurred by the joint venture, and the
joint venture will be treated as a single entity by third parties. The
Partnership may become liable to third parties for obligations of the joint
venture in excess of those contemplated by the terms of the joint venture
agreement. There can be no assurance that
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the Partnership will be able to obtain control in any joint ventures, or that,
even with such control the Partnership will not be adversely affected by the
decisions and actions of the co-venturers. The General Partner attempts to
ensure that all such agreements will be fair and reasonable to the Partnership,
although joint ventures with affiliates of the General Partner may involve
potential conflicts of interest.
BORROWING POLICIES
Under the Limited Partnership Agreement, the Partnership may borrow
funds or assume financing in an aggregate amount equal to less than 50% of the
higher of the cost or fair market value at the time of the borrowing of all
aircraft owned by the Partnership. The Partnership may exceed such 50% limit for
short-term borrowing so long as the General Partner uses its best efforts to
comply with such 50% limit within 120 days from the date such indebtedness is
incurred or if the borrowed funds are necessary to prevent foreclosure on any
Partnership asset. There is no limitation on the amount of such short-term
indebtedness. The General Partner is authorized to borrow for working capital
purposes and to make distributions. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Liquidity and Capital Resources"
and Note 4- of Notes to Financial Statements.
MANAGEMENT OF AIRCRAFT PORTFOLIO
Aircraft management services are provided by the General Partner and its
affiliates. The fees and expenses for these services are reviewed annually and
are subject to approval by the Audit Committee of the Partnership. See Note 7 of
Notes to Financial Statements.
REGISTRATION OF AIRCRAFT; UNITED STATES PERSON
Under the Federal Aviation Act, as amended (the "FAA Act"), the
operation of an aircraft not registered with the Federal Aviation Administration
(the "FAA") in the United States is generally unlawful. Subject to certain
limited exceptions, an aircraft may not be registered under the FAA Act unless
it is owned by a "citizen of the United States" or a "resident alien" of the
United States. In order to attempt to ensure compliance with the citizenship
requirements of the FAA Act, the Limited Partnership Agreement requires that all
Unitholders (and all transferees of Units) be United States citizens or resident
aliens within the meaning of the FAA Act.
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GOVERNMENT REGULATION
GENERAL
The ownership and operation of aircraft in the United States are
strictly regulated by the FAA, which imposes certain minimum restrictions and
economic burdens upon the use, maintenance and ownership of aircraft. The FAA
Act and FAA regulations contain strict provisions governing various aspects of
aircraft ownership and operation, including aircraft inspection and
certification, maintenance, equipment requirements, general operating and flight
rules, noise levels, certification of personnel and record keeping in connection
with aircraft maintenance. FAA policy has given high priority to aviation
safety, and a primary objective of FAA regulations is that an aircraft be
maintained properly during its service life. FAA regulations establish standards
for repairs, periodic overhauls and alterations and require that the owner or
operator of an aircraft establish an airworthiness inspection program to be
carried out by certified mechanics qualified to perform aircraft repairs. Each
aircraft in operation is required to have a Standard Airworthiness Certificate
issued by the FAA.
MAINTENANCE
The Partnership, as the beneficial owner of aircraft, bears the ultimate
responsibility for compliance with certain federal regulations. However, under
all of the Partnership's aircraft leases, the lessee has the primary obligation
to ensure that at all times the use, operation, maintenance and repair of the
aircraft are in compliance with all applicable governmental rules and
regulations and that the Partnership/lessor is indemnified from loss by the
lessee for breach of any of these lessee responsibilities. Changes in government
regulations after the Partnership's acquisition of aircraft may increase the
cost to, and other burdens on, the Partnership of complying with such
regulations.
The General Partner monitors the physical condition of the Partnership's
aircraft and periodically inspects them to attempt to ensure that the lessees
comply with their maintenance and repair obligations under their respective
leases. Maintenance is further regulated by the FAA which also monitors
compliance. At lease termination, the lessees are required to return the
aircraft in airworthy condition. The Partnership may incur unanticipated
maintenance expenses if a lessee were to default under a lease and the
Partnership were to take possession of the leased aircraft without such
maintenance having been completed. If the lessee defaulting is in bankruptcy,
the General Partner will file a proof of claim for the required maintenance
expenses in the lessee's bankruptcy proceedings and attempt to negotiate payment
and reimbursement of a portion of these expenses. The bankruptcy of a lessee
could adversely impact the Partnership's ability to recover maintenance expense.
From time to time, aircraft manufacturers issue service bulletins and
the FAA issues airworthiness directives. These bulletins and directives provide
instructions to aircraft operators in the maintenance of aircraft and are
intended to prevent the occurrence of accidents arising
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from flaws discovered during maintenance or as the result of aircraft incidents.
Compliance with airworthiness directives is mandatory.
A formal program to control corrosion in all aircraft is included in the
FAA mandatory requirements for maintenance for each type of aircraft. These FAA
rules and proposed rules evidence the current approach to aircraft maintenance
developed by the manufacturers and supported by the FAA in conjunction with an
aircraft industry group. The Partnership may be required to pay for these FAA
requirements if a lessee defaults or if necessary to re-lease or sell the
aircraft.
In January 1999 the FAA issued an airworthiness directive setting
payload weight limitations on the Boeing 727 aircraft which were converted from
passenger to freight configuration. The directive requires extensive structural
modifications to strengthen the aircraft's floor, if the aircraft is to continue
to operate under the existing payload limits. If these modifications are not
performed, the directive sets substantially reduced payload limits. This
airworthiness directive applies to the aircraft on lease to FedEx. Under the
lease covering this aircraft, FedEx is required to take the steps necessary to
comply with airworthiness directives imposed during the lease term. However,
airworthiness directives may affect the residual value of the aircraft or
FedEx's decision to exercise fair market value renewal options under the lease.
AIRCRAFT NOISE
The FAA, through regulations, has categorized certain aircraft types as
Stage I, Stage II and Stage III according to the noise level as measured at
three designated points. Stage I aircraft create the highest measured noise
levels. Aircraft which exceed Stage I noise maximums are no longer allowed to
operate from civil airports in the United States.
In general, the Aviation Safety and Capacity Act of 1990 bans the
operation of Stage II aircraft after December 31, 1999 for aircraft operated
within the continental United States. The Act also allows United States airports
to impose their own Stage II noise bans before the formal cut-off date, provided
that an analysis of the costs and benefits of the restriction is presented and
180 days are allowed for public comment. The Act affects about 2,500 Stage II
aircraft operated by United States airlines.
See "Aircraft Portfolio" above, for a description of the Partnership's
aircraft portfolio. At December 31, 1998, all of the aircraft in the
Partnership's portfolio were Stage III aircraft
ACQUISITION OF ADDITIONAL AIRCRAFT
In 1997 unitholders authorized the General Partner to decide not to make
new aircraft investments, to sell aircraft when attractive opportunities arise,
to distribute the proceeds and to liquidate the Partnership when all assets are
sold. See "Principal Investment Objectives" above.
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If the Partnership were to acquire additional aircraft, it could do so
in many different forms, such as in sale/leaseback transactions, by purchasing
interests in existing leases from other lessors, by making loans secured by
aircraft or by acquiring or financing leasehold interests in aircraft. The
Partnership is permitted to acquire aircraft from affiliates of the General
Partner subject to limitations set forth in the Limited Partnership Agreement.
Prior to September 30, 1991, the General Partner and USL Capital were
required to offer the Partnership a 50% participation interest in certain
aircraft leasing investments made by Related Entities, as defined in the Limited
Partnership Agreement. After September 30, 1991 and while the General Partner
was an affiliate of USL Capital, the General Partner and USL Capital could, but
were not obligated to, offer investment opportunities to the Partnership. The
Partnership was required to accept suitable opportunities provided that the
General Partner and Related Entities made at least 20% (including their
investment through ownership of Units and the General Partner's interest) of the
total investment made by Related Entities and the Partnership in such
transactions. In the event that the Partnership elected not to make or to make
only a portion of an investment offered to it by an affiliate, the remaining
investment could be made by affiliates of the General Partner or third parties.
The General Partner believes that since it is no longer affiliated with
USL Capital, the limitation as to making investments with Related Entities
should no longer apply and that the Partnership should be able to invest in any
aircraft leasing transactions deemed suitable by the General Partner. In
determining whether an investment is suitable for the Partnership, the General
Partner will consider the following factors: the expected cash flow from the
investment and whether existing Unitholders' investment will be diluted; the
existing portfolio of the Partnership and the effect of the investment on the
diversification of the Partnership's assets; the amount of funds available to
finance the investment; the ability of the Partnership to obtain additional
funds through debt financing, by issuing Units, or otherwise; the cost of such
additional funds and the time needed to obtain such funds; the amount of time
available to remove contingencies prior to making the investment; projected
Federal income tax effect of the investment; projected residual value, if any;
any legal or regulatory restrictions; and other factors deemed relevant by the
General Partner.
The General Partner and its affiliates are not obligated to make any
investment opportunity available to the Partnership, and if any of them are
presented with a potential investment opportunity, it may be made by any of them
without being offered to the Partnership. In addition, in determining which
entity should invest in a particular transaction, it may be possible to
structure the transaction in various ways to make the acquisition more or less
suitable for the Partnership or for the General Partner or its affiliates.
FEDERAL INCOME TAXATION
The Partnership is considered a publicly traded Partnership ("PTP") under the
Revenue Act of 1987 with a special tax status, whereby it has not been subject
to federal income taxation. This
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special tax status was scheduled to expire at the beginning of 1998. However,
during 1997 federal and California tax laws were amended to provide that
publicly traded Partnerships may elect to continue to be publicly traded and
retain their Partnership tax status if they pay a federal tax of 3.5% and state
tax of 1% on their annual gross income beginning in January 1998. The
Partnership made an election to pay this tax beginning in 1998.
ITEM 2. PROPERTIES
The Partnership does not own any real property, and shares office space
in the offices of BALCAP and its affiliates.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
UNITS OUTSTANDING
The Units are traded on the New York Stock Exchange under the symbol
FLY. As of March 9, 1999, there were 1,104 holders of record of Units.
MARKET PRICE
The following chart sets forth the high and low closing prices on the
New York Stock Exchange and the trading volume for each of the quarters in the
years ended December 31, 1997 and 1998.
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<CAPTION>
Trading Volume
Quarter Ended (in thousands) Unit Prices (high-low)
- ------------- -------------- ----------------------
<S> <C> <C>
March 31, 1997 1,104 $17 5/8 - $10
June 30, 1997 757 $12 1/2 - $10 1/4
September 30, 1997 993 $12 1/16 - $ 9 15/16
December 31, 1997 855 $13 11/16 - $11 1/4
March 31, 1998 343 $14 1/2 - $12 5/8
June 30, 1998 303 $14 - $12 1/2
September 30, 1998 302 $13 7/16 - $12 1/2
December 31, 1998 281 $13 3/8 - $12 3/8
</TABLE>
DISTRIBUTIONS TO UNITHOLDERS
CASH DISTRIBUTIONS
The Partnership makes quarterly cash distributions to Unitholders which
are based on Cash Available from Operations (as defined in the Limited
Partnership Agreement) and are partially tax sheltered. Form time to time the
Partnership also has made cash distributions from cash available from Sale or
Refinancing (as defined in the Limited Partnership Agreement.) Information on
the tax status of such payments, which is necessary in the preparation of
individual tax returns, is prepared and mailed to Unitholders as quickly as
practical after the close of each year. The size of the Partnership's portfolio
and future aircraft sales will affect distributions.
15
<PAGE> 16
Distributions declared during 1997 and 1998 were as follows:
<TABLE>
<CAPTION>
Record Date Payment Date Per Unit
----------- ------------ --------
<S> <C> <C>
January 15, 1997 January 31, 1997 63 cents(1)
March 31, 1997 May 15, 1997 45 cents
June 30, 1997 August 15, 1997 45 cents
September 30, 1997 November 14, 1997 45 cents
October 20, 1997 November 4, 1997 22 cents(1)
December 31, 1997 February 13, 1998 45 cents
March 31, 1998 May 15, 1998 41 cents
June 30, 1998 August 14, 1998 41 cents
September 30, 1998 November 13, 1998 41 cents
December 31, 1998 February 15, 1999 41 cents
</TABLE>
(1) Special cash distribution from sale proceeds.
CASH AVAILABLE FROM OPERATIONS
The Partnership distributes all Cash Available from Operations (as
defined in the Limited Partnership Agreement). The Partnership is authorized to
make distributions from any source, including reserves and borrowed funds.
Distributions of Cash Available from Operations are allocated 99% to Unitholders
and 1% to the General Partner. The Partnership makes distributions of Cash
Available from Operations generally on the fifteenth day of each February, May,
August and November to Unitholders of record on the last business day of the
calendar quarter preceding payment.
CASH AVAILABLE FROM SALE OR REFINANCING
The Partnership's original intent was that Cash Available From Sale or
Refinancing (as defined in the Limited Partnership Agreement) received prior to
January 1, 2005 would be retained for use in the Partnership's business,
provided that if the General Partner did not believe that attractive investment
opportunities exist for the Partnership, the Partnership could distribute Cash
Available from Sale or Refinancing. Any Cash Available from Sale or Refinancing
received after January 1, 2005 was not to be reinvested but was to be
distributed. However, in 1997, unitholders authorized the General Partner to
decide not to make new aircraft investments, to sell aircraft when attractive
opportunities arise, to distribute the proceeds and to liquidate the Partnership
when all assets are sold. See "BUSINESS-- Principal Investment Objectives." For
information as to the sales giving rise to distributions from Cash Available
from Sales or Refinancing, see "BUSINESS--Disposition of Aircraft."
16
<PAGE> 17
TAX ALLOCATIONS
Allocations for tax purposes of income, gain, loss deduction, credit and
tax preference are made on a monthly basis to Unitholders who owned Units on the
first day of each month. Thus, for example, if an aircraft were sold at a gain,
that gain would be allocated to Unitholders who owned Units on the first day of
the month in which the sale occurred. If proceeds from this sale were
distributed to Unitholders, such proceeds would be distributed to Unitholders
who owned Units on the record date for such distribution, which, because of
notice requirements, likely would not occur in the same month as the sale. In
addition, a Unitholder who transfers his or her Units after the commencement of
a quarter but prior to the record date for that quarter will be allocated a
share of tax items for the first two months of that quarter without any
corresponding distribution of Cash Available from Operations for, among other
things, payment of any resulting tax.
17
<PAGE> 18
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data and other data
concerning the Partnership for each of the last five years:
<TABLE>
<CAPTION>
For years ended December 31,
(In thousands except per-unit amounts) 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Lease and other income $ 8,400 $ 9,210 $ 10,747 $ 12,492 $ 12,538
Gain on disposition of aircraft -- 393 2,501 21 --
----------------------------------------------------------------
Total Revenues 8,400 9,603 13,248 12,513 12,538
----------------------------------------------------------------
Interest Expense 1,704 2,028 1,830 2,366 2,660
Depreciation expense -- 273 1,500 2,129 2,146
Other expenses 1,123 1,820 1,266 1,196 1,401
Tax on gross income(1) 699 0 0 0 0
----------------------------------------------------------------
Total Expenses 3,526 4,121 4,596 5,691 6,207
----------------------------------------------------------------
Net income $ 4,874 $ 5,482 $ 8,652 $ 6,822 $ 6,331
----------------------------------------------------------------
Net income per unit(2) $ 1.04 $ 1.17 $ 1.85 $ 1.46 $ 1.36
Cash distributions declared per unit(3) $ 1.64 $ 2.02 $ 3.28 $ 2.07 $ 1.85
FINANCIAL POSITION
Total Assets $ 75,813 $ 82,859 $ 85,130 $103,021 $107,542
Long-term obligations $ 14,505 $ 19,115 $ 14,071 $ 27,483 $ 29,525
Total partners' equity $ 58,301 $ 61,089 $ 65,042 $ 71,712 $ 74,562
Limited Partners' equity per unit(2) $ 12.48 $ 13.08 $ 13.92 $ 15.35 $ 15.96
</TABLE>
(1) Represents the new tax on gross income (4.5% of Airlease's total 1998
rental receipts of $15.5 million)
(2) After allocation of the 1% General Partner's interest.
(3) Includes special cash distributions of $.10 per unit in 1995, $1.43 per
unit in 1996, of which $.63 was paid in January 1997 and $.22 per unit
in 1997.
18
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
The information set forth below and elsewhere in this Annual Report contains
certain forward-looking statements, which reflect the current view of the
partnership with respect to future events and financial performance. The words,
"expect", "intend", "believe", "anticipate", "likely" and "will" and similar
expressions generally identify forward-looking statements. These statements,
including the ones discussing the Year 2000 issue are subject to certain risks
and uncertainties, which could cause actual results, and events to differ
materially from those anticipated in the forward-looking statements.
Factors that could cause the partnership's actual results to differ from current
expectations include, among others, changes in the aircraft or aircraft leasing
market, economic downturn in the airline industry, default by lessees under
leases causing the partnership to incur uncontemplated expenses or not to
receive rental income as and when expected, changes in interest rates and
legislative or regulatory changes that adversely affect the value of aircraft.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership presently has three long-term debt facilities. At
December 31, 1998, the following amounts were outstanding: $5.1 million on a
7.4% non-recourse note collateralized by one aircraft leased to FedEx; $5.2
million on a 9.35% non-recourse note collateralized by one aircraft on lease to
Trans World Airlines; and $4.3 million on a long-term variable rate revolving
loan facility guaranteed by the Partnership and collateralized by two aircraft
on lease to USAirways. At December 31, 1998 and 1997, $14.5 million and $19.1
million, respectively, was outstanding under the Partnership's loan facilities.
At December 31, 1998 approximately $6.5 million remained available under the
revolving loan facility.
In December 1998, the Partnership modified the fixed-rate loan
collateralized by the TWA aircraft. As a result of these modifications, the loan
was paid down by $2 million and the average life of the loan was reduced. In
addition, the interest rate on the remaining principal of $5.2 million was
reduced from 9.85% to 9.35%.
In December 1998, the Partnership expanded its variable-rate revolving
loan facility by $5 million, $2 million of which was used to prepay the TWA debt
mentioned above. In addition, the interest rate on this loan facility was
reduced slightly.
Long-term borrowings at December 31, 1998 represented 12% of the
original cost of the aircraft presently owned by the Partnership, including
capital expenditures for upgrades. The terms of the Partnership Agreement permit
debt to be at a level not exceeding 50% of such cost.
Total scheduled debt service (principal and interest) on the fixed loans
in 1999 is $2.7 million, and the principal payment on the floating loan in 1999
is projected to be $2.1 million (if
19
<PAGE> 20
no purchase or sale of aircraft, or any unforeseen business events occur). Debt
service will be paid primarily from the rental payments received under aircraft
leases.
Net cash provided by operating activities was $7.3 million for 1996,
$5.1 million for 1997, and $5.3 million for 1998. The decrease in net cash
provided by operating activities in 1997 and 1998 as compared with 1996 was due
to reduced rentals as a result of a smaller portfolio. In December 1996, the
Partnership sold its interest in six aircraft, reducing 1997 rentals by $1.3
million compared with 1996. The slight increase in 1998 reflects lower 1998
expenses as compared with 1997.
Total debt service on the fixed loans as a percentage of net cash
provided by operating activities was 107%, 152%, and 166% for 1996, 1997 and
1998, respectively. However, cash flow from operating activities does not fully
reflect cash receipts from lease payments. When the excess of rental receipts
above finance lease income is added to cash flow from operating activities, the
ratios become 50%, 68%, and 71% respectively. The higher 1998 ratio as compared
with 1997 primarily reflects the $2 million early principal pay-down of a fixed
loan in 1998. The pay-down was mainly financed by the variable line of credit.
The higher 1997 ratio as compared with the 1996 ratio is the result of the
decrease in the net cash from operations due to a smaller portfolio, while the
debt service (principal and interest) remained at about the same level.
Cash distributions paid by the Partnership were $12.6 million ($2.70 per
unit) in 1996, $12.4 million ($2.65 per unit) in 1997, and $7.8 million ($1.68
per unit) in 1998. Distributions paid in 1996 included a special cash
distribution of 80 cents per unit made from a portion of the sale proceeds
received from the sale of a 50% interest in one MD-82 aircraft. Distributions
paid in 1997 included two special cash distributions. The first, was a
distribution of 63 cents per unit made from the proceeds received from the
December 31, 1996 sale of the Partnership's interest in six 737-200 aircraft,
and the second was a distribution of 22 cents per unit made from the proceeds
received from the September 29, 1997 sale of the Partnership's 50% interest of
one DC9-51. There were no special cash distributions paid in 1998.
Partnership net income was $8.7 million in 1996, $5.5 million in 1997,
and $4.9 million in 1998. The decline in net income from 1996 to 1997 largely
reflects fewer gains on sale, whereas the decline from 1997 to 1998 primarily
reflects the imposition of federal taxation at the Partnership level. Pursuant
to the Limited Partnership Agreement, the Partnership distributed all Cash
Available from Operations and also made special cash distributions, as described
above. Since such distributions were in excess of earnings, Partnership equity
declined from $61.1 million at December 31, 1997 to $58.3 million at December
31, 1998, and limited partner equity per unit declined from $13.08 to $12.48.
From a limited partner perspective, the portion of the distribution in excess of
net income constitutes a return of capital. Total cash distributions declared
since inception of the Partnership have exceeded total net income by $6.31 per
unit.
RESULTS OF OPERATIONS
1996
20
<PAGE> 21
In 1996, revenues were earned from fifteen aircraft, seven of which were
subject to finance leases (US Airways, TWA, and FedEx), and eight of were
subject to operating leases (Continental, Finnair, and Sun Jet). The aircraft
leased to Finnair was sold in March 1996. On December 31, 1996, the operating
lease with Continental covering six aircraft expired, and the aircraft were sold
on that date. At year-end 1996, all of the Partnership's lessees were current
under their lease agreements and none was in bankruptcy. The sales of the
Partnership's interests in aircraft on lease to Finnair and Continental produced
gains of $556,000 and $1.9 million, respectively.
1997 vs. 1996
In 1997, revenues were earned from seven aircraft subject to finance
leases (US Airways, TWA, and FedEx). Finance lease income increased from 1996
due to the Partnership's purchase in January 1997 of an additional 50% interest
in the MD-82 aircraft on lease to TWA. In 1997 revenues were also earned from
one aircraft subject to an operating lease (Sun Jet). Sun Jet filed for
bankruptcy in June 1997, and the 22-year old aircraft was sold in September
1997, at a gain of $393,000. As of December 31, 1997, the Partnership no longer
owned interests in any aircraft subject to operating leases. At year-end 1997,
all of the Partnership's lessees were current under their lease agreements and
none was in bankruptcy.
1998 vs. 1997
In 1998, all revenues were earned from aircraft subject to finance
leases. The revenue reduction in 1998 as compared with 1997 is primarily due to
the scheduled decline in finance lease income as the asset base declined. In
addition in 1997, the Partnership earned revenue from an aircraft on an
operating lease and from a gain on sale of such aircraft. No such revenues were
earned in 1998. At year-end 1998, all the Partnership's lessees were current
under their lease agreements and none was in bankruptcy.
US Airways, the Partnership's major lessee (72% of total year-end
assets) reported profits of $538 million on revenues of $8.7 billion for 1998,
compared with profits of $1.0 billion on revenues of $8.5 billion for 1997.
FedEx (13% of total year-end assets) reported profits of $421 million on
revenues of $13.3 billion for 1998 (fiscal year ended May 31, 1998), compared
with profits of $361 million on revenues of $11.5 billion for 1997.
TWA (15% of total year-end assets), reported a net loss of $120 million
on revenues of $3.3 billion for 1998, compared with a net loss of $127 million
on revenues of $3.3 billion for 1997.
For information regarding the percentage of total Partnership assets and
revenues represented by aircraft owned and leased by the Partnership, see
BUSINESS -- "Aircraft Portfolio."
The Partnership believes that its revenues and income have not been
materially affected
21
<PAGE> 22
by inflation and changing prices because its principal items of revenue (rental
payments) and a majority of its expenses (interest) are at fixed long-term
rates.
Expenses before taxes in 1998 were $2.8 million or $1.3 million lower
than the 1997 expenses of $4.1 million. In 1997, the Partnership incurred
investor reporting expenses in connection with the solicitation of unitholder
consents and depreciation expense related to the aircraft that was sold in
September 1997. Expenses in 1997 also included a provision for doubtful
accounts. No similar expenses were incurred in 1998. In January 1998 the
Partnership made an election to pay an annual tax at the Partnership level of
4.5% on its gross income beginning in 1998 in order to remain publicly traded.
As such, in 1998 the Partnership recorded a tax provision of $699,000, pursuant
to the newly imposed federal and state gross income tax.
YEAR 2000 ISSUE
The year 2000 issue results from older computer programs using two,
rather than four digits to define a year, thus the programs do not recognize a
year that begins with "20" rather than the familiar "19." If not corrected, many
computer applications could fail or create erroneous results.
Since the Partnership's operations consist primarily of collecting
periodic lease payments on a limited number of leases and making periodic debt
payments and distributions to its partners, the General Partner believes that
the Partnership's exposure to the Year 2000 problem is limited to the software
programs and services it obtains from suppliers and vendors. The Partnership's
leases and loans are supported by amortization schedules generated at the
inception of these transactions, generally making the tracking of payments and
recording of income and interest expense a manual process and thus independent
of computer software.
The Partnership relies on third parties ("external relationships") such
as banks, financial intermediaries, and tax services to facilitate certain
business transactions. The Partnership has reviewed the impact of these external
relationships on its business and concluded that the two most critical service
providers are: the provider of the tax service that generates the K1 tax
statements to be used by our limited partners to complete their tax returns and
the stock transfer agent that facilitates the public trading of the
Partnership's units. In 1998, the Partnership contacted both vendors and has
been advised their systems either are Year 2000 compliant or will be compliant
prior to December 31, 1999.
The Partnership believes that due to its minimal reliance on computer
software to conduct its internal day to day transactions processing, the Year
2000 projected costs are negligible. However, the Partnership is also dependent
on third parties to fully conduct its business transactions as described above.
If these or other third parties fail to adequately resolve their Year 2000
issues, the Partnership could experience significantly increased administrative
costs or delays in unit transfer or tax preparation functions. The Partnership
anticipates that such costs would be incurred in locating alternative third
party vendors (which the Partnership believes exist) and transferring data to
such alternative vendors. The amount of such costs or potential
22
<PAGE> 23
delays is difficult to quantify.
The Partnership will continue to monitor the progress of its third party
vendors, relative to the Year 2000 compliance, to attempt to ensure minimal
disruptions to its operations.
The year 2000 compliance of each of the Partnership's lessees is
available from reports filed by the lessees with the Securities and Exchange
Commission.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Partnership's assets consist of aircraft subject to leases accounted
for as financing leases, and thus consist of a future stream of fixed rental
payments and a residual interest in the aircraft. See Note 2 to Financial
Statements for information as to finance lease receivables. At December 31,
1998, the Partnership had long-term fixed-rate notes payable of $10,248,000 and
a revolving variable rate loan facility with $4,257,000 outstanding and
approximately $6,500,000 of credit available. See Note 4 to Financial Statements
for information as to minimum future principal payments due and the interest
rates applicable to the notes and revolving credit facility. Since the rental
payments under its leases are fixed, but a portion of its liabilities are based
on a variable interest rate, the assets and liabilities of the Partnership are
not perfectly hedged and the Partnership bears some risk of interest rate
fluctuations. Since a portion of its debt under the revolving credit facility is
for variable working capital needs, the General Partner believes that the risk
of interest fluctuations is appropriate under the circumstances.
23
<PAGE> 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and Notes to Financial Statements described in
Item 14(a) are set forth in Appendix A and are filed as part of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On June 29, 1998, the Partnership engaged Ernst & Young L.L.P. as
independent auditors of the Partnership for the year ending December 31, 1998,
and dismissed Coopers & Lybrand L.L.P. (PriceWaterhouseCoopers L.L.P. after June
30, 1998.) This action was taken on the unanimous approval by the board of
directors of Airlease Management Services, Inc., the General Partner of the
Partnership, which acted on the recommendation of the audit committee of the
board of directors. The change was made primarily to achieve efficiencies in the
audit process and to reduce costs.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
GENERAL
The Partnership has no directors or executive officers. Under the
Limited Partnership Agreement, the General Partner has full power and authority
in the management and control of the business of the Partnership, subject to
certain provisions requiring the consent of the Limited Partners.
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information about the directors and executive
officers of the General Partner as of March 11, 1999.
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION AND
NAME GENERAL PARTNER AGE EMPLOYMENT FOR LAST 5 YEARS
---- --------------- --- ---------------------------
<S> <C> <C> <C>
David B. Gebler Chairman of the 49 Mr. Gebler is Managing Director of Bank
Board, of America National Trust and Savings
President, Chief Association ("Bank of America") and a
Executive Senior Vice President of BALCAP. He has
Officer and a been with BALCAP since September 1996.
Director From 1993 to September 1996 he was
Senior Vice President of the
Transportation and Industrial Financing
business unit of USL Capital. Mr.
Gebler has been President of the
General Partner since 1989 and a
Director since 1990. Mr. Gebler holds a
bachelors degree in mathematics from
Clarkson University and graduate
degrees in Engineering and Management
from the University of Michigan.
Richard V. Harris Director 50 Mr. Harris is Managing Director of Bank
of America and Chairman and President
of BALCAP. He was elected President and
CEO in 1982, adding the title of
Chairman in 1988. He has
</TABLE>
24
<PAGE> 25
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION AND
NAME GENERAL PARTNER AGE EMPLOYMENT FOR LAST 5 YEARS
---- --------------- --- ---------------------------
<S> <C> <C> <C>
been a Director of the General Partner
since October 1996. Other assignments
at Bank of America have included
responsibilities for Project Finance
and Asset-Backed Finance along with
Leasing. Prior to assuming his present
responsibilities, Mr. Harris held both
transactional and marketing management
positions at BankAmerica Leasing. Mr.
Harris holds a B.S.E.E. degree in
Electrical Engineering from Brigham
Young University and a Master of
Business Administration degree also
from BYU.
William A. Hasler Director 57 Mr. Hasler has been the Co-Chief
Executive Officer of Aphton Corporation
since July 1998 and a Director of the
General Partner since 1995. From August
1991 to June 1998 he was the Dean of
the Haas School of Business at the
University of California at Berkeley.
From 1984 to 1991, he was vice chairman
and director of KPMG Peat Marwick and
was responsible for its worldwide
consulting business. He is a member of
the board of governors of The Pacific
Stock Exchange and of the board of
directors of Selectron Corp., TCSI,
Tenera, Walker Interactive, and Aphton
Corporation. He serves on a
presidential advisory board on critical
technologies. He is a 1963 graduate of
Pomona College and earned his MBA from
Harvard in 1967.
Richard P. Powers Director 58 Mr. Powers has been Executive Vice
President of CardioGenesis Corporation,
a medical device company, since 1996
and a Director of the General Partner
since 1996. From 1981 to 1994, he was
with Syntex Corporation, a
pharmaceutical company, serving as
Senior Vice President and Chief
Financial Officer of that company from
1986 to 1994. From 1994 to 1996 he
served as consultant to various
companies, including advising and
assisting in the sale of Syntex
Corporation to Roche Corporation in
1994. Mr. Powers holds a Bachelor of
Science degree in Accounting from
Canisius College and a Masters in
Business Administration from the
University of Rochester.
K. Thomas Rose Director 53 Mr. Rose has been Executive Vice
President and Chief Operating Officer
of BALCAP since 1992, responsible for
all non-marketing areas of BALCAP. He
also is the chief credit officer for
the subsidiaries of BankAmerica
Corporation which comprise the leasing
group. He has been a Director of the
General Partner since October 1996.
Prior to his present responsibilities,
Mr. Rose was with Security Pacific
Leasing Corporation as Executive Vice
President - Lease Services since 1973.
Mr. Rose holds a B.A. from California
State University, Fullerton and a Juris
Doctorate degree from Golden Gate
University, School of Law.
Richard C. Walter Chief Financial 53 Mr. Walter has been Senior Vice
Officer and a President and Controller of BALCAP
Director since 1992. He has been a director of
the General Partner since October 1996.
Prior to assuming his present
responsibilities at BALCAP, Mr. Walter
was with Security Pacific Leasing
Corporation as Senior Vice President,
Financial Administration since 1973. He
holds a Bachelor of Science degree in
Business Administration and Accounting
from Montana State University.
</TABLE>
25
<PAGE> 26
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not pay or employ directly any directors or
officers. Each of the officers of the General Partner is also an officer or
employee of BALCAP and is not separately compensated by the General Partner or
the Partnership for services on behalf of the Partnership. Thus, there were no
deliberations of the General Partner's Board of Directors with respect to
compensation of any officer or employee.
The Partnership reimburses the General Partner for fees paid to
Directors of the General Partner who are not otherwise affiliated with the
General Partner or its affiliates. In 1998, such unaffiliated directors were
paid an annual fee of $14,500 plus $500 for each meeting attended.
The Partnership has not established any plans pursuant to which cash or
non-cash compensation has been paid or distributed during the last fiscal year
or is proposed to be paid or distributed in the future. The Partnership has not
issued or established any options or rights relating to the acquisition of its
securities or any plans therefor.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
UNIT OWNERSHIP BY CERTAIN BENEFICIAL OWNERS
As of February 28, 1999, the following persons were known to the
Partnership to be beneficial owners of more than five percent of the
Partnership's equity securities:
<TABLE>
<CAPTION>
Name and Address Amount and Nature of
Title of Class Of Beneficial Owner Beneficial Ownership Percent of Class
-------------- ------------------- -------------------- ----------------
<S> <C> <C> <C>
Depositary Units United States Airlease 231,250(1) 5%
Holding, Inc.
555 California Street
San Francisco, CA 94104(2)
Depositary Units BALCAP 793,750(3) 17.2%
555 California Street
San Francisco, CA 94104(2)
</TABLE>
- -----------
(1) United States Airlease Holding, Inc. ("Holding") reported that it had
sole voting and dispositive power over these Units.
(2) BALCAP owns all of the outstanding stock of Holding. Therefore, BALCAP
may be deemed also to be the indirect beneficial owner of the Units
owned by Holding. In addition, BALCAP owns all the outstanding stock of
the General Partner. Therefore, BALCAP may be deemed to be the indirect
beneficial owner of the
26
<PAGE> 27
General Partner's 1% General Partner interest. BALCAP is a wholly owned
indirect subsidiary of BankAmerica Corporation. Therefore, BankAmerica
Corporation and each BankAmerica Corporation subsidiary which is the
direct or indirect parent of BALCAP is also indirectly the beneficial
owner of all Units and of the General Partner's 1% General Partner
interest owned or deemed owned by BALCAP.
(3) BALCAP reported that it had sole voting and dispositive power over these
Units.
UNIT OWNERSHIP BY MANAGEMENT
Set forth below is information regarding interests in the Partnership
owned by each director of and all directors and executive officers, as a group,
of the General Partner. Unless otherwise noted, each person has sole voting and
investment power over all units owned.
<TABLE>
<CAPTION>
Name of Amount and Nature of
Title of Class Beneficial Owner Beneficial Ownership Percent of Class
-------------- ---------------- -------------------- ----------------
<S> <C> <C> <C>
Depositary Units David B. Gebler 700(1) (2)
Depositary Units William A Hasler 3,000 (2)
All directors and executive 3,700 (2)
Officers as a group
</TABLE>
- ----------
(1) Includes 200 Units held by Mr. Gebler as custodian for a minor child as
to which Mr. Gebler has shared voting and dispositive power and as to
which beneficial ownership is disclaimed.
(2) Represents less than 1%.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For a discussion of certain fees, expenses and reimbursements payable
and paid to the General Partner and its affiliates by the Partnership, see Note
7 of Notes to Financial Statements. From time to time, the Partnership has
borrowed funds from BALCAP, including advances for expense payments. All such
borrowings were unsecured and bore interest at a floating rate not exceeding the
prime rate. At December 31, 1998 Airlease owed BALCAP $130,921 for such
borrowings.
For a discussion of certain terms of the Partnership Agreement regarding
the Partnership's participation in aircraft leasing investments made by USL
Capital and its Related Entities, see "BUSINESS-Acquisition of Additional
Aircraft." For a discussion of aircraft held jointly between the Partnership and
BALCAP or formerly held jointly between the Partnership and USL Capital, see
"BUSINESS-Existing Participants in Leases."
27
<PAGE> 28
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. The following financial statements of the Partnership are
included in this report as Appendix A:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management's Responsibility for Financial Statements................. A-1
Independent Auditors' Report......................................... A-2, A-3
Financial Statements:
Statements of Income for the Years Ended December 31, 1998,
1997 and 1996 ................................................ A-4
Balance Sheets, as of December 31, 1998 and 1997.............. A-5
Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996........................................... A-6
Statements of Changes in Partners' Equity for the Years Ended
December 31, 1998, 1997 and 1996.............................. A-7
Notes to Financial Statements ....................................... A-7
</TABLE>
Financial statement schedules other than those listed above are
omitted because the required information is included in the
financial statements or the notes thereto or because of the
absence of conditions under which they are required.
(b) The Partnership did not file any reports on Form 8-K during the
last quarter of the fiscal year ended December 31, 1998.
28
<PAGE> 29
(c) Exhibits required by Item 601 of Regulation S-K:
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
3.1(1) Amended and Restated Agreement of Limited Partnership of
Partnership.
3.2(1) Form of Certificate for Limited Partnership Units of
Partnership.
3.3(1) Form of Depositary Agreement among Partnership, Chase-Mellon
Shareholder Services (formerly Manufacturers Hanover Trust
Company), the General Partner and Limited Partners and
Assignees holding Depositary Receipts.
3.4(1) Form of Depositary Receipt for Units of Limited Partners'
Interest in the Partnership
3.5(2) Amendments to Amended and Restated Partnership Agreement.
4.1(1) Form of Application for Transfer of Depositary Unit.
4.2(2) Loan and Security Agreement dated as of March 20, 1987 between
Meridian Trust Company, as Trustee, as Borrower and The World
Wing Company Limited, as Lender.
4.3(2) 8.75% Secured Non-recourse Note of Meridian Trust Company
dated March 31, 1987 in favor of The World Wing Company
Limited.
4.4(2) Instructions and Consent Agreement dated as of March 31, 1987
between the Registrant and The World Wing Company Limited.
10.1(1) Trust Agreement, together with Trust Agreement Supplement No.
1-5, dated as of July 10, 1986, between the Registrant,
Meridian Trust Company and the General Partner.
10.3(1) Lease Agreement, together with Lease Supplement Nos. 1-5,
dated as of July 10, 1986, between Meridian Trust Company, not
in its individual capacity but solely as Trustee, and Pacific
Southwest Airlines.
</TABLE>
- ----------
(1) Incorporated by reference to the Partnership's Registration Statement on
Form S-1 (File No. 33-7985), as amended.
(2) Incorporated by reference to the Partnership's Annual Report on Form
10-K for the year ended December 31, 1995.
29
<PAGE> 30
<TABLE>
<S> <C>
10.44(3) Aircraft Lease Agreement dated as of April 15, 1993 between
Taurus Trust Company, Inc. (formerly Trust Company for USL,
Inc.) as Owner Trustee, Lessor, and Federal Express
Corporation, Lessee with respect to one (1) Boeing 727-2D4
Aircraft, U.S. Registration No. 362PA (manufacture serial no.
21850).
10.49(4) Assignment and Assumption Agreement dated as of January 31,
1997 between USL Capital Corporation and the Registrant.
10.50(4) Lease, together with Lease Supplement No. 1, dated as of March
15, 1984 between DC-9T-III, Inc., as Lessor, and Trans World
Airlines, Inc., as Lessee, with respect to one (1) McDonnell
Douglas DC-9-82 Aircraft, as amended by Amendment Agreement
dated as of December 15, 1986.
10.51 Loan agreement secured by two aircraft leased to US Airways
aircraft dated as of December 22, 1997, amended and restated
as of December 15, 1998 between Meridian Trust Company, as
Trustee, as Borrower and Credit Lyonnais/PK AIRFINANCE, as
Lender.
27 Financial Data Schedule
</TABLE>
- --------------------
(2) Incorporated by reference to the Partnership's Annual Report on Form
10-K for the year ended December 31, 1995.
(3) Incorporated by reference to the Partnership's Annual Report on Form
10-K for the year ended December 31, 1993.
(4) Incorporated by reference to the Partnership's Annual Report on Form
10-K for the year ended December 31, 1996.
30
<PAGE> 31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on March 18, 1999.
AIRLEASE LTD., A CALIFORNIA LIMITED
PARTNERSHIP
(Registrant)
By: Airlease Management Services, Inc.,
General Partner
By: /s/ David B. Gebler
-----------------------------------
David B. Gebler
Chairman, Chief Executive Officer
and President
31
<PAGE> 32
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.
For Airlease Management
Services, Inc. ("AMSI"), General Partner
/s/ David B. Gebler March 18, 1999
- --------------------------------------------
David B. Gebler
Chairman, Chief Executive Officer, President
and Director of AMSI
/s/ Richard C. Walter March 18, 1999
- --------------------------------------------
Richard C. Walter
Chief Financial Officer and Director of AMSI
(Principal Financial Officer and Accounting Officer)
/s/ Richard V. Harris March 18, 1999
- ---------------------------------------------
Richard V. Harris
Director of AMSI
/s/ K. Thomas Rose March 18, 1999
- ---------------------------------------------
K. Thomas Rose
Director of AMSI
The foregoing constitute a majority of the members of the Board of Directors of
Airlease Management Services, Inc. (the General Partner).
32
<PAGE> 33
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
Airlease Management Services, Inc. ("AMSI"), the General Partner of the
Partnership was a wholly owned subsidiary of USL Capital Corporation until
October 31, 1996, when BA Leasing and Capital Corporation ("BALCAP") purchased
100% of the stock of AMSI, AMSI is responsible for the preparation of the
Partnership's financial statements and the other financial information in this
report. This responsibility includes maintaining the integrity and objectivity
of the financial records and the presentation of the Partnership's financial
statements in accordance with generally accepted accounting principles.
The General Partner maintains an internal control structure designed to provide,
among other things, reasonable assurance that Partnership records include the
transactions of its operations in all material respects and to provide
protection against significant misuse or loss of Partnership assets. The
internal control structure is supported by careful selection and training of
financial management personnel, by written procedures that communicate the
details of the control structure to the Partnership's activities, and by
BALCAP's staff of operating control specialists who conduct reviews of adherence
to the Partnership's procedures and policies.
The Partnership's financial statements have been audited by Ernst & Young
L.L.P., independent auditors for the year ended December 31, 1998, and by
Coopers & Lybrand L.L.P., independent auditors for the years ended December 31,
1997 and 1996. Their audits were conducted in accordance with generally accepted
auditing standards which included consideration of the General Partner's
internal control structure. The Independent Auditor's Report appears on page A2.
The board of directors of the General Partner, acting through its Audit
Committee composed solely of directors who are not employees of the General
Partner, is responsible for overseeing the General Partner's fulfillment of its
responsibilities in the preparation of the Partnership's financial statements
and the financial control of its operations. The independent auditors have full
and free access to the Audit Committee and meet with it to discuss their audit
work, the Partnership's internal controls, and financial reporting matters.
/s/ David B. Gebler
- -----------------------------------------------
David B. Gebler
Chairman, Chief Executive Officer and President
Airlease Management Services, Inc.
/s/ Richard C. Walter
- -----------------------------------------------
Richard C. Walter
Chief Financial Officer
Airlease Management Services, Inc.
A-1
<PAGE> 34
INDEPENDENT AUDITORS' REPORT
To the Partners of Airlease Ltd.,
A California Limited Partnership:
We have audited the accompanying balance sheet of Airlease Ltd. as of December
31, 1998 and the related statements of income, changes in Partners'equity, and
cash flows for the year then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit. The financial
statements of Airlease Ltd. for the years ended December 31, 1997 and 1996, were
audited by other auditors whose report dated January 21, 1998, expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Airlease Ltd. at December 31,
1998, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
/s/ Ernst & Young L.L.P.
- ----------------------------
Ernst & Young L.L.P.
San Francisco, California
January 29, 1999
A-2
<PAGE> 35
INDEPENDENT AUDITORS' REPORT
To the Partners of Airlease Ltd.,
A California Limited Partnership:
We have audited the financial statements of Airlease Ltd., a California Limited
Partnership listed in Part IV 14(A) of this form 10-K for the year ended
December 31, 1997 and for each of the two years in the period ended December 31,
1997. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Partnership at December 31,
1997, and the results of its operations and its cash flows for each of the two
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Coopers and Lybrand L.L.P.
- ----------------------------------
Coopers & Lybrand L.L.P.
San Francisco, California
January 21, 1998
A-3
<PAGE> 36
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the years ended
December 31,
(In thousands except per-unit amounts) 1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Finance lease income $ 8,400 $ 9,028 $ 8,800
Operating lease rentals 0 170 1,798
Gain on sale of equipment 0 393 2,501
Other income 0 12 149
---------------------------------
Total revenues 8,400 9,603 13,248
---------------------------------
EXPENSES
Interest 1,704 2,028 1,830
Depreciation - operating leases 0 273 1,500
Bad debt expense 0 228 0
Management fee - General Partner 651 679 740
Investor reporting 298 771 254
General and administrative 174 142 271
Tax on gross income 699 0 0
---------------------------------
Total expenses 3,526 4,121 4,596
---------------------------------
NET INCOME $ 4,874 $ 5,482 $ 8,652
---------------------------------
NET INCOME ALLOCATED TO:
GENERAL PARTNER $ 49 $ 55 $ 87
---------------------------------
Limited partners 4,825 5,427 8,565
---------------------------------
NET INCOME PER LIMITED PARTNERSHIP UNIT $ 1.04 $ 1.17 $ 1.85
---------------------------------
</TABLE>
See notes to financial statements
A-4
<PAGE> 37
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS
<TABLE>
<CAPTION>
As of December 31,
(IN THOUSANDS EXCEPT UNIT DATA) 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash $ 9 $ 1
Finance leases - net 75,443 82,590
Prepaid expenses and other assets 361 268
--------------------
Total Assets $75,813 $82,859
--------------------
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Distribution payable to partners $ 1,915 $ 2,102
Accounts payable and accrued liabilities 393 553
Taxes Payable 699 0
Long-term notes payable 14,505 19,115
--------------------
Total liabilities 17,512 21,770
--------------------
COMMITMENTS AND CONTINGENCIES
PARTNERS' EQUITY:
Limited partners (4,625,000 units outstanding) 57,718 60,478
General Partner 583 611
--------------------
Total partners' equity 58,301 61,089
--------------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $75,813 $82,859
--------------------
</TABLE>
See notes to financial statements
A-5
<PAGE> 38
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31,
(In thousands) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,874 $ 5,482 $ 8,652
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 0 273 1,500
Increase (decrease) in accounts payable and accrued
Liabilities (160) (390) (518)
Decrease (increase) in prepaid expenses and other (93) (99) 97
assets
Decrease (increase) in accounts 0 0 111
receivable
Increase (Decrease) in taxes Payable 699 0 0
Provision for doubtful account 0 228 0
Gain on disposition of equipment 0 (393) (2,501)
------------------------------------------
Net cash provided by operating activities 5,320 5,101 7,341
------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Aircraft equipment purchase 0 (5,753) 0
Proceeds from sale of equipment 0 1,182 10,060
Increase (decrease) in notes receivable 0 8 697
Rental receipts in excess of earned finance lease income 7,147 6,219 8,508
------------------------------------------
Net cash provided by investing activities 7,147 1,656 19,265
------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Revolving credit borrowing (repayment) - net 2,509 1,748 (7,381)
Proceeds from issuance of long-term debt 0 9,000 0
Repayment of long-term debt (7,119) (5,704) (6,031)
Distributions paid to partners (7,849) (12,379) (12,614)
------------------------------------------
Net cash used by financing activities (12,459) (7,335) (26,026)
------------------------------------------
Increase (decrease) in cash 8 (579) 580
Cash at beginning of year 1 580 0
------------------------------------------
Cash at end of year $ 9 $ 1 $ 580
------------------------------------------
Additional information:
Cash paid for interest $ 1,775 $ 1,861 $ 2,097
------------------------------------------
</TABLE>
NON - CASH INVESTING ACTIVITY
During 1997, unpaid accrued costs were reduced by $28,000 and included in the
gain on sale of aircraft.
See notes to financial statements
A-6
<PAGE> 39
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
<TABLE>
<CAPTION>
For the years ended December 31, 1998, 1997, and 1996
General Limited
(In thousands except per-unit amounts) Partner Partners Total
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1995 717 70,995 71,712
Net Income - 1996 87 8,565 8,652
Distributions to partners declared
($3.28 per limited Partnership unit) (153) (15,169) (15,322)
- ------------------------------------------------------------------------------------------
Balance, December 31, 1996 651 64,391 65,042
Net Income - 1997 55 5,427 5,482
Distributions to partners declared
($2.02 per limited Partnership unit) (95) (9,340) (9,435)
- ------------------------------------------------------------------------------------------
Balance, December 31, 1997 611 60,478 61,089
Net Income - 1998 49 4,825 4,874
Distributions to partners declared
($1.64 per limited Partnership unit) (77) (7,585) (7,662)
- ------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 $ 583 $ 57,718 $ 58,301
==========================================================================================
</TABLE>
See notes to financial statements
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Airlease Ltd., A California Limited Partnership (the
"Partnership") engages in the business of acquiring, either directly or through
joint ventures, commercial jet aircraft, spare or separate engines and related
rotable parts ("aircraft") and leasing such aircraft to domestic and foreign
airlines and freight carriers. The General Partner is Airlease Management
Services, Inc., a wholly owned subsidiary of BA Leasing and Capital Corporation
("BALCAP"). BALCAP also holds 793,750 limited Partnership units and United
States Airlease Holding, Inc. ("Holding"), a wholly owned subsidiary of BALCAP,
holds 231,250 limited Partnership units. An additional 3,600,000 units are
publicly held.
BASIS OF PRESENTATION - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
A-7
<PAGE> 40
FINANCE LEASES - Lease agreements, under which the Partnership recovers
substantially all its investment from the minimum lease payments are accounted
for as finance leases. At lease commencement, the Partnership records the lease
receivable, estimated residual value of the leased aircraft, and unearned lease
income. The original unearned income is equal to the receivable plus the
residual value less the cost of the aircraft (including the acquisition fee paid
to an affiliate of the General Partner). The remaining unearned income is
recognized as revenue over the lease term so as to approximate a level rate of
return on the investment.
OPERATING LEASES - Leases that do not meet the criteria for finance leases are
accounted for as operating leases. The Partnership's undivided interests in
aircraft subject to operating leases are recorded at cost which includes
acquisition fees paid to an affiliate of the General Partner. Aircraft are
depreciated over the related lease terms, generally five to nine years on a
straight-line basis to an estimated residual value, or over their useful lives
for aircraft held for lease or sale, on a straight-line basis to an estimated
salvage value.
DERIVATIVES - The Partnership accounts for derivative financial instruments on
an accrual basis when the cash flows generated from the hedging instruments
fulfill the objectives of the hedge strategy and when there is a high
correlation between the derivative and the hedged asset or liability. Under
accrual accounting interest differentials paid or received under interest rate
swap agreements are recognized as an adjustment to interest expense over the
life of the agreements. Termination gains or losses of such derivatives are
amortized to interest expense over the remaining life of the hedged transaction.
When a derivative no longer fulfills the high correlation objective, it
is accounted for on a mark-to-market basis and termination of such derivatives
is recognized immediately in the Statement of Income as a component of interest
expense.
NET INCOME PER LIMITED PARTNERSHIP UNIT is computed by dividing the net income
allocated to the Limited Partners by the weighted average units outstanding
(4,625,000).
2. FINANCE LEASES
As of December 31, 1998, the Partnership owns seven aircraft which are all
leased under finance leases. Five of the aircraft are leased to US Airways, Inc.
In 1998, at the end of the initial 12-year term, US Airways, Inc. exercised its
option to renew the lease for an additional three years, which renewal period
was included in the original lease term for accounting under the generally
accepted accounting principals. In 1998, 1997, and 1996, leases with US Airways,
Inc. resulted in finance lease revenues of $6,498,000, $7,058,000, and
$7,559,000, respectively.
The sixth aircraft, wholly owned by the Partnership since January 31, 1997 when
it purchased USL Capital's 50% interest in this aircraft for $5.7 million, is
leased to Trans World Airlines (TWA) under a finance lease expiring in 2002. In
1998, 1997, and 1996 this lease with TWA, resulted in finance lease income of
$1,432,000, $1,463,000, and $697,000, respectively.
The seventh aircraft is leased to Federal Express Corporation (FedEx) under a
13-year finance lease which expires in 2006. In 1998, 1997, and 1996 this lease
with FedEx resulted in finance lease income of $470,000, $507,000, and $544,000,
respectively.
The finance leases at December 31, 1998 and 1997, are summarized as follows (in
thousands):
A-8
<PAGE> 41
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Receivable in installments $ 50,180 $ 65,727
Residual valuation 45,500 45,500
Unearned lease income (20,237) (28,638)
-------- --------
NET INVESTMENT $ 75,443 $ 82,590
======== ========
</TABLE>
Residual valuation, which is reviewed annually, represents the estimated amount
to be received from the disposition of aircraft after lease termination. If
necessary, residual adjustments are made which result in an immediate charge to
earnings and/or a reduction in earnings over the remaining term of the lease.
Finance lease receivables at December 31, 1998 are due in installments of
$15,548,000 annually through 2000, $12,589,000 in 2001, $1,710,000 in 2002,
$1,310,000 in 2003, and $3,274,000 thereafter.
3. OPERATING LEASES
At December 31, 1998, the Partnership did not own any aircraft subject to an
operating lease. The last aircraft that was subject to an operating lease was
sold in September 1997.
4. LONG-TERM NOTES PAYABLE
As of December 31, 1998 and 1997 long-term notes payable included the following:
An 8.75% non-recourse note payable to a bank collateralized by three
aircraft leased to US Airways, Inc. This note was paid in full in
1998. At December 31, 1997 the note's outstanding balance was
$3,589,000.
A 7.4% non-recourse loan facility collateralized by the aircraft
leased to FedEx, due in semi-annual installments of $451,000 through
April 2006. At December 31, 1998 and 1997, $5,098,000 and
$5,589,000, were outstanding, respectively.
A 9.35% non-recourse loan facility collateralized by the aircraft
leased to TWA, due in monthly installments of $150,000 through March
2002. At December 31, 1998 and 1997, $5,150,000 and $8,189,000, were
outstanding, respectively. During 1998, the Partnership renegotiated
the terms of the 9.35% loan facility. As part of the re-negotiation,
the Partnership was able to prepay $2.0 million in principal and
reduce the interest rate 50 basis points from 9.85% to 9.35%.
A non-recourse revolving variable rate loan facility, which was
collateralized by one of the aircraft leased to US Airways, Inc. At
December 31, 1998 no balance was outstanding as the loan facility
expired earlier in the year. At December 31, 1997, $1,748,000 was
outstanding. The Partnership held an interest rate swap agreement,
which effectively fixed the interest rate on this non-recourse
facility at 7.36% through the date the debt expired.
A-9
<PAGE> 42
A $7.5 million three-year revolving loan facility obtained in
February 1998. The facility was initially collateralized by one
aircraft on lease to US Airways, Inc., was guaranteed by the
Partnership, and bore an interest rate of three-month Libor plus 225
basis points. In December 1998, this loan facility was expanded by
$5.0 million and the variable interest rate was lowered to 212.50
basis points over the three-month Libor when another plane leased to
US Airways was added as additional collateral. At December 31, 1998,
$4,257,000 was outstanding and approximately $6,500,000 was
available under this facility.
Based upon amounts outstanding at December 31, 1998, the minimum future
principal payments on all outstanding fixed-rate long-term notes payable are due
as follows (in thousands):
<TABLE>
<S> <C>
1999 $2,060
2000 2,093
2001 2,287
2002 1,078
2003 710
Thereafter 2,020
-------
Total Fixed Term Debt 10,248
Revolving Line of Credit
Outstanding at 12/31/98 4,257
-------
TOTAL LONG TERM DEBT $14,505
=======
</TABLE>
5. DERIVATIVE FINANCIAL INSTRUMENTS
Other than the interest rate swap agreement described in note 4, no other
derivative financial instruments were owned in 1998 and 1997.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents carrying amounts and fair values of the
Partnership's financial instruments at December 31, 1998 and 1997. The fair
value of a financial instrument is defined as the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale.
<TABLE>
<CAPTION>
1998 1998
(In thousands) Carrying Amount Fair Value
--------------- ----------
<S> <C> <C>
Long-term notes payable (Note 4) $14,505 $14,523
</TABLE>
A-10
<PAGE> 43
<TABLE>
<CAPTION>
1997 1997
(In thousands) Carrying Amount Fair Value
--------------- ----------
<S> <C> <C>
Long-term notes payable (Note 4) $19,115 $19,026
Long-term debt (Note 5)
Derivatives relating to debt (Note 5)
Interest rate swaps-net pay position $(48) $(48)
</TABLE>
The carrying amounts presented in the table are included in the balance sheet
under the indicated captions.
The following notes summarize the major methods and assumptions used in
estimating the fair values of financial instruments:
LONG-TERM DEBT is estimated by discounting the future cash flows using
rates that are assumed would be charged to the Partnership for debt with
similar terms and remaining maturities.
DERIVATIVES are estimated as the amount that the Partnership would receive
or pay to terminate the agreements at the reporting date, taking into
account current market interest rates and corresponding borrowing spreads.
7. TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES
In accordance with the Agreement of Limited Partnership, the General Partner and
its affiliates receive expense reimbursement, fees and other compensation for
services provided to the Partnership.
Amounts earned by the General Partner and affiliates for the years ended
December 31, 1998, 1997, and 1996, were as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ------
<S> <C> <C> <C>
Management fees $599 $620 $673
Disposition and remarketing fees 52 123 568
Acquisition fees 0 85 0
Reimbursement of other costs 79 79 79
Reimbursement of interest costs 7 5 6
---- ---- ------
TOTAL $737 $912 $1,326
==== ==== ======
</TABLE>
The General Partner was allocated its 1% share of the Partnership net income and
cash distributions. Holding and BALCAP, each a limited partner and an affiliate
of the General Partner, were also allocated their share of income and cash
distributions.
8. FEDERAL INCOME TAX STATUS
The Partnership is considered a publicly traded Partnership ("PTP") under the
Revenue Act of 1987. Under that Act, the Partnership was not subject to federal
income tax as a Partnership until 1998. Effective January 1, 1998, PTP's were
required to choose to retain PTP status and be
A-11
<PAGE> 44
subjected to federal income tax as a corporation or to delist their units
thereby removing themselves from the scope of the PTP rules. Faced with these
alternatives, the Partnership initially recommended that its units be delisted.
In August and October 1997, respectively, federal and California tax laws were
amended to provide PTP's a third alternative. Under these amended laws, PTP's
are allowed to continue to be publicly traded during 1998 and subsequent years
without becoming subject to corporate income tax if they elect to pay a 3.5%
federal tax and a 1% California tax on gross income.
The board of directors of the General Partner unanimously concluded, after
authorization from the unitholders and consideration of a number of factors,
including the 1997 tax law changes and the benefits of liquidity, that is was in
the best interests of the unitholders for the Partnership to remain publicly
traded at that time. Accordingly, in January 1998 the Partnership made an
election to pay the annual 4.5% gross income tax at the Partnership level. Gross
income includes both earned lease finance income ($8,400,000 in 1998) and
receipts in excess of earned finance income ($7,147,000 in 1998) as well as
dispositions from the sale of property.
9. RECONCILIATION TO INCOME TAX METHOD OF ACCOUNTING
The aircraft on lease to US Airways, Inc. were purchased subject to a tax
benefit transfer lease ("TBT") which provided for the transfer of Federal income
tax ownership of these aircraft to a tax lessor until 1991. The transfer was
accomplished by the sale, for tax purposes only, of the aircraft to the tax
lessor for cash and a note and a leaseback of the aircraft for rental payments
which equalled the payments on the note. The rental payments resulted in tax
deductions and the interest was included in taxable income. In 1991, the TBT
lease agreement terminated and the tax attributes transferred under the TBT
lease reverted to the Partnership.
The difference between the method of accounting for income tax reporting and the
method of accounting used in the accompanying financial statements are as
follows (in thousands except per unit amounts):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net income per financial statements: $ 4,874 $ 5,482 $ 8,652
Increases (decreases) resulting from:
3.5% Gross Income Tax - non deductible 544 0 0
Gain on sale of equipment 0 482 777
Lease rents earned less finance lease income 7,147 6,520 5,627
Depreciation and amortization (6,071) (5,557) (6,242)
------------------------------------------
Income per income tax method 6,494 6,927 8,814
Allocable to General Partner (65) (69) (88)
------------------------------------------
TAXABLE INCOME ALLOCABLE TO LIMITED PARTNERS $ 6,429 $ 6,858 $ 8,726
Taxable income (loss) per limited Partnership unit
after giving effect to taxable income allocable
to General Partner (amount based on a unit owned from
October 10, 1986) $ 1.39 $ 1.48 $ 1.89
</TABLE>
A-12
<PAGE> 45
<TABLE>
<S> <C> <C> <C>
Partner's equity per financial statements $ 58,301 $ 61,089 $ 65,042
Cumulative increases (decreases) resulting from:
Gain on sale of equipment 0 482 777
Lease rents less earned finance lease income 47,467 40,420 33,900
Deferred underwriting discounts and commissions
and organization costs 5,361 5,351 5,351
Accumulated depreciation and amortization (61,681) (56,779) (51,222)
TBT interest income less TBT rental expense (54,030) (54,030) (54,030)
------------------------------------------
PARTNERS' EQUITY PER INCOME TAX METHOD $ (4,580) $ (3,467) $ (182)
</TABLE>
10. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
ended December 31, 1998 and 1997 (in thousands, except per unit amounts):
<TABLE>
<CAPTION>
1998 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
- ---- -------- ------- -------- -------
<S> <C> <C> <C> <C>
Total Revenues $2,170 $2,122 $2,079 $2,029
Net Income $1,296 $1,190 $1,205 $1,183
Net Income Per Limited Partnership Unit $0.28 $0.25 $0.26 $0.25
Unit Trading Data:
Unit Prices (high-low) on NYSE $14 1/2-$12 5/8 $14-$12 1/2 13 7/16-$12 1/2 $13 3/8-$12 3/8
Unit Trading Volumes on NYSE 343 303 302 281
</TABLE>
<TABLE>
<CAPTION>
1997 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
- ---- -------- ------- -------- -------
<S> <C> <C> <C> <C>
Total Revenues $2,358 $2,354 $2,679 $2,212
Net Income $1,167 $1,341 $1,630 $1,344
Net Income Per Limited Partnership Unit $0.25 $0.28 $0.35 $0.29
Unit Trading Data:
Unit Prices (high-low) on NYSE $17 5/8-$10 $12 1/2-$10 1/4 12 1/16-$9 15/16 $13 11/16-$11 1/4
Unit Trading Volumes on NYSE 1,104 757 993 855
</TABLE>
A-13
<PAGE> 46
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.51 Loan agreement secured by two aircraft leased to US Airways
aircraft dated as of December 22, 1997, amended and restated
as of December 15, 1998 between Meridian Trust Company, as
Trustee, as Borrower and Credit Lyonnais/PK AIRFINANCE, as
Lender.
27. Financial Data Schedule.
</TABLE>
A-14
<PAGE> 1
EXHIBIT 10.51(4)
AMENDED AND RESTATED
SECURED LOAN AGREEMENT
dated as of December 22, 1997
amended and restated as of December 15, 1998
between
MERIDIAN TRUST COMPANY,
not in its individual capacity except as expressly set forth in
this Secured Loan Agreement but as owner trustee
Borrower
THE FINANCIAL INSTITUTIONS SIGNATORY TO THIS SECURED LOAN AGREEMENT
Lenders
- and -
CREDIT LYONNAIS/PK AIRFINANCE, NEW YORK BRANCH
Agent
Two McDonnell Douglas Model DC-9-81 Aircraft
Manufacturer's Serial Nos. 48038 and 48039
U.S. Registration Marks N806US and N807US
FELTMAN, KARESH, MAJOR & FARBMAN,
Limited Liability Partnership
Carnegie Hall Tower
152 West 57th Street
New York, New York 10019
Transaction No. USA71
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. DEFINITIONS; INTERPRETATION.......................................1
1.1 Definitions....................................................1
1.2 Security Agreement Definitions.................................7
1.3 Interpretation.................................................7
SECTION 2. LOAN, CLOSING AND BORROWINGS......................................7
2.1 Funding of Commitments.........................................7
2.2 Borrowing Notice...............................................8
2.3 Notes..........................................................8
2.4 Security Documents.............................................9
2.5 Disbursement of Loan Proceeds..................................9
2.6 Original Closing; Additional Commitment Closing................9
2.7 Limitations on Recourse........................................9
2.8 Extension Period..............................................10
SECTION 3. CONDITIONS PRECEDENT.............................................10
3.1 Conditions Precedent to Closing...............................10
3.2 Conditions Precedent to each Advance..........................14
3.3 Conditions Precedent to Additional Commitment.................14
3.4 Conditions Precedent to Extension Period......................18
3.5 Deficiency Guaranty...........................................19
SECTION 4. REPAYMENT AND PREPAYMENT.........................................20
4.1 Principal.....................................................20
4.2 Interest......................................................20
4.3 Mandatory Prepayments.........................................21
4.4 Voluntary Termination of Commitments..........................21
4.5 Voluntary Prepayments.........................................21
4.6 Payments under this Agreement.................................22
4.7 Application of Payments.......................................25
SECTION 5. PAYMENTS.........................................................25
5.1 Place and Manner of Payment...................................25
5.2 Payments on Banking Day.......................................26
5.3 No Offset.....................................................26
SECTION 6. COMPENSATION FOR ADDITIONAL COSTS; INDEMNITIES...................26
6.1 Compensation for Re-employment of Funds.......................26
6.2 Force Majeure.................................................26
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
6.3 Illegality....................................................27
6.4 Additional Funding Costs......................................27
6.5 General Tax Indemnity.........................................28
6.6 Mitigation....................................................29
6.7 General Indemnity.............................................30
SECTION 7. BORROWER'S REPRESENTATIONS AND WARRANTIES........................30
7.1 Organization; Power...........................................30
7.2 Citizenship...................................................30
7.3 Trust Authority...............................................30
7.4 Consents......................................................31
7.5 Enforceable Agreement.........................................31
7.6 Compliance with Applicable Law................................31
7.7 Litigation....................................................31
7.8 No Taxes......................................................31
7.9 No Stamp Taxes................................................31
7.10 Title to Collateral...........................................32
7.11 No Liens......................................................32
7.12 No Default....................................................32
7.13 Material Disclosure...........................................32
7.14 Principal Place of Business...................................32
7.15 Trade Names...................................................32
7.16 No Duty to Investigate........................................33
7.17 Trust Agreement...............................................33
7.18 Transaction Documents.........................................33
SECTION 8 TRUST COMPANY'S REPRESENTATIONS AND WARRANTIES...................33
8.1 Organization; Power...........................................33
8.2 Citizenship; Permits..........................................33
8.3 Corporate Authority...........................................34
8.4 Consents......................................................34
8.5 Enforceable Agreement.........................................34
8.6 Compliance with Applicable Law................................34
8.7 Principal Place of Business...................................34
8.8 No Duty to Investigate........................................34
8.9 Trust Agreement...............................................35
SECTION 9. GENERAL COVENANTS OF BORROWER....................................35
9.1 Notice of Default.............................................35
9.2 Preservation of Trust Existence...............................35
9.3 Obtain Approvals..............................................35
9.4 Inspections...................................................35
9.5 Taxes.........................................................35
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
9.6 Notice of Litigation..........................................36
9.7 Further Assurances............................................36
9.8 Negative Pledge...............................................36
9.9 Additional Indebtedness.......................................36
SECTION 10. COVENANTS RELATING TO EQUIPMENT..................................36
10.1 Registration of Each Airframe; No Sale........................36
10.2 Recording.....................................................36
10.3 Information...................................................37
10.4 Inspection....................................................37
10.5 Transfers of Possession.......................................37
10.6 Insurances....................................................37
SECTION 11. EVENTS OF DEFAULT................................................38
11.1 Events of Default.............................................38
11.2 Acceleration..................................................40
11.3 Effect of Bankruptcy Stay.....................................41
SECTION 12. FEES AND EXPENSES................................................41
12.1 Transaction Expenses..........................................41
12.2 Up-front Fee..................................................42
12.3 Credit Approval Fee...........................................42
12.4 Commitment Termination Fee....................................42
12.5 Commitment Fee................................................43
SECTION 13. AGENT............................................................43
13.1 Appointment, Powers and Immunities............................43
13.2 Reliance by Agent.............................................44
13.3 Events of Default.............................................44
13.4 Indemnification of Agent......................................44
13.5 Non-Reliance on Agent and other the Lenders...................44
13.6 Failure to Act................................................45
13.7 Resignation or Removal of Agent...............................45
SECTION 14. CERTAIN MATTERS CONCERNING THE LENDERS...........................45
14.1 Pro Rata Treatment Among the Lenders..........................45
14.2 Sharing of Collateral and Payments............................46
14.3 Several Obligations...........................................46
SECTION 15. REGISTRATION AND TRANSFER OF NOTES...............................46
15.1 Registration, Transfer and Exchange of Notes..................46
15.2 Mutilated, Destroyed, Lost or Stolen Notes....................46
15.3 Transferability of Note.......................................47
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C>
15.4 Validity of Substituted Note..................................47
15.5 Cancellation of Notes.........................................47
SECTION 16. MISCELLANEOUS PROVISIONS.........................................47
16.1 Modifications, Consents and Waivers; Entire Agreement.........47
16.2 Notices.......................................................48
16.3 Entire Agreement; No Oral Change..............................49
16.4 Governing Law; Jurisdiction and Venue.........................49
16.5 Usury.........................................................50
16.6 No Broker.....................................................50
16.7 Survival......................................................50
16.8 Waiver of Jury................................................50
16.9 Assignment, Successors and Assigns............................51
16.10 Captions and Section Headings; Construction...................51
16.11 Severability..................................................51
16.12 Time of the Essence...........................................51
16.13 Counterparts..................................................52
</TABLE>
-iv-
<PAGE> 6
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Schedule 1 --- Total Commitment
Schedule 1 --- Total Commitment during the Extension Period
EXHIBIT A --- Form of Acceptable Lessee Acknowledgment
EXHIBIT B --- Form of Notice of Assignment
EXHIBIT C --- Form of Confirmation of Guaranty
EXHIBIT D --- Form of Deficiency Guaranty Agreement
EXHIBIT E --- Form of Amended and Restated Note
EXHIBIT F --- Form of Amended and Restated Aircraft
Security Agreement
EXHIBIT G --- Form of Borrowing Notice
</TABLE>
-vii-
<PAGE> 7
AMENDED AND RESTATED
SECURED LOAN AGREEMENT
This AMENDED AND RESTATED SECURED LOAN AGREEMENT, dated as of
December 22, 1997 and amended and restated as of December 15, 1998 (this
"Agreement"), is between Meridian Trust Company, a Pennsylvania trust company
(in its individual capacity, the "Trust Company"), not in its individual
capacity except as expressly set forth in this Agreement but as owner trustee
pursuant to the Trust Agreement ("Borrower"), the financial institution or
institutions that have executed a signature page to this Agreement (collectively
or individually, the "Original Lenders") and Credit Lyonnais/PK AIRFINANCE, New
York Branch, as agent for the Lenders (in such capacity, "Agent").
RECITALS:
(1) Pursuant to the Secured Loan Agreement, dated as of
December 22, 1997 (the "Original Loan Agreement"), between Borrower, the Lenders
and Agent, the Lenders have made available to Borrower revolving loans in
connection with the financing of one McDonnell Douglas Model DC-9-81 aircraft
and other Equipment.
(2) Borrower, the Lenders and Agent desire to amend and
restate the Original Loan Agreement in order to increase the amount of the Total
Commitment and to amend certain other terms of the Original Loan Agreement.
(3) This Agreement sets out the terms and conditions on which
the Lenders will make revolving loans available to Borrower in a maximum amount
from time to time of the increased Total Commitment.
NOW THEREFORE, in consideration of the foregoing and for other
good and valuable consideration whose receipt and sufficiency are acknowledged,
Borrower, the Lenders and Agent agree as follows:
SECTION 1. DEFINITIONS; INTERPRETATION
1.1 Definitions.1 Definitions. In this Agreement the following
words and expressions, except where the context otherwise requires, shall have
the following meanings:
"Acceptable Lessee Acknowledgment" means an Acknowledgment
executed and delivered by Lessee to Agent in the form attached as Exhibit A or
in such other form as is reasonably acceptable to Agent and the Lenders.
-1-
<PAGE> 8
"Additional Commitment" means the amount of $5,000,000.
"Additional Commitment Closing" has the meaning set forth in
Section 2.6.
"Additional Commitment Closing Date" means any Banking Day not
later than December 31, 1998 selected by Borrower by giving Agent and the
Lenders at least two Banking Days notice on or after the date of this Agreement
in accordance with the provisions of Section 2.6.
"Additional Commitment Documents" means, collectively, this
Agreement, the Notes, the Security Agreement, the Confirmation of Guaranty, the
Additional Notice of Assignment and every other agreement, instrument or
certificate to which Borrower, Trust Company or Guarantor is a party or
delivered by Borrower, Trust Company or Guarantor to Agent or the Lenders in
connection with the funding by the Lenders of the Additional Commitment or the
transactions contemplated by the Security Agreement or this Agreement, including
the Deficiency Guaranty if entered into pursuant to Section 3.5.
"Additional Notice of Assignment" means a Notice of
Assignment, dated on or before the Additional Commitment Closing Date, of
Borrower in the form attached as Exhibit B issued to Lessee.
"Advances" means loans from the Lenders to Borrower in
accordance with the terms of this Agreement.
"Affiliate" means with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under common control with
such Person.
"Banking Day" means (i) in the context of a Borrowing Date, a
day on which foreign exchange markets in London, England and in New York City,
New York are open for the transaction of the business required for the Lenders
to fund and make Advances on such date, and (ii) in the context of any date on
which a payment of interest or principal is due under the Financing Documents, a
day on which federally chartered banking institutions in New York City, New York
are open for the transaction of business.
"Base Rate" means for each Payment Period the USD-LIBOR-BBA
rate for three-months periods that appears on Telerate Page 3750 at or about
11:00 a.m. London time on the second Banking Day preceding the first day of such
Payment Period. If no quotation appears on Telerate Page 3750, the "Base Rate"
shall be the rate per annum determined by Agent to be the average (rounded to
the fourth decimal place) of the rates at which Dollar deposits are offered for
three-months periods by the Reference Banks to banks in the London Interbank
Market at or about 11:00 a.m. London time on such date. If no such deposits are
offered to Agent and, as a result, Agent is unable to determine the "Base Rate",
then Borrower and the Lenders shall in good faith attempt to agree upon a new
-2-
<PAGE> 9
basis for determining the "Base Rate" and, in the event Borrower and the Lenders
are unable to agree upon a substitute basis, then the "Base Rate" shall equal,
for each Lender, such Lender's actual cost of funds.
"Borrowing Date" has the meaning given such term in Section
2.2(a).
"Borrowing Notice" has the meaning given such term in Section
2.2(a).
"Closing Date" means February 26, 1997.
"Commitment" means, for each Lender, the aggregate amount of
Advances to be made available to Borrower by such Lender from time to time
during the Commitment Period and determined at any time by such Lender's
Commitment Percentage of the amount set forth on Schedule 1 at such time, or
during the Extension Period, if any, Schedule 2.
"Commitment Percentage" means for each Lender the percentage
that the principal amount of such Lender's Advances shall bear to the principal
amount of all Advances, as agreed by and set forth for such Lender on its
signature page to this Agreement and on its Note or Notes.
"Commitment Period" means the period commencing on the Closing
Date and ending on the earliest of (i) the Maturity Date or, subject to the
provision of Section 2.8, the Extended Maturity Date, (ii) the date on which all
Commitments for the Loan are terminated in accordance with Section 11.2, or
(iii) the date on which the Loan is prepaid in full and the Commitments for the
Loan are terminated under the provisions of Section 4.3 or 4.4 or any other
provision of this Agreement.
"Confirmation of Guaranty" means the Confirmation, dated the
Additional Commitment Closing Date, by Guarantor of its obligations under the
Guaranty in the form attached as Exhibit C.
"Debt" means , at any date, with respect to any Person, (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 to pay the deferred purchase price of property or
services, (iv) all obligations of such Person under leases which are capitalized
for financial reporting purposes, (v) all indebtedness secured by a Lien on any
asset of such Person, whether or not such Person has assumed or is otherwise
liable for such indebtedness, and (vi) all Debt of others guaranteed in any
manner directly or indirectly by such Person (or in effect guaranteed indirectly
by such Person through an agreement intended to have the effect of enabling an
obligor other than such Person to satisfy Debt or to assure the holder of Debt
of such obligor against loss, whether through an obligation of such Person to
purchase property or services or to maintain such obligor's financial condition
or otherwise); provided, that notwithstanding the foregoing, Debt shall not in
any event include any indebtedness or obligations which are non-recourse to such
Person.
-3-
<PAGE> 10
"Default" means an Event of Default or an event that, with the
giving of notice, the passage of time or both, would constitute an Event of
Default.
"Deficiency Guaranty" means a Deficiency Guaranty Agreement
substantially in the form attached as Exhibit D to be entered into between
Guarantor, Agent and the Lenders pursuant to Section 3.5.
"Dollars" or "$" means the legal currency at any relevant time
of the United States of America.
"Event of Default" has the meaning given such term in Section
11.1.
"Exercise Date" has the meaning set forth in Section 2.8.
"Extended Maturity Date" means September 30, 2002.
"Extension Period" has the meaning set forth in Section 2.8.
"Financing Documents" means, collectively, (i) prior to the
Additional Commitment Closing Date, the Initial Financing Documents; and (ii) on
and after the Additional Commitment Closing Date, the Initial Financing
Documents to the extent that such Initial Financing Documents have not been
amended and restated on the Additional Commitment Closing Date, and the
Additional Commitment Documents.
"Guaranty" means the Guaranty Agreement, dated February 26,
1998, between Guarantor, Agent and the Lenders.
"Indemnified Taxes" has the meaning given to such term in
Section 6.5(a).
"Indemnitees" means, collectively, Agent, each Lender, their
respective successors and assigns and their respective officers, directors,
agents, employees and shareholders.
"Initial Collateral" means the "Collateral" as defined in the
Original Security Agreement.
"Initial Financing Documents" means, collectively, the
Original Loan Agreement, the Original Notes, the Original Security Agreement,
the Guaranty, the Notice of Assignment and every other agreement, instrument or
certificate to which Borrower, Trust Company or Guarantor is a party or
delivered by Borrower, the Trust Company or Guarantor to Agent or any Original
Lender in connection with the transactions contemplated by the Original Loan
Agreement or the Original Security Agreement.
-4-
<PAGE> 11
"Initial Transaction Documents" means, collectively, the
Original Lease, the Purchase Agreement and the Upgrade Kit Agreement.
"Insurances" means the insurance coverage and policies
required by Section 10.9.
"Interest Rate" has the meaning set forth in Section 4.2(b).
"Lease Default" means a "Default" (as such term is defined in
each Lease, as applicable).
"Lease Event of Default" means an "Event of Default" (as such
term is defined in each Lease, as applicable).
"Lenders" means the Original Lenders as well as their
successors and assigns in accordance with Section 16.9.
"Loan" means, at any time, the aggregate principal amount of
all Advances outstanding at such time and due the Lenders under this Agreement
and the Notes.
"Majority Lenders" means, as of any date of determination, the
Lenders holding more than 66_% of the aggregate principal amount of the Notes
outstanding on such date.
"Margin" means 2.125%.
"Maturity Date" means September 30, 2001.
"Notes" means the Amended and Restated Secured Promissory
Notes, dated the Additional Commitment Closing Date, of Borrower in the form
attached as Exhibit E issued to each of the Lenders and in the principal amount
of and evidencing the Commitment of such Lender on the Additional Commitment
Closing Date.
"Notice of Assignment" means a Notice of Assignment, dated
February 26, 1998, of Borrower issued to Lessee with respect to Aircraft N807US.
"Original Notes" means the Secured Promissory Notes, dated the
Closing Date, of Borrower issued to each of the Original Lenders and evidencing
the Commitment of each Lender on the Closing Date.
"Original Security Agreement" has the meaning set forth in the
Security Agreement.
-5-
<PAGE> 12
"Overdue Rate" means at any time an annual rate of interest
equal to the "base rate" as then announced by Bank of America National Trust and
Savings Association at its principal lending office in New York, New York plus
2.00%.
"Payment Date" means the last day of March, June, September
and December of each year during the Commitment Period, beginning March 31,
1998; provided that if such day is not a Banking Day, the "Payment Date" shall
be on the immediately preceding Banking Day.
"Payment Period" means the period commencing on the Closing
Date or the day after a Payment Date and ending on the next succeeding Payment
Date.
"Prepayment Date" has the meaning given such term in Section
4.5.
"Prepayment Notice" has the meaning given such term in Section
4.5.
"Reference Banks" means Barclays Bank PLC, National
Westminster Bank PLC and Bank of America National Trust and Savings Association.
"Security Agreement" means the Amended and Restated Aircraft
Security Agreement, dated February 26, 1998 and amended and restated on the
Additional Commitment Closing Date, between Borrower and Agent in the form
attached as Exhibit F pursuant to which, among other things, Borrower grants to
Agent a security interest in the Equipment and the Leases for the benefit of the
Lenders.
"Special FAA Counsel" means Daugherty, Fowler, Peregrin &
Haught, P.C.
"Subsidiary" means, as to Borrower, any Person in which
Borrower or one or more of its Subsidiaries own sufficient equity or voting
interests to enable it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity, and any partnership or joint venture if more
than 50% interest in the profits or capital thereof is owned by Borrower or one
or more of its Subsidiaries (unless such partnership can and does ordinarily
take major business actions without the prior approval of Borrower or one or
more of its Subsidiaries).
"Taxes" means any present or future income, stamp or other
taxes, levies, imposts, duties, charges, fees, deductions, withholdings,
restrictions or conditions of any nature whatsoever now or hereafter imposed,
levied, collected, withheld or assessed by any Government Body, or any interest
or penalties incurred in connection with such assessments.
"Telerate Page 3750" means the display page so designated on
the Dow Jones Telerate Service (or such other page as may replace that page on
that service, or such other service as Borrower and Majority Lenders may agree
to be nominated as the information vendor) for the purpose of displaying London
Interbank Offered Rates of leading reference banks.
-6-
<PAGE> 13
"Total Commitment" means the aggregate Commitments of all the
Lenders as in effect from time to time as set forth on Schedule 1 or, during the
Extension Period, Schedule 2.
"Transaction Documents" means, collectively, (i) prior to the
Additional Commitment Closing Date, the Initial Transaction Documents; and (ii)
on and after the Additional Commitment Closing Date, the Initial Transaction
Documents, Lease N806US and the Purchase Agreement.
"Unused Commitment" means, at any time, the difference between
the amount of the Total Commitment as in effect on such date and the then
aggregate outstanding principal amount of the Loan.
1.2 Security Agreement Definitions.2 Security Agreement
Definitions. Capitalized terms used but not defined in this Agreement have the
meaning given to such terms in the Security Agreement.
1.3 Interpretation.3 Interpretation. (a) All terms used in
Article 9 of the UCC and not specifically defined in this Agreement are used in
this Agreement as defined in Article 9 of the UCC.
(b) Unless otherwise indicated, any law, statute, treaty or
ordinance defined or referred to in this Agreement means or refers to such law,
statute, treaty or ordinance as amended from time to time, any successor or
replacement law, statute, treaty or ordinance as amended from time to time, and
the rules and regulations promulgated from time to time under such law, statute,
treaty or ordinance.
(c) Unless otherwise indicated, any agreement defined or
referred to in this Agreement means or refers to such agreement as amended,
modified or supplemented from time to time or as the terms of such agreement are
waived or modified, in each case in accordance with its terms and as permitted
under the Financing Documents.
(d) Terms defined in this Agreement in the singular include
the plural of such terms, and terms defined in this Agreement in the plural
include the singular of such terms.
(e) The term "including", when used in this Agreement, means
"including without limitation" and "including but not limited to".
(f) Unless otherwise indicated, any reference to a specific
"section", "clause", "schedule" or "exhibit" refers to such section, clause,
schedule or exhibit of this Agreement.
SECTION 2. LOAN, CLOSING AND BORROWINGS
-7-
<PAGE> 14
2.1 Funding of Commitments. (a) Subject to the terms and
conditions of this Agreement, each Lender hereby agrees to make Advances to
Borrower during the Commitment Period in an aggregate principal amount at any
one time outstanding up to, but not exceeding, the Commitment of such Lender as
then in effect based on the proportion that such Lender's Commitment as then in
effect bears to the Total Commitment, and in no event may the aggregate
outstanding principal amount of all Advances exceed the Total Commitment then in
effect. Subject to the terms of this Agreement, during the Commitment Period
Borrower may borrow, prepay (as provided in Section 4.5) and reborrow the amount
of the Total Commitment; provided, that Borrower may make no more than two
borrowings pursuant to Section 2.2 and no more than two prepayments pursuant to
Section 4.5 in any Payment Period.
(b) No Lender shall have any obligation in respect of its
Commitment except as expressly set forth in this Agreement, and no Lender shall
have any obligation to lend its Commitment after the Maturity Date or the
Extended Maturity Date, if any.
2.2 Borrowing Notice. (a) Borrower shall give Agent written
notice of each borrowing of Advances by the delivery to Agent of a notice (the
"Borrowing Notice") in the form attached as Exhibit G. Each Borrowing Notice
shall be effective only if received by Agent not later than 1000 hours (London
time) on the date which is two Banking Days before the date of the requested
borrowing. Each such Borrowing Notice shall specify the aggregate amount
(subject to Section 2.1) of Advances to be borrowed and the date of borrowing,
which shall be a Banking Day (the "Borrowing Date").
(b) A scheduled Borrowing Date may be postponed from time to
time for any reason if Borrower gives Agent and the Lenders telefax notice of
such postponement and the date, if any, to which such Borrowing Date has been
postponed, such notice of postponement to be received by Agent and each Lender
no later than 1600 hours (Luxembourg time) on the originally scheduled Borrowing
Date, in which event such newly specified date shall become the scheduled
"Borrowing Date" for purposes of the Borrowing Notice.
(c) In the event any notice of postponement of a Borrowing
Date pursuant to Section 2.2(b) is received by Agent or any Lender after 1000
hours (London time) two Banking Days before the originally scheduled Borrowing
Date, Borrower will compensate the Lenders pursuant to Section 6.1.
(d) Each Borrowing Notice requesting Advances shall include a
representation and warranty by Borrower that (i) the representations and
warranties in Sections 7 and 8 are true and correct on the date of such
Borrowing Notice, (ii) no Default has occurred and is continuing, and (iii) the
Loan shall not, on the date of borrowing and giving effect to the Advances
requested in such Borrowing Notice, exceed the Total Commitment.
-8-
<PAGE> 15
2.3 Notes. The principal of and interest on the Loan shall be
evidenced by the Notes. On the Additional Commitment Closing Date, Borrower
shall execute and deliver to each Lender a Note payable to such Lender in the
aggregate principal amount of such Lender's Commitment on the Additional
Commitment Closing Date. Upon receipt of the Notes, the Original Lenders shall
cancel and return to Borrower the Original Notes delivered to the Original
Lenders on the Closing Date.
2.4 Security Documents. As collateral security for the prompt
and complete payment of Borrower's obligations under the Financing Documents and
the payment of any sum advanced or subsequently advanced or obligation incurred
pursuant to any provision of the Financing Documents, Borrower shall execute and
deliver to Agent the Security Agreement, granting to Agent on behalf of the
Lenders a first priority Lien upon and security interest in the Collateral.
2.5 Disbursement of Loan Proceeds. Not later than noon (New
York City time) on a Borrowing Date, each Lender shall transfer to Agent by wire
transfer or otherwise, but in any event in immediately available funds, the
amount of the Advance to be made by it on such date, and Agent, upon its receipt
of each such amount, shall disburse such amount to Borrower by depositing it in
the following account:
CitiBank, N.A
111 Wall Street
6th Floor
New York, NY 10043
Account No.: 4052-8889
ABA No.: 021 000089
or to such other account of Borrower in the continental United States as
Borrower may designate in writing to Agent by at least 10 Banking Days prior
written notice.
2.6 Original Closing; Additional Commitment Closing. The
closing of the transactions contemplated by the Financing Documents with respect
to the Loans to be made prior to the Additional Commitment Closing Date (the
"Closing") was held, and the documentation required to be delivered pursuant to
Section 3 was delivered, at the offices of Feltman, Karesh, Major & Farbman,
Limited Liability Partnership, 152 West 57th Street, New York, New York 10019
("FKM&F"), on the Closing Date. The closing of the transactions contemplated by
the Additional Commitment Documents with respect to the Additional Commitment
(the "Additional Commitment Closing") shall be held, and any documentation
required to be delivered pursuant to Section 3 shall be delivered, at the
offices of FKM&F, on a Banking Day specified by Borrower in a written notice
given to Agent and each Lender at least two Banking Days in advance, or at such
other time and place as may be agreed between Borrower, Agent and the Lenders.
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<PAGE> 16
2.7 Limitations on Recourse. Notwithstanding anything to the
contrary contained in any Financing Document (other than the Guaranty):
(a) the following obligations of Borrower under this
Agreement, the Note and the other Financing Documents (other than the
Guaranty) are nonrecourse to Borrower and shall be payable only from
the income and proceeds of the Collateral: (i) the obligation to make
payments of principal and interest due on the Loan; (ii) the
performance by Borrower of the obligations and covenants contained in
Sections 6 and 10 of this Agreement; and (iii) the obligation to make
any payment of fees, expenses or other amounts due under the Financing
Documents (other than the Guaranty), except fees, expenses and other
amounts arising as a result of the breach by Borrower or the failure by
Borrower to perform any representation, warranty, covenant, indemnity
or other agreement not covered by the preceding clauses (i) and (ii) of
this Section 2.7(a); and
(b) the Trust Company shall not have any personal
liability (i) to make payments of principal and interest due on the
Loan, or (ii) to make payments of any other amounts payable under the
Financing Documents except to the extent arising from a
misrepresentation or breach of a representation, warranty or covenant
expressly made by the Trust Company in a Financing Document;
provided, that Section 2.7(a) or (b) shall not be construed to limit the
exercise and enforcement of Agent's or any Lender's rights in and remedies with
respect to, (i) the Collateral in accordance with the terms of this Agreement
and the Security Agreement, or (ii) under the Guaranty. Borrower hereby
acknowledges that Agent and the Lenders have expressly reserved all of their
respective legal rights and remedies against the Collateral, including the
right, upon the occurrence and continuation of an Event of Default, to foreclose
upon and to receive the proceeds from the Collateral and otherwise to enforce
any right or remedy against the Collateral under and in accordance with the
terms of this Agreement and the Security Agreement.
2.8 Extension Period. Subject to the satisfaction of the
conditions precedent set forth in Section 3.4, Borrower shall have the right
upon notice to Agent given not less than 90 days prior to the Maturity Date (the
"Exercise Date") to extend the Commitment Period from the Maturity Date to the
Extended Maturity Date (such period, the "Extension Period"). Any such notice
shall be in writing and shall be irrevocable.
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<PAGE> 17
SECTION 3. CONDITIONS PRECEDENT
3.1 Conditions Precedent to Closing. The obligation of each
Lender to make its Commitment available to Borrower on the Closing Date was
subject to the satisfaction (or waiver by Agent and all the Lenders) of each of
the following conditions precedent, all of which took place, occurred or were
delivered to Agent and the Lenders not later than the Closing Date or such
earlier date as provided:
(a) No Change in Applicable Law. As of the Closing Date, no
change shall have occurred after the date of this Agreement in Applicable Law
that, in the reasonable judgment of Agent or any Lender, could make it illegal
for Agent or such Lender to lend all or any part of its Commitment or could
materially adversely affect, restrain or change the transactions contemplated by
the Initial Financing Documents or the operations (current or proposed), assets
or condition (financial or otherwise) of Borrower or Lessee.
(b) No Default; No Event of Loss. Borrower shall have
performed all of its agreements and paid all sums to be performed or paid under
the Initial Financing Documents, including sums payable under Sections 12.1 and
12.2, on or before the Closing Date. No Default shall have occurred and be
continuing, and no Lease Default shall have occurred and be continuing. No Event
of Loss and no event that, with the passage of time or the making of any
determination, might constitute an Event of Loss shall have occurred with
respect to Airframe N806US or Engine N806US.
(c) Representations and Warranties. The representations and
warranties of Borrower, the Trust Company and Guarantor contained in the Initial
Financing Documents shall be true and correct as of the Closing Date as if made
on and as of the Closing Date.
(d) Financing Documents. Borrower, the Trust Company and
Guarantor shall have duly authorized, executed and delivered to Agent the
Initial Financing Documents, including all UCC-1 financing statements, notices
and assignments or other similar documents deemed necessary by Agent to create,
perfect, maintain and preserve the Liens in and to Airframe N806US, Engine
N806US, Technical Records N806US and the right, title and interest of Borrower
in the Initial Transaction Documents, and such Initial Financing Documents shall
be in full force and effect. Borrower shall also have delivered to Agent such
documents as Agent may require in connection with the termination of any and all
Liens, claims or encumbrances affecting the Initial Collateral, other than
Permitted Liens. All Initial Financing Documents and such financing statements,
assignments, releases or other similar documents shall be suitable for filing in
all public offices deemed necessary by Agent.
(e) UCC Financing Statements. On or before the Closing Date,
Uniform Commercial Code financing statements and any other necessary filings and
recordings reflecting the Liens in the Initial Collateral created by the
Original Security Agreement shall have been duly executed and delivered by
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<PAGE> 18
Borrower , as debtor, to Agent, as secured party, and shall have been duly filed
in all places that, and all such other actions shall have been taken that, in
the opinion of Agent or any Lender are necessary or appropriate to perfect such
Liens, and Agent shall have received satisfactory evidence of the occurrence of
all such filings and other actions. On or before the Closing Date, precautionary
Uniform Commercial Code financing statements reflecting the interests of
Borrower and Lessee in the Initial Collateral under Lease N807US shall have been
duly assigned to Agent, as Assignee, and amendments to such effect shall have
been duly filed in all places that, and all such other actions shall have been
taken that, in the opinion of Agent or any Lender are necessary or appropriate.
(f) Borrower's Organization and Authorization. On or before
the Closing Date, Borrower shall deliver to Agent (i) copies of the Trust
Agreement, certified by a corporate trust officer of the Trust Company, (ii)
copies of all documents evidencing all trust action taken by Borrower to
authorize the execution and delivery of the Initial Financing Documents to which
Borrower is a party and all other documents required or contemplated under the
Initial Financing Documents, as well as the authorization by Borrower of the
Loan, the incurrence of the obligations relating to the Loan and the performance
of all actions required or contemplated in connection with the Loan, and (iii)
copies of all other documents that Agent may reasonably request relating to the
trust authority for the execution, delivery and performance of, and the validity
of, the Initial Financing Documents to which borrower is a party, all in form
and substance satisfactory to Agent.
(g) Trust Company's Organization and Authorization. On or
before the Closing Date, the Trust Company shall deliver to Agent (i) copies of
all charter documents and of the By-Laws of the Trust Company, certified by the
Secretary or a duly authorized officer of the Trust Company, (ii) copies of all
documents (including if required resolutions of the Board of Directors of the
Trust Company) evidencing all corporate action taken by the Trust Company to
authorize the execution and delivery of the Initial Financing Documents to which
the Trust Company is a party and all other documents required or contemplated
under the Initial Financing Documents, and (iii) copies of all other documents
that Agent may reasonably request relating to the corporate authority for the
execution, delivery and performance of, and the validity of, the Initial
Financing Documents to which the Trust Company is a party, all in form and
substance satisfactory to Agent.
(h) Guarantor's Organization and Authorization. On or before
the Closing Date, Guarantor shall deliver to Agent (i) copies of the Certificate
of Limited Partnership and the Limited Partnership Agreement of Guarantor,
certified by the Secretary or a duly authorized officer of the General Partner
of Guarantor, (ii) copies of all documents evidencing all partnership action
taken by Guarantor to authorize the execution and delivery of the Initial
Financing Documents to which Guarantor is a party and all other documents
required or contemplated under the Initial Financing Documents, and (iii) copies
of all other documents that Agent may reasonably request relating to the
partnership authority for the execution, delivery and performance of, and the
validity of, the Initial Financing Documents to which Guarantor is a party, all
in form and substance satisfactory to Agent. On the Closing Date, Agent shall
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<PAGE> 19
have received evidence satisfactory to it of the existence and good standing of
Guarantor as of a date not earlier than three Banking Days before the Closing
Date.
(i) Insurance. On or before the Closing Date, Borrower shall
cause Lessee to deliver to Agent (a) a certificate of Lessee's independent
insurance broker in form satisfactory to Agent and the Lenders certifying that
the insurance required to be maintained pursuant to the Lease and this Agreement
is in full force and effect as of the Closing Date, and (b) a letter of
undertaking from Lessee's independent insurance broker confirming certain
undertakings, also in form satisfactory to Agent and the Lenders.
(j) Opinions of Counsel. On the Closing Date, Agent shall have
received written opinions, dated the Closing Date, addressed to Agent and each
Lender and in form satisfactory to Agent and each Lender, from (i) Orrick,
Herrington & Sutcliffe LLP, counsel for Borrower and Guarantor, and (ii) Special
FAA Counsel. Each such opinion shall cover such matters relating to the
transactions contemplated by the Financing Documents as Agent or any Lender may
reasonably request.
(k) Title; Registration; Airworthiness. On the Closing Date,
the following statements shall be true, and Agent shall have received evidence
satisfactory to Agent to the effect that:
(i) Borrower has good and marketable title to
Aircraft N807US free and clear of all Liens except Permitted
Liens;
(ii) Technical Records N807US in which Borrower has
an interest are free and clear of all Liens except Permitted
Liens;
(iii) Airframe N807US is duly registered in the name
of Borrower with the FAA pursuant to the Aviation Law;
(iv) the Original Security Agreement has been duly
filed for recordation with the FAA pursuant to the Aviation
Law; and
(v) Aircraft N807US has been duly certificated by the
FAA as to type and airworthiness.
(l) Inspection of Aircraft N807US. Borrower, at its cost and
expense, shall have provided such documentary evidence as Agent and the Lenders
may reasonably request regarding the Aircraft N807US and Technical Records
N807US.
(m) Notice of Assignment. Borrower shall have signed the
Notice of Assignment and shall have sent the Notice of Assignment to Lessee by
postage paid registered mail, return receipt requested.
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<PAGE> 20
(n) Lessee's Financial Condition. No event or series of events
shall have occurred since December 31, 1996 that, in the reasonable opinion of
the Lenders, could be expected to have a material adverse effect on the
financial condition or operations of the Lessee or on the ability of the Lessee
to comply with its obligations under the Transaction Documents.
(o) Additional Documents. Agent shall have received copies of
any additional instruments, certificates and other evidence as Agent may
reasonably request with respect to the transactions contemplated by the Initial
Financing Documents, in form and substance satisfactory to Agent, including the
following:
(i) a certificate from a corporate trust officer of
the Trust Company certifying as to the signing authority of
the officers of Borrower and the Trust Company that signed
each Initial Financing Document and all documents and
instruments executed in connection with the Initial Financing
Documents;
(ii) a certificate from Borrower certifying as to the
matters set forth in Sections 3.1(b) and (c) with respect to
Borrower;
(iii) a certificate from an officer of the Trust
Company certifying as to the matters set forth in Section
3.1(c) with respect to the Trust Company;
(iv) a certificate from an officer of the General
Partner of Guarantor certifying as to the signing authority of
the officers of such corporation that signed each Initial
Financing Document on behalf of Guarantor and all documents
and instruments executed in connection with the Initial
Financing Documents;
(v) a certificate from an officer of the General
Partner of Guarantor certifying as to the matters set forth in
Section 3.1(c) with respect to Guarantor; and
(vi) a letter from Borrower addressed to Lessee,
signed but undated, directing Lessee to make all payments of
"Rent" (as such term is defined in the Lease) to Agent on
behalf of the Lenders.
(p) Fees. On or before the Closing Date, Borrower shall pay to
each Lender the Up-front Fee provided by Section 12.2(i) for such Lender.
3.2 Conditions Precedent to each Advance. The obligation of
each Lender to make an Advance to Borrower on a Borrowing Date is subject to the
satisfaction (or waiver by Agent and Majority Lenders) of each of the following
conditions precedent, all of which shall take place, occur or be delivered to
Agent not later than such Borrowing Date or such earlier date as provided:
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<PAGE> 21
(a) No Change in Applicable Law. As of such Borrowing Date, no
change shall have occurred after the date of this Agreement in Applicable Law
that, in the reasonable judgment of Agent or any Lender, could make it illegal
for Agent or such Lender to lend all or any part of its Commitment.
(b) No Default; No Event of Loss. No Default shall have
occurred and be continuing, and no Lease Default shall have occurred and be
continuing. No Event of Loss and no event that, with the passage of time or the
making of any determination, might constitute an Event of Loss shall have
occurred with respect to either Airframe.
(c) Representations and Warranties. The representations and
warranties of Borrower, the Trust Company and Guarantor contained in the
Financing Documents shall be true and correct as of such Borrowing Date as if
made on and as of such Borrowing Date.
3.3 Conditions Precedent to Additional Commitment. The
obligation of each Lender to make its portion of the Additional Commitment
available to Borrower on the Additional Commitment Closing Date is subject to
the satisfaction (or waiver by Agent and all the Lenders) of each of the
following conditions precedent, all of which shall take place, occur or be
delivered to Agent and the Lenders not later than the Additional Commitment
Closing Date or such earlier date as provided:
(a) No Change in Applicable Law. As of the Additional
Commitment Closing Date, no change shall have occurred after the date of this
Agreement in Applicable Law that, in the reasonable judgment of Agent or any
Lender, could make it illegal for Agent or such Lender to lend all or any part
of its Additional Commitment or could materially adversely affect, restrain or
change the transactions contemplated by the Additional Commitment Documents or
the operations (current or proposed), assets or condition (financial or
otherwise) of Borrower or Lessee.
(b) No Default; No Event of Loss. Borrower shall have
performed all of its agreements and paid all sums to be performed or paid under
the Additional Commitment Documents, including sums payable under Sections 12.1
and 12.2, on or before the Additional Commitment Closing Date. No Default shall
have occurred and be continuing, and no Lease Default shall have occurred and be
continuing. No Event of Loss and no event that, with the passage of time or the
making of any determination, might constitute an Event of Loss shall have
occurred with respect to either Airframe N806US or any Engine N806US.
(c) Representations and Warranties. The representations and
warranties of Borrower, the Trust Company and Guarantor contained in the
Financing Documents shall be true and correct as of the Additional Commitment
Closing Date as if made on and as of the Additional Commitment Closing Date.
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<PAGE> 22
(d) Additional Commitment Documents. Borrower, the Trust
Company and Guarantor shall have duly authorized, executed and delivered to
Agent the Additional Commitment Documents, including all UCC-1 financing
statements, UCC-3 amendment statements, notices and assignments or other similar
documents deemed necessary by Agent to create, perfect, maintain and preserve
the Liens in and to the Equipment, the Technical Records and the right, title
and interest of Borrower in the Transaction Documents, and such Additional
Commitment Documents shall be in full force and effect. Borrower shall also have
delivered to Agent such documents as Agent may require in connection with the
termination of any and all Liens, claims or encumbrances affecting the
Collateral, other than Permitted Liens. All Additional Commitment Documents and
such financing statements, assignments, releases or other similar documents
shall be suitable for filing in all public offices deemed necessary by Agent.
(e) UCC Amendment Statements. On or before the Additional
Commitment Closing Date, Uniform Commercial Code amendment statements and any
other necessary filings and recordings reflecting the Liens in the Collateral
created by the Security Agreement shall have been duly executed and delivered by
Borrower, as debtor, to Agent, as secured party, and shall have been duly filed
in all places that, and all such other actions shall have been taken that, in
the opinion of Agent or any Lender are necessary or appropriate to perfect such
Liens, and Agent shall have received satisfactory evidence of the occurrence of
all such filings and other actions. On or before the Additional Commitment
Closing Date, precautionary Uniform Commercial Code financing statements
reflecting the interests of Borrower and Lessee in the Collateral under Lease
N806US shall have been duly assigned to Agent, as Assignee, and amendments to
such effect shall have been duly filed in all places that, and all such other
actions shall have been taken that, in the opinion of Agent or any Lender are
necessary or appropriate.
(f) Borrower's Organization and Authorization. On or before
the Additional Commitment Closing Date, Borrower shall deliver to Agent (i)
copies of all documents evidencing all trust action taken by Borrower to
authorize the execution and delivery of the Additional Commitment Documents and
all other documents required or contemplated under the Additional Commitment
Documents, as well as the authorization by Borrower of the Loans to be made
under the Additional Commitment, the incurrence of the obligations relating to
the Loans to be made under the Additional Commitment and the performance of all
actions required or contemplated in connection with the Additional Commitment,
and (ii) copies of all other documents that Agent may reasonably request
relating to the trust authority for the execution, delivery and performance of,
and the validity of, the Additional Commitment Documents, all in form and
substance satisfactory to Agent.
(g) Trust Company's Organization and Authorization. On or
before the Additional Commitment Closing Date, the Trust Company shall deliver
to Agent (i) copies of all documents (including if required resolutions of the
Board of Directors of the Trust Company) evidencing all corporate action taken
by the Trust Company to authorize the execution and delivery of the Additional
Commitment Documents to which the Trust Company is a party and all other
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<PAGE> 23
documents required or contemplated under the Additional Commitment Documents,
and (ii) copies of all other documents that Agent may reasonably request
relating to the corporate authority for the execution, delivery and performance
of, and the validity of, the Additional Commitment Documents to which the Trust
Company is a party, all in form and substance satisfactory to Agent.
(h) Guarantor's Organization and Authorization. On or before
the Additional Commitment Closing Date, Guarantor shall deliver to Agent (i)
copies of all documents evidencing all partnership action taken by Guarantor to
authorize the execution and delivery of the Additional Commitment Documents to
which Guarantor is a party and all other documents required or contemplated
under the Additional Commitment Documents, and (ii) copies of all other
documents that Agent may reasonably request relating to the partnership
authority for the execution, delivery and performance of, and the validity of,
the Additional Commitment Documents to which Guarantor is a party, all in form
and substance satisfactory to Agent. On the Additional Commitment Closing Date,
Agent shall have received evidence satisfactory to it of the existence and good
standing of Guarantor as of a date not earlier than three Banking Days before
the Additional Commitment Closing Date.
(i) Insurance. On or before the Additional Commitment Closing
Date, Borrower shall cause Lessee to deliver to Agent (i) a certificate of
Lessee's independent insurance broker in form satisfactory to Agent and the
Lenders certifying that the insurance required to be maintained pursuant to
Lease N806US and this Agreement with respect to Aircraft N806US is in full force
and effect as of the Additional Commitment Closing Date, and (ii) a letter of
undertaking from Lessee's independent insurance broker confirming certain
undertakings, also in form satisfactory to Agent and the Lenders.
(j) Opinions of Counsel. On the Additional Commitment Closing
Date, Agent shall have received written opinions, dated the Additional
Commitment Closing Date, addressed to Agent and each Lender and in form
satisfactory to Agent and each Lender, from (i) Orrick, Herrington & Sutcliffe
LLP, counsel for Borrower and Guarantor, and (ii) Special FAA Counsel. Each such
opinion shall cover such matters relating to the transactions contemplated by
the Additional Commitment Documents as Agent or any Lender may reasonably
request.
(k) Title; Registration; Airworthiness. On the Additional
Commitment Closing Date, the following statements shall be true, and Agent shall
have received evidence satisfactory to Agent to the effect that:
(i) Borrower has good and marketable title to
Aircraft N806US free and clear of all Liens except Permitted
Liens;
(ii) Technical Records N806US in which Borrower has
an interest are free and clear of all Liens except Permitted
Liens;
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<PAGE> 24
(iii) Airframe N806US is duly registered in the name
of Borrower with the FAA pursuant to the Aviation Law;
(iv) the Security Agreement has been duly filed for
recordation with the FAA pursuant to the Aviation Law; and
(v) Aircraft N806US has been duly certificated by the
FAA as to type and airworthiness.
(l) Inspection of Aircraft N806US. Borrower, at its cost and
expense, shall have provided such documentary evidence as Agent and the Lenders
may reasonably request regarding Aircraft N806US and Technical Records N806US.
(m) Additional Notice of Assignment. Borrower shall have
signed the Additional Notice of Assignment and shall have sent the Additional
Notice of Assignment to Lessee by postage paid registered mail, return receipt
requested.
(n) Lessee's Financial Condition. No event or series of events
shall have occurred since June 30, 1998 that, in the reasonable opinion of the
Lenders, could be expected to have a material adverse effect on the financial
condition or operations of the Lessee or on the ability of the Lessee to comply
with its obligations under the Transaction Documents.
(o) Additional Documents. Agent shall have received copies of
any additional instruments, certificates and other evidence as Agent may
reasonably request with respect to the transactions contemplated by the
Additional Commitment Documents, in form and substance satisfactory to Agent,
including the following:
(i) a certificate from a corporate trust officer of
the Trust Company certifying as to the signing authority of
the officers of Borrower and the Trust Company that signed
each Additional Commitment Document and all documents and
instruments executed in connection with the Additional
Commitment Documents;
(ii) a certificate from Borrower certifying as to the
matters set forth in Sections 3.3(b) and (c) with respect to
Borrower;
(iii) a certificate from an officer of the Trust
Company certifying as to the matters set forth in Section
3.3(c) with respect to the Trust Company;
(iv) a certificate from an officer of the General
Partner of Guarantor certifying as to the signing authority of
the officers of such corporation that signed each Additional
Commitment Document on behalf of Guarantor and all documents
and instruments executed in connection with the Additional
Commitment Documents;
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<PAGE> 25
(v) a certificate from an officer of the General
Partner of Guarantor certifying as to the matters set forth in
Section 3.3(c) with respect to Guarantor; and
(vi) a letter from Borrower addressed to Lessee,
signed but undated, directing Lessee to make all payments of
"Rent" (as such term is defined in Lease N806US) to Agent on
behalf of the Lenders.
(p) Fees. On or before the Additional Commitment Closing Date,
Borrower shall pay to each Lender the Up-Front Fee provided for in Section
12.2(ii) for such Lender.
3.4 Conditions Precedent to Extension Period. The obligation
of each Lender to extend the Commitment Period for the Extension Period on the
Exercise Date is subject to the satisfaction (or waiver by Agent and Majority
Lenders) of each of the following conditions precedent, all of which shall take
place, occur or be delivered to Agent no later than the Exercise Date or such
later date as provided:
(a) Notice. Agent shall have received a notice from Borrower
in accordance with Section 2.8 hereof.
(b) Extension of Each Lease. The Lessee shall have exercised
its option to extend each Lease for the first Additional Renewal Term (as
defined in each Lease) prior to the Exercise Date.
(c) No Default; No Event of Loss. As of the Exercise Date and
the Maturity Date, respectively, no Default shall have occurred and be
continuing and no Lease Default shall have occurred and be continuing.
(d) No Change in Applicable Law. As of the Exercise Date and
the Maturity Date, respectively, no change shall have occurred after the date of
this Agreement in Applicable Law that, in the reasonable judgment of Agent or
any Lender, could make it illegal for Agent or such Lender to lend all or any
part of its Commitment or could materially adversely affect, restrain or change
the transactions contemplated by the Financing Documents or the operations
(current or proposed), assets or condition (financial or otherwise) of Borrower
or Lessee.
(e) Renewal Rent. The Renewal Rent (as defined in each Lease)
shall be in an amount not less than the amounts set forth on Schedule 2 hereof.
(f) Representations and Warranties. The representations and
warranties of Borrower, the Trust Company and Guarantor contained in the
Financing Documents shall be true and correct as of the Closing Date as if made
on and as of the Closing Date.
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<PAGE> 26
(g) Extension Fee. On the Exercise Date, Borrower shall have
paid the Extension Fee to Agent in accordance with Section 12. 6 hereof.
3.5 Deficiency Guaranty. Following the Closing Date, so long
as no Default or Lease Default has occurred and is continuing, Agent and the
Lenders shall execute and deliver, and permit Guarantor to execute and deliver,
the Deficiency Guaranty in exchange for the termination of the Guaranty upon the
delivery to Agent and the Lenders of the following documents:
(a) an Acceptable Lessee Acknowledgment;
(b) documents of the nature delivered pursuant to
Section 3.1(h), as if references therein to "Guaranty" were
references to "Deficiency Guaranty";
(c) the written opinion of Orrick, Herrington &
Sutcliffe LLP, counsel for Guarantor, dated such date and
addressed to Agent and each Lender, as to such matters of law
relating to Guarantor and the Deficiency Guaranty as are
contained in such counsel's opinion on the Closing Date with
respect to Guarantor and the Guaranty; and
(d) such additional instruments, certificates and
other evidence as Agent may reasonably request with respect to
the transactions contemplated by the Deficiency Guaranty, in
form and substance satisfactory to Agent.
Agent and each Lender agree that in connection with the delivery of an
Acceptable Lessee Acknowledgment, Agent and each Lender shall, if requested by
Lessee, deliver to Lessee a covenant of quiet enjoyment in the form attached to
Exhibit A.
SECTION 4. REPAYMENT AND PREPAYMENT
4.1 Principal. (a) On each Payment Date, Borrower shall repay
the outstanding principal amount of the Loan in the amount by which the
outstanding Loan exceeds the Total Commitment on such Payment Date. Borrower
shall give Agent and each Lender not less than two Banking Days prior written
notice of each repayment pursuant to this Section 4.1(a), which notice shall
specify which Advances are being repaid in whole or in part and the amount of
each Advance being repaid.
(b) Without limiting any other provisions of the Financing
Documents requiring the scheduled or unscheduled repayment or prepayment of the
Loan, the principal balance of the Loan shall be repaid in full on the Maturity
Date or Extended Maturity Date, as applicable.
4.2 Interest. (a) Interest payable on each Advance during the
Commitment Period shall accrue from the Borrowing Date on which such Advance was
made until the principal amount of such Advance is repaid (whether
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<PAGE> 27
at maturity, on a date fixed for repayment or prepayment, by acceleration or
otherwise), shall be calculated at the Interest Rate and shall be calculated on
the basis of a year of 360 days for the actual days elapsed. Interest on each
Advance with respect to each Payment Period shall accrue from the first day of
such Payment Period to and including the last day of such Payment Period and
shall be payable in arrears on the last day of such Payment Period; provided,
that for any Advance not made on the first day of a Payment Period, Interest on
such Advance shall accrue from the Borrowing Date of such Advance to and
including the last day of the Payment Period in which such Advance was made and
shall be payable in arrears on the last day of such Payment Period.
(b) The "Interest Rate" for any Payment Period shall be equal
to the Base Rate with respect to such Payment Period plus the Margin; provided,
that for any Advance not made on the first day of a Payment Period, the
"Interest Rate" applicable to such Advance for the balance of such Payment
Period shall be equal to the sum of (i) a base rate of interest determined in
accordance with the definition of "Base Rate" for a period equal to the balance
of such Payment Period, plus (ii) the Margin.
(c) Interest shall accrue on any principal and, to the extent
permitted by law, on any interest and any other amounts owing under the
Financing Documents that are not paid within five days of the due date thereof
at the Overdue Rate in effect from time to time (computed on the basis of a year
of 360 days for the actual number of days elapsed) from the date on which such
principal, interest or other amount becomes due until paid, and overdue interest
shall be payable on demand. In addition, Borrower shall pay $150.00 for each
late payment.
(d) The rate of interest payable under the Financing Documents
shall not at any time exceed a rate that, when combined with any and all other
charges provided for in the Financing Documents (to the extent such other
charges would constitute interest for the purpose of any Applicable Law limiting
interest that may be charged) equals the maximum interest rate permitted by law
with respect to the transactions contemplated by the Financing Documents.
4.3 Mandatory Prepayments. (a) If an Event of Loss occurs with
respect to either Airframe and subject to the terms of Section 3.4 of the
Security Agreement, then on the earliest to occur of (i) 10 days after the date
of payment of insurance proceeds as a result of such Event of Loss of such
Airframe, (ii) the date of payment by Lessee of "Stipulated Loss Value" (as
defined in the Lease related to such Airframe), or (iii) 90 days after the date
of occurrence of the Event of Loss of such Airframe, an amount equal to 55% of
the outstanding principal amount of the Loan, all accrued and unpaid interest on
the Loan and any and all other fees and sums that are payable under the
Financing Documents, including any amounts required pursuant to Section 6.1,
shall be immediately due and payable and Agent shall deliver to Borrower a
replacement Schedule 1 and Schedule 2 reflecting a reduction by 55% of the Total
Commitment outstanding from time to time.
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(b) Upon a sale of either Airframe or any Engine, the
outstanding principal of and all interest accrued and unpaid on the Loan and all
other amounts then payable by Borrower under the Financing Documents, including
any amounts required pursuant to Section 6.1, shall be immediately due and
payable and shall be paid in full by Borrower.
(c) If Lessee exercises its early termination option under
Section 20.04 of either Lease, then the outstanding principal of and all
interest accrued and unpaid on the Loan and all other amounts then payable by
Borrower under the Financing Documents, including any amounts required pursuant
to Section 6.1, shall become immediately due and payable, and shall be paid in
full by Borrower, on the "Termination Date" (as such term is defined in Section
20.04(A) of such Lease) or on any earlier date on which the term of such Lease
ends pursuant to the penultimate sentence of Section 20.04(A) of such Lease.
4.4 Voluntary Termination of Commitments. On any date after
the first anniversary of the Closing Date, Borrower shall be entitled at its
option to terminate the Total Commitment in whole so long as (a) Borrower gives
five Banking Days written notice of such termination to Agent and the Lenders,
(b) on or before the date of such termination Borrower shall prepay the Loan
pursuant to and in accordance with Section 4.5, and (c) Borrower pays to Agent
on behalf of the Lenders the Commitment Termination Fee set forth in Section
12.4. Any such termination or reduction shall be permanent and irrevocable once
notice is given to Agent or any Lender.
4.5 Voluntary Prepayments. (a) Borrower may prepay all or any
portion of the Loan at any two times during each Payment Period (not including
any mandatory prepayment pursuant to Section 4.1(a) on a Payment Date and not
including any prepayment of principal in excess of the amount required pursuant
to Section 4.1(a) on a Payment Date if an amount of principal is required to be
prepaid on such Payment Date, but including any prepayment of principal on a
Payment Date if no principal is required to be prepaid on such Payment Date
pursuant to Section 4.1(a) above) by giving Agent and each Lender not less than
five Banking Days prior written notice (the "Prepayment Notice") of Borrower's
intention to prepay, which notice shall specify the date of prepayment (the
"Prepayment Date"), which Advances are being prepaid in whole or in part and the
amount of each Advance being repaid. In the event that the portion of an Advance
to be prepaid is not prepaid on the designated Prepayment Date, Borrower shall
be entitled to reschedule such prepayment to another Banking Day by at least one
Banking Days' prior telephonic or telefaxed notice to Agent and each Lender, and
Borrower may revoke the Prepayment Notice at any time by delivering to Agent and
each Lender written notice of revocation. In the event that a Payment Period
ends at any time after the receipt by Lender of the Prepayment Notice but before
the prepayment by Borrower pursuant to the Prepayment Notice, a series of
consecutive one day Payment Periods shall ensue for the portion of the Advance
designated to be prepaid beginning immediately after the end of the Payment
Period during which the Prepayment Notice was given and continuing until the
earlier of (i) the prepayment of such portion of such Advance or (ii) the next
Payment Date, and the Interest Rate for each such one-day Payment Period shall
equal each Lender's
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overnight borrowing costs for funds plus the Margin. Notwithstanding the
foregoing, to the extent the portion of any Advance designated to be prepaid is
not prepaid by Borrower by the next Payment Date, the Prepayment Notice shall be
deemed to be revoked and the provisions of Section 4.2 shall apply to the
Payment Period beginning on the next Payment Date.
(b) Any prepayment of all or any portion of the principal of
the Loan under this Section 4.5 shall be made together with accrued interest on
the portion of the Loan being prepaid through the date of such prepayment and
all fees and expenses of Agent and each Lender due and payable pursuant to the
Financing Documents, including any amounts due pursuant to Section 6.1.
4.6 Payments under this Agreement.
(a) Basic Rent Distribution(a)Basic Rent Distribution. Except
as otherwise provided in Section 4.6(d), each installment of Basic Rent under
each Lease as well as any installment of interest on overdue installments of
Basic Rent under each Lease shall be distributed on each Payment Date in the
following order of priority:
(i) first, to the payment of all fees, charges and
other sums (except principal and interest) payable to Agent or
any Lender under any Financing Document;
(ii) second, so much of such installment as shall be
required to pay in full the aggregate amount of the payment of
principal and interest (including any interest on any overdue
amounts) and any amount under Section 6.1 then due shall be
retained by Agent for the benefit of the Lenders and applied
in accordance with Section 4.7; and
(iii) third, the balance, if any, of such payment
shall be distributed to Borrower.
Except as provided in Sections 4.6(c) and 4.6(d) or at any time that an Event of
Default has occurred and is continuing, payments made under the Leases need not
be made directly to Agent; provided, that Borrower shall apply all payments made
under each Lease, including payments of Basic Rent and interest on overdue
installments of Basic Rent, in the manner provided by this Section 4.6.
(b) Supplemental Rent Distribution. Except as otherwise
provided in Section 4.6(d), any amounts from time to time received by Agent or
any Lender that constitute payments of Supplemental Rent pursuant to Section
4.02 of each Lease (other than "Stipulated Loss Value" payments and "Termination
Payments", as such terms are defined in each Lease), shall be paid to or upon
the order of the Person owed the same.
(c) Payments Upon Event of Loss of Aircraft. Except as
otherwise provided in Section 4.6(d), any amount received pursuant to Article 11
of each Lease with respect to an Event of
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Loss of the related Aircraft shall be distributed and paid in the following
order of priority:
(i) first, in the manner provided in clause "first"
of Section 4.6(d)(ii);
(ii) second, so much of such amount remaining as
shall be required to pay in full the aggregate unpaid
principal and interest (including any interest on any overdue
amounts) to the date of distribution shall be retained by
Agent for the benefit of the Lenders and applied in accordance
with Section 4.7;
(iii) third, in the manner provided in clause "third"
of Section 4.6(d)(ii);
(iv) fourth, to the Lessee to the extent required by
Article 11 of such Lease; and
(v) fifth, in the manner provided in clause "fourth"
of Section 4.6(d)(ii);
provided, that any portion of any such amount that is not required to be paid to
Lessee pursuant to the respective Lease solely because a Lease Default or a
Lease Event of Default shall have occurred shall be held by Agent as security
for the obligations of Lessee under the Leases and Borrower under the Financing
Documents, and at such time as there shall not be continuing any Lease Default
or Lease Event of Default such portion shall be paid to Lessee unless either
Lease has been declared to be in default pursuant to Article 18 of such Lease,
in which event such portion shall be distributed forthwith upon such declaration
in accordance with the provisions of Section 4.6(d).
(d) Payments After Event of Default. Except to the extent set
forth in the proviso of Section 4.6(c), all payments received and amounts
realized by Agent or any Lender (other than Excluded Amounts) after an Event of
Default shall have occurred and be continuing, as well as all payments or
amounts then held or thereafter received by Borrower or by Agent or any Lender
as part of the Collateral (including payments of Basic Rent) while such Event of
Default shall have occurred and be continuing, shall be distributed in the
following order of priority:
(i) if the entire principal amount of the Note shall
not have been declared to be, or shall not automatically have
become, immediately due and payable pursuant to Section 11.2,
then first, so much of such payments or amounts as shall be
required to reimburse Agent and any Lender for costs, expenses
and payments made or incurred by them, or to pay such amounts
then due to Agent or any Lender pursuant to the provisions of
this Agreement or any other Financing Document, shall be
retained by Agent for the benefit of itself and the Lenders;
second, so much of such payments or amounts as shall be
required to pay in full all due and overdue principal and
interest and any amount due under Section 6.1, to the date of
distribution, shall be retained by Agent for the benefit of
the Lenders and
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applied towards repayment of the Note in accordance with the
terms of Section 4.7; third, so much of such payments or
amounts as shall be required to pay all other amounts then due
to Agent and the Lenders hereunder, under the Note or under
any other Financing Document shall be retained by Agent; and
fourth, the balance, if any, of such payments or amounts
remaining thereafter shall be retained by Agent as additional
collateral; provided, that all such amounts retained by Agent
as additional collateral, if not previously applied in
accordance with the Financing Documents, shall be paid to
Borrower on the earlier of the cure or waiver of such Event of
Default or 180 days after receipt by Agent of such amount; and
(ii) if the entire principal amount of the Note shall
have been declared to be, or shall automatically have become,
immediately due and payable pursuant to Section 11.2, then
first, so much of such payments or amounts as shall be
required to reimburse Agent and any Lender for costs, expenses
and payments made or incurred by them, or to pay such amounts
then due to them, pursuant to the provisions of this Agreement
or any other Financing Document, shall be retained by them;
second, so much of such payments or amounts as shall be
required to pay in full the aggregate principal amount of the
Note and accrued interest (including any interest on any
overdue amounts) thereon to the date of distribution and
amounts due under Section 6.1, if any, shall be retained by
Agent for the benefit of the Lenders and applied towards
repayment of the Note in accordance with the terms of this
Section 4.6; third, so much of such payments or amounts as
shall be required to pay all other amounts then due to Agent
and any Lender hereunder, under the Note or under any other
Financing Document shall be retained by Agent for the benefit
of itself and the Lenders; and fourth, the balance, if any,
remaining thereafter shall be distributed to Borrower.
(e) Payments Upon Event of Loss of Engine or Repairable
Damage. Any amount received pursuant to Article 11 of either Lease with respect
to an Event of Loss of an Engine or with respect to an item of Equipment damaged
or destroyed, (other than an Event of Loss of an Airframe) shall be held by
Agent and applied by Agent (i) first, in accordance with the provisions of the
respective Lease, and (ii) second, on the next Payment Date in accordance with
the provisions of Section 4.6(c) above.
(f) Other Payments. Except as otherwise provided in this
Section 4.6:
(i) any payments received by Agent for which no
provision as to the application thereof is made in the Leases
or elsewhere in this Agreement shall be distributed on each
Payment Date by Agent in the order of priority set forth in
Section 4.6(a); and
(ii) all payments received and amounts realized by
Agent under each Lease or otherwise with respect to the
Equipment to the extent received or realized at any time after
payment in full of the principal of, interest and amounts due
under Section 6.1, if any, and all other amounts due to Agent
and the Lenders under this Agreement or any other Financing
Document as well as any other amounts remaining as part of the
Collateral after payment in full of the principal of,
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interest and amounts due under Section 6.1, if any, and all
other amounts due to Agent and the Lenders under this
Agreement or any other Financing Document shall be distributed
to Borrower.
(g) Distribution of Excluded Amounts. All amounts constituting
Excluded Amounts received by Agent or any Lender shall be paid by Agent or such
Lender to the Person or Persons entitled thereto.
4.7 Application of Payments. All payments required to be made
by Borrower under the Financing Documents, when received by Agent, shall be
applied (a) first, to pay any fees and expenses payable by Borrower to Agent and
the Lenders under the Financing Documents, including expenses incurred in
exercising remedies under the Security Agreement, (b) second, to accrued and
unpaid interest with respect to the Loan, and (c) third, to the payment of any
principal amount of the Loan then due.
SECTION 5. PAYMENTS
5.1 Place and Manner of Payment. All payments required to be
made to Agent under the Financing Documents shall be made in Dollars by wire
transfer of immediately available funds to the account of Agent as follows:
Credit Lyonnais, New York
ABA No. 026008073
Account No. 01-22403-0001-00
In favor of: PK AIRFINANCE NY
CHIPS UID No. 357771
Reference: USA71
or to such other account in the continental United States of America as Agent
may designate from time to time by five Banking Days prior written notice to
Borrower. Agent shall have no property interest in the funds it receives from
Borrower for distribution to the Lenders, but shall hold such funds pending
disbursement to the Lenders pursuant to the terms of this Agreement. All
payments required to be made to any Lender under the Financing Documents shall
be made in Dollars by wire transfer of immediately available funds to the
account of such Lender set forth on such Lender's signature page to this
Agreement or to such other account in the continental United States of America
as such Lender may designate from time to time by five Banking Days prior
written notice to Agent and Borrower.
5.2 Payments on Banking Day. If any payment under the
Financing Documents is due on a date that is not a Banking Day, then such
payment shall be due and paid on the next succeeding day that is a Banking Day
and interest (calculated at the applicable interest rate in effect for the
Payment Period during which the original payment date occurred) shall be
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payable on any principal whose payment was so extended and, to the extent that
such interest is so paid, it shall be credited against the interest payment due
on the next succeeding Payment Date; provided, that if such next succeeding
Banking Day occurs in the next calendar month, the payment shall be due on the
immediately preceding Banking Day.
5.3 No Offset. All payments by Borrower under the Financing
Documents shall be made when due without notice, demand, offset, counterclaim,
deduction or defense and without abatement, suspension, deferment, diminution or
reduction, whether by virtue of any claim that Borrower may now or hereafter
have against any Person.
SECTION 6. COMPENSATION FOR ADDITIONAL COSTS; INDEMNITIES
6.1 Compensation for Re-employment of Funds. Borrower shall
compensate each Lender, upon written request by such Lender, for all reasonable
losses, expenses and liabilities (including any losses and expenses incurred on
account of funds borrowed, contracted for or utilized for purposes relating to
the Loan or in connection with the reemployment or reinvestment of such funds or
an interruption of the use of such funds) that such Lender sustains as a result
of (a) the failure of Borrower to borrow any part of an Advance on the Borrowing
Date as set forth in a Borrowing Notice, (b) the repayment or prepayment of any
portion of the Loan (including as a result of the exercise by Agent or any
Lender of its remedies following the occurrence of an Event of Default, or as a
result of this Section 6) on any date other than a Payment Date, or (c) the
failure of Borrower to prepay the Loan on a Prepayment Date that is rescheduled
on less than three Banking Days prior written notice. Compensation to any Lender
under this Section 6.1 shall include an amount equal to any and all interest,
break-funding costs and other amounts payable by such Lender to providers of
funds obtained by such Lender in order to make, maintain or renew its
Commitment, and costs incurred by such Lender in redeploying funds that were to
be used by it to make, maintain or renew its Commitment. Agent and each Lender
will use reasonable efforts to minimize any loss, cost or expense for which they
are entitled to compensation under this Section 6.1; provided that the foregoing
undertaking shall not obligate any Lender to take any steps adverse to its
business, financial or commercial interest as reasonably determined by such
Lender.
6.2 Force Majeure. Neither Agent nor any Lender shall be held
responsible for any loss or damage arising out of any action taken or omitted by
Agent or any Lender or to which Agent or any Lender becomes subject resulting
from a mandatory legal enactment, any measure of a Governmental Body or public
authority, a war, strike, boycott or blockade or any other cause reasonably
beyond its control.
6.3 Illegality. In the event that in the reasonable judgment
of any Lender, the making or maintaining of any portion of such Lender's
Commitment or the performance by Borrower of any obligation to be performed by
Borrower under the Financing Documents has become unlawful by
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<PAGE> 34
reason of any change after the date of this Agreement in any Applicable Law,
then such Lender shall promptly notify Agent and Borrower of such illegality. To
the extent that any portion of the Commitment of such Lender has not been
borrowed by Borrower at that time, the obligation of such Lender pursuant to
Section 2 to lend the remaining portion of its Commitment shall terminate. If
the full Commitment of such Lender has been loaned to Borrower, within 30 days
after receipt of such notice or any later date permitted by Applicable Law,
Borrower shall repay the principal amount of the Notes held by such Lender, all
interest accrued on such principal amount, all other sums then due and payable
under the Financing Documents (including amounts payable pursuant to Section
6.1).
6.4 Additional Funding Costs. In the event that any Applicable
Law, whether in effect on the date of this Agree- ment or hereafter, any change
in Applicable Law or the compliance by any Lender with any presently effective
or future request or directive (whether or not having the force of law) from any
Government Body:
(a subjects such Lender to any Tax, levy, impost,
duty, charge, fee, deduction, withholding restriction or
condition of any kind with respect to the Financing Documents
or the Loan (other than income Taxes paid by such Lender in
the jurisdiction in which it is incorporated or in which the
lending office making the Loan is located), or to a change in
the basis of taxation of payments to such Lender of principal,
interest, fees or any other amount payable under the Financing
Documents (other than the rates of income taxation to which
such Lender is subject),
(b imposes or makes applicable any reserve or similar
requirement against assets held by, or liabilities in or for
the account of, advances or loans by, other credit extended by
or any other acquisition of funds by such Lender, or
(c imposes on such Lender any other condition
affecting the Advances (other than the rates of income
taxation to which such Lender is subject),
and the result is to increase the cost to such Lender of making, renewing or
maintaining its portion of the Loan or to reduce or delay the receipt by such
Lender of any amount receivable under the Financing Documents, then, in any such
case, Borrower shall promptly pay to such Lender upon its demand such additional
amount necessary to compensate such Lender for such additional cost (net of any
Tax savings realized by such Lender) or the reduction of or delay in receiving
any amount so receivable. Upon the request of Borrower, such Lender shall
deliver to Borrower a certificate setting forth the basis for the determination
of such amount necessary to compensate such Lender.
6.5 General Tax Indemnity. (a) All payments made by Borrower
to Agent or any Lender under the Financing Documents shall be made free and
clear of, and without deduction for or on account of, any Tax, other than
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(i) any Tax imposed because of a present or former
connection between the jurisdiction of the Government Body
imposing such Tax and Agent or such Lender other than a
connection arising from Agent or such Lender having executed,
delivered or performed its obligations under the Financing
Documents, received a payment under the Financing Documents or
enforced any Financing Document;
(ii) Taxes imposed on or with respect to, based on or
measured by the net income, gross income, receipts, capital or
net worth of Agent or such Lender by any Government Body in
any jurisdiction in which Agent or such Lender is
incorporated, has its principal place of business or is
subject to such Taxes by reason of transactions or activities
unrelated to those contemplated by the Financing Documents
(except there shall not be excluded any such Taxes in the
nature of or imposed in lieu of sales, use, excise or similar
taxes); and
(iii) any Tax that would not have been imposed but
for such Lender's failure to comply with the provisions of
Section 6.5(c).
(collectively, and excluding the Taxes set forth in the preceding clauses (i)
through (iii), the "Indemnified Taxes"). If any Indemnified Taxes are required
to be withheld or deducted from any amounts payable to Agent or any Lender under
the Financing Documents, Borrower shall pay to Agent or such Lender an
additional amount that (after subtraction of all such Indemnified Taxes and any
Taxes incurred by reason of the payment or receipt of such additional amount)
will be sufficient to yield to Agent or such Lender such amounts payable. Within
15 days after the date of each payment of Indemnified Taxes to a Governmental
Body, Borrower shall furnish to Agent and any applicable Lender the original or
a certified copy of a receipt or other evidence of the payment of such
Indemnified Taxes. If Agent or any Lender determines in good faith that any
Indemnified Taxes are payable in respect of any payments under any Financing
Document, Agent or such Lender may (but is not obligated to) pay such
Indemnified Taxes, and Borrower shall promptly pay to Agent or such Lender, on
demand, an amount that will be sufficient to yield to Agent or such Lender
(after subtraction of any Taxes incurred by reason of the receipt of such
payment) the amount of such Indemnified Taxes.
(b In the event any claim shall be made against Agent or any
Lender for any Indemnified Taxes for which Borrower might be liable under this
Section 6.5, Agent or such Lender shall use its best efforts to notify Borrower
of such claim and shall consult in good faith with Borrower concerning such
claim. If requested by Borrower, Agent or such Lender shall contest such claim
at the sole cost and expense of Borrower; provided, that Agent or such Lender
shall have no obligation to contest any such claim if, in its reasonable
opinion, to do so would be prejudicial to its overall tax interest. If Agent or
such Lender shall receive a refund of any Indemnified Tax that was paid or
indemnified by Borrower under this Section 6.5, then so long as no Event of
Default has occurred and is continuing, Agent or such Lender shall promptly pay
to Borrower (i) the amount of such refund, (ii) the amount of any Tax savings
actually realized from such payment (as determined by Agent or such
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Lender in its sole good faith discretion, it being understood that Borrower has
no right to inspect the tax returns or records of Agent or such Lender), and
(iii) any interest received in respect of such refund.
(c Each Lender that is not incorporated in a jurisdiction of
the United States of America shall deliver to Borrower such certificates,
documents or other evidence as may be reasonably requested by Borrower from time
to time, including any certificate or statement of exemption required by United
States Treasury Regulation Section 1.1441-4(a) or Section 1.1441-6(c), completed
and duly executed by such Lender, to establish that payments of interest on the
Loan to such Lender and any other payment required by any Financing Document to
such Lender are exempt from or are subject to a reduced rate of withholding of
Tax imposed by any Government Body.
6.6 Mitigation.(a) In the event that any Lender exercises its
rights pursuant to Section 6.4 to require compensation from Borrower, then such
Lender and Borrower will attempt to restructure such Lender's portion of the
Loan to eliminate the increased costs and continue such Lender's portion of the
Loan, and Borrower shall remain liable for all increased costs during any period
of time in which such Lender and Borrower are attempting to restructure such
portion of the Loan. If such Lender and Borrower are unable to restructure such
Lender's portion of the Loan, upon five Banking Days prior written notice to
such Lender, Borrower may repay such Lender's principal portion of the Loan
together with all interest accrued on such principal and all other amounts
payable to such Lender under the Financing Documents, including any amounts
payable under Section 6.1 within 60 days from the date such Lender notified
Borrower of such increased costs.
(b In the event any amounts are required to be with- held or
deducted from any amounts payable to Agent or any Lender under the Financing
Documents, Borrower and Agent or such Lender shall consult in good faith and
shall each use its best efforts to restructure the transactions contemplated by
the Financing Documents in order to avoid such withholding or deduction;
provided, that Agent and such Lender shall be reimbursed by Borrower for all
costs incurred in connection with such restructuring and shall not be required
to take any action or agree to any restructuring that Agent or such Lender
determines in good faith is or may be detrimental to it. In the event Agent or
such Lender becomes liable for any Taxes (other than Indemnified Taxes), Agent
or such Lender may, at its expense, take such action (including a transfer of
its interest in the Loan or any of the Financing Documents to one or more
Affiliates) as Agent or such Lender may determine will avoid or minimize such
Taxes; provided, however, that no such action shall materially increase the
obligations or diminish the rights of Borrower under the Financing Documents.
6.7 General Indemnity. Borrower hereby indemnifies each
Indemnitee and agrees to hold each Indemnitee harmless against any and all
reasonable liabilities, damages, losses, claims, costs and expenses (excluding
any taxes, fees or other charges on, based on, or measured by the gross or net
receipts or the gross or net income of any Lender, or any business
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or similar taxes, any transfer taxes and Taxes for which a Lender is otherwise
indemnified pursuant to Section 6.5), and to reimburse such Indemnitee for any
reasonable legal or other fees or expenses, incurred by it in connection with,
arising out of or resulting from (a) any claim or defending or prosecuting any
action or proceeding relating to the Financing Documents, (b) any Default, Event
of Default, breach of warranty by Borrower, material misrepresentation by
Borrower or non-performance by Borrower of any of its covenants or obligations
under any Financing Document, (c) any Lease Default, Lease Event of Default,
breach of warranty by Lessee, misrepresentation by Lessee or non-performance by
Lessee of any of its covenants or obligations under any Transaction Document, or
(d) the possession, delivery, registration, maintenance, condition, service,
repair, overhaul, use or operation of the Equipment whether or not attributable
to any defect in the Equipment or to its design, testing, use or otherwise;
provided, that Borrower shall have no obligation to indemnify or hold harmless
any Indemnitee for any liabilities, damages, losses, claims, costs or expenses
resulting from any Indemnitee's gross negligence or wilful misconduct or the
breach of any representations, warranties or covenants of the Lenders set forth
herein; provided that prior to making any claim against Borrower under this
Section 6.7 such Indemnitee shall have made demand of Lessee for indemnity as to
any claim or expense indemnified against by Lessee under the Lease; and
provided, that Borrower shall have no liability under this Section 6.7 for
principal, interest and amounts payable pursuant to Section 6.1, 12.1, 12.2,
12.3 or 12.5, which payments are subject to the provisions of Section 2.7.
SECTION 7. BORROWER'S REPRESENTATIONS AND WARRANTIES
Borrower represents, warrants and covenants to Agent and each
Lender on the date of this Agreement, on the Closing Date, the Additional
Commitment Closing Date and at all times during the Commitment Period as
follows:
7.1 Organization; Power. Borrower (a) is a duly formed and
validly existing trust, (b has full power to enter into, legally bind itself by
and perform its obligations under the Financing Documents, and (c) has complied
with all material statutory and other requirements relating to the business
carried on by it.
7.2 Citizenship. Borrower is and will remain a "citizen of the
United States" as defined in Section 40102(a)(15) of the Aviation Law for
purposes of permitting FAA registration of the Airframe pursuant to Section
44103 of the Aviation Law.
7.3 Trust Authority. The execution, delivery and performance
by Borrower of the Financing Documents, the borrowing and the giving of security
by Borrower as provided in the Financing Documents and the execution, delivery
and performance of each other agreement or instrument contemplated by the
Financing Documents by Borrower have been duly authorized by all necessary trust
action on the part of Borrower, do not require any approval from Guarantor, as
beneficiary under the Trust Agreement (except as has been
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obtained), or approval or consent of any trustee or holders of any Debt or
obligations of Borrower (or any such required approvals and consents have been
or before the Closing Date and Additional Commitment Closing Date, as
applicable, will be duly obtained), will not violate any provision of the Trust
Agreement or other governing documents and will not result in the breach of,
constitute a default under, contravene any provision of or result in the
creation of any Lien (other than Permitted Liens) upon the Trust Estate or any
of its other property or assets pursuant to, any agreement, indenture, mortgage,
note, lease or other agreement or instrument to which Borrower is a party or by
which Borrower or its property may be bound or affected.
7.4 Consents. All necessary consents, resolutions and
authorizations for Borrower to enter into the Financing Documents have been
obtained, and no further consents or authorizations are necessary for the
repayment of the Loan pursuant to the provisions of this Agreement and the Notes
or for the performance by Borrower of its obligations pursuant to the Financing
Documents.
7.5 Enforceable Agreement. Each of the Financing Documents to
which Borrower is a party constitutes the legal, valid and binding agreement of
Borrower, enforceable against Borrower in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency or other
laws affecting creditors' rights in general and principles of equity.
7.6 Compliance with Applicable Law. The execution, delivery
and performance of the provisions of the Financing Documents to which Borrower
is a party and the consummation of the transactions contemplated by the
Financing Documents by Borrower do not and will not, during the Commitment
Period, contravene in any material respect any Applicable Law.
7.7 Litigation. No judgments are outstanding against Borrower
and, to the knowledge of Borrower, no action, claim, suit or proceeding is
pending or threatened (including tax liens and tax actions) against or affecting
Borrower before any court, board or arbitration or administrative agency that
will result in the inability of Borrower to perform its obligations under the
Financing Documents.
7.8 No Taxes. No taxes are required to be paid under the laws
of the United States or any other jurisdiction in which Borrower conducts
business in connection with the execution, delivery or performance of the
Financing Documents, except taxes that Borrower shall have paid on or before the
Closing Date and Additional Commitment Closing Date, as applicable.
7.9 No Stamp Taxes. Neither the Financing Documents nor any
filing required or permitted under the Financing Documents is subject to any
registration tax, any stamp duty or any similar tax (other than those
registration taxes, stamp duties or similar taxes that Borrower shall have
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paid on or before the Closing Date and Additional Commitment Closing Date, as
applicable).
7.10 Title to Collateral. On the Closing Date, the Additional
Commitment Closing Date and throughout the Commitment Period, Borrower will have
good and marketable title to, and will be the sole owner of and have the right
to possess, the Equipment, the Technical Records and all other Collateral, free
and clear of all Liens except for Permitted Liens and the beneficial ownership
of Guarantor under the Trust Agreement. Borrower warrants, at its sole expense,
to defend the title to and possession of the Collateral against the claims and
demands of all Persons whomsoever except claims and demands under Permitted
Liens, and to keep at all times the Lien of the Security Agreement a first
priority Lien on the Collateral as constituted from time to time, superior to
the rights of all third parties to the extent permitted by Applicable Law.
Borrower shall obtain any authorization, approval, license, or consent of any
Governmental Body (including registration of each Airframe with the FAA's
Aircraft Registry) that is or may become necessary or is reasonably requested by
Agent in order to obtain the full benefits of all rights and powers granted to
Agent and any Lender in the Financing Documents.
7.11 No Liens. No security agreement, financing statement,
equivalent security or lien instrument or continuation statement or other Lien,
whether voluntary or involuntary, covering all or any part of the Collateral has
been placed on file or of record by Borrower with any Governmental Body or is
otherwise in effect with respect to the Collateral except such as may have been
filed by Borrower pursuant to the Security Agreement and for Permitted Liens.
7.12 No Default. Borrower is not in default under any
agreement to which it is a party or by which it may be bound, and is not in
default of any kind in respect of any financial commitment or obligations
(including obligations under guarantees) that, in either case, could have a
material adverse affect on the ability of Borrower to perform its obligations
under the Financing Documents.
7.13 Material Disclosure. No written information given by
Borrower to Agent or any Lender in connection with the transactions contemplated
by the Financing Documents contained any untrue statement of material fact or
omitted to state a material fact that is adverse to the interest of Agent or any
Lender or that would be necessary to make any statement previously given by
Borrower or any representation or warranty contained in the Financing Documents
not misleading.
7.14 Principal Place of Business. The principal place of
business and chief executive office of Borrower are located either (a) at 35
North Sixth Street, Reading, Pennsylvania 19601, or (b) at the address set forth
in Section 16.2, and Borrower has not maintained a principal place of business
or chief executive office anywhere else in the past five years. The office where
Borrower keeps its records concerning the Collateral is located at the address
set forth in Section 16.2.
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7.15 Trade Names. Borrower does not transact or do business
under any assumed name, trade name or fictitious name.
7.16 No Duty to Investigate. The rights and remedies of Agent
and the Lenders under the Financing Documents in relation to any
misrepresentation or breach of warranty on the part of Borrower under the
Financing Documents shall not be prejudiced by any lack of investigation by or
on behalf of Agent or any Lender into the affairs of Borrower, the Trust
Company, Guarantor or Lessee, by the performance of this Agreement or by any
other act or thing which may be done by Agent or any Lender in connection with
the Financing Documents and that would, apart from this Section 7.16, prejudice
such rights or remedies.
7.17 Trust Agreement. The Trust Agreement and the certificates
issued pursuant to the Trust Agreement constitute the entire agreement with
respect to the creation of the trust holding the Trust Estate and the Trust
Agreement is in full force and effect and has not been amended, modified or
supplemented except as specifically evidenced by the amendments, modifications
or supplements delivered pursuant to Section 3.
7.18 Transaction Documents. The Transaction Documents
constitute the entire agreement between Lessee and Borrower with respect to the
purchase, ownership or leasing of, and rights to, the Equipment and the
Technical Records by Borrower and the Transaction Documents, including in
particular each Lease, are in full force and effect and have not been amended,
modified or supplemented except as specifically evidenced by the amendments,
modifications or supplements delivered pursuant to Section 3.
SECTION 8. TRUST COMPANY'S REPRESENTATIONS AND WARRANTIES
The Trust Company represents, warrants and covenants in its
individual capacity to Lender on the date of this Agreement, on the Closing
Date, the Additional Commitment Closing Date and at all times during the
Commitment Period as follows:
8.1 Organization; Power. The Trust Company (a) is duly formed,
validly existing and in good standing as a trust company under the laws of the
State of Pennsylvania and is qualified to do business in all jurisdictions where
it does business where failure to be so qualified would have a material adverse
effect on the ability of Trust Company to perform its or Borrower's obligations
under the Financing Documents, (b) has the corporate power and authority to
carry on its business as it is now being conducted and to enter into, legally
bind itself by and perform its obligations under the Trust Agreement and this
Agreement, and (c) has complied with all material statutory and other
requirements relating to the trust business carried on by it.
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8.2 Citizenship; Permits. The Trust Company is and will remain
a "citizen of the United States" as defined in Section 40102(a)(15) of the
Federal Aviation Law for purposes of permitting FAA registration of the Airframe
pursuant to Section 44103 of the Federal Aviation Law. The Trust Company holds
and will continue to hold all material licenses, certificates, permits and
franchises from Government Bodies in the United States of America necessary to
authorize the Trust Company to act as Owner Trust pursuant to the Trust
Agreement and to own the Collateral.
8.3 Corporate Authority. The execution, delivery and
performance by the Trust Company of the Trust Agreement and this Agreement and
the execution, delivery and performance of each other agreement or instrument
contemplated by the Financing Documents of the Trust Company have been duly
authorized by all necessary corporate action on the part of the Trust Company,
do not require any stockholder approval or approval or consent of any trustee or
holders of any Debt or obligations of the Trust Company (or such required
approvals and consents have been or before the Closing Date will be duly
obtained), will not violate any provision of the Trust Company's governing
corporate documents and will not result in the breach of, constitute a default
under, contravene any provision of or result in the creation of any Lien (other
than Permitted Liens) upon any of its respective property or assets or the Trust
Estate pursuant to, any agreement, indenture, mortgage, note, lease or other
agreement or instrument to which the Trust Company is a party or by which the
Trust Company or its property may be bound or affected.
8.4 Consents. All necessary consents, resolutions and
authorizations for the Trust Company to enter into the Trust Agreement and this
Agreement have been obtained, and no further consents or authorizations are
necessary for the performance by the Trust Company of its obligations pursuant
to the Trust Agreement or this Agreement.
8.5 Enforceable Agreement. Each of the Trust Agreement and
this Agreement constitutes the legal, valid and binding agreement of the Trust
Company, enforceable against the Trust Company in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency or other laws affecting creditors' rights in general and principles
of equity.
8.6 Compliance with Applicable Law. The execution, delivery
and performance of the provisions of the Trust Agreement and this Agreement and
the consummation of the transactions contemplated by the Financing Documents by
the Trust Company do not and will not contravene in any material respect any
Applicable Law.
8.7 Principal Place of Business. The principal place of
business and chief executive office of the Trust Company are located at the
address set forth in Section 16.2, and the Trust Company has not maintained a
principal place of business or chief executive office anywhere else in the past
five years.
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8.8 No Duty to Investigate. The rights and remedies of Lender
under the Financing Documents in relation to any misrepresentation or breach of
warranty on the part of the Trust Company under the Trust Agreement and this
Agreement shall not be prejudiced by any lack of investigation by or on behalf
of Agent or any Lender into the affairs of Borrower, the Trust Company,
Guarantor or Lessee, by the performance of this Agreement or by any other act or
thing which may be done by Agent or any Lender in connection with the Financing
Documents and that would, apart from this Section 8.8, prejudice such rights or
remedies.
8.9 Trust Agreement. The Trust Agreement and the certificates
issued pursuant thereto constitute the entire agreement with respect to the
creation of the trust holding the "Trust Estate" (as defined in the Trust
Agreement) and the Trust Agreement is in full force and effect and has not been
amended, modified or supplemented except as specifically evidenced by the
amendments, modifications or supplements delivered pursuant to Section 3.
SECTION 9. GENERAL COVENANTS OF BORROWER
Borrower covenants and agrees to Agent and each Lender during
the Commitment Period as follows:
9.1 Notice of Default. Borrower shall inform the Lenders
promptly upon becoming aware of the occurrence of any Default, any Lease Default
or of the occurrence of any event set forth in Section 4.3.
9.2 Preservation of Trust Existence. (a) Borrower shall
preserve and maintain its trust existence and all its rights, privileges and
franchises, provided that Borrower may abandon or terminate any right, privilege
or franchise if such abandonment or termination will not have a material adverse
effect on its ability to perform its obligations under the Financing Documents
or on the value of the Collateral.
(b Borrower shall not change its principal place of business
or chief executive office, or the office where it maintains its records relating
to the Equipment, from that specified in Section 7.14, or transact business
under any trade name, assumed name or fictitious name without giving Agent at
least 30 days prior written notice.
9.3 Obtain Approvals. Borrower shall keep in full force and
effect all approvals required to be obtained or maintained by Borrower in
connection with the performance by Borrower of its obligations under the
Financing Documents where failure would have a material adverse effect on the
ability of Borrower to perform its obligations under the Financing Documents.
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9.4 Inspections. Borrower shall permit any duly authorized
representatives of Agent or any Lender, at all reasonable times and upon
reasonable notice to Borrower, to examine Borrower's books and records,
including to take memoranda and extracts and to make copies of such books and
records and to discuss the affairs, finances and accounts of Borrower with any
of its trustees, directors, employees or accountants.
9.5 Taxes. Borrower shall pay when due all Taxes payable by
Borrower, except for Taxes being contested in good faith, by appropriate
proceedings and for which adequate reserves have been provided by Borrower.
Borrower shall pay all Taxes required to be paid in connection with the
execution, delivery or performance of the Financing Documents.
9.6 Notice of Litigation. Borrower shall give prompt written
notice to Agent and the Lenders, in form and detail satisfactory to Agent and
the Lenders, of any material litigation or governmental proceeding pending or,
to Borrower's knowledge, threatened against it or the Collateral that, if
determined adversely, would have a material adverse effect on the rights and
interest of Agent or any Lender.
9.7 Further Assurances. Borrower shall promptly execute and
deliver any and all further instruments and documents as Agent may reasonably
require in order to obtain the full benefits of the Lien created or intended to
be created under the Security Agreement as well as all of the other obligations
of Borrower under the Financing Documents and the rights and powers granted to
Agent and the Lenders under the Financing Documents. Upon the instructions from
time to time of Agent, Borrower shall execute and cause to be filed any
financing statements (and any continuation statement with respect to any such
financing statement) or any other similar document or security agreement
relating to the Liens of the Security Agreement, or any other document or filing
presented to it in proper form for signing or filing as Agent may reasonably
deem necessary or desirable in light of Borrower's obligations under the
Financing Documents, and Borrower shall pay or cause to be paid any filing or
other fees in connection with any such filings.
9.8 Negative Pledge. Borrower shall not create, incur, assume
of suffer to exist any Lien with respect to the Collateral, whether arising
through or on account of Borrower, Lessee or otherwise but other than Permitted
Liens, and shall, at its own expense, promptly take such action as may be
necessary to duly discharge all Liens other than Permitted Liens on any part of
the Collateral.
9.9 Additional Indebtedness. Borrower shall not incur or
maintain Debt (excluding the Lease) in an amount greater than 50% of the Fair
Market Value of the aircraft owned by Borrower. For purposes of this Section
9.9, Fair Market Value shall mean the Fair Market Value of the aircraft as
determined by Airclaims Limited on a quarterly basis during the Commitment
Period.
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SECTION 10. COVENANTS RELATING TO EQUIPMENT
Borrower covenants and agrees to Agent and each Lender during
the Commitment Period as follows:
10.1 Registration of Each Airframe; No Sale. Borrower shall
maintain at all times the registration of each Airframe in the name of Borrower
in accordance with the Aviation Law and the filing of the Security Agreement
with the FAA. Borrower shall not sell, convey, transfer, encumber or otherwise
dispose of any of the Equipment except as permitted in this Section 10.
10.2 Recording. Borrower shall be responsible for and bear all
out-of-pocket expenses of Agent for the recording and re-recording, registering
and re-registering and filing and re-filing of the Security Agreement, any
Supplemental Agreement and such other instruments as Agent may reasonably
request from time to time in all jurisdictions and offices as Agent may
reasonably require from time to time in order that (a) the Lien of the Security
Agreement as a first priority lien on the Equipment and on all of the
Collateral, (ii) the security for the Obligations, and (iii) the rights and
remedies of Agent under the Security Agreement may be established, confirmed,
maintained and protected. Borrower will furnish to Agent evidence satisfactory
to Agent of every such recording, registering and filing which is not filed,
recorded or registered by Agent. Borrower appoints Agent as its irrevocable
attorney-in-fact (said agency coupled with an interest) to take all such action
and execute all such documents in Agent's own name or in the name of Borrower in
order to carry out the intent of this Section 10.2.
10.3 Information. Borrower shall furnish or shall cause Lessee
to furnish to Agent copies of all notices and communications delivered by Lessee
under either Lease. In addition, Borrower will advise and send a copy to Agent
of any notice received by Borrower from the FAA with respect to the Collateral.
10.4 Inspection. (a) To the extent Borrower has such rights
under either Lease, Borrower shall use all reasonable efforts to cause Lessee to
make the Equipment and the Technical Records available for visit, inspection and
survey by Agent, any Lender and any individual designated by Agent or any Lender
in accordance with each Lease, and so long as no Lease Default has occurred and
is continuing Agent and the Lenders shall not exercise such right other than on
reasonable notice and so as not to disrupt unreasonably the maintenance or
operation of the Equipment by Lessee.
(b Neither Agent nor any Lender shall have any duty to make,
or liability arising out of, any visit, inspection or survey of the Equipment or
the Technical Records.
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10.5 Transfers of Possession. At any time that any part of the
Equipment is in the possession of Borrower, whether following the termination of
either Lease, the repossession of such part of the Equipment by Borrower
pursuant to either Lease or otherwise, Borrower shall not lease or otherwise in
any manner deliver, transfer or relinquish possession or control of, or transfer
any right, title or interest in, any part of the Equipment to any Person other
than Agent, any Lender or any Person designated by Agent or any Lender.
10.6 Insurances. (a) Borrower shall at all times maintain, or
cause Lessee or any sublessee to maintain, insurance on the Equipment and the
Technical Records to the extent of and in compliance with the requirements of
each Lease at no cost to Agent or any Lender; provided that each policy of
insurance required pursuant to each Lease or this Section 10.6 shall:
(i) name each Indemnitee as an additional named
insured, but without the Indemnitees being liable for premiums
in respect of such insurance; and
(ii) name Agent as sole loss payee so long as the
Equipment is subject to the Lien of the Security Agreement.
(b Within 30 days before the renewal date of any Insurance
during the Commitment Period, Borrower shall cause Lessee's or its independent
insurance brokers, who shall be of recognized national standing, to furnish to
Agent and each Lender (i) a certificate in form satisfactory to Agent and the
Lenders certifying that the insurance required to be maintained pursuant to each
Lease and this Agreement is in full force and effect as of date of such
certificate, and (ii) a letter of undertaking confirming certain undertakings,
also in form satisfactory to Agent and the Lenders.
SECTION 11. EVENTS OF DEFAULT
11.1 Events of Default. The occurrence of any of the following
events, whether voluntary or involuntary, arising or effected by operation of
law or pursuant to or in compliance with any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body, not cured within the applicable cure period, if any, shall constitute an
"Event of Default":
(a if a Lease Event of Default occurs solely as a result of
the failure of Lessee to pay monthly "Basic Rent" (as defined in each Lease) and
either (i) within 10 days after the occurrence of such Lease Event of Default
Borrower fails to pay any amount equal to any unpaid Basic Rent, or (ii) such
Lease Event of Default is the fourth consecutive or the sixth overall such Lease
Event of Default; provided, however, that nothing contained in this Section
11.1(a) modifies or supersedes the provisions of Sections 11.1(c) through (l)
below;
(b if a Lease Event of Default occurs, other than a Lease
Event of Default that arises solely as a result of the failure of Lessee to pay
monthly "Basic Rent" (as defined in each Lease), to make a "Termination Payment"
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(as defined in each Lease) when due or to pay the amounts specified in Section
11.01(A), (B) and (C) of each Lease when due or arises solely as a result of the
failure of Lessee to pay any Excluded Amounts, and either (i) in the reasonable
opinion of Agent notified to Borrower in writing Borrower is unable to cure such
Lease Event of Default by the payment of money, or (ii) within 10 days after the
occurrence of such Lease Event of Default Borrower fails to eliminate the
condition constituting such Lease Event of Default; provided, however, that
nothing contained in this Section 11.1(b) modifies or supersedes the provisions
of Sections 11.1(c) through (l) below
(c the failure of Borrower to pay when due and payable any
principal of and interest on the Loan, whether by reason of stated maturity or
due date, mandatory prepayment, notice of prepayment, cancellation, acceleration
or otherwise, other than a failure arising solely from the failure of Lessee to
make any payment of Basic Rent;
(d the failure of Borrower, the Trust Company or Guarantor to
pay when due and payable any amount, other than principal and interest on the
Loan, that may become due under any of the Financing Documents, whether by
reason of stated maturity or due date, notice of prepayment, cancellation,
acceleration or otherwise, and such failure continues for ten days after the
giving of written notice by Agent of such failure;
(e any lapse of or failure by Borrower to maintain the
Insurances or perform its obligations set forth in Section 10.6, to preserve and
maintain its trust existence as required by Section 8.1, or to procure and
maintain the registration of both Airframes in the name of Borrower;
(f the failure by Borrower to perform or cause to be performed
its obligations as set forth in Section 10.2 of this Agreement concerning the
preparation or recordation of any document or instrument required by Agent for
the maintenance or perfection of the Lien on the Collateral within five Banking
Days after the giving of written notice thereof by Agent,
(g any failure by Borrower, the Trust Company or Guarantor to
fulfill any covenant or to perform any obligation under any Financing Document
other than as set forth in Sections 11.1(a) through (f) above, and such failure
is not cured within 30 days after the giving of written notice thereof by Agent;
(h if any representation or warranty made by Borrower, the
Trust Company or Guarantor in any Financing Document or any financial statement
proves to have been untrue, inaccurate or incomplete in any material respect at
the time when made or when effective and Borrower, the Trust Company or
Guarantor fails to do that which shall be necessary in order that said
representation or warranty shall be true, accurate or complete within 30 days
after the earlier of actual knowledge thereof by Borrower or of the giving of
written notice thereof by Agent;
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(i if Borrower or Guarantor files a voluntary petition in
bankruptcy or a voluntary petition or an answer seeking readjustment of its
debts or for any other relief under any bankruptcy, insolvency, or other similar
act or law of any jurisdiction, domestic or foreign, now or hereafter existing,
or any action by Borrower or Guarantor, indicating its consent to, approval of,
or acquiescence in, any such petition or proceeding; or if Borrower or Guarantor
applies for, or sustains the appointment by consent or acquiescence of, a
receiver or trustee for Borrower or Guarantor or for all or a substantial part
of their respective property; or if Borrower or Guarantor makes an assignment
for the benefit of its creditors, or if Borrower or Guarantor fails to pay or
becomes unable to pay its debts as they mature;
(j if an involuntary petition is filed against Borrower or
Guarantor in bankruptcy or seeking readjustment of its debts or for any other
relief under any bankruptcy, insolvency, or other similar act or law of any
jurisdiction, domestic or foreign, now or hereafter existing; or a receiver or
trustee is involuntarily appointed for Borrower or Guarantor or for all or a
substantial part of their respective property; or there is served on Borrower or
Guarantor a warrant of attachment, execution or similar process against any
material property and any of such events continues for 60 days undismissed,
unbonded or undischarged;
(k if this Agreement, any Note, the Security Agreement, the
Guaranty or the Deficiency Guaranty shall at any time after its respective
execution and delivery and for any reason cease to be in full force and effect
(except for the termination of the Guaranty in accordance with Section 3.3), or
the Security Agreement shall for any reason cease to be effective to constitute
a valid and perfected first priority Lien in and to the Collateral, except for
Permitted Liens; or
(l subject to the express provisions of this Agreement, if the
Equipment or any part of the Equipment is sold, transferred, assigned, leased,
encumbered or otherwise disposed of without the prior consent of Agent, other
than any such transfer that constitutes a Permitted Lien.
11.2 Acceleration. (a) Subject to Section 11.2(c), upon the
occurrence of an Event of Default (other than an Event of Default specified in
Section 11.1(i) or (j) above) and upon notice to Borrower, Agent may terminate
the Commitments of the Lenders and declare the entire outstanding principal
balance of, and accrued interest on, the Loan and any and all other sums payable
by Borrower under the Financing Documents, including any overdue or default rate
interest or other amounts, to be due and payable.
(b Upon the occurrence of an Event of Default specified in
Section 11.1(i) or (j), automatically and without any notice to Borrower the
principal of and accrued interest on the Loan and any and all other sums payable
by Borrower to the Lenders under the Financing Documents, including penalties
and all other amounts, shall be due and payable (including sums payable pursuant
to Section 6.1).
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(c Upon the occurrence of an Event of Default specified in
Section 11.1(a) or (b) and upon notice to Borrower, Agent may declare the entire
outstanding principal balance of, and accrued interest on, the Loan and any and
all other sums payable by Borrower under the Financing Documents, including any
overdue or default rate interest or other amounts, to be due and payable;
provided, that if the only Events of Default result solely from Section 11.1(a)
or (b), then (i) Agent shall not be entitled to proceed to foreclose the Lien of
the Security Agreement unless it shall, to the extent that it is then entitled
to do so under the Security Agreement and the applicable Lease and is not then
stayed or otherwise prevented from doing so by operation of law, concurrently
exercise one or more remedies (other than or in addition to declaring the Lease
to be terminated) referred to in Article 18 of such Lease as it shall in its
sole good faith discretion determine and (ii) if such exercise is so stayed or
prevented by operation of law as a result of Lessee's bankruptcy, Agent will not
foreclose the Lien of the Security Agreement until the earlier of (1) the
expiration of the "Section 1110 Period" (as hereinafter defined), or (2) actual
repossession of the Aircraft; provided, that:
(A) if (I) Lessee agrees, with the approval of the
relevant court, to perform such Lease in accordance with
Section 1110 of the Bankruptcy Code and is performing the
Lease in accordance with its terms and has cured all defaults
required by Section 1110 of the Bankruptcy Code or (II) Lessee
assumes such Lease with the approval of the relevant court in
accordance with Section 365 of the Bankruptcy Code and is
performing the Lease in accordance with its terms and has
cured all defaults as required by Section 365 of the
Bankruptcy Code, then Agent shall refrain from foreclosing the
Lien of the Security Agreement; and
(B) if a Lease Event of Default has occurred and is
continuing and, before an Event of Default has occurred and is
continuing, Agent declares either Lease to be in default and
terminated in accordance with Article 18 of such Lease and
subsequently thereto a proceeding under Chapter 11 of the
Bankruptcy Code is commenced by or against Lessee and Agent is
not stayed or otherwise prevented from exercising remedies
under Article 18 of such Lease by operation of law, then Agent
will not foreclose the Lien of the Security Agreement until
the earlier of (I) the expiration of the "Section 1110 Period"
(as hereinafter defined), or (II) actual repossession of the
Aircraft.
For purposes of this Section 11.2(c), the term "Section 1110 Period" means the
longer of (x) the 60-days period from the date of the order for relief under
Chapter 11 of the Bankruptcy Code in respect of Lessee's bankruptcy as provided
in Section 1110(a) of the Bankruptcy Code, as such period may be extended by
agreement of Borrower, Agent and the bankruptcy trustee of Lessee pursuant to
Section 1110(b) of the Bankruptcy Code, and (y) the period (not to exceed 120
days) during which the applicability of Section 1110 of the Bankruptcy Code to
the Aircraft is being contested in good faith by Lessee in appropriate judicial
proceedings.
(d) Amounts to be paid by Borrower pursuant to Section 11.2(a)
through (c) shall be paid without presentment, demand, protest or other notice
of any kind, all of which are hereby expressly waived, and except to the extent
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expressly set forth in Section 11.2(c) of this Agreement and Section 2.5 of the
Security Agreement, Agent and any Lender may exercise any and all rights and
remedies under the Security Agreement or under Applicable Law.
11.3 Effect of Bankruptcy Stay. In the event Borrower becomes
subject to the jurisdiction of a bankruptcy court and Agent and the Lenders, as
a result, are prevented by any order of such court or by operation of any law
from sending any notice permitted or required to commence a period during which
Borrower may cure any Event of Default, then the period during which Borrower
may cure such Event of Default shall commence to run without notice on the first
date on which Agent would have been entitled to give such notice but for the
effectiveness of such order or law.
SECTION 12. FEES AND EXPENSES
12.1 Transaction Expenses. Borrower will, on the Closing Date,
on the Additional Commitment Closing Date and subsequently upon receipt of
invoices by Agent and the Lenders, pay to or reimburse Agent and the Lenders for
(i) all reasonable out-of-pocket expenses incurred in connection with the
negotiation, execution and delivery of the Financing Documents, including all
filing and recordation fees incurred by Agent and the initial Lender in
connection with the perfection of the Lien granted by Borrower pursuant to the
Financing Documents and the Additional Commitment Documents, (ii) all reasonable
legal fees and disbursements of Agent's and the initial Lender's counsel
incurred in connection with all professional services rendered and to be
rendered and disbursements incurred and to be incurred by said lawyers with
respect to the negotiation, execution and delivery of the Financing Documents
and the Additional Commitment Documents, including the reasonable fees and
disbursements incurred by Feltman, Karesh, Major & Farbman, Limited Liability
Partnership and Special FAA Counsel, and (iii) all out-of-pocket expenses of
Agent and the Lenders incurred in connection with the preservation and/or
enforcement of any rights granted to the Lenders and Agent under any Financing
Document and the Additional Commitment Documents.
12.2 Up-front Fee. Borrower (i) paid to Agent on the Closing
Date a fee in the amount of $80,000, and (ii) shall pay to Agent on the
Additional Commitment closing date an additional one-time fee in the amount of
$50,000.
12.3 Credit Approval. (a) Agent acknowledges receiving on
behalf of the Lenders a fee in the amount of $50,000 (the "Credit Approval
Fee"), which Borrower acknowledges was the property of the Lenders and not
subject to any claim or interest of Borrower or Guarantor as beneficiary under
the Trust Agreement except to the extent set forth in this Section 12.3(a).
Borrower confirms that on the Closing Date, upon consummation by Borrower, the
Trust Company and Guarantor of the transactions contemplated by the Financing
Documents, Agent paid the Credit Approval Fee to Borrower.
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(b) Agent acknowledges receiving on behalf of the Lenders a
fee in the amount of $25,000 (the "Additional Credit Approval Fee"), which
Borrower acknowledges is the property of the Lenders and not subject to any
claim or interest of Borrower or Guarantor as beneficiary under the Trust
Agreement except to the extent set forth in this Section 12.3(b). Agent and the
Lenders agree that on the Additional Commitment Closing Date, upon consummation
by Borrower, the Trust Company and Guarantor of the transactions contemplated by
the Additional Commitment Documents, Agent shall pay the Additional Credit
Approval Fee to Borrower on behalf of the Lenders. Borrower agrees that if
Borrower, the Trust Company, Guarantor and Lessee, or any of them, fail to
consummate the transactions contemplated by the Additional Commitment Documents
on the Additional Commitment Closing Date, the Lenders shall be entitled to
retain the Additional Credit Approval Fee free and clear of any claims by
Borrower or Guarantor.
12.4 Commitment Termination Fee. On any date on which the
Total Commitment under this Agreement is terminated, whether pursuant to Section
4.3, 4.4, 11.2 or otherwise (excluding, however, terminations pursuant to
Sections 4.3(a), 6.3 and 11.2 and any termination by Borrower pursuant to
Section 4.4 as a result of liability of Borrower arising under Section 6.4 or
6.5 that exceeds or will exceed, in the aggregate, $100,000 during the
Commitment Period), Borrower shall pay to Agent on behalf of the Lenders on the
date of such termination or reduction a commitment termination fee (the
"Commitment Fee") equal to (a) on or before September 30, 1999, 1.0% of the
amount of the Total Commitment immediately before termination, and (b) on or
after October 1, 1999, 0.5% of the amount of the Total Commitment immediately
before termination.
12.5 Commitment Fee. (a) Borrower shall pay to Agent for the
account of each Lender a non-refundable commitment fee (the "Commitment Fee") on
the daily average amount of the Unused Commitment for each Payment Period during
the Commitment Period at an annual rate equal to the following formula:
0.01875 - 0.0025(OL / UC)
where "OL" is the average principal amount of the Loan outstanding during such
Payment Period and "UC" is the Unused Commitment for such Payment Period;
provided, that if the preceding formula yields a negative number, the Commitment
Fee for such Payment Period shall be zero.
(b) The accrued Commitment Fee shall be payable quarterly in
arrears on each Payment Date for the Payment Period then ending and, in the
event Total Commitment is terminated, on the effective date of such termination.
12.6 Extension Fee. Upon the exercise by Borrower of its
option to extend the Commitment Period pursuant to Section 2.8 hereof, Borrower
shall pay to Agent a one-time non-refundable fee in the amount of $20,000.
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SECTION 13. AGENT
13.1 Appointment, Powers and Immunities. Each Lender hereby
irrevocably appoints and authorizes Agent to act as its agent under the
Financing Documents with such powers as are specifically delegated to Agent by
the terms of the Financing Documents, together with such other powers as are
reasonably incidental to such delegated powers. Agent shall have no duties or
responsibilities except those expressly set forth in the Financing Documents and
shall not be a trustee for any Lender. Agent shall not be responsible to the
Lenders (a) for any recitals, statements, representations or warranties
contained in the Financing Documents, in any certificate or other document
referred to or provided for in, or received by any of them under, the Financing
Documents, (b) for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of the Financing Documents or any other document
referred to or provided for in the Financing Documents, (c) for the
collectibility of the Loan, (d) for the validity, effectiveness or value of any
interest or security covered by the Security Agreement, (e) for the value of the
Collateral, (f) for the validity or effectiveness of any assignment, mortgage,
pledge, security agreement, financing statement, document or instrument or for
the filing, recording, re-filing, continuing or re-recording of any thereof, or
(g) for any failure by Borrower or any other party to the Financing Documents to
perform any of its obligations under the Financing Documents, except that Agent
shall undertake to file continuation statements for the financing statements
filed naming Agent as secured party. In all its actions and duties, Agent may
employ agents and attorneys-in-fact and shall not be answerable, except as to
money or securities received by it or its authorized agents, for the negligence
or misconduct of any such agents or attorneys-in-fact selected by it with
reasonable care. Neither Agent nor any of its directors, officers, employees or
agents shall be liable or responsible for any action taken or omitted to be
taken by it or them under the Financing Documents or in connection with the
Financing Documents except for its or their own gross negligence or willful
misconduct.
13.2 Reliance by Agent. Agent shall be entitled to rely upon
any certification, notice or other communication (including by telephone, telex,
telegram or cable) believed by it to be genuine and correct and to have been
signed or sent by or on behalf of the proper person or persons, and upon advice
and statements of legal counsel, independent accountants and other experts
selected by Agent. As to any matters not expressly provided for by the Financing
Documents, Agent shall in all cases be fully protected in acting, or in
refraining from acting, under the Financing Documents in accordance with
instructions signed by the Majority Lenders, and such instructions of the
Majority Lenders or other number of the Lenders as aforesaid and any action
taken or failure to act pursuant thereto shall be binding on all of the Lenders.
13.3 Events of Default. Agent shall not be deemed to have
knowledge of the occurrence of a Default unless Agent has received notice from a
Lender or Borrower specifying such Default and stating that such notice is a
"Notice of Default". In the event that Agent receives such a notice of the
occurrence of a Default, Agent shall promptly give notice of such Default to the
Lenders (and shall give each Lender notice of each such non-payment). Subject to
Section 13.6, Agent shall take such action with respect to such Default as shall
be directed by the Majority Lenders.
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13.4 Indemnification of Agent. The Lenders shall indemnify
Agent (to the extent not reimbursed by Borrower, Trust Company, Guarantor or
Lessee pursuant to the Financing Documents) ratably in accordance with the
aggregate principal amount of the Commitments of the Lenders for any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind and nature whatsoever imposed on,
incurred by or asserted against Agent in any way relating to or arising out of
(a) the Financing Documents, (b) any other documents contemplated by or referred
to in the Financing Documents, (c) the transactions contemplated by or referred
to in the Financing Documents (including the costs and expenses that Borrower is
obligated to pay under Section 12 but excluding, unless a Default has occurred
and is continuing, normal administrative costs and expenses incident to the
performance of its agency duties under the Financing Documents), or (d) the
enforcement of any of the terms of the Financing Documents or of any other
documents, provided that no Lender shall be liable for any of the foregoing to
the extent they arise from the gross negligence or willful misconduct of Agent.
13.5 Non-Reliance on Agent and other the Lenders. (a) Each
Lender agrees that it has, independently and without reliance on Agent or any
other Lender, and based on such documents and information as it has deemed
appropriate, made its own credit analysis of Borrower and its own decision to
enter into this Agreement, and that it will, independently and without reliance
upon Agent or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own analysis and
decisions in taking or not taking action under the Financing Documents.
(b) Agent shall not be required to keep itself informed as to
the performance or observance by Borrower of the Financing Documents or to
inspect the properties or books of Borrower. Except for any notices, reports and
other documents and information expressly required to be furnished to the
Lenders by Agent under the Financing Documents, Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the affairs, financial condition or business of Borrower, Guarantor
or Lessee that may come into the possession of Agent.
13.6 Failure to Act. Except for action expressly required of
Agent under the Financing Documents, Agent shall in all cases be fully justified
in failing or refusing to act under the Financing Documents unless it shall be
indemnified to its satisfaction by the Lenders against any and all liabilities
and expenses that may be incurred by it by reason of taking or continuing to
take any such action.
13.7 Resignation or Removal of Agent. Subject to the
appointment and acceptance of a successor Agent as provided in this Section
13.7, Agent may resign at any time by giving not less
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than 10 days prior written notice to the Lenders and Borrower. Agent may be
removed at any time for cause by the Majority Lenders, and may be removed at any
time without cause by the affirmative vote of all the Lenders. Upon any such
resignation or removal, the Majority Lenders shall appoint a successor Agent,
which with the consent of all the Lenders may be a Lender and which, if the
successor Agent is not a Lender, shall require the consent of Borrower, such
consent not to be unreasonably withheld or delayed. If no successor Agent is
appointed by the Lenders and accepts such appointment within 30 days after the
resigning Agent's notice of resignation or the Lenders' removal of the previous
Agent, then the resigning or removed Agent may, on behalf of the Lenders, after
consultation with Borrower, appoint a successor Agent. Upon the acceptance of
any appointment as Agent under the Financing Documents by a successor Agent,
such successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations under the Financing
Documents. Borrower, the Lenders and the retiring Agent shall, at Borrower's
expenses, thereupon execute, deliver and file financing statement amendments
reflecting such change. After any retiring Agent's resignation or removal as
Agent, the provisions of this Section 13 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as Agent.
SECTION 14. CERTAIN MATTERS CONCERNING THE LENDERS
14.1 Pro Rata Treatment Among the Lenders. Except as otherwise
provided in the Financing Documents, (a) each borrowing from the Lenders under
Section 2.1 will be made from the Lenders and each payment of the Commitment
Fee, Commitment Termination Fee and the Commitment Extension Fee shall be made
for the account of the Lenders pro rata according to their respective
Commitments, and (b) each payment and prepayment of principal of or interest on
the Loan will be made to Agent for the account of the Lenders pro rata according
to their respective Commitments.
14.2 Sharing of Collateral and Payments. In the event that at
any time any Lender shall obtain payment in respect of a Note or interest on the
Loan, or receive any collateral in respect of any portion of the Loan, whether
voluntarily or involuntarily, in a greater proportion than any such payment
obtained by any other Lender in respect of the corresponding Note held by it or
interest thereon, then the Lender so receiving such greater proportionate
payment shall purchase for cash from the other Lenders such portion of each such
other Lender's outstanding loan, or shall provide such other Lenders with the
benefits of any such collateral or the proceeds thereof, as shall be necessary
to cause such Lender receiving the proportionate over-payment to share the
excess payment or benefits of such collateral or proceeds ratably with each of
the other Lenders, each of which shall have a Lien on its ratable portion of the
amount described hereinafter obtained from Borrower; provided, however, that if
all or any portion of such excess payment or benefits is thereafter recovered
from the Lender which received the proportionate over-payment, such purchase
shall be rescinded and the purchase price and benefits returned to the extent of
such recovery, but without interest.
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14.3 Several Obligations. The failure of any Lender to make
any Advance to be made by it on a Borrowing Date shall not relieve the other
Lenders of their respective obligations to make their Advances on such Borrowing
Date, but no Lender shall be responsible for the failure of the other Lenders to
make Advances to be made by such other Lenders.
SECTION 15. REGISTRATION AND TRANSFER OF NOTES
15.1 Registration, Transfer and Exchange of Notes. Borrower
will maintain a register for the registration and transfer of the Notes. Subject
to Section 16.9, any Lender may transfer or exchange an outstanding Note for one
or more new Notes by surrendering such outstanding Note at the address of
Borrower set forth in Section 16.2, together with its written request for the
issuance of a new Note or Notes, specifying the authorized denomination or
denominations of the same and the name and address of the Person or Persons in
whose name or names the new Note or Notes are to be registered and payable.
Promptly upon receipt by Borrower of the foregoing, but subject to Section 16.9,
Borrower shall execute and deliver such new Note or Notes, in the aggregate
principal amount of and dated the same date as the outstanding Note surrendered,
in such denomination or denominations specified in the written request and
registered in and payable to such Person or Persons specified in such written
request; provided, that if more than one new Note is to be issued, the
denominations of all but one of such new Notes shall not be less than $100,000.
Borrower shall make a notation on each new Note of the amount of all payments of
principal theretofore made, or the date to which such payments have been made,
on the old Note or Notes in exchange for which such new Note has been issued and
the date to which interest on such old Note or Notes has been paid.
15.2 Mutilated, Destroyed, Lost or Stolen Notes15. If any Note
shall become mutilated or shall be destroyed, lost or stolen, Borrower shall,
upon the written request of the holder of such Note, execute and deliver in
replacement thereof, a new Note, payable in the same original principal amount
and dated the same date as the Note so mutilated, destroyed, lost or stolen.
Borrower shall make a notation on each new Note of the amount of all payments of
principal and premium, if any, theretofore made, or the date to which such
payments have been made on the Note so mutilated, destroyed, lost or stolen and
the date to which interest on such old Note has been paid. If the Note being
replaced has been mutilated, such Note shall be delivered to Borrower and shall
be canceled by it. If the Note being replaced has been destroyed, lost or
stolen, the Lender holding such Note shall furnish to Borrower an indemnity
agreement reasonably satisfactory to Borrower that holds Borrower harmless from
any loss, including claims for principal of and interest on the purportedly
destroyed, lost or stolen Note, together with the written statement, signed by a
duly authorized officer of such Lender, advising as to the destruction, loss or
theft of such Note.
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15.3 Transferability of Note. Each Note shall be transferable
by the holder of such Note upon the terms set forth in Section 16.9 of this
Agreement. No transfer of a Note shall be valid unless and until a new Note or
Notes in the name of the transferee or transferees has been issued in accordance
with Section 15.1.
15.4 Validity of Substituted Note. All Notes executed and
delivered in substitution or exchange for any Note shall be the valid
obligations of Borrower, evidencing the same debt as the Note in exchange for
which they were executed and delivered, and shall be secured by the Lien of the
Security Agreement to the same extent as though originally issued under this
Agreement.
15.5 Cancellation of Notes. All Notes surrendered to Borrower
for payment, prepayment in full, transfer or exchange shall be canceled by it,
and no Note shall be issued in lieu thereof except as expressly permitted by the
provisions of this Agreement.
SECTION 16. MISCELLANEOUS PROVISIONS
16.1 Modifications, Consents and Waivers; Entire Agreement.
(a) No modification, amendment or waiver of any provision of the Financing
Documents, any other agreement, instrument and document delivered pursuant to
the Financing Documents or consent to any departure by Borrower from any of the
terms or conditions of the Financing Documents shall be effective unless it is
in writing and signed by the parties to such Financing Document or other
agreement, instrument or document or, in the case of this Agreement, by Agent
and by the requisite the Lenders as set forth in Section 16.1(b). Any such
waiver or consent shall be effective only in the specific instance and for the
purpose for which given. No consent to or demand on Borrower in any case shall,
of itself, entitle it to any other or further notice or demand in similar or
other circumstances.
(b) The provisions of this Agreement may be modified, amended
or waived, or a consent given with respect to such provisions, if signed by
Agent and the Majority Lenders, except that:
(i) any modification, amendment, waiver or consent that has
the effect of changing or waiving the Commitment of any Lender, the
principal amount of the Advances to be borrowed or repaid, the maturity
of the Loan, the dates for and the amount of repayment of any Advance,
the Interest Rate and the provisions of this Section 16.1(b) shall
require the agreement of Agent and all the Lenders; and
(ii) any modification or amendment that has the effect of
increasing the Total Commitment (but not the Commitment of any Lender)
shall require the agreement of Agent and Majority Lenders.
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16.2 Notices. (a) Every notice or demand under this Agreement
shall be in writing and may be given or made by registered mail, return receipt
requested, by internationally recognized overnight courier service or by telefax
(with an additional copy of the notice sent by courier for confirmation
purposes).
(b) Every notice or demand shall be sent, in the case of
overnight courier, registered mail or telefax, to the address of any Lender set
forth on the signature page to this Agreement of such Lender and to Agent or
Borrower at the following address:
(i) to Borrower: Meridian Trust Company
c/o First Union National Bank
Corporate Trust Administration
One Rodney Square
920 King Street, 1st Floor
Wilmington, Delaware 19801
Telephone: +1-302-888-7530
Telefax: +1-302-888-7544
with a copy to: Airlease Ltd., A California Limited
Partnership
555 California Street, 4th Floor
San Francisco, California 94104
Attention: President
Telephone: +1-415-765-7492
Telefax: +1-415-765-1817
(ii) to Agent: Credit Lyonnais/PK AIRFINANCE,
New York Branch
Carnegie Hall Tower
152 West 57th Street
New York, New York 10019
Attention: First Vice President
Telephone: +1-212-245-2575
Telefax: +1-212-397-9393
with a copy to: Credit Lyonnais/PK AIRFINANCE
European Bank and Business Center
6D, rue de Treves
L-2633 Senningerberg
Luxembourg
Attention: Vice President, Contracts
Telephone: +352-34-20-301
Telefax: +352-34-80-50
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(c) Every notice or demand shall, except so far as otherwise
expressly provided by this Agreement, be deemed to have been received if sent by
internationally recognized overnight courier service or registered mail, upon
acknowledgment of receipt or as of the date on which receipt of such notice
delivered by overnight courier or registered mail is refused or such courier or
the relevant postal service advises that such letter is not deliverable at the
address set out in Section 16.2 or, in the case of a telefax, after the sender
has received evidence of successful transmission.
(d) Any party hereto may change its address for the purpose of
giving notice by advising the other parties of such change of address in a
notice given pursuant to the provisions of this Section 16.2.
16.3 Entire Agreement; No Oral Change. This Agreement
(including all Exhibits and Appendices hereto and documents or instruments
executed in connection herewith) embodies the entire agreement and understanding
between Borrower, Agent and the Lenders relating to the subject matter hereof
and thereof and supersedes all prior agreements and understandings relating
hereto and thereto and none of the parties hereto or thereto shall be bound by
or charged with any oral or written agreements, representations, warranties,
statements, promises or understandings not specifically set forth herein or
therein. This Agreement may not be changed and no right granted or obligation
imposed hereunder may be waived orally, but only by an instrument in writing
signed by the party against whom enforcement of any waiver, change, modification
or discharge is sought.
16.4 Governing Law; Jurisdiction and Venue. THIS AGREEMENT
SHALL BE DEEMED TO HAVE BEEN NEGOTIATED AND MADE IN, AND SHALL BE GOVERNED AND
INTERPRETED UNDER THE LAWS OF, THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS
MADE BY RESIDENTS THEREOF TO BE WHOLLY PERFORMED THEREIN. Borrower, Agent and
the Lenders hereby consent and submit to the non-exclusive jurisdiction and
venue of the United States District Court of the Southern District of New York
and agree that venue is proper in those courts and waive any right to object
based upon jurisdiction (either personal or subject matter) or venue or
inconvenient forum therein in connection with any action arising out of, or
connected in any way with, this Agreement, the Notes or any other Financing
Document executed in connection herewith or therewith or contemplated hereby or
thereby. Borrower agrees that service of process or any other papers upon it by
registered air mail at its address set forth herein shall be deemed good, proper
and effective service upon it. Nothing set forth herein shall be deemed to
preclude the service of process or any other papers upon Borrower by any other
method permitted by Applicable Law.
16.5 Usury. Notwithstanding any provision to the contrary
herein contained neither Agent nor the Lenders shall collect a rate of interest
on any obligation owing by Borrower to the Lenders in excess of the maximum rate
of interest permitted by Applicable Law. Borrower understands and believes that
the lending transaction which is the subject of this Agreement complies with all
applicable usury laws; however, if any interest or other charges in connection
with such lending transaction are ever determined to
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exceed the maximum amount permitted by law, then Borrower agrees that (a) the
amount of interest or charges payable pursuant to this Agreement and the Notes
shall be reduced to the maximum amount permitted by law, and (b) any excess
amount previously collected from Borrower in connection with this Agreement or
Notes that exceeds the maximum amount permitted by law shall be credited against
the principal amount of the Loan then outstanding. If the outstanding principal
balance of the Loan has been paid in full, the excess amount paid shall be
refunded to Borrower. The "contracted for rate of interest" of the Commitment to
be advanced pursuant to the terms hereof includes the following: (i) the
Interest Rate calculated and applied to the principal balance of the Loan in
accordance with the provisions of this Agreement and the Notes; (ii) the rate of
interest to be calculated and applied with respect to the principal balance of
the Loan outstanding in accordance with the provisions of Section 4.2(c); (iii)
the fees set forth in Section 12; and (iv) all fees, charges, goods, things in
action or any sum or things of value (collectively, "Additional Sums") paid or
payable by Borrower, whether pursuant to this Agreement or any other Financing
Document. If any such Additional Sums may, under Applicable Law, be deemed to be
interest with respect to the lending transaction which is the subject of this
Agreement, then, for the purpose of any Applicable Law that may limit the
maximum amount of interest to be charged with respect to the lending transaction
which is the subject of this Agreement, such Additional Sums shall be payable by
Borrower as, and shall be deemed to be, additional interest, and for such
purposes only, the agreed upon and "contracted for rate of interest" of this
transaction shall be deemed to be increased by the rate of interest resulting
from the Additional Sums.
16.6 No Broker. Each of Borrower, Agent and the Lenders hereby
represent and warrant to the other that no broker brought about the transactions
contemplated hereby and each party hereby agrees to indemnify and hold the other
party harmless from, any and all liabilities and costs (including without
limitation, costs of counsel) to any person or entity claiming brokerage
commissions or finder's fees on account of this Agreement.
16.7 Survival. Each of the representations, warranties and
covenants of Borrower contained herein shall survive the Closing Date.
16.8 Waiver of Jury. Borrower, Agent and the Lenders
irrevocably waive the right to a trial by jury in any action or proceeding
brought to enforce any provision of this Loan Agreement, the Notes, the Security
Agreement or any other Financing Document to which they are parties.
16.9 Assignment, Successors and Assigns. (a) Borrower shall
not assign any rights under this Agreement nor shall any of Borrower's duties
hereunder or under the Notes, Security Agreement or other Financing Documents to
which it is a party be assigned or delegated without the prior written consent
of the Majority Lenders which consent shall not be unreasonably withheld or
delayed, and any such assignment or delegation shall be null and void.
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(b) Each of the Lenders or any assignee, transferee or
sub-participant (a "Transferee") may with the prior consent of Borrower, such
consent not to be unreasonably withheld or delayed, assign all or any part of
its rights and benefits under this Agreement, and each of the Lenders or any
Transferee may without the prior consent of Borrower at any time sub-participate
all or any part of its rights and benefits under this Agreement; provided, that
no such assignment or sub-participation made as aforesaid will result in the
obligations of Borrower under this Agreement being greater than they would have
been in the absence of such assignment.
(c) A Lender may disclose to a potential Transferee such
information about Borrower as shall have been made available to that Lender in
connection with this Agreement generally and additionally may disclose such
information to any affiliate of that Lender or, on being requested to provide
the same, to any governmental or regulatory body.
(d) The Lender or any Transferee may at any time and from time
to time change its lending office but such Lender shall give Borrower prior
notice thereof. Until Borrower receives such notification, it shall be entitled
to assume that the Lender or Transferee is acting through the lending office of
which it last had notice; provided that no such change of lending office (unless
made at the request of Borrower) will result in Borrower's obligations hereunder
being greater than they would have been in the absence of such change.
16.10 Captions and Section Headings; Construction. Captions
and Section headings used herein are for convenience only and are not a part of
this Agreement and shall not be used in construing it. This Agreement and all
documents executed in connection with this Agreement shall be construed without
regard to the identity of the party that prepared such document, and no
presumption shall arise as a result thereof.
16.11 Severability. In the event that any one or more of the
provisions of this Agreement, the Notes or any Financing Document shall be
invalid, illegal or unenforceable in any respect or in any jurisdiction, the
validity, legality and enforceability of the remaining provisions contained
herein and therein or of the same provisions in any other jurisdiction shall not
in any way be affected or impaired thereby.
16.12 Time of the Essence. Time is of the essence with respect
to all of the payment and performance obligations of Borrower under the
Financing Documents.
16.13 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall constitute an original and, when taken
together, all of which shall constitute one and the same Agreement.
[signature pages follow]
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IN WITNESS WHEREOF, Borrower, the Lenders and Agent have
caused their duly authorized officers to execute and deliver this Secured Loan
Agreement as of the day and year first written above.
Borrower: MERIDIAN TRUST COMPANY, not in its
individual capacity except as expressly
set forth in this Agreement but as owner
trustee pursuant to the Trust Agreement
By:________________________________
Name:
Title:
Agent: CREDIT LYONNAIS/PK AIRFINANCE, NEW
YORK BRANCH, as Agent for the Lenders
By:________________________________
Name:
Title:
By:________________________________
Name:
Title:
<PAGE> 61
LENDER SIGNATURE PAGE
CREDIT LYONNAIS/PK AIRFINANCE, NEW YORK BRANCH
By:________________________________
Name:
Title:
By:________________________________
Name:
Title:
Commitment Percentage: 100.00%
Lending Office for Loans: Carnegie Hall Tower
152 West 57th Street
New York, New York 10019
Attention: First Vice President
Telephone: +1-212-245-2575
Telefax: +1-212-397-9393
Address for Notices: Lending Office
with a copy to: Credit Lyonnais/PK AIRFINANCE
European Bank and Business Center
6D, rue de Treves
L-2633 Senningerberg
Luxembourg
Attention: Vice President, Contracts
Telephone: +352-34-20-301
Telefax: +352-34-80-50
<PAGE> 62
Schedule 1
TOTAL COMMITMENT
The Total Commitment of the Lenders at any time shall be the
amount set forth below during the indicated period, and the Commitment of any
Lender at any time shall be such Lender's Commitment Percentage of the amount
set forth below during the indicated period:
<TABLE>
<CAPTION>
Period Commitment
------ ----------
<S> <C>
Closing Date to March 31, 1998 $7,450,000
April 1, 1998 to June 30, 1998 6,900,000
July 1, 1998 to September 30, 1998 6,350,000
October 1, 1998 to immediately prior to
Additional Commitment Closing Date 5,800,000
Additional Commitment Closing Date
to December 31, 1998 10,800,000
January 1, 1999 to March 31, 1999 10,030,000
April 1, 1999 to June 30, 1999 9,260,000
July 1, 1999 to September 30, 1999 8,490,000
October 1, 1999 to December 31, 1999 7,720,000
January 1, 2000 to March 31, 2000 7,050,000
April 1, 2000 to June 30, 2000 6,380,000
July 1, 2000 to September 30, 2000 5,710,000
October 1, 2000 to December 31, 2000 5,040,000
January 1, 2001 to March 31, 2001 4,370,000
April 1, 2001 to June 30, 2001 3,700,000
July 1, 2001 to September 30, 2001 3,030,000
October 1, 2001 and thereafter 0
</TABLE>
-56-
<PAGE> 63
Schedule 2
TOTAL COMMITMENT DURING THE EXTENSION PERIOD
The Total Commitment of the Lenders at any time during the
Extension Period shall be the amount set forth below during the indicated
period, and the Commitment of any Lender at any time during the Extension Period
shall be such Lender's Commitment Percentage of the amount set forth below
during the indicated period:
<TABLE>
<CAPTION>
Period Commitment
------ ----------
<S> <C>
October 1, 2001 to December 31, 2001 2,424,000
January 1, 2002 to March 31, 2002 1,818,000
April 1, 2002 to June 30, 2002 1,212,000
July 1, 2002 to September 30, 2002 606,000
October 1, 2002 and thereafter 0
</TABLE>
-57-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 9
<SECURITIES> 0
<RECEIVABLES> 30,400
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 75,813
<CURRENT-LIABILITIES> 0
<BONDS> 14,505
0
0
<COMMON> 0
<OTHER-SE> 58,301
<TOTAL-LIABILITY-AND-EQUITY> 75,813
<SALES> 8,400
<TOTAL-REVENUES> 8,400
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,822
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,704
<INCOME-PRETAX> 4,874
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,874
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,874
<EPS-PRIMARY> 1.04
<EPS-DILUTED> 1.04
</TABLE>
