<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
JETSTREAM II, L.P.
-------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
-------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|_| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Limited Partnership Units
(2) Aggregate number of securities to which transaction applies:
4,837,505
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined): $4.82*
(4) Proposed maximum aggregate value of transaction: $23,335,000
(5) Total fee paid: $4,667
|X| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
- -----------------
* Estimated solely for purposes of calculating filing fee. Based on the
estimated gross proceeds from the sale of JetStream II, L.P.'s assets.
<PAGE>
JETSTREAM II, L.P.
3 World Financial Center, 29th Floor
New York, New York 10285
(212) 526-3183
October 15, 1999
Dear Unitholder:
On behalf of JetStream II, L.P., we are writing to recommend that you
authorize us, as the general partners of JetStream II, to liquidate the assets
of JetStream II and wind up its affairs. Because you are an investor in
JetStream II, we are required to ask for your consent to complete the
liquidation.
In connection with the proposed liquidation, enclosed are the following:
1. Consent Solicitation Statement - this document
describes the terms of the proposed liquidation.
Please carefully review the information in the
enclosed consent solicitation statement before
voting; and
2. Consent of Unitholder and Return Envelope - please
mark your vote and sign this blue form and return it
in the enclosed, postage-prepaid envelope or by
facsimile to (212) 929-0308 by 5 p.m., Eastern Time,
on November 19, 1999.
If you have any questions or require assistance completing the enclosed
blue consent card, please call JetStream II's consent solicitation agent at
(800) 322-2885.
Sincerely, Sincerely,
/s/ Michael L. Rosen /s/ Michael T. Marron
- --------------------- ----------------------
Michael L. Rosen Michael T. Marron
President President
CIS Aircraft Partners, Inc., as Jet Aircraft Leasing, Inc., as
Managing General Partner Administrative General Partner
- --------------------------------------------------------------------------------
Your response to this solicitation is very important
in order to ensure that your interests will be represented.
The General Partners recommend that unitholders vote "FOR" the liquidation.
- --------------------------------------------------------------------------------
<PAGE>
JETSTREAM II, L.P.
3 WORLD FINANCIAL CENTER, 29TH FLOOR
NEW YORK, NEW YORK 10285
(212) 526-3183
------------------------------
NOTICE OF CONSENT SOLICITATION
------------------------------
NOTICE IS HEREBY GIVEN, to the holders of limited partnership
interests and units (collectively, the "unitholders") of JetStream II, L.P.
("JetStream II" or the "Partnership") that CIS Aircraft Partners, Inc., the
Managing General Partner, and Jet Aircraft Leasing, Inc., the Administrative
General Partner, of the Partnership (together, the "General Partners"), are
soliciting consents on behalf of the Partnership to approve the following:
(1) the sale of all of the Partnership's assets and the dissolution
of the Partnership pursuant to a Plan of Liquidation and
Dissolution;
(2) the amendment of the Limited Partnership Agreement, dated
November 10, 1987, to permit the engagement of the General
Partners to market and sell the assets of the Partnership for a
fee pursuant to the terms of the Joint Marketing Agreement, dated
July 13, 1999, among each of the General Partners and the
Partnership; and
(3) the grant of authority to the General Partners to take any action
necessary or incidental and consistent with the Partnership
Agreement, as amended, the proposed Plan of Liquidation and
Dissolution and the Joint Marketing Agreement to complete the
foregoing on the terms described in this consent solicitation
statement.
The matters for which your consent is being solicited are
collectively referred to in this document as the "Liquidation." The Liquidation
is a single proposal that will be effective only upon approval of unitholders
holding more than 50% of the units entitled to vote.
The General Partners have fixed the close of business on October
12, 1999 as the record date for determining the unitholders entitled to notice
of and to consent to the Liquidation. Only unitholders of record at the close of
business on that date will be entitled to notice of and to vote in the consent
solicitation. The consent solicitation will terminate at 5:00 p.m., on
November 19, 1999, unless extended by the General Partners, in their sole
discretion.
If you require assistance completing the enclosed blue consent
card, please call the Partnership's consent solicitation agent, MacKenzie
Partners, Inc., toll free at (800) 322-2885.
New York, New York
October 15, 1999
- --------------------------------------------------------------------------------
Your response to this solicitation is very important. Please sign the enclosed
blue consent card and return it promptly in the enclosed postage-prepaid
envelope or fax it to the Partnership's consent solicitation agent, MacKenzie
Partners, Inc., at (212) 929-0308 to consent to the Liquidation. The General
Partners recommend that unitholders vote "FOR" the Liquidation.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Liquidation has not been approved or disapproved by the Securities and
Exchange Commission nor has the Commission passed upon the fairness or merits of
such transaction nor upon the accuracy or adequacy of the information contained
in this document. Any representation to the contrary is unlawful.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Sincerely, Sincerely, Sincerely,
/s/ Michael L. Rosen /s/ Michael T. Marron /s/ Michael L. Rosen
- ------------------------------- ------------------------------------- ----------------------------
Michael L. Rosen Michael T. Marron Michael L. Rosen
President President and Chief Financial Officer President
CIS Aircraft Partners, Inc., as Jet Aircraft Leasing Inc., as CIS Assignor L.P.A., Inc. as
Managing General Partner Administrative General Partner Assignor Limited Partner
</TABLE>
<PAGE>
JETSTREAM II, L.P.
3 WORLD FINANCIAL CENTER, 29TH FLOOR
NEW YORK, NEW YORK 10285
(212) 526-3183
------------------------------
CONSENT SOLICITATION STATEMENT
------------------------------
This consent solicitation statement and the enclosed blue consent
card are being first mailed to the holders of limited partnership interests and
limited partnership depository units (collectively, the "unitholders") of
JetStream II, L.P. ("JetStream II" or the "Partnership"), a Delaware limited
partnership, on or about October 15, 1999, by the General Partners, as
hereinafter defined, on behalf of the Partnership to solicit consents for
approval of the following:
(1) the sale of all of the Partnership's assets and the dissolution
of the Partnership pursuant to the Plan of Liquidation and
Dissolution;
(2) the amendment of JetStream II's Limited Partnership Agreement,
dated November 10, 1987, to permit the engagement of the General
Partners to market and sell the assets of the Partnership for a
fee pursuant to the terms of the Joint Marketing Agreement, dated
July 13, 1999, among each of the General Partners and the
Partnership; and
(3) the grant of authority to the General Partners to take any action
necessary or incidental and consistent with the Partnership
Agreement, as amended, the proposed Plan of Liquidation and
Dissolution and the Joint Marketing Agreement to complete the
foregoing on the terms described in this consent solicitation
statement.
The matters for which your consent is being solicited are
collectively referred to in this document as the "Liquidation." The Liquidation
is a single proposal that will be effective only upon the approval of
unitholders holding more than 50% of the units entitled to vote. For ease of
reference in this consent solicitation statement, "units" will include interests
in the Partnership held by both limited partners and unitholders.
CIS Aircraft Partners, Inc. is the Managing General Partner and
Jet Aircraft Leasing, Inc. is the Administrative General Partner of the
Partnership. Together, the Managing General Partner and the Administrative
General Partner are referred to in this document as the "General Partners." As
described in this consent solicitation statement, the General Partners are
proposing to liquidate JetStream II, subject to approval by the affirmative vote
of holders of more than 50% of the outstanding units of the Partnership on
October 12, 1999. As part of the Liquidation, the General Partners are proposing
that the Partnership amend the Partnership Agreement to permit the General
Partners to receive a marketing and sales fee for the sale of the Partnership's
assets pursuant to the Joint Marketing Agreement. See "WHAT YOU SHOULD KNOW
BEFORE VOTING ON THE LIQUIDATION -- Amendment to the Partnership Agreement;
Joint Marketing Agreement" and "-- Interests of Certain Persons in the
Liquidation."
<PAGE>
If the holders of more than 50% of the outstanding units in the
Partnership approve the Liquidation by marking the box entitled "FOR" on the
enclosed blue consent card and the other conditions described herein are
satisfied, then the General Partners will: (1) sell the assets of the
Partnership and use the sales proceeds and/or other Partnership funds to pay all
expenses in connection with such sales, including the marketing and sales fee to
the General Partners, (2) pay or make provision for payment of all Partnership
obligations and liabilities and (3) distribute the remaining assets to the
unitholders and General Partners as set forth in JetStream II's Partnership
Agreement, as amended and as described in this consent solicitation statement.
See "WHAT YOU SHOULD KNOW BEFORE VOTING ON THE LIQUIDATION -- Effect of the
Liquidation on the Partnership and the Unitholders." JetStream II will be
dissolved at such time as the General Partners determine that these actions have
been completed.
In addition to solicitation by use of the mails, directors,
officers, employees and agents of the General Partners may solicit consents in
person or by telephone, facsimile or other means of communication. The General
Partners have also engaged MacKenzie Partners, Inc., to assist them in the
solicitation of consents. MacKenzie Partners will receive a fee of $5,000, plus
reasonable expenses, in connection with its engagement.
- --------------------------------------------------------------------------------
The General Partners request that each unitholder complete and sign the enclosed
blue consent card and promptly return it in the enclosed postage-prepaid
envelope or fax it to the Partnership's consent solicitation agent, MacKenzie
Partners, Inc., at (212) 929-0308. The General Partners recommend that all
unitholders consent to the Liquidation by marking the box entitled "FOR" on the
enclosed consent card. Your consent is very important.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This consent solicitation statement contains forward-looking statements.
Discussions containing such forward-looking statements may be found in the
material set forth under "WHAT YOU SHOULD KNOW BEFORE VOTING ON THE LIQUIDATION"
as well as within this consent solicitation statement generally. In addition,
when used in this consent solicitation statement, the words "believes,"
"anticipates," "expects" and similar expressions are intended to identify
forward-looking statements; however, not all forward-looking statements will
contain such expressions. Such statements are subject to a number of risks and
uncertainties. Actual results or events in the future could differ materially
from those described in the forward-looking statements as a result of the
inability of the General Partners to find suitable purchasers for the aircraft,
the inability to agree on an acceptable purchase price or contract terms,
fluctuations in the market value of the aircraft, changes in regulations
governing the aircraft, general economic conditions and other factors set forth
in this consent solicitation statement. The General Partners further caution
unitholders that the discussion of these factors may not be exhaustive.
The General Partners undertake no obligation to publicly release any revisions
to these forward-looking statements that may be made to reflect any future
events or circumstances.
- --------------------------------------------------------------------------------
<PAGE>
------------------------
TABLE OF CONTENTS
------------------------
<TABLE>
<CAPTION>
<S> <C>
NOTICE OF CONSENT SOLICITATION......................................................................1
CONSENT SOLICITATION STATEMENT......................................................................2
QUESTIONS AND ANSWERS ABOUT THIS CONSENT SOLICITATION
STATEMENT AND THE PROPOSED LIQUIDATION...............................................1
THE PARTNERSHIP AND THE GENERAL PARTNERS............................................................4
JetStream II.........................................................................4
The General Partners.................................................................5
The Assignor Limited Partner.........................................................6
Historical Distributions to the Unitholders..........................................6
Fees of the General Partners.........................................................7
Market for the Units.................................................................8
WHAT YOU SHOULD KNOW BEFORE VOTING ON THE LIQUIDATION...............................................9
Plan of Liquidation and Dissolution..................................................9
Approval and Recommendation of the General Partners.................................10
Effect of the Liquidation on the Partnership and the Unitholders....................10
Liquidation Expenses................................................................12
Background and Reasons for the Liquidation..........................................13
Review of Alternatives Considered by the General Partners...........................18
Advantages of the Liquidation.......................................................20
Risks of the Liquidation............................................................20
Amendment to the Partnership Agreement; Joint Marketing Agreement...................23
Interests of Certain Persons in the Liquidation.....................................24
Appraisal of Partnership Assets.....................................................25
Other Conditions to the Liquidation.................................................27
Material Federal Income Tax Considerations..........................................27
Accounting Treatment................................................................29
Effective Time......................................................................29
Amendment of the Plan of Liquidation and Dissolution................................29
No Appraisal Rights.................................................................29
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT......................................................................30
General.............................................................................30
Ownership Interest of the General Partners in the Partnership.......................30
i
<PAGE>
CONSENT PROCEDURES.................................................................................30
Timing of the Consent Solicitation..................................................30
Record Date and Outstanding Units...................................................30
Approval Date; Extensions; Amendment................................................31
Consent Card and Vote Required......................................................31
Revocability of Consent.............................................................32
Solicitation of Consents; Solicitation Expenses.....................................32
Effect of a Failure to Approve the Liquidation......................................33
INCORPORATION BY REFERENCE.........................................................................33
APPENDICES.........................................................................................34
Appendix A - Form of Plan of Liquidation and Dissolution
Appendix B - Joint Marketing Agreement
Appendix C - Jetstream II's Annual Report on Form 10-K for the Year Ended December 3, 1998
Appendix D - Jetstream II's Quarterly Report on Form 10-Q for the Period Ended March 31, 1999
Appendix E - Jetstream II's Quarterly Report on Form 10-Q for the Period Ended June 30, 1999
</TABLE>
ii
<PAGE>
--------------------------------
QUESTIONS AND ANSWERS
ABOUT THIS CONSENT SOLICITATION STATEMENT
AND THE PROPOSED LIQUIDATION
--------------------------------
BACKGROUND
Q: WHY HAVE I RECEIVED THIS CONSENT SOLICITATION STATEMENT?
A: The General Partners are proposing to sell all of JetStream II's
aircraft, pay or make provision for all Partnership obligations
and liabilities, distribute the available cash to unitholders and
the General Partners and to terminate the Partnership. The
General Partners are proposing to market and sell the
Partnership's aircraft and to receive a marketing and sales fee
for their efforts pursuant to the Joint Marketing Agreement, an
amendment to the Partnership Agreement and any related
transactions.
You have received this consent solicitation statement because
JetStream II's Partnership Agreement requires the approval of
unitholders holding at least 50% of the units entitled to vote on
the Liquidation. You are entitled to vote because, according to
the records of the Partnership, you owned units on October 12,
1999. Even if you have sold some or all of your units since that
date, if you owned units on October 12, 1999, you are entitled to
vote.
THE LIQUIDATION
Q: WHY ARE THE GENERAL PARTNERS RECOMMENDING THE LIQUIDATION AT THIS
TIME?
A: The General Partners are recommending the Liquidation because the
principal benefits of owning units in the Partnership, namely:
(1) generating current income for unitholders by making cash
distributions that are substantially tax sheltered; and (2)
providing safety by preserving the value of the Partnership's
assets, have substantially declined in recent years and are
likely to continue to decline.
The General Partners believe that in light of the declining
distributions to unitholders, the improved market for the sale of
used commercial aircraft, the increasing age of the Partnership's
aircraft and increasing administrative expenses, it would be in
the best interests of the Partnership and the unitholders to
dispose of the Partnership's assets and dissolve the Partnership
at this time.
The tax shelter effect of the Partnership was only expected to
defer, not eliminate, a unitholder's tax liability. Due to the
longevity of the Partnership, an investment in the Partnership no
longer provides this benefit.
1
<PAGE>
Q: DO THE GENERAL PARTNERS RECOMMEND THAT I CONSENT TO THE
LIQUIDATION?
A. Yes. The General Partners recommend that unitholders consent to
the Liquidation by marking the box entitled "FOR" on the enclosed
blue consent card and returning it promptly in the enclosed
postage-prepaid envelope or faxing it to the Partnership's
consent solicitation agent, MacKenzie Partners, Inc., at (212)
929-0308. The General Partners, however, have conflicts of
interest in recommending the Liquidation, in part due to the
marketing and sales fee that they will receive if unitholders
approve the Liquidation. For additional information regarding the
General Partners' conflicts of interest, see "WHAT YOU SHOULD
KNOW BEFORE VOTING ON THE LIQUIDATION-- Interests of Certain
Persons in the Liquidation."
Q: WHAT WILL HAPPEN IF THE LIQUIDATION IS APPROVED?
A: The General Partners will market and sell the Partnership's
aircraft and distribute the net proceeds to unitholders and the
General Partners. Following these steps, the General Partners
will take all necessary steps to dissolve the Partnership. The
General Partners expect that it will take between 6 to 18 months
from the date of the unitholders' approval of the Liquidation to
sell the Partnership's aircraft. Dissolution can be a complex
process which may depend on a number of factors, and some of
these factors are beyond the General Partners' control.
Completion of the Liquidation may also be subject to certain
risks, see "WHAT YOU SHOULD KNOW BEFORE VOTING ON THE
LIQUIDATION-- Risks of the Liquidation."
Q: WHAT WILL I RECEIVE IF THE LIQUIDATION IS APPROVED?
A: The General Partners cannot give you any assurance regarding the
amount of cash that you will actually receive or when you will
receive it. However, the General Partners have hired an
independent appraiser (the "Appraiser"), to value the
Partnership's aircraft. The General Partners have also estimated
the expenses associated with the Liquidation. Based on these
figures and the Partnership's projected financial condition at
the time of the Liquidation, unitholders are expected to receive
approximately $3.83 to $4.76 per unit from the Liquidation.
However, as described under "WHAT YOU SHOULD KNOW BEFORE VOTING
ON THE LIQUIDATION-- Effect of the Liquidation on the Partnership
and the Unitholders," neither the General Partners nor the
Appraiser can guaranty the distributions that unitholders will
receive in the Liquidation.
Q: WILL I OWE ANY FEDERAL INCOME TAX AS A RESULT OF THE LIQUIDATION?
A: The sale of the aircraft will generate ordinary income to the
unitholders for United States federal income tax purposes.
Distribution of the Liquidation proceeds may result in a capital
gain or loss to the unitholders for United States federal income
tax purposes. Tax matters are very complicated and your tax
consequences may depend on your financial situation and whether
you purchased your units in the offering or secondary market.
Please consult your tax advisor to determine the tax consequences
of the Liquidation. See "WHAT YOU SHOULD KNOW BEFORE VOTING ON
THE LIQUIDATION-- Material Federal Income Tax Considerations."
2
<PAGE>
Q: WHAT IF THE LIQUIDATION IS NOT APPROVED?
A: If the Liquidation is not approved by the requisite number of
units, then the Partnership will continue to operate as a legal
entity with its assets and liabilities. The General Partners
believe that distributions from operations will continue to
decline, due primarily to the decline of the Partnership's asset
base and the expiration of aircraft leases in the near future.
CONSENT SOLICITATION PROCESS
Q: AM I REQUIRED TO VOTE ON THE LIQUIDATION?
A: No. You are not required to vote. However, the General Partners
cannot complete the Liquidation without the approval of
unitholders holding at least 50% of the units entitled to vote on
the Liquidation.
Q: HOW DO I VOTE?
A: Please mark your vote, sign and return the blue consent card
using the enclosed postage pre-paid envelope provided or fax it
to the Partnership's consent solicitation agent, MacKenzie
Partners, at (212) 929-0308. Your consent card must be received
by 5:00 p.m., Eastern Time, on November 19, 1999 (unless such
date and/or time is extended in the sole discretion of the
General Partners).
Q: DO UNITHOLDERS HAVE APPRAISAL RIGHTS?
A: Under applicable state law, unitholders are not entitled to
appraisal rights. There will not be any procedure by which a
unitholder can seek an alternative valuation of his or her units,
regardless of whether the unitholder does or does not consent to
the Liquidation.
3
<PAGE>
---------------------------------------------
THE PARTNERSHIP AND THE GENERAL PARTNERS
---------------------------------------------
JETSTREAM II
JetStream II is a Delaware limited partnership formed in 1987 to
invest in used commercial aircraft subject to triple net leases with domestic
commercial air carriers or, under certain circumstances, to foreign commercial
carriers. In general, a "triple net lease" is a lease in which the lessee
undertakes to pay all or substantially all expenses related to leased aircraft,
including, but not limited to, insurance (other than excess hull insurance),
maintenance and taxes, but excluding debt service, if any. JetStream II owns
five aircraft.
The following table describes the Partnership's portfolio of
aircraft as of June 30, 1999. This table provides certain operational statistics
for the aircraft in the portfolio. The table does not reflect aircraft that have
been sold.
<TABLE>
<CAPTION>
Age Acquisition Net Book Lease Noise Flight Flight
Aircraft Model (years) Lessee Cost(1) Value Expiration(2) Compliance Cycles Hours
- -------------- ------- ------ ----------- -------- ------------- ------------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DC-9-30 31 Northwest $ 7,230,460 $ 594,994 1/31/07 Stage 3(3) 67,239 65,062
DC-9-30 29 Northwest 7,230,460 594,994 1/31/07 Stage 2(3) 67,292 68,004
DC-9-30 29 Northwest 7,230,461 594,994 4/21/07 Stage 3(3) 79,055 76,985
B-737-200 ADV 20 Delta 14,380,390 1,002,944 9/30/01 Stage 3(3) 39,939 59,834
MD-80 Series 13 Continental 27,313,020 3,767,184 3/15/00 Stage 3 18,817 38,415
----------- ----------
$63,384,791 $6,555,110
=========== ==========
</TABLE>
- --------------------
(1) Includes a 1.5% fee paid to the Managing General Partner at the
acquisition of the aircraft.
(2) Lease expiration dates do not include renewal options.
(3) Each aircraft either has been or will be hushkitted by December
31, 1999 and will be returned to the Partnership at lease end
with hushkits. See "WHAT YOU SHOULD KNOW BEFORE VOTING ON THE
LIQUIDATION-- Background and Reasons for the Liquidation" for a
discussion of hushkitting.
JetStream, L.P. is a Delaware limited partnership which was organized and is
structured and operated similar to JetStream II. JetStream also invests
primarily in used commercial aircraft subject to triple net leases with domestic
air carriers. CIS Aircraft Partners, Inc. and Jet Aircraft Leasing, Inc. are
also the Managing General Partner and Administrative General Partner,
respectively, of JetStream. JetStream and JetStream II have also engaged the
same attorneys,independent appraiser, accountants and consent solicitation
agent. The General Partners are currently proposing that the unitholders of
JetStream approve a substantially identical liquidation to the one described
herein.
4
<PAGE>
JetStream II's principal place of business is 3 World Financial
Center, 29th Floor, New York, New York 10285 and its telephone number at such
address is (212) 526-3183.
THE GENERAL PARTNERS
Managing General Partner. CIS Aircraft Partners, Inc., the
Managing General Partner, is a Delaware corporation which was organized in 1987
to sponsor investment in JetStream and JetStream II. The Managing General
Partner is a wholly owned third tier subsidiary of Continental Information
Systems Corporation ("Continental"), a New York corporation. The Managing
General Partner owns a 0.5% interest in the Partnership (a "GP Interest") but
does not own any units in JetStream or JetStream II.
Administrative General Partner. Jet Aircraft Leasing, Inc.
(formerly Hutton Aircraft Leasing, Inc.), the Administrative General Partner, is
a Delaware corporation and is an affiliate of Lehman Brothers Inc. The
Administrative General Partner was organized in 1987. Like the Managing General
Partner, the Administrative General Partner owns a GP Interest in the
Partnership but does not own any units in JetStream or JetStream II.
Fiduciary Duties of the General Partners. Both the Managing
General Partner and the Administrative General Partner of the Partnership have
fiduciary duties to the Partnership under Delaware law in addition to the
specific duties and obligations imposed upon them under the Partnership
Agreement. Subject to the terms of the Partnership Agreement, the General
Partners, in managing the affairs of the Partnership, are expected to exercise
good faith and integrity with respect to the affairs of the Partnership, must
make full disclosure in their dealings with the Partnership and must disclose to
the Partnership any benefit or profit derived by them from any transaction
connected with the Partnership. Under these fiduciary duties, the General
Partners are obligated to ensure that the Partnership is treated fairly and
equitably in transactions with third parties, especially where consummation of
such transactions may result in the interests of the General Partners being
opposed to, or not aligned with, the interests of the unitholders. Accordingly,
the General Partners of the Partnership are required to assess whether the
Liquidation is fair and equitable, taking into account the unique
characteristics of the Partnership (such as the Partnership's revenues and
expenses and the prospects for increases or decreases in future cash flow) which
affect the value of its assets.
Role of the General Partners. The Managing General Partner
generally manages and controls the day to day operations of the Partnership, and
together with the Administrative General Partner has general responsibility and
overall authority over matters affecting the interests of the Partnership. The
Administrative General Partner is responsible for cash management, filing of tax
returns, all accounting recordkeeping, and all communications between the
Partnership and the unitholders. In all cases, however, the approval of both
General Partners is necessary for the acquisition, lease, re-lease and sale of
all aircraft. The General Partners have joint and several liability for the
Partnership's obligations. Unitholders of the Partnership may not participate in
management of the Partnership without subjecting themselves to liability as a
general partner.
5
<PAGE>
THE ASSIGNOR LIMITED PARTNER
General. CIS Assignor L.P.A. Inc., a Delaware corporation and an
affiliate of Continental, is the Assignor Limited Partner. The Assignor Limited
Partner was formed in anticipation of its participation in JetStream and
JetStream II, has no other business purpose and may not engage in any business
activity other than in connection with JetStream and JetStream II.
Role of the Assignor Limited Partner. The Assignor Limited
Partner is responsible for voting on behalf of unitholders in accordance with
the directions of the unitholders so that each unitholder's units will be voted
separately. The Assignor Limited Partner owns five units in the Partnership. For
ease of reference, the Assignor Limited Partner will be treated as a unitholder
for purposes of the consent solicitation statement.
HISTORICAL DISTRIBUTIONS TO THE UNITHOLDERS
The following charts represent taxable net income and cash
distributions per unit for the Partnership for the years 1987 through 1998.
JETSTREAM II
(4,837,505 units)
Cash
Distribution Taxable Income
Year per Unit(2) per Unit(2)
---- ------------ --------------
1988 $2.310 $(0.148)
1989 2.400 (0.877)
1990 2.400 (0.055)
1991 2.275 0.543
1992 1.850 (0.115)
1993 1.210 (0.547)
1994 0.995 (0.640)
1995 0.939 (0.072)
1996(1) 1.626 0.539
1997 0.930 0.678
1998 0.872 0.881
------- ------
TOTAL $17.807 0.187
======= ======
(1) Includes a special cash distribution of $0.703 per unit that was
funded by cash previously held in reserve.
(2) Cash distributions per unit were $0.34 and $0.48, respectively,
for the first and second quarters of 1999. The distribution for
the second quarter of 1999 represents a distribution of cash flow
from operations of $0.26 per unit and a distribution of net sale
proceeds of $0.22 per unit. Taxable income per unit is calculated
on an annual basis and, as a result, cannot be determined per
quarter.
6
<PAGE>
The units of the Partnership constitute equity interests
entitling each unitholder to his or her pro rata share of cash distributions
made to the unitholders of the Partnership. The Partnership makes quarterly
distributions to unitholders. The distributions payable to the unitholders are
not fixed in amount and are derived from unitholders' share of cash flow from
operations, net proceeds from sales or financings or constitute a return of the
unitholders' equity contributions to the Partnership.
The Partnership Agreement specifies how the cash available for
distribution is to be shared among the unitholders and General Partners.
Generally, cash available for distribution is distributed to the unitholders and
to the General Partners in proportion to their relative percentage ownership of
the Partnership; i.e. 99% to the unitholders and 1% to the General Partners.
However, in the event of a liquidation, net cash proceeds from sale of an
aircraft are distributed to the unitholders and the General Partners based upon
their relative capital accounts until the unitholders have received an amount
equal to their capital contributions, as adjusted pursuant to the Partnership
Agreement, plus a preferred return equal to 8% simple interest per year
cumulative, but not compounded (the "Preferred Return"). Thereafter, net cash
proceeds from sale of an aircraft are distributed 99% to the unitholders and 1%
to the General Partners. In a liquidation of the Partnership, as is contemplated
herein, the General Partners will distribute available cash as described in
"WHAT YOU SHOULD KNOW BEFORE VOTING ON THE LIQUIDATION -- Effect of the
Liquidation on the Partnership and the Unitholders."
FEES OF THE GENERAL PARTNERS
To date, in accordance with the Partnership Agreement, the
General Partners have received the following fees:
Base Management Fee. A Base Management Fee, subordinated to the
payment to unitholders of their Preferred Return is paid to the General Partners
quarterly in an amount equal to 1.5% of quarterly gross rentals from initial
leases of aircraft and 1.5% of gross rentals from released aircraft (which gross
rentals from re-leases are net of Re-lease Fees described below). Out of such
Base Management Fee, 1% is paid to the Managing General Partner and 0.5% is paid
to the Administrative General Partner.
Re-lease Fee. The General Partners receive a Re-lease Fee for
re-leasing aircraft or renewing a lease, subordinated to the Preferred Return,
paid quarterly in an amount equal to 3.5% of the gross rentals from such
re-lease or renewal for each quarter for which such payment is being made. Of
the Re-lease Fee, 2.5% is paid to the Managing General Partner and 1% is paid to
the Administrative General Partner.
Incentive Management Fee. The Managing General Partner receives
an Incentive Management Fee, subordinated to the Preferred Return, in an amount
equal to 2.15% of cash flow for the first four and one-half years after the
initial closing of the initial offering of units and thereafter in an amount
equal to 4.5% of quarterly cash flow from operations less expenses.
7
<PAGE>
Resale Fee. With respect to each aircraft sold by the
Partnership, a Resale Fee is paid to the Managing General Partner, subordinated
to the Preferred Return and the Internal Rate of Return to the Partnership as
defined below. The Resale Fee is equal to the lesser of (1) 3% of the contract
sale price of the aircraft or (2) an amount which is competitive in price and
terms with fees charged by non-affiliates rendering comparable services. The
Internal Rate of Return is 9.2% and is defined in the Partnership Agreement to
mean the discount percentage rate at which the present value of future cash
flows of an investment equals the cost of the investment (the "Internal Rate of
Return"). This Resale Fee is reduced (but not below zero) for any resale fees or
commissions payable to independent third parties.
In connection with the Liquidation, the General Partners are
proposing to amend the Partnership Agreement to permit both of the General
Partners to receive a marketing and sales fee. Unlike the Resale Fee that is
payable to the Managing General Partner, this marketing and sales fee will not
be subordinated to the Preferred Return to unitholders or the Internal Rate of
Return of the Partnership. Pursuant to the Joint Marketing Agreement, this
marketing and sales fee will be limited to 3% of the sale price of each
aircrafts which is less than competitive rates charged by third party brokers.
The proposed amendment to the Partnership Agreement will require that the
General Partners be liable for any resale fees or commissions payable to any
independent third parties in connection with the Liquidation. As a result, the
General Partners expect that the cost to the Partnership will be lower if the
General Partners market and sell the aircraft rather than if the Partnership had
engaged a third party broker or agent. See "WHAT YOU SHOULD KNOW BEFORE VOTING
ON THE LIQUIDATION -- Amendment to the Partnership Agreement; Joint Marketing
Agreement and -- Interests of Certain Persons in the Liquidation."
MARKET FOR THE UNITS
The units are not listed on any national or regional securities
exchange or quoted on The Nasdaq Stock Market, and there is no established
public trading market for the units. Secondary sales activity for the units has
been limited and sporadic.
8
<PAGE>
-----------------------------------------------------
WHAT YOU SHOULD KNOW BEFORE VOTING ON THE LIQUIDATION
-----------------------------------------------------
- --------------------------------------------------------------------------------
The information contained in this consent solicitation statement
with respect to the Liquidation is qualified in its entirety by reference to the
Plan of Liquidation and Dissolution and the Joint Marketing Agreement, copies of
which are attached to this consent solicitation statement as Appendices A and B,
respectively, and are incorporated herein by reference.
- --------------------------------------------------------------------------------
PLAN OF LIQUIDATION AND DISSOLUTION
The Liquidation is to be effected in accordance with the terms
and conditions set forth in the proposed Plan of Liquidation and Dissolution,
the Joint Marketing Agreement and the Partnership Agreement, as amended herein.
Upon approval of the Liquidation, the General Partners will (1) sell the assets
of the Partnership and use the sales proceeds and/or other Partnership funds to
pay all expenses in connection with such sales, including the marketing and
sales fee to the General Partners (2) pay or make provision for payment of all
Partnership obligations and liabilities and (3) distribute the remaining assets
to the unitholders and the General Partners as set forth in the Partnership
Agreement, as amended and as described in this consent solicitation statement.
The General Partners will then file a Certificate of Cancellation with the
Secretary of State of the State of Delaware, whereupon or at such later time as
may be specified in the Certificate of Cancellation, the Partnership will be
terminated and it will cease to exist.
Pursuant to the Plan of Liquidation and Dissolution, prior to
completing the Liquidation, the Partnership must file all tax returns with
federal, state and local tax authorities, and must file all reports with the
Securities and Exchange Commission and provide such reports to unitholders in
accordance with the Partnership Agreement. Pending the completion of the
Liquidation, in accordance with the Partnership Agreement, the General Partners
may continue to re-lease or sell the aircraft in the Partnership's portfolio in
their discretion.
A unitholder's approval of the Liquidation constitutes consent
to:
(i) the sale of all of the Partnership's assets and
the dissolution of the Partnership pursuant to the
proposed Plan of Liquidation and Dissolution;
(ii) the amendment of JetStream II's Partnership
Agreement to permit the engagement of the General
Partners to market and to sell the assets of the
Partnership for a fee pursuant to the terms of the
Joint Marketing Agreement, dated July 13, 1999,
among each of the General Partners and the
Partnership; and
(iii) the grant of authority to the General Partners to
take any action necessary or incidental and
consistent with the Partnership Agreement, the
proposed Plan of Liquidation and Dissolution and
the Joint Marketing Agreement to complete the
foregoing on the terms described in this consent
solicitation statement.
9
<PAGE>
For a description of the terms of the Joint Marketing Agreement, see "--
Amendment to the Partnership Agreement; Joint Marketing Agreement" and "--
Interests of Certain Persons in the Liquidation." Consummation of the
Liquidation is subject to the consent of unitholders and certain other
conditions. See "CONSENT PROCEDURES" and "-- Other Conditions to the
Liquidation."
APPROVAL AND RECOMMENDATION OF THE GENERAL PARTNERS
The General Partners have approved the Liquidation. The General
Partners believe that the Liquidation is more beneficial to unitholders than a
continuing investment in the Partnership. See "-- Advantages of the Liquidation"
and "-- Review of Alternatives Considered by the General Partners." Even though
the General Partners have conflicts of interest in recommending the Liquidation
(see "-- Interests of Certain Persons in the Liquidation"), the General Partners
believe that their recommendation was made consistent with their fiduciary
duties to unitholders. See "THE PARTNERSHIP AND THE GENERAL PARTNERS -- The
General Partners -- Fiduciary Duties of the General Partners." Consequently,
the General Partners recommend that the unitholders of the Partnership consent
to the Liquidation by marking the box entitled "FOR" on the enclosed consent
card.
- --------------------------------------------------------------------------------
Unitholders are urged to consult with their independent financial and tax
advisors prior to consenting to the Liquidation.
- --------------------------------------------------------------------------------
EFFECT OF THE LIQUIDATION ON THE PARTNERSHIP AND THE UNITHOLDERS
Upon the completion of the Liquidation, the Partnership shall
cease to exist and the unitholders will no longer be holders of units of the
Partnership and will receive distributions from the net proceeds of the sale of
the Partnership's assets as provided for in the Plan of Liquidation and
Dissolution and the Partnership Agreement, as amended.
Pursuant to the Partnership Agreement, the General Partners, as
liquidating trustees, will apply and distribute the Partnership's available cash
balances (after payment of all expenses related to the sale of the aircraft,
including payment of the marketing and sales fee to the General Partners) in the
following order of priority:
(1) to pay (or make provision for the payment of) all
third party creditors of the Partnership,
including limited partners;
(2) to pay the General Partners for any loans or
advances made by them to the Partnership;
(3) after the payment (or the provision for payment)
of all debts, liabilities and obligations of the
Partnership, to the unitholders in the amount of
their respective capital accounts on the date of
distribution;
10
<PAGE>
(4) to the General Partners in the amount of their
respective adjusted capital accounts on the date
of distribution; and
(5) to pay the General Partners for all accrued but
unpaid management fees. See "THE PARTNERSHIP AND
THE GENERAL PARTNERS-- Fees of the General
Partners."
As described under "-- Appraisal of Partnership Assets," the
General Partners believe that lease encumbered value is a reasonable estimate of
the price that may be achieved if the Partnership's aircraft were sold as of
December 31, 1999. The market for aircraft of the type owned by the Partnership
may decline, however, and as a result, the value that the Partnership will
receive and the distribution that unitholders will receive may decline. As a
result, the General Partners believe that a range of 20% below lease encumbered
value to lease encumbered value represents a reasonable range of prices that the
Partnership may achieve upon sale of its aircraft. Based on the projected
independent appraisal of the Partnership's portfolio as of December 31, 1999,
the General Partners estimate that the gross proceeds to the Partnership would
be between $18.67 million and $23.33 million for the sale of all the
Partnership's aircraft. There can be no assurance that the Partnership would
receive these values shown above upon the sale of the aircraft.
- --------------------------------------------------------------------------------
The estimated market values of the aircraft are affected by, and subject to,
future changes in a variety of factors, including, but not limited to, the
aircrafts' usage, age and lease rate, the credit worthiness of the lessee,
government maintenance and noise regulations and the supply and demand of
aircraft in the market place with similar lift capacity. Estimated values for
the aircraft are also based upon a variety of assumptions regarding aircraft
condition, maintenance status, and market conditions.
- --------------------------------------------------------------------------------
Assuming the expenses of the Liquidation are as set forth below
under "-- Liquidation Expenses," based on the aggregate sale values above and
the Partnership's projected financial condition at the time of the Liquidation,
the General Partners believe that the Liquidation will result in cash
distributions to unitholders totaling between $3.83 and $4.76 per unit if the
aircraft were sold as of December 31, 1999. This estimated cash distribution
does not include any extraordinary expenses such as litigation which could
substantially reduce the amount available for distribution. In addition, as
stated above, the General Partners cannot provide any assurance to unitholders
about market conditions or the availability of willing buyers. As a result, the
General Partners cannot predict the amount that the unitholders will actually
receive upon the Liquidation. For additional risks that may be involved with the
Liquidation, see "-- Risks of the Liquidation."
The General Partners expect to complete the sale of the aircraft
in 6 to 18 months from the date of the unitholders' approval of the Liquidation.
Dissolution, however, can be a complex process which may depend on a number of
factors, and some of these factors are beyond the General Partners' control. For
example, the Partnership may be pursuing claims against others or defending
litigation or there may be other contingencies to which the Partnership may
become subject during the Liquidation. Consequently, the final liquidating
distribution may occur several months after all of the aircraft have been sold.
During the course of the Liquidation, the General
11
<PAGE>
Partners expect to continue making distributions on a quarterly basis, including
cash distributions from the sale of aircraft, subject to appropriate reserves.
The Partnership will cease to exist when:
(1) all the assets of the Partnership have been
converted into cash;
(2) all actual or contingent liabilities of the
Partnership have been satisfied;
(3) the Partnership's cash, after payment or due
provision for all debts, liabilities and
obligations of the Partnership, has been
distributed to the unitholders and General
Partners, as set forth above; and
(4) the Certificate of Limited Partnership of the
Partnership has been canceled as required under
Delaware law.
LIQUIDATION EXPENSES
General. The Partnership will pay for the expenses of the
solicitation and, if approved by unitholders, the Liquidation. Expenses are
estimated to be as follows:
SOLICITATION/COMMUNICATION EXPENSES
Printing, Postage and Mailing Fees $ 45,000
Appraisals and Valuation 11,000
Accounting Fees and Expenses 17,500
Legal Fees and Expenses 220,000
Solicitation Agent 5,000
Other 25,000
----------
Sub Total $ 323,500
----------
LIQUIDATION COSTS
General Partners' Marketing Fees $ 700,050(1)
Legal Fees and Expenses 175,000
Accounting Fees and Expenses 55,000
Other 25,000
----------
Sub Total $ 955,050
----------
Total Costs $1,278,550
==========
(1) Assumes aggregate sales prices of $23.33 million, the maximum of
the anticipated liquidation range, received for the Partnership's
aircraft.
12
<PAGE>
Solicitation/Communication Expenses. For purposes of the
Liquidation, the term "Solicitation/Communication Expenses" includes expenses
such as the costs of mailing and printing this consent solicitation statement,
any supplements thereto or other documents related to the Liquidation, telephone
calls, legal fees, appraisal fees, accounting fees, consent solicitation agent
fees and other fees related to the solicitation of consents, as well as
reimbursement of expenses incurred by brokers and banks, if any, in forwarding
the consent solicitation statement to unitholders. The Partnership will pay
these expenses whether or not the Liquidation is consummated.
Liquidation Costs. For purposes of the Liquidation, the term
"Liquidation Costs" means sales and marketing fees paid to the General Partners
pursuant to the Joint Marketing Agreement, legal and accounting fees not
included under Solicitation/Communication Expenses, travel expenses and all
other fees related to the Liquidation, but not including
Solicitation/Communication Expenses or costs that would have otherwise been
incurred by the Partnership in the ordinary course of business.
BACKGROUND AND REASONS FOR THE LIQUIDATION
Since the Partnership's formation, the Partnership's investment
objectives have been focused on generating cash distributions for unitholders
and preserving and protecting the value of the Partnership's assets. Since that
time, significant changes in the aircraft and aircraft leasing markets have
occurred.
The Partnership. The Partnership has been experiencing a
continuous decline in revenues with which to make cash distributions, and the
General Partners believe this trend will continue. Many of the Partnership's
current aircraft leases will soon expire and are projected to generate lower
lease rates than in prior years because of the older age of the aircraft. The
projected decrease in lease rates will most likely contribute to a continuous
decrease in revenue and cash distributions from operations. As a result of
decreasing revenues from older aircraft and fixed expenses, the General Partners
believe that unitholders will receive diminishing cash distributions from
operations. In addition, the Partnership's assets have been fully depreciated
for income tax purposes and the tax benefit of their depreciation will no longer
be available to the Partnership on a going forward basis.
The General Partners believe that another significant factor that
will affect the marketability and value of the Partnership's aircraft is whether
the aircraft comply with noise abatement requirements for commercial aircraft
prescribed by the Federal Aviation Administration ("FAA"). See "-- The Aircraft
Industry Outlook" and -- Regulation -- Aircraft Noise" below. Although the
aircraft in the Partnership's portfolio have been or will be hushkitted,
regulations proposed by the European Union to come into effect in May 2000 may
have the effect of prohibiting such "hushkitted" aircraft from flying over
Europe. "Hushkitting" is the modification or re-engineering of an aircraft in
order to bring the aircraft into compliance with the decibel noise level
requirements of the FAA. Should the Partnership be required to hushkit an
aircraft, no assurances are possible with respect to the actual cost which the
Partnership would be required to pay in order to effect a hushkit or re-engining
modification as now available or as may be developed in the future.
13
<PAGE>
The Partnership is unable to retain any appreciable amount of
capital reserves with which to acquire additional aircraft and react to adverse
market conditions or changes in the market that may arise, in part because the
Partnership Agreement currently limits the amount of debt financing which may be
undertaken by the Partnership. The Partnership's access to capital is further
limited since cash available from operations after the payment of certain
expenses is generally distributed to unitholders. Because of restrictions
(described below) that became applicable in 1998 (after eleven years of
Partnership operations) the Partnership also may not sell existing assets in
order to raise capital for the purchase of additional revenue-generating
aircraft or replace its existing aging non-noise-compliant aircraft. The General
Partners, on behalf of the Partnership, may borrow or advance funds to the
Partnership to maintain Partnership operations, for such activities as the
future repair, reconditioning or reconfiguration of the aircraft if the General
Partners, in their discretion, deem such future repair, reconditioning or
reconfiguration necessary or desirable to enable the Partnership to re-lease or
sell such aircraft. If the General Partners or their respective affiliates make
loans to the Partnership, among other restrictions, they are prohibited from
charging interest in excess of their cost of such borrowing. The General
Partners have the ability to pledge the assets of the Partnership in connection
with any such borrowing. After the eleventh year of operation of the
Partnership, however, net proceeds from the sale or financing of any of the
Partnership's aircraft must be distributed to unitholders (less amounts reserved
in accordance with the Partnership Agreement as working capital reserves) and
may not be used to acquire additional assets for the Partnership.
If the Partnership Agreement allowed the General Partners to use
debt financing on an ongoing basis (and at competitive rates) to the
Partnership, it could be more actively involved in its industry. The
Partnership, however, would still possess additional competitive disadvantages
and would also take on heightened business risk. In light of these
considerations, the General Partners believe that Liquidation is in the best
interests of the Partnership. For a further discussion of the advantages and
risks of the Liquidation, see "WHAT YOU SHOULD KNOW BEFORE VOTING ON THE
LIQUIDATION -- Advantages of the Liquidation and -- Risks of the Liquidation."
General Business Considerations. The aircraft leasing industry
and the Partnership are subject to risks stemming from the physical
deterioration or obsolescence of aircraft, fluctuations in the economy and the
market value of aircraft, defaults by lessees and the adoption of restrictive
regulations and legislation. A major business risk associated with the operation
of an aircraft leasing business is the inability to keep aircraft under leases
yielding net revenues which provide, together with any anticipated sale
proceeds, a return acceptable to the owner of the aircraft. Factors affecting
the economic return of leases of aircraft beyond the control of the Partnership
and the lessees of the aircraft include:
(1) defaulting or insolvent lessees or sublessees of
aircraft;
(2) increases in expenses, taxes, labor, insurance
costs and aircraft management fees attributable to
aircraft which are not payable by lessees under
triple net leases;
(3) general economic conditions;
(4) fluctuations in supply and demand for aircraft;
14
<PAGE>
(5) regulatory changes;
(6) instability of world fuel markets;
(7) uninsured or uninsurable losses;
(8) strikes and other labor disruptions; and
(9) the imposition of sales and use taxes.
The Aircraft Industry Outlook. In the last three years, the
overall demand for aircraft has been steadily increasing as many airlines have
returned to profitability and lease rates appear to be improving. The impact of
this demand has, however, had little beneficial effect on the aircraft in the
Partnership's portfolio since competition among airlines has mandated the
upgrading of their fleets which requires the use of newer aircraft and aircraft
that have been built in compliance with stricter noise abatement and safety
requirements. Additionally, the airline industry tends to be cyclical and a
potential return to less favorable conditions could be approaching. In such a
market, the adverse impact of competition from newer or more recent models on
aircraft in the Partnership's portfolio could be significant. The Partnership is
at a competitive disadvantage in taking advantage of this market because the
average age of the aircraft in Partnership's portfolio is 24 years and the
Partnership Agreement does not permit the Partnership to invest proceeds from
the sale of its current fleet of aircraft to purchase newer aircraft. see "--
The Partnership."
In 1998, growth in airline passenger traffic combined with
reduced fuel costs and strict cost containment initiatives led to significant
improvements in operating profitability and net earnings for the overall airline
industry. These market conditions have had a favorable effect on the level of
aircraft leasing activity and have brought about a sustained reduction in the
number of serviceable aircraft available for lease. For a number of reasons
discussed below, however, the General Partners believe that the older aircraft
in the Partnership's portfolio may not benefit from such reduced availability to
the same extent as may be true of newer aircraft. For a list of the
Partnership's aircraft and their appraised value, see "-- Appraisal of
Partnership Assets."
The continued reduction in inventory of available planes has also
favorably affected lease rates. However, future opportunities for leasing the
Stage 2 noise abatement level aircraft which are currently in the Partnership's
fleet are limited due to the FAA's noise compliance regulations. "Stage 2"
aircraft are aircraft which are in compliance with the stage 2 noise decibel
levels in part 36, title 14 of the Code of Federal Regulations, as amended, and
Annex 16, Chapter 2 of the International Civil Aviation Organization rules.
These aircraft engines are generally not as advanced as "Stage 3" aircraft with
respect to noise decibel levels. For information regarding the Partnership's
fleet and noise compliance, see "THE PARTNERSHIP AND THE GENERAL PARTNERS --
JetStream II" and "-- Regulation -- Aircraft Noise". The scheduled phase-out of
Stage 2 aircraft combined with the older age of many of the aircraft in the
Partnership's portfolio has had a substantial adverse impact on the residual
values of the Partnership's Stage 2 aircraft during a period of increasing
economic growth and profitability for most segments of the industry. See "WHAT
YOU SHOULD KNOW BEFORE VOTING ON THE LIQUIDATION -- Background and Reasons for
the Liquidation" and "-- Regulation -- Aircraft Noise."
15
<PAGE>
Leasing Risks. The Partnership's successful negotiation of lease
extensions, re-leases and sales is critical to its ability to achieve its
financial objectives, and involves a number of risks. Demand for lease or
purchase of the aircraft depends on the economic condition of the airline
industry. Ability to re-lease or resell aircraft at acceptable rates depends on
the demand and market values at the time of re-lease or resale. The market for
used aircraft is cyclical, and generally, but not always, reflects economic
conditions and the strength of the travel and transportation industry. The
demand for and resale value of many types of older aircraft in the past has been
depressed by such factors as airline financial difficulties, increased fuel
costs, the number of new aircraft on order and the number of older aircraft
coming off lease.
Competition. The aircraft leasing industry has become
increasingly competitive and the success of any lessor is heavily dependent upon
the nature of the aircraft within its portfolio. Recently, major airlines have
been competing with each other based on the young age of their fleets. Because
the Partnership is not permitted to acquire new aircraft, the Partnership is at
an increasing competitive disadvantage because of the older age of the aircraft
in the Partnership's portfolio. See "-- The Partnership."
Regulation. There are a number of areas in which compliance with
federal regulation may result in increased costs to the Partnership and
decreased returns to unitholders. These include aircraft noise regulations,
safety requirements, required equipment modifications and aircraft registration.
Although the burden of complying with such requirements often falls upon lessees
of aircraft, the cost of complying with such federal regulations may fall on the
Partnership. Furthermore, future federal regulations could cause the value of
any non-compliant aircraft owned by the Partnership to substantially decline.
Aircraft Noise. The FAA has categorized aircraft
types according to engine noise decibel levels. Stage 1 aircraft,
which have the highest noise level, are no longer allowed to
operate from civil airports in the United States. Stage 2
aircraft meet current FAA requirements. Stage 3 aircraft which
are in compliance with the stage 3 noise decibel levels in part
36, title 14 of the Code of Federal Regulations, as amended, and
Annex 16 of the International Civil Aviation Organization rules,
are the most quiet and will be the future standard of aircraft.
In 1990, Congress passed the Airport Noise and Capacity Act of
1990 (the "Airport Act"), which required the development of a
National Noise Policy. In 1991, final regulations (the
"Regulations") were announced and became effective immediately.
The Regulations provide generally, among other things, for the
phase-out and non-addition of Stage 2 aircraft in the United
States by December 31, 1999, unless hushkitted or re-engined.
With limited exceptions, only Stage 3 or Stage 3 hushkitted
aircraft will be allowed to fly in the United States after
December 31, 1999. Hushkitting is a procedure for retrofitting
existing engines to comply with Stage 3 requirements. Re-engining
is the replacement of existing engines with
technologically-advanced engines complying with Stage 3
requirements. The decision whether to hushkit or re-engine an
aircraft will depend upon a variety of factors, including the
differential effects of the two approaches on the operating costs
of the aircraft, the relative costs and feasibility of the two
approaches and the General Partners' assessment of the remaining
useful life and fair market value of the aircraft. Where
available, hushkits currently can cost up to $3.0 million per
aircraft while the costs of re-engining programs are
significantly higher.
16
<PAGE>
In addition to FAA activity in noise abatement,
other countries have adopted or are considering adopting noise
compliance standards which would have a similar effect of
reducing the ability of an airline to operate Stage 2 aircraft in
such jurisdictions. Moreover, because of the year-end 1999 noise
deadline, there may also be a substantial backlog of hushkits
already on order by other customers. In 1989, the European
Economic Community adopted a non-addition rule which directed
each member country to pass the necessary legislation to prohibit
airlines from adding Stage 2 aircraft to their fleets after
November 1, 1990. The rule has specific expectations for leased
aircraft and does allow the continued use of Stage 2 aircraft
which are in operation in EEC countries before November 1, 1990.
The Partnership does not currently have any aircraft on lease to
airlines outside the United States. EEC regulations will prohibit
hushkitted and re-engined aircraft that comply with Stage 3
requirements from flying over Europe after May, 2000.
These regulations have adversely affected the
market value and marketability of Stage 2 and Stage 3 hushkitted
and re-engined aircraft.
Aging Aircraft Maintenance. The Federal
Administration Aviation has adopted a series of Airworthiness
Directives ("ADs"). ADs are mandates requiring the airline to
perform a specific maintenance task within a specified period of
time or over the life of an aircraft. The FAA imposes strict
requirements governing aircraft inspection and certification,
maintenance, equipment requirements, corrosion control, noise
levels and general operating and flight rules.
In addition to mandating more intensive inspections
of certain structural components, including the fuselage, wing
and tail sections, certain of these AD's mandate that structural
modifications to certain aircraft be completed within specified
periods, generally not less than 48 months from the effective
date of the relevant AD. Aircraft are generally subject to these
structural modification requirements based on flight cycle,
flight hour and chronological age thresholds.
The Partnership's existing leases require the
lessees to maintain the Partnership's aircraft in accordance with
FAA-approved maintenance programs during the lease term. At the
end of the leases, most lessees are required to return the
aircraft in airworthy condition, including compliance with all
AD's for which action is mandated by the FAA during the lease
term. Thus, certain of the modifications required by the new AD's
might not be implemented by the Partnership's lessees prior to
the expiration of the current leases since, in many cases, the
relevant AD will not require action before the expiration of the
lease term. The cost of compliance with these directives varies
among aircraft type and affects the value of aircraft approaching
a threshold for implementation.
17
<PAGE>
Aircraft Registration. Aircraft may not be lawfully
operated in United States airspace unless registered in full name
and owned by citizens of the United States or other permissible
persons under the Federal Aviation Act of 1958, as amended.
Violations of the registration requirements may result in fines
being imposed on the Partnership, the potential for uninsured
casualties to aircraft, the loss of the benefits of the central
recording system under federal law (thereby leaving aircraft
exposed to liens or other interests not of record with the FAA),
and a breach by the Partnership of aircraft lease or financing
agreements.
Residual Values of Aircraft. The returns of the Partnership to
unitholders depend, in part, on the residual values of the aircraft. The
residual values ultimately realized, in turn, depend upon, among other things,
the standards observed by lessees in maintaining the aircraft, the Partnership's
ability to remarket the aircraft, the cost of comparable new aircraft, rates of
inflation, market conditions, costs of materials and skilled labor, aircraft
technological advances and other factors, all of which may be beyond the control
of the Partnership.
Casualties, Insurance Coverage. The Partnership, as an owner of
transportation equipment, could be held liable for injuries or damage to
property caused by its assets. Though some protection may be provided by the
Federal Aviation Act of 1958, as amended with respect to its aircraft assets, it
is not clear to what extent such statutory protection would be available to the
Partnership. Though the Partnership may carry insurance or require a lessee to
insure against a risk, some risks of loss may not be insurable. An uninsured
loss with respect to the aircraft or an insured loss for which insurance
proceeds are inadequate, would result in a possible loss of invested capital in
and any profits anticipated from such aircraft. Currently, the Partnership, and
ultimately the unitholders (to the extent of their investment), bear the risks
associated with losses which are not covered by insurance.
REVIEW OF ALTERNATIVES CONSIDERED BY THE GENERAL PARTNERS
Before recommending the Liquidation, the General Partners
considered the benefits and risks associated with continuing the business of the
Partnership. After weighing the risks and benefits of continuation, the General
Partners believe that the Liquidation will have the greater likelihood of
providing optimal economic benefits for the unitholders. The General Partners
did not conduct an in-depth analysis of amending the Partnership Agreement in
order to allow the Partnership to compete in the industry with a revised
business plan. The General Partners do not view this possible alternative as
being consistent with the original objectives of the Partnership. In addition,
unitholders would continue to be subject to the risks associated with their
investment in the Partnership.
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General. JetStream II is not required to liquidate and wind up
until the year 2027, but the General Partners believe that the Partnership is at
the point in its economic life cycle where winding down the Partnership's
operations or other exit strategies were intended. If the Partnership continued
until 2027, the average age of the aircraft in the Partnership's portfolio would
be over 50 years old. As of February, 1999 the Partnership is restricted from
selling existing aircraft or borrowing funds to raise capital to purchase
additional revenue generating aircraft or to replace its existing aging
non-noise-compliant aircraft. In addition, the Partnership generally has and
will continue to have fixed expenses allocated over a declining revenue base
with aging assets and will probably continue to yield a declining income stream.
In addition, the Partnership has ceased to provide depreciation deductions for
unitholders.
Continuation. The General Partners believe that the continuing
the business of the Partnership does not provide the best alternative for the
unitholders. Continuing the business of the Partnership as initially
anticipated, however, provides the benefit of providing unitholders direct
investment in the aircraft leasing industry.
In the opinion of the General Partners these benefits are
outweighed by the:
(1) likelihood that the value of the Partnership's
aircraft will continue to decline rapidly;
(2) continued risks of re-leasing aircraft, including
the difficulty or inability to lease Stage 2 or
obsolete aircraft;
(3) general competitive disadvantages of the current
Partnership structure; and
(4) fixed expenses that the Partnership generally has
and would continue to have allocated over a
declining revenue base with aging assets;
(5) possibility of interruptions in cash distributions
due to the costs of compliance with federal noise
compliance regulations;
(6) continued risks of lease default by lessees;
(7) continued lack of liquidity of a unitholder's
investment; See "THE PARTNERSHIP AND THE GENERAL
PARTNERS-- Market for the Units;"
(8) yearly expense and delay to individual
unitholders' preparation of tax returns due to
their investment in a limited partnership.
If the Partnership were to continue under its current structure,
unitholders would likely retain their investment without any significant
accumulation in value or near term exit opportunities.
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<PAGE>
ADVANTAGES OF THE LIQUIDATION
Among the reasons prompting the General Partners' decision to
recommend the Liquidation are the following:
(1) Decreasing Distributions to Unitholders. The General Partners
believe that the older age of the Partnership's fleet and the
cost of Stage 3 compliance will continue to increasingly
negatively impact the Partnership's revenue and cash
distributions from operations to unitholders as it will become
increasingly difficult to find lessees with acceptable credit at
reasonable lease rates;
(2) Current Market. The General Partners believe that the current
market provides an opportunity to sell the aircraft and avoid
worsening market conditions as additional younger planes flood
the market for lessees and avoid potentially more difficult
market conditions to re-lease aircraft to acceptable lessees;
(3) Reduced Tax Benefits. The aircraft owned by the Partnership are
substantially depreciated on a tax basis and therefore
unitholders will not receive future tax benefits from
depreciation deductions;
(4) Sale of Illiquid Investment. Currently, there is no established
market for the units and unitholders are only able to sell their
units in an informal and sparse secondary market, which contains
a small number of participants with infrequent transactions such
as tender offers for less than 5% of the units. Such tender
offers have been made to unitholders for their interests in the
Partnership at prices which the General Partners have deemed to
be insufficient. As a result, the General Partners believe that
there may be a desire on behalf of at least some unitholders to
liquidate portions of or their entire investment in the
Partnership. Liquidation of the Partnerships allows unitholders
to "cash-out" their investment; and
(5) Industry Trend. The unitholders in other partnerships involved in
the aircraft and aircraft equipment industry with aircraft at
similar points in their economic life cycles have liquidated. The
General Partners, as the General Partners of JetStream, are also
currently proposing to liquidate JetStream.
RISKS OF THE LIQUIDATION
General. The following is a description of the risks which the
General Partners believe, as of the date of this consent solicitation statement,
are material in connection with the Liquidation.
- --------------------------------------------------------------------------------
Unitholders should consider the following factors in reaching a decision as to
whether to approve the Liquidation.
- --------------------------------------------------------------------------------
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Uncertainty of Amount and Timing of Liquidating Distributions to
Unitholders. A number of factors will affect the amount and timing of
liquidating distributions in the Liquidation, including the price for which the
aircraft are sold, the condition of the aircraft market during the Liquidation,
new laws or regulations regarding aircraft, the costs of liquidation and other
matters, many of which are beyond the control of the Partnership. There is also
no assurance that the Partnership's assets can be sold within a reasonable
period of time. As a result, the General Partners cannot guaranty the timing or
amount of liquidating distributions to unitholders. See "-- Plan of Liquidation
and Dissolution" and "-- Effect of the Liquidation on the Partnership and
Unitholders."
Sales of Assets Pursuant to the Plan of Liquidation and
Dissolution Not Subject to Unitholder Approval. If the unitholders approve the
Liquidation, the General Partners will commence marketing of all of the
Partnership's aircraft. Unitholders will have no right or opportunity to vote on
the sale of each aircraft and will, therefore, have no right to approve or
disapprove the terms of any such sale. Therefore, by consenting to the
Liquidation, unitholders are granting the General Partners authority to sell all
of the Partnership's assets upon terms and conditions which the General Partners
deem appropriate. In general, the General Partners expect to sell the aircraft
for cash on an "as-is where is" basis and the sales agreements are not expected
to contain surviving representations or warranties. See "-- Plan of Liquidation
and Dissolution."
Lack of Independent Representation. The Partnership has not
retained an independent representative to act on behalf of the unitholders or
the Partnership in designing the overall structure of the Liquidation and, in
particular, in structuring and negotiating the terms and conditions (including
the consideration to be received) upon which the Partnership's assets will be
sold. If a third party broker had been retained to sell the assets of the
Partnership, the terms of the Liquidation may have been different for both the
Partnership and the unitholders. The General Partners did not believe it
necessary to retain such independent representative due to higher transaction
costs and inadequate benefits to the unitholders. The General Partners, however,
have engaged BK Associates, Inc., an independent third party appraiser, to
appraise the Partnership's aircraft in connection with the Liquidation. See "--
Appraisal of Partnership Assets."
Indemnification Under the Partnership Agreement. The Partnership
Agreement provides that the General Partners and their respective affiliates (as
defined in the Partnership Agreement and to the extent such affiliates are
acting for or on behalf of the General Partners) are not liable to the
Partnership, unitholders or any other person having any other interest in units
for any loss which arises out of their acts or omissions, if the General
Partners acted in good faith, on behalf of the Partnership, and determined that
such course of conduct was in the best interests of the Partnership and did not
constitute negligence or misconduct of the General Partners or their respective
affiliates. As a result of these provisions, unitholders may have more
restricted rights of action than they would otherwise have if such restrictions
had not been included in the Partnership Agreement. In general, neither the
General Partners nor their respective affiliates may be indemnified under the
Partnership Agreement with regard to liabilities arising under federal or state
securities laws, rules or regulations.
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If a claim were made against the General Partners or their
affiliates in connection with their actions on behalf of the Partnership with
respect to the Liquidation, the General Partners expect that they and such other
persons will seek to be indemnified by the Partnership with respect to such
claim. Any expenses (including legal fees) incurred by the General Partners and
such other persons in defending such claim may be advanced by the Partnership
prior to the final disposition of such claim, if: (1) the legal action relates
to the General Partners' (and such persons) performance on behalf of the
Partnership, (2) the legal action is initiated by a third party who is not a
unitholder and (3) the General Partners (and such other person) undertake to
repay any amounts advanced if it is determined that the indemnified person's
actions constituted negligence or misconduct. As a result of these
indemnification rights, a unitholder's remedy with respect to claims against the
General Partners (and such other person) relating to the General Partners' or
such other person's involvement in the Liquidation could be more limited than
the remedies that would have been available absent the existence of these rights
in the Partnership Agreement. A successful claim for indemnification, including
the expenses of defending a claim made, would reduce the Partnership's assets by
the amount paid.
The Continued Existence of the Partnership Due to Litigation or
Unresolved Claims. The Partnership has asserted claims against some of its
lessees. The Partnership may not be terminated until all Partnership claims have
been resolved. The General Partners may elect under the Plan of Liquidation and
Dissolution to distribute all of the assets of the Partnership to unitholders
and either dissolve and terminate the Partnership or leave the Partnership in
existence as a legal entity during the pendency of any claims while maintaining
sufficient reserves to pay any costs of settling the claims or in the event the
Partnership is liable to third parties on any claims brought by third parties
against the Partnership. As of the date of this consent solicitation statement,
the General Partners are not aware of any such third party claims.
Liquidation Will Affect Operating Results. As aircraft are sold
pursuant to the Plan of Liquidation and Dissolution, the Partnership's net
income would decrease since fewer revenue-generating aircraft will remain in the
Partnership's portfolio. Because certain of the Partnership's general and
administrative expenses are fixed rather than variable, the decreased
contribution from aircraft which are sold are expected to result in a decrease
in total Partnership operating results until completion of the Liquidation.
Year 2000. The Year 2000 compliance issue concerns the ability of
computerized information systems to accurately calculate, store or use a date
after 1999. This could result in computer system failures or miscalculations
causing disruptions of operations. The Year 2000 issue affects almost all
companies and organizations. It is anticipated that the cost of vendor and
lessee compliance with Year 2000 problems will be borne primarily by vendors and
lessees, respectively. Non-compliance by the lessee could impact its ability to
operate the aircraft, and could affect its ability to meet the terms of its
lease. In addition, Year 2000 computer failures among potential purchasers for
the Partnership's aircraft could depress the market for the Partnership's
aircraft. Although it is not possible at present to give an estimate of the cost
of this work to the Partnership, the General Partners do not expect such costs
to have a material adverse impact on the Partnership's Liquidation.
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AMENDMENT TO THE PARTNERSHIP AGREEMENT; JOINT MARKETING AGREEMENT
Pursuant to Section 5.9(e) of the Partnership Agreement, the
Managing General Partner is entitled to receive a Resale Fee for marketing and
selling the Partnership's assets. This fee is only payable if both (1) the
Preferred Return is paid to unitholders and (2) the Partnership has achieved the
pre-tax Internal Rate of Return. Therefore, the Resale Fee requires that the
Partnership achieve certain performance criteria. The Resale Fee is limited to
the lesser of 3% of the selling price of the asset or the amount that would be
charged by a non-affiliate to market and sell the Partnership's aircraft on
similar terms.
The Partnership Agreement does not require that the General
Partners market and sell the assets themselves. See "THE PARTNERSHIP AND THE
GENERAL PARTNERS -- Fees of the General Partners." Under the Partnership
Agreement, the General Partners may instead hire a third party to sell the
Partnership's assets, which third party would charge a broker's fee. The
Partnership would pay the reasonable fees and expenses of a third party broker.
The General Partners surveyed market rates for third party
brokers for recently completed transactions. The General Partners also reviewed
the fees received by general partners of other partnerships for marketing and
selling aircraft of similar partnerships. In addition, the General Partners
received the opinions of two appraisers concluding that 3% is a reasonable fee
for the sale of the Partnership's assets. Based on the foregoing, the General
Partners concluded that, for the Partnership's portfolio, the Partnership could
expect to pay a fee in excess of 3% plus expenses for a third party broker's
services in selling the Partnership's assets.
The General Partners are proposing that the Partnership Agreement
be amended to allow both of the General Partners to find buyers for the aircraft
of the Partnership for a fee not to exceed 3% of the sales price of the aircraft
pursuant to the terms of the Joint Marketing Agreement, dated July 13, 1999,
among CIS Aircraft Partners, Inc., Jet Aircraft Leasing, Inc. and JetStream II.
For performing their respective duties of identifying and negotiating with
buyers of the aircraft, as set forth in the Joint Marketing Agreement, the
Partnership will pay a fee to the Managing General Partner and the
Administrative General Partner equal to 2% and 1%, respectively, of the contract
sale price for each aircraft as and when sold. This marketing and sales fee
would not be subordinated to the Preferred Return or the Internal Rate of
Return. Under the Joint Marketing Agreement, the General Partners would pay for
any fees attributable to any third party brokers. As a result, the expense to
the Partnership is expected to be lower if the General Partners market and sell
the Partnership's assets than if the Partnership hires a third party broker
because the total fee paid by the Partnership will be limited to 3% of the
selling price of each aircraft. The General Partners believe that the 3%
marketing and sales fee is a fair and reasonable fee and is and is comparable to
or less than the fee typically charged by third parties for such services. In
addition, the General Partners are qualified to perform these services due to
their experience at marketing and selling aircraft.
In order to allow the payment of the marketing and sales fee to
the General Partners, section 5.9(e) of the Partnership Agreement is proposed to
be restated in its entirety to read as follows:
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The Managing General Partner and the Administrative General
Partner shall receive a non-subordinated aircraft marketing and
sales fee in connection with the liquidation of the Partnership
as set forth in the Joint Marketing Agreement, dated July 13,
1999, among the Managing General Partner, the Administrative
General Partner and the Partnership.
This amendment to the Partnership Agreement is part of the Liquidation and
requires the approval of unitholders holding more than 50% of the outstanding
units on October 12, 1999. If the requisite number of unitholders do not approve
the Liquidation, the Joint Marketing Agreement will be terminated.
INTERESTS OF CERTAIN PERSONS IN THE LIQUIDATION
General. Pursuant to the Joint Marketing Agreement, the Managing
General Partner and Administrative General Partner have an interest in the
Liquidation in addition to their ownership interest in the Partnership. As
General Partners of the Partnership, however, the General Partners are required
to perform their duties under the Joint Marketing Agreement, consistent with
their fiduciary duties to the unitholders, in compliance with the terms of the
Partnership Agreement, and without regard to whether they or their affiliates
have an interest in a proposed transaction. See "THE PARTNERSHIP AND THE GENERAL
PARTNERS -- The General Partners -- Fiduciary Duties of the General Partners"
for a description of the General Partners' duties with respect to the
Partnership. After consideration of the terms and conditions of the Liquidation,
the General Partners recommend that unitholders vote in favor of the
Partnership's participation in the Liquidation.
In addition, certain affiliates of each of the Managing General
Partner and the Administrative General Partner currently compete with the
Partnership in the aircraft leasing business which may subject the Managing
General Partner and the Administrative General Partner to an additional conflict
of interest. See "-- Affiliates of the Managing General Partner and the
Administrative General Partner; Liquidation of JetStream" below.
Current Compensation. Currently, each General Partner receives a
0.5% share of the Partnership's cash flow and non-liquidating sales proceeds for
its GP Interest in the Partnership. Under the Partnership Agreement, the General
Partners are also entitled to base management fees, re-lease fees and incentive
management fees. See "THE PARTNERSHIP AND THE GENERAL PARTNERS -- Fees of the
General Partners." Through March 31, 1999, the Partnership paid an aggregate of
$16,540 to the General Partners in management fees, administrative overhead
reimbursement, and cash distributions. See "THE PARTNERSHIP AND THE GENERAL
PARTNERS -- Fees of the General Partners."
Liquidating Distribution Received by the General Partners Under
the Partnership Agreement. Pursuant to the Partnership Agreement, the General
Partners may receive a cash distribution upon Liquidation of the Partnership
equal to the General Partners' capital accounts. This cash distribution will be
made only after payment has been made to the Partnership's creditors and
unitholders in the amount of each unitholder's capital account.
24
<PAGE>
Affiliates of the Managing General Partner and the Administrative
General Partner; Liquidation of JetStream. Certain affiliates of the Managing
General Partner and the Administrative General Partner compete with the
Partnership in the aircraft leasing business. As a result, the Managing General
Partner and the Administrative General Partner may have a conflict of interest
if both the Partnership and the affiliate are concurrently selling the same type
of aircraft. A similar conflict of interest may arise for both of
the General Partners between JetStream and JetStream II if unitholders of both
JetStream and JetStream II approve their plan of liquidation and dissolution
whereby the General Partners will be engaged market and to sell the assets of
both partnerships. For example, both JetStream and JetStream II own B- 737-200
and MD-80 aircraft. In addition, since JetStream and JetStream II have the same
general partners, the General Partners may not be in a position to independently
view the Liquidation proposal solely from the perspective of a single
partnership, the effect of which may have benefitted one of the Partnerships at
the expense of the other partnership.
In addition, along with two other creditors, an affiliate of the
Managing General Partner filed an involuntary petition for bankruptcy relief
against Eastwind Airlines in the United States Bankruptcy Court for the District
of Delaware on September 29, 1999. Jetstream II does not have any aircraft on
lease to Eastwind.
Under the terms of the Partnership Agreement, the Partnership may
not sell aircraft to the General Partners or their respective affiliates.
APPRAISAL OF PARTNERSHIP ASSETS
General. The General Partners engaged BK Associates, Inc. (the
"Appraiser"), an independent appraisal firm, to appraise the lease-encumbered
value of the aircraft owned by the Partnership.
The projected aggregate asset value of JetStream II as determined
by the Appraiser using the lease-encumbered value methodology described below
was $23.33 million (not including expenses) as of December 31, 1999. See "Effect
of the Liquidation on the Partnership and the Unitholders" for a description of
the assumptions on which this appraised value was based.
Selection and Role of the Appraiser. BK Associates is an aircraft
appraisal firm and is an International Society of Transport Aircraft Trading
certified senior aircraft appraiser. BK Associates' clients include domestic and
foreign airlines; aircraft, engine and aviation equipment manufacturers;
corporate aircraft operators; governmental agencies; and financial institutions.
The Appraiser was selected on the basis of its experience and expertise in
evaluating aircraft similar to those in the Partnership's portfolio, its
knowledge of market demand for the Partnership's aircraft and its ability to
provide an independent evaluation in a timely manner. In addition, the Appraiser
has prepared annual appraisals of the lease-encumbered value of the Partnerships
aircraft since inception of the Partnership. For services in connection with the
appraisal, the Partnership has agreed to pay BK Associates a fee of $11,000. The
Appraiser's compensation was not contingent upon the consummation of the
Liquidation, the outcome of the Appraiser's conclusions or the sale of the
Partnership's aircraft portfolio.
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There were no limitations imposed by the General Partners upon
the methods, procedures or investigations that might be pursued or undertaken by
the Appraiser in performing the requested valuation. The Appraiser was afforded
the opportunity to (a) conduct such investigations, inquiries and due diligence
as deemed necessary or advisable in establishing its valuation, (b) select and
follow the procedures, techniques and methods deemed to be most appropriate to
establish and confirm such valuations; and (c) make such assumptions, and
identify such qualifications and limitations, as deemed necessary in its
findings.
- --------------------------------------------------------------------------------
Neither the Managing General Partner nor the Administrative
General Partner has made any contact, other than as described in this consent
solicitation statement, with any outside party regarding the preparation by the
outside party of an appraisal of the Partnership or its assets, or any other
report with respect to the Liquidation.
- --------------------------------------------------------------------------------
Lease-Encumbered Value. The lease-encumbered value is the
Appraiser's opinion of the value of a leased aircraft, given a specified lease
payment stream (rent and terms), and estimated future residual value at lease
termination after the appropriate discount rate. This approach assumes that
there is no short-term time constraint to buy or sell the asset. The
lease-encumbered valuation can produce current market values greater or lesser
than the fair market values, depending upon the rental rate and the Appraiser's
opinion regarding future values of the appraised aircraft. Lease-encumbered
value does not reflect expenses involved in realizing such value.
- --------------------------------------------------------------------------------
In calculating lease-encumbered value, the Appraiser did not
consider transaction costs and expenses (including administrative and other
related costs) that the Partnership will incur in the Liquidation and which will
materially reduce the actual cash payment to unitholders.
- --------------------------------------------------------------------------------
The following chart sets forth, by lessee, the appraised values
of the Partnership's aircraft as determined by the Appraiser:
Lease-Encumbered
Aircraft Model Year Delivered Lessee Value(1)
-------------- -------------- ------ ----------------
(In thousands)
DC-9-30 1969 Northwest 2,125
DC-9-30 1970 Northwest 2,125
DC-9-30 1970 Northwest 2,165
B-737-200 ADV 1979 Delta 3,274
MD-80 Series 1986 Continental 13,646
-------
TOTALS $23,335
=======
- --------------------
(1) The estimated market value of the aircraft are affected by, and
subject to, future changes in a variety of factors, including,
but not limited to, the aircraft's usage, age and lease rate, the
credit worthiness of the of the lessee, government maintenance
and noise regulations and the supply and demand of aircraft in
the market place with similar lift capacity.
26
<PAGE>
OTHER CONDITIONS TO THE LIQUIDATION
Some of the aircraft leases require that the lessees consent to
sale of the aircraft unless the purchaser meets certain credit or other
requirements. The General Partners do not believe that obtaining these consents
will materially effect the timing of the Liquidation. Other than compliance with
certain aircraft registration requirements, there are currently no federal or
state regulatory approvals that must be obtained in connection with the
Liquidation. See "-- Background and Reasons for the Liquidation -- Regulation --
Aircraft Registration."
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
The federal income tax discussion set forth below deals with the
material federal income tax consequences of the Liquidation of a Partnership,
but does not purport to deal with all aspects of federal income taxation that
may be relevant to a particular unitholder in the light of such a unitholder's
personal circumstances. The discussion is directed solely to holders that hold
the units as capital assets within the meaning of section 1221 of the Internal
Revenue Code of 1986, as amended (the "Code"), and have acquired such units for
investment and not as a dealer or for resale. Further, this discussion may not
be applicable to certain classes of taxpayers, including insurance companies,
securities dealers, non-resident alien individuals, foreign entities, foreign
trusts and estates and beneficiaries thereof, financial institutions, real
estate investment trusts, regulated investment companies, tax exempt
organizations, trusts or persons who acquired Partnership interests as
compensation. This discussion is based upon the Code, Department of Treasury
regulations, court decisions, published rulings of the Internal Revenue Service
(the "IRS") and other applicable authorities, all as in effect on the date
hereof and all of which are subject to change or differing interpretation
(possibly on a retroactive basis).
Unitholders are urged to consult their own tax advisors as to the
specific tax consequences to them of the Liquidation of a Partnership, including
the applicability and effect of federal, state, local and other tax laws.
- --------------------------------------------------------------------------------
In General. The Partnership, as a partnership for federal income
tax purposes, is not subject to federal income tax; rather, each unitholder is
required to take into account its distributive share of the Partnership's
income, gains, losses, deductions, credits and tax preference items in computing
such unitholder's federal income tax liability for any taxable year of the
Partnership ending within or with the taxable year of such unitholder, without
regard to whether the unitholder has received or will receive any distribution
from the Partnership. Such distributive share is required to be reported by the
Partnership to each unitholder on a Schedule K-1; each unitholder is required to
report consistently with such Schedule K-1 unless it discloses any inconsistent
position to the IRS when it files its federal income tax return. A unitholder's
distributive share of the Partnership's income or loss is determined in
accordance with the allocations set forth in the Partnership Agreement.
For federal income tax purposes, the Liquidation consists of two
separate components:
(1) the sale by the partnership of its assets; and
(2) the distribution of cash to each unitholder in
liquidation (a "liquidating distribution") of such
unitholder's interest in the partnership. Each of
these is separately discussed below.
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Sale of the Partnership's Assets. For federal income tax
purposes, each unitholder will be required to include in its income its
allocable share of the gain or loss realized by the Partnership upon the sale of
the Partnership's assets pursuant to the Liquidation. It is expected that the
amount of gain so includable by a unitholder will be approximately $3.65 to
$4.58 per unit. Such gain will result primarily from the sale of the aircraft
and aircraft related assets ("Aircraft Gain"). It is anticipated that all
Aircraft Gain will be ordinary income in the form of "depreciation recapture"
because it will be attributable to tax depreciation of the aircraft and related
assets while owned by the Partnership. Gain or loss realized by the Partnership
on the sale of each of its other assets will be capital or ordinary gain or
loss, depending upon the nature of the asset in the hands of the Partnership.
Distribution to the Unitholders. A unitholder will recognize gain
to the extent the amount of the liquidating distribution received by the
unitholder exceeds the unitholder's tax basis for its units. Any such gain will
be capital gain. In general, any such capital gain recognized by an individual,
estate or trust will qualify for the 20% maximum tax (10% in the case of a
taxpayer in the 15% ordinary income bracket) on capital gains if the units were
held by such unitholder for more than one year. Because a unitholder's tax basis
for its units will be increased by both the unitholder's allocable share of any
gain realized on the sale of the Partnership's assets (see --"Sale of the
Partnership's Assets"), and by the amount of the unitholder's allocable share of
income from normal Partnership operations for the year of the Liquidation, a
unitholder will not realize any gain by reason of the distribution of such gain
and operating income pursuant to the Liquidation. Nevertheless, a unitholder's
allocable share of the Partnership cash may exceed its basis for its units, and
thereby cause the unitholder to recognize gain.
A unitholder will recognize a capital loss to the extent the
amount of the liquidating distribution received by the unitholder is less than
the unitholder's tax basis for its units, as such basis is adjusted to reflect
any gain or loss realized by the Partnership on the sale of its assets.
Passive Activity Rules. Unitholders that are individuals, trusts,
estates, closely held corporations or personal service corporations are subject
to the passive activity loss limitations rules of section 469 of the Code. A
unitholder's allocable share of Partnership income or loss from the sale of the
Partnership's assets is generally treated as derived from a passive activity. As
a result, a unitholder's allocable share of such losses may be used by the
unitholder in the current taxable year only to offset passive activity income
from a unitholder's other passive activity investments, with the excess
suspended indefinitely. Similarly, a unitholder's allocable share of any
Partnership gain realized on the sale of its assets is generally characterized
as passive activity income that may be offset by passive activity losses from a
unitholder's other passive activity investments. However, because the
liquidating distribution is a fully taxable transaction, section 469 of the Code
allows any suspended passive activity losses of the unitholder with respect to
its investment in the Partnership to be used to reduce other income of the
unitholder.
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Tax Treatment of Partnership; Final Partnership Year. The
Partnership will recognize no gain or loss by reason of the liquidating
distribution. The Partnership's final taxable year (the "termination year") will
close on the date on which the Certificate of Cancellation is filed with the
Delaware Secretary of State or such later time as specified in the Certificate
of Cancellation see "-- Effective Time," and each unitholder's distributive
share of the Partnership's items of income, gain, loss, deduction and credit for
the termination year will be taken into account by the unitholder on the
unitholder's federal income tax return for the unitholder's taxable year in
which the termination year occurs, in accordance with the procedures that
applied to previous taxable years. Because the Partnership has a calendar
taxable year, a unitholder with a taxable year that is other than a calendar
year may be required to include such unitholder's distributive share of
Partnership income for two partnership years in the unitholder's taxable year in
which the termination year occurs.
ACCOUNTING TREATMENT
The Partnership will prepare financial statements in accordance
with generally accepted accounting principles as of and through the date of the
dissolution of the Partnership and will engage its independent auditors to audit
the financial statements.
EFFECTIVE TIME
The effective time of the Liquidation will occur upon the filing
of the Certificate of Cancellation for the Partnership with the Delaware
Secretary of State, or at such later time as may be specified in the Certificate
of Cancellation. It is anticipated that such filing will be made as promptly as
practicable after the requisite approval of the unitholders has been obtained,
the assets of the Partnership are sold and the other conditions to the
Liquidation have been satisfied or waived, if permitted under the Plan of
Liquidation and Dissolution. See, however "-- Risks of the Liquidation -- The
Continued Existence of the Partnership due to Litigation or Unresolved Claims."
AMENDMENT OF THE PLAN OF LIQUIDATION AND DISSOLUTION
Subject to applicable law, the Plan of Liquidation and
Dissolution may be amended by the Partnership at any time prior to the filing of
the Certificate of Cancellation with the Delaware Secretary of State, provided
that, after approval of the Liquidation by the affirmative vote of holders of
more than 50% of the outstanding units of the Partnership, no amendment may be
made which alters or changes the terms and conditions of the Plan of Liquidation
and Dissolution if such alteration or change would materially and adversely
affect the unitholders.
NO APPRAISAL RIGHTS
Pursuant to Delaware law, a partnership agreement may provide for
contractual appraisal rights in connection with any amendment of a partnership
agreement, any merger or the sale of all or substantially all of the limited
partnership's assets. No such appraisal rights, however, are available for
unitholders of JetStream II because neither the Partnership Agreement nor the
Plan of Liquidation and Dissolution provide for appraisal rights. Accordingly,
the approval of the Liquidation by the affirmative vote of the requisite number
of unitholders will be binding on all of the Partnership's unitholders.
29
<PAGE>
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
-----------------------------------------------------------------
GENERAL
As of the record date, no person was known by the Partnership to
be the beneficial owner of more than five percent of the units.
OWNERSHIP INTEREST OF THE GENERAL PARTNERS IN THE PARTNERSHIP
The General Partners each have a GP Interest. See "THE
PARTNERSHIP AND THE GENERAL PARTNERS -- The General Partners." This GP Interest
does not include voting rights. In addition, the General Partners do not own any
units in the Partnership. The Assignor Limited Partner owns five units in the
Partnership.
------------------
CONSENT PROCEDURES
------------------
- --------------------------------------------------------------------------------
The consent of each unitholder is important. Each unitholder is urged to mark,
date and sign the enclosed blue consent card and return it in the enclosed
postage prepaid envelope or fax it to MacKenzie Partners at (212) 929-0308. If
you require assistance completing the blue consent card, please call MacKenzie
Partners toll free at (800) 322-2885.
- --------------------------------------------------------------------------------
TIMING OF THE CONSENT SOLICITATION
The vote of the unitholders with respect to the Liquidation will
be tabulated on an ongoing basis until 5:00 p.m., Eastern Time, on November 19,
1999, unless such date and/or time is extended by the General Partners, in their
sole discretion. The votes will be tabulated by MacKenzie Partners, which is not
affiliated with the Partnership or the General Partners.
RECORD DATE AND OUTSTANDING UNITS
The Liquidation is being submitted for approval to unitholders as
of the record date. The Partnership Agreement provides that the Assignor Limited
Partner will vote each unit as directed by the unitholder. The record date is
October 12, 1999 for the Partnership for determining the unitholders entitled to
consent to the Liquidation. Accordingly, only record date unitholders will be
entitled to consent to the Liquidation. At the record date, 4,837,505 JetStream
II units were held of record by approximately 6,248 unitholders.
30
<PAGE>
Each unitholder is entitled to one vote for each unit held.
Accordingly, the number of units entitled to vote with respect to the
Liquidation is equivalent to the number of units held of record at the record
date. In connection with certain offers previously made for units, the offerors
and the Partnership have entered into agreements pursuant to which such offerors
shall vote, for a specified period of time, the units acquired pursuant to a
tender offer in the same percentages as the votes of the other units. As of June
30, 1999, 1,541 units are subject to such agreements.
APPROVAL DATE; EXTENSIONS; AMENDMENT
This consent solicitation statement and enclosed blue consent
card constitute the Assignor Limited Partners' notice to unitholders of the
Liquidation. Each unitholder has until 5:00 p.m., Eastern Time on November 19,
1999, unless extended by the General Partners in their sole discretion, to
inform the Assignor Limited Partner whether such unitholder wishes to vote for,
against or abstain from voting on the Liquidation. The General Partners ask that
each unitholder vote by completing and returning the enclosed blue consent card
accompanying this consent solicitation statement in the manner described below.
Notwithstanding anything to the contrary set forth in this
consent solicitation statement, the General Partners reserve the right, at any
time prior to effectiveness of the Liquidation, to extend, amend or terminate
the solicitation, or to delay accepting consent cards.
CONSENT CARD AND VOTE REQUIRED
Approval of the Liquidation by the Partnership requires the
affirmative vote of holders of more than 50% of the outstanding units of the
Partnership as of the record date. 2,418,753 units must be voted in favor of the
Liquidation for it to be approved by the Partnership.
Unitholders who wish to vote "FOR" the Liquidation should
complete, sign and return the blue consent card. A consent card has been
prepared for each unitholder and is enclosed with this consent solicitation
statement. Consent cards must be delivered in person, by mail, by facsimile or
other delivery service to the consent solicitation agent at the following
address on, or prior to, 5:00 p.m., Eastern Time, on November 19, 1999:
If in person, or by mail: If by facsimile:
MacKenzie Partners, Inc. MacKenzie Partners, Inc.
156 Fifth Avenue - PH3 (212) 929-0308
New York, New York 10010
- --------------------------------------------------------------------------------
If you require assistance completing the blue consent card,
please call MacKenzie Partners toll free at (800) 322-2885.
- --------------------------------------------------------------------------------
A consent card shall be deemed to have been "returned" to the Partnership on the
date that it is delivered in person, by facsimile or deposited in the mail or
other delivery service. Unitholders who sign and return the consent card without
indicating a vote will be deemed to have voted "FOR" the Liquidation. The
failure to return a consent card or abstaining from voting with respect to the
Liquidation will have the same effect as a vote "AGAINST" the Liquidation.
31
<PAGE>
Unitholders who wish to vote "AGAINST" the Liquidation should
also complete and return the blue consent card in the manner described above. A
unitholder who abstains from voting, fails to return the consent card, or votes
"AGAINST" will receive such unitholder's share of the distribution of the
Partnership's Liquidation if
(1) the holders of more than 50% of the outstanding
units in the Partnership approve the Liquidation;
and
(2) all other conditions for the consummation of the
Liquidation are satisfied.
Unitholders who vote "AGAINST" the Liquidation will not be
entitled to appraisal rights. See "WHAT YOU SHOULD KNOW BEFORE VOTING ON THE
LIQUIDATION -- No Appraisal Rights."
The delivery of a consent card will not affect a unitholder's
right to sell or transfer such person's units in the Partnership.
All questions as to the form of all documents and the validity
(including time of receipt) of all approvals will be determined by the General
Partners; such determinations shall be final and binding. The General Partners
reserve the absolute right to waive any of the conditions of the Liquidation or
any defects or irregularities in any approval of the Liquidation or preparation
of the form of consent card. The General Partners' interpretation of the terms
and conditions of the proposed Plan of Liquidation and Dissolution and the Joint
Marketing Agreement will be final and binding. The General Partners shall be
under no duty to give notification of any defects or irregularities in any
approval of the Liquidation or preparation of the form of consent card and shall
not incur any liability for failure to give such notification.
REVOCABILITY OF CONSENT
Unitholders may withdraw or revoke their consent at any time
prior to the earlier of 5:00 p.m., Eastern Time, on November 19, 1999 or the
date on which the Liquidation is approved by the holders of more than 50% of the
outstanding units of the Partnership. To be effective, a written or facsimile of
revocation or withdrawal of the consent card must be received by the consent
solicitation agent prior to such time and addressed as follows: MacKenzie
Partners, Inc., 156 Fifth Avenue-PH3, New York, New York 10010; or by facsimile
to (212) 929-0308. A notice of revocation or withdrawal must specify the
unitholder's name and the number of units being withdrawn.
SOLICITATION OF CONSENTS; SOLICITATION EXPENSES
Votes of unitholders may be solicited by the management of the
General Partners. Costs of solicitation will be paid by the Partnership. See
"WHAT YOU SHOULD KNOW BEFORE VOTING ON THE LIQUIDATION -- Liquidation Expenses."
The Partnership has retained MacKenzie Partners, Inc., as the consent
solicitation agent. MacKenzie Partners will administer the delivery of
information to unitholders. MacKenzie Partners will be paid regardless of the
outcome of the vote.
32
<PAGE>
EFFECT OF A FAILURE TO APPROVE THE LIQUIDATION
If the Liquidation is not approved by the requisite number of
units, then the Partnership will continue to operate as a legal entity with its
assets and liabilities. The General Partners do not anticipate that they will
take any steps to increase liquidity to the Partnership in the near term, and
consistent with their fiduciary duties, will re-evaluate the market conditions
periodically to examine other opportunities available to the Partnership's
unitholders prior to the termination date of the Partnership set forth in the
Partnership Agreement. There will be no change in its investment objectives,
policies and restrictions, and the Partnership will continue to be operated in
accordance with the terms of the Partnership Agreement. The General Partners
cannot guaranty that continuing distributions from operations will remain at
current levels, due primarily to the decline of the Partnership's asset base and
expiration of leases in the near future.
--------------------------
INCORPORATION BY REFERENCE
--------------------------
The following documents filed with the Commission by the
Partnership (File No. 0-16838) pursuant to the Securities Exchange Act of 1934,
as amended are incorporated by reference in this consent solicitation statement
and are delivered herewith:
1. JetStream II's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998;
2. JetStream II's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1999; and
3. JetStream II's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999.
No persons have been authorized to give any information or to
make any representations other than as contained in this consent solicitation
statement in connection with the solicitations of consents for the Liquidation
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Partnership. This consent solicitation
statement does not constitute the solicitation of consent by anyone in any
jurisdiction in which such solicitation is not authorized or in which the person
making such solicitation is not qualified to do so or to any person to whom it
is unlawful to make such solicitation. The delivery of this consent solicitation
statement shall not under any circumstances create an implication that there has
been any change in the affairs of the Partnership since the date hereof or that
the information herein is correct as of any time subsequent to its date.
33
<PAGE>
----------
APPENDICES
----------
Appendix A -- Form of Plan of Liquidation and Dissolution
Appendix B -- Joint Marketing Agreement
Appendix C -- JetStream II's Annual Report on Form 10-K for the Year Ended
December 31, 1998.
Appendix D -- JetStream II's Quarterly Report on Form 10-Q for the Period Ended
March 31, 1999.
Appendix E -- JetStream II's Quarterly Report on Form 10-Q for the Period
Ended June 30, 1999.
34
<PAGE>
Appendix A
PLAN OF LIQUIDATION AND DISSOLUTION
OF
JETSTREAM II, L.P.
This Plan of Liquidation and Dissolution (the "Plan") dated as
of ______, 1999 of JetStream II, L.P. (the "Partnership"), a limited partnership
organized and existing under the Delaware Revised Uniform Limited Partnership
Act (the "Delaware Act"), is for the purpose of effecting the complete
liquidation and dissolution of the Partnership in accordance with the laws of
the State of Delaware.
1. Intention of the General Partners. CIS Aircraft Partners,
Inc., as the Managing General Partner, and Jet Aircraft Leasing, Inc., as the
Administrative General Partner (collectively, the "General Partners"), believe
that the liquidation and dissolution (the "Liquidation") of the Partnership at
this time is in the best interest of the Partnership and the unitholders, as the
beneficial owners of the limited partnership interests of the Partnership (the
"Unitholders"). Therefore, the General Partners have submitted this Plan to the
Unitholders for their consent to liquidate and dissolve the Partnership in
accordance with Section 8.1.(a)(v) of the Limited Partnership Agreement of the
Partnership dated November 10, 1987 (the "Partnership Agreement").
2. Effectiveness. The Plan shall be effective upon the
approval hereof by the affirmative vote of Unitholders owning more than 50% of
the outstanding units of the Partnership as required by the Partnership
Agreement. Until such time as the Unitholders approve this Plan, the General
Partners shall not take and shall not cause the Partnership to take, any of the
actions, and shall not do or cause the Partnership to do, any of the things
provided herein.
3. Dissolution. Upon the execution of this Plan by CIS
Assignor L.P.A., Inc., as Assignor Limited Partner of the Partnership on behalf
of the Unitholders, the Partnership is and shall be dissolved, without any
further action by or on behalf of the Partnership, the Unitholders or the
General Partners.
4. Winding Up. Upon the dissolution of the Partnership, the
General Partners, as liquidators for the Partnership, shall sell all of the
assets of the Partnership pursuant to the Joint Marketing Agreement, dated as of
July 13, 1999, by and among each of the General Partners and the Partnership and
shall apply the funds of the Partnership (including the proceeds of the sale of
any other assets of the Partnership) to (i) the payment of the expenses of the
sale of the assets of the Partnership, and the winding up, liquidation and
termination of the Partnership; (ii) the expenses of preparation, filing and
distribution of financial statements, tax returns, reports required under the
Securities Exchange Act of 1934 (the "Exchange Act") and reports to Unitholders,
including fees and expenses of accountants and lawyers; (iii) the payment of all
income, sales, use, franchise, gross receipts, ad valorem, personal property and
other taxes, imports, duties and governmental charges payable by the Partnership
with respect to its income or operations through the time of its termination
("Taxes"), including Taxes with respect to the sale of the Partnership's assets;
and (iv) the creation of reserves for any of the foregoing.
<PAGE>
5. Liquidation. All assets and funds of the Partnership
remaining after the payments provided for by paragraph 4, and any amounts
reserved by the General Partners pursuant to clause (i) of paragraph 4 and
determined by the General Partners to be in excess of the amounts required
therefor, shall be distributed by the General Partners as follows: (i) to pay or
make provision to pay all creditors of the Partnership, including Limited
Partners and Unitholders in their capacity as creditors of the Partnership, if
applicable; (ii) pay or make provision to pay the General Partners for any loans
or advances made by either of them to the Partnership; (iii) pay the Unitholders
the amount of their respective capital accounts on the date of distribution (the
"Liquidating Distributions"); (iv) pay the General Partners the amounts of their
respective adjusted capital accounts; and (v) pay the General Partners any
accrued but unpaid fees, all in accordance with Section 8.2 of the Partnership
Agreement.
6. Cancellation of Interests in the Partnership. Liquidating
Distributions shall be made in complete cancellation of all of the Unitholders'
interests in the Partnership.
7. Reports and Filings. In connection with the Liquidation and
winding up of the Partnership, the General Partners shall cause to be executed
and timely filed (i) with the office of the Secretary of State of Delaware, a
Certificate of Cancellation canceling the Partnership's Certificate of Limited
Partnership; (ii) with the Internal Revenue Service, all returns, reports,
documents, certificates and other information required under the Internal
Revenue Code of 1986, as amended, or applicable Treasury Department rules or
regulations; (iii) with the appropriate authorities in any other tax
jurisdiction, all returns, reports, documents, certificates and other
information required under the laws of such jurisdictions; (iv) with the
Securities Exchange Commission, any reports required under the Exchange Act,
including a Form 15 terminating the registration of the Partnership under the
Exchange Act; and (v) all reports required to be delivered to the Unitholders in
accordance with Article IX of the Partnership Agreement.
8. Other Acts. The General Partners shall take, or cause the
Partnership to take, such other acts and deeds and shall do, or cause the
Partnership to do, such other things, as are necessary or appropriate in
connection with the dissolution, winding up and Liquidation of the Partnership,
the termination of the responsibilities and liabilities of the Partnership under
applicable law, and the termination of the existence of the Partnership.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have made and executed
this Plan as of the date first written above.
CIS AIRCRAFT PARTNERS, INC.
AS MANAGING GENERAL PARTNER
OF JETSTREAM II, L.P.
--------------------------------
BY:
TITLE:
JET AIRCRAFT LEASING, INC.
AS ADMINISTRATIVE GENERAL PARTNER
OF JETSTREAM II, L.P.
---------------------------------
BY:
TITLE:
CIS ASSIGNOR L.P.A., INC.
AS ASSIGNOR LIMITED PARTNER OF
JETSTREAM II, L.P. ON BEHALF OF THE UNITHOLDERS
---------------------------------
BY:
TITLE:
3
<PAGE>
Appendix B
THIS JOINT MARKETING AGREEMENT is entered into as of the 13th day of
July, 1999 (the "Agreement") among CIS Aircraft Partners, Inc., a Delaware
corporation ("CIS"), Jet Aircraft Leasing Inc., a Delaware corporation ("JAL"),
and Jetstream II, L.P., a Delaware limited partnership ("Jetstream II").
PRELIMINARY STATEMENT
CIS and JAL (individually, each a "General Partner" and collectively
the "General Partners") are respectively the managing general partner and the
administrative general partner of Jetstream II. The General Partners have
determined that it is in the best interests of the limited partners and
unitholders of Jetstream II (collectively the "Investors") to approve a plan of
liquidation and dissolution ("Plan of Liquidation and Dissolution") and wind up
the affairs of Jetstream II. In order to obtain the best price for the aircraft
owned by Jetstream II, a list of which is attached as Exhibit A (the
"Aircraft"), the Aircraft need to be effectively marketed and sold. Given the
familiarity of the General Partners with the Aircraft and the willingness of the
General Partners to market and sell the assets for fees that are competitive
with those that are commonly charged for such services, the General Partners
have agreed to seek the approval of the Investors to have Jetstream II engage
the General Partners to market and sell the assets jointly.
The parties hereto agree as follows:
1. (a) The General Partners shall jointly market and sell
the Aircraft.
(b) Set forth on Exhibit B, attached hereto, are the respective
duties to be performed by the General Partners with respect to the marketing and
sale of the Aircraft.
(c) For performing its duties set forth on Exhibit B, Jetstream II
shall pay a fee to CIS equal to 2% of the contract sale price of each Aircraft
as and when sold.
<PAGE>
(d) For performing the duties set forth in Exhibit B, Jetstream II
shall pay a fee to JAL equal to 1% of the contract sale price for each Aircraft
as and when sold.
(e) Any fees payable hereunder shall be paid in immediately
available funds at the closing of the sale of each Aircraft.
(f) Jetstream II shall reimburse the General Partners for their
reasonable documented out of pocket expenses incurred in connection with the
performance of their respective duties set forth on Exhibit B attached hereto.
2. This Agreement shall be construed in accordance with the laws of the
State of New York without reference to its conflict of law provisions and the
obligations and remedies of the parties hereunder shall be determined in
accordance with such laws.
3. All notices shall be written and (i) mailed by certified mail,
postage prepaid, return receipt requested or (ii) telecopied (upon telephone
confirmation of receipt thereof) with a copy delivered by overnight courier and
shall be deemed given upon actual receipt by the intended recipient as follows:
(i) If to CIS: CIS Aircraft Partners, Inc.
45 Broadway
Suite 1105
New York, New York 10006-3007
Attention: Mr. Michael Rosen
Telephone: (212) 771-1000
Telecopier: (212) 771-1100
(ii) If to JAL: Jet Aircraft Leasing Inc.
3 World Financial Center, 29th Floor
New York, New York 10285
Attention: Mr. Michael Marron
Telephone: (212) 526-3085
Telecopier: (201) 508-4562
with a copy to:
Melissa Nathanson, Esq.
c/o Jet Aircraft Leasing Inc.
3 World Financial Center, 11th Floor
New York, New York 10285
- 2 -
<PAGE>
Telephone: (212) 526-9460
Telecopier: (212) 526-3713
(iii) If to Jetstream II: Jetstream II, L. P.
3 World Financial Center, 29th Floor
New York, New York 10285
Attention: Ms. Andre Anderson
Telephone: (212) 526-3183
Telecopier: (212) 526-6399
4. Each of the General Partners shall indemnify and hold Jetstream II
harmless against any loss, claim, cause of action, liability and expense,
including reasonable attorney's fees, to the extent that such loss, claim, cause
of action, liability or expense arises out of or is based on a claim by any
broker, finder or other person who claims to have procured a purchaser solely or
as a result of his dealings with such General Partner. Jetstream II agrees that
each General Partner's liability hereunder shall be limited to the amount of the
fees received by such General Partner.
5. The Agreement contains the entire agreement of the parties with
respect to the sale and marketing of the Aircraft and no oral statement or prior
written matter shall have any force or effect. No variation, modification or
amendment of this Agreement shall be binding on the parties hereto unless and
until set forth in a document executed by the parties hereto.
6. Except for Section 1(f) which shall be effective and binding as of
the date of the Agreement, the Agreement shall not be effective or binding until
the Plan of Liquidation and Dissolution is approved by Investors holding more
than 50% in interest of Jetstream II.
- 3 -
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives as of the date first above
written.
CIS AIRCRAFT PARTNERS, INC.
By: /s/ Michael Rosen
-------------------------------
Name: Michael Rosen
Title: Vice President
JET AIRCRAFT LEASING INC.
By: /s/ Michael Marron
-------------------------------
Name: Michael Marron
Title: President
JETSTREAM II, L.P.
By: CIS AIRCRAFT PARTNERS, INC.
as Managing General Partner
By: /s/ Michael Rosen
---------------------------
Name: Michael Rosen
Title: Vice President
By: JET AIRCRAFT LEASING INC.
as Administrative General Partner
By: /s/ Michael Marron
---------------------------
Name: Michael Marron
Title: President
- 4 -
<PAGE>
EXHIBIT A
Aircraft Model Age (years)
------------------- -----------------
DC-9-30 31
DC-9-30 29
DC-9-30 29
B-737-200 ADV 20
MD-80 Series 13
- 5 -
<PAGE>
EXHIBIT B
DUTIES OF CIS
- -------------
1. Prepare marketing materials and due diligence information for
potential buyers.
2. Identify potential buyers.
3. Review and approve potential buyers identified by JAL.
4. Jointly with JAL, analyze and evaluate bids received.
5. Jointly with JAL, select winning bids.
6. Negotiate sale agreements with potential buyers.
7. Supervise the closing of each sale.
DUTIES OF JAL
- -------------
1. Review and approve marketing materials prepared by CIS.
2. Identify potential buyers.
3. Review and approve potential buyers identified by CIS.
4. Jointly with CIS, analyze and evaluate bids received.
5. Jointly with CIS, select winning bids.
6. Review and approve sale agreements.
7. Monitor CIS supervision of the closing of each sale.
- 6 -
<PAGE>
Appendix C
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
- ----- THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
-----------------
or
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) of
- ----- THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------- --------------
Commission file number: 0-16838
-------
JETSTREAM II, L.P.
------------------
Exact name of registrant as specified in its charter
Delaware 84-1068932
-------- ----------
State or other jurisdiction of I.R.S. Employer Identification No.
incorporation or organization
Attn.: Andre Anderson,
3 World Financial Center, 29th Floor, New York, New York 10285
- -------------------------------------------------------- -----
Address of principal executive offices Zip code
Registrant's telephone number, including area code: (212) 526-3183
--------------
Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP DEPOSITARY UNITS (the "Units")
LIMITED PARTNERSHIP INTERESTS (underlying the Units)
----------------------------------------------------
Title of Class
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 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 the 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. [ X ]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant: Not applicable
DOCUMENTS INCORPORATED BY REFERENCE:
Prospectus of the registrant dated November 10, 1987, as filed pursuant to rule
424(c) of the Securities Act of 1933, as amended, is incorporated by reference
in Parts I, II, III and IV of this Annual Report on Form 10-K.
Annual Report to Unitholders for the year ended December 31, 1998 (Portions of
Parts I, II, III & IV).
<PAGE>
2
PART I
ITEM 1. BUSINESS
General
- -------
JetStream II, L.P. (the "Partnership") is a limited partnership organized under
the laws of the State of Delaware on October 15, 1987. The general partners of
the Partnership (the "General Partners") are CIS Aircraft Partners, Inc., the
Managing General Partner ("CAP"), a Delaware corporation that is an affiliate of
Continental Information Systems Corporation, and Jet Aircraft Leasing Inc., the
Administrative General Partner, a Delaware corporation that is an affiliate of
Lehman Brothers Inc. ("Lehman") (See Item 10).
Although the Partnership was organized on October 15, 1987, the Partnership
conducted no activities and recognized no revenues, profits or losses prior to
January 14, 1988, at which time the Partnership commenced operations. During the
period between January 15, 1988 and February 25, 1988 the Partnership acquired
for cash nine used commercial aircraft (together, the "Aircraft"). As of
December 31, 1998, the Partnership had six of the nine original Aircraft
remaining in its portfolio. For a description of the investments in the
Aircraft, please refer to the Message to Investors and Note 4 to the Financial
Statements of the Partnership's Annual Report to Unitholders for the year ended
December 31, 1998, which is filed as an exhibit under Item 14 and incorporated
herein by reference.
On November 10, 1987, the Partnership commenced an offering (the "Offering") on
a "best efforts basis" of $96,750,000 of limited partnership depositary units
("Units"). The closing of the offering occurred on February 24, 1988, with a
total of 4,837,505 Units being sold at a price of $20.00 per Unit, for a total
of approximately $96,750,000. The net proceeds of the offering after payment of
offering and organization costs and acquisition fees aggregated $85,938,000.
Narrative Description of Business
- ---------------------------------
The Partnership is engaged in the business of managing a portfolio of used
commercial aircraft subject to triple net operating leases with commercial air
carriers. The Partnership is required to dissolve and distribute all of its
assets not later than December 31, 2027. The Partnership may reinvest the
proceeds of sales of Aircraft occurring prior to February 24, 1999; thereafter,
the net proceeds of sales of Aircraft will be distributed to the partners, after
deductions of amounts necessary for working capital and certain reserves.
The Partnership's investment objectives are to:
(1) generate quarterly cash distributions to holders of Units (the
"Unitholders"), substantially tax-sheltered during the initial years
of the Partnership's operations, initially at a rate of approximately
12%, subject to conditions stated in the prospectus pursuant to which
the Units were offered and sold (the "Prospectus"), dated November 10,
1987;
(2) preserve and protect the value of the Partnership's assets.
The following table describes the Partnership's portfolio of Aircraft as of
December 31, 1998. This table provides certain operational statistics and
estimated market values for the Aircraft in the portfolio. The estimated market
values of the Aircraft are affected by, and subject to, future changes in a
variety of factors, including, but not limited to, the Aircraft's usage, age and
lease rate, the credit worthiness of the lessee, government maintenance and
noise regulations and the supply and demand of aircraft in the market place with
similar lift capacity. Reference is made to Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations of this Form 10-K, and
the Message to Investors and Note 4 to the Financial Statements of the
Partnership's Annual Report to Unitholders for the year ended December 31, 1998
for additional information on the lease terms for each Aircraft. Reference is
also made to the Message to Investors section of the Partnership's Annual Report
to Unitholders for the year ended December 31, 1998 for an overview of the
aircraft leasing industry.
<PAGE>
3
<TABLE>
<CAPTION>
ESTIMATED CUMULATIVE CUMULATIVE
AIRCRAFT MODEL ACQUISITION NET BOOK MARKET LEASE NOISE FLIGHT FLIGHT
YEAR DELIVERED LESSEE COST (1) VALUE (2) VALUE (3) EXPIRATION (4) COMPLIANCE CYCLES (5) HOURS (5)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
B-727-200 Boeing $ 5,451,231 $ 0 $ 905,800 10/31/99 Stage 3 46,500 69,460
1969 Capital
DC-9-30 Northwest $ 7,230,460 $ 627,994 $ 2,455,150 1/31/07 Stage 3 66,210 63,490
1968
DC-9-30 Northwest $ 7,230,460 $ 627,994 $ 2,455,150 1/31/07 Stage 2 62,180 66,670
1970
DC-9-30 Northwest $ 7,230,461 $ 627,994 $ 2,485,150 4/21/07 Stage 3 77,600 75,010
1970
B-737-200 ADV Delta $14,380,390 $ 1,252,760 $ 3,573,100 9/30/99 Stage 2 39,340 59,050
1979
MD-80 Series Continental $27,313,020 $ 4,803,065 $14,222,000 3/15/00 Stage 3 18,280 37,640
1986 ----------- ----------- -----------
TOTALS $68,836,022 $ 7,939,807 $26,096,350
=========== =========== ===========
- -----------------------------------------------------------------------------------------------------------------------------
<FN>
NOTES:
(1) Includes a 1.5% fee paid to the Managing General Partner at the acquisition
of the Aircraft. Totals do not include aircraft which have been sold.
(2) As of December 31, 1998.
(3) Estimated market values for the Aircraft are based upon annual independent
appraisals which are subject to a variety of assumptions. Additionally,
there can be no assurance that the Partnership would receive an amount equal
to the market value shown above upon the sale of any of the Aircraft.
(4) Lease expiration dates do not include renewal options.
(5) Data as of February 5, 1999.
</FN>
</TABLE>
Aging Aircraft Maintenance - The Federal Aviation Administration (the "FAA"),
acting on recommendations from industry trade groups, has adopted a series of
Airworthiness Directives ("AD's") for certain Boeing and McDonnell Douglas
aircraft models. AD's are mandates requiring the airline to perform a specific
maintenance task within a specified period of time. The FAA imposes strict
requirements governing aircraft inspection and certification, maintenance,
equipment requirements, corrosion control, noise levels and general operating
and flight rules. In addition to mandating more intensive inspections of certain
structural components, including the fuselage, wing and tail sections, certain
of these AD's mandate that structural modifications to certain aircraft be
completed within specified periods, generally not less than 48 months from the
effective date of the relevant AD. Aircraft are generally subject to these
structural modification requirements based on flight cycle, flight hour and
chronological age thresholds.
The Partnership's B-727-200 non-advanced aircraft, which is currently on-lease
to Boeing Capital Corp., is subject to AD's mandating structural modification.
AD's presently applicable to the Boeing aircraft owned by the Partnership
require extensive repetitive inspections of such aircraft. There can be no
assurance that such inspections will not lead to mandatory structural
modifications similar to those noted above.
<PAGE>
4
The Partnership's existing leases require the lessees to maintain the
Partnership's Aircraft in accordance with FAA approved maintenance programs
during the lease term. At the end of the leases, each lessee is required to
return the Aircraft in airworthy condition, including compliance with all AD's
for which action is mandated by the FAA during the lease term. Thus, certain of
the modifications required by the new AD's may not be effected by the
Partnership's lessees prior to the expiration of the current leases since, in
many cases, the relevant AD will not require action before the expiration of the
lease term.
In negotiating future leases or in selling aircraft now owned by the
Partnership, the Partnership may be required to bear some or all of the costs of
compliance with future AD's or AD's that have been issued but which did not
mandate action during the previous lessee's lease term or in respect of which
the previous lessee failed to comply. The aggregate effect on the Partnership of
compliance with these standards is not determinable at this time and will depend
upon a variety of factors, including, but not limited to, the state of the
commercial aircraft market, the extent of the AD, the availability of capable
repair facilities and the effect, if any, that such compliance may have on the
service lives of the affected aircraft. As described above, the cost to the
Partnership of such compliance may be reduced to the extent that current or
future lessees of the Partnership's Aircraft effect such modifications under the
terms of the current or future operating leases.
Aircraft Noise - Beginning in 1985, the FAA and various airport industry task
forces released reports suggesting various alternatives for reducing the number
of Stage 2 aircraft operating in the United States, including a proposed
requirement to bring all aircraft operating in the United States into compliance
with Stage 3 requirements in the 1990s or shortly thereafter. The FAA has
categorized aircraft types according to engine noise decibel levels. Stage 1
aircraft, which have the highest noise level, are no longer allowed to operate
from civil airports in the United States. Stage 2 aircraft meet current FAA
requirements. Stage 3 aircraft are the most quiet and will be the future
standard of all aircraft.
Effective November 6, 1990, Congress passed the Airport Noise and Capacity Act
of 1990 (the "Act") which required the development of a National Noise Policy.
On September 25, 1991, final regulations (the "Regulations") were announced and
became effective immediately. The Regulations provide, among other things,
phase-out and non-addition rules under which the number of Stage 2 aircraft
operated by domestic carriers were limited to 75% of 1990 base levels by the end
of 1994, with further reductions to 50% of 1990 base levels by the end of 1996,
25% of 1990 base levels by the end of 1998 and ultimately to 0% by December 31,
1999.
Several modification programs to hushkit or re-engine an aircraft to meet Stage
3 requirements have been announced, including programs for the B-727 series, the
B-737 and the DC-9 series. Hushkitting is a procedure for retrofitting existing
engines to comply with Stage 3 requirements. Re-engining is the replacement of
existing engines with technologically-advanced engines complying with Stage 3
requirements. The decision whether to hushkit or re-engine an aircraft will
depend upon a variety of factors, including, without limitation, the
differential effects of the two approaches on the operating costs of the
aircraft, the relative costs and feasibility of the two approaches and the
General Partners' assessment of the remaining useful life and fair market value
of the aircraft. Where available, hushkits currently can cost up to $3.0 million
per aircraft while the costs of re-engining programs are significantly higher.
No assurances are possible in respect to the actual cost which the Partnership
would be required to pay in order to effect a hushkit or re-engining
modification as now available or as may be developed in the future.
Four of the aircraft owned by the Partnership are Stage 3, the remaining two are
Stage 2 aircraft. Northwest has hushkitted two of its three DC-9-30s and is
required to hushkit the third prior to December 1999. Northwest has agreed to
fund the cost of the hushkitting and, in turn, will be entitled to 50% of the
proceeds from the eventual sale of the aircraft. The Partnership is in
discussions with Delta Airlines to hushkit the 737-200 on lease to Delta prior
to year end in connection with a lease extension. By year-end 1999 we anticipate
that all of the Partnership's aircraft will be Stage 3.
<PAGE>
5
In addition to FAA activity in noise abatement, other countries have adopted or
are considering adopting noise compliance standards which would have a similar
effect of reducing the ability of an airline to operate Stage 2 aircraft in such
jurisdictions. In 1989, the European Economic Community adopted a non-addition
rule which directed each member country to pass the necessary legislation to
prohibit airlines from adding Stage 2 aircraft to their fleets after November 1,
1990. The rule has specific exceptions for leased aircraft and does allow the
continued use of Stage 2 aircraft which are in operation in EEC countries before
November 1, 1990. The Partnership does not currently have any aircraft on lease
to airlines outside the United States. EEC regulations currently proposed would
require aircraft hushkitted to comply with Stage 3 requirements to register
prior to April 1999.
Competition
- -----------
The aircraft leasing industry is competitive and the success of any lessor is
largely dependent upon the nature of the aircraft within its portfolio. The
Partnership competes with aircraft manufacturers, distributors, airlines,
leasing companies, financial institutions and other parties engaged in leasing,
managing, and marketing aircraft. Such competitors may lease or sell aircraft at
lower rates or prices than the Partnership and provide benefits, such as direct
maintenance crews, and support services which the Partnership cannot provide.
Competition may include certain affiliates of the General Partners.
Since the Partnership's Aircraft are subject to operating leases, the
Partnership will be required to re-lease or sell such Aircraft after the
expiration of the current lease terms. The General Partners' ability to renew
leases or to sell the Aircraft owned by the Partnership is dependent upon among
other factors: (a) general economic conditions and economic conditions affecting
the airline industry in particular; (b) the current operating profile of the
aircraft, encompassing the age of the aircraft and the number of hours and
cycles flown and compliance with all issued AD's as well as the general
maintenance conditions of the aircraft; (c) the current fleet plans of the major
end-users of the aircraft type; (d) any costs required to refurbish aircraft and
to reconfigure aircraft to comply with all issued AD's and to conform with
similar aircraft within a potential lessee's fleet; (e) any cost required to
conform the aircraft to future Stage 3 noise restrictions; (f) the availability
to the lessee or potential lessee of other similar aircraft from the
Partnership's competition; and (g) the ability of the Managing General Partner
to effectively market the aircraft. It is possible that any future lease
renewals might be at lower lease rates than the Partnership currently receives,
adversely impacting revenue.
Employees
- ---------
The Partnership has no employees. The officers, directors and employees of the
General Partners and their affiliates perform services on behalf of the
Partnership. The General Partners are entitled to certain fees and reimbursement
of certain out-of-pocket expenses incurred in connection with the performance of
these management services. Reference is made to Note 6 to the Financial
Statements of the Partnership's Annual Report to Unitholders for the year ended
December 31, 1998, for a discussion of the fees and reimbursable expenses paid
to the General Partners and their affiliates.
ITEM 2. PROPERTIES
Incorporated by reference to the Message to Investors and Note 4 to the
Financial Statements of the Partnership's Annual Report to Unitholders for the
year ended December 31, 1998.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the General Partners or
the Partnership is a party or to which its assets are subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders, through the solicitation
of proxies or otherwise, during the fourth quarter of 1998.
<PAGE>
6
PART II
ITEM 5. MARKET FOR PARTNERSHIP'S LIMITED PARTNERSHIP INTEREST AND RELATED
SECURITY HOLDER MATTERS
The Units represent the economic rights attributable to limited partnership
interests in the Partnership.
There is no established public trading market for the purchase and sale of
Units. As of December 31, 1998, the number of Unitholders was 6,816.
Per Unit cash distributions paid to the Limited Partners for the two years ended
December 31, 1998 are presented in the table below.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 $.263 $ .217 $.220 $.230 $ .930
1998 $.210 $ .219 $.221 $.222 $ .872
-------------------------------------------------------
</TABLE>
Future cash distributions will be determined on a quarterly basis after an
evaluation of the Partnership's current and expected financial position.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Rental Revenues $ 4,920,000 $ 4,795,000 $ 4,770,000 $ 4,927,500 $ 5,417,086
Total Expenses 3,740,075 3,720,073 4,594,089 5,688,047 6,182,152
Net Income (Loss) 1,285,470 1,196,140 485,267 608,971 (575,105)
Net Income (Loss) per
Limited Partnership Unit(1) .26 .24 .10 .12 (0.12)
Total Assets 9,766,676 12,814,880 16,175,937 23,457,938 27,689,193
Partners' Capital 8,248,904 11,219,359 14,589,989 22,036,571 26,013,542
Net Cash Provided by
Operating Activities 4,255,925 4,444,031 5,293,635 4,560,125 6,612,975
Cash Distributions per Unit(1)(2) .87 .93 1.63 .94 1.00
- -------------------------------------------------------------------------------------------------------
<FN>
(1) 4,837,505 units outstanding
(2) Distribution amounts are reflected in the year for which they are
declared. The Partnership's fourth quarter cash distribution is usually
paid in late January or early February of the following year.
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, all six of the Partnership's aircraft were
on-lease. There were three aircraft on-lease to Northwest Airlines, Inc.
("Northwest"), one aircraft on-lease to Boeing Capital Corporation ("BCC"),
one aircraft on-lease to Delta Air Lines, Inc. ("Delta"), and one aircraft
on-lease to Continental Airlines, Inc. ("Continental").
The leases for the Partnership's three DC-9-30 aircraft expire in January 2007
(two aircraft) and April 2007 (one aircraft). Northwest pays the Partnership a
monthly lease rate of $35,000 per aircraft. As part of the August 1996 agreement
to extend these leases, Northwest agreed to hushkit each aircraft prior to
December 31, 1999. In exchange for funding the cost of the hushkits, Northwest
will be entitled to 50% of the proceeds from the sale of the aircraft. The
General Partners believe that the lease extensions and hushkitting of the
engines will, in all likelihood, increase the value of the aircraft and will
present the Partnership with more viable sales opportunities for the aircraft in
the future.
The primary term of the lease for the Partnership's B-727-200 aircraft expires
on October 31, 1999. BCC subleases the aircraft to SportHawk International, Inc.
BCC pays the Partnership a monthly lease rate of $45,000. At the end of the
lease term, BCC has the option to purchase the aircraft for $1,000,000.
<PAGE>
7
The lease with Delta for the Partnership's 737-200 advanced aircraft expires in
September 1999. In accordance with the terms of the lease agreement, Delta pays
the Partnership a monthly lease rate of $80,000.
The lease with Continental for the Partnership's MD-80 Series aircraft was
originally scheduled to expire in March 1998. Continental extended its lease to
March 1999 and in October 1998, exercised its second option to renew this lease
through March 2000, with the remaining terms of the lease unchanged. Continental
makes monthly lease payments to the Partnership of $180,000.
At December 31, 1998, the Partnership had unrestricted cash and cash equivalents
of $1,781,869, compared to $1,810,843 at December 31, 1997. The slight decrease
is primarily attributable to a decrease in net cash provided by operating
activities, reflecting the reclassification of the restricted cash balance
during 1997. The restricted cash was required pursuant to the lease with
Continental for the Partnership's MD-80 Series aircraft, but is no longer
required due to the completion of all maintenance requirements permitted under
the lease agreement. The decrease in cash was also attributable to distributions
to the limited partners which slightly exceeded cash flow from operations during
1998.
Accounts payable and accrued expenses totaled $280,044 at December 31, 1998
compared with $328,819 at December 31, 1997. The decrease primarily reflects
differences in the timing of payment of postage and professional fees between
the two periods.
During the year ended December 31, 1998, the Partnership paid cash distributions
to the Unitholders for the period from October 1, 1997 to December 31, 1997 and
for the first three quarters of 1998, in the amounts of $1,102,236 and
$3,139,810, respectively, which represent approximately $.23 and approximately
$.65 per Unit, respectively. At December 31, 1998, the Partnership had a
distribution payable to Unitholders of $1,073,551, or approximately $.22 per
Unit. This amount reflects the 1998 fourth quarter cash distribution to
Unitholders which was funded primarily from cash flow from operations and was
subsequently paid on March 4, 1999. Future cash distributions will be determined
on a quarterly basis after an evaluation of the Partnership's current and
expected financial position.
MARKET RISK
Interest rate risk comprises the Partnership's principal market risk exposure.
The Partnership has no long-term debt and its aircraft are unencumbered by debt.
Accordingly, the Partnership's interest risk exposure is primarily limited to
interest earned on the Partnership's cash and cash equivalents, which are
invested at short-term rates. Such risk is not considered material to the
Partnership's operations.
YEAR 2000 INITIATIVES
The Year 2000 compliance issue concerns the ability of computerized information
systems to accurately calculate, store or use a date after 1999. This could
result in computer system failures or miscalculations causing disruptions of
operations. The Year 2000 issue affects almost all companies and organizations.
As the owner and lessor of commercial aircraft, the Partnership's most
significant Year 2000 issues relate to systems concerns with respect to the
airworthiness of the aircraft. It is the responsibility of the lessees to comply
with any Airworthiness Directives or other manufacturer recommended maintenance
necessary to meet Year 2000 requirements, and the costs of such maintenance, if
any, are to be borne by the lessee. Non-compliance by the lessee could impact
its ability to operate the aircraft, and could affect its ability to meet the
terms of its lease. The Partnership's lessees also face the potential risk of
non-compliance by the air traffic control systems in the areas in which the
aircraft operate. A disruption in any of the air traffic control systems could
cause disruption to the lessee's operations, which may adversely affect their
ability to generate revenue and meet the terms of their leases. The Partnership
is unable to assess the likelihood or the potential cost to the Partnership of
such disruption.
Other potential Year 2000 issues relate primarily to outside vendors which
provide the Partnership's administrative services including accounting, tax
preparation and transfer agent services. Such services are reliant on computer
systems, software products and equipment which may or may not be Year 2000
compliant. It is anticipated that the cost of vendor compliance with Year 2000
problems will be borne primarily by vendors. Although it is not possible at
present to give an estimate of the cost of this work to the Partnership, the
General Partner does not expect such costs to have a material adverse impact on
the Partnership's long term results of operations.
<PAGE>
8
RESULTS OF OPERATIONS
Substantially all of the Partnership's revenue during 1998 was generated from
the leasing of the Partnership's Aircraft to commercial air carriers under
triple net operating leases. The majority of the balance of the Partnership's
1998 revenue consisted of interest income.
1998 compared to 1997
- ---------------------
For the twelve months ended December 31, 1998, the Partnership reported net
income of $1,285,470 compared to $1,196,140 in 1997. The increase is primarily
attributable to an increase in rental income, offset partly by a slight increase
in management fees and general and administrative expenses.
Rental income totaled $4,920,000 for the year ended December 31, 1998 compared
with $4,795,000 in 1997. The increase is primarily a result of a higher lease
rate paid for the 727-200 non-advanced aircraft in comparison to 1997.
Interest income totaled $97,191 for the year ended December 31, 1998, compared
with $111,683 for the year ended December 31, 1997. The decrease is primarily
attributable to a decrease in the Partnership's average cash balances during
1998.
Management fees totaled $444,005 for the year ended December 31, 1998 compared
to $432,958 in 1997. The increase primarily reflects an increase in release fees
and lease revenues upon which management fees are based.
General and administrative expenses totaled $275,515 for the year ended December
31, 1998, compared with $267,887 for the year ended December 31, 1997. The
slight increase is primarily attributable to higher administrative expenses
during 1998, which were partly offset by reductions in postage, legal and other
professional fees.
1997 compared to 1996
- ---------------------
For the twelve months ended December 31, 1997, the Partnership reported net
income of $1,196,140, compared to $485,267 for the corresponding period in 1996.
The increase is primarily attributable to a decrease in depreciation expense
recorded by the Partnership as a result of the extended depreciable life of the
three DC-9-30 aircraft on-lease to Northwest.
Rental income totaled $4,795,000 for the year ended December 31, 1997 compared
with $4,770,000 in 1996. The slight increase is attributable to the increase in
lease rate on the Partnership's B-727-200 aircraft under the new lease with BCC
which commenced November 1, 1997.
The decrease in depreciation expense recorded by the Partnership is the result
of the lease agreement with Northwest, which extended the depreciable life of
the three DC-9-30 aircraft on-lease to Northwest for a period of ten years.
Interest income totaled $111,683 for the year ended December 31, 1997 compared
with $263,533 in 1996. The decrease is attributable to a decrease in the
Partnership's invested cash balance during 1997.
General and administrative expenses totaled $267,887 for the year ended December
31, 1997, compared with $184,047 for the year ended December 31, 1996. During
the 1997 period, certain expenses incurred by an unaffiliated third party
service provider in servicing the Partnership, which were voluntarily absorbed
by affiliates of Jet Aircraft Leasing Inc. in prior periods, were reimbursable
to Jet Aircraft Leasing Inc. and its affiliates. The increase was also due to
legal and consulting fees related to the aircraft currently on lease to
Northwest and BCC.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference to the Partnership's Annual Report to Unitholders for
the year ended December 31, 1998.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
9
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership has no officers or directors. The General Partners jointly
manage and control the affairs of the Partnership and have general
responsibility and authority in all matters affecting its business. Information
concerning the directors and executive officers of the General Partners are as
follows:
Jet Aircraft Leasing Inc.
-------------------------
Name Office
---- ------
Rocco F. Andriola Director
Michael T. Marron Director, President and Chief Financial Officer
William T. McDermott Vice President
Certain officers and directors of Jet Aircraft Leasing, Inc. are now serving (or
in the past have served) as officers or directors of entities which act as
general partners of a number of limited partnerships which have sought
protection under the provisions of the Federal Bankruptcy Code. Those
partnerships sought the protection of the bankruptcy laws to protect the
partnerships' assets from loss through foreclosure.
ROCCO F. ANDRIOLA, 40, is a Managing Director of Lehman Brothers in its
Diversified Asset Group and has held such position since October 1996. Since
joining Lehman in 1986, Mr. Andriola has been involved in a wide range of
restructuring and asset management activities involving real estate and other
direct investment transactions. From June 1991 through September 1996, Mr.
Andriola held the position of Senior Vice President in Lehman's Diversified
Asset Group. From June 1989 through May 1991, Mr. Andriola held the position of
First Vice President in Lehman's Capital Preservation and Restructuring Group.
From 1986 to 1989, Mr. Andriola served as a Vice President in the Corporate
Transactions Group of Shearson Lehman Brothers' office of the general counsel.
Prior to joining Lehman, Mr. Andriola practiced corporate and securities law at
Donovan Leisure Newton & Irvine in New York. Mr. Andriola received a B.A. from
Fordham University, a J.D. from New York University School of Law, and an LL.M
in Corporate Law from New York University's Graduate School of Law.
MICHAEL T. MARRON, 35, is a Vice President of Lehman Brothers and has been a
member of the Diversified Asset Group since 1990 where he has actively managed
and restructured a diverse portfolio of syndicated limited partnerships. Prior
to joining Lehman Brothers, Mr. Marron was associated with Peat Marwick Mitchell
& Co. serving in both its audit and tax divisions from 1985 to 1989. Mr. Marron
received his B.S. degree from the State University of New York at Albany and an
MBA from Columbia University.
WILLIAM T. MCDERMOTT, 35, is a Vice President of Lehman Brothers and has been a
member of the Diversified Asset Group since 1998. Mr. McDermott joined Lehman
Brothers in 1993 and held various positions within the firm before joining the
Diversified Asset Group. Prior to joining Lehman Brothers, Mr. McDermott was a
financial analyst with Cantor Fitzgerald Inc. from 1991 - 1993 and was
associated with Arthur Andersen & Co. serving in both its audit and bankruptcy
consulting divisions from 1985 to 1991. Mr. McDermott received his B.B.A. degree
from the University of Notre Dame and is a Certified Public Accountant.
CIS Aircraft Partners, Inc.
---------------------------
Name Office
---- ------
Thomas J. Prinzing Director and President
Robin A. Konicek Vice President
As reported on the Partnership's Current Report on Form 8-K, dated February 28,
1989, on Friday, January 13, 1989, Continental Information Systems Corporation,
and certain of its subsidiaries, including CIS Corporation, filed voluntary
petitions for reorganization under Chapter 11 of the Federal Bankruptcy Code. As
described below, various directors and executive officers of CAP hold similar
positions for Continental Information Systems Corporation, CIS Corporation and
such subsidiaries.
<PAGE>
10
On November 29, 1994, the Bankruptcy Court for the Southern District of New York
confirmed the Trustee's Proposed Joint Plan of Reorganization. The approved Plan
became effective on December 21, 1994. As a result of the reorganization, the
Directors and Officers of CAP resigned from and took on various directorships
for Continental Information Systems Corporation, CIS Corporation and their
subsidiaries.
THOMAS J. PRINZING, 53, is President of CIS Aircraft Partners, Inc. since
1991. Mr. Prinzing, a Certified Public Accountant, received a Bachelor of
Commerce degree from the University of Windsor.
ROBIN A. KONICEK, 42, is a Vice President of CIS Aircraft Partners, Inc. and is
responsible for domestic and international aircraft marketing. She has been
active in the financing, trading and management of aircraft since 1982. Prior to
joining CIS in 1986, Ms. Konicek was a Vice President of Crocker Bank Airlines
and Aerospace Group, with major responsibility for developing the U.S. market.
She holds an A.B. from Stanford University and an M.B.A. from the University of
California, Los Angeles.
ITEM 11. EXECUTIVE COMPENSATION
No compensation was paid by the Partnership to the officers and directors of the
General Partners. See Item 13 below for a description of the compensation and
fees paid to the General Partners and their affiliates by the Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security ownership of certain beneficial owners As of the date hereof, no
person is known by the Partnership to be the beneficial owner of more than
five percent of the Units of the Partnership.
(b) Security ownership of management The Partnership has no directors or
officers, and neither of the General Partners of the Partnership owns any
Units. The Assignor Limited Partners for the Partnership, CIS Assignor
L.P.A., Inc. (an affiliate of CAP), owns 5 Units.
None of the directors or officers of the General Partners owned any Units
as of December 31, 1998.
(c) Changes in Control Other than as described herein, the Partnership knows
of no arrangements, the operation of the terms of which may at a subsequent
date result in a change in control of the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The General Partners and their affiliates received or will receive certain types
of compensation, fees, or other distributions in connection with the operation
of the Partnership. The fees and compensation were not determined by, and may
not necessarily reflect, arm's length negotiations. None of the officers and
directors of the General Partners received any compensation from the
Partnership. During 1998 and 1997, certain administrative expenses incurred in
servicing the Partnership, which were voluntarily absorbed by affiliates of Jet
Aircraft Leasing Inc. in prior periods, were reimbursable to Jet Aircraft
Leasing Inc. and its affiliates. For additional information on fees paid to the
General Partners and affiliates, reference is made to Note 6 of the Notes to the
Financial Statements in the Partnership's Annual Report to Unitholders for the
year ended December 31, 1998.
<PAGE>
11
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
Page
Number
------
Balance Sheets - December 31, 1998 and 1997........................(1)
Statements of Partners' Capital (Deficit) -
For the years ended December 31, 1998, 1997 and 1996...............(1)
Statements of Operations -
For the years ended December 31, 1998, 1997 and 1996...............(1)
Statements of Cash Flows -
For the years ended December 31, 1998, 1997 and 1996...............(1)
Notes to Financial Statements......................................(1)
Report of Independent Public Accountants...........................(1)
(1) Incorporated by reference to the Partnership's Annual Report to
Unitholders for the year ended December 31, 1998.
2. Financial Statement Schedules:
No schedules are presented because the information is not applicable or
is included in the Financial Statements or the notes thereto.
3. Exhibits:
(3) Articles of Incorporation and bylaws (Incorporated by reference
to the Partnership's Prospectus filed with the Commission on
April 17, 1987.)
(4) Depositary Agreement (Incorporated by reference to Exhibit 4.5 to
the Partnership's Registration Statement on Form S-1 filed with
the Commission on April 17, 1987.)
(10) Escrow Agreement (Incorporated by reference to Exhibit 10.12 to
the Partnership's Registration Statement on Form S-1 filed with
the Commission on April 17, 1987.)
(13) Annual Report to Unitholders for the year ended December 31,
1998.
(27) Financial Data Schedule
(b) The Partnership filed no current reports on Form 8-K during the fourth
quarter of the period covered on this Report.
<PAGE>
12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Partnership has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
JETSTREAM II, L.P.
BY: Jet Aircraft Leasing Inc.
Administrative General Partner
Date: March 29, 1999 BY: /s/Michael T. Marron
--------------------
Name: Michael T. Marron
Title: Director, President and
Chief Financial Officer
BY: CIS Aircraft Partners, Inc.
Managing General Partner
Date: March 29, 1999 BY: /s/Thomas J. Prinzing
---------------------
Name: Thomas J. Prinzing
Title: Director and President
<PAGE>
13
SIGNATURES
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 and
in the capacities and on the dates indicated.
BY: CIS Aircraft Partners, Inc.
A General Partner
Date: March 29, 1999 BY: /s/Thomas J. Prinzing
---------------------
Name: Thomas J. Prinzing
Title: Director and President
Date: March 29, 1999 BY: /s/Robin A. Konicek
-------------------
Name: Robin A. Konicek
Title: Vice President
<PAGE>
14
SIGNATURES
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 and
in the capacities and on the dates indicated.
JET AIRCRAFT LEASING INC.
A General Partner
Date: March 29, 1999 BY: /s/Rocco F. Andriola
--------------------
Name: Rocco F. Andriola
Title: Director
Date: March 29, 1999 BY: /s/Michael T. Marron
--------------------
Name: Michael T. Marron
Title: Director, President and
Chief Financial Officer
Date: March 29, 1999 BY: /s/William T. McDermott
-----------------------
Name: William T. McDermott
Title: Vice President
<PAGE>
EXHIBIT 13
JetStream II, L.P.
1998 Annual Report
<PAGE>
- --------------------------------------------------------------------------------
JETSTREAM II, L.P.
- --------------------------------------------------------------------------------
JetStream II, L.P. commenced operations in 1988 and was formed to
acquire used commercial aircraft subject to triple net operating
leases with commercial airlines. Since inception, limited partners
have received cash distributions totaling approximately $17.81 per
$20.00 Unit. The following table provides the quarterly cash
distributions per Unit paid by the Partnership for the years ended
December 31, 1998 and 1997.
<TABLE>
<CAPTION>
QUARTER DECLARED 1998 1997
--------------------------------------------
<S> <C> <C>
First Quarter $.210 $.263
Second Quarter .219 .217
Third Quarter .221 .220
Fourth Quarter .222 .230
----- -----
TOTAL $.872 $.930
============================================
</TABLE>
CONTENTS
1 Message to Investors
3 Financial Statements
6 Notes to the Financial Statements
11 Report of Independent Public Accountants
<PAGE>
1
- --------------------------------------------------------------------------------
MESSAGE TO INVESTORS
- --------------------------------------------------------------------------------
Presented for your review is the 1998 Annual Report for JetStream II, L.P. (the
"Partnership"). This message includes an overview of conditions in the airline
and aircraft leasing industries, an update on the Partnership's portfolio of
aircraft, and highlights of the Partnership's financial results. Also provided
are the Partnership's audited financial statements for the year ended December
31, 1998.
INDUSTRY OVERVIEW
The United States airline industry continued to perform well in 1998 as the
economy continued its strong growth this past year. The number of passengers
traveling within the United States increased by approximately 5%, which in turn
led to an increase in revenues. This increase was tempered somewhat by recent
fare reductions, but overall, net income for most airlines increased in 1998.
Forecasts are for continued growth in this industry.
However, future opportunities for leasing Stage 2 aircraft, such as the
Partnership's, are likely to be restricted due to the implementation of noise
compliance regulations developed in accordance with the Airport Noise and
Capacity Act of 1990, requiring airlines to reduce the number of older aircraft
in their fleets. These regulations specify, among other things, phase-out and
non-addition rules under which the number of Stage 2 aircraft operated by
domestic carriers are limited to 25% of 1990 base levels by the end of 1998 and
ultimately to 0% by December 31, 1999. The scheduled phase-out of Stage 2
aircraft combined with the prolonged difficulties in the airline industry during
the early 1990's has had a substantial impact on residual aircraft values of
Stage 2 aircraft. An update on the status of hushkitting the Partnership's Stage
2 planes is discussed below.
PORTFOLIO UPDATE
Following is an update on the lease status of each aircraft:
MD-80 Series Aircraft - The lease agreement with Continental Airlines
("Continental") for the Partnership's MD-80 Series aircraft was scheduled to
expire in March 1999. In October 1998, Continental exercised its option to renew
this lease through March 2000 with the remaining lease terms unchanged. The
lease requires Continental to make monthly payments of $180,000. This is a Stage
3 aircraft which meets the noise compliance guidelines set by the Federal
Aviation Administration (the "FAA").
737-200 Advanced Aircraft - The lease with Delta Air Lines ("Delta") for the
Partnership's 737-200 advanced aircraft expires in September 1999. Pursuant to
the lease terms, Delta makes monthly payments of $80,000. We are currently
negotiating an extension of this lease with Delta which would also require Delta
to hushkit the plane.
727-200 Non-advanced Aircraft - As previously reported, the Partnership's Boeing
727 aircraft was re-leased to Boeing Capital Corporation ("BCC"), which
subleases the aircraft to SportHawk International, Inc. BCC pays the Partnership
$45,000 monthly. The primary term of the BCC lease expires on October 31, 1999.
This aircraft has been hushkitted by BCC and now meets the FAA's noise
compliance guidelines.
DC-9-30 Aircraft - The leases for the Partnership's three DC-9-30 aircraft with
Northwest Airlines ("Northwest") expire in January 2007 (two aircraft) and April
2007 (one aircraft). Northwest pays $35,000 monthly per aircraft. As part of the
1996 agreement to extend these leases, Northwest agreed to hushkit each aircraft
prior to year-end 1999. In exchange for funding the costs of the hushkits,
Northwest will be entitled to 50% of the proceeds from the eventual sale of the
aircraft. Two of the planes have been hushkitted by Northwest with the third
plane scheduled to be hushkitted prior to the end of this year.
<PAGE>
2
FINANCIAL HIGHLIGHTS
Provided below is a review of Partnership operations for the year ended
December 31,
<TABLE>
<CAPTION>
1998 1997
--------------------------------------------------------------------
<S> <C> <C>
Rental Income $4,920,000 $4,795,000
Total Expenses 3,740,075 3,720,073
Net Income 1,285,470 1,196,140
Net Cash provided by Operating Activities 4,255,925 4,444,031
--------------------------------------------------------------------
</TABLE>
o Rental income increased primarily as a result of the higher lease rate
paid for the 727-200 non-advanced aircraft in comparison to 1997.
o Total expenses were relatively unchanged in 1998 from 1997.
o The increase in net income is attributable to the increase in rental
income.
o The decrease in net cash provided by operating activities is primarily
attributable to the reclassification of the Partnership's restricted cash
balance during 1997. The cash was originally classified as restricted
pursuant to the lease with Continental, but this is no longer required due
to the completion of all maintenance requirements under the lease.
GENERAL INFORMATION
As you are probably aware, several unaffiliated third parties have commenced
tender offers to purchase Units of the Partnership at prices which are below the
Partnership's estimate of net asset value per Unit. In response, we have
recommended that Limited Partners reject these offers since we believe that they
do not reflect the underlying value of the Partnership's assets.
SUMMARY
We will continue our efforts to effectively manage the Partnership's aircraft.
It should be noted, however, that since the total return from your investment in
the Partnership is dependent upon the aircrafts' ultimate selling prices,
declines in residual values over the past several years have impacted your
investment. We will update you on the status of the Partnership's operations in
future correspondence. In the interim, questions regarding the Partnership
should be directed to your Financial Consultant or Partnership Investor
Services. All requests for a change of address should be submitted in writing to
the Partnership's administrative agent at P.O. Box 7090, Troy, MI 48007-7090.
Partnership Investor Services can be reached at 617-342-4225, and the
Partnership's administrative agent can be reached at 248-637-7900.
Very truly yours,
Jet Aircraft Leasing Inc. CIS Aircraft Partners, Inc.
A General Partner A General Partner
Michael T. Marron Thomas J. Prinzing
President President
March 29, 1999
<PAGE>
3
JETSTREAM II, L.P.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
BALANCE SHEETS
AT DECEMBER 31, AT DECEMBER 31,
1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Aircraft, at cost $ 26,877,000 $ 26,877,000
Less accumulated depreciation (18,937,193) (15,917,963)
------------------------------
7,939,807 10,959,037
------------------------------
Cash and cash equivalents 1,781,869 1,810,843
Accounts receivable 45,000 45,000
- -------------------------------------------------------------------------------------
TOTAL ASSETS $ 9,766,676 $ 12,814,880
=====================================================================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses (Note 6) $ 280,044 $ 328,819
Distribution payable 1,084,395 1,113,369
Deferred revenue 153,333 153,333
------------------------------
Total Liabilities 1,517,772 1,595,521
------------------------------
Partners' Capital (Deficit):
General Partners (868,684) (838,980)
Limited Partners (4,837,505 units outstanding) 9,117,588 12,058,339
------------------------------
Total Partners' Capital 8,248,904 11,219,359
- -------------------------------------------------------------------------------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 9,766,676 $ 12,814,880
=====================================================================================
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 $(746,143) $22,782,714 $22,036,571
Net Income 4,853 480,414 485,267
Distributions (63,983) (7,867,866) (7,931,849)
- -------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 $(805,273) $15,395,262 $14,589,989
Net Income 11,961 1,184,179 1,196,140
Distributions (45,668) (4,521,102) (4,566,770)
- -------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 $(838,980) $12,058,339 $11,219,359
Net Income 12,855 1,272,615 1,285,470
Distributions (42,559) (4,213,366) (4,255,925)
- -------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 $(868,684) $ 9,117,588 $ 8,248,904
=====================================================================================
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
4
JETSTREAM II, L.P.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME
Rental $4,920,000 $4,795,000 $4,770,000
Interest 97,191 111,683 263,533
Other 8,354 9,530 45,823
------------------------------------------
Total Income 5,025,545 4,916,213 5,079,356
- -------------------------------------------------------------------------------------
EXPENSES
Depreciation 3,019,230 3,019,228 3,961,231
Management fees 444,005 432,958 447,465
General and administrative 275,515 267,887 184,047
Operating 1,325 -- 1,346
------------------------------------------
Total Expenses 3,740,075 3,720,073 4,594,089
- -------------------------------------------------------------------------------------
Net Income from Operations 1,285,470 1,196,140 485,267
- -------------------------------------------------------------------------------------
NET INCOME $1,285,470 $1,196,140 $ 485,267
=====================================================================================
NET INCOME ALLOCATED:
To the General Partners $ 12,855 $ 11,961 $ 4,853
To the Limited Partners 1,272,615 1,184,179 480,414
- -------------------------------------------------------------------------------------
$1,285,470 $1,196,140 $ 485,267
=====================================================================================
PER LIMITED PARTNERSHIP UNIT
(4,837,505 OUTSTANDING) $ 0.26 $ 0.24 $ 0.10
- -------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
5
JETSTREAM II, L.P.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 1,285,470 $ 1,196,140 $ 485,267
Adjustments to reconcile net income
to net cash provided by operating
activities:
Restricted cash -- 297,475 750,000
Depreciation 3,019,230 3,019,228 3,961,231
Increase (decrease) in cash
arising from changes in operating
assets and liabilities:
Accounts receivable -- (45,000) --
Interest receivable -- 368 290
Accounts payable and accrued
expenses (48,775) (24,180) 96,847
----------- ----------- -----------
Net cash provided by operating
activities 4,255,925 4,444,031 5,293,635
- -------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan receivable -- 108,403 79,326
----------- ----------- -----------
Net cash provided by investing
activities -- 108,403 79,326
- -------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash distributions (4,284,899) (4,533,017) (7,864,115)
----------- ----------- -----------
Net cash used for financing activities (4,284,899) (4,533,017) (7,864,115)
- -------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents (28,974) 19,417 (2,491,154)
Cash and cash equivalents,
beginning of period 1,810,843 1,791,426 4,282,580
- -------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 1,781,869 $ 1,810,843 $ 1,791,426
=====================================================================================
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
6
JETSTREAM II, L.P.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 and 1997
1. ORGANIZATION
JetStream II, L.P. ("the Partnership"), a Delaware limited partnership, was
formed on October 15, 1987, for the purpose of acquiring and leasing used
commercial aircraft. The Managing General Partner of the Partnership is CIS
Aircraft Partners, Inc. ("CAP"), a third-tier, wholly owned subsidiary of
Continental Information Systems Corporation. The Administrative General
Partner is Jet Aircraft Leasing Inc. ("JAL"), formerly Hutton Aircraft
Leasing, Inc., an affiliate of Lehman Brothers Inc.
Upon formation of the Partnership, the General Partners each contributed $500,
and the initial Limited Partner contributed $100 for five limited partner units.
An additional 4,837,500 limited partnership depositary units were then sold at a
price of $20.00 per unit. The Partnership had an interim closing on January 14,
1988 and a final closing on February 24, 1988, and received gross offering
proceeds of $96,750,000.
The Partnership is required to dissolve and distribute all of its assets no
later than December 31, 2027. The Partnership may reinvest the proceeds from
sales of aircraft occurring prior to February 24, 1999. Thereafter, the net
proceeds from any sales of aircraft will be distributed to the partners.
Title to the aircraft owned by the Partnership is held by nonaffiliated trusts
of which the Partnership is the beneficiary. The purpose of this method of
holding title is to satisfy certain registration requirements of the Federal
Aviation Administration.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING The accompanying financial statements have been prepared on
the accrual basis of accounting in accordance with generally accepted accounting
principles. Revenues are recognized as earned and expenses are recorded as
obligations are incurred.
AIRCRAFT AND DEPRECIATION The aircraft were recorded at cost, which includes
acquisition costs. Through December 31, 1993, depreciation to an estimated
salvage value of 10% was computed using the straight-line method over an
estimated average economic life of twelve years for all aircraft owned by the
Partnership. Beginning in 1994, depreciation was computed using the
straight-line method over an estimated remaining economic life of two to six
years for all aircraft owned by the Partnership.
Effective January 1, 1997, depreciation of the unamortized balance at December
31, 1996 for each Northwest aircraft will be depreciated on a straight line
basis over a ten-year period, due to the lease agreement signed in the third
quarter of 1996 extending the lease and the life of each aircraft for a term of
ten years. (See Note 4).
Improvements to aircraft required to comply with regulatory requirements will be
capitalized when incurred and depreciated over the useful life of the
improvement.
ACCOUNTING FOR IMPAIRMENT The Partnership accounts for impairment losses on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount.
CASH EQUIVALENTS Cash equivalents consist of short-term highly liquid
investments with original maturities of three months or less from the date of
issuance. The carrying amount approximates fair value because of the short
maturity of these instruments.
CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject
the Partnership to a concentration of credit risk principally consist of cash in
excess of the financial institutions' insurance limits. The Partnership invests
available cash with high credit quality financial institutions.
<PAGE>
7
JETSTREAM II, L.P.
OPERATING LEASES The aircraft leases are accounted for as operating leases.
Lease revenues are recognized over the terms of the related leases. Some of the
Partnership's operating leases require rental payments to be paid in advance.
Rental payments received in advance are deferred and then recognized as income
when earned.
INCOME TAXES No provision for income taxes has been made in the financial
statements since such taxes are the responsibility of the individual partners
rather than that of the Partnership.
USE OF ESTIMATES 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.
3. PARTNERSHIP ALLOCATIONS
The Limited Partnership Agreement ("Agreement") as originally executed on
November 10, 1987 substantially provides for the following:
CASH DISTRIBUTIONS Cash flow from operations as defined in the Agreement, at
the discretion of the General Partners, will be distributed on a quarterly
basis, 99% to the Limited Partners and 1% to the General Partners. Distributable
proceeds from sales of aircraft in liquidation of the Partnership will be
distributed in accordance with the partners' capital accounts after all
allocations of income and losses.
ALLOCATION OF INCOME AND LOSSES Generally, income and losses for any year are
allocated 99% to the Limited Partners and 1% to the General Partners. Gains on
sales of aircraft shall first be allocated to the General Partners until they
have been allocated an amount of gain equal to the lesser of their respective
deficit account balances or 1.01% of all capital contributions by Limited
Partners. Any additional gain recognized by the Partnership upon the sale of
aircraft shall be allocated 99% to the Limited Partners and 1% to the General
Partners.
DISSOLUTION OF PARTNERSHIP If, upon dissolution of the Partnership, the General
Partners have a negative capital account, they shall contribute capital equal to
the lesser of their respective capital deficit account balances or 1.01% of all
capital contributed by the Limited Partners.
4. AIRCRAFT UNDER OPERATING LEASES
The Partnerships' aircraft leases are triple net operating leases, requiring the
lessees to pay substantially all expenses associated with the aircraft during
the term of the leases, as described below:
TRANS WORLD AIRLINES, INC. On January 15, 1988, the Partnership acquired three
Boeing 727-200 non-advanced aircraft for a total purchase price of $16,353,693.
These aircraft were subject to operating leases with Trans World Airlines, Inc.
("TWA"). The leases expired on October 31, 1994, December 19, 1994 (these two
aircraft were sold in 1995), and October 30, 1997 (this aircraft was leased to
Boeing Capital Corporation, as discussed below.)
NORTHWEST AIRLINES, INC. During 1988, the Partnership acquired three McDonnell
Douglas DC-9-30 aircraft for a total purchase price of $21,691,381. These
aircraft are subject to operating leases with Northwest Airlines, Inc.
("Northwest"). Lease extensions were executed with Northwest in December 1993
for the Partnership's three DC-9-30 aircraft. Under the lease extensions, which
were scheduled to expire in January 1995 for two aircraft and April 1995 for the
third, Northwest made monthly lease payments to the Partnership of $35,000 per
aircraft. These leases were subsequently extended twice at the same monthly
lease rate. Each extension was for one additional year from the previous
expiration dates, with the remaining terms of the lease unchanged.
<PAGE>
8
JETSTREAM II, L.P.
During the third quarter of 1996, the Partnership signed new lease agreements
with Northwest extending the current lease terms for the Partnership's three
DC-9-30 aircraft for a term of ten years from the previous scheduled expiration
dates in January 1997 (two aircraft) and April 1997 (one aircraft). Northwest
will continue to pay the Partnership a monthly lease rate of $35,000 per
aircraft. In accordance with the lease extensions, each of the aircraft will be
hushkitted, which entails upgrading the current engines to comply with Stage 3
noise requirements. This will enable the aircraft to continue to fly in the
United States beyond December 31, 1999, the phase-out date for all Stage 2
commercial aircraft. Northwest has agreed to fund the cost of the hushkitting
and, in turn, will be entitled to fifty percent (50%) of the proceeds from the
eventual sale of the aircraft.
DELTA AIR LINES, INC. On February 25, 1988, the Partnership acquired a Boeing
737-200 advanced aircraft for a total purchase price of $14,380,390. This
aircraft is subject to an operating lease with Delta Air Lines, Inc. ("Delta").
In September 1992, the General Partners and Delta agreed to amend the original
lease. The amendment provided for rent of $95,000 per month through the
expiration date in December 1994. In May 1994, Delta exercised its option to
extend the lease for a term of two years from the previous expiration date. The
remaining terms of the lease were unchanged. In November 1995, an agreement was
reached with Delta to amend and extend the current lease until September 1999 at
a monthly lease rate of $80,000.
CONTINENTAL AIRLINES, INC. On January 26, 1988, the Partnership acquired a
McDonnell Douglas MD-80 Series aircraft for a total purchase price of
$27,313,020. This aircraft was subject to an operating lease with Continental
Airlines, Inc. ("Continental"), the term of which expired on April 28, 1993.
Subsequent to the expiration date of April 28, 1993, Continental returned the
aircraft to the Partnership. On February 9, 1994, the Partnership entered into a
new lease agreement with Continental. The agreement provided for Continental to
lease the plane for a term of four years, and pay $180,000 per month in advance
effective March 15, 1994. The Partnership agreed to provide up to $600,000 of
financing to Continental to perform modification work on the aircraft, including
advanced avionics, interior furnishings and exterior paint.
The modification financing was repayable over the life of the lease at an
interest rate of 8% per annum for advances made before February 1, 1996. On June
7, 1994, the Partnership made its only advance to Continental in the amount of
$302,525. The notes were prepaid in full in September 1997. Having made all of
the modifications permitted under the Participation Agreements, Continental no
longer can borrow any funds and the Partnership has been released from its
obligation to lend.
The lease with Continental Airlines for the Partnership's MD-80 Series aircraft
was previously scheduled to expire in March 1998. Continental extended its lease
to March 1999 and in October 1998, exercised its second option to renew this
lease through March 2000, with the remaining terms of the lease unchanged.
BOEING CAPITAL CORPORATION On November 1, 1997, the Partnership entered into an
operating lease agreement with Boeing Capital Corporation ("BCC") to lease one
of the Partnership's Boeing 727-200 non-advanced aircraft formerly leased to
TWA. BCC subleases the aircraft to SportHawk International, Inc. BCC pays the
Partnership a monthly lease rate of $45,000 through the primary term of the
lease, which expires on October 31, 1999.
Revenues from each of the airlines as a percentage of the Partnership's total
rental revenues are as follows:
<TABLE>
<CAPTION>
PERCENT OF RENTAL REVENUES
--------------------------------------------------
AIRLINE 1998 1997 1996
--------------------------------------------------
<S> <C> <C> <C>
Northwest 25.6% 26.3% 26.4%
Delta 19.5 20.0 20.1
Continental 43.9 45.0 45.3
Boeing Capital 11.0 1.9 --
TWA -- 6.8 8.2
--------------------------------------------------
</TABLE>
<PAGE>
9
JETSTREAM II, L.P.
The following is a schedule, by year, of future minimum rental income under the
leases as of December 31, 1998.
<TABLE>
<CAPTION>
YEAR AMOUNT
--------------------------------------------------
<S> <C>
1999 $ 4,590,000
2000 1,710,000
2001 1,260,000
2002 1,260,000
2003 1,260,000
Thereafter 3,979,500
--------------------------------------------------
TOTAL $14,059,500
==================================================
</TABLE>
The above schedule of future minimum rental income is based on the existing
terms of the leases and does not include the rental income that may result from
the renewal of existing leases or the re-leasing of the aircraft, if any.
5. DISTRIBUTIONS
Distributions declared aggregated $4,255,925 (approximately $0.87 per LP unit),
$4,566,770 (approximately $0.94 per LP unit) and $7,931,849 (approximately $1.63
per LP unit) for the years ended December 31, 1998, 1997 and 1996, respectively.
As of December 31, 1998, the Partnership had declared a distribution of
$1,084,395, of which $1,073,551 (approximately $.22 per LP unit) was paid to the
Limited Partners and $10,844 was paid to the General Partners on March 4, 1999.
In addition to the regular quarterly distributions paid by the Partnership for
the year ended December 31, 1996, the Partnership paid a special cash
distribution on October 22, 1996 in the amount of $3,420,697, of which
$3,401,826 (approximately $.70 per LP unit) was paid to the Limited Partners and
$18,871 was paid to the General Partners. This special distribution was funded
from cash that was previously held in reserve, and is included in the
distribution of $7,931,849 discussed above.
6. TRANSACTIONS WITH AFFILIATES
BASE MANAGEMENT FEE The General Partners receive a quarterly fee, subordinated
to the Limited Partners receiving their Preferred Return as defined in the
Agreement in an amount generally equal to 1.5% of gross aircraft rentals. Of
this amount, 1.0% is payable to CAP and .5% is payable to JAL.
INCENTIVE MANAGEMENT FEE CAP receives a quarterly fee of 4.5% of quarterly cash
flow, subordinated to the Limited Partners receiving their Preferred Return.
RE-LEASE FEE The General Partners receive a quarterly fee, subordinated to the
Limited Partners receiving their Preferred Return, for re-leasing aircraft or
renewing a lease in an amount equal to 3.5% of the gross rentals from such
re-lease or renewal for each quarter for which such payment is made. Of this
amount, 2.5% is payable to CAP, and 1.0% is payable to JAL.
RESALE FEE CAP receives a subordinated fee with respect to each aircraft sold
by the Partnership in an amount equal to the lesser of (i) 3% of the contract
sales price of the aircraft or (ii) an amount that is competitive with fees
charged by nonaffiliates rendering comparable services. Such fee will be reduced
(but not below zero) for any resale fees or commissions payable to third
parties. The resale fee is subordinate to the Limited Partners receiving a
priority return equal to their original capital contribution plus their
preferred return. No resale fees were earned during 1996, 1997 or 1998.
The following is a summary of amounts earned by the General Partners and their
affiliates during the years ended December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
UNPAID AT EARNED
DECEMBER 31, ------------------------------
1998 1998 1997 1996
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Base Management Fee $ 17,804 $ 71,217 $ 68,756 $ 69,046
Incentive Management Fee 49,388 200,588 197,952 211,470
Re-lease Fee 43,050 172,200 166,250 166,949
----------------------------------------------------------------------
$110,242 $444,005 $432,958 $447,465
=========================================
</TABLE>
<PAGE>
10
JETSTREAM II, L.P.
7. RECONCILIATION OF DIFFERENCE BETWEEN NET INCOME IN THE FINANCIAL
STATEMENTS (ACCRUAL BASIS--GENERALLY ACCEPTED ACCOUNTING PRINCIPLES) AND
NET INCOME IN THE PARTNERSHIP'S TAX RETURN
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income, as reported $ 1,285,470 $ 1,196,140 $ 485,267
Adjustments--
Depreciation differential between the
Modified Accelerated Cost Recovery
System and depreciation for
financial reporting purposes 3,019,230 2,115,533 2,146,454
-------------------------------------------
Net income, per the Partnership's
tax return $ 4,304,700 $ 3,311,673 $ 2,631,721
- -------------------------------------------------------------------------------------
The net income determined on the income tax basis is allocated to the partners
as follows:
Limited partners (4,837,505 units) $ 4,261,653 $ 3,278,556 $ 2,605,404
General partners 43,047 33,117 26,317
-------------------------------------------
$ 4,304,700 $ 3,311,673 $ 2,631,721
Taxable income (loss) per
limited partner unit $ 0.88 $ 0.68 $ 0.54
- -------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1998, the tax basis of total assets and total liabilities was
$12,639,729 and $1,317,009, respectively.
<PAGE>
11
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- -------------------------------------------------------------------------------
To the Partners of
JetStream II, L.P.:
We have audited the accompanying balance sheets of JetStream II, L.P. (a
Delaware limited partnership) as of December 31, 1998 and 1997, and the related
statements of operations, partners' capital (deficit) and cash flows for each of
the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of JetStream II, L.P. as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 12, 1999
<PAGE>
ARTICLE 5
PERIOD-TYPE 12-mos
FISCAL-YEAR-END Dec-31-1998
PERIOD-END Dec-31-1998
CASH 1,781,869
SECURITIES 000
RECEIVABLES 45,000
ALLOWANCES 000
INVENTORY 000
CURRENT-ASSETS 1,826,869
PP&E 26,877,000
DEPRECIATION 18,937,193
TOTAL-ASSETS 9,766,676
CURRENT-LIABILITIES 1,517,772
BONDS 000
COMMON 000
PREFERRED-MANDATORY 000
PREFERRED 000
OTHER-SE 8,248,904
TOTAL-LIABILITY-AND-EQUITY 9,766,676
SALES 000
TOTAL-REVENUES 5,025,545
CGS 000
TOTAL-COSTS 000
OTHER-EXPENSES 3,740,075
LOSS-PROVISION 000
INTEREST-EXPENSE 000
INCOME-PRETAX 1,285,470
INCOME-TAX 000
INCOME-CONTINUING 1,285,470
DISCONTINUED 000
EXTRAORDINARY 000
CHANGES 000
NET-INCOME 1,285,470
EPS-PRIMARY .26
EPS-DILUTED .26
<PAGE>
Appendix D
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of
- ---------- the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
--------------
or
Transition Report Pursuant to Section 13 or 15(d) of
- ---------- the Securities Exchange Act of 1934
For the Transition period from to
--------- ---------
COMMISSION FILE NUMBER: 0-16838
-------
JETSTREAM II, L.P.
------------------
Exact Name of Registrant as Specified in its Charter
Virginia 84-1068932
-------- ----------
State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization Identification No.
3 World Financial Center, 29th Floor,
New York, NY Attn.: Andre Anderson 10285
- ------------------------------------- -----
Address of Principal Executive Offices Zip code
(212) 526-3183
--------------
Registrant's Telephone Number, Including Area Code
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
--- ---
<PAGE>
2
JETSTREAM II, L.P.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
BALANCE SHEETS
AT MARCH 31, AT DECEMBER 31,
1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Aircraft, at cost $ 26,877,000 $ 26,877,000
Less accumulated depreciation (19,692,000) (18,937,193)
------------------------------
7,185,000 7,939,807
Cash and cash equivalents 1,903,966 1,781,869
Accounts receivable 45,000 45,000
- -------------------------------------------------------------------------------
TOTAL ASSETS $ 9,133,966 $ 9,766,676
===============================================================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 411,207 $ 280,044
Distribution payable 1,653,966 1,084,395
Deferred revenue 153,333 153,333
------------------------------
Total Liabilities 2,218,506 1,517,772
------------------------------
Partners' Capital (Deficit):
General Partners (882,019) (868,684)
Limited Partners (4,837,505 units outstanding) 7,797,479 9,117,588
------------------------------
Total Partners' Capital 6,915,460 8,248,904
- -------------------------------------------------------------------------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 9,133,966 $ 9,766,676
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
FOR THE THREE MONTHS ENDED MARCH 31, 1999
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1998 $(868,684) $ 9,117,588 $ 8,248,904
Net income 3,205 317,317 320,522
Distributions (16,540) (1,637,426) (1,653,966)
- -------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1999 $(882,019) $ 7,797,479 $ 6,915,460
===============================================================================
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
3
JETSTREAM II, L.P.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31,
1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
INCOME
Rental $1,230,000 $1,230,000
Interest 25,189 23,042
Other 560 2,753
----------------------------
Total Income 1,255,749 1,255,795
- -------------------------------------------------------------------------------
EXPENSES
Depreciation 754,807 754,807
Management fees 115,146 111,842
General and administrative 65,274 68,058
Operating -- 524
----------------------------
Total Expenses 935,227 935,231
- -------------------------------------------------------------------------------
NET INCOME $ 320,522 $ 320,564
===============================================================================
NET INCOME ALLOCATED:
To the General Partners $ 3,205 $ 3,206
To the Limited Partners 317,317 317,358
- -------------------------------------------------------------------------------
$ 320,522 $ 320,564
===============================================================================
PER LIMITED PARTNERSHIP UNIT
(4,837,505 OUTSTANDING) $ .07 $ .07
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 320,522 $ 320,564
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 754,807 754,807
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Accounts payable and accrued expenses 131,163 57,683
----------------------------
Net cash provided by operating activities 1,206,492 1,133,054
- -------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions (1,084,395) (1,113,369)
----------------------------
Net cash used for financing activities (1,084,395) (1,113,369)
- -------------------------------------------------------------------------------
Net increase in cash and cash equivalents 122,097 19,685
Cash and cash equivalents, beginning of period 1,781,869 1,810,843
- -------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,903,966 $ 1,830,528
===============================================================================
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
4
JETSTREAM II, L.P.
NOTES TO THE FINANCIAL STATEMENTS
The unaudited financial statements should be read in conjunction with the
Partnership's annual 1998 audited financial statements within Form 10-K.
The unaudited financial statements include all normal and recurring adjustments
which are, in the opinion of management, necessary to present a fair statement
of financial position as of March 31, 1999 and the results of operations for the
three months ended March 31, 1999 and 1998, cash flows for the three months
ended March 31, 1999 and 1998 and the statement of partners' capital (deficit)
for the three months ended March 31, 1999. Results of operations for the period
are not necessarily indicative of the results to be expected for the full year.
The following significant event occurred subsequent to fiscal year 1998, which
requires disclosure in this interim report per Regulation S-X, Rule 10-01,
Paragraph (a)(5).
On April 30, 1999, the Partnership sold one of its B-727-200 non-advanced
aircraft to an unaffiliated entity, SportHawk International, Inc. ("SportHawk")
for a selling price of approximately $1,000,000. The selling price was
determined pursuant to a lease negotiated with the buyer, which exercised its
option to purchase the aircraft.
As a result of the sale, the General Partners intend to distribute the net
proceeds therefrom (after payment of or provision for the Partnership's
liabilities and expenses, and establishment of a reserve for contingencies, if
any) during the second quarter of 1999.
<PAGE>
5
JETSTREAM II, L.P.
PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
As of March 31, 1999, JetStream II, L.P. (the "Partnership") had all six of its
aircraft on-lease. Three aircraft were on-lease to Northwest Airlines, Inc.
("Northwest"), one aircraft was on-lease to Boeing Capital Corporation ("BCC"),
one aircraft was on-lease to Delta Air Lines, Inc. ("Delta"), and one aircraft
was on-lease to Continental Airlines, Inc. ("Continental").
The leases for the Partnership's three DC-9-30 aircraft expire in January 2007
(two aircraft) and April 2007 (one aircraft). Northwest pays the Partnership a
monthly lease rate of $35,000 per aircraft. As part of the August 1996 agreement
to extend these leases, Northwest agreed to hushkit each aircraft prior to
December 31, 1999. In exchange for funding the cost of the hushkits, Northwest
will be entitled to 50% of the proceeds from the eventual sale of the aircraft.
The General Partners believe that the lease extensions and hushkitting of the
engines will, in all likelihood, increase the value of the aircraft and will
present the Partnership with more viable opportunities for the aircraft in the
future.
The lease for the Partnership's B-727-200 with TWA was terminated on October 30,
1997. TWA had been leasing the aircraft on a month-to-month basis at a monthly
lease rate of $32,500. Commencing November 1, 1997, the aircraft was re-leased
to Boeing Capital Corporation ("BCC"), which subleased the aircraft to
SportHawk. BCC paid the Partnership a monthly lease rate of $45,000. The primary
term of the BCC lease was scheduled to expire on October 31, 1999. Pursuant to
the terms of the lease, on April 30, 1999 SportHawk exercised its option to
purchase the aircraft for a selling price of approximately $1,000,000 plus the
remaining rent due under the lease. The Partnership received $243,000 for such
rental payments due under the lease through October 31, 1999.
As a result of the sale, the General Partners intend to distribute the net
proceeds therefrom (after payment of or provision for the Partnership's
liabilities and expenses, and establishment of a reserve for contingencies, if
any) during the second quarter of 1999.
The lease with Delta for the Partnership's 737-200 advanced aircraft expires in
September 1999. In accordance with the terms of the lease agreement, Delta pays
the Partnership a monthly lease rate of $80,000.
Continental makes monthly lease payments to the Partnership of $180,000. The
lease with Continental was originally scheduled to expire in March 1998.
Continental extended its lease to March 1999 and in October 1998, exercised its
second option to renew this lease through March 2000, with the remaining terms
of the lease unchanged.
At March 31, 1999, the Partnership had unrestricted cash and cash equivalents of
$1,903,966, compared to $1,781,869 at December 31, 1998.
On March 4, 1999, the Partnership paid a distribution to the Unitholders for the
period from October 1, 1998 to December 31, 1998 in the amount of $1,084,395, or
approximately $.22 per unit. At March 31, 1999, the Partnership had a
distribution payable to Unitholders of $1,653,966, or approximately $.34 per
unit. The distribution will be paid on or about May 24, 1999. Future cash
distributions will be determined on a quarterly basis after an evaluation of the
Partnership's current and expected financial position.
<PAGE>
6
JETSTREAM II, L.P.
Results of Operations
- ---------------------
Substantially all of the Partnership's revenue for the three months ended March
31, 1999 was generated from the leasing of the Partnership's aircraft to
commercial air carriers under triple net operating leases. The balance of the
Partnership's revenue during the first quarter of 1999 consisted of interest and
other income.
For the three months ended March 31, 1999, the Partnership generated net income
of $320,522, compared to net income of $320,564 for the corresponding period in
1998.
Rental income for the three months ended March 31, 1999 was $1,230,000,
unchanged from March 31, 1998.
Interest income for the three months ended March 31, 1999 was $25,189, compared
to $23,042 for the corresponding period in 1998. The increase is primarily
attributable to an increase in the Partnership's average cash balances during
the 1999 period.
General and administrative expenses for the three months ended March 31, 1999
totaled $65,274, compared to $68,058 for the corresponding period in 1998. The
slight decrease is due to lower printing and postage costs offset by higher
professional fees.
PART II OTHER INFORMATION
ITEMS 1-5 Not applicable.
ITEM 6 Exhibits and reports on Form 8-K.
(a) Exhibits -
(27) Financial Data Schedule
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the quarter ended March 31, 1999.
<PAGE>
7
JETSTREAM II, L.P.
SIGNATURES
Pursuant to the requirements 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.
JETSTREAM II, L.P.
BY: JET AIRCRAFT LEASING INC.
Administrative General Partner
Date: May 17, 1999 BY: /s/Michael T. Marron
------------------------
Name: Michael T. Marron
Title: Director, President, and
Chief Financial Officer
<PAGE>
ARTICLE 5
PERIOD-TYPE 3-mos
FISCAL-YEAR-END Dec-31-1999
PERIOD-END Mar-31-1999
CASH 1,903,966
SECURITIES 000
RECEIVABLES 45,000
ALLOWANCES 000
INVENTORY 000
CURRENT-ASSETS 1,948,966
PP&E 26,877,000
DEPRECIATION 19,692,000
TOTAL-ASSETS 9,133,966
CURRENT-LIABILITIES 2,218,506
BONDS 000
PREFERRED-MANDATORY 000
PREFERRED 000
COMMON 000
OTHER-SE 6,915,460
TOTAL-LIABILITY-AND-EQUITY 9,133,966
SALES 000
TOTAL-REVENUES 1,255,749
CGS 000
TOTAL-COSTS 000
OTHER-EXPENSES 935,277
LOSS-PROVISION 000
INTEREST-EXPENSE 000
INCOME-PRETAX 320,522
INCOME-TAX 000
INCOME-CONTINUING 320,522
DISCONTINUED 000
EXTRAORDINARY 000
CHANGES 000
NET-INCOME 320,522
EPS-PRIMARY .07
EPS-DILUTED .07
<PAGE>
Appendix E
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of
- ---------- the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
-------------
or
Transition Report Pursuant to Section 13 or 15(d) of
- ---------- the Securities Exchange Act of 1934
For the Transition period from to
--------- ---------
COMMISSION FILE NUMBER: 0-16838
-------
JETSTREAM II, L.P.
------------------
Exact Name of Registrant as Specified in its Charter
Delaware 84-1068932
-------- ----------
State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization Identification No.
3 World Financial Center, 29th Floor,
New York, NY Attn.: Andre Anderson 10285
- ------------------------------------- -----
Address of Principal Executive Offices Zip code
(212) 526-3183
--------------
Registrant's Telephone Number, Including Area Code
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
--- ---
<PAGE>
2
JETSTREAM II, L.P.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
BALANCE SHEETS
AT JUNE 30, AT DECEMBER 31,
1999 1998
(unaudited) (audited)
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Aircraft, at cost $ 21,877,000 $ 26,877,000
Less accumulated depreciation (16,324,835) (18,937,193)
------------------------------
5,552,165 7,939,807
Cash and cash equivalents 2,550,161 1,781,869
Accounts receivable 45,977 45,000
- --------------------------------------------------------------------------------
TOTAL ASSETS $ 8,148,303 $ 9,766,676
================================================================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 486,956 $ 280,044
Distribution payable 2,300,161 1,084,395
Deferred revenue 153,333 153,333
------------------------------
Total Liabilities 2,940,450 1,517,772
------------------------------
Partners' Capital (Deficit):
General Partners (687,786) (868,684)
Limited Partners (4,837,505 units outstanding) 5,895,639 9,117,588
------------------------------
Total Partners' Capital 5,207,853 8,248,904
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 8,148,303 $ 9,766,676
================================================================================
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1999
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1998 $(868,684) $ 9,117,588 $ 8,248,904
Net income 210,328 700,629 910,957
Distributions (29,430) (3,922,578) (3,952,008)
- -------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1999 $(687,786) $ 5,895,639 $ 5,207,853
===============================================================================
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
3
JETSTREAM II, L.P.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCOME
Rental $1,140,000 $1,230,000 $2,370,000 $2,460,000
Interest 31,136 27,372 56,325 50,414
Other 3,620 905 4,180 3,658
--------------------------------------------------------
Total Income 1,174,756 1,258,277 2,430,505 2,514,072
- ----------------------------------------------------------------------------------------------
EXPENSES
Depreciation 629,891 754,807 1,384,698 1,509,614
Management fees 103,856 111,396 219,002 223,238
General and administrative 53,024 55,951 118,299 124,009
Operating 800 800 800 1,324
--------------------------------------------------------
Total Expenses 787,571 922,954 1,722,799 1,858,185
--------------------------------------------------------
Net income before gain
on sale of aircraft 387,185 335,323 707,706 655,887
Gain on sale of aircraft 203,251 -- 203,251 --
- ----------------------------------------------------------------------------------------------
NET INCOME $ 590,436 $ 335,323 $ 910,957 $ 655,887
==============================================================================================
NET INCOME ALLOCATED:
To the General Partners $ 207,123 $ 3,353 $ 210,328 $ 6,559
To the Limited Partners 383,313 331,970 700,629 649,328
- ----------------------------------------------------------------------------------------------
$ 590,436 $ 335,323 $ 910,957 $ 655,887
==============================================================================================
PER LIMITED PARTNERSHIP UNIT
(4,837,505 OUTSTANDING) $ .08 $ .07 $ .14 $ .13
- ----------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
4
JETSTREAM II, L.P.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30,
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 910,957 $ 655,887
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of aircraft (203,251) --
Depreciation 1,384,698 1,509,614
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Accounts receivable (977) (417)
Accounts payable and accrued expenses 169,607 40,752
--------------------------
Net cash provided by operating activities 2,261,034 2,205,836
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash received from sale of aircraft 1,243,500 --
--------------------------
Net cash provided by investing activities 1,243,500 --
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions (2,736,242) (2,138,029)
--------------------------
Net cash used for financing activities (2,736,242) (2,138,029)
- --------------------------------------------------------------------------------
Net increase in cash and cash equivalents 768,292 67,807
Cash and cash equivalents, beginning of period 1,781,869 1,810,843
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,550,161 $ 1,878,650
================================================================================
SUPPLEMENTAL DISCLOSURE OF NONCASH OPERATING ACTIVITIES
In connection with the sale of the aircraft, accrued resale fees in the amount
of $37,305 has decreased the gain on the sale of the aircraft.
- --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
5
JETSTREAM II, L.P.
NOTES TO THE FINANCIAL STATEMENTS
The unaudited financial statements should be read in conjunction with the
Partnership's annual 1998 audited financial statements within Form 10-K.
The unaudited financial statements include all normal and recurring adjustments
which are, in the opinion of management, necessary to present a fair statement
of financial position as of June 30, 1999 and the results of operations for the
three and six months ended June 30, 1999 and 1998, cash flows for the six months
ended June 30, 1999 and 1998 and the statement of partners' capital (deficit)
for the three and six months ended June 30, 1999. Results of operations for the
period are not necessarily indicative of the results to be expected for the full
year.
The following significant event occurred subsequent to fiscal year 1998, which
requires disclosure in this interim report per Regulation S-X, Rule 10-01,
Paragraph (a)(5).
The General Partners are developing a plan to sell the Partnership's remaining
aircraft and subsequently terminate the Partnership (the "Liquidation Plan").
Such Liquidation Plan will require the approval of more than 50% of the
unitholders entitled to vote. It is anticipated that a consent solicitation
statement requesting such approval will be forwarded to investors during the
third or fourth quarter of this year.
On April 30, 1999, the Partnership sold one of its B-727-200 non-advanced
aircraft to an unaffiliated entity, SportHawk International, Inc. ("SportHawk")
for a selling price of $1,243,000 and the Partnership recognized a gain of
$203,251. The selling price was determined pursuant to a lease negotiated with
the buyer, which exercised its option to purchase the aircraft. As a result of
the sale, the General Partners intend to distribute the net proceeds therefrom
during the third quarter of 1999.
<PAGE>
6
JETSTREAM II, L.P.
PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
The General Partners are developing a plan to sell the Partnership's remaining
aircraft and subsequently terminate the Partnership (the "Liquidation Plan").
Such Liquidation Plan will require the approval of more than 50% of the
unitholders entitled to vote. It is anticipated that a consent solicitation
statement requesting such approval will be forwarded to investors during the
third or fourth quarter of this year.
As of June 30, 1999, JetStream II, L.P. (the "Partnership") had all five of its
aircraft on-lease. Three aircraft were on-lease to Northwest Airlines, Inc.
("Northwest"), one aircraft was on-lease to Delta Air Lines, Inc. ("Delta"), and
one aircraft was on-lease to Continental Airlines, Inc. ("Continental"). As
discussed below, the aircraft which was leased to Boeing Capital Corporation
("BCC") was sold on April 30, 1999.
The leases for the Partnership's three DC-9-30 aircraft expire in January 2007
(two aircraft) and April 2007 (one aircraft). Northwest pays the Partnership a
monthly lease rate of $35,000 per aircraft. As part of the August 1996 agreement
to extend these leases, Northwest agreed to hushkit each aircraft prior to
December 31, 1999. In exchange for funding the cost of the hushkits, Northwest
will be entitled to 50% of the proceeds from the eventual sale of the aircraft.
The General Partners believe that the lease extensions and hushkitting of the
engines will, in all likelihood, increase the value of the aircraft and will
present the Partnership with more viable opportunities for the aircraft in the
future.
The lease for the Partnership's B-727-200 with TWA was terminated on October 30,
1997. TWA had been leasing the aircraft on a month-to-month basis at a monthly
lease rate of $32,500. Commencing November 1, 1997, the aircraft was re-leased
to BCC, which subleased the aircraft to SportHawk. BCC paid the Partnership a
monthly lease rate of $45,000. The primary term of the BCC lease was scheduled
to expire on October 31, 1999. Pursuant to the terms of the lease, on April 30,
1999 SportHawk exercised its option to purchase the aircraft for a selling price
of approximately $1,243,000 and the Partnership recognized a gain of $203,251.
As a result of the sale, the General Partners intend to distribute the net
proceeds therefrom during the third quarter of 1999.
The lease with Delta for the Partnership's 737-200 advanced aircraft expires in
September 1999. In accordance with the terms of the lease agreement, Delta pays
the Partnership a monthly lease rate of $80,000 through September 1999. During
the second quarter of 1999, Delta extended its lease through September 30, 2001.
This lease extension requires Delta to pay the Partnership a monthly lease rate
of $65,000 and to hushkit the plane.
Continental makes monthly lease payments to the Partnership of $180,000. The
lease with Continental was originally scheduled to expire in March 1998.
Continental extended its lease to March 1999 and in October 1998, exercised its
second option to renew this lease through March 2000, with the remaining terms
of the lease unchanged.
At June 30, 1999, the Partnership had unrestricted cash and cash equivalents of
$2,550,161, compared to $1,781,869 at December 31, 1998. The increase is due to
the receipt of cash related to the sale of the aircraft.
On May 25, 1999, the Partnership paid a distribution to the Unitholders for the
period from January 1, 1999 to March 31, 1999 in the amount of $1,651,847, or
approximately $.34 per unit. At June 30, 1999, the Partnership had a
distribution payable to Unitholders of $2,300,161, or approximately $.48 per
unit. The distribution will be paid in August 1999. Of this amount, $.22 per
unit represents a distribution of cash flow from operations and $.26 per unit
represents a distribution of net sale proceeds. Future cash distributions will
be determined on a quarterly basis after an evaluation of the Partnership's
current and expected financial position.
<PAGE>
7
JETSTREAM II, L.P.
Results of Operations
- ---------------------
Substantially all of the Partnership's revenue for the three and six months
ended June 30, 1999 was generated from the leasing of the Partnership's aircraft
to commercial air carriers under triple net operating leases. The balance of the
Partnership's revenue during the second quarter of 1999 consisted of interest
and other income.
For the three and six months ended June 30, 1999, the Partnership generated net
income of $404,484 and $910,957, compared to net income of $335,323 and $655,887
for the corresponding period in 1998. Net income for the 1999 period includes a
gain on sale of aircraft in the amount of $203,251. Excluding this gain,
Partnership operations resulted in income before gain on sale of aircraft of
$387,115 and $707,707 for the three and six months ended March 31, 1999,
respectively, compared with income before gain on sale of aircraft of $335,323
and $655,887 for the corresponding periods in 1998.
Rental income for the three and six months ended June 30, 1999 was $1,228,782
and $2,370,000, compared to rental income of $1,230,000 and $2,640,000 for the
corresponding period in 1998.
Interest income for the three and six months ended June 30, 1999 was $31,136 and
$56,325, compared to $27,372 and $50,414 for the corresponding period in 1998.
The increase is primarily attributable to an increase in the Partnership's
average cash balances during the 1999 period resulting from the cash received on
the sale of the aircraft.
General and administrative expenses for the three and six months ended June 30,
1999 and 1998 totaled $53,024 and $118,299, respectively, compared to $55,951
and $124,009 for the corresponding period in 1998. The slight decrease is due to
lower printing and postage costs offset by higher professional fees.
PART II OTHER INFORMATION
ITEMS 1-5 Not applicable.
ITEM 6 Exhibits and reports on Form 8-K.
(a) Exhibits -
(27) Financial Data Schedule
(b) Reports on Form 8-K -
No reports on Form 8-K were filed during the quarter ended
June 30, 1999.
<PAGE>
8
JETSTREAM II, L.P.
SIGNATURES
Pursuant to the requirements 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.
JETSTREAM II, L.P.
BY: JET AIRCRAFT LEASING INC.
Administrative General Partner
Date: August 16, 1999 BY: /s/Michael T. Marron
------------------------------------------------
Name: Michael T. Marron
Title: Director, President, and Chief Financial Officer
<PAGE>
ARTICLE 5
PERIOD-TYPE 6-mos
FISCAL-YEAR-END Dec-31-1999
PERIOD-END Jun-30-1999
CASH 2,550,161
SECURITIES 000
RECEIVABLES 45,977
ALLOWANCES 000
INVENTORY 000
CURRENT-ASSETS 2,596,138
PP&E 21,877,000
DEPRECIATION 16,324,835
TOTAL-ASSETS 8,148,303
CURRENT-LIABILITIES 2,940,450
BONDS 000
PREFERRED-MANDATORY 000
PREFERRED 000
COMMON 000
OTHER-SE 5,207,853
TOTAL-LIABILITY-AND-EQUITY 8,148,303
SALES 000
TOTAL-REVENUES 2,430,505
CGS 000
TOTAL-COSTS 000
OTHER-EXPENSES 1,722,799
LOSS-PROVISION 000
INTEREST-EXPENSE 000
INCOME-PRETAX 707,706
INCOME-TAX 000
INCOME-CONTINUING 707,706
DISCONTINUED 000
EXTRAORDINARY 203,251
CHANGES 000
NET-INCOME 910,957
EPS-PRIMARY .14
EPS-DILUTED .14
<PAGE>
JETSTREAM II, L.P.
CONSENT CARD
THIS CONSENT IS SOLICITED BY THE GENERAL PARTNERS OF
JETSTREAM II, L.P.
CIS Aircraft Partners, Inc. and Jet Aircraft Leasing, Inc. (together,
the "General Partners") of JetStream II, L.P. (the "Partnership") are proposing
the liquidation of the Partnership (the "Liquidation") that consists of: (1) the
sale of all of the Partnership's assets and the dissolution of the Partnership
pursuant to the proposed Plan of Liquidation and Dissolution; (2) the amendment
of the Partnership Agreement to permit the engagement of the General Partners to
market and sell the assets of the Partnership for a fee pursuant to the terms of
the Joint Marketing Agreement, dated July 13, 1999, among each of the General
Partners and the Partnership; and (3) the grant of authority to the General
Partners to take any action necessary or incidental and consistent with the
Partnership Agreement, the Plan of Liquidation and Dissolution and the Joint
Marketing Agreement to complete the foregoing on the terms described in the
consent solicitation statement dated October 15, 1999.
- --------------------------------------------------------------------------------
THE GENERAL PARTNERS RECOMMEND THAT UNITHOLDERS CONSENT
TO THE LIQUIDATION BY MARKING THE BOX ENTITLED "FOR".
- --------------------------------------------------------------------------------
The undersigned hereby directs CIS Assignor L.P.A., Inc. (the "Assignor
Limited Partner"), to vote all units beneficially owned by the undersigned as
follows:
[__] FOR [__] AGAINST [__] ABSTAIN
The units represented by this blue consent card will be voted in
accordance with the election specified by the unitholder named below. ANY
PROPERLY EXECUTED CONSENT CARD ON WHICH A CHOICE IS NOT INDICATED WILL BE VOTED
"FOR" THE LIQUIDATION. FAILURE TO RETURN A CONSENT CARD OR ABSTENTION FROM
VOTING WILL HAVE THE SAME EFFECT AS A VOTE "AGAINST" THE LIQUIDATION.
The undersigned hereby acknowledges receipt of the consent solicitation
statement, dated October 15, 1999 from the General Partners and the Assignor
Limited Partner.
------------------------------
Signature
------------------------------
Signature
Title:
------------------------
Dated:
------------------------
Sign exactly as addressed to you. Joint owners should each sign. If
signing as executor, administrator, attorney, trustee, or guardian, please
include your full title. If a corporation, sign in full corporate name by
authorized officer. If a partnership, sign in the name of authorized person.
Please see reverse side for instructions on returning this card.
YOUR VOTE IS IMPORTANT. PLEASE ACT PROMPTLY.
<PAGE>
- --------------------------------------------------------------------------------
PLEASE SIGN AND DATE THIS BLUE CONSENT CARD AND RETURN IT IN THE ENCLOSED
POSTAGE PREPAID ENVELOPE OR FAX IT TO 212-929-0308 BY 5:00 P.M., EASTERN TIME,
ON NOVEMBER 19, 1999 (UNLESS SUCH DATE AND/OR TIME IS EXTENDED IN THE
SOLE DISCRETION OF THE GENERAL PARTNERS).
- --------------------------------------------------------------------------------
The Consent Solicitation Agent:
[MACKENZIE PARTNERS, INC. LOGO]
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
or
CALL TOLL FREE (800) 322-2885
