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As filed with the Securities and Exchange Commission on June ___, 1997
Registration No. 333-24743
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
--------------------------
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
--------------------------
AEROCENTURY CORP.
(Formerly "AeroMax, Inc.")
(Exact name of Registrant as specified in its charter)
DELAWARE 7394 94-3263974
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
1440 CHAPIN AVENUE, SUITE 310, BURLINGAME, CALIFORNIA 94010, (415)-696-3900
(Address, including ZIP code, and telephone number, including area code
of registrant's principal executive office)
--------------------------
NEAL D. CRISPIN, PRESIDENT
AEROCENTURY CORP.
1440 CHAPIN AVENUE, SUITE 310, BURLINGAME, CALIFORNIA 94010, (415)-696-3900
(Name, address, including ZIP code and telephone number, including area code of
agent for service)
with a copy to:
JAMES E. TOPINKA, ESQ.
GRAHAM & JAMES LLP
ONE MARITIME PLAZA, SUITE 300, SAN FRANCISCO, CALIFORNIA 94111, (415)-954-0200
Approximate date of proposed sale of securities to the public:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box [ ]
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment that specifically states that the Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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CROSS REFERENCE SHEET
ITEM OF S-4 CAPTION IN PROSPECTUS
----------- ---------------------
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Facing page of Registration Statement; Outside Front
Outside Front Cover Page of Prospectus Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of AVAILABLE INFORMATION; TABLE OF CONTENTS; Inside
Prospectus Front Cover Page of Prospectus
3. Risk Factors, Ratio of Earnings to Fixed VOTING PROCEDURES; SUMMARY; RISK FACTORS; CONFLICTS
Charges and Other Information; OF INTEREST; PRO FORMA FINANCIAL INFORMATION;
MANAGEMENT OF LIMITED PARTNERSHIP AND CORPORATE
STRUCTURE; FEDERAL INCOME TAX CONSIDERATIONS;
SECONDARY MARKET AND OWNERSHIP OF PARTNERSHIP UNITS
4. Terms of the Transaction SUMMARY; BACKGROUND AND REASONS FOR THE
CONSOLIDATION; BENEFITS OF THE CONSOLIDATION; THE
CONSOLIDATION; COMPARISON OF LIMITED PARTNERSHIP AND
CORPORATE STRUCTURE; FEDERAL INCOME TAX
CONSIDERATIONS; REPORTS, APPRAISALS AND OPINIONS;
DESCRIPTION OF COMMON STOCK
5. Pro Forma Financial Information PRO FORMA FINANCIAL INFORMATION
6. Material Contracts with Company Being THE CONSOLIDATION; MANAGEMENT OF THE COMPANY
Acquired
7. Additional Information Required for Not Applicable
Reoffering by Persons and Parties Deemed to
be Underwriters
8. Interest of Named Experts and Counsel Not Applicable
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9. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act
Liabilities
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants Not Applicable
11. Incorporation of Certain Information by Not Applicable
Reference
12. Information with Respect to S-2 or S-3 Not Applicable
Registrations
13. Incorporation of Certain Information by Not Applicable
Reference
14. Information with Respect to Registrants THE COMPANY; THE CONSOLIDATION; PROPERTIES OF THE
Other than S-3 or S-2 Registrants PARTNERSHIPS
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Companies Not Applicable
16. Information with Respect to S-2 or S-3 Not Applicable
Companies
17. Information with Respect to Companies other BACKGROUND AND REASONS FOR THE CONSOLIDATION; THE
than S-3 or S-2 Companies CONSOLIDATION -- Exchange Value and Allocation of
Shares; SELECTED FINANCIAL INFORMATION REGARDING THE
PARTNERSHIPS; PROPERTIES OF THE PARTNERSHIPS
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or AVAILABLE INFORMATION; SUMMARY; THE CONSOLIDATION --
Authorizations are to be Solicited Vote Required for Approval of the Consolidation;
VOTING PROCEDURES; MANAGEMENT OF THE COMPANY;
CONFLICTS OF INTEREST; DISSENTERS' RIGHTS
19. Information if Proxies, Consents or Not Applicable
Authorizations are not to be Solicited or in
an Exchange Offer
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SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS/CONSENT SOLICITATION STATEMENT
AEROCENTURY CORP.
1,464,951 SHARES OF COMMON STOCK
As described in this Prospectus/Consent Solicitation Statement (this
"Prospectus"), CMA Capital Group, Inc. (the "Corporate General Partner"), as
corporate general partner, and Neal D. Crispin and Richard D. Koehler, Jr.,
(collectively, "Individual General Partners"), as individual general partners
(all three general partners collectively referred to herein as the "General
Partner" of JetFleet Aircraft, L.P. ("JetFleet I") and JetFleet Aircraft II,
L.P. ("JetFleet II") (collectively, the "Partnerships") are proposing a
consolidation by merger (the "Consolidation") of JetFleet I and JetFleet II,
with and into AeroCentury Corp., a newly organized Delaware corporation (the
"Company"). Upon completion of the Consolidation, these participating
Partnerships ("Participating Partnerships") will merge with and into the
Company, the limited partner investors ("Investors") of the Participating
Partnerships will have the right to receive Common Stock of the Company
("Common Stock"), and the Company will continue in the aircraft leasing
business and will use debt and equity financing to acquire additional aircraft
assets on lease.
The Company has applied to have the Common Stock listed as "____________" on
the American Stock Exchange ("AMEX"), subject to official notice of issuance.
It is anticipated that the Consolidation will occur on or about July 1, 1997.
An Investor who votes "YES" on the enclosed consent card (the "Consent Card")
will have the right to receive Common Stock of the Company, if the majority of
Investors in the Partnership approves the Consolidation and such Partnership
and the Company consummate the Consolidation. Upon completion of the
Consolidation, JetFleet I and JetFleet II will receive 134,987 and 1,262,171
shares of Common Stock, respectively, and the Investors will receive the number
of shares of Common Stock equal to the product, of the number of limited
partnership interests (the "Units") owned by the individual Investor multiplied
by .455931 or 1.819989 (the "Conversion Ratios") respectively, rounded to the
nearest whole number. The Corporate General Partner will receive 1,364 and
66,429 shares of Common Stock, respectively, for its interest in the JetFleet I
and JetFleet II. The Individual General Partners will not receive any Shares
for their general partnership interests.
A "YES" vote will also constitute approval of the following: the
Consolidation and the authorization of the General Partner to perform certain
obligations in connection with the Consolidation; termination of the
partnership; and in the case of JetFleet II, a waiver of the resale fee
provisions. See "CONSOLIDATION -- Amendment To Partnership Agreements." For
JetFleet II Investors only, a "YES" vote will also constitute approval to amend
the JetFleet II Partnership Agreement to change the persons entitled to
dissenters' rights. The Partnership Agreement provides that any person who
votes "NO" on the Consolidation is entitled to dissenters' rights. To make the
dissenters' rights provisions consistent with California law, dissenters'
rights will be available to any Investor that does not vote "YES" on the
Consolidation.
An Investor who abstains from voting, fails to return the Consent
Card, or votes "NO" will receive Shares of Common Stock if (i) the majority of
Investors in the Partnership approve the Consolidation and (ii) all other
conditions for the consummation of the Consolidation of the Partnership and the
Company are satisfied, unless he or she exercises dissenters' rights. See
"DISSENTERS' RIGHTS." If a majority of the Investors of JetFleet II approve
the Consolidation, but a majority of the Investors in JetFleet I do not approve
the Consolidation, the Consolidation may still be consummated between the
Company and JetFleet II only because the
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asset size of JetFleet II alone (approximately 88% of the combined value of the
Partnerships) could still permit the Company to operate according to its
business plans. In determining whether to proceed with a Consolidation with
JetFleet II only, the Company will determine whether the number of dissenting
Investors, the number of Participating Investors and the asset base of JetFleet
II alone will provide a sufficient basis for the Company to meet its objectives
and satisfy all the conditions for the Consolidation set forth in the Merger
Agreement. If a majority of the Investors in JetFleet II do not approve the
Consolidation, the Consolidation will not occur. JetFleet II Investors will
not be permitted to condition their approval of the Consolidation upon the
Participation of JetFleet I.
THIS PROSPECTUS DESCRIBES THE RISKS AND BENEFITS OF THE CONSOLIDATION.
FOR A DISCUSSION OF CERTAIN RISK FACTORS WHICH INVESTORS SHOULD CONSIDER BEFORE
VOTING FOR OR AGAINST THE CONSOLIDATION, SEE "RISK FACTORS" BEGINNING ON PAGE
10.
THE GENERAL PARTNER REQUESTS THAT EACH INVESTOR COMPLETE AND SIGN THE ENCLOSED
CONSENT CARD. Capitalized terms used herein have the meanings set forth in the
"GLOSSARY OF TERMS." THE GENERAL PARTNER STRONGLY RECOMMENDS THAT ALL
INVESTORS VOTE "YES" IN FAVOR OF THE CONSOLIDATION.
The principal risks and other adverse factors of the Consolidation are:
NO INDEPENDENT PARTY HAS DETERMINED THE FAIRNESS OF THE CONSOLIDATION.
THE GENERAL PARTNER AND ITS AFFILIATES, TOGETHER, HAVE PURCHASED, WILL HAVE THE
RIGHT TO PURCHASE AND WILL RECEIVE SHARES OF COMMON STOCK, AND WILL BE
COMPENSATED BY THE COMPANY, PURSUANT TO NEGOTIATIONS WHICH WERE NOT AT ARM'S
LENGTH, CREATING AN INHERENT CONFLICT OF INTEREST IN THE STRUCTURING OF THE
CONSOLIDATION.
THE INVESTORS' RIGHTS AS STOCKHOLDERS OF THE COMPANY WILL DIFFER SUBSTANTIALLY
FROM THEIR RIGHTS AS LIMITED PARTNERS IN THE PARTNERSHIPS.
THERE HAS BEEN NO PRIOR MARKET FOR THE COMMON STOCK, THEREFORE IT MAY TRADE AT
PRICES BELOW THE ORIGINAL ISSUANCE PRICE AND SUCH PRICES MAY NOT REFLECT THE
VALUE OF THE COMPANY'S ASSETS.
THE COMPANY'S PLAN TO BORROW USING THE ASSETS OF THE COMPANY AS COLLATERAL
WOULD INCREASE ITS DEBT PAYMENT BURDEN AND THEREBY DIVERT ITS CASH FLOW WHICH
WOULD HAVE OTHERWISE BEEN AVAILABLE FOR REINVESTMENT.
The date of this Prospectus is ________, 1997.
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The Partnerships are subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, must file reports and other information with the Securities and
Exchange Commission (the "Commission"), 450 Fifth Street N.W., Washington D.C.
20549. In addition, the Company has filed a Registration Statement on Form S-4
under the Securities Act of 1933, as amended (the "Securities Act") and the
rules and regulations promulgated thereunder, with respect to the Common Stock
offered pursuant to this Prospectus (this "Prospectus"). This Prospectus,
which is part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement and the exhibits and
financial schedules thereto. For further information with respect to the
Partnerships and the Company, reference is made to the reports of the
Partnerships filed under the Exchange Act and the Company's Registration
Statement and such exhibits and schedules, copies of which may be examined upon
payment of prescribed fees from, the Public Reference Section of the Commission
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission also maintains a website containing reports, proxy and information
statements, and other information regarding registrants that file
electronically with the Commission, including the Company. The address for the
website is http://www.sec.gov. Copies of such documents may also be obtained
from the Partnerships upon written request to Neal D. Crispin, General Partner,
1440 Chapin Avenue, Suite 310, Burlingame, California 94010.
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TABLE OF CONTENTS
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Background and Reasons for the Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Partnership Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Risks and Other Adverse Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Recommendation of the General Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Fairness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Pro Forma Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Determination of the Exchange Values and
Allocation of Shares between Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Allocation of Shares Between General Partner and Limited Partner . . . . . . . . . . . . . . . . 6
Conversion Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Material Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Historical Cash Distributions and Assigned Exchange Value . . . . . . . . . . . . . . . . . . . 8
ORGANIZATIONAL CHART OF PARTNERSHIPS
AND JETFLEET COMPANIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Risks and Other Adverse Factors Relating to Consolidation . . . . . . . . . . . . . . . . . . . 10
Changes in Form of Investment Will Change Rights of Participating Investor . . . . . . . . . 10
Conflicts of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
No Independent Representative for the Partnerships or Investors . . . . . . . . . . . . . . 11
No Prior Market for Common Stock; Market Price May
Decrease After Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Secondary Market Value Not Reflective of Relative Value of Partnership Assets . . . . . . . 11
Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Uncertain Composition of the Company; Risks of Consolidation if Only
JetFleet II Participates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Determination of Exchange Values Based on Appraisals Only . . . . . . . . . . . . . . . . . 12
Director Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Indemnification of Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . 12
Restrictions on Certain Business Combinations . . . . . . . . . . . . . . . . . . . . . . . 12
Dilution of Investor's Voting Power; Different Voting Rights . . . . . . . . . . . . . . . . 13
Risks Attendant to Additional Debt or Equity Financings . . . . . . . . . . . . . . . . . . 13
Contingent or Undisclosed Liabilities May Not Be Reflected in Exchange Value . . . . . . . . 13
Majority Vote Will Bind All Investors of the Partnership . . . . . . . . . . . . . . . . . . 13
Investment Policies as Guidelines Only . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Risks Relating to the Business of the Company and the Partnerships . . . . . . . . . . . . . . . 14
Acquisition of Additional Assets by the Company . . . . . . . . . . . . . . . . . . . . . . 14
Reliance on JMC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Government Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Risks of Foreign Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Casualties, Insurance Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Leasing Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Risks Related to Regional Air Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
BACKGROUND AND REASONS FOR THE CONSOLIDATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
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Background of the Partnerships and the General Partner . . . . . . . . . . . . . . . . . . . . . 17
The Aircraft Industry Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Background of the Consolidation and Alternatives Considered . . . . . . . . . . . . . . . . . . 19
Definitive Offers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Reasons for the Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Historical Cash Distributions and Assigned Exchange Value . . . . . . . . . . . . . . . . . . . 24
THE CONSOLIDATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Approval and Recommendations of the General Partner . . . . . . . . . . . . . . . . . . . . . . 25
Vote Required for Approval of the Consolidation . . . . . . . . . . . . . . . . . . . . . . . . 26
Amendments to Partnership Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Conditions to the Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Exchange Value and Allocation of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Allocation of Shares Between Corporate General Partner and Limited Partners . . . . . . . . . . 29
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Conversion Ratio; No Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Effect of the Consolidation on Dissenting Investors . . . . . . . . . . . . . . . . . . . . . . 30
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Corporate Headquarters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Amendment, Termination and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Dealer Manager . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Consolidation Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Reports, Opinions and Appraisals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Effect of Consolidation on Nonparticipating Partnerships . . . . . . . . . . . . . . . . . . . . 33
BENEFITS OF THE CONSOLIDATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
FAIRNESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
General Partner's Belief as to Fairness . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
No Fairness Opinion Obtained . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Material Factors Underlying Belief as to Fairness . . . . . . . . . . . . . . . . . . . . . . . 38
Factors Affecting Fairness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Competitive Advantages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Growth Opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Business Objectives and Operating Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Properties of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Management's Discussion and Analysis of Financial Condition
and Results of Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Borrowing Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Equity Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Future Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Listing, Price, Trading and Holders of Shares . . . . . . . . . . . . . . . . . . . . . . . . . 43
Status of the Company under ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Beneficial Ownership of Directors, Officers and Principal Shareholders . . . . . . . . . . . . . 44
Principal Executive Offices and Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Acquisition Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Lessees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Remarketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Regulatory Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
VOTING PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Time of Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Record Date and Outstanding Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Approval Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Consent Card and Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
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Revocability of Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Solicitation of Votes; Solicitation Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 52
Investor Names and Addresses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Amendments to Partnership Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
DISSENTERS' RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
COMPARISON OF LIMITED PARTNERSHIP AND CORPORATE STRUCTURE . . . . . . . . . . . . . . . . . . . . 55
CONFLICTS OF INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
FIDUCIARY RESPONSIBILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
PRO FORMA FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Management's Discussion and Analysis of Pro Forma Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
COMPARISON OF COMPENSATION PAID TO CORPORATE GENERAL
PARTNER AND AFFILIATES AND TO MANAGEMENT COMPANY . . . . . . . . . . . . . . . . . . . . . . . 73
MANAGEMENT OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Board of Directors Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Committees of the Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Compensation of Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Limitation of Directors' Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
The Management Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
SECONDARY MARKET AND OWNERSHIP OF PARTNERSHIP UNITS . . . . . . . . . . . . . . . . . . . . . . . 82
Sale Prices of Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
PROPERTIES OF THE PARTNERSHIPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
REPORTS, OPINIONS AND APPRAISALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
DESCRIPTION OF COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
DILUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
FEDERAL INCOME TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Consolidation of Non-Taxable Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Pre-Consolidation Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Tax Consequences to the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Certain Tax Differences Between the Ownership of Units and Shares . . . . . . . . . . . . . . 92
State Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
EXPERTS 93
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
GLOSSARY OF TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
SELECTED FINANCIAL INFORMATION REGARDING THE PARTNERSHIPS
AND THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
APPENDIX A -- MERGER AGREEMENT
APPENDIX B -- APPRAISAL OF PARTNERSHIP ASSETS
APPENDIX C -- CALIFORNIA LIMITED PARTNERSHIP ACT DISSENTERS' RIGHTS
APPENDIX D -- FORM OF CONSENT
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SUMMARY
The following Summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Capitalized terms not otherwise defined in this Summary have the meanings set
forth in the "GLOSSARY OF TERMS."
THE CONSOLIDATION
The General Partner is proposing the Consolidation of the Partnerships,
JetFleet I and JetFleet II, with and into the Company, subject to approval by
the majority of Investors in both Partnerships. Upon completion of the
Consolidation, the Partnerships' separate existence will cease, the Company
will continue as the surviving entity; and the Company will continue in the
aircraft leasing business and will use debt and equity financing to acquire
additional aircraft assets.
THE PARTNERSHIPS
JetFleet I and JetFleet II are each California limited partnerships formed
in 1989 and 1991, respectively, to invest in leased aircraft equipment. The
general partners of each of the Partnerships are CMA Capital Group, Inc.
("Corporate General Partner"), Richard D. Koehler and Neal D. Crispin; only the
Corporate General Partner has an interest in the distributions of the
Partnership. The Partnerships collectively own 7 aircraft and 25 aircraft
engines.
THE COMPANY
The Company was organized under the laws of the State of Delaware on
February 28, 1997, to facilitate the Consolidation. The Company's principal
executive offices are located at 1440 Chapin Avenue, Suite 310, Burlingame,
California 94010.
Upon consummation of the Consolidation, the Company will invest primarily
in aircraft equipment. If both of the Partnerships participate in the
Consolidation, the Company will initially own approximately $16.4 million in
aircraft assets (based on a current value appraisal as of February 4, 1997).
See "PROPERTIES OF THE PARTNERSHIPS."
BACKGROUND AND REASONS FOR THE CONSOLIDATION
CMA Capital Group, Inc., the corporate general partner, was organized in
1989 to sponsor investment limited partnerships which invested primarily in
aircraft equipment, and in 1989 and 1991, sponsored JetFleet I and JetFleet II,
respectively. From 1989 to 1994, the Partnerships raised an aggregate of $55
million. When the Partnerships were formed, Investors anticipated an
investment over the 21 and 25 year life of JetFleet I and JetFleet II,
respectively, with a disposition strategy that included the sale of assets and
liquidation of the Partnerships. Since inception, the Partnerships' investment
objective has been to provide Investors with cash distributions. Increasingly,
however, in written and oral communications with the General Partner, Investors
have indicated a desire to have liquidity of their investment in the
Partnerships. Currently, Investors are able to sell their Units only in the
secondary market, which is characterized by a small number of participants and
infrequent transactions. See "SECONDARY MARKET AND OWNERSHIP OF PARTNERSHIP
UNITS."
One means to provide liquidity to Investors would be for the General
Partner to terminate each Partnership and liquidate all of its assets.
However, an immediate liquidation of the Partnerships' assets is unlikely to
return the Investors' original capital investment in the Partnerships. Based
on an appraisal of liquidation values of the Partnership's assets in a
liquidation occurring over the
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course of a six month wind-up period, each JetFleet I investor would receive
$1.91 per Unit, and each JetFleet II investor would receive $8.95 per Unit.
Furthermore, such a liquidation would be undesirable to those Investors who
wish to remain invested in aircraft equipment. Consequently, the Consolidation
is intended to meet the desire of certain Investors for liquidity in their
investment, while enabling those Investors who believe the current market
conditions favor continued investments in aircraft assets to maintain their
investment in the business of the Partnerships. The Consolidation will have
the further benefit of creating an entity that will have more flexibility than
the Partnerships to take advantage of market opportunities and use debt and
equity financing to promote its growth. See "BACKGROUND OF THE CONSOLIDATION
AND ALTERNATIVES CONSIDERED."
The General Partner believes that the aircraft industry is in the early
stages of recovery, with demand for equipment once again on the rise, but
prices are depressed relative to the value of the equipment. See "BACKGROUND
AND REASONS FOR THE CONSOLIDATION--Aircraft Industry Outlook." The General
Partner believes the current market presents a favorable one in which to buy
assets that have the capability of generating income while retaining, or
possibly even increasing in, value. Those same market conditions that make it
favorable to buy make it an inopportune time to sell the Partnerships' assets.
The proposed Consolidation is the result of the General Partner' review of
possible alternatives considered to meet the Investors' objectives of liquidity
and return on capital. See "BACKGROUND AND REASONS FOR THE CONSOLIDATION--
Background of the Consolidation and Alternatives Considered."
PARTNERSHIP PARTICIPATION
A Partnership will participate in the Consolidation with the affirmative
vote of holders of more than 50% of the outstanding Units of the Partnership.
Upon the completion of the Consolidation, the Partnerships shall cease to exist
and shall be merged with and into the Company and the Investors in such
Partnerships will cease to be limited partners in the Partnerships and will
receive Shares of Common Stock of the Company. The Consolidation is subject to
various conditions such as accuracy of representations and warranties contained
in the Merger Agreement between the Company and the Participating Partnerships,
no material adverse changes in the Partnerships' or the Company's financial
condition, and approval of the Consolidation by the majority of the Investors
of each of the Partnerships.
Under the Merger Agreement, if the JetFleet I Investors fail to approve
the Consolidation, but the JetFleet II Investors approve the Consolidation, the
Company in its sole discretion, may consummate the Consolidation between
JetFleet II and the Company only. As of July 1, 1997 (the anticipated date of
the consummation of the Consolidation), (the "Anticipated Consummation Date")
JetFleet II's net assets would constitute approximately 88% of the aggregate
net assets of the two Partnerships. In determining whether to proceed with a
Consolidation with JetFleet II only, the Company will determine whether, based
on the number of dissenting Investors, the number of Participating Investors
and the asset base of JetFleet II alone will provide a sufficient basis for the
Company to meet its objectives and satisfy all the conditions for the
Consolidation set forth in the Merger Agreement. JetFleet II Investors are
urged to review the JetFleet II Supplement accompanying this Prospectus which,
among other things, discusses the considerations regarding a Consolidation
between the Company and JetFleet II only. Although all of JetFleet I's assets
are co-owned with JetFleet II, the General Partner believes that the failure of
JetFleet I to participate in the Consolidation will have no material impact on
JetFleet I's continued operations as a limited partnership, or the Company's
business as successor to JetFleet II's assets.
If a majority of the Investors in a Partnership do not approve the
Consolidation, then that
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Partnership ("Nonparticipating Partnership") will continue to operate as a
separate legal entity with its own assets and liabilities. There will be no
change in its investment objectives, policies and restrictions, and the
Nonparticipating Partnership will continue to be operated in accordance with
the terms of its Partnership Agreement; however, it is likely, that
distributions will not remain at current levels, and may decline due primarily
to depreciation of the Partnership's asset base and expiration of leases over
the long term. See "THE CONSOLIDATION -- "Background of the Consolidation and
Alternatives Considered" and "Effect of Consolidation on Nonparticipating
Partnerships."
RISKS AND OTHER ADVERSE FACTORS
The following is a summary of the potential disadvantages, adverse
consequences and risks of the Consolidation. This summary is qualified in its
entirety by the more detailed discussion in the section entitled "RISK FACTORS"
beginning on page 10 of this Prospectus.
An independent fairness opinion has not been rendered with respect to the
Consolidation nor has an independent representative acted on behalf of the
Partnerships or the Investors with respect thereto.
The General Partner and its affiliates, together, have purchased, will have
the right to purchase and will receive shares of Common Stock, and will be
compensated by the Company, pursuant to negotiations which were not at arm's
length, creating a potential conflict of interest in the structuring of the
Consolidation.
The Investors' rights as stockholders of the Company will differ
substantially from their rights as limited partners in the Partnerships.
There has been no prior market for the Common Stock, therefore it may trade
at prices below the original issuance prices and such prices may not reflect
the value of the Company's assets.
The Company's plan to borrow using the assets of the Company as collateral
may increase its debt payment burden and thereby divert cash flow that would
otherwise been available for reinvestment.
The Exchange Values assigned to the Partnerships are subject to significant
assumptions and limitations. The properties may not actually be sold for the
appraised amounts.
The Company has no current plans to liquidate or redeem the Common Stock.
The Partnerships plan to liquidate upon termination in 10-15 years.
BENEFITS
The following is a summary of the potential benefits of the Consolidation.
This summary is qualified in its entirety by the more detailed discussion in
the section entitled "BENEFITS OF CONSOLIDATION" contained in this Prospectus.
The Consolidation will enable the Company to seek additional debt or equity
financing, the proceeds of which can be used to acquire additional income
producing assets, which may enable it to increase its earnings and thus
potentially increase the value of the Company and the price at which the Common
Stock of the Company trades.
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13
o The Consolidation enhances the potential liquidity of the Investor's
investment due to conversion of illiquid Units into Common Stock that will be
listed on the American Stock Exchange.
o The purchase of additional assets by the Company will result in a
diversification of assets held by the Company, which may reduce stockholder
risks associated with investments concentrated in any specific geographic area,
equipment type or air carrier.
o The Consolidation will give the Company access to capital markets not
available to the Partnerships. The Company will have the ability to obtain
capital through the issuance of its securities, which generally entails a lower
cost of capital than other conventional sources. The Company may be able to
acquire assets or other companies using cash or its stock.
o The Consolidation will result in simplified federal and state tax
reporting. Investors will no longer need to annually reflect Partnership
operations on their federal income tax returns. Investors will not be subject
to state tax withholding or be required to file individual state tax returns
(other than in their state of residence) solely as a result of their investment
in the Company.
RECOMMENDATION OF THE GENERAL PARTNER
CMA Capital Group, Inc., the Corporate General Partner, and the two
individual general partners of the Partnerships, Neal D. Crispin and Richard D.
Koehler, Jr., have unanimously approved the Consolidation and as explained
below, believe that the Consolidation is fair as to each of the Partnerships
and as a whole. See "FAIRNESS."
THE GENERAL PARTNER STRONGLY RECOMMENDS THAT THE INVESTORS IN EACH OF THE
PARTNERSHIPS VOTE "YES" IN FAVOR OF THE CONSOLIDATION. See 'THE
CONSOLIDATION--Approval and Recommendation of the General Partner."
FAIRNESS
The General Partner believes the terms of the Consolidation are fair to the
Partnerships and to the Investors in each of the Partnerships and as a whole to
the Partnerships. The General Partner has based their determination as to
fairness of the Consolidation on a variety of factors, including, but not
limited to the following in order of importance as determined by the General
Partner: (i) the independent appraisals with respect to the Partnership assets
prepared by the Appraiser (See "FAIRNESS"); (ii) the form and amount of
consideration offered to Investors (See "THE CONSOLIDATION--Exchange Value and
Allocation of Shares"); (iii) the availability of statutory dissenters' rights
for Investors who exercise such dissenter's rights with respect to the
Consolidation ("Dissenting Investors") See "DISSENTERS' RIGHTS"; and (iv) the
compensation payable to the General Partner and to JMC.
PRO FORMA FINANCIAL INFORMATION
Unaudited pro forma financial information based on the historical financial
statements of each Partnership is set forth under "PRO FORMA FINANCIAL
STATEMENTS." The pro forma financial information has been prepared assuming
both JetFleet I and JetFleet II participate in the Consolidation ("100%
Partnership Participation"). The Supplement for JetFleet II contains a similar
pro forma financial information based on the assumption that JetFleet II, but
not JetFleet I, participates in the Consolidation.
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DETERMINATION OF THE EXCHANGE VALUES AND ALLOCATION OF SHARES BETWEEN
PARTNERSHIPS
The Exchange Values were determined based on aircraft values as of February
4, 1997 and projected cash and liabilities as of July 1, 1997 (the "Anticipated
Consummation Date"), and have been assigned to each of the Partnerships solely
to establish a consistent method of allocating Shares for purposes of the
Consolidation. The Exchange Values of the Partnerships do not indicate the
aggregate price at which Shares may be sold after the Consolidation, nor does
the number of Shares to be issued indicate the trading price or volume of the
Common Stock. See "RISK FACTORS." The number of Shares to be issued to each
Participating Partnership upon consummation of the Consolidation will equal the
Exchange Value of the Participating Partnership divided by $10, an arbitrary
amount chosen for the sole purpose of determining the number of Shares of
Common Stock to be issued to each Partnership. No fractional Shares will be
issued by the Company with respect to the Consolidation. There has been no
prior market for the Common Stock, and it is possible that the Common Stock
will trade at a price substantially below the Exchange Value or the book value
of the assets of the Company. There is no assurance that a market for the
Common Stock will develop as a result of the Consolidation.
The Exchange Value for each Partnership is an amount equal to the sum of
(i) the appraised market value of its aircraft assets as of February 4, 1997,
(ii) the present value of rental income owed to the Partnership on a full
payout finance lease for a DC-9 aircraft owned jointly by JetFleet I and
JetFleet II and a second DC-9 aircraft owned 100% by JetFleet II (discounted at
an annual interest rate of 10%) and (iii) projected cash and other assets as of
the anticipated date of consummation of the Consolidation, July 1, 1997 (the
Anticipated Consummation Date), less (iv) projected total liabilities of each
Partnership as of the Anticipated Consummation Date.
Market Value Discounted Other Total Exchange No of.
of Assets(1) DC-9 Rent(2) Assets(3) Liabilities(4) Value Shares (5)
--------------- ------------ --------- -------------- ----------- ----------
JetFleet I $ 1,762,554 $ 144,543 $107,490 $651,080 $1,363,507 136,351
JetFleet II $13,927,446 $622,178 $731,304 $1,994,932 $13,285,996 1,328,600
_________________________
(1) Based upon the market value of the assets as set forth in the Appraisal of
Aircraft Information Services, dated February 4, 1997, for each Partnership,
attached as Appendix B.
(2) JetFleet I and JetFleet II hold 50% and 50% interests, respectively, in a
DC-9 aircraft, and JetFleet II holds a 100% interest in a second DC-9 aircraft,
each on a full-payout finance lease to AeroCalifornia. The amount shown in
this column represents the Partnership's portion of the present value of the
rent payable to the Partnership, discounted at an annual rate of 10%. The 10%
discount rate reflects the Company's assessment of the cost of funds which
would be available to the Partnership for borrowing.
(3) Consists mainly of projected cash holdings and miscellaneous receivables.
(4) Consists primarily of deferred tax liabilities, accounts payable, accrued
maintenance costs and security deposits and prepaid rents.
(5) Exchange Value divided by $10.
The Exchange Value for each Partnership is subject to adjustment to the
extent that any material change occurs in the assets or actual assets and
liabilities differ from the projected amounts if such change is greater than 5%
of the Exchange Value of the Partnership. The General Partner reserves the
right in its sole discretion to adjust the Exchange Value of a Partnership to
compensate for cash payments to dissenting Investors of such Partnership. If
such adjustment changes the Exchange Value of the Partnership by an amount in
excess of 5% of the original Exchange Value
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for such Partnership, then the adjustment shall be subject to the approval of
the Investors of the affected Partnership.
ALLOCATION OF SHARES BETWEEN CORPORATE GENERAL PARTNER AND LIMITED PARTNER
Total Shares No. of Shares No. of Percent of Total
Allocated to Issued to Corporate Shares Issued Shares Issued
Partnership Partnership(1) General Partner(2) to Ltd. Partners to Limited Partners
- ----------- -------------- ---------------- ---------------- -------------------
JetFleet I 136,351 1,364 134,987 99.0%
JetFleet II 1,328,600 66,429 1,262,171 95.0%
Assuming 100% Partnership Participation, once the Consolidation is consummated
the Corporate General Partner will hold 67,793 Shares or 4.2% of the total
outstanding Shares and the Participating Investors, as a group, will hold
1,397,158 Shares or 86.5% of the total outstanding Shares of the Company.
- -----------------------
(1) The number of Shares to be issued to each Participating Partnership upon
consummation of the Consolidation will equal the Exchange Value of the
Participating Partnership (last column of the previous table entitled
"Determination of Allocation of Shares Between Partnerships") divided by $10,
an arbitrary amount chosen for the sole purpose of allocating Shares and which
is not intended to imply that the Shares will trade at a price of $10 per
Share.
(2) The number of Shares to be issued to the Corporate General Partner in
consideration of its 1% and 5% general partnership interest in the Partnerships
represented by the Corporate General Partner's interest (for which the
Corporate General Partner paid $750 and $750, respectively), according to the
Partnership Agreement for JetFleet I and JetFleet II respectively. In
addition to its 5% interest in any distributions made by JetFleet II, the
Corporate General Partner of JetFleet II is also entitled to a subordinated
disposition fee equal to one half of the industry standard commission
ordinarily paid in such transactions, up to a maximum of 3% of the gross sales
price of any assets disposed by JetFleet II. The Corporate General Partner
will waive this fee in connection with the Consolidation.
CONVERSION RATIO
At the consummation of the Consolidation, each Participating
Investor's limited partnership Units will be automatically converted into the
right to receive that number of Shares of Common Stock of the Company equal to
the number of Units held by the Investor multiplied by the Conversion Ratio,
rounded up to the nearest whole Share. The Conversion Ratio shall equal the
quotient obtained by dividing (a) the number of Shares to be issued to the
Investors of the Partnership; by (b) the total number of Units of limited
partnership outstanding for the Partnership held by Participating Investors.
Based upon 100% participation for all Investors in the Consolidation, the
Conversation Ratio for JetFleet I Investors will be .455931 Shares per Unit and
for JetFleet II Investors will be 1.819989 Shares per Unit.
VOTING
Each Investor is being asked by the General Partner to consider the
following elections with respect to the Consolidation:
"YES" I approve of my Partnership's participation in the
Consolidation; or
"NO" I do not approve of my Partnership's participation in the
Consolidation.
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Investors may also abstain from voting. AN INVESTOR WHO RETURNS A
CONSENT CARD WITHOUT INDICATING A VOTE, HOWEVER, WILL BE DEEMED TO HAVE VOTED
"YES" IN FAVOR OF THE CONSOLIDATION AND RELATED PROPOSALS AND WILL RECEIVE
SHARES OF COMMON STOCK OF THE COMPANY IF THE CONSOLIDATION IS CONSUMMATED
BETWEEN THE COMPANY AND THE INVESTOR'S PARTNERSHIP.
An Investor of a Partnership who votes "YES" will receive Common Stock
of the Company, if the majority of Investors approve the Consolidation and the
Partnership and the Company consummate the Consolidation. An Investor who
abstains from voting or votes "NO" on the Consolidation will receive Shares of
Common Stock if the majority of Investors approve the Consolidation and the
Partnership and the Company consummate the Consolidation, unless he or she
exercises dissenters' rights. See "DISSENTERS' RIGHTS." If the majority of
Investors of a Partnership do not approve the Consolidation, the Consolidation
between the Company and that Partnership will not occur, and such Partnership
will continue its existence in its current form. If a majority of JetFleet II
Investors do not approve the Consolidation, the Consolidation will not be
consummated. If a majority of the Investors of JetFleet II approve the
Consolidation, but a majority of the Investors in JetFleet I do not approve the
Consolidation, the Consolidation may still be consummated between the Company
and JetFleet II only because the asset size of JetFleet II alone (approximately
88% of the combined value of the Partnerships) could still permit the Company
to operate according to its business plans. In determining whether to proceed
with a Consolidation with JetFleet II only, the Company will determine whether
the number of dissenting Investors, the number of Participating Investors and
the asset base of JetFleet II alone will provide a sufficient basis for the
Company to meet its objectives and satisfy all of the conditions for the
Consolidation set forth in the Merger Agreement.
Investors holding Units of the Partnerships as of May 1, 1997 (the
"Record Date") have until _______, 1997, 11:59 p.m. Pacific Daylight Time,
unless extended (the "Approval Date") to vote in favor of or against the
consolidation. Investors may withdraw or revoke their consent at any time prior
to the Approval Date. See "VOTING-- Voting Procedures--Revocability of
Consent."
The General Partner requests that each Investor complete and return
the enclosed Consent Card. THE GENERAL PARTNER STRONGLY URGES THE INVESTORS TO
VOTE "YES" IN FAVOR OF THE CONSOLIDATION.
DISSENTERS' RIGHTS
Any Investor of a Partnership that does not vote "YES" on the
Consolidation, will be entitled to exercise dissenters' or appraisal rights, if
such Partnership participates in the Consolidation and the Investor follows
specific procedures set forth under the California Revised Limited Partnership
Act (the "California Partnership Act"). See "DISSENTERS' RIGHTS." JetFleet II
Investors, see "THE CONSOLIDATION -- Amendment to Partnership Agreements --
JetFleet II Partnership Agreement Amendments," and the JetFleet II Supplement
distributed with this Prospectus to JetFleet II Investors.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The Company will receive an opinion from Graham & James LLP, as to the
material federal income tax consequences of the Consolidation, the operations
of the Company and the transactions related thereto which may affect investors
who are individuals and citizens or residents of the United States. Subject to
the limitations, qualifications, exceptions and assumptions set forth in
"FEDERAL INCOME TAX CONSIDERATIONS," such counsel is of the opinion that
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Investors will not recognize gain or loss as a result of the Consolidation and
resulting conversion of their Interest and the Partnerships into Common Stock
of the Company. However, an Investor who has a tax basis of the original
holder of that interest may recognize gain to the extent that the tax base in
that Partnership interest is less than the pro rata share of Partnership
liabilities. Any Investor subject to federal income tax who exercises
dissenter's rights and receives the appraised value of his interest in the
Partnership, will recognize gain (or loss) to the extent that the total amount
received exceeds (or in the case of loss, is less than) the tax basis in that
interest.
HISTORICAL CASH DISTRIBUTIONS AND ASSIGNED EXCHANGE VALUE
The following table sets forth selected information per $1,000
original investment in the Partnership projected through the Anticipated
Consummation Date. The Exchange Value of the Partnerships is based primarily
on the independently appraised market value of their assets, and does not
necessarily reflect the aggregate price at which Shares may be sold. See "THE
CONSOLIDATION--Exchange Values and Allocation of Shares." The table below shows
the amount of cash distributions received to date on the Units of JetFleet I
and JetFleet II Investors in the first column, the second column shows the
value of the Shares to be received per original $1,000 investment in the
Partnerships assuming a $10 value per Share), and the third column represents
the total cash and share value to be received by Investors in JetFleet I and
JetFleet II for each $1,000 investment if the Consolidation is consummated.
PER $1,000 ORIGINAL INVESTMENT
Total of
Cumulative
Cumulative Distributions and
Distributions to Assigned Assigned
Partnership Investors(1) Exchange Value(2) Exchange Value
- ----------- --------- --------------- --------------
JetFleet I
First $ 603.40 $ 90.00 $ 693.40
Last $ 383.40 $ 90.00 $ 473.40
JetFleet II
First $ 641.60 $ 360.00 $ 1001.60
Last $ 361.00 $ 360.00 $ 721.00
_________________________
(1) Each of the Partnership offerings lasted approximately two years, during
which period limited partners were being admitted to the Partnership on a
monthly basis. "First" value represents total cumulative distributions given
to Investors who were admitted first to the Partnership; "Last" value
represents total cumulative distributions given to Investors who were the last
partners admitted to the Partnership. Assumes current distribution level is
maintained through July 1, 1997.
(2) The assigned Exchange Value is equal to the number of Shares issuable to
an Investor per $1,000 original investment in Units, and does not necessarily
reflect the aggregate price at which Shares may be sold. Reflects rounding to
nearest whole Share.
8
18
ORGANIZATIONAL CHART OF PARTNERSHIPS
AND JETFLEET COMPANIES
CMA Capital Richard D. Koehler,
Corporation President & Director and
Principal Shareholder
100%
Shareholder
Neal D. Crispin Richard D. CMA Capital Neal D. Crispin,
Koehler Group Chief Executive Officer, Director
Individual Individual Corporate Richard D. Koehler
General General General Executive Vice President
Partner Partner Partner Director
JetFleet Aircraft L.P.
CMA Capital Richard D. Koehler,
Corporation President & Director and
Principal Shareholder
100%
Shareholder
Neal D. Crispin Richard D. CMA Capital Neal D. Crispin,
Koehler Group Chief Executive Officer,Director
Individual Individual Corporate Richard D. Koehler
General General General Executive Vice President
Partner Partner Partner Director
JetFleet Aircraft II L.P.
THE JETFLEET MANAGEMENT/AEROCENTURY COMPANIES
JetFleet Management Neal D. Crispin, President, Director,
Corp.
Principal Shareholder
Marc J. Anderson, Chief Operating Officer
Toni M. Perazzo, Vice President- Finance,
100% Director, Principal Shareholder
Shareholder Frank J. Duckstein, Vice President
AeroCentury Corp.
Neal D. Crispin, Director, President
Mark J. Anderson, Chief Operating Officer, Director
Toni M. Perazzo, Vice President-Finance, Director
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- --------------------------------------------------------------------------------
RISK FACTORS
- --------------------------------------------------------------------------------
The Consolidation involves certain risks and other adverse factors.
Investors should read this entire Prospectus, including all Appendices and
Supplements thereto, and consider carefully the following factors in evaluating
the Consolidation, the Company and its business before completing the enclosed
form of Consent Card. Although the risks described below are materially
similar for the Investors in each of the Partnerships, Investors should
carefully review the Supplement regarding their particular Partnership for
specific considerations relating to the Investor's Partnership.
RISKS AND OTHER ADVERSE FACTORS RELATING TO CONSOLIDATION
Changes in Form of Investment Will Change Rights of Participating
Investors. Participating Investors will become Stockholders and their rights
as such will be substantially different from their rights as Investors of a
Partnership. Specifically, Investors currently hold Units in a Partnership
which intended to hold properties for nineteen to twenty-five years after
commencement of operations, and then depending on market conditions, liquidate
the entirety of the Partnerships' assets. Upon liquidation of a Partnership,
the Investors in the Partnerships would realize the value of the Partnerships'
asset investments, less the expenses of liquidation and liquidation fees
payable to the General Partner. After the Consolidation, Participating
Investors, as holders of Common Stock of the Company listed on the AMEX would
be able to sell such shares received in the Consolidation in the public market
to liquidate their investment, but the market value of the Shares may never
reflect the fair market value of such assets of the Company. Unlike the
Partnerships, which were required to distribute cash flow to the Investors, the
Company will not be required to distribute its cash flow to stockholders.
Dividends on the Common Stock will be made only when, as and if declared by the
Company's Board of Directors. The Company does not intend to pay any dividend
on its Common Stock in the near future, and anticipates that income and cash
flow will be reinvested in assets to promote growth of the Company. The
Company is not required to, nor is it likely that the Company will, at any time
in the future dissolve and liquidate its assets. In addition, it is unlikely
that the Company will be sold in its entirety to another entity unless the
Board of Directors decides to do so. See "COMPARISON OF LIMITED PARTNERSHIP
AND CORPORATE STRUCTURE."
Conflicts of Interest; No Fairness Opinion. There are a number of
conflicts of interest that arise out of the proposed Consolidation and certain
compensation to be paid to affiliates of the General Partner. Specifically,
due to financial interests of the General Partner in the Consolidation,
conflicts of interests may arise with respect to the following transactions or
items of compensation: (i) allocation of the Shares between the Investors and
the General Partner; (ii) the founding share issuance of 150,000 shares of
Common Stock of the Company to JMC; (iii) the compensation payable by the
Company for management and other services rendered by JMC to the Company and
(iv) compensation for the investment banking services with the Dealer Manager,
an affiliated of the General Partner. While none of these items of
compensation were negotiated at arm's length and no independent third party
opinion on fairness of the Consolidation has been obtained by the General
Partner, the General Partner, consistent with its fiduciary duties to the
Investors and the Partnerships, believes that the terms and condition of these
compensation items are fair and reasonable to the Investors and the Company.
See "CONFLICTS OF INTEREST"; "FAIRNESS"; "COMPARISON OF COMPENSATION PAID TO
CORPORATE GENERAL PARTNER AND AFFILIATES AND TO MANAGEMENT COMPANY"; and
"MANAGEMENT OF THE COMPANY."
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20
The proposed management agreement between the Company and JMC provides
that JMC shall receive from the Company 0.25% of the Asset Value of the
Company's assets on a monthly basis and ordinary and customary re-lease and
re-marketing fees payable on a per transaction basis. See "MANAGEMENT OF THE
COMPANY -- The Management Company -- Compensation." JMC will also receive the
acquisition, re-lease and re-marketing fees but these will not be widely
disparate from those currently payable to the General Partner by the
Partnerships. CKS will receive an investment banking fee of $80,000 and
warrants to purchase up to 35,000 shares of Common Stock at a purchase price of
$3.00 per share. Under the Management Agreement, if it were in effect for
calendar year 1996, for the assets held by the Partnerships, the Company would
have paid $493,600 in management fees to JMC (JMC will not receive cash
distributions or overhead expense reimbursement); this is in contrast to
$697,363 in management fees, cash distributions and overhead reimbursement
actually paid to the General Partner by the Partnerships. The General Partner
and management of the Company believe these fees are no more favorable than
could have been obtained from an independent third party. In addition, in
connection with JMC's engagement as the management company for the Company and
as the founding initial capitalization of the Company, JMC has purchased 150,000
shares of Common Stock of the Company at $1.00 per share. This issuance may
have a dilutive impact on the Investors once the Consolidation is consummated.
See "DILUTION"
No Independent Representative for the Partnerships or Investors. The
General Partner initiated the Consolidation with the Company and the terms were
not the result of arm's length negotiations among the General Partner, JMC, the
Partnerships and the Investors and the Company. While the General Partner
believes that the Consolidation is fair as between the Partnerships and their
respective Investors, on the one hand, and the Company, on the other, no
independent representative has acted on behalf of the Partnerships in
connection with the Consolidation, nor did the General Partner negotiate the
terms of the Consolidation with any Investor. If an independent representative
had been retained, the terms and conditions of the Consolidation may have been
different for both the Partnerships and the Investors.
No Prior Market for Common Stock; Market Price May Decrease After
Consolidation. There has been no prior market for the Common Stock of the
Company and it is possible that the Common Stock may trade at prices
substantially below the per Share Exchange Value or the book value of the
assets of the Company. The Company has applied for the listing of the Common
Stock on the American Stock Exchange, subject to official notice of issuance.
The market price of the Common Stock may be subject to significant volatility
after the Consolidation and could substantially decrease as a result of
increased selling activity following issuance of the Shares, and the
fluctuating interest level of investors in purchasing the Common Stock after
the Consolidation.
Secondary Market Value Not Reflective of Relative Value of Partnership
Assets. Since the Partnership Units were not listed on any national or regional
stock exchange, nor quoted on the National Association of Securities Dealers
Automated Quotations System ("NASDAQ"), there has been limited liquidity
available to Investors. Secondary sales activity for the Units has been
limited and sporadic, with less than one percent of all outstanding Partnership
Units traded during 1996. As of June, 1997, the Units in JetFleet I and
JetFleet II are selling at $______ per Unit as compared to the book value of
$______ and $______ respectively per Unit. There is no guarantee that there
will be a similar relationship between the trading price of the Common Stock
and the book value of the Company assets on a per share basis. See "SECONDARY
MARKET AND OWNERSHIP OF PARTNERSHIP UNITS." Consequently, while the secondary
market may indicate an objective market value of the Partnership Units, these
values were not taken into account when determining the relative values of the
Partnerships. There is no assurance that the listing of the Company's Common
Stock on the American Stock Exchange will provide greater liquidity to holders
thereof or that the price of such Common Stock will accurately reflect the
value of the Company's assets.
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21
Dilution. At the founding of the Company, JMC was issued 150,000
shares of Common Stock at a purchase price of $1.00 per share. This price was
arbitrarily determined since at the founding the Company had no assets and
there was no assurance that the Consolidation would be consummated. In
addition, in connection with investment banking services to be rendered to the
Company by CKS, the Dealer Manager, a warrant to purchase 35,000 Shares at a
price of $3.00 per Share will be issued to CKS. As a result of the issuance
of the shares to JMC at $1.00 per share the Investors will sustain an immediate
dilution of $0.84 per share of Common Stock (assuming 100% Partnership
Participation). In addition, upon the exercise of the CKS warrant at $3.00 per
share, Investors may sustain additional dilution of $0.13 per Share of Common
Stock. See "DILUTION."
Uncertain Composition of the Company; Risks of Consolidation if Only
JetFleet II Participates. Because participation in the Consolidation by each
Partnership requires the approval of Investors holding a majority of the
outstanding Units of the Partnership, which approval is outside the Company's
control, no assurance can be given as to whether JetFleet I and JetFleet II
will both participate in the Consolidation. If only JetFleet II participates,
then the Company will own two aircraft as tenants-in-common with JetFleet I.
This may make financing of these co-owned assets more difficult for the
Company, and will result in a smaller capital base for the Company.
Determination of Exchange Values Base on Appraisals Only. The
Exchange Values assigned to the Partnerships are based primarily on the
independent appraisals of the Partnership aircraft properties by the Appraiser,
dated February 4, 1997, and do not necessarily reflect the aggregate price at
which Shares may be traded after the Consolidation. The appraisals are only
the Appraiser's opinions of the "current value" of such properties, which
opinions are subject to significant assumptions and limitations. There can be
no assurance that such properties may actually be sold for the appraised
amounts or that another appraiser would reach the same conclusion with respect
to appraised values. As of February 4, 1997, the Exchange Values of JetFleet I
and JetFleet II were $1,363,507 and $13,285,996, respectively. The current
value appraisal of the assets of JetFleet I and JetFleet II were $1,762,554 and
$13,927,446, respectively. See "THE CONSOLIDATION- Exchange Value and
Allocation of Shares" and "OPINIONS, APPRAISALS and REPORTS."
Director Liability. The Delaware General Corporation Law (the
"Delaware GCL") authorizes the Company to eliminate the personal liability of
its directors for monetary damages for a breach of fiduciary duty. The
Company's Certificate of Incorporation eliminates such personal liability of
the directors of the Company. The elimination of such liability was not
available to the General Partners under applicable law and the Partnership
Agreements.
Indemnification of Directors and Officers. The Delaware GCL provides
that a corporation may indemnify its directors and officers against all
liability and expenses (including attorneys' fees) incurred by reason of the
fact that he or she is or was its director or officer. The Company's
Certificate of Incorporation provides such indemnification of its directors and
officers. This indemnification of directors and officers of the Company may
make it difficult for stockholders to pursue claims against directors and
officers of the Company for a breach of fiduciary duty, because in the event
such a claim is asserted the Company will have to pay for the defense of such
director or officer. Such indemnification is more expensive than that provided
to the General Partner under applicable law and the Partnership Agreements.
See "COMPARISON OF LIMITED PARTNERSHIP AND CORPORATE STRUCTURE", "MANAGEMENT
OF THE COMPANY" and "FIDUCIARY RESPONSIBILITIES."
Restrictions on Certain Business Combinations. The Delaware GCL also
provides that certain business combinations with stockholders owing 15% or more
of the Company's outstanding stock (an "interested stockholder") are prohibited
for three years after such stockholder
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22
becomes an interest stockholder, which may discourage a change in control of
the Company or a purchase of the Company at a premium price unless approved by
the Company's Board of Directors.
Dilution of Investor's Voting Power; Different Voting Rights. If the
Consolidation is completed, each Stockholder will have an investment in a
larger company and will thus lose voting power relative to its power in the
Partnership. Investors who, as a group, make up 100% of the limited partners
of each Partnership, may currently vote on certain Partnership matters in
proportion to their interests in the Partnership relative to the interests of
other Investors in the same Partnership. After the Consolidation,
Participating Investors who elect to receive Shares will be able to vote as
stockholders of the Company, and will hold approximately 86.5% of the 1,614,951
outstanding Shares, assuming both Partnerships participate. Stockholders will
have one vote per Share. The Company also grants its stockholders different
voting rights than the Partnerships granted the limited partners. Shareholders
in corporations generally have the ability to vote on greater number of matters
than limited partners. For a detailed discussion of the voting rights of
Investors in the Partnerships compared with the voting rights of the
Participating Investors as Shareholders of the Company, see "COMPARISON OF
LIMITED PARTNER AND CORPORATE STRUCTURE--Voting Rights."
Risks Attendant to Additional Debt or Equity Financings. The
Partnerships' assets were purchased for cash and are all unleveraged. One of
the motivations for the Consolidation was to permit the Company to purchase
assets using debt financing on existing assets or assets to be purchased.
Though the Company anticipates that the revenue generated from such acquired
assets will be more than sufficient to meet its obligations under any such debt
financing, any such leveraging of assets increases interest expense, exposure
to risk relating to resale values of aircraft assets that it holds and
increases the risk that the Company may default on its obligations. See "THE
COMPANY -- Borrowing Policies." In addition, the Company may sell additional
securities to raise capital which would dilute the interests of its current
stockholders.
Contingent or Undisclosed Liabilities May Not Be Reflected in Exchange
Value. Under the Agreement and Plan of Merger to be executed by the Company
and the Participating Partnerships in connection with the Consolidation (the
"Merger Agreement"), the Company will, as of the Closing Date, acquire all
assets and liabilities of the Participating Partnerships. Participating
Partnerships will deliver to the Company audited financial statements for such
entity disclosing all known existing liabilities and reserves, if any, set
aside for contingent liabilities as of the Closing Date. The General Partner
will represent and warrant that, to the best of the General Partner's
knowledge, the financial statements fairly present the financial position of
each Participating Partnership, and that there is no liability or obligation to
be set forth or reserved against in the financial statements based upon
generally accepted accounting principles. If the representations and
warranties are found to be incorrect after the Closing, however, the Company
will not make any adjustments to reflect discovery of the liability. The
accuracy and completeness of these representations are conditions to the
closing of the Consolidation and if, on or prior to the Closing Date, these
representations and warranties are shown to be inaccurate, there may be
adjustments to the consideration paid by the Company or the Company may elect
not to proceed to close the Consolidation with the Partnership that failed to
fully and accurately disclose its financial position. See "THE
CONSOLIDATION--Exchange Value and Allocation of Shares."
Majority Vote Will Bind All Investors of the Partnership. In
accordance with the Partnership Agreements of the Partnerships, upon the
affirmative vote of holders of more than 50% of the outstanding Units of a
Partnership approve the Consolidation and the related amendments to the
Partnership Agreements, the Partnership will be merged with and into the
Company and all Investors of the Partnership, excluding Dissenting Investors
who comply with the procedure of the California Partnership Act, will
participate in the Consolidation and will receive Common Stock of the Company.
Dissenting Investors who follow the statutory procedure
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23
for perfecting dissenter's rights are entitled to receive the fair market value
of their Units in the Partnership as of the date the Consolidation is
announced. See "THE CONSOLIDATION--Dissenting Rights." If, however, JetFleet I
Investors approve the Consolidation, but JetFleet II Investors do not, the
Consolidation will not be consummated. The Company may, however, consummate
the Consolidation between the Company and JetFleet II, if the JetFleet II
Investors approve the Consolidation, notwithstanding that JetFleet I Investors
fail to approve it. In determining whether to proceed with a Consolidation
with JetFleet II only, the Company will determine whether the number of
dissenting Investors, the number of Participating Investors and the asset base
of JetFleet II alone will provide a sufficient basis for the Company to meet
its objectives and satisfy all the conditions for the Consolidation set forth
in the Merger Agreement.
Investment Policies as Guidelines Only. The descriptions in this
Prospectus of the major policies and the various types of investments to be
made by the Company reflect only the current plans of the Company's Board of
Directors. In addition, the methods of implementing the Company's investment
policies may vary as new investment techniques are developed. See "THE
COMPANY--Acquisition Policies." THE COMPANY RESERVES THE RIGHT AT THE SOLE
DISCRETION OF THE BOARD OF DIRECTORS TO ALTER THE NATURE AND TIMING OF THE
COMPANY'S BUSINESS PLANS IN ORDER TO RESPOND TO CHANGING MARKET CONDITIONS AND
OPPORTUNITIES.
RISKS RELATING TO THE BUSINESS OF THE COMPANY AND THE PARTNERSHIPS
Although Investors already face many of the following risks as holders
of Units, they should nevertheless consider carefully the following factors
before completing the enclosed form of Consent Card.
Acquisition of Additional Assets by the Company. Subsequent to the
Consolidation, the Company intends to seek debt financing which may be secured
by the existing or to-be-acquired assets of the Company. The proceeds will be
used by the Company to acquire additional assets for the purpose of generating
income for the Company. The Company anticipates it will be able to expend the
entire financing proceeds on the acquisition of additional assets on terms
favorable to the Company, but the Company has not entered into any contracts
and there is no assurance that the Company will be able to purchase assets and
sell or lease assets on favorable terms. The Company may thereafter use debt
or equity financing to acquire additional assets. Additional debt financing
will subject the Company to increased risks of leveraging. See "RISK FACTORS
- -- Risks and Other Factors Relating to the Consolidation -- Intent to Incur
Significant Debt" and "THE COMPANY -- Borrowing Policies." Additional equity
financing may dilute the equity holdings of the Investors. See "THE COMPANY --
Equity Financing." In any event, due to the cyclical nature of the aircraft
industry, there is no assurance that assets acquired by the Company will retain
their anticipated resale value or will generate the income anticipated over
their useful life. See "BACKGROUND AND REASONS FOR THE CONSOLIDATION --
Aircraft Industry Outlook."
Reliance on JMC. Once the Consolidation is consummated, all
management of the Company will be performed by JMC pursuant to the terms of the
Management Agreement between JMC and the Company. Investors should be prepared
to entrust all aspects of management to the Board of Directors of the Company.
JMC will not be a fiduciary to the Company or its stockholders. The Board of
Directors will, however, have ultimate control and supervisory responsibility
over all aspects of the Company and will owe fiduciary duties to the Company
and its stockholders. In addition, while JMC may not owe any fiduciary duties
to the Company by virtue of the Management Agreement, the officers of JMC are
also officers of the Company, and in that capacity owe fiduciary duties to the
Company and the stockholders by virtue of holding such offices. There may,
however, be conflicts of interest arising from such dual roles.
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24
The Management Agreement may be terminated upon a default in the
obligations of JMC to the Company. The officers of JMC will also be officers
of the Company, and certain directors of the Company may also be directors of
JMC. Consequently, the directors and officers of JMC may have a conflict of
interest in the event of a dispute over obligations of the Company to JMC.
See "RISK FACTORS -- Reliance on JMC"; "FIDUCIARY RESPONSIBILITIES" and
"CONFLICTS OF INTEREST."
Government Regulation. As discussed in detail in "THE
COMPANY--Regulatory Concerns," there are a number of areas in which government
regulation may result in costs to the Company. These include aircraft
registration, safety requirements, required equipment modifications, and
aircraft noise requirements. Although it is contemplated that the burden of
complying with such requirements will fall primarily upon lessees of Equipment,
there can be no assurance that the cost of complying with such government
regulations will not fall on the Company. Furthermore, future government
regulations could cause the value of any non-complying Equipment owned by the
Company to substantially decline.
Competition. The aircraft leasing industry is highly competitive.
The Company will compete with aircraft manufacturers, distributors, airlines
and other operators, equipment managers, leasing companies, equipment leasing
programs, financial institutions and other parties engaged in leasing, managing
or remarketing aircraft, many of which have significantly greater financial
resources and more experience than the Company. The Company, however, believes
that it has a competitive advantage in its niche market of financing used
turbo-prop aircraft to regional air carriers. The larger competitors in the
aircraft industry have largely neglected this market, which is characterized by
transaction sizes of less than $10 million and lessee credits that are strong,
but generally unrated and more speculative than that of the major air carriers.
JMC, the management company for the Company, has developed a reputation as a
global participant in this segment of the market, and the Company believes this
will benefit the Company. There is no assurance that the lack of significant
competition from the larger aircraft leasing companies will continue or that
the reputation of JMC will continue to be strong in this market segment and
benefit the Company. See "THE COMPANY."
Risks of Foreign Operations. The Company may enter into leases for
equipment which will be operated and/or registered in foreign jurisdictions.
Such foreign operations and registration may result in additional risks due to
different regulation of aviation equipment, foreign taxes, currency risks and
seizure of the asset by the foreign government. See "THE COMPANY--Lessees."
Casualties, Insurance Coverage. The Company, as owner of
transportation equipment could be held liable for injuries or damage to
property caused by its assets. Though some protection may be provided by the
United States Aviation Act with respect to its aircraft assets, it is not clear
to what extent such statutory protection would be available to the Company.
Though the Company may carry insurance or require a lessee to insure against a
risk, some risks of loss may not be insurable. An uninsured loss with respect
to the Equipment or an insured loss for which insurance proceeds are
inadequate, would result in a possible loss of invested capital in and any
profits anticipated from such Equipment. See "THE COMPANY--Lessees."
Leasing Risks. The Company's successful negotiation of lease
extensions, re-leases and sales may be critical to its ability to achieve its
financial objectives, and will involve a number of substantial risks. Demand
for lease or purchase of the assets depends on the economic condition of the
airline industry. Ability to re-lease or resell Equipment at acceptable rates
may depend on the demand and market values at the time of re-lease or resale.
The Company anticipates that the bulk of the equipment it acquires will be used
aircraft equipment. The market for used aircraft is cyclical, and generally,
but not always, reflects economic conditions and the strength of the travel and
transportation industry. The demand for and resale value of many types of
older aircraft in the
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25
recent past has been depressed by such factors as airline financial
difficulties, increased fuel costs, the number of new aircraft on order and the
number of older aircraft coming off lease; however, the General Partner and the
Company believe that just as general economic conditions have improved over the
last few years, the aircraft industry is improving, with both demand, asset
prices and lease rates strengthening and increasing. See "BACKGROUND AND
REASONS FOR THE CONSOLIDATION -- The Aircraft Industry Outlook." There is no
assurance that such improvement will continue. The Company's expected
concentration in a limited number of airframe and aircraft engine types
(generally, turboprop equipment) subjects the Company to economic risks if
those aircraft engine types should decline in value.
Risks Related to Regional Air Carriers. Because the Company intends
to concentrate on leases to regional air carriers, it will be subject to
certain risks. First, lessees in the regional air carrier market include a
number of companies that are start-up, low margin operations. Often, the
success of such carriers is dependent upon arrangements with major trunk
carriers, which may be subject to termination or cancellation by such major
carrier. This market segment is also characterized by low entry costs, and
thus, there is strong competition in this industry segment from start-ups as
well as major airlines. Thus, leasing transactions with these types of lessees
results in a generally higher lease rate on aircraft, but may entail higher
risk of default or lessee bankruptcy. The Company will evaluate the credit
risk of each lessee carefully, and will attempt to obtain third party
guaranties, letters of credit or other credit enhancements, if it deems such is
necessary. There is no assurance, however, that such enhancements will be
available or that even if obtained will fully protect the Company from losses
resulting from a lessee default or bankruptcy. See "THE COMPANY -- Lessees."
Second, a significant area of growth of this market is in areas outside of the
United States. Leasing to foreign operators entails certain risks. See "--
Risk of Foreign Operations," above.
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BACKGROUND AND REASONS FOR THE CONSOLIDATION
- --------------------------------------------------------------------------------
BACKGROUND OF THE PARTNERSHIPS AND THE GENERAL PARTNER
The proceeds of the offerings of the Partnership Units were invested
in aircraft assets. The following table sets forth additional information
concerning the Partnerships and the capital raised by each:
No. Unit Aggregate
Partnership Offering Period Sold Offering Amount No. of Investors
- ----------- --------------- ------------ --------------- ----------------
JetFleet I 6/89 - 6/91 296,069 $14,803,450 1,032
JetFleet II 10/91 - 4/94 693,505 $34,675,250 1,919
All of the net proceeds from the offerings of the Partnership Units
have been invested, except for amounts reserved to meet maintenance obligations
not covered by lessees. Since inception, the Partnerships' investment
objective has been to provide Investors with cash distributions. Increasingly,
however, Investors, have indicated a desire to have liquidity of their
investment in the Partnership. Currently, one avenue available to provide
liquidity to such an Investor is the secondary market, which is characterized
by a small number of participants and infrequent transactions. See "SECONDARY
MARKET AND OWNERSHIP OF PARTNERSHIP UNITS." Another way to provide liquidity
would be for the General Partner to terminate each Partnership and liquidate
all of its assets. However, for reasons as discussed below, the Partnerships
may be unable, because of current market conditions which have devalued the
assets of the Partnership and the unfavorable bargaining position of a seller
in the process of winding up, to liquidate the Partnerships in a way that will
allow the Partnerships to return the Investors' original capital investment in
the Partnerships. Furthermore, such a liquidation will adversely affect those
Investors who desire to remain invested in the aircraft equipment industry.
Consequently, the Consolidation is intended to meet demands of certain
Investors for liquidity in investment, while enabling those Investors who
believe that current market conditions favor growth in their investments in
aircraft assets to maintain their investment in the business of the
Partnerships. The Consolidation will also have the further benefit of creating
an investment entity that will have more flexibility than the Partnerships to
invest in market opportunities and use debt and equity financing to promote its
growth.
The General Partner and the Company believe that the aircraft industry
is in the early stages of a recovery market, with demand for equipment once
again on the rise, but prices depressed relative to the value of the equipment.
See "-- Aircraft Industry Outlook," below. The General Partner believes the
current market is a favorable one in which to buy assets that have the
capability of generating income while retaining, or possibly even appreciating
in value. Sale of existing assets, however, would be the only practicable way
to raise capital in the Partnerships to make additional purchases at this time,
which purchase of additional assets is believed by the General Partner to be an
important part of a strategy to return original capital to the Investors.
The Consolidation will provide Participating Investors with an
investment in a new entity that has much greater flexibility than the
Partnerships and can best take advantage of the potentially profitable
opportunities available in the current aircraft industry market. The Company
will not be limited to the strict acquisition policies of the Partnerships and
will have the ability to adjust its
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27
policies to take advantage of market opportunities. The Company should be able
to more easily obtain financing to acquire additional aircraft, and by its
status as a listed company on a national exchange should have access to both
debt and equity capital at costs lower than that available to the Partnerships.
THE AIRCRAFT INDUSTRY OUTLOOK
General. According to the 1996 Current Market Outlook Report, (the
"1996 Report") published by the Boeing Commercial Airplane Group Marketing
(March 1996), the early 1990's can best be characterized by the imbalance
between capacity and demand. The slowdown in the world economic growth
coincided with the delivery of a record number of airplanes, ordered during the
boom years of the late 1980's. By the mid-1990's, airlines had restrained
growth, increased load factors, and aggressively reduced costs. A world
economic recovery and stable fuel prices also benefitted the airline industry.
In the 1996 Report, Ron Woodard, President of the Boeing Commercial Airplane
Group states, "The industry appears to have made it through the bottom of the
cycle." The 1996 Report projects that leasing companies are expected to
continue to play an increasing role in the aircraft industry financing, with
lessors continuing the growth shown in the increase in lessor's fleets from 200
aircraft in 1986 to over 1,000 in 1995. Aircraft operators will depend upon
operating lease companies to continue to make investment in aircraft, and are
expected to benefit from the increased flexibility offered by operating
lessors. According to Aviation Week and Space Technology 's "Forecast '97"
(March 17, 1997), "Civil aviation is booming, with Asia expected to fuel much
of the industry's future growth. Moreover, it appears that the upturn
following the worst recession in commercial aviation history may last at least
several more years before peaking."
Regional Air Carrier Segment. The Company believes that it has
identified a market niche of leasing used turboprop aircraft to regional air
carriers. The Company is one of the few lessors of used aircraft in that
market. Although there are many larger competitors, including leasing
companies, banks and financial institutions, that engage in financing of leased
aircraft, management of the Company has observed that most of those larger
competitors have chosen not to finance used aircraft, engage in financing
transactions for less than $10 million and/or engage in transactions with the
smaller regional carriers and operators. The remaining competitors of the
Company in this market are generally captive to a particular aircraft
manufacturer, and only finance transactions for aircraft manufactured by that
particular company.
The regional air carrier market is expected to experience high growth
in the coming years. According to an article in Aviation Week and Space
Technology 's "Forecast '97" (March 17, 1997), entitled "Regionals Poised for
Steady Expansion," by 2005, regional airlines in the U.S. will be carrying
record numbers of passengers on board larger, faster turboprops and jet
aircraft, flying on longer routes, as unprecedented growth in air travel fuels
expansion. The article goes on to explain that the regional fleet in the U.S.
is expected to grow from 2,100 aircraft today to nearly 3,000 in the next
decade, with turbo-prop aircraft, especially those capable of cruise speeds in
excess of 300 knots continuing to form the backbone of the regional fleet in
the years ahead. According to the article, acquisitions of high speed turbine
power transports will increase and is expected to be the most active segment of
the market.
Growth of regional airlines outside of the United States is expected to
be even stronger. According to Phillips 1997 Regional Airline Directory's
"Regional Market Overview," worldwide traffic forecasts call for regional
revenue passenger miles ("RPMs") to continue to increase at rates higher than
mainline traffic. While the Federal Aviation Administration's 1996 Outlook
projects a 6.7% RPM growth for U.S. regional carriers, Saab's 1995-2010 market
forecasts calls for annual worldwide growth ranging from 7.3% in the Pacific
Rim to 4.0% in North America. To accommodate the expected growth in revenue
passenger demand, carriers will need to acquire and finance appropriate
short-haul regional aircraft. The Company believes that it is well-poised to
take
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advantage of the business opportunities presented by the improving vigor of the
aircraft industry and the anticipated growth of the regional carrier market.
BACKGROUND OF THE CONSOLIDATION AND ALTERNATIVES CONSIDERED
Before deciding to recommend the Consolidation, the General Partner
considered numerous alternatives including (i) sales of entire Partnership
portfolios, (ii) debt alternatives, and (iii) sales of individual Partnership
assets. The General Partner also considered the continued management of the
Partnerships as currently structured, but does not believe that it is in the
best interest of Investors as the General Partner believes that the level of
Partnership cash distributions is likely to decline. This decline would be due
to the combination of (i) the anticipated loss of revenue associated with the
termination of equipment leases; (ii) depreciation of the Partnership's asset
base; and (iii) current Partnership Agreement prohibitions on incurring debt,
which precludes the Partnerships from using such debt financing to acquire
assets, and thereby increase revenue and cash distributions to Investors.
Consequently, the General Partner believes that the Consolidation will have the
greater potential likelihood of providing optimal economic benefits for the
Investors.
The following is a summary of the principal alternatives to the
Consolidation considered by the General Partner and the reasons for their
rejection of such alternatives. A more detailed description follows this
summary:
Alternative Reason
----------- ------
Continued Management of Partnerships as Currently o Despite a potentially rising market,
Structured depreciation of the Partnerships' asset base
and the inability to purchase additional
assets in this favorable market is
anticipated to result in declining
Partnership revenue and value.
o Fixed expenses will take an increasing
proportion of the Partnership's declining
revenue base.
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Debt Financing o The Partnership Agreements severely limit or
prohibit debt financing and would require
amendment by a vote of the limited partners.
o Even if a partial debt financing for the
purpose of funding cash distributions were
permissible, the maximum practicable
projected debt financing amount available
from lenders would only provide a partial
return of capital to the Investors.
o In the event of a partial debt financing,
the remaining Investors' equity in the
Partnership's assets would be subject to
greater risk of loss due to the debt on the
assets, and yet would yield a lower rate of
return, as servicing the debt would reduce
cash available for distribution.
Sale of Individual Properties or the Portfolio o Sales during the early stages of the current
of Properties recovery market are likely to result in less
than optimal sales prices for the assets.
o High transaction costs may be prohibitive
for sales of individual properties to
separate buyers.
o Pre-existing leases on equipment owned by
the Partnerships makes sales to parties
desiring immediate use of the Equipment
impossible.
o There are a limited number of purchasers
with the financial capability to purchase
individual assets and even fewer purchasers
able to acquire the entire portfolio.
General. Since each Partnership expected to hold its assets for a
number of years after investment in order to permit the assets to generate cash
flow for the Partnership, the General Partner made no efforts to dispose of the
properties in the early years of the Partnership. The General Partner
concentrated its initial efforts on making suitable investments for the
Partnerships, consistent with the Partnerships' investment policies and
restrictions, and on managing the Partnerships efficiently to control operating
expenses while maximizing operating revenues.
Recently, an increasing number of Investors in the Partnerships in
written and oral communications with the General Partner have asked the General
Partner to provide liquidity of the Investors' investments in the Partnership.
The only way in which the General Partner could provide such liquidity,
however, would be to terminate the Partnership, liquidate the assets of the
Partnership and distribute the cash proceeds to the Investors. However, the
General Partner
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believes that the sale of Partnership assets and liquidation of the
Partnerships in the current market would be difficult to maximize value to
Investors.
Significant unanticipated changes occurred in the financial and
aircraft leasing markets since the inception of the Partnerships in the early
1990's. These changes, consisting primarily of new government regulations
regarding aircraft engine noise and aging airframes, the Gulf War, the general
economic recession, and the oversupply of aircraft in the market caused by a
record delivery of aircraft ordered during the boom years of the late 1980's,
adversely affected asset prices in general and the value of the Partnerships'
properties. The aircraft industry appears to be at the beginning of an upturn;
the aircraft equipment market has recently showed signs of strengthening, and
equipment prices and lease rates appear to be firming up. See "-- The
Aircraft Industry Outlook," above. The General Partner believes that this
market is potentially an advantageous one for making additional investments in
aircraft equipment.
In response to the inquiries of Investors, the General Partner began
to explore the options that would enable the Partnerships to meet the divergent
investment objectives of the Investors of a return on original capital through
continued investment in the aircraft industry and immediate liquidity of
investment in the Partnership investments. The economic factors described
above led them to conclude that liquidation of the Partnerships' assets under
the current general market conditions would likely result in sales of the
Partnerships' assets at prices that would not provide Investors their best
return on the investment. Before deciding to recommend the Consolidation, the
General Partner considered alternatives to the proposed Consolidation in an
effort to achieve maximum investor return while also providing Investors with
anticipated liquidity within an earlier time frame than the nineteen to
twenty-five year time frame after investment until termination of the
Partnership. These alternatives were (i) continued management of the
Partnerships as currently structured, (ii) entire portfolio sales, (iii) debt
financing, and (iv) sales of individual assets.
Continued Management of Partnerships As Currently Structured. The
General Partner has considered continuing the management of the Partnerships as
they are currently structured. JetFleet I and JetFleet II are not required to
liquidate and wind up until the year 2014 and 2010, respectively. The General
Partner does not believe that this alternative to the Consolidation is in the
best interests of the Investors, as it is not likely to enable the Partnerships
to return original capital to the Investors. Furthermore, it does nothing to
provide current liquidity to Investors, and the only avenue for liquidity for
Investors would be the thinly and sporadically traded secondary market.
As a result of the expiration of initial equipment leases, each
Partnership will likely have declining revenue. Furthermore, the Partnership
structure prevents the General Partner from making new leveraged investments to
maintain cash distributions at an acceptable level, since the use of borrowings
to acquire new properties is either not permitted or severely restricted under
the current Partnership Agreements. Therefore, the Partnership structure
contributes to the difficulty the General Partner has experienced in attempting
to meet the Partnership's investment objectives. As a result of these factors,
each Partnership generally has and will continue to have fixed expenses
allocated over a declining revenue base. Finally, the General Partner believes
there is no viable market in which to liquidate the Partnership assets under
favorable terms and conditions. Therefore, if the Partnerships were to
continue as currently managed, Investors would likely retain an investment
without growth or liquidation opportunities in a Partnership which has a
declining asset base and the likelihood of a declining income stream for a
significant period of time.
Debt Financing. The Partnership Agreements require that the
Partnerships acquire property without the use of debt in most cases. The
General Partner began to explore alternatives to the Consolidation that would
require the Partnerships to borrow significant amounts of secured and unsecured
debt and would require the approval of Investors. The funds borrowed would be
returned to the Investors as return of capital.
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Although this debt alternative would have enabled the Partnerships to
return a significant portion of an Investor's capital, in order to obtain
optimal debt pricing, the General Partner would have had to combine the
Partnerships in a manner that would allow cross-collateralization of the
largest possible pool of assets of the Partnerships, which would permit one
large borrowing, and lower the transaction costs. Second, to secure a rating
on the debt transaction sufficient to market the debt to investors, the maximum
borrowing would have approximated 70% of the asset value of the Partnership.
After receiving this partial return of their capital, Investors would remain
holders of the Units for a significant time period, with greater risk on their
investment due to the borrowing and yet with a lower return than holders of the
senior debt. Third, the use of debt was inconsistent with the General
Partner's obligation to develop a long-term strategy for liquidation of
investment and maximum investor return because the Investors would remain
holders of the Units, and the Partnerships' assets would still have to be sold.
Fourth, although the debt alternative provided some tax advantages for certain
investors, those Investors that were tax-exempt entities would likely have been
required to pay taxes on the unrelated business taxable income that borrowing
at the Partnership level would have created. Approximately 15% of Investors of
the Partnerships are tax-exempt investors. Finally, a significant roadblock to
a debt financing is that while JetFleet II has some restricted ability to incur
debt, JetFleet I has no power to do so. Consequently, because significant
assets of the Partnership are co-owned, such financing would require the
approval of the Investors of both Partnerships.
Sale of Assets. Other alternatives to the Consolidation considered by
the General Partner included selling the Partnerships' assets, either as
individual items or as an entire portfolio. These alternatives were rejected
by the General Partner for various reasons. Since nearly all of the assets of
the Partnerships are subject to leases with third parties, sale of these assets
is not possible to purchasers who desire immediate use of the aircraft. The
remaining companies that have the financial capability to purchase such assets
for investment purposes are limited. There are even fewer potential buyers of
an entire portfolio. In addition, the sale of each individual Partnership
asset would be more costly and time consuming. Furthermore, because the niche
market in which the Partnerships do business is relatively close knit and well
informed, knowledge that the Partnerships are liquidating would likely lead to
the perception by buyers that the Partnerships are motivated sellers. This
would further adversely affect the Partnerships' ability to get a fair value
for its assets. Finally, though the General Partner has not made nor solicited
any offers regarding sale of any of its assets, it continuously monitors the
sales prices of the Partnerships' assets. The General Partner believes there is
currently no viable market in which to liquidate all of the assets of the
Partnerships at one time under favorable terms and conditions, as demand and
prices are now only beginning to recover from their depressed state during the
early 1990's.
The General Partner engaged the Appraiser to determine the potential
immediate liquidation value for the Partnerships' assets. (See, "REPORTS,
OPINIONS AND APPRAISALS"). Based on an appraisal of liquidation values of the
Partnership's assets in a liquidation occurring over the course of less than
six months, each JetFleet I Investor would receive $1.91 per Unit, and each
JetFleet II investor would receive $8.95 per Unit. This per Unit liquidation
value was calculated as follows:
JetFleet I JetFleet II
---------- -----------
Liquidation Value (1) $1,148,545 $9,056,455
Other Assets/Liabilities, Net (399,047) (641,450)
Estimated Brokerage Fees (2) (34,456) (543,387)
Estimated Legal Fees (49,070) (550,930)
Corporate General Partnership Interest (3) (6,660) (366,034)
Sales Tax (4) (94,755) (747,158)
------ -------
Total Liquidation Proceeds $ 564,557 $ 6,207,495
Per Unit $ 1.91 $ 8.95
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- ------------------
(1) Based on the Appraiser's appraisal of liquidation values of the
Partnerships' assets as of February 4, 1997.
(2) Based on maximum brokerage fees payable by the Partnership pursuant to
the Partnership Agreement by JetFleet I and II of 3% and 6%,
respectively.
(3) Represents the general partnership interest of the Corporate General
Partner of 1% and 5% in JetFleet I and JetFleet II, respectively.
(4) At the California rate of 8.25%.
DEFINITIVE OFFERS
During the 18 months preceding the date of this Prospectus, no offer
has been made by a third party or solicited by the Partnership regarding a
merger, consolidation or combination of the Partnerships, an acquisition of any
of the Partnerships or a material amount of their assets, a tender offer for or
other acquisition of securities of any class issued by any of the Partnerships
or a change in control of any of the Partnerships.
REASONS FOR THE CONSOLIDATION
Among the reasons for the General Partner's decision to recommend the
Consolidation are the following:
o The General Partner believes that the Consolidation will
result in the Company becoming a broader based, more
financially capable aircraft lessor. The Company as successor
company to the Partnerships will have flexibility to make
investments that take advantage of the current market
conditions in a way that the Partnerships could not.
o The General Partner believes that the Consolidation provides
an opportunity to meet the original Partnership investment
objectives of providing a return on capital of Investors.
Through anticipated Company growth, the Company intends to be
able to increase the value of the Investors' equity holdings
in the Company.
o As a result of the Consolidation and the listing of the
Company's Common Stock on a national securities exchange,
Stockholders will have the potential for greater liquidity of
investment.
o Appreciation in the price of the Shares could result if the
Company is successful in taking advantage of growth
opportunities based on the Company's anticipated cost of the
new capital and the anticipated return from investment in
additional properties.
o The Consolidation will help create a more visible, active
leasing company within its market niche. The Company's
increased visibility due to its anticipated increased leasing
capability and activity and a strong market position within
its niche should contribute to its objectives of achieving
growth and increased investor value.
o The Company expects to grow through investments in new and
existing assets in the Company's market niche of used
turbo-prop equipment for regional air carriers, which industry
segment is growing at a fast rate. As a result, the General
Partner believes significant growth is attainable.
o Assuming both Partnerships participate in the Consolidation,
the Company will hold a larger portfolio of assets than any
single Partnership, and will become
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even more diverse as additional assets are acquired by
the Company using debt and equity financing. The
diversification of assets is anticipated to reduce risk for
Stockholders by spreading the risk of investment over a
broader and more diverse group of assets, and by reducing the
dependence of investment on the performance of any particular
asset or group of assets, any specific geographic area or any
specific lessee.
o The consolidation will result in simplified federal and state
tax reporting for Investors and the Company. Stockholders
will receive Form 1099-DIV to report any dividends. This form
will be distributed by January 31 of each year following a
year in which dividend distributions have been made. The
complicated Schedule K-1, which Investors generally receive by
March 15 of each year, will not be used. Participating
Investors will no longer be subject to state tax withholding,
or be required to file individual state tax returns (other
than in their state of residence) solely as a result of an
investment in the Company.
HISTORICAL CASH DISTRIBUTIONS AND ASSIGNED EXCHANGE VALUE
The following table sets forth selected information per $1,000
original investment in the Partnership projected through the Anticipated
Consummation Date. The Exchange Value of the Partnerships is based primarily
on the independently appraised market value of their assets, and does not
necessarily reflect the aggregate price at which Shares may be sold. See "THE
CONSOLIDATION--Exchange Values and Allocation of Shares." The table below shows
the amount of cash distributions received to date on the Units of JetFleet I
and JetFleet II Investors in the first column, the second column shows the
value of the Shares to be received per original $1,000 investment in the
Partnerships assuming a $10 value per Share), and the third column represents
the total cash and share value to be received by Investors in JetFleet I and
JetFleet II for each $1,000 investment if the Consolidation is consummated.
PER $1,000 ORIGINAL INVESTMENT
Total of
Cumulative
Cumulative Distributions and
Distributions to Assigned Assigned
Partnership Investors(1) Exchange Value(2) Exchange Value
- ----------- --------- --------------- --------------
JetFleet I
First $ 603.40 $ 90.00 $ 693.40
Last $ 383.40 $ 90.00 $ 473.40
JetFleet II
First $ 641.60 $ 360.00 $1001.60
Last $ 361.00 $ 360.00 $ 721.00
- -------------------------
(1) Each of the Partnership offerings lasted approximately two years, during
which period limited partners were being admitted to the Partnership on a
monthly basis. "First" value represents total cumulative distributions given
to Investors who were admitted first to the Partnership; "Last" value
represents total cumulative distributions given to Investors who were the last
partners admitted to the Partnership. Assumes current distribution level is
maintained through July 1, 1997.
(2) The Assigned Exchange Value is equal to the number of Shares issuable to
an Investor per $1,000 original investment in Units, and does not necessarily
reflect the aggregate price at which Shares may be sold. Reflects rounding to
nearest whole Share.
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- --------------------------------------------------------------------------------
THE CONSOLIDATION
- --------------------------------------------------------------------------------
The information contained in this Prospectus with respect to the
Consolidation is qualified in its entirety by reference to the Agreement and
Plan of Merger by and among the Company and the Participating Partnerships (the
"Merger Agreement"), a copy of which is attached hereto as Appendix A and
incorporated herein by reference.
GENERAL
The Consolidation is to be effected in accordance with the terms and
conditions set forth in the Merger Agreement. The Merger Agreement provides
that, in accordance with the Delaware GCL and the California Partnership Law,
at the time of filing of a Certificate of Merger with the Delaware Secretary of
State, or at such later time thereafter as may be specified in the Certificate
of Merger (the "Effective Time"), each of the Participating Partnerships will
be merged with and into the Company, their separate existences will cease and
the Company will continue as the surviving entity. As of the Effective Time,
each Unit of a Participating Partnership will automatically be converted into
the right to receive Shares.
Approval of the Consolidation by a Partnership constitutes consent to
the merger of the Partnership with and into the Company pursuant to the terms
of the Merger Agreement and to all actions necessary or appropriate to
accomplish the Consolidation, including approval of the Amendments to the
Partnership Agreements. Immediately after the Effective Time, the officers of
the Company shall consist of the persons listed under "MANAGEMENT." The Board
of Directors shall consist of the three current directors of the Company, and
it is anticipated that two additional outside directors will be appointed
immediately after the Consolidation.
Consummation of the Consolidation is subject to certain conditions.
See "THE CONSOLIDATION -- Conditions to the Consolidation."
APPROVAL AND RECOMMENDATIONS OF THE GENERAL PARTNER
Each general partner of the Partnerships has approved the
Consolidation. The General Partner believes that an investment in the Company
through the ownership of Common Stock will provide greater benefits to
Investors than the benefits derived from an investment in an individual
Partnership. See "BACKGROUND AND REASONS FOR THE CONSOLIDATION" and
"FAIRNESS." Consequently, the General Partner recommends that the Investors of
each Partnership consent to the Consolidation. However, Investors are urged to
consider carefully the factors described under "RISK FACTORS" and the
comparison of an investment in a limited partnership versus an investment in
the Company set forth under "COMPARISON OF LIMITED PARTNERSHIP AND CORPORATE
STRUCTURE." Investors are also urged to review the Supplement for their
respective Partnership and to consult with their independent financial and tax
advisors prior to consenting to the Consolidation.
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VOTE REQUIRED FOR APPROVAL OF THE CONSOLIDATION
Participation in the Consolidation by a Partnership requires the
affirmative vote of holders of more than 50% of the outstanding Units of the
Partnership. This Prospectus constitutes the solicitation of the approval of the
Investors to the Consolidation, including all such actions required by the
Partnerships to consummate the Consolidation. Because JetFleet II's anticipated
net assets as of the Anticipated Consummation Date constitute over 88% of the
aggregate value of the Partnerships' assets, at the discretion of the Company,
the Consolidation will be consummated notwithstanding the nonparticipation of
JetFleet I, provided that the Consolidation is approved by JetFleet II. In
determining whether to proceed with a Consolidation with JetFleet II only, the
Company will determine whether the number of dissenting Investors, the number of
Participating Investors and the asset base of JetFleet II alone will provide a
sufficient basis for the Company to meet its objectives and satisfy all of the
conditions for the Consolidation set forth in the Merger Agreement. Such a
Consolidation between JetFleet II and the Company alone is subject to certain
considerations summarized in the Supplement for JetFleet II. JetFleet II
Investors are urged to carefully review the Supplement accompanying this
Prospectus when considering the Consolidation.
AMENDMENTS TO PARTNERSHIP AGREEMENTS
The Partnership Agreements do not specifically address the merger of
the Partnerships or the conversion of Partnership Units for equity securities.
Therefore, the General Partner is requesting the consent of Investors to amend
the Partnership Agreements to include specific provisions regarding the
Consolidation. By voting "YES" in favor of the Consolidation, an Investor will
also have approved the proposed amendments to his or her Partnership Agreement
(the "Amendments"), which expressly authorize all actions necessary to
successfully accomplish the Consolidation as described in this Prospectus. The
amendments also provide for a uniform dissenters' rights procedures for both
JetFleet I and JetFleet II Investors. See "VOTING PROCEDURES--Amendments to
Partnership Agreements." A discussion of the substance of each of the
amendments and the form of the Amendment to the Partnership Agreement is set
forth in the Supplement for the respective Partnership. The Partnership
Agreement provides that any person who votes "NO" on the Consolidation is
entitled to dissenters' rights. To make the dissenters' rights provisions
consistent with California law, dissenters' rights will be available to any
Investor that does not vote "YES" on the Consolidation.
CONDITIONS TO THE CONSOLIDATION
Consummation of the Consolidation is conditioned upon each of the
following, any or all of which other than (i), (ii) and (viii) may be waived by
the Company and General Partner in whole or in part:
(i) approval of the Consolidation by Investors holding a
majority of the outstanding Units of the Partnerships; provided,
however, that at the sole discretion of the General Partner and the
Company, the merger of JetFleet II with the Company may be consummated
notwithstanding the failure of Investors in JetFleet I to approve the
Consolidation;
(ii) approval of the listing of the Shares on the American
Stock Exchange, subject to official notice of issuance;
(iii) receipt of all necessary consents, waivers, approvals,
authorizations or orders required to be obtained and the making of all
filings required to be made by any of the parties for the
authorization, execution and delivery of the Merger Agreement and the
con-
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summation of the transactions contemplated thereby on or before (and
remaining in effect at) the Effective Time;
(iv) there shall not have occurred or been threatened any
material adverse change in the overall business or prospects of the
Participating Partnerships or in the tax or other regulatory
provisions applicable to the Participating Partnerships, or the
Company, and the Company shall not have become aware of any facts
that, in the sole judgment of the Company and General Partner, have or
may have a material effect, whether adverse or otherwise, on the
Participating Partnerships, taken as a whole, the Consolidation, or
the value to the Company of the properties of the Participating
Partnerships, taken as a whole;
(v) receipt, on or prior to the Closing Date, by the Company
of an opinion from Counsel confirming that in all material respects,
as of the Closing Date, the discussion set forth under "FEDERAL INCOME
TAX CONSIDERATIONS," including any opinions expressed therein, is
accurate and complete;
(vi) there having been no statute, rule, or regulation enacted
or issued by the United States or any State, or by a court, which
prohibits or challenges the consummation of the Consolidation;
(vii) there having been no declaration of suspension of trading
in, or limitation on prices for, securities generally on the American
Stock Exchange, declaration of a banking moratorium by federal or
state authorities or any suspension of payments by banks in the United
States (whether mandatory or not) or of the extension of credit by
lending institutions in the United States, or commencement of war,
armed hostility, or other international or national calamity directly
or indirectly involving the United States, which war, hostility or
calamity, in the sole judgment of the Company and the General Partner,
would have a material adverse effect on the business objectives of the
Company, or, in the case of any of the foregoing existing on the date
of this Prospectus, any material acceleration or worsening thereof;
(viii) the Registration Statement having been declared
effective and no stop order suspending the effectiveness of the
Registration Statement having been issued or proceedings for such
purpose having been instituted, and all necessary approvals under
state securities or blue sky laws having been received; and
(ix) if more than 10% of the Investors of either of the
Partnerships shall have elected to exercise dissenters' rights
available under the California Partnership Act, the Company shall have
the option not to consummate the Consolidation with such Partnership.
If any event shall occur or any matter shall be brought to the
attention of the Company and the General Partner that, in their sole judgment,
materially affects, whether adversely or otherwise, any of the Participating
Partnerships or one or more of their properties, subject to the terms of the
Merger Agreement, the Company and the General Partner reserve the right to
modify or amend the terms of the Consolidation to take such event or matter
into account, or to take such other actions as may be appropriate, including,
without limitation, canceling the Consolidation. Any determination of the
Company concerning the events and matters set forth above will be final and
binding on all parties. All of the foregoing conditions, except for the
conditions set forth in (i), (ii) and (viii), are for the sole benefit of the
Company and the General Partner and may be waived by the Company and the
General Partner in whole or in part. Certain of the conditions to the
consummation of the Consolidation are beyond the control of the Company, the
General Partner and the Partnerships; consequently, there can be no assurance
that the Consolidation will occur.
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EXCHANGE VALUE AND ALLOCATION OF SHARES
General. The Exchange Values were determined based on appraisals of
the Partnerships' assets as of February 4, 1997 and cash and liabilities
projections as of the Anticipated Consummation Date of July 1, 1997, and have
been assigned to each of the Partnerships solely to establish a consistent
method of allocating Shares for purposes of the Consolidation. The Exchange
Values of the Partnerships do not indicate the aggregate price at which Shares
may be sold after the Consolidation, nor does the number of Shares to be issued
indicate the actual or potential trading price of the Company's Common Stock.
See "RISK FACTORS." The number of Shares to be issued to each Participating
Partnership upon consummation of the Consolidation will equal the Exchange
Value of the Participating Partnership divided by $10, an arbitrary amount
chosen for the sole purpose of determining the number of Shares of Common Stock
to be issued to each Partnership. No fractional Shares will be issued by the
Company with respect to the Consolidation. See "-- Conversion Ratio; No
Fractional Shares." There has been no prior market for the Common Stock, and
it is possible that the Common Stock will trade at a price substantially below
the Exchange Value or the book value of the assets of the Company. There is no
assurance that a market for the Company's Common Stock will develop as a result
of the Consolidation.
The Exchange Value for each Partnership is an amount equal to
the sum of (i) the appraised market value of its assets as of February 4, 1997,
(ii) the present value of rental income owed to the Partnership on a full
payout finance lease for a DC-9 aircraft owned jointly by JetFleet I and
JetFleet II and a second DC-9 owned 100% by JetFleet II (discounted at an
annual interest rate of 10%) and (iii) projected cash and other assets as of
July 1, 1997 (the anticipated date of consummation of the Consolidation), less
(x) projected total liabilities of each Partnership as of July 1, 1997. In
determining the value of each asset held by the Partnership, the Appraiser used
the "current market value approach." Current market value is based upon the
value reflective of real market conditions at the time of the appraisal of an
asset, and takes into account the status of the economy in which the equipment
is used, the status of supply and demand for the particular item of equipment,
the value of recent transactions and the opinions of informed buyers and
sellers. The current market value approach assumes that there is no short term
time constraint to buy or sell the asset. See "REPORTS, OPINIONS AND
APPRAISALS."
As of the date of this Prospectus, the General Partner does not know
of any material change in the financial performance of any of the Partnerships
which will materially affect the Exchange Value.
Adjustments to Exchange Value and Allocation of Shares. All
determinations of the Exchange Value for purposes of allocating the Shares
among the Partnerships, other than the final computation of the expenses of the
Consolidation, were determined in the manner described below. Each
Partnership will operate and make distributions prior to the Closing Date such
that, to the extent possible, its Exchange Value relative to the Exchange Value
of the other parties to the Consolidation remains the same, excluding, for
these purposes only, the estimated expenses of the Consolidation allocated to
each of the Partnerships.
In the event it is discovered prior to the Effective Time that cash
positions or anticipated liabilities differ from those used to calculate the
Exchange Values as described below, an adjustment may be made to the Exchange
Value of that Partnership. If the required adjustment is in excess of 5% of
the Exchange Value for the Partnership, the Partnership's Exchange Value will
be redetermined and its allocation of Shares changed and such adjustment shall
be submitted for approval of the Investors of the affected Partnership who will
be offered the opportunity to change their vote on the Consolidation. If such
Investor does not timely indicate an objection to the adjustment, his or her
vote will be counted as originally submitted. In the event the amount of the
discovered liability is less than the foregoing amount, no adjustment to the
Partnership's Exchange Value will be made.
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The Exchange Value for each Partnership is an amount equal to the sum
of (i) the appraised market value of its assets as of February 4, 1997, (ii)
the present value of rental income owed to the Partnership on a full payout
finance lease for a DC-9 aircraft owned jointly by JetFleet I and JetFleet II
and a second DC-9 owned 100% by JetFleet II (discounted at an annual interest
rate of 10%) and (iii) projected cash and other assets as of the Anticipated
Consummation Date of July 1, 1997, less (x) projected total liabilities of each
Partnership as of the Anticipated Consummation Date. The method of calculation
is shown below. The General Partner reserves the right in its sole
discretion, to make adjustments to the Exchange Value of a Partnership, when
necessary to take into account the payment of cash to dissenting Investors of a
Partnership.
Market Value Discounted Other Total Exchange No of.
of Assets(1) DC-9 Rent(2) Assets(3) Liabilities(4) Value Shares(5)
------------- ------------ -------- -------------- ----------- ---------
JetFleet I $ 1,762,554 $ 144,543 $107,490 $651,080 $1,363,507 136,351
JetFleet II $13,927,446 $622,178 $731,304 $1,994,932 $13,285,996 1,328,600
- -------------------------
(1) Based upon the market value of the assets as set forth in the Appraisal of
Aircraft Information Services, dated February 4, 1997, for each Partnership,
attached as Appendix B.
(2) JetFleet I and JetFleet II hold 50% and 50% interests, respectively, in a
DC-9 aircraft, and JetFleet II holds a 100% interest in a second DC-9 aircraft,
each on a full-payout finance lease to AeroCalifornia. The amount shown in
this column represents the Partnership's portion of the present value of the
rent payable to the Partnership, discounted at an annual rate of 10%. The 10%
discount rate reflects the Company's assessment of the cost of funds which
would be available to the Partnership for borrowing.
(3) Consists mainly of projected cash holdings and miscellaneous receivables.
(4) Consists primarily of deferred tax liabilities, accounts payable, accrued
maintenance costs and security deposits and prepaid rents.
(5) Exchange Value divided by $10.
ALLOCATION OF SHARES BETWEEN CORPORATE GENERAL PARTNER AND LIMITED PARTNERS
The following table shows how the allocation of each Partnerships' shares
between the Corporate General Partner and the Investors was calculated. The
Corporate General Partner's allocation is based upon the percentage interest of
the Corporate General Partner in the Partnership as set forth in the respective
Partnership Agreements of the Partnerships.
Total Shares Corporate No. of Shares No. of Shares
Allocated to General Partners' Issued to Corporate Issued to
Partnership Partnership(1) Partnership Interest(2) General Partner Limited Partners
- ----------- -------------- ----------------------- --------------- -----------------
JetFleet I 136,351 1 .0% 1,364 134,987
JetFleet II 1,328,600 5 .0%(3) 66,429 1,262,171
- -------------------------
(1) The number of Shares to be issued to each Participating Partnership upon
consummation of the Consolidation will equal the Exchange Value of the
Participating Partnership (second to last column of the previous table entitled
"Exchange Value and Allocation of Shares") divided by $10, an arbitrary amount
chosen for the sole purpose of allocating Shares and which is not intended to
imply that the Shares will trade at a price of $10 per Share.
(2) Represents the percentage interest of the Corporate General Partner in the
Partnership's distributions, according to the applicable Partnership Agreement.
(3) In addition to its 5% interest in any distributions made by JetFleet II,
the Corporate General Partner of JetFleet II is also entitled to a subordinated
disposition fee equal to one-half of the industry standard commission
ordinarily paid in such transactions, up to a maximum of 3% of the gross sales
price of any assets disposed by JetFleet II. The Corporate General Partner
will waive this fee in connection with the Consolidation.
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Assuming 100% Partnership Participation, once the Consolidation is consummated
the Corporate General Partner will hold 67,793 Shares or 4.2% of the total
outstanding Shares and the Investors, as a group, will hold 1,397,158 Shares or
86.5% of the total outstanding Shares of the Company. The Individual General
Partners will not receive any Shares in the Consolidation.
ACCOUNTING TREATMENT
In accordance with generally accepted accounting principles, the
Consolidation will be accounted for as a reorganization of entities under
common control at historical cost in a manner similar to a
"pooling-of-interests." Under this accounting method, the assets and
liabilities of the combining entities will be carried forward at their recorded
historical book values. For a discussion of the accounting adjustments
necessary to give effect to the Consolidation, see "PRO FORMA FINANCIAL
INFORMATION" and "SELECTED FINANCIAL INFORMATION OF THE PARTNERSHIPS."
CONVERSION RATIO; NO FRACTIONAL SHARES
At the consummation of the Consolidation, each Participating
Investor's Units will be automatically converted into the right to receive that
number of Shares of Common Stock of the Company equal to the number of Units
held by the Investor multiplied by the Conversion Ratio, rounded up to the
nearest whole Share. The Conversion Ratio shall equal the quotient obtained by
dividing (a) the number of Shares allocated to be issued to the Investors of
the Partnership; by (b) the total number of Units of limited partnership
outstanding for the Partnership.
The Company will not issue fractional Shares in connection with the
Consolidation. The number of Shares issuable to an Investor will equal the
number of Units held by the Investor multiplied by the Conversion Ratio,
rounded up or down to the nearest whole share.
EFFECT OF THE CONSOLIDATION ON DISSENTING INVESTORS
An Investor of a Participating Partnership who dissents or abstains
from voting with respect to the Consolidation will have statutory rights to
elect to be paid the appraised value of his or her interest in the Partnership.
See "DISSENTERS' RIGHTS," for a summary of statutory dissenters' appraisal
rights available to Investors who do not vote in favor of the Consolidation.
EFFECTIVE TIME
The Effective Time of the Consolidation will be the time when the
Certificate of Merger with respect to the merger of the Participating
Partnerships are filed with the Secretary of State of Delaware, or at such
later time as may be specified in the Certificate of Merger. It is anticipated
that such filings will be made as promptly as practicable after the requisite
approval of the Investors has been obtained and the other conditions to the
Consolidation have been satisfied or waived, if permitted under the Merger
Agreement, as the case may be. The General Partner intends that such approvals
will be obtained on or about June 30, 1997.
CORPORATE HEADQUARTERS
The Company's principal place of business will be 1440 Chapin Avenue,
Suite 310, Burlingame, California 94010.
LEGAL PROCEEDINGS
There is no material litigation currently pending or threatened
against any of the Partnerships, their properties or the General Partner.
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AMENDMENT, TERMINATION AND WAIVER
Subject to applicable law, the Merger Agreement may be amended by the
Company and the Participating Partnerships at any time prior to the filing of
the Certificate of Merger with the Delaware Secretary of State, provided that,
after approval by Investors holding a majority of the outstanding Units of a
Partnership, without the further approval of the Investors of such Partnership
and the stockholders of the Company, no amendment may be made which alters or
changes (i) the amount or kind of consideration which an Investor of such
Partnership shall be entitled to receive for Units in such Partnership, (ii)
the Certificate of Incorporation of the Company, or (iii) the terms and
conditions of the Merger Agreement if such alteration or change would
materially and adversely affect the Participating Investors or the stockholders
of the Company.
The Merger Agreement may be terminated at any time prior to the filing
of the Certificate of Merger with the Delaware Secretary of State by mutual
consent of the Board of Directors of the Company and the General Partner.
At any time prior to the filing of the Certificate of Merger with the Delaware
Secretary of State, any party to the Merger Agreement may extend the time for
the performance of any of the obligations or other acts of any other party
thereto, or waive compliance with any of the agreements of any other party or
with any conditions to its own obligations, in each case only to the extent
that such obligations, agreements and conditions are intended for its benefit.
DEALER MANAGER
The Company has engaged Crispin Koehler Securities ("CKS"), an
NASD-registered broker dealer to act as Dealer Manager for the Consolidation.
CKS acted as Dealer Manager in connection with the offering of limited
partnership units of each of the Partnerships. CKS, which acted as Dealer
Manager for the JetFleet I and JetFleet II offerings, will be providing such
investment banking services to the Company in connection with the solicitation,
including rendering advice regarding the preparation of the solicitation
documents and solicitation strategy and as acting as liaison between the
Company and the broker-dealers who were in the syndicate that sold the
Partnership Units and who will be acting on behalf of certain Investors. In
consideration of those service in connection with the Consolidation, CKS will
receive an investment banking fee of $80,000 and warrants to purchase up to
35,000 shares of Common Stock of the Company at a purchase price of $3.00 per
share. Richard D. Koehler, an individual General Partner of each of the
Partnerships, is an officer and director of CKS, and a principal shareholder of
its parent corporation, Crispin Koehler Holding Corp. ("CK Holding"). Neal D.
Crispin is neither a shareholder, officer or director of CKS and is not an
officer or director of CK Holding, but does own 9% of the voting common stock
of CK Holding. The compensation to be paid to CKS was not negotiated at arm's
length by the Company and CKS.
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CONSOLIDATION EXPENSES
General. Assuming 100% Partnership Participation, expenses of the
Consolidation are estimated to be as follows:
SOLICITATION/COMMUNICATION EXPENSES
Communication Expenses $ 30,000
Other $ 20,000
Sub Total $ 50,000
TRANSACTION COSTS
Investment Banking Fee $ 80,000
Legal Fees $ 50,000
Appraisals and Valuation $ 3,000
Registration, Listing and Filing Fees $ 20,000
Financial Consulting Fees $ 19,000
Accounting and Other Fees $ 10,000
Printing $ 20,000
Sub Total $ 202,000
---------
Total Costs $ 252,000
=========
Solicitation/Communication Expenses. The Solicitation/Communication
Expenses related to the Consolidation will be allocated among the Partnerships,
the General Partner and the Company depending upon whether the Consolidation is
consummated, as described below. For purposes of the Consolidation, the term
"Solicitation/Communication Expenses" includes expenses such as telephone
calls, broker-dealer fact sheets, legal and other fees related to the
solicitation of consents, as well as reimbursement of expenses incurred by
brokers and banks in forwarding the Prospectus to Investors.
If the Consolidation is consummated with both JetFleet I and JetFleet
II, all of the Solicitation/Communication Expenses will be payable by the
Company. If the Consolidation is consummated only with JetFleet II, all of the
Solicitation/Communication Expenses will be paid by the Company or JetFleet II.
The Solicitation Communication Expenses of JetFleet I, if it does not
participate, will be payable by the Company. If the Consolidation is not
consummated, all of the Solicitation/Communications Expenses will be payable by
the Company.
Transaction Costs. The Transaction Costs for the Consolidation will
be allocated among the Partnerships and/or the Company depending upon the votes
received with respect to the Consolidation and whether the Consolidation is
consummated. The term "Transaction Costs" means, for purposes of the
Consolidation, the costs of mailing and printing this Prospectus, any
supplements thereto or other documents related to the Consolidation, legal fees
not related to the solicitation of consents, financial advisory fees,
investment banking fees, appraisal fees, accounting fees, independent committee
expenses, travel expenses and all other fees related to the preparatory work of
the Consolidation, but not including Solicitation/Communication Expenses or
costs that would have otherwise been incurred by the Partnerships in the
ordinary course of business.
If the Consolidation is consummated with both JetFleet I and JetFleet
II, all of the Transaction Costs will be payable by the Company. If the
Consolidation is consummated with just
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JetFleet II, the Transaction Costs will be allocated among the Partnerships in
proportion to their respective Exchange Values. The Transaction Costs
allocated to JetFleet I, as a Nonparticipating Partnership, will be payable by
the Company and JetFleet I in such proportion corresponding to the votes to
reject the Consolidation and the votes to approve the Consolidation. The
Transaction Costs allocated to JetFleet II as a Participating Partnership will
be payable by the Company.
REPORTS, OPINIONS AND APPRAISALS
The General Partner has engaged Aircraft Information Services, Inc.,
an independent appraisal firm, to appraise the value of the aircraft equipment
assets of the Partnerships. The Exchange Value of each of the Partnerships was
determined primarily based on these appraised values. The allocation of Shares
among the Participating Partnerships was determined primarily based on these
appraised values as of February 4, 1997. See "THE CONSOLIDATION--Exchange
Value and Allocation of Shares." See "REPORTS, OPINIONS AND APPRAISALS"
regarding the parties providing the appraisals, valuations, and any material
relationships with these parties and compensation received or expected to be
received by them, the determination of the consideration to be received by
Investors and summaries of the appraisals and valuations.
EFFECT OF CONSOLIDATION ON NONPARTICIPATING PARTNERSHIPS
A Nonparticipating Partnership will continue to operate as a separate
legal entity with its own assets and liabilities. There will be no change in
its investment objectives, policies or restrictions and the Nonparticipating
Partnership will remain subject to the terms of its Partnership Agreement. The
General Partner anticipates that it will not take any steps to increase
liquidity to the Partnerships in the near term, and will re-evaluate the market
conditions periodically to determine if liquidation of the Partnerships prior
to the termination date of the Partnership set forth in the Partnership
Agreement would be advantageous to the Partnerships' Investors.
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BENEFITS OF THE CONSOLIDATION
- --------------------------------------------------------------------------------
The following is a brief discussion of the potential benefits of the
Consolidation.
Potential for Increasing Value of Investment While Providing Enhanced
Liquidity. By combining the Participating Partnerships into the Company, the
Consolidation will give the Company the asset base and the flexibility to take
advantage of the current upturn in the cyclical aircraft industry, potentially
increasing the investment value to Investors, while at the same time creating
enhanced investment liquidity.
Growth Potential. The Company, as successor to the Partnerships'
business, believes it will have significant growth opportunities as a result of
increased efficiency in existing portfolio management and the fragmented
availability of capital for investment in the Partnerships' niche market,
regional air carrier turboprop equipment. The Company's management and the
General Partner believe there may be attractive investment opportunities in
current market and, as a result of its ability to raise additional capital and
to reinvest net sale or refinancing proceeds, the Company should be positioned
to take advantage of these investment opportunities. The Company believes
there is potential for increased total return to Stockholders through potential
appreciation in the price of Shares from growth opportunities based upon the
Company's anticipated cost of new capital and the anticipated return on the
investment in additional properties.
Substantially Enhanced Liquidity Potential. Stockholders of the
Company will have the potential for enhanced liquidity of investment as a
result of holding securities listed on a national securities exchange. The
Company has applied to list its Common Stock on the American Stock Exchange
subject to official notice of issuance. There is expected to be a public
market for the Shares following the Consolidation, but there is no assurance
that such market will be active and result in greater liquidity for the
Investors.
Common Business Objectives. The Consolidation establishes, through
the formation of the Company, a single business enterprise. The assets of the
Participating Partnerships will be combined for the purpose of pursuing common
business objectives, through an integrated management and operational system.
Since the Company will not be operated as a finite-life enterprise, it will
have the right to pursue certain business opportunities which cannot be pursued
by any of the Partnerships. These opportunities include the opportunity of
making new investments, raising additional capital, leveraging assets to
acquire additional assets, using equity to purchase additional assets, and
combining assets to take advantage of new financing opportunities or resale
packages.
Access of Capital Markets. With a larger base of assets and
Stockholders' equity, the Company should be able to issue additional debt and
equity securities with greater ease and on more attractive terms than would be
available to either of the Partnerships individually.
Timing of Asset Sales. The Board of Directors of the Company has the
discretion to determine when or whether to dispose of the Company's assets or
the Company itself, subject to, under certain circumstances, approval of the
stockholders of the Company. Unlike the Partnerships, the Company has no
established time frame in which the Company's investments are expected to be
liquidated and may select the optimum time for disposing of aircraft asset
investments.
Diversification of Assets. By combining the Participating
Partnerships into a single ownership entity, the Consolidation will create an
investment portfolio larger than the portfolio of
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either Partnership. For JetFleet I, this increased size and the resulting
combination of operations spreads the risk of investment over a broader group
of assets and reduces the dependence of investment upon the performance of any
particular asset or group of assets, any specific lessee or any particular type
of aircraft equipment. For JetFleet II, the Consolidation brings assets it
co-owns under the control of one entity.
Simplification of Business. Each of the Partnerships is subject to
the periodic reporting and filing obligations of the Securities Exchange Act of
1934, as amended. As separate legal entities with different investors, the
Partnerships must segregate their assets and liabilities (to avoid commingling
assets), conduct their operations independently, and maintain separate books
and records for the preparation of financial statements, tax returns, investor
information and reports and filings to be made to the Securities and Exchange
Commission (the "Commission"). By combining the Participating Partnerships
into a single ownership entity, the Consolidation eliminates much of the
duplication in reporting, filing and other administrative services and
simplifies the manner in which the business of the Company are pursued.
Simplified Tax Reporting. The Consolidation will result in simplified
tax administration for many Investors. Stockholders will receive Form 1099-DIV
by January 31 of the year following any year in which a distribution has been
made. Form 1099-DIV is substantially easier to understand than the more
complicated Schedule K-1, which is prepared for the reporting of the tax
information of the Partnerships and is generally mailed to Investors by March
15 of each year.
Benefits to Tax-Exempt Stockholders. Counsel has delivered its
opinion that, subject to the conditions described therein, the income to be
derived by certain Tax-Exempt Stockholders from the Company will not constitute
UBTI. Accordingly, unlike the Partnerships, the Company may incur indebtedness
in connection with the acquisition of property and not cause distributions to
Tax-Exempt Stockholders to be UBTI. See "FEDERAL INCOME TAX CONSEQUENCES."
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FAIRNESS
- --------------------------------------------------------------------------------
GENERAL PARTNER'S BELIEF AS TO FAIRNESS
The General Partner of the Partnerships and the Board of Directors of
the Company believe that the terms of the Consolidation are fair as a whole to
the Partnerships and to their respective Investors. The material factors
underlying the beliefs of the General Partner relating to the fairness of the
Consolidation are discussed below. Notwithstanding the potential conflicts of
interest to which the General Partner was subject with respect to the
Consolidation (See, "CONFLICTS OF INTEREST"), such determination of fairness to
each of the Partnerships was made consistent with the General Partner's
fiduciary obligations to each of the Partnerships and the Investors therein.
In determining fairness, the General Partner examined the following issues: (i)
the fairness of the Consolidation as between the two Partnerships; (ii) the
fairness of the Consolidation as between the Investors and the General Partner;
(iii) the fairness of the founding share issuance of the Company to JMC; and
(iv) the fairness of the agreements for investment banking services with the
Dealer Manager, an affiliated of the General Partner.
In reaching the conclusion that the Consolidation is fair, the General
Partner considered the similarity of the assets, business and investment
objectives of the Partnerships, and determined that so long as the
Consolidation accurately valued the assets of the Partnerships relative to each
other, each Partnership would be treated fairly in a combination of the two
Partnerships. No offers to purchase either Partnership have been presented
to the General Partner and there is no historic price or market price (other
than a thinly traded secondary market price (See" SECONDARY MARKET AND
OWNERSHIP OF PARTNERSHIP UNITS")) upon which the Partnership valuations can be
based. No Units have been purchased from Investors by the General Partner or
its Affiliates. In determining the relative values, the General Partner
concluded that such a valuation should be based on the relative value of the
Partnerships' assets would be most appropriate, since due to the nature of the
partnerships as a sole purpose leasing business, substantially all of the value
of the Partnerships and their business is based upon their respective assets.
The General Partner believed that the book value, which is based on generally
accepted accounting principles, would not accurately reflect the true market
value of the Partnerships' assets. Consequently, it engaged an independent
appraiser to determine the "current value" of the Partnerships' assets, which
valued the assets based on expected sales price of such assets when there is no
short term time constraint to buy and sell.. The General Partner also acquired
appraisals of immediate liquidation, orderly liquidation and long-term holding
of the assets, but chose the current value appraisal since the General Partner
believes that this appraisal best reflects the business objectives of the
Company; however, because of cross ownership and similarity of the assets, the
differences between all four appraisals in the relative valuation of the
Partnerships is insignificant anyway.
The General Partner, notwithstanding its conflict of interest in
making such a determination, believes that the Consolidation is fair to the
Investors. The Corporate General Partner will receive Shares representing its
interest in the Partnerships, which interest was set forth in the Partnership
Agreement. In fact, with respect to JetFleet II, it is waiving certain
liquidation compensation to which it would otherwise be entitled. Since the
allocation of Shares between the General Partner and the limited partners to be
followed in the Consolidation is to be based solely on a mechanical application
of the current provisions of the respective JetFleet I and JetFleet II
Partnership Agreements. The Individual General Partners will receive no
compensation in connection with the Consolidation. Consequently, the
compensation to the General Partner was not a matter that required arms length
negotiation. Because the Corporate General Partner is receiving no more that
is set forth in the Partnerships' Limited Partnership Agreements, the General
Partner has determined that the allocation between the General Partner and the
Limited Partners of Shares to be distributed in the Consolidation is fair to
the Investors.
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JMC was issued 150,000 shares of Common Stock of the Company at $1.00
at the founding of the Company. The sales proceeds paid by JMC to the Company
are being used to pay organizational costs and costs and expenses incurred in
connection with the preparation of this Prospectus and solicitation of consents
to the Consolidation by the Company. This issuance may be dilutive to the
Investors that participate in the Consolidation. See "DILUTION." Although JMC
is affiliated with Neal D. Crispin, an Individual General Partner, the General
Partner believes that this stock issuance is fair to the Investors for the
following reasons: (i) at the time of the purchase there was no assurance (and
there is still no assurance) that the Company will acquire the business of the
Partnerships; (ii) the Consolidation is not consummated, then JMC's investment
in the Company will be worthless; and (iii) even if the Consolidation is
consummated, there is no assurance as to the value of the Common Stock
purchased by JMC, since the $10 per Share amount assigned to the Shares has
been arbitrarily determined (See "THE CONSOLIDATION -- Exchange Value and
Allocation of Shares").
With respect to the fees paid to JMC for management, remarketing,
release and other services (See "MANAGEMENT" and "COMPENSATION PAYABLE TO
CORPORATE GENERAL PARTNER AND AFFILIATES AND MANAGEMENT COMPANY"), the General
Partner and the Company have determined that such fees are fair and reasonable
to the Company, and therefore the Investors. Such fees are not disparate from
the fees currently paid by the Partnerships to the General Partner, and based
upon its analysis of the industry, the General Partner and the Company have
determined that such fees are not less favorable than those terms that could be
obtained from the Company from an independent third-party management company.
Finally, the General Partner has determined that the compensation
payable to the Dealer Manager, an affiliate of Richard D. Koehler, an Individual
General Partner, is fair to the Company and the Investors. The General
Partner believes that the investment banking fee of $80,000 and warrants for
35,000 Shares is no less favorable, and likely substantially less, than the fee
that would be charged by any other broker dealer engaged in investment banking.
Furthermore, because the Dealer Manager acted as the underwriter for the
JetFleet I and JetFleet II offerings, it offers a relationship and/or contact
with the Investors that will be valuable in soliciting Investor consents and
providing information to Investors.
The General Partner believes that the Consolidation is fair from a
procedural standpoint for the following reasons. Most importantly, all
Investors will be afforded the opportunity to vote on the Consolidation. Those
that do not vote in favor of the transaction will be given the opportunity to
exercise dissenters' rights, whereunder the dissenting Investor will be
entitled to receive the fair value of the Units held by him or her. See
"DISSENTERS' RIGHTS." The General Partner believes that the Exchange Values
upon which the conversion ratios from Units to Shares will be based have been
determined according to a process that is fair, because such process is based
on appraisals of all properties of the Partnerships by the same nationally
recognized independent appraisal firm, which is intended to maximize
consistency among the appraisals. In addition, the Exchange Values include
adjustments for the Partnership's liabilities. Second, the similarities in the
Partnerships and its assets simplifies relative valuation of the Exchange
Values for the Partnerships.
NO FAIRNESS OPINION OBTAINED
The General Partner determined that due to the nature of the
Consolidation and the Partnerships as described above, a third party fairness
opinion was unnecessary, and that obtaining such an opinion would result in a
significant increase in the cost of the transaction without any significant
incremental benefit to the Investors, the Partnerships or the Company.
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MATERIAL FACTORS UNDERLYING BELIEF AS TO FAIRNESS
The following is a discussion of the material factors, in order of
importance as determined by the General Partner, underlying the General
Partner's belief that the terms of the Consolidation are fair to the Investors
and as a whole.
1. Independent Appraisals. The General Partner's belief as to
fairness of the Consolidation as a whole and to the Investors, and the General
Partner's statements above regarding the material terms underlying their belief
as to fairness, are based primarily on the appraisals rendered by the Appraiser.
The General Partner attributed significant weight to these appraisals and
believes that these independent appraisals support the conclusion that the
Consolidation is fair to the Partnerships as a whole and to the Investors. The
General Partner does not know of any factors that relate to the conclusions in
the appraisals, including developments or trends that have materially affected
or are reasonably likely to materially affect such conclusions.
2. Consideration Offered. The next most important consideration
with respect to fairness considered by the General Partner was the form and
amount of consideration offered to Investors, including Dissenting Investors.
The number of Shares to be issued to each Partnership is based on the same
valuation methodology consistently applied to each of the Partnerships.
Therefore, the General Partner believes that the Exchange Value adequately
takes into account the relative value of each of the Partnerships.
3. Voting Procedures and Dissenters' Rights. A third factor was
the General Partner's belief that the voting process and alternatives presented
to Investors, including Dissenting Investors, are fair. Each Investor has the
opportunity to make his investment decision by deciding whether to vote "YES,"
"NO" or "ABSTAIN" with respect to the Consolidation. Those Investors who do
not vote "YES" on the Consolidation may be entitled to statutory dissenter's
rights to receive the value of their Units as of the time of the announcement
of the Consolidation which will be based upon the estimated proceeds of an
orderly sale of the Partnerships' assets. The General Partner has proposed to
change the dissenters' appraisal rights for JetFleet II Investors in order to
make these rights consistent with applicable California law. See "VOTING
PROCEDURES," and "DISSENTERS' RIGHTS."
4. Compensation Payable to General Partner and JMC. A fourth
factor considered by the General Partner with respect to fairness is the
compensation arrangements with the General Partner and JMC, as sponsor and
management company. The Corporate General Partner will receive no more than
that to which is entitled under the Partnership's Limited Partnerships
Agreement. No compensation will be payable by the Partnerships or the Company
to the General Partner once the Consolidation is consummated.
The compensation payable to JMC by the Company is not widely disparate
from that currently payable by the Partnerships to the Corporate General
Partner, and is reasonable and customary for the aircraft leasing industry.
While JMC did purchase founding stock of the Company at a price of $1.00 per
Shares, the pricing of this initial capitalization is fair in light of the risk
involved in organizing the Company and the possibility of the loss of JMC's
entire investment in the Company if the Consolidation is not approved.
5. Similarity of Partnerships. The final factor considered by
the General Partner was the similarity of the Partnerships. The General
Partner does not believe that there are any material differences among the
Partnerships which would affect the fairness of the Consolidation.
Substantially all of the assets of the Partnerships are aircraft equipment that
are similar in nature and no Partnership is leveraged; in fact, approximately
$4.1 million of the total $16.4 million of assets (based on current value
appraisals as of February 4, 1997 and including the AeroCalifornia DC-9 finance
leases) of the Partnerships are owned in joint tenancy by JetFleet I and
JetFleet II.
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All of the assets of JetFleet I are co-owned with JetFleet II.
The Consolidation is not a proposal for bringing together investments
in different types of aircraft assets. In addition, the investment objectives
of each of the Partnerships are substantially similar. The substantially
uniform nature of the potential pool of aircraft assets of the Company, the
absence of leverage and the similar investment objectives of the Partnerships
help ensure that the Investors in each Partnership receive a number of Shares
which accurately reflects their proportional ownership of the assets
contributed by their Partnership to the Company.
The differences among the Partnerships are as follows:
o Amount of Equipment Owned. Based on appraised
values, JetFleet II owns assets with values almost
eight times the value of those owned by JetFleet I.
o Cash Distributions. There is currently a disparity
between the cash distributed by the two Partnerships.
JetFleet I currently makes cash distributions at a
rate of $2.00 per year per Unit JetFleet II,
distributes approximately $5.00 per year per Unit in
income to its partners.
o Partnership Structure. Although the Partnerships
have slightly different provisions with respect to
allocations, distributions and fees, the General
Partner believes the differences in such provisions
are not substantial.
o Size and Diversity. JetFleet I has acquired fewer
properties and is less diverse with respect to its
assets than JetFleet II.
The General Partner believes that the foregoing differences are either not
consequential to the allocation of Shares between the Partnerships or are
adequately addressed in the formula used to allocate the Shares.
FACTORS AFFECTING FAIRNESS
Other than as described above and in "RISK FACTORS" and "REPORTS,
OPINIONS AND APPRAISALS," the General Partner does not know of any factors that
may materially affect (i) the value of the consideration to be received by the
Participating Investors in the Consolidation, (ii) the value of the Units for
purposes of comparing the potential benefits of the Consolidation to the
potential alternatives considered by the General Partner, or (iii) the analysis
of the fairness of the Consolidation.
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- --------------------------------------------------------------------------------
THE COMPANY
- --------------------------------------------------------------------------------
GENERAL
As a result of the Consolidation, the Company would have the potential
to raise capital in order to permit growth of the Company's business and
potentially increase efficiency. As a result, the Company will be positioned
to provide competitive sale-leaseback and other types of financing to the
regional air carrier segment of the aircraft finance industry thereby enhancing
its market position. The Company believes that critical attributes of
providing competitive sale-leaseback and other types of financing include:
o the ability to be a source of financing for lessees,
o the ability to provide commitments for investment
opportunities,
o the ability to tailor investment structures to meet lessee/
borrower needs, and
o the ability to offer competitive rates and terms.
COMPETITIVE ADVANTAGES
The Company believes it will have certain potential competitive
advantages which will enable it to be selective with respect to aircraft
equipment investment opportunities. These advantages should enhance the
Company's ability to meet its investment objective of enhanced Stockholder
value. The Company's competitive advantages may include:
o Size - The Company will be one of the only aircraft leasing
companies in the United States specializing exclusively in used
turboprop aircraft that is not captive to a particular manufacturer.
The capitalization of the Company will permit it to invest in both
large and small investments of this type. The Company believes that
its significant size relative to each Partnership will permit the
Company to obtain capital from various sources at more competitive
rates than would a single Partnership.
o Diversification - If both Partnerships participate in the
Consolidation, the Company's equipment investments will be comprised
of over 7 aircraft and 25 engines which are diversified by lessee,
aircraft type, and geographic location. As the Company grows, it is
anticipated that this diversification will have a favorable impact
upon the Company's access to, and cost of, capital.
o Management - The Company believes that Stockholders will
benefit from JMC's knowledge and industry relationships. The Company
believes that JMC's specialized ability to invest in and manage
aircraft assets will decrease investment risk and enhance
Stockholders' potential returns.
GROWTH OPPORTUNITIES
Based upon management's knowledge of the aircraft industry, management
believes that current market conditions in the aircraft industry, and in
particular, the Company's niche market, regional air carriers, offer the
Company an opportunity for potential growth and increased stockholder value.
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BUSINESS OBJECTIVES AND OPERATING STRATEGIES
The Company's principal business objectives are to achieve a stable
and increasing asset base along with increased cash flow, which will be
reinvested to achieve significant capital growth while also seeking to maintain
low investment risk. By achieving these objectives, the Company seeks to
enhance Stockholder value. The Company intends to achieve these objectives
through the following:
o The Company seeks to make aircraft investments which would be
funded either through the issuance of debt or the sale of
equity securities, either for cash or in exchange for desired
assets.
o Through active portfolio management and careful acquisition
underwriting, the Company seeks to create a pool of aircraft
equipment which provides higher returns with less risk than
the aircraft leasing industry experiences as a whole.
o The Company's management will continue to develop its aircraft
industry knowledge through continued research which will be
used to lower portfolio investment risk and enhance
Stockholders' returns.
o The Company intends to take advantage of administrative
economies of scale which have the potential to increase
profitability as the investment portfolio grows.
o The Company seeks to enhance its market position and existing
lessee and industry relationships in order to improve its
access to new investment opportunities.
The financing of additional aircraft equipment by the Company may be
funded through public or private offerings of equity securities in the Company,
by additional borrowings by the Company through various means, including public
or private offerings of convertible or nonconvertible debt securities or loans,
or by the use of cash flow from operations or proceeds from the sale or
remarketing of equipment (including the properties acquired pursuant to the
Consolidation). The Company has authority to offer shares of its capital stock
in exchange for equipment which conforms to its investment standards and to
repurchase or otherwise acquire its capital stock or other securities. Any
issuance of equity securities or convertible debt securities may, however, have
a dilutive impact on the stockholders of the Company. Currently, the Company
has no plans to invest in the securities of any other entity for the purpose of
exercising control. See "Equity Financing," below.
UNDER APPLICABLE LAW AND ITS CERTIFICATE OF INCORPORATION AND BYLAWS, THE
COMPANY IS AUTHORIZED TO CONDUCT ANY LAWFUL BUSINESS. THE FOREGOING
DESCRIPTION OF THE MAJOR POLICIES AND THE VARIOUS TYPES OF INVESTMENTS TO BE
MADE BY THE COMPANY REFLECT ONLY THE CURRENT PLANS OF THE COMPANY'S BOARD OF
DIRECTORS. SUCH PLANS AND THE METHODS OF IMPLEMENTING THEM MAY VARY AS NEW
INVESTMENT STRATEGIES AND TECHNIQUES ARE DEVELOPED. THE COMPANY RESERVES THE
RIGHT AT THE SOLE DISCRETION OF ITS BOARD OF DIRECTORS TO ALTER THE NATURE AND
TIMING OF THE COMPANY'S BUSINESS POLICIES IN ORDER TO RESPOND TO CHANGING
MARKET CONDITIONS AND OPPORTUNITIES.
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PROPERTIES OF THE COMPANY
The Company was recently formed and therefore does not currently own
any equipment assets. The Company's initial portfolio will consist of the
equipment of the Participating Partnerships. For information about the
properties owned by the Partnerships in which the Company may obtain an
interest as a result of the Consolidation, see "PROPERTIES OF THE
PARTNERSHIPS."
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company was formed on February 28, 1997 and has not yet had any significant
operations.
Results of Operations. The Company has yet to generate a profit due
to the fact the Company was recently formed. The Company does not anticipate
significant operating activity, other than incurring merger costs in connection
with the proposed Consolidation.
Liquidity and Capital Resources. The Company's cash and temporary
investments were $150,000 as of March 5, 1997. The Company estimates that
costs associated with the Consolidation will be approximately $250,000. It is
anticipated that such offering costs in excess of current cash balances will be
financed through short-term payables and paid at the time of the Consolidation.
Should the Consolidation not occur, the Company's sole stockholder, JetFleet
Management Corp., has committed to pay such costs.
Competition. Upon Consolidation, the Company will compete with
aircraft manufacturers, distributors, airlines and other operators, equipment
managers, leasing companies, equipment leasing programs, financial institutions
and other parties engaged in leasing, managing or remarketing aircraft, many of
which have significantly greater financial resources and more experience than
the Company.
Investment Objective. The Company's investment objective is to
maximize the value of the Shares. There can be no assurance that this
objective will be realized.
BORROWING POLICIES
The Company will be permitted to borrow for such purposes as approved
by the Board of Directors. Debt financing will subject the Company to risks of
leveraging. See "RISK FACTORS -- Risks and Other Factors Relating to
Consolidation--Risks Attendant to Additional Debt or Equity Financings.
EQUITY FINANCING
The financing of additional aircraft equipment by the Company may be
funded through public or private offerings of equity securities of the Company.
Such equity financings are potentially the most efficient and cost-effective
manner of raising capital for the Company. Equity securities sold in such a
financing may be Common Stock of the Company or may be shares of a class of
Preferred Stock, which Preferred Stock may be authorized and designated by the
Board of Directors without the approval of the Stockholders. Such Preferred
Stock may carry certain rights and preferences senior to the rights of holders
of Common Stock. Any issuance of equity securities would result in dilution of
the Investors' interest in the Company.
The Company has authority to offer shares of its capital stock in
exchange for equipment or other assets and to repurchase or otherwise acquire
its capital stock or other securities. The Company may also use shares of its
capital stock to acquire other companies engaged in aircraft
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leasing subject to stockholder approval, if required. The Company has an
option to purchase the management company, JMC, and the purchase price for JMC
may be payable in registered Common Stock of the Company.
FUTURE SALES
It is not the present intention of the Company to sell any particular
asset. However, the Company may consider selling one or more of the assets in
the event circumstances should arise which would make the sale advisable and
the Company intends to reinvest some or all of the proceeds of such sale rather
than distribute them to Stockholders in the form of a taxable dividend.
LISTING, PRICE, TRADING AND HOLDERS OF SHARES
Listing and Price. The Company has applied to list the Common Stock
on the American Stock Exchange under the symbol "________", subject to official
notice of issuance. Prior to the Consolidation, there will be no established
public trading market for the Shares and the Shares will not be listed on any
national securities exchange or quoted on the NASDAQ. Therefore, no sale or
bid price information is available with respect to the Shares.
Trading. Shares received by Participating Investors in the
Consolidation will be freely transferable, except for Shares received by
persons who may be deemed to be affiliates of the Company under the Securities
Act. Persons who may be deemed to be affiliates of the Company after the
Consolidation generally include individuals or entities that control, are
controlled by, or are under common control with the Company and may include
certain principal stockholders of the Company. Persons who are affiliates will
be permitted to sell their Shares only pursuant to an effective registration
statement under the Securities Act or an applicable exemption from registration
under the Securities Act. See "DESCRIPTION OF COMMON STOCK--Restrictions on
Ownership and Transfer" for a description of the limitations on the transfer
and ownership of the Shares. Due to the unique position of the Company within
its market, the Company anticipates that after the Consolidation, it may adopt
a shareholder rights plan that could restrict business combinations and similar
transactions between the Company and significant shareholders of the Company.
Pursuant to Section 203 of the Delaware GCL, certain business combinations with
stockholders owning 15% or more of the Company's outstanding stock are
prohibited for three years after the stockholder acquires such stock. See
"COMPARISON OF LIMITED PARTNERSHIP AND CORPORATE STRUCTURE."
JMC Shares. As of the date of this Prospectus, JMC is the sole
stockholder of the Company, owning 150,000 shares of Common Stock. JMC has
been managing the business of the Partnerships since 1994, under a management
agreement between the General Partner and JMC. JMC has entered into a
management agreement with the Company to act as the management company for the
Company upon consummation of the Consolidation. See "MANAGEMENT -- The
Management Company." As part of the compensation to JMC for its management
services, the Company issued 150,000 shares of its Common Stock at a price of
$1.00 per share pursuant to a Restricted Stock Purchase Agreement. The
Restricted Stock Purchase Agreement contains an 18-month vesting schedule and
grants the Company the right to repurchase shares of unvested Common Stock if
the Management Agreement with JMC is terminated prior to the full vesting date.
The issuance of such stock was made in reliance on an exemption from the
Securities Act provided by Rule 701 thereunder. Since the shares of Common
Stock were issued at inception of the Company, and since the Company will not
show any net worth other than the stock purchase price paid, and will only have
value if the Consolidation is approved, which is not certain at this time, the
price of the Common Stock was arbitrarily set at $1.00 per share.
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The proceeds of the purchase of Common Stock by JMC are being used by
the Company to fund the organization of the Company and to pay for certain
expenses in connection with the consent solicitation and proposed
Consolidation.
Dividend Policy. The Board of Directors will periodically evaluate
its dividend policies, and will not be prohibited from declaring dividends by
any organizational corporate document. The Company does not intend to pay
dividends, but instead anticipates re-investing earnings into additional
assets.
For a discussion of the tax treatment of distributions to the
Stockholders, see "FEDERAL INCOME TAX CONSIDERATIONS--Taxation of the Company."
STATUS OF THE COMPANY UNDER ERISA
The Company will receive an opinion of Graham & James LLP, as of the
Effective Time to the effect that based on certain assumptions concerning the
public ownership and transferability of the Common Stock, shares of Common
Stock should be "publicly-offered securities" for purposes of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") and that,
consequently, the assets of the Company should not be deemed "plan assets" of
an ERISA plan, individual retirement account, or other non-ERISA plan that
invests in the Common Stock. If the Company's assets were deemed to be plan
assets of any such plan, then, among other consequences, certain persons
exercising discretion as to the Company's assets would be fiduciaries under
ERISA, transactions involving the Company undertaken at their discretion or
pursuant to their advice might violate ERISA, and certain transactions that the
Company might enter into in the ordinary course of its business might
constitute "prohibited transactions" under ERISA and the Code.
BENEFICIAL OWNERSHIP OF DIRECTORS, OFFICERS AND PRINCIPAL SHAREHOLDERS
The following table sets forth the number and percentage of Shares of
the Company expected to be held upon the Consolidation by persons owning five
percent or more of the Shares, each director of the Company and all directors
and officers of the Company as a group, assuming both JetFleet I and JetFleet
II participate in the Consolidation. The exact percentage of ownership of
Shares by such persons will be affected by whether JetFleet I participates in
the Consolidation along with JetFleet II and the number of Participating
Investors receiving Shares of Common Stock.
ASSUMING 100%
PARTNERSHIP PARTICIPATION
Number of
Name and Position Shares Percent
- ----------------- ---------- -------
JetFleet Management Corp., 150,000 9.09%
Principal Shareholder
All Officers and Directors 150,000 9.09%
of the Company (1) (2)
- ---------------------------
(1) None of the officers and directors of the Company will hold shares of the
Company immediately after the Consolidation. The shares listed represent
shares held by JetFleet Management Corp. Mr. Crispin and Ms. Perazzo own 79%
and 12%, respectively, of the Common Stock, and are directors and officers, of
JetFleet Management Corp.
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(2) Does not include 67,793 Shares, (4.2% of the outstanding Common Stock), to
be issued to the General Partner, CMA Capital Group, Inc. Richard D. Koehler,
an Individual General Partner, and Neal D. Crispin, an Individual General
Partner, are 91% and 9% shareholders, respectively, of the parent corporation
of CMA Capital Group, Inc. Does not include 35,000 shares issuable under a
warrant issued to Dealer Manager, CKS. Richard D. Koehler, an individual
general partner, and Neal D. Crispin, an Individual General Partner, are 91%
and 9% shareholders, respectively, of the parent corporation of CKS, Crispin
Koehler Holding Corp. Mr. Koehler is also a director and officer of CKS and
Crispin Koehler Holding Corp.
PRINCIPAL EXECUTIVE OFFICES AND EMPLOYEES
The Company was organized under the laws of the State of Delaware on
February 28, 1997 to facilitate the Consolidation and for all lawful purposes,
including financing, acquiring, managing and disposing of aircraft assets. The
Company's executive offices are located at 1440 Chapin Avenue, Suite 310,
Burlingame, California 94010 and its telephone number is (415) 696-3900. Upon
completion of the Consolidation, it is anticipated that the Company will have
no employees, as all management will be provided by JMC pursuant to the
management agreement.
ACQUISITION POLICIES
THE COMPANY IS AUTHORIZED TO CONDUCT ANY LAWFUL BUSINESS. THE FOLLOWING
DESCRIPTION OF THE MAJOR POLICIES AND THE VARIOUS TYPES OF INVESTMENTS TO BE
MADE BY THE COMPANY REFLECT ONLY THE CURRENT PLANS OF THE COMPANY'S BOARD OF
DIRECTORS. THE METHODS OF IMPLEMENTING THE COMPANY'S INVESTMENT POLICIES MAY
VARY AS NEW INVESTMENT TECHNIQUES ARE DEVELOPED. THE COMPANY RESERVES THE RIGHT
AT THE SOLE DISCRETION OF THE BOARD OF DIRECTORS TO ALTER THE NATURE AND TIMING
OF THE COMPANY'S BUSINESS POLICIES IN ORDER TO RESPOND TO CHANGING MARKET
CONDITIONS AND OPPORTUNITIES.
General. Subsequent to the Consolidation, the Company intends to
purchase additional income producing equipment assets ("Equipment"). The
Company anticipates that these assets will be equipment, consisting mainly of
aircraft, aircraft engines, aircraft parts or other equipment subject to
operating or full payout leases with third parties. Though the Company
anticipates that it will concentrate on turbo-prop equipment, it may also
purchase jet aircraft or helicopter equipment. The Company may also, however,
acquire certain financial assets, such as indebtedness secured by Equipment, or
income streams from Equipment Leases.
JMC will select the assets, or interests therein, which the Company
will acquire, and will negotiate the terms of acquisition. For these services
as well as others performed under the Management Agreement, JMC will receive a
monthly Management Fee based upon the book value of the Company's assets. See
"MANAGEMENT OF THE COMPANY--The Management Company." JMC may engage one or
more third parties, such as third party brokers, to assist it in identifying
assets for acquisition, and their fees will be included in the Adjusted
Purchase Price to be paid by the Company. In such a case, however, it will be
the responsibility of JMC to select from the assets identified by such a third
party those specific assets which the Company will purchase.
Certain Criteria. Among the factors JMC expects to examine in
selecting Equipment are the history of the aircraft or aircraft engine model,
the size and characteristics of the use base, airworthiness directive and
service bulletin compliance, noise requirement compliance, and the age and
maintenance history of any particular aircraft or equipment. JMC will attempt
to obtain, where possible, from the seller of the Equipment acquired by the
Company a residual value guarantee whereunder the Company can require the
seller to repurchase, at the Company's option, the
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Equipment at a repurchase price, which when added to the lease rentals received
from the lessee of the Equipment would result in a return of capital invested
in the Equipment.
Equipment. The Company may acquire aircraft, aircraft engines,
aircraft spare parts and equipment inventories as part of its Equipment
portfolio. In addition, the Company may purchase appliances, parts,
instruments, accessories and other equipment related to aircraft for
installation on aircraft previously purchased by the Company.
Financial Assets. Although the Company anticipates acquiring
primarily Equipment subject to Leases, the Company may also acquire certain
income-producing assets relating to Equipment such as participation in part or
all of a loan secured by Equipment, Equipment lease positions or other rights
to rental income from the lease of Equipment.
Adjusted Purchase Price. The Company will not acquire an interest in
an asset without first obtaining an appraisal of the fair market value of the
asset from an independent appraiser. Generally, it will be the Company's
policy that the Adjusted Purchase Price of any asset purchased by the Company
will not exceed its fair market value at the time of purchase as so appraised.
The Adjusted Purchase Price includes all Chargeable Acquisition Costs
incurred in connection with the selection and purchase of the aircraft, such as
legal and accounting costs, appraisal costs, travel and communication expenses
and the like. JMC or an Affiliate may receive a brokerage fee for locating
assets for the Company, provided that such fee is not more than the customary
and usual brokerage fee that would be paid to an unaffiliated party for such a
transaction; provided further that if the brokerage fee is paid by the Company,
the Adjusted Purchase Price plus the brokerage fee shall not exceed the fair
market value of the asset at the time of the purchase as Appraised by the
Appraiser.
LEASES
The Company will generally invest in assets subject to triple net
leases ("Triple Net Leases"), which require the lessees to pay all costs of
aircraft maintenance, insurance and taxes; however, under current market
conditions, the allocation of certain costs may be subject to negotiations.
There are two types of Triple Net Leases: Operating Leases and Full
Payout Leases. Operating Leases are leases under which the lessor receives
aggregate rental payments in an amount that is less than the purchase price of
the Equipment and related acquisition costs. Full Payout Leases are leases
under which the non-cancelable rental payments due during the initial term of
the lease are at least sufficient to recover the purchase price of the
Equipment. There can be no assurance as to the Company's actual mix of
Operating Leases and Full Payout Leases.
The Company anticipates that a lessee of Equipment will insure the
Equipment against risk of loss and the Company against third party liability
claims, although there is no assurance that all Equipment will be so insured
against all risks. There are certain categories of risk of loss which may be
or may become either uninsurable or not economically insurable, such as war,
earthquakes and floods. The Company may permit a lessee to self-insure against
such casualties, upon determination that such lessee has the financial ability
to do so without unreasonable risk to the Company. An uninsured loss with
respect to the Equipment or an insured loss for which insurance proceeds are
inadequate, would result in a possible loss of invested capital in and any
profits anticipated, from such Equipment. With respect to third party
liability, under common law, the owner of transportation equipment may be held
liable for injuries to passengers or damage to property, and the amount of such
liability can be substantial. However, with respect to aircraft equipment, the
United States Aviation Act provided that a lessor of aircraft will not be
liable for any injury, death or property damage caused by the aircraft if the
lessor was not in actual
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possession or control of the aircraft at the time of the accident. Because
there is little case law interpreting this federal law, there can be no
assurance that the law will fully protect the Company from all liabilities in
connection with any injury, death, damage or loss that may be caused by the
Equipment. For example, the law may not preempt state law with respect to
liability for third party injuries arising from a lessor's or owner's own
negligence. Additionally, those provisions of the Aviation Act are not
available to any aircraft equipment that is not United States registered.
In addition, under most aircraft leases, the lessee may (i) subject
the aircraft to normal interchange agreements (i.e., temporary borrowing of
equipment or components) with other FAA-certified air carriers; (ii) enter into
a "wet lease" (i.e., with crew and services provided by the lessee of aircraft
to other air carriers in accordance with normal industry practice); (iii)
sublease the aircraft to United States air carriers and/or a selected,
specified group of foreign air carriers; (iv) transfer possession of the
aircraft to any agency of the United States government; or (v) deliver
possession of the aircraft to the manufacturer for testing, service,
maintenance and repair. Under most aircraft leases, the rights of any
permitted transferee are subject and subordinate to all of the lessor's rights
under, and all of the terms of, the lease, including the lessor's right to
repossess the equipment, and the lessee remains primarily liable for continued
rent payments to the lessor under the lease, as well as for the due performance
of all of its other obligations under the lease. The lessor's ability to
repossess the aircraft from the permitted transferee, however, may be
restricted by applicable insolvency and bankruptcy laws, as well as by the laws
of a foreign country if the permitted transferee is a foreign air carrier (See
"--Lessees" below).
LESSEES
No Equipment or interests in Equipment will be purchased or financed
by the Company unless the lessee under the lease for the asset or the obligor
under the financing (the "Payer") (or the parent of the Payer, if the parent is
responsible for the Payer's obligations under the lease or if the Payer is a
principal operating subsidiary of the parent) is deemed to be creditworthy by
the Company's management. Management will evaluate the Payer's (or its
parent's) net worth, liquidity, debt burden, credit rating, payment history and
other financial factors. Management will use the credit ratings assigned to
the Payer by nationally recognized credit rating agencies, to the extent such
credit ratings are available. If no ratings by a nationally recognized credit
rating agency are available, management will rely upon its own evaluation of
the Payer's credit position, using the financial information available as to
the Payer and such credit information as is available from banks, industry
sources and others. In some circumstances, credit enhancements may be
available, such as guarantees by others of the Payer's performance or rent
deposits. In order to provide flexibility to allow management to take
advantage of attractive acquisition and leasing opportunities, management will
not be limited by specific guidelines in approving potential Payers. The
Company may even, in some cases, acquire an asset whose Payer may be in
bankruptcy or other reorganization proceedings, if the return is sufficiently
attractive relative to other available transactions and management deems the
risk of default to be reasonable in light of the business circumstances.
There can be no assurance that the lessee's creditworthiness will not
deteriorate or that the lessee will fully perform its payment obligations under
the lease. If a lessee enters bankruptcy, it is quite possible that even
though the lessee's lease payments cease, the Company may be deprived of the
possession of the Equipment. The Company would then have to re-lease or sell
the Equipment at a time that might not be opportune, thus resulting in the loss
of anticipated revenues, incurring of additional expenses and the inability to
recover the Company's investment in the Equipment.
Because the Company intends to concentrate on leases to regional air
carriers, it will be subject to additional risks. First, lessees in the
regional air carrier market include a number of companies that are start-up,
low margin operations. Often, the success of such carriers is
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dependent upon arrangements with major trunk carriers, which may be subject to
termination or cancellation by such major carrier. This market segment is also
characterized by low entry costs, and thus, there is strong competition in this
industry segment from start-ups as well as major airlines. Thus, leasing
transactions with these types of lessees result in a generally higher lease
rate on aircraft, but also entails significantly higher risk of default or
lessee bankruptcy. The Company will evaluate the credit risk of each lessee
carefully, and will attempt to obtain third party guaranties, letters of credit
or other credit enhancements, if it deems such is necessary. There is no
assurance, however, that such enhancements will be available or that even if
obtained will fully protect the Company from losses resulting from a lessee
default or bankruptcy.
Approximately 14.5% (based on the current value appraisal) of the
Partnerships' assets are leased to foreign lessees. Because the regional
market is growing worldwide, the Company may purchase assets on lease to
foreign lessees to take advantage of market opportunities. It is, however,
impossible to predict whether the proportion of foreign lessees to U.S. lessees
entering into leases with the Company will be the same, or higher or lower than
that for the Partnerships. In any event, leasing equipment to foreign lessees
involves additional risks. For example, use of different accounting or
financial reporting practices in foreign countries may make it difficult to
judge accurately the creditworthiness of lessees from those countries. In
addition, it may be difficult or impossible for the Company to obtain or
enforce judgements against any foreign lessees in the event they default under
the leases. Lessees of the Equipment may operate the Equipment outside the
United States, may be foreign carriers or may sublease the Equipment to foreign
carriers. In such cases, the Equipment may be subject to the regulations of
other countries regarding registration, maintenance, noise control, liability
of aircraft owners and lessors and other matters. Compliance with these
regulations could be costly. Moreover, foreign jurisdictions may confiscate or
appropriate Equipment without paying adequate compensation.
The use and operation of Equipment in a foreign jurisdiction will be
subject to the laws of that jurisdiction, which may impose unanticipated taxes
on the ownership of the Equipment or the income derived from the Equipment.
Foreign registries may permit the recordation of liens which would cloud title
or may omit record liens or charges permitted under the law of such countries.
There is also a risk that the records maintained for the Equipment abroad might
not be adequate to permit transfer of title registration. The Company may also
be subject to risks associated with fluctuations in the value of currencies if
Equipment sales and leasing transactions are not denominated for payment in
United States dollars. Moreover, many foreign countries have currency and
exchange laws regulating the transfer of currencies, and such laws may preclude
a foreign lessee from making payments to the Company in United States dollars.
REMARKETING
General. Following the expiration of each initial lease of Equipment
purchased by the Company and any subsequent lease entered into by the Company,
the Company will seek to remarket the equipment; that is, the Company will seek
either to extend the existing lease (or re-lease the equipment to the same
lessee), re-lease the equipment to a new lessee, or sell the equipment.
The success of the Company will depend on, among other things, the
quality of the Equipment it purchases, the quality and level of maintenance and
repairs by the lessee, the timing of the purchases by the Company, and the
Company's ability to anticipate technological advances and regulatory
requirements concerning its Equipment. Further, in order to ensure that
equipment is suitable for re-lease or sale, the Company may be required to
spend substantial sums to recondition or reconfigure the Equipment and may be
required to borrow funds for that purpose.
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The Company's successful negotiation of lease extensions, re-lease and
sales may be critical to its ability to achieve its financial objectives, and
will involve a number of factors. In the first instance, its ability to
re-lease or resell equipment at acceptable rates may depend on the demand and
market values at the time of re-lease or resale. The market for used aircraft
is cyclical, with the demand for and resale value of many types of older
aircraft in the recent past having been depressed by such factors as airline
financial difficulties, increased fuel costs, the number of older aircraft
coming off lease. Currently, the aircraft industry appears to be on an upturn
and demand and equipment prices and rental rates have been strengthening. See
"BACKGROUND AND REASONS FOR THE CONSOLIDATION -- Aircraft Industry Outlook."
There is no assurance that this improvement will continue. The Company's
expected concentration in a limited number of aircraft and aircraft engine
types subjects the Company to increased economic risks if those aircraft and
aircraft engine types should decline in value. Future changes in oil prices,
or in expectations concerning future oil prices, may affect significantly the
demand for and value of the Company's assets. The resale value of particular
aircraft could also be adversely affected by technological changes, including
developments improving fuel consumption, aircraft speed and noise control. In
addition to general market factors, the residual value of a specific aircraft
will be affected by the past use of the aircraft, particularly its number of
cycles (take-offs and landings), and the condition of the aircraft. Due to the
Company's intention to acquire used Equipment, the risks involving older
aircraft may be applicable to the Company. Due to the uncertainties involving
these and other demand factors, there can be no assurance that there will be
demand for the Equipment on commercially acceptable terms at the termination of
the leases. The Company will attempt, wherever possible, to obtain a residual
value guarantee from the seller of Equipment, whereunder the seller guarantees
repurchase of the Equipment at a price which, when added to the lease rental
revenue received from the lessee, results in a return of the purchase price
plus the Company's initial costs therefor.
The state of the economy, uncertain traffic levels and intense route
and fare competition, among other factors, have adversely affected economic
conditions in the airline industry. Several commercial airlines in recent
years have declared bankruptcy or have been forced to suspend, cease or
consolidate operations due to financial difficulties. Liquidation of the fleet
of any major commercial airline would have a substantial adverse effect on the
residual values of all aircraft and aircraft engines, particularly if that
fleet contained a high proportion of turboprop aircraft.
Remarketing Arrangement. Under the Management Agreement, JMC has
overall responsibility for the management and remarketing of the Company's
assets. JMC may charge the Company a remarketing fee, provided that such fee
is not more than the customary and usual brokerage fee that would be paid to an
unaffiliated party for such a transaction. JMC may also use the services of
third party brokers in remarketing the Equipment. At this time, no
arrangements with such brokers have been entered into with respect to the
Company's Equipment.
REGULATORY CONCERNS
General. The use, maintenance and ownership of certain types of
equipment are regulated by federal, state and/or local authorities which may
impose restrictions and financial burdens on the Company's ownership and
operation of Equipment and, accordingly, affect the profitability of the
Company. Changes in government regulations or industry standards, or
deregulation, may also affect the ownership, operation and resale of Equipment.
Equipment acquired by the Company may be registered in countries other than the
United States and will likely operate in international and foreign territories.
This would expose the Equipment to the risk of foreign expropriation and risk
of loss from war.
Aircraft Noise Abatement. Pursuant to the Noise Control Act of 1972
and the Aviation Safety and Noise Abatement Act of 1979, the FAA has
promulgated a series of regulations designed to control and abate aircraft
noise. The FAA regulations referred to above address certification
requirements and prescribe operating noise limits and related requirements that
apply to
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operation of civil aircraft in the United States. Noise level restrictions are
only applicable to certain types of aircraft initially certified after 1975.
Generally, turboprop aircraft comply with the current aircraft noise
requirements known as Stage 3 requirements. Though the Company anticipates
purchasing equipment that comply with Stage 3 requirements, it will not be
restricted from doing otherwise.
State legislatures and other governmental bodies, as well as some
airport authorities, have adopted or considered noise reduction measures,
including restrictions on use or operation of, and restrictions on, types of
aircraft. The United States Department of Transportation has encouraged
airport authorities to develop noise abatement plans and submit them to the FAA
for review and consideration of their uniformity, lawfulness and
nondiscriminatory nature. In the absence of such a policy, regulations
restricting the use of airports or requiring modification of equipment or
substitution of aircraft, particularly state or local regulations which vary in
uniformity, could increase operating costs or affect the choice of aircraft by
operators, and, therefore, could adversely affect the profitability of the
operations of the Company.
Safety Requirements. In addition to registration, the FAA imposes
strict requirements governing aircraft inspection and certification,
maintenance, equipment requirements, general operating and flight rules
(including limits on arrivals and departures), noise levels and certification
of personnel and record-keeping in connection with aircraft maintenance. FAA
regulations establish standards for repairs, periodic overhauls and alterations
and require that the owner or operator of an aircraft establish an
airworthiness inspection program to be carried out by certified mechanics
qualified to issue an airworthiness certificate. No aircraft of the Company
may be operated without a current airworthiness certificate. In addition,
United States airlines have recently been subjected to heightened surveillance
by the Department of Transportation to determine economic fitness as it relates
to airline safety.
The Company, as the owner of Equipment, will bear the ultimate
responsibility for complying with federal regulations, although the Company
anticipates that lessees generally will be responsible for compliance under the
Triple Net Leases, except that certain items (including compliance with noise
abatement standards and increased regulatory requirements, if any, such as
those referred to above) may be the subject of negotiation and, therefore, may
become the responsibility of the Company (See "--Leases" above). Any increases
in those costs, and the uncertainty as to the amounts of future costs in a
changing regulatory environment, may decrease the value of the equipment and
reduce the amount realized by the Company upon re-lease or sale. Furthermore,
if an asset is not leased to a user at the time of such regulatory change, the
Company may be required to pay for such modification in order to make the
aircraft marketable. Changes in government regulations such as the ones
referred to above which occur subsequent to the Company's acquisition of
Equipment may increase the cost and other burdens of complying with such
regulations, may reduce the Company's cash flow and may adversely affect the
re-lease or resale value of its Equipment. The burdens of complying with these
regulatory requirements may be lessened in some situations in which aircraft or
engines are used in countries with less stringent regulations, although such
use may entail other economic risks.
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VOTING PROCEDURES
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THE VOTE OF EACH INVESTOR IS IMPORTANT. EACH INVESTOR IS URGED TO
MARK, DATE AND SIGN THE CONSENT CARD AND RETURN IT IN THE ENCLOSED ENVELOPE.
TIME OF VOTING
The vote of the Investors with respect to the Consolidation will be
tabulated on __________, 1997, unless such date is extended by the General
Partner in its sole discretion. The votes will be tabulated by D.F. King &
Co., Inc. (the "Information Agent"), which is not affiliated with the Company,
the Partnerships or the General Partner. See "-- Consent Card and Vote
Required."
RECORD DATE AND OUTSTANDING UNITS
The Consolidation is being submitted for approval to those Persons
holding Units as of the Record Date. The Record Date is May 1, 1997, for all
Partnerships. At the Record Date, the following number of Units were held of
record by the number of Investors indicated below:
Number of Units Number of Number of Units
Partnership Held of Record Existing Investors Necessary to Approve
----------- --------------- ------------------ --------------------
JetFleet I 296,069 1,051 148,035
JetFleet II 693,505 1,908 346,753
Each Investor is entitled to one vote for each Unit held.
Accordingly, the number of Units entitled to vote with respect to the
Consolidation is equivalent to the number of Units held of record at the Record
Date.
APPROVAL DATE
The Prospectus and form of Consent Card constitute the General
Partner's notice of the Consolidation. Each Investor has until 11:59 p.m.
Pacific Time, on_________, 1997, unless extended by the General Partner in its
sole discretion (the "Approval Date") to inform the General Partner whether
such Investor wishes to approve or disapprove of his Partnership's
participation in the Consolidation. The General Partner asks that each
Investor vote by completing and returning the form of Consent Card accompanying
this Prospectus in the manner described below.
CONSENT CARD AND VOTE REQUIRED
Investors who wish to vote "YES" for the Consolidation and the related
Amendments to the Partnership Agreements should complete, sign and return to
the Consent Card relating to the Units which accompanies this Prospectus. A
Consent Card and Letter of Instructions have been prepared for each Investor
and are enclosed with this Prospectus. Consent Cards must be delivered in
person or by mail or other delivery service to the Information Agent at the
following address on, or prior to, the Approval Date:
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If in person, to: If by mail, to:
D.F. King & Co., Inc. D.F. King & Co., Inc.
77 Water Street Post Office Box 1379
20th Floor New York, New York 10269-0296
New York, New York 10005 Attn: Tabulation Department
Approval of the Consolidation by a Partnership requires the vote of
Investors holding a majority of the outstanding Units of the Partnership as of
the Record Date. The following number of Units must be voted in favor of the
Consolidation for it to be approved by the respective Partnerships:
Number of Units Required
for
Partnership Approval of Consolidation
----------- -------------------------
JetFleet I 148,036
JetFleet II 346,754
Investors who wish to vote "NO" against the Consolidation should also
complete a Consent Card. Investors who sign and return the Consent Card
without indicating a vote will be deemed to have voted "YES" in favor of the
Consolidation. The failure to return a Consent Card will be the same as
abstaining from voting with respect to the Consolidation.
Investors of a Partnership which approves and participates in the
Consolidation will receive Common Stock of the Company unless the Investor
follows the procedure for becoming a Dissenting Investor. See "--DISSENTERS'
RIGHTS."
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
Partner; such determinations shall be final and binding. The General Partner
reserves the absolute right to waive any of the conditions of the Consolidation
or any defects or irregularities in any approval of the Consolidation or
preparation of the form of Consent Card. The General Partner's interpretation
of the terms and conditions of the Consolidation will be final and binding.
The General Partner shall be under no duty to give notification of any defects
or irregularities in any approval of the Consolidation or preparation of the
form of Consent Card and shall not incur any liability for failure to give such
notification.
REVOCABILITY OF CONSENT
Investors may withdraw or revoke their consent at any time prior to
the earlier of the Approval Date or the date on which the Consolidation is
approved by the holders of more than 50% of the outstanding Units of the
Investor's Partnership. TO BE EFFECTIVE, A WRITTEN, FACSIMILE, TELEGRAPHIC OR
TELEX NOTICE OF REVOCATION OR WITHDRAWAL OF THE CONSENT CARD MUST BE RECEIVED
BY THE INFORMATION AGENT NO LATER THAN THE APPROVAL DATE, ADDRESSED AS
FOLLOWS:_____________________________; PHONE ( ) ________; FACSIMILE ( )
__________. A notice of revocation or withdrawal must specify the Investor's
name and the name of the Partnership to which such revocation or withdrawal
relates.
SOLICITATION OF VOTES; SOLICITATION EXPENSES
Votes of Investors may be solicited by the management of the General
Partner, assisted by the Dealer Manager. Costs of solicitation will be
allocated as set forth in "THE CONSOLIDATION--Consolidation Expenses." No party
will receive any compensation contingent upon solicitation of a favorable vote.
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INVESTOR NAMES AND ADDRESSES
The General Partner will supply to any Investor a list of the names
and addresses of the general and limited partners of the Investor's
Partnership. The right to receive the list is subject to the Investor's
payment of the cost of mailing and duplication at a rate of $.25 per page. The
list will be mailed within 10 days of the receipt of the request. The list
will have the names in alphabetical order, will be on white paper, and will be
in a readily readable type size.
DISSENTERS' RIGHTS
Investors of a Participating Partnership who do not vote in favor of
the Consolidation are entitled to dissenters' or appraisal rights under the
California Partnership Act. Such rights, give the holders of securities the
right to surrender such securities for an appraised value in cash, if they
oppose a merger or similar reorganization. See "DISSENTERS' RIGHTS" for an
explanation of dissenter's rights procedures.
AMENDMENTS TO PARTNERSHIP AGREEMENTS
The Partnership Agreements do not specifically address the merger of
the Partnerships or the conversion of equity securities for Partnership Units.
The General Partner is therefore proposing to amend the Partnership Agreements
to include specific provisions regarding the Consolidation and the transactions
related thereto, including setting forth dissenters' rights provisions (the
"Amendments"). The proposed Amendments, the form of which is set forth in the
respective Partnership's Supplement to this Prospectus, expressly authorize all
actions necessary to successfully accomplish the Consolidation, including the
merger of the Partnership with and into the Company and the distribution of the
Shares to Participating Investors, and provide for a uniform dissenters'
rights procedure for both JetFleet I and JetFleet II Investors in compliance
with California law.
INVESTORS VOTING IN FAVOR OF THEIR PARTNERSHIP'S PARTICIPATION IN THE
CONSOLIDATION WILL ALSO HAVE VOTED IN FAVOR OF THE PROPOSED AMENDMENTS. Since
a Partnership's participation in the Consolidation and the approval of the
Amendments both require approval of Investors holding a majority of outstanding
Units of the Partnership, the Amendments will be effective as to each
Partnership participating in the Consolidation.
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DISSENTERS' RIGHTS
- --------------------------------------------------------------------------------
Since the Partnerships are California limited partnerships, the
Consolidation will be subject to the California Partnership Act, including
Chapter 7.6 regarding dissenting limited partners' rights. JetFleet II
Investors should note that the dissenter's rights provisions set forth here
differ from dissenters' rights provisions contained in the JetFleet II
Partnership Agreement. As part of the Consolidation, the latter provisions,
defining which Investors to have dissenters' rights, have been amended to
conform with the procedures set forth herein. See Supplement for JetFleet II.
Subject to certain conditions summarized below, Investors who do not
vote in favor of the Consolidation may be entitled under the provisions of
Section 15679.1, et seq., of the California Partnership Act to receive the fair
market value of their Units that are not voted in favor of the Consolidation
("Dissenting Units") based on their pro rata share of the net asset value of
their respective Partnership. Such rights to receive the fair market value of
the Dissenting Units are referred to herein as "Dissenters' Rights." The fair
market value of the Units of a Partnership is determined as of the date before
the first announcement of the terms of the Consolidation, excluding any
appreciation or depreciation in consequence of the proposed Consolidation.
Based on an independent third-party appraisal of the Appraiser of the assets of
the Company if sold in an orderly manner over a reasonable period of time, plus
or minus other balance sheet items and less the estimated cost of sale or
refinancing and in a manner consistent with industry practice, the fair market
values (based on such net asset value calculation) of a Unit of JetFleet I and
JetFleet II are $2.41 and $10.59, respectively.
To exercise Dissenters' Rights under the California statutory law with
respect to the Units, a Dissenting Investor must meet the following
requirements:
(a) The Investor must not have executed the Consent indicating
Investor's approval and consent to the Consolidation;
(b) Within 30 days after the date on which the Partnership and the
Company have given notice of the Approval of the Consolidation by the Investors
in the Partnership, the Investor must deliver a written demand ("Demand") to
the Company, demanding the purchase of Dissenting Units for cash at the fair
market value.
Thereafter, if the Company and the Dissenting Investor agree on a fair
market value for the Dissenting Units, the Dissenting Investor will be entitled
to receive from the Company the agreed price for such Dissenting Units in cash.
If the Company and the Dissenting Investor cannot agree on the fair market
value of the Dissenting Units, at any time within six months after the date of
the Notice of Approval, the Dissenting Investor may file a complaint in the
California Superior Court seeking a determination that the Units are dissenting
limited partnership interests and a determination of the fair market value of
those Units.
THIS SUMMARY OF APPRAISAL RIGHTS UNDER THE CALIFORNIA REVISED PARTNERSHIP ACT
IS QUALIFIED IN ITS ENTIRETY BY THE PROVISIONS OF CHAPTER 7.6 OF THE ACT
INCLUDED WITH THIS STATEMENT AS APPENDIX D. INVESTORS ARE URGED TO REVIEW THE
APPLICABLE LAW IN ITS ENTIRETY AND REVIEW THE PROVISIONS WITH THEIR LEGAL OR
FINANCIAL ADVISORS.
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COMPARISON OF LIMITED PARTNERSHIP AND CORPORATE STRUCTURE
- --------------------------------------------------------------------------------
The rights of Limited Partners are governed by the California Partnership Act
and the Partnership Agreements; the rights of Stockholders will be governed by
the Delaware GCL and the Organizational Documents of the Company. The
following summarizes the key material differences between Units and Shares.
UNITS SHARES
FORM OF ORGANIZATION
Each of the Partnerships is a limited partnership The Company was organized under the Delaware GCL as
formed under the California Partnership Act. Each a corporation.
Partnership has been treated as a partnership for
federal income tax purposes.
BUSINESS
The Partnership Agreements limit the business of the The Company will invest in aircraft equipment and
Partnerships to unleveraged investments in certain financial assets related to the aircraft industry
leased qualifying aircraft assets, and re-lease and and engage in any other business activities
resale of assets purchased during the offering permitted a corporation organized under the laws of
period for each of the Partnerships. The the State of Delaware. The powers, limitations and
Partnership Agreements do not permit the rights with respect to the operations conferred in
Partnerships to raise new capital. the Partnership Agreements will not be applicable to
the business activities of the Company. The Company
will be in the position to raise additional capital
through all available sources, including additional
equity financing, borrowings from banks,
institutional investors, public and private debt
markets or other financing vehicles which will be
dependent upon the market conditions, interest rates
and other factors.
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DURATION OF EXISTENCE
The Partnership Agreements provide that the In accordance with the Delaware GCL and the
Partnerships may exist for JetFleet I and JetFleet Company's Certificate of Incorporation, the Company
II until 2014 and 2010 respectively, and that the will continue in perpetual existence. The Company
Partnerships have a limited existence. If market has no present intention to sell any substantial
conditions permit, the Partnerships intend to hold assets, although it may do so at any time in
their respective properties as long-term investments accordance with the Delaware GCL.
for periods ranging from 19 to 25 years, although
the properties could be sold earlier if economic
conditions permit or later at the discretion of the
respective General Partner based upon its assessment
of prevailing economic factors.
INVESTMENT OBJECTIVES AND POLICIES
The principal investment objectives of the The investment objective of the Company is to expand
Partnerships are the same: to preserve invested the capital and asset base of the Company, thereby
capital, and to provide cash distributions increasing Stockholder value.
throughout a finite life.
The Company intends to continue its operations for
JetFleet I and JetFleet II will automatically an indefinite period of time and is not precluded
dissolve in the year 2014 and 2010, respectively from raising new capital, including senior
unless dissolved earlier. The Partnerships have no securities that would have priority over the Common
present intention to liquidate or to sell or finance Stock as to cash flow, distributions and liquidation
their properties because, in the opinion of the proceeds, or from reinvesting cash flow or sale or
General Partner, sales under current market financing proceeds in new properties. Stockholders
conditions would result in unfavorable prices being have the ability to liquidate their investment only
received by the Partnership for the assets. by selling their Shares in the market.
BORROWING POLICIES
JetFleet I is not authorized to incur borrowings for The Company has broad powers to borrow. The Company
acquisition purposes, and JetFleet II is restricted intends to incur in the future both short-term and
in the amount and nature of borrowings. The long-term debt to increase its funds available for
Partnerships have not incurred borrowings in the investment in aircraft-related assets, capital
ordinary course of business. expenditures and distributions.
PROPERTIES AND DIVERSIFICATION
JetFleet I owns undivided interests in 2 aircraft Assuming JetFleet I and JetFleet II participate in
with an appraised value of $1,762,554. JetFleet II the Consolidation, the Company will own equity
owns undivided or entire interests in 7 aircraft and interests in the Partnerships' properties after the
25 engines with an appraised value of $13,927,446. Consolidation. This will result in increased asset
diversification.
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MANAGEMENT
The Partnerships are managed by the General Partner The business and affairs of the Company will be
which has, subject to certain limitations provided under the control of its Board of Directors elected
in the Partnership Agreements, exclusive authority by the Stockholders. Under Delaware law, the
over the Partnership's operations. The General directors are accountable to the Company and its
Partner may be removed by a vote of a majority of Stockholders as fiduciaries and are required to
partnership interests in the respective Partnership. perform their duties in good faith, in a manner
Under the California Partnership Act, the General believed to be in the best interests of the Company
Partner is accountable to the Partnerships as a and its Stockholders and with such care, including
fiduciary and consequently is required to exercise reasonable inquiry, as an ordinarily prudent person
good faith and integrity in all its dealings with in a like position would use under similar
respect to partnership affairs and limited partners circumstances. The liability of the directors is
may not participate in management of the limited pursuant to the provisions of Delaware law
Partnerships. The General Partner has general and the Company's Organizational Documents, which
liability for all partnership obligations. The limits a director's liability for monetary damages
Partnership Agreements provide generally that the to the Company or its Stockholders for breach of the
General Partner is indemnified from losses relating director's fiduciary duty of care, where a director
to acts performed or omitted to be performed in good fails to exercise sufficient care in carrying out
faith and in the best interests of the Partnerships, the responsibilities of office. Those provisions
provided the conduct did not constitute negligence, would not protect a director for a breach of duty of
misconduct, breach of a fiduciary duty or a breach loyalty, intentional misconduct or knowing
of obligations under the Partnership Agreements. violations of law, unlawful dividend payments or
redemption of stock, or any transaction in which the
director derived an improper personal benefit, nor
would they foreclose any other remedy which might be
available to the Company or the Stockholders. The
Certificate of Incorporation requires the Company to
indemnify its officers and directors under certain
circumstances for expenses or liability incurred as
a result of litigation. The Company intends to take
full advantage of those provisions and enter into
separate agreements with the Company's directors and
officers, indemnifying them to the fullest extent
permitted by Delaware law. See "FIDUCIARY
RESPONSIBILITIES."
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OWNERSHIP INTEREST OF GENERAL PARTNER
The General Partner has a 1.0% interest in JetFleet The General Partner will receive 67,793 Shares of
I, and a 5.0% interest in JetFleet II. the Company's Common Stock in the Consolidation,
which will constitute approximately 4.2% of the
JMC is currently acting as management company for outstanding Shares assuming both JetFleet I and II
the Partnerships on behalf of the General Partner, participate in the Consolidation.
but has no interest in the Partnership or its
distributions. JMC, by virtue of its initial capitalization of the
Company, will hold 150,000 shares, which will
constitute 9.3% of the outstanding Shares assuming
both JetFleet I and II participate in the
Consolidation.
PROPERTY MANAGEMENT COMPENSATION
JetFleet I pays a base management fee of 1.5% of The Company will pay a fee of 0.25% of the Asset
gross rentals, 3.5% of the lease rentals and an Value of the assets of the Company each month to JMC
incentive management fee of 3% of cash flow and in compensation for its management of the Company.
sales proceeds to the General Partner which JMC may receive an Acquisition Fee in connection
incentive management fee is subordinated to receipt with the acquisition of an asset which shall in no
by the Investors for the year of a noncompounded event be greater than the customary charge for such
annual return of 8% on its capital contributions, as services between unrelated parties. See "CONFLICTS
adjusted. OF INTEREST."
JetFleet II pays to the General Partner an
acquisition fee of 1.5% of the Adjusted Purchase
Price of an asset and a management fee of 3% of
gross rentals on operating leases and 2% of gross
rentals on full payout leases.
REIMBURSEMENT OF EXPENSES
The Partnership Agreements provide that all of the JMC will pay its out-of-pocket expenses with respect
Partnerships' expenses, including legal, auditing to its management services out of the management fee
and accounting expenses, will be billed directly to it receives from the Company.
and paid by the Partnerships. Under the Partnership
Agreements, the General Partner is reimbursed for
its expenses for services performed for the
Partnerships, such as legal, accounting, transfer
agent, data processing and duplicating services.
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REMARKETING EXPENSES
The Partnership Agreements generally provide for the JMC may receive a remarketing brokerage fee, which
payment of a disposition fee equal to not more than shall in no event be greater than the customary
3% of the selling price of the Company's assets to charge for such services between unrelated parties,
the General Partner, (from which any third party and shall be reimbursed for out-of-pocket
remarketing fees paid by the General Partner are to remarketing expenses.
be paid), subordinated to receipt by the Investor of
a non-compounded annual return of 8% of capital
contributions.
VOTING RIGHTS
Under the Partnership Agreements, Investors (but not Stockholders are entitled to vote with respect to
assignees) can vote only in certain circumstances more matters than are the Investors. For instance,
because the General Partner has the authority to stockholders are entitled to vote in most cases on
make nearly all management decisions affecting the any merger or consolidation of the Company, the sale
Partnerships. Investors holding a majority of the of all or substantially all of the Company's Assets,
Units in a Partnership can generally vote to (i) and, upon a supermajority vote of 66-2/3% on
amend the Partnership Agreement, (ii) approve the amendments to the bylaws of the Company. The
disposition of all or substantially all the Company will hold annual meetings, with each such
Partnership's assets, (iii) elect to dissolve the meeting on a date within 13 months of the prior
Partnership, except for certain events causing annual meeting, at which the Stockholders will elect
dissolution, (iv) remove the General Partner, (v) the directors. Since the Company has a classified
approve the incurrence of material indebtedness by Board of Directors with one class being elected each
the Partnership, (vi) terminate a contract between year, Stockholders will be entitled to vote on only
the Partnership and General Partner or an affiliate one class each year. Stockholders will not be
of the General Partner, and (vii) consent to a entitled to solicit written consents without the
successor General Partner. The Investors cannot approval of the Company's Board of Directors.
elect any directors of the corporate General
Partner. On substantially all matters on which the
Investors can vote, the General Partner has no vote.
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TRANSFER RESTRICTIONS/ANTI-TAKEOVER PROVISIONS
While the Units are transferable, subject to certain Under Section 203 of the Delaware GCL, certain
restrictions, the General Partner under the business combinations with stockholders owning 15%
Partnership Agreements may under certain or more of the Company's outstanding stock (an
circumstances refuse to permit assignees (who are "interested stockholder") are prohibited for three
not permitted to vote on any partnership matters) to years after such interested stockholder becomes an
become substitute Investors. interested stockholder. Due to the unique position
of the Company within its market, the Company
anticipates that after the Consolidation, it may
adopt a stockholder rights plan that could restrict
business combinations and similar transactions
between the Company and significant stockholders of
the Company. Notwithstanding such provisions, the
Company or its assets may be sold at any time in
accordance with applicable law, including
stockholder approval, if required.
REVIEW OF INVESTOR LISTS
Under the Partnership Agreements and the California At the discretion of the Board of Directors, a
Partnership Act, any Investor is entitled, upon Stockholder may be allowed to inspect and copy the
request and payment of reasonable expense, to obtain record of stockholders, at any time during usual
a list of the Investors in his or her Partnership. business hours, for a purpose reasonably related to
See 'VOTING PROCEDURES -- Investors' Names and his or her interest as a Stockholder.
Addresses."
NATURE OF INVESTMENT
The Units of each Partnership constitute equity The Shares constitute equity interests in the
interests entitling each Investor to his pro rata Company. Each Stockholder will be entitled to his
share of cash distributions made to the Investors of pro rata share of the dividends made with respect to
the Partnership. Each of the Partnership Agreements the Common Stock if any are declared. Dividends may
specifies how the cash available for distribution is be in cash or securities of the Company. The
to be shared among the General Partner and dividends payable to the Stockholders are not fixed
Investors. The distributions payable to the in amount and are only paid when, as and if declared
Investors are not fixed in amount and depend upon by the Company's Board of Directors. The Company
the operating results and net sale or refinancing has no intent to declare or pay dividends in the
proceeds available from the disposition of the near future.
Partnerships' assets.
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POTENTIAL DILUTION
Since the Partnerships are not authorized to issue The Board of Directors may, in its discretion, issue
additional Units, there can be no dilution of additional Shares of Common Stock or issue Preferred
distributions to Investors. Stock, with such powers, preferences and rights as
the Board of Directors may at the time designate.
The issuance of additional Shares of either Common
Stock or Preferred Stock, beyond the Shares to be
issued in the Consolidation, would result in the
dilution of the interests of the Stockholders. Such
Preferred Stock may have liquidation and dividend
preferences that may materially and adversely affect
the rights of holders of Common Stock. See
"DESCRIPTION OF COMMON STOCK."
EXPECTED DISTRIBUTIONS AND PAYMENTS
The Partnerships make quarterly or monthly The Company does not intend to make any dividend and
distributions. Amounts distributed to the Investors distribution payments to its Stockholders in the
are derived from their share of cash flow from near future. At some point in the future, the Board
operations or cash flow from sales or financings or of Directors may decide to declare dividends, taking
constitute a return of the Investors' equity into account the cash needs of the Company, and
contributions to the Partnerships. The General yields available to Stockholders, and ranges in
Partner may, under the Partnership Agreements, market prices for the Shares. Unlike the
create reserves which may decrease cash Partnerships, the Company is not required to
distributions. See "SELECTED FINANCIAL INFORMATION distribute net proceeds from the sale or refinancing
OF THE PARTNERSHIPS" for a presentation of the cash of properties.
distributions to the Investors of the Partnerships
over the five most recent calendar years. Given
current market conditions, there is no expectation
that significant distributions of net sale proceeds
will be made to the Investors of any of the
Partnerships within the next 7 - 10 years.
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LIQUIDITY AND TRANSFERABILITY
While the Units are transferrable, the General Although the Company anticipates that the market for
Partner has discretion under the Partnership the Common Stock should be more active and broader
Agreements to refuse to permit assignees to become based than the market for the Units, there is no
substituted Investors and the Partnership Agreements assurance that such will be the case. The Common
contain various other restrictions on the Stock may trade at a discount to the Company's book
transferability of Units. Although limited value, and the trading price of the Shares may never
secondary sales of Units have occurred, there is equal or exceed the net proceeds that might be
essentially no established public trading market for available if the Company's assets were liquidated.
the Units and none is expected to develop. The
Units are not marginable. Potential adverse tax
consequences would arise if a Partnership were to be
considered a "publicly traded" partnership and
therefore the partnerships limit trading to less
than 5% of the Units annually.
TAXATION OF TAXABLE INVESTORS
The Partnerships, as partnerships for federal income The Company will be taxed as a corporation. Any
tax purposes, are not subject to tax, but the dividends will be taxed as portfolio income to
Investors report their allocable share of Stockholders.
partnership income and loss on their respective tax
returns. Income from the Partnerships generally
constitutes "passive" income to the Investors, which
can generally offset "passive" losses from other
investments. Generally, by March 15 of each year,
Investors receive annual Schedule K-1 forms with
respect to information for inclusion on their
federal income tax returns.
Investors must file state income tax returns and
incur state income tax in most states in which the
Partnerships have property.
TAXATION OF TAX-EXEMPT INVESTORS
A portion of income or loss earned by the See "FEDERAL INCOME TAX CONSIDERATIONS."
Partnerships is generally treated as UBTI unless the
type of income generated by the Partnership would
constitute qualified rental income or other
specifically excluded types of income.
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- --------------------------------------------------------------------------------
CONFLICTS OF INTEREST
- --------------------------------------------------------------------------------
The General Partner and its Affiliates have conflicts of interest with
respect to the Consolidation. The General Partner of each of the Partnerships
has fiduciary duties to their Partnerships, in addition to the specific duties
and obligations imposed upon it under the Partnership Agreements. Subject to
the terms of the Partnership Agreements, the General Partner, in managing the
affairs of the Partnership, is expected to exercise good faith, to use care and
prudence and to act with an undivided duty of loyalty to the Investors. Under
these fiduciary duties, the General Partner is obligated to ensure that each
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 Partner being opposed to, or not aligned with, the interests of
the Investors. Accordingly, the General Partner of each Partnership is
required to assess whether the Consolidation is fair and equitable, taking into
account the unique characteristics of each Partnership (such as the
Partnership's revenues and expenses and the prospects for increases or
decreases in future cash flow) affecting the value of its assets, and comparing
these factors against similar factors affecting the value of the assets held by
the other Partnerships and the General Partner. As discussed in "BACKGROUND
AND REASONS FOR THE CONSOLIDATION," after consideration of the terms and
conditions of the Consolidation, the General Partner recommends that Investors
vote in favor of the Partnerships' participation in the Consolidation.
Lack of Independent Representation. The General Partner has not
retained an independent representative to act on behalf of the Investors or the
Partnerships in designing the overall structure of the Consolidation and, in
particular, in structuring and negotiating the terms and conditions (including
the consideration to be received) upon which the Partnerships will participate
in the Consolidation. No group of Investors was empowered to negotiate the
terms and conditions of the Consolidation or to determine what procedures
should be used to protect the rights and interests of the Investors. In
addition, no investment banker, attorney, financial consultant or expert was
engaged to represent the interests of the Investors. The General Partner and
JMC have been the parties responsible for structuring all the terms and
conditions of the Consolidation. Legal counsel engaged to assist with the
preparation of the documentation for the Consolidation, including this
Prospectus, was engaged by the Company and did not serve, or purport to serve,
as legal counsel for the Partnerships or Investors. If an independent
representative had been retained for the Partnerships, the terms of the
Consolidation may have been materially different and possibly more favorable to
the Investors. In particular, had separate representation for each of the
Partnerships been arranged by the General Partner, issues unique to the value
of each of the Partnerships might have been identified, resulting in
adjustments to the value assigned to the assets of such partnerships and
increasing the number of Shares that would be allocable to such Partnership if
participating in the Consolidation. Consistent with its legal obligation as a
fiduciary to the Partnership and the Investors, the General Partner has
determined that the Consolidation is fair to the Partnerships and the Investors
and that independent representation would increase costs of the transaction
without material benefit. The consideration offered, the independent
appraisals used to value the Partnerships, the similarity of the combining
Partnerships' business, the ability of the Investors to vote on the
Consolidation and the dissenters' rights granted to those not voting in favor
of the Consolidation, all are factors weighed by the General Partner in
determining the fairness of this Consolidation. See "FAIRNESS."
For example, the primary basis for allocating the consideration to be
offered by the Company in the Consolidation, consisting of the Shares, was the
Exchange Values of the respective Partnerships. Recognizing the inherent
conflict of interest in having the General Partner
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establish these allocations (without active involvement from persons not having
a financial interest in the Consolidation), the General Partner engaged the
Appraiser to value the portfolios owned by each of the Partnerships. Apart
from these general instructions, there were no limitations imposed by General
Partner upon the methods, procedures or investigations that might be pursued or
undertaken by the Appraiser in performing the requested valuations. The
Appraiser was at liberty to (a) conduct such investigations, inquiries and due
diligence as deemed necessary or advisable in establishing the requested
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 their findings. See "REPORTS, OPINIONS AND APPRAISALS."
Substantial Benefits to General Partner. The General Partner has
participated in the initiation and structuring of the Consolidation and, in
exchange for transferring certain assets to the Company, will realize economic
benefits in the form of Shares of the Company in return for its general
partnership interest in the Partnerships, if the Company is able to proceed
with and consummate the Consolidation with the Partnerships (or JetFleet II
alone). The General Partner, however, will no longer receive any fees for
management of the Partnership or its assets once the Consolidation is complete.
Because the Corporate General Partner and its affiliate JMC, the founding
stockholder and the management company of the Company, themselves have a
financial interest in the consummation of the Consolidation, there is an
inherent conflict of interest in their structuring of the terms and conditions
of the Consolidation and the manner in which the Consolidation has been
structured might have been different if structured by persons having no
financial interest in whether or not the Consolidation proceeded. The number
of Shares received by the Corporate General Partner relative to the limited
partners of the Partnership, however, was not the subject of negotiation and
will be solely based on a mathematical calculation using the percentage
interest of the Corporate General Partner in the Partnership. This allocation
is set forth in the Partnership Agreement. See "COMPARISON OF COMPENSATION
PAID TO GENERAL PARTNERS AND AFFILIATES."
JMC Founding Shares. JMC, an affiliate of the General Partner,
provided the initial capital of $150,000 to organize the Company and cover
certain expenses incurred by the Company in connection with the solicitation of
consents to the Consolidation. This initial capital funding was in the form of
an equity investment in Common Stock of the Company, issued at $1.00 per share
pursuant to a stock purchase agreement entered into in connection with the
Management Agreement between JMC and the Company. The stock purchase agreement
is intended to be part of the compensation package for JMC for management
services, and contains a vesting provision, in which the Company has certain
repurchase rights that expire with respect to a portion of the shares purchased
over time. The valuation of the shares issued to JMC was arbitrarily
determined by the Company and JMC, since the Company, at its founding, had no
assets. If both JetFleet I and II participate in the Consolidation, the
founding shares issued to JMC will represent approximately 9.3% of the
outstanding shares of Common Stock of the Company. If the Consolidation does
not occur, the shares will likely be worthless. The purchase equity interest
of JMC in the post Consolidation Company represented by the 150,000 founding
shares was not negotiated at arm's length between the Company and JMC, and their
issuance will have an immediately dilutive effect on the shares issued to
Investors. See "DILUTION."
Because JMC will be a significant stockholder of the Company but will
also be a service provider to the Company under the Management Agreement, the
interests of JMC and the Company will coincide in many respects. There may,
however, be certain instances in which the interests of the Company and JMC
diverge. For instance, in the event of a dispute between JMC and the Company
under the Management Agreement, JMC, as a major stockholder, may be able to
exert influence upon the Board of Directors of the Company. All transactions
between JMC and the Company must, however, be approved by the Board of
Directors, which will after the Consolidation is consummated, include
independent directors, and it will be the duty of the Board
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of Directors to make such decisions for the best interests of the Company and
all of its stockholders. Neither the stock purchase transaction nor the
management arrangement was negotiated at arms length between the Company and
JMC.
Dealer Manager Compensation. The Company has engaged CKS, a NASD-
registered broker dealer to act as Dealer-Manager for the Consolidation.
Richard D. Koehler, an individual General Partner of each of the Partnerships,
is an officer and director of CKS, and a principal shareholder of its parent
corporation, CK Holding. Neal D. Crispin is neither a shareholder, officer or
director of CKS and is not an officer or director of CK Holding, but does own
9% of the voting common stock of CK Holding. CKS acted as Dealer Manager in
connection with the offering of limited partnership units of each of the
Partnerships. CKS, which acted as Dealer Manager for the JetFleet I and
JetFleet II offerings, will be providing such investment banking services to
the Company in connection with the solicitation, including rendering advice
regarding the preparation of the solicitation documents and solicitation
strategy and as acting as liaison between the Company and the broker-dealers
who were in the syndicate that sold the Units and who will be acting on behalf
of certain Investors. In consideration of those services in connection with the
Consolidation, CKS will receive an investment banking fee of $80,000 and
warrants to purchase up to 35,000 shares of Common Stock of the Company at a
purchase price of $3.00 per share. The compensation to be paid to CKS was not
negotiated at arm's length by the Company and CKS.
Features Discouraging Potential Takeovers. Certain provisions in the
Bylaws, as well as statutory rights under the Delaware GCL, could be used by
the Company's management to delay, discourage or thwart efforts of third
parties to acquire control of, or a significant equity interest in, the
Company. See "COMPARISON OF LIMITED PARTNERSHIP AND CORPORATE STRUCTURE."
Initial Company Directors and Officers. The persons currently serving
as directors of the Company, as well as the anticipated officers of the
Company, are presently directors and officers of JMC, and have had
long-standing business and professional relationships with the General Partner
or its Affiliates. Owing to these relationships, such persons may not exercise
the same degree of independence in conducting the Company's business with
respect to the Investors as might be expected of persons having no prior
business, professional or personal dealings with the General Partner or JMC,
when considering transactions in which the General Partner or an Affiliate has
an interest. As directors or officers of the Company, however, these persons
are required to discharge such duties and responsibilities in a professional
and competent manner, consistent with their fiduciary and contractual
responsibility to the Company's stockholders, and without regard to whether the
General Partner or its Affiliates has an interest in a proposed transaction
with the Company.
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- --------------------------------------------------------------------------------
FIDUCIARY RESPONSIBILITIES
- --------------------------------------------------------------------------------
Under the Delaware GCL, the directors and officers of the Company, in
exercising their powers and responsibilities of managing the Company, owe the
Company and its Stockholders a duty of care and a duty of loyalty. However,
the directors and officers of the Company are not liable for errors in judgment
or other acts or omissions made in good faith unless their actions are found to
be grossly negligent. Under California law, the General Partner is accountable
to the Partnership and the Investors as fiduciaries and consequently must
exercise good faith and integrity in handling Partnership affairs. Investors
who have questions concerning the duties of the directors and officers with
respect to the Company or the duties of the General Partner with respect to any
of the Partnerships should consult their counsel.
The liability of the directors is limited pursuant to the provisions
of the Delaware GCL and the Company's Organizational Documents, which limit the
personal liability of a director to the Company or its Stockholders for
monetary damages for breach of fiduciary duty as a director. Those provisions
would not protect a director (i) for any breach of the director's duty of
loyalty to the Company or its Stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for any unlawful payment of dividends or unlawful purchase or
redemption of the Company's stock, or (iv) for any transaction from which the
director derived an improper personal benefit. In addition, the Company's
Organizational Documents provide for mandatory indemnification of the directors
and officers by the Company to the full extent permitted under Delaware law.
Delaware law generally authorizes Delaware corporations to indemnify their
directors, officers, employees or agents against liabilities (including
litigation costs) incurred as the result of their service to the corporation if
such persons acted in good faith and in a manner they reasonably believed to be
in, or not opposed to, the best interest of the corporation and, with respect
to any criminal action or proceeding, had no reasonable cause to believe their
conduct was unlawful. In accordance with these provisions, the Company has
entered into agreements with the Company's directors and executive officers
indemnifying them to the fullest extent permitted by Delaware law. To the
extent that the foregoing provisions concerning indemnification apply to
actions arising under the Securities Act, the Company has been advised that, in
the opinion of the Commission, such provisions are contrary to public policy
and therefore are not enforceable.
The Partnership Agreements provide for indemnification of the General
Partner for losses arising out of any act or omission, provided that it was
determined in good faith that such conduct was in the best interest of the
Partnership and that such conduct did not constitute negligence, misconduct or
a breach of fiduciary obligations to the Investors.
The rights of Stockholders against management of the Company in
certain circumstances are more limited than the rights of Investors against the
General Partner. See " COMPARISON OF LIMITED PARTNERSHIP AND CORPORATE
STRUCTURE."
Once the Consolidation is consummated, all of the management of the
Company will be performed by JMC, as the management company, serving at the
pleasure of the Board of Directors, subject to the terms and conditions of the
Management Agreement. JMC will have responsibility for the day-to-day
management of the Company as well as the strategic business planning. As an
outside management company, JMC will not owe any fiduciary duties to the
stockholders of the Company.
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The Board of Directors will, however, have ultimate control and
supervisory responsibility over all aspects of the Company and will owe
fiduciary duties to the Company and its stockholders. In addition, while JMC
may not owe any fiduciary duties to the Company by virtue of the Management
Agreement, the officers of JMC are also officers of the Company, and in that
capacity owe fiduciary duties to the Company and the stockholders by virtue of
holding such offices. There may, however, be conflicts of interest arising
from such dual roles. See "RISK FACTORS--Reliance on JMC."
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PRO FORMA FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
The following unaudited pro forma financial statements have been
prepared by the Company to reflect the Consolidation and related adjustments
and assumptions described in the accompanying notes as if the Consolidation
occurred on January 1, 1996. Such pro forma financial information is based on
the historical financial statements of each Participating Partnership and
should be read in conjunction with the financial statements included in this
Prospectus. In the opinion of management, all adjustments necessary to reflect
the effects of the transactions have been made.
The pro forma information is unaudited and is not necessarily
indicative of the combined results which actually would have occurred if the
transactions had been consummated at the beginning of 1996, or on any
particular date in the future, nor does it purport to represent the financial
position, results of operations or changes in cash flows for future periods.
The pro forma financial information assumes 100% Partnership
Participation and includes the following:
Unaudited pro forma combining:
o Balance Sheets as of December 31, 1996
o Statements of Operations for the year ended December 31, 1996
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PRO FORMA
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The pro forma financial statements contained herein assume that the
Consolidation takes place with 100% Partnership Participation. Pro forma
adjustments reflect the cost of the Management Agreement with JMC (which is
partially offset by anticipated savings for professional fees and general and
administrative costs) and an adjustment in depreciation expense to reflect
individual asset straight-line depreciation to estimated residual value over
estimated useful life. (See Notes to Unaudited Pro Forma Financial
Statements.)
Pro Forma Results of Operations. The Company reported pro forma
earnings per share of $0.61 per share. Rental income from assets under
operating leases accounted for 88% of revenues, with interest income from full
financing leases comprising 12% of revenues.
The Company's single largest expense is depreciation of its aircraft
assets. The Company will pay management fees pursuant to a newly entered
contract with JMC at the rate of 3% per annum of the net asset value of the
assets under management. The cost of the Consolidation approximates $250,000
in offering costs, and $245,000 in estimated expenses associated with the
issuance of warrants for 35,000 shares because of the deemed discount in
exercise price of the warrants. Taxes of approximately $757,000 reflect an
effective tax rate of 40% on earnings as if the Company were in existence as of
January 1, 1996.
Pro Forma Liquidity and Financial Condition
At December 31, 1996, cash totalled $1,362,600 before payment of
offering costs approximating $250,000.
See Management's Discussion and Analysis of Financial Condition and Results of
Operations of AeroCentury Corp., JetFleet I, and JetFleet II contained in
"SELECTED FINANCIAL INFORMATION REGARDING THE PARTNERSHIPS AND THE COMPANY."
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AEROCENTURY CORP.
UNAUDITED PRO FORMA COMBINING BALANCE SHEETS
DECEMBER 31, 1996
(ASSUMING 100% PARTICIPATION)
(Amounts rounded to nearest one-hundred)
AeroCentury JetFleet JetFleet
Corp. Aircraft, L.P. Aircraft II, L.P. Adjustments Pro Forma
ASSETS
Current assets:
Cash $ 140,000 30,700 $ 1,191,900 $ $ 1,362,600
Lease payments receivable 180,000 540,000 720,000
Other assets 4,800 29,800 34,600
--------- ---------- ----------- ------------ -------------
Total current assets 140,000 215,500 1,761,700 2,117,200
Aircraft and aircraft engines under/held
for operating leases, net 2,328,300 14,435,600 16,763,900
Lease payments receivable 180,000 180,000
Organization costs, net 10,000 32,900 (32,900)(a) 10,000
--------- ---------- ----------- ------------ -------------
$ 150,000 2,543,800 $16,410,200 $ (32,900) $ 19,071,100
========= ========== =========== ============ =============
LIABILITIES AND PARTNERS' CAPITAL/
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,800 16,000 $ 112,500 $ 250,000 (b) $ 381,300
Deferred taxes 1,800,000 (c) 1,800,000
Accrued maintenance costs 25,300 501,100 526,400
Security deposits 0 143,100 143,100
Prepaid rents 8,900 27,600 36,500
Unearned interest income 14,700 79,200 93,900
Other accrued liabilities 700 10,900 11,600
--------- ---------- ----------- ------------ -------------
Total current liabilities 65,600 874,400 2,295,000 3,235,000
Unearned interest income 0 8,800 8,800
--------- ---------- ----------- ------------ -------------
Total current liabilities 2,800 65,600 874,400 2,050,000 2,992,800
Unearned interest income 8,800 8,800
--------- ---------- ----------- ------------ -------------
Total liabilities 2,800 65,600 883,200 2,050,000 3,001,600
--------- ---------- ----------- ------------ -------------
Partners' capital/Shareholders' equity
Partners' capital 2,478,200 15,527,000 (18,005,200)(d)
Common stock 150,000 14,754,500 (d) 14,904,500
Paid-in capital: 3,250,700 (d) 1,167,800
(32,900)(a)
(2,050,000)(b,c)
Accumulated deficit (2,800) (2,800)
--------- ---------- ----------- ------------ -------------
Total partners' capital/
shareholders' equity 147,200 2,478,200 $15,527,000 (2,082,900) 16,069,500
--------- ---------- ----------- ------------ -------------
$ 150,000 $2,543,800 $16,410,200 $ (32,900) $ 19,071,100
========= ========== =========== ============ =============
See accompanying notes.
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AEROCENTURY CORP.
UNAUDITED PRO FORMA COMBINING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(ASSUMING 100% PARTICIPATION)
(AMOUNTS ROUNDED ROUNDED TO NEAREST ONE-HUNDRED
AeroCentury JetFleet JetFleet
Corp. Aircraft, L.P. Aircraft II, L.P. Adjustments Pro Forma
----------- -------------- ----------------- ------------ -----------
Revenues
Rental income $ 578,600 2,658,500 $ 3,237,100
Other income 45,700 394,300 440,000
----------- ----------- ----------- ------------ -----------
624,300 3,052,800 3,677,100
Costs and expenses:
Management fees 113,700 379,900 (aa) 493,600
Depreciation 1,041,300 3,260,000 (3,406,100)(bb) 895,200
Professional fees and general
and administrative 134,400 384,500 (278,900)(aa) 240,000
Maintenance 35,500 119,300 154,800
Amortization 2,000 1,600 31,900 (33,500)(cc) 2,000
----------- ----------- ----------- ------------ -----------
2,000 1,212,800 3,909,400 (3,338,600) 1,785,600
----------- ----------- ----------- ------------ -----------
Income before taxes and consolidation
costs (2,000) (588,500) 856,600 3,338,600 1,891,500
Provision for income taxes 800 756,600 (dd) 757,400
----------- ----------- ----------- ------------ -----------
Income before consolidation costs (2,800) (588,500) (856,600) 2,582,000 1,134,100
Consolidation costs 297,000 (ee) 297,000
----------- ----------- ----------- ------------ -----------
Net income $ (2,800) $ (588,500) $ (856,600) $ 2,285,000 $ 837,100
=========== =========== =========== ============ ===========
Earnings per share:
Net income $ 0.51
===========
Number of common shares
outstanding 1,649,951
===========
Ratio of earnings to fixed charges (*)
===========
(*) AeroCentury Corp. has no fixed charges.
See accompanying notes.
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AeroCentury Corp.
Notes to Unaudited Pro Forma Financial Statements
1. Basis of presentation
AeroCentury Corp. ("AeroCentury"), a Delaware Corporation, was formed
on February 28, 1997. JetFleet Management Corp. ("JMC"), a California
corporation formed in 1994, owns all of AeroCentury's 150,000 shares of common
stock. CMA Capital Group (the "General Partner") is proposing a consolidation
by merger (the "Consolidation") of JetFleet Aircraft, L.P. ("JetFleet I") and
JetFleet Aircraft II, L.P. ("JetFleet" II) with and into AeroCentury. JetFleet
I and JetFleet II are each California limited partnerships formed in 1989 and
1991, respectively, to invest in leased aircraft equipment. Upon completion of
the Consolidation, the Company will continue in the aircraft leasing business
and intends to use leveraged financing to acquire additional aircraft assets on
lease.
Upon Consolidation, the General Partner and the limited partners
(collectively, the "Partners") will receive stock in AeroCentury in return for
their partnership interests in JetFleet I and JetFleet II. The Consolidation
will be accounted for as a pooling of interests and, therefore, no adjustment
to the historical carrying amount of assets and liabilities will be made.
Historical information for AeroCentury, JetFleet I, and JetFleet II
are based on audited financial statements which are included elsewhere herein.
The unaudited pro forma balance sheet and statement of operations have been
prepared on the basis of 100% partnership participation. 100% participation
results in 1,464,951 additional shares of common stock being issued to the
Partners. Warrants to purchase 35,000 shares of common stock at $3.00 per share
will be issued to Crispin Koehler Securities in consideration for investment
banking services rendered in connection with the Consolidation.
The unaudited pro forma balance sheet as of December 31, 1996 has been
prepared as if the transactions contemplated by the Consolidation had occurred
on December 31, 1996, and the accompanying unaudited pro forma statement of
operations has been prepared as if the Consolidation had occurred on January 1,
1996.
The unaudited pro forma financial statements have been prepared by
making certain adjustments (as explained in Note 2 below) to the historical
financial information of JetFleet I and JetFleet II. The pro forma information
presented is not necessarily indicative of the result that would have occurred
had the Consolidation occurred and AeroCentury operated as a single entity
during the period presented, or of the future operations of the Partnerships.
2. Pro forma adjustments
The pro forma balance sheet includes the following adjustments:
(a) Elimination of unamortized organization costs at December 31,
1996.
(b) Offering costs, estimated to be $250,000, have been charged
directly to 1996 operations. It is anticipated that the
offering costs will be short-term payables, paid from cash on
hand at the time of the Consolidation.
(c) A deferred tax liability has been recognized for the
difference of $4.5 million
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between the book value of the assets and liabilities of
JetFleet I and JetFleet II at December 31, 1996 and the tax
basis due to accelerated depreciation used for tax purposes.
(d) Reflects the issuance of common stock of AeroCentury in
exchange for the Partners' interests in JetFleet I and
JetFleet II as well as the estimated cost of $245,000 of
issuing warrants to purchase 35,000 shares of common stock at
$3 per share.
The pro forma statement of operations includes the following
adjustments:
(aa) Upon Consolidation, AeroCentury will sign a management
agreement with JMC under which JMC will manage AeroCentury's
assets. Under this agreement, AeroCentury will pay JMC
monthly in arrears 3% per annum of the net asset value of the
assets under management. Such fees have been increased to
reflect the terms of this agreement. Professional fees and
general and administrative have been decreased to reflect
anticipated savings.
(bb) JetFleet I and JetFleet II computed depreciation using the
straight-line method over the aircraft's estimated economic
life, eight years for the deHavilland DHC-7 aircraft (the
"Dash-7's") and twelve years for all other aircraft, to a
zero residual value. In contemplation of the Consolidation,
AeroCentury obtained a future appraisal of its aircraft
assets (Exhibit 99.01) which demonstrated that the current
method of depreciation was ultra conservative and that the
aircraft market had changed recently, increasing the future
value and estimated useful life of used aircraft equipment.
In addition, the lessee has recently spent an aggregate of
$3.1 million on three of the Dash-7's for an inspection and
repair as necessary program ("IRAN") not mandated under the
leases. The IRAN program has enhanced both the life and value
of these aircraft. Accordingly, AeroCentury intends to
depreciate each asset on a straight-line basis over its
estimated useful life, generally twelve years, to its
estimated residual value at that time. Assuming the
Consolidation is effective in mid-1997, under this method,
annual depreciation on the existing assets would approximate
$450,000.
(cc) Amortization of JetFleet I and JetFleet II organization costs
has been eliminated.
(dd) Corporate taxes at the estimated federal and state combined
rate of 40% have been provided.
(ee) Offering costs of the Consolidation, estimated to be
$250,000, have been expensed. In addition, $245,000 in
estimated costs of issuing warrants to purchase 35,000 shares
of common stock (see Note 1 above) has been expensed.
AeroCentury intends to amortize these costs over fifteen years
for tax purposes and a tax benefit of $297,000 has been
reflected.
3. Calculation of number of common shares outstanding
The number of shares outstanding for the year ended December 31, 1996
used in computing pro forma net income is based on the number of shares and
warrants which would be outstanding as a result of the Consolidation assuming
100% acceptance on January 1, 1996.
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- --------------------------------------------------------------------------------
COMPARISON OF COMPENSATION PAID TO CORPORATE
GENERAL PARTNER AND AFFILIATES AND TO MANAGEMENT COMPANY
- --------------------------------------------------------------------------------
The following table describes the items of compensation that currently are
payable by each of the Partnerships to the Corporate General Partner and its
affiliates, and compensation that would be payable to JMC by the Company
following the Consolidation. Currently, the Partnerships pay the Corporate
General Partners a share of their cash flow and sales proceeds with respect to
its equity interest as General Partner in the Partnerships. In addition, the
Partnerships pay a Management Fee based on the percentage of rentals received,
a resale fee upon sale of any asset by a Partnership and the Partnerships also
reimburse the Corporate General Partner for general and administrative expenses
of the Partnership incurred by the Corporate General Partner on behalf of a
Partnership. JetFleet I also must pay a re-lease fee to the Corporate General
Partner based upon the monthly re-lease rentals received by JetFleet I.
JetFleet II is also liable for an acquisition fee based on the purchase price
paid for any asset acquired by the Partnership.
After the Consolidation, the Corporate General Partner, like the Investors
becomes a stockholder of the Company. As a stockholder it will be entitled to,
and will share on an equal per-share basis with the former Investors who are
also stockholders of the Company, distributions on the Common Stock, only when,
as and if declared by the Company's board of directors (The Company does not
intend to declare dividends on the Common Stock in the foreseeable future. See
"THE COMPANY -- Listing, Price, Trading and Holders of Shares -- Dividend
Policy" and "RISK FACTORS -- Changes in Form of Investment will Change Rights
of Participating Investors"). JMC will be entitled to receive a management fee
based upon the net asset value of the Company's assets. In addition, it may
receive acquisition fees, re-lease fees and resale fees in connection with
services rendered to the Company if and when such transactions occur. In no
event will such fees be more than the ordinary and customary fees charged in
the industry.
In calendar year 1996, the Partnerships paid an aggregate of $697,363 to the
General Partner in management fees, administrative overhead reimbursement, and
cash distributions. If the Company were in existence over the same period of
time with the same assets, $493,600 would have been payable to JMC under the
Management Agreement (no cash distributions or overhead reimbursement will be
payable). Neither of these amounts include any per-transaction fees paid for
acquisition, resale or release of assets by either the Company or the
Partnerships. For information regarding historical amounts paid and estimated
fees payable by the Company, see "PRO FORMA FINANCIAL INFORMATION."
There are a number of conflicts of interest that arise out of the proposed
Consolidation and certain compensation, set forth below, to be paid to
Affiliates of the General Partner and to the General Partner, including
conflicts of interest arising out of the terms and conditions of, and
compensation to be paid for, management services to be rendered to the Company
by JMC, the management company and Affiliate of Neal D. Crispin, an individual
General Partner of the Partnerships, of compensation were negotiated at arm's
length. In order to ensure that these conflicts of interest do not adversely
affect the Company, JMC has represented that in no event will any item of
compensation for management be more than the ordinary and customary fee charged
in the industry for such services. The Company, at the direction of the Board
of Directors, which will include independent directors not affiliated with JMC,
will have the responsibility to ensure that the Company shall pay no more than
the industry standard fees to JMC. See "FAIRNESS."
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Type of Payable to Corporate Payable to Corporate Payable to JMC
Compensation General Partner General Partner by the Company
- ------------ by JetFleet I by JetFleet II After Consolidation
------------- -------------- -------------------
Equity Interest 1% of cash flow and 5% of all distributions General Partner shall
sales proceeds, 1% of of available cash, plus receive 1% and 5% of the
all liquidation 1% of distributions on Shares issued to
distributions net proceeds of sales of JetFleet I and JetFleet
assets until Investors II.
have received a
noncompounded return of JMC has purchased
8% (the "Preferred 150,000 shares of Common
Return"), then 5%, Stock of the Company at
payable to General $1.00 per Share in
Partner, respectively. connection with its
engagement as Management
Company.
JMC and General Partner
shall not have any
interest in the revenue
or profits of the
Company other than as
stockholders.
Acquisition Fee None Equal to 1.5% of the Ordinary and customary
Adjusted Purchase Price fee for the industry
payable to General payable to JMC per
Partner per transaction. transaction.
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Management Fee Equal to 1.5% of gross 3% of gross rentals on 0.25% of the net asset
rentals, operating leases or 2% value of the Company's
of gross rentals on full assets payable monthly
plus payout leases payable to JMC.
monthly to General
3% of cash flow and Partner.
sales proceeds (of which
1% is paid to an
unaffiliated third party
broker, SPLC)
subordinated to 8%
preferred return
("Preferred Return") of
Investors payable
monthly to General
Partner.
Re-lease Fee 3.5% of release or None Ordinary and customary
renewal rentals payable re-lease fee for
monthly (1.5% of which industry payable per
is paid to SPLC). transaction to JMC.
Accountable General Reimbursement of Reimbursement of The Company will not pay
Administrative Expenses expenses incurred in expenses incurred in any reimbursement for
management and management and general administrative
administration of administration of expenses to JMC.
Partnership.(1) Partnership.(1)
Resale Fee
3% of contract sales 50% of ordinary and Ordinary and customary
price (of which 2% is customary resale remarketing fees payable
paid to SPLC), commissions, not to per transaction to JMC.
subordinated to exceed 3% of contract
Preferred Return and sales price,
reduced by fees payable subordinated to
per transaction to third Preferred Return.
parties.
- ----------------------
(1) The Partnerships pay directly all of their respective general and
administrative expenses that are payable to third parties for legal,
auditing and accounting services, for the renewal of aircraft leases
or the re-lease or sale of aircraft, for preparing and distributing
reports and for other general and administrative expenses. The
General Partner is entitled to receive reimbursement for the general
and administrative expenses that the General Partner incurs including:
(i) actual cost to the General Partner of goods, materials or services
obtained from third parties for a Partnership; (ii) general and
administrative expenses for services performed by the General Partner
for the Partnerships, including but not limited to legal, auditing,
accounting, transfer agent, data processing, duplication and other
similar services; (iii) expense for services performed by the General
Partner in connection with investor communications; and (iv) expenses
for administrative services performed by the General Partner that are
necessary for the prudent operation of the Partnership. Reimbursement
of items (ii) through (iv) can be no greater than the amount the
Partnership would have to pay to third parties in the same geographic
location for the same service.
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- --------------------------------------------------------------------------------
MANAGEMENT OF THE COMPANY
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
The Board of Directors of the Company is responsible for the
management of the Company, its property and the disposition thereof, and is
responsible for the general policies of the Company and the general supervision
of the Company's activities conducted by its officers, agents, employees,
advisors, managers, or independent contractors as may be necessary in the
course of the Company's business. At all meetings of the Board of Directors, a
majority of the authorized number of directors shall constitute a quorum for
the transaction of business. Actions to be taken by the Board of Directors
will require approval of a majority of the directors present at any meeting in
which there is a quorum, unless otherwise specified by the Company's Bylaws or
by law.
The Board of Directors of the Company currently consists of Neal D.
Crispin, Toni M. Perazzo, and Marc J. Anderson. Following the Consolidation,
the Company's Board of Directors will be increased to five directors, with the
resulting vacancies to be filled by independent outside directors by a vote of
the existing directors. Thereafter, the Board of Directors will consist of not
less than five nor more than nine directors. At each annual meeting of
stockholders, or at any special meeting of the stockholders called for such
purpose, the directors of the Company will be elected by a vote of the holders
of Common Stock, with each holder of Common Stock having one vote for each
Share held. No cumulative voting will be authorized by the Company's
Certificate of Incorporation, Directors may resign at any time and may be
removed, with or without cause, by a majority vote of the outstanding Common
Stock of the Company.
The Board of Directors expects to hold meetings at least quarterly,
and may take action on behalf of the Company by unanimous written consent
without a meeting. Directors may participate in meetings by conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other.
The Company's Board of Directors currently consists of the following
persons:
NAME AGE ANTICIPATED POSITION WITH THE COMPANY
---- --- -------------------------------------
Neal D. Crispin 51 President, Chairman
Marc J. Anderson 60 Chief Operating Officer
Toni M. Perazzo 50 Vice President - Finance & Secretary
The directors of the Company listed above are currently directors of
JMC as well. The business experience during the past five years of each of the
current directors is as follows:
MR. NEAL D. CRISPIN, age 51. Mr. Crispin is also President and a
Director of CMA Consolidated, Inc. ("CMA") and JetFleet Management Corp. Prior
to forming CMA, Mr. Crispin was vice president-finance of an oil and gas
company. Previously, Mr. Crispin had been associated with Arthur Young & Co.,
Certified Public Accountants. Prior to joining Arthur Young & Co., Mr. Crispin
served as a management consultant, specializing in financial consulting. Mr.
Crispin is the husband of Toni M. Perazzo, a Director and Officer of JMC and
the Company. He received a Bachelors Degree in Economics from the University
of California at Santa Barbara and a Masters Degree in Business Administration
(specializing in Finance) from the University of California at Berkeley. Mr.
Crispin, a certified public accountant, is a member of the American Institute
of Certified Public Accountants ("AICPA") and the California Society of
Certified Public Accountants ("CSCPA").
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86
MR. MARC J. ANDERSON, age 60. Mr. Anderson is in charge of portfolio
management and aircraft marketing and financing for JMC as its Chief Operating
Officer. Prior to joining the Company in 1994, Mr. Anderson spent seven years
as Senior Vice President Marketing for PLM International, a transportation
equipment leasing company which is also the sponsor of syndicated investment
programs. While at PLM, he established the company's first aircraft marketing
group, closing in excess of 150 aircraft transactions representing over $400
million. He was responsible for the acquisition, modification, leasing and
remarketing of all aircraft. During his tenure, Mr. Anderson had an average
aircraft on-lease record of 96%. From 1983 until 1985, Mr. Anderson served as
Contract Administrator for Fairchild Aircraft Corp., and from 1981 to 1983, he
served as Director of Aircraft Sales for Fairchild SAAB Joint Venture. From
1979 until 1981, Mr Anderson was Vice President, Contracts for SHORTS Aircraft
USA, Inc. In these positions, he was responsible for customer contracting,
negotiation and documentation of sales agreements and leases and obtaining debt
and lease financing. Prior to that, Mr. Anderson was with several airlines in
various roles of increasing responsibility.
MS. TONI M. PERAZZO, age 50. Ms. Perazzo is also Vice President -
Finance and Secretary of JMC. Prior to joining CMA in 1990, she was Assistant
Vice President for a savings and loan, controller of an oil and gas syndicator
and a senior auditor with Arthur Young & Co., Certified Public Accountants.
Ms. Perazzo is the wife of Neal D. Crispin, a director and officer of JMC and
the Company. She received her Bachelor's Degree from the University of
California at Berkeley, and her MBA from the University of Southern California.
Ms. Perazzo, a CPA, is a member of the California Society of CPAs and the
AICPA.
Promptly after the Consolidation, the Company anticipates that the
Board of Directors will appoint two independent directors to the Board.
BOARD OF DIRECTORS COMPENSATION
The Company intends to pay an annual fee of $10,000 and a per meeting
fee of $1,000 to its directors who are not officers of the Company. Directors
who are employees of the Company or JMC will not be paid any directors' fees.
The Company will reimburse all directors for travel expenses and other
out-of-pocket expenses incurred in connection with their activities on behalf
of the Company.
Each member of a duly authorized committee of the Board of Directors
that is not an officer of the Company will receive a fee of $500 for each duly
called committee meeting which they attend either in person or by
telecommunication.
COMMITTEES OF THE DIRECTORS
Promptly following the consummation of the Consolidation, the Board of
Directors will establish the following committees:
Audit Committee. The Audit Committee will consist of at least two
independent directors. The Audit Committee will be established to make
recommendations concerning the engagement of independent public accountants,
review with the independent public accountants the plans and results of the
audit engagement, approve professional services provided by the independent
public accountants, review the independence of the independent public
accountants, consider the range of audit and non-audit fees and review the
adequacy of the Company's internal accounting controls.
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Executive Committee. The Executive Committee will consist of three
directors, which will include Neal D. Crispin, Toni M. Perazzo, and Marc J.
Anderson. The Executive Committee will have the authority to acquire, dispose
of and finance investments for the Company and execute contracts and
agreements, including those related to the borrowing of money by the Company,
and generally exercise all other powers of the Board of Directors except for
those which require action by all the directors or the independent directors
under the Certificate of Incorporation or the Bylaws of the Company, or under
applicable law.
The Board of Directors may from time to time establish certain other
committees to facilitate the management of the Company. The Board of Directors
initially will not have a nominating committee and the entire Board of
Directors will perform the function of such a committee.
EXECUTIVE OFFICERS
Officers of the Company will be elected by and serve at the discretion
of the Board of Directors. Subject to the approval of the Board of Directors,
it is anticipated that the following persons will function as executive
officers of the Company after the Consolidation. Each person listed below
currently serves in a substantially similar capacity as an executive officer of
JMC.
NAME AGE ANTICIPATED POSITION WITH THE COMPANY
---- --- -------------------------------------
Neal D. Crispin 51 President, Chairman
Marc J. Anderson 60 Chief Operating Officer
Frank Duckstein 44 Vice President
Toni M. Perazzo 50 Vice President, Finance & Secretary
Neal D. Crispin, President and Chairman, is expected to devote
approximately 50% of his time as a JMC officer to company matters; all other
officers are expected to devote approximately 80% of their time as JMC officers
to company matters. For biographies of Messrs. Crispin and Anderson and Ms.
Perazzo, see "Board of Directors" above.
MR. FRANK DUCKSTEIN, VICE PRESIDENT, age 44. Mr. Duckstein is in
charge of market development and remarketing of aircraft portfolios. Prior to
joining the Company, Mr. Duckstein spent five years as Director of Marketing
for PLM International, a transportation equipment leasing company. While at
PLM, he was responsible for sales and remarketing, market research and
development, both domestically and internationally, of PLM's corporate and
commuter aircraft, as well as their helicopter fleet. Previously, he was with
the following international and regional airlines operating within Europe and
the U.S. with responsibility for operation, market development and sales:
Aeroamerica (Berlin, Germany) 1976-1979; Air Berlin (Berlin, Germany)
1980-1983; Direct Air (Berlin, Germany) 1983-1985; and Pacific Air Express
(Millbrae, CA) 1986-1996. Mr. Duckstein attended the Technical University of
Berlin, majoring in Economics.
It is anticipated that the foregoing officers will be elected upon
consummation of the Consolidation and shall serve a one-year term and until
their successors are elected and qualified or until their earlier resignation
or removal. There are no arrangements or understandings between or among any
of the officers or directors and any other person pursuant to which any officer
or director was selected as such.
COMPENSATION OF EXECUTIVE OFFICERS
The Company was formed on February 28,1997. Accordingly, the Company
has not paid any cash compensation to its executive officers for prior years.
No compensation will be paid by the Company to its officers as the Company will
engage JMC as the management company pursuant to the Management Agreement. The
officers of the Company are officers of JMC, and will receive
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compensation therefor. There are no employment agreements between the Company
and any of its officers, and the Company does not expect to enter into any such
agreements in the future. JMC is an at-will employer.
Neal D. Crispin's cash compensation from JMC including bonuses is
expected to be $60,000. The only executive officer of JMC whose compensation
exceeds $100,000, is Marc J. Anderson, Chief Operating Officer, whose salary
and bonus is expected to be $150,000.
LIMITATION OF DIRECTORS' LIABILITY
Delaware law authorizes Delaware corporations to limit or eliminate
the personal liability of a director to the corporation and its stockholders
for monetary damages for certain breaches of the director's fiduciary duties as
a director, other than for breach of his duty of loyalty to the corporation and
its stockholders, or for acts or omissions not in good faith or involving
intentional misconduct or knowing violation of the law, or for the unlawful
purchase or redemption of stock or payment of unlawful dividends or the receipt
of improper personal benefits. The Board of Directors believes that such
provisions have become commonplace among major corporations and are beneficial
in attracting and retaining qualified directors, and the Company's Certificate
of Incorporation includes such provisions.
The director's duty of care requires that, when acting on behalf of
the corporation, directors must exercise an informed business judgment based on
all material information reasonably available to them. Absent these
limitations, directors are accountable to corporations and/or their
stockholders for monetary damages for conduct constituting gross negligence in
the exercise of their duty of care. Although this provision of Delaware law
does not change directors' duty of care, it enables corporations to limit
available relief to equitable remedies such as injunction or rescission.
The Company's Certificate of Incorporation limits the liability of
directors of the Company to its stockholders (in their capacity as directors
but not in their capacity as officers) to the fullest extent permitted by
Delaware law. Specifically, directors of the Company will not be personally
liable for monetary damages for breach of a director's fiduciary duty as a
director, except for liability (i) for any breach of the directors' duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or that involve intentional misconduct or a knowing violation of
law, (iii) for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware GCL or (iv) for any
transaction from which the director derived an improper personal benefit. The
inclusion of this provision in the Certificate of Incorporation may have the
effect of reducing the likelihood of derivative litigation against directors
and may discourage or deter stockholders or management from bringing a lawsuit
against directors for breach of their duty of care, even though the action, if
successful, might otherwise benefit the Company and its stockholders.
INDEMNIFICATION
Subject to applicable law, the Company's Certificate of Incorporation
and Bylaws require the Company to indemnify its officers and directors against
expenses, judgments, settlements and fines incurred in the defense of any
claim, including any claim brought by or in the right of the Company, to which
they were made party by reason of being or having been officers or directors.
It is anticipated that each of the Company's directors and executive
officers will enter into an indemnity agreement with the Company following
completion of the Consolidation. Pursuant to such agreements, the Company will
agree to indemnify the directors and executive officers against any costs and
expenses, judgments, settlements and fines incurred in connection with any
claim involving a director or executive officer by reason of his position as
director or executive
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officer that are in excess of the coverage provided by any insurance if the
indemnitee meets certain standards of conduct.
THE MANAGEMENT COMPANY
Neal D. Crispin, an individual General Partner of the Partnerships, is
a director, officer and significant shareholder of JMC. JMC currently manages
the assets of those partnerships on behalf of the General Partner. It also
manages the assets of a wholly owned subsidiary, JetFleet III, and by the
Effective Time of the Consolidation will have completed an equipment debt
syndication program with a special purpose wholly owned subsidiary, AeroCentury
IV, Inc. ("ACF"). It is anticipated that JetFleet III's and ACF's offering
and acquisition activities will be completed prior to consummation of the
Consolidation.
Immediately prior to the Consolidation, JMC will be the sole holder of
the Common Stock of the Company. JMC will also act as the management company
for the Company pursuant to a Management Agreement between JMC and the Company,
which will have a 15-year initial term. The Management Agreement is terminable
in the event of a breach of obligations under the agreement upon 12 months
prior notice to the breaching party by the other party. In the event of a
breach by the Company which terminates the Management Agreement, the Company
will be liable for liquidated damages. Under the Management Agreement, JMC
will have ultimate responsibility and authority for the selection of assets to
be acquired by the Company and the leasing, re-leasing and/or subsequent sale
of the assets. JMC will have control over, among other things, the negotiation
and execution of lease agreements for the assets, payment of operating
expenses, review of compliance by lessees and obligors under leases or loan
agreements, the recovery of equipment in the event of default or foreclosure on
an asset, and the exercise of appropriate remedies under such agreements. See
"FIDUCIARY RESPONSIBILITIES" and "RISK FACTORS -- Reliance on JMC."
JMC has the right, under the Management Agreement, to employ such
persons, including under certain circumstances, Affiliates of JMC, as it deems
necessary for the efficient operation of the Company. The agreement also
grants the Company an option to acquire all of the outstanding stock of JMC at
any time on or before December 31, 2000, subject to such stockholder approval
as required by applicable law, for a purchase price based on the earnings of
JMC, in the form of freely tradeable registered stock of the Company. The
purchase price would be set at 90% of the product of (i) the earnings of JMC as
of the most recent 12-month period prior to the acquisition, multiplied by (ii)
the average price to earnings ratio of the Company over the same 12-month
period, each as determined according to generally accepted accounting
principles; provided, however, that if the purchase price is less than $12
million, JMC would have the right to decline the acquisition.
In addition to managing the Company's operations, JMC will be involved
in other business for its own account. This would include asset management for
third parties, brokerage services and other third party remarketing activities.
JMC will, however, not compete with the Company in the acquisition and resale
and remarketing of leased aircraft equipment, and will not provide third party
services that are competitive with that of the Company. All purchases and
sales of leased aircraft engaged in by JMC after the Consolidation will be on
behalf of the Company.
Compensation. Under the Management Agreement, JMC will be entitled to
receive a monthly management fee from the Company equal to 0.25% of the Asset
Value of the Company's assets as of the last day of the month for which such
fee is earned. JMC and/or its affiliates may also receive reimbursement for
accountable general administrative expense payable to third parties by JMC in
connection with the administration and management of the company, and may also
receive a brokerage fee in connection with the acquisition of assets by the
Company, and/or a remarketing fee in connection with the sale or re-lease of
the Company's assets. In no event will
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any brokerage or remarketing fee be greater than the usual and customary
brokerage fee that would have been paid to an unrelated third party broker.
See "COMPARISON OF COMPENSATION TO GENERAL PARTNERS AND ITS AFFILIATES." See
"PRO FORMA FINANCIAL INFORMATION."
Officers and Directors of JMC. The two directors of JMC are also
directors of the Company: Neal D. Crispin and Toni M. Perazzo. The officers of
JMC are also the current officers of the Company: Neal Crispin, President, Marc
Anderson, Chief Operating Officer, Toni Perazzo, Vice President - Finance &
Secretary, and Frank Duckstein, Vice President. Officers serve at the
discretion of the Board of Directors. For biographies of the officers and
directors of JMC, see "MANAGEMENT -- Directors" and "-- Executive Officers."
See "FIDUCIARY RESPONSIBILITIES" and "RISK FACTORS - - Reliance on JMC."
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SECONDARY MARKET AND OWNERSHIP OF PARTNERSHIP UNITS
- --------------------------------------------------------------------------------
SALE PRICES OF UNITS
The Partnership Units are not listed on any national or regional
securities exchange or quoted on the NASDAQ, and there is no established public
trading market for the Units. Secondary sales activity for the Units has been
limited and sporadic. The General Partner monitors transfers of the Units (a)
because the admission of the transferee as a substitute investor requires the
consent of the General Partner under each of the Partnership Agreements, and
(b) in order to track compliance with safe harbor provisions to avoid treatment
of the Partnerships as "publicly traded partnerships" for federal income tax
purposes.
Set forth in the tables that follow is certain information regarding
sale transactions in the Units. Such information was obtained from the sources
indicated. The transactions reflected in the tables below represent only some
of the sale transactions in the Units. There have been other secondary sale
transactions in the Units, although specific information regarding such
transactions is not readily available to the General Partner. Because the
information regarding sale transactions in the Units included in the tables
below is provided without verification by the General Partner and because the
information provided does not reflect sufficient activity to cause the prices
shown to be representative of the market values of the Units, such information
should not be relied upon as indicative of the ability of Investors to sell
their Units in secondary sale transactions or as to the prices at which such
Units may be sold. Therefore, the information presented should not be relied
upon by Investors in determining whether or not to tender their Units in the
Consolidation.
The General Partner does not believe that the secondary market sale
prices of the Units accurately reflect the value of the assets of the
Partnerships because secondary sale prices are adversely affected by a variety
of factors unrelated to the value of the assets of a limited partnership, such
as: (i) limited partnerships are currently out of favor in the investment
community; (ii) limited partner interests are generally traded on a sporadic
basis; (iii) Unit sale prices can vary dramatically based on the number of
interests sold at once or over time; and (iv) the Tax Reform Act of 1986
contained provisions which eliminated certain federal income tax advantages
associated with investments in limited partnerships and which caused limited
partnerships to place restrictions on transfers of interests in order to avoid
taxation of income at the partnership and partner levels.
While the General Partner receives some information regarding the
prices of secondary sales transactions of the Units, the General Partner does
not receive or maintain comprehensive information regarding all activities of
all broker-dealers and others known to facilitate secondary sales of the Units.
The General Partner estimates, based solely on the transfer records of the
Partnerships, that the number of Units transferred in sale transactions (i.e.,
excluding transactions believed to be between related parties, family members
or the same beneficial owner) was as follows:
NO. OF UNITS TRANSFERRED DATE AND PRICE OF MOST
IN 1996 RECENT QUOTE SOURCE OF INFORMATION
------------------------ ---------------------- -------------------------
JetFleet I 2,040 $____/Unit - ____/97 Chicago Partnership Board
JetFleet II 958 $____/Unit - ____/97 Chicago Partnership Board
To date in calendar year 1997, there have been ____ and _____ Units transferred
of JetFleet I and JetFleet II, respectively.
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- --------------------------------------------------------------------------------
PROPERTIES OF THE PARTNERSHIPS
- --------------------------------------------------------------------------------
The following Table sets forth the assets held by each Partnership as of
the date of this Prospectus:
JETFLEET I
- ----------
Percentage Current
Asset Interest Lessee Year Acquired Appraised Value***
- ----- -------- ------ ------------- -------------------
DHC-7-102 S/N 57 95.90* Raytheon 1991 $ 1,294,650
DHC-7-103 S/N 72 24.37* Air Tindi, Ltd. 1991 $ 467,904
JETFLEET II
- -----------
Percentage Current
Asset Interest Lessee Year Acquired Appraised Value
- ----- -------- ------ ------------- ---------------
DHC-7-102 S/N 57 4.00* Raytheon 1991 $ 55,350
DHC-7-103 S/N 72 75.53* Air Tindi, Ltd. 1991 $ 1,452,096
DHC-7-102 S/N 44 100.00 Raytheon 1992 $ 1,350,000
DHC-7-103 S/N 11 100.00 Raytheon 1992 $ 1,860,000
DHC-6-300 S/N 666 100.00 LoganAir 1995 $ 950,000
Metro II, SA-227-AC 100.00 Merlin Express 1995 $ 830,000
Metro II, SA-226 50.00** Sunbird Air 1996 $ 220,000
Services
Turboprop Engines (24 100.00 Airwork Corp. 1993 $ 6,880,000
PT6A-50 Engine 100.00 (spare) 1993 $ 330,000
- -------------------
* Co-owned by JetFleet I and JetFleet II.
** The other 50% undivided interest is owned by JetFleet III, an affiliated
equipment program.
*** As of February 4, 1997.
JetFleet I and JetFleet II hold 50% and 50% interests, respectively, in
a DC-9 Aircraft, and JetFleet II holds a 100% interest in a second DC-9
Aircraft, each on a full-payout finance lease to AeroCalifornia which contains
a repurchase option at the end of the lease term. These assets are treated as
financing leases, with a current aggregate present value to JetFleet I and
JetFleet II of $144,543 and $622,178, respectively.
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REPORTS, OPINIONS AND APPRAISALS
- --------------------------------------------------------------------------------
GENERAL
Exchange Values were determined as of February 4, 1997 and have been
assigned to each of the Partnerships solely to establish a consistent method of
allocating the Shares for purposes of the Consolidation. The Exchange Values
were determined by the General Partner based in part on the independent
appraisal of all assets of the Partnerships (other than two DC-9 Aircraft under
a finance lease with AeroCalifornia) by Aircraft Information Services, Inc.
(the "Appraiser"). The appraisals and valuations completed by the Appraiser
have been filed as exhibits to the Registration Statement of which this
Prospectus is a part. The General Partner did not impose any limitations on
the scope of the investigations conducted by Appraiser to render its appraisal.
The General Partner has not made any contacts, other than as described in this
Prospectus, with any outside party regarding the preparation by the outside
party, of an opinion as to the fairness of the Consolidation, an appraisal of
the Partnerships or their assets, or any other report with respect to the
Consolidation.
PARTNERSHIP ASSET APPRAISALS
General. The Appraiser, Aircraft Information Services, Inc., has
prepared and delivered to the Partnerships, the General Partner and the Company
an appraisal report dated February 4, 1997, based upon and subject to the
matters referenced in the appraisal, containing its opinion regarding the value
of each Partnership aircraft asset as of February 4, 1997. Aircraft Information
Services, Inc., is a nationally recognized and independent appraisal firm with
extensive valuation experience with used aircraft equipment. It is a member of
the International Society of Transport Aircraft (ISTAT) and employs an
ISTAT-certified Senior Aircraft Appraiser.
The purpose of the appraisal is to establish the relative values of each
Partnership in order to assign Exchange Values and to allocate the Company's
Shares, if any, for purposes of the Consolidation. See "PROPERTIES OF THE
PARTNERSHIP."
Current Market Value. In its valuation of the Partnership assets, the
Appraiser determined the "current market value" of the equipment. Current
market value is based upon the value reflective of real market conditions at
the time of the appraisal of an asset, and takes into account the status of the
economy in which the equipment is used, the status of supply and demand for the
particular item of equipment, the value of recent transactions and the opinions
of informed buyers and sellers. The current market value approach assumes that
there is no short term time constraint to buy or sell the asset. Under this
approach, the aggregate asset values of JetFleet I and II were calculated to be
$1,762,554 and $13,927,446, respectively. The compensation paid to the
Appraiser was not contingent upon General Partner's approval of the Appraisal
or completion of Consolidation.
Base Valuation. The Appraiser also provided a valuation of assets based
on the base value approach. This approach analyzes the value that would be
placed on an asset in a transaction between equally willing and informed buyers
and sellers not under a compulsion to buy or sell, and desiring to transfer
only a single item of equipment for cash, with no hidden liability or value,
and with supply and demand roughly in balance. Under this approach, the
aggregate aircraft asset values of JetFleet I and II were calculated to be
$2,937,590 and $18,097,410, respectively. These base values reflect a somewhat
higher valuation than that under the current market value approach. However,
since the appraisals are only relevant in determining the relative ownership of
the Company between the two Partnerships, and since base value is generally
used only to consider
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historical trends, as a basis for long term future value considerations, the
Company and the General Partner decided to use the generally accepted current
market value approach in determining Exchange Values for the Partnerships.
Liquidation Values. For use in determining the pro rata share of the net
asset value of the Partnerships in order to set the fair value of the Units for
dissenters' rights purposes, the Appraiser also provided a valuation of assets
based on an orderly sale of the assets over a six-to-twelve month period.
Under this approach, the aggregate aircraft asset values of JetFleet I and II
were calculated to be $1,319,518 and $10,455,482, respectively. See
"DISSENTERS' RIGHTS."
In connection with certain disclosures in this Prospectus regarding the
estimated immediate liquidation value of the Partnerships, the Appraiser has
provided a valuation of all of the assets assuming a sale in less than six
months. Under this approach, the aggregate aircraft asset values of JetFleet I
and II were calculated to be $1,148,545, and $9,056,455, respectively. See
"BACKGROUND AND REASONS FOR THE CONSOLIDATION--Background of the Consolidation
and Alternatives Considered."
A copy of the current value appraisal is attached as Appendix B to this
Prospectus. A copy of the base value appraisal and the liquidation value
appraisals of the Partnerships' assets are included as exhibits to the
Registration Statement filed with the Commission with this Prospectus, and will
be promptly sent to Investors upon written request to CMA Capital Group, Inc.,
General Partner, 1440 Chapin Avenue, Suite 310, Burlingame, California 94010.
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DESCRIPTION OF COMMON STOCK
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GENERAL
The Certificate of Incorporation of the Company authorizes the issuance
of up to 5,000,000 share of Common Stock with a par value of $.001 per share
and 2,000,000 shares of Preferred Stock. There are presently 150,000 shares of
Common Stock issued and outstanding, all of which are held by JMC, which
purchased the shares at a price of $1.00 per share when the Company was
organized. The number of shares of Common Stock to be issued in connection
with the Consolidation depends upon the Partnerships that approve and
participate in the Consolidation and the number of Dissenting Investors.
Assuming both Partnerships participate in the Consolidation and that all
Investors receive Shares in connection therewith, 1,614,951 shares of Common
Stock will be issued and outstanding after the Consolidation based upon the
Exchange Value of the Participating Partnerships divided by $10. See "THE
CONSOLIDATION -- Exchange Value and Allocation of Shares." There is currently
no established trading market for the Common Stock. The Company has applied to
list the Common Stock on the American Stock Exchange under the symbol "____."
Subject to official notice of issuance, ________ will act as transfer agent and
registrar of the Common Stock.
Holders of the Company's Common Stock are entitled to receive dividends,
when and as declared by the Board of Directors of the Company, out of funds
legally available therefor. The holders of Common Stock, upon any liquidation,
dissolution or winding-up of the Company, are entitled to receive ratably any
assets remaining after payment in full of all liabilities of the Company. The
holders of Common Stock have voting rights in the election of directors and
with respect to all other corporate matters, each share entitling the holder
thereof to one vote. Cumulative voting is not permitted for the election of
directors. Holders of shares of Common Stock do not have preemptive rights,
which means they have no right to acquire any additional shares of Common Stock
that may be issued by the Company at a subsequent date.
The Board of Directors may, in its discretion, issue additional Shares of
Common Stock or issue Preferred Stock, with such powers, preferences and rights
as the Board of Directors may at the time designate. The issuance of
additional Shares of either Common Stock or Preferred Stock, beyond the Shares
to be issued in the Consolidation, may result in the dilution of the
Stockholders. Such Preferred Stock may have liquidation and dividend
preferences that may materially and adversely affect the rights of holders of
Common Stock.
All shares of the Common Stock now outstanding are, and the shares of
Common Stock offered hereby will be when issued, fully paid and nonassessable.
Under Section 203 of the Delaware GCL, certain business combinations with
stockholders owning 15% or more of the Company's outstanding stock (an
"interested stockholder") are prohibited for three years after such interested
stockholder becomes an interested stockholder. Due to the unique position of
the Company within its market, the Company anticipates that after the
Consolidation, it may adopt a stockholder rights plan that could restrict
business combinations and similar transactions between the Company and
significant stockholders of the Company.
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SHARES ELIGIBLE FOR FUTURE SALE
Assuming both Partnerships participate in the Consolidation and that all
Investors receive Shares in connection with the Consolidation, the Company will
have an aggregate of 1,464,951 shares of Common Stock outstanding, all of which
will be freely tradeable without restriction under the Securities Act except
for any shares owned by Affiliates of the Company. Subject to certain
conditions, Rule 144 permits an Affiliate to sell during any three-month period
such number of shares equal to one percent of outstanding shares of Common
Stock or the average weekly trading volume of Common Stock reported on all
exchanges for the four weeks prior to the date of notice of sale, whichever is
greater.
The 150,000 Shares of Common Stock issued to JMC and will become freely
transferable under Rule 701 under the Securities Act, 90 days after the first
sale of Common Stock of the Company to the general public pursuant to a
registration statement filed with and declared effective by the Commission;
provided, however, that such sales must comply with the provisions (other than
the holding period requirements) of Rule 144.
The shares issuable under the warrant for 35,000 Shares issued to the
Dealer Manager may be resold may be resold in reliance on and pursuant to the
provisions of Rule 144 under the Securities Act or any other applicable
exemption from registration under the Securities Act.
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DILUTION
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The difference between the market price per Share of Common Stock and the
net tangible book value per Share of the Company after the Consolidation
constitutes dilution to the Investors. Net tangible book value per Share is
determined by dividing the net tangible book value of the Company (total assets
minus total liabilities) by the applicable number of shares of Common Stock.
For the purposes of this discussion, it is assumed that the market price of the
Shares after the Consolidation will be equal to the aggregate Exchange Values
for the Partnership divided by the total number of Shares of the Company
outstanding after the Consolidation.
On March 5, 1997, the net tangible book value of the Company was $150,000
or $1.00 per Share. After the Consolidation, the net tangible book value of
the Company will be $14,649,503. After giving effect to the Consolidation and
the issuance of 1,464,951 additional Shares, the net tangible book value per
share will be $9.16, representing an immediate increase of $8.16 in the net
book value to the existing sole stockholder of the Company, JMC, and an
immediate dilution of $0.84 per share to Investors (based upon a $10.00 market
price, equal to the aggregate Exchange Values of the Partnerships divided by
the total number of Shares issued to the Investors and General Partner in the
Consolidation).
The following Table illustrates the following information with respect to
dilution to Investors on a per-Share basis:
Market Price (1) $ 10.00
Net Tangible Book Value before Consolidation $ 1.00
Increase in Net Tangible Book Value
Attributable to Investors $ 8.16
Pro forma Net Tangible Book Value
after the Offering $ 9.16
Dilution to Investors $ 0.84
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(1) Computed by dividing the aggregate Exchange Value of the Partnerships by
the number of Shares to be issued to the Investors and General Partners in
the Consolidation. This value may not necessarily reflect the price at
which the Shares may trade following the Consolidation.
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The following Table sets forth, with respect to the existing Stockholders
and the Investors, a comparison of the number of Shares acquired from the
Company, the percentage of ownership of such Shares, the total consideration
paid, and the average purchase price per Share.
Total Consideration
Shares Purchased ---------------------- Average Price
Number Percent Amount Percent Per Share
--------- ------- ----------- ------- -------------
Existing Stockholder 150,000 9.28% $ 150,000 1.01% $ 1.00
Investors(2) 1,397,158 86.51% $13,971,580(3) 94.41% $10.00
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(2) Represents the number of Shares issued to Investors in the Consolidation
assuming 100% Partnership Participation.
(3) Represents the pro rata portion of the Partnerships' Aggregate Exchange
Value attributable to the Investors' aggregate interest in the
Partnerships, calculated by multiplying the aggregate number of Shares
issued in the Consolidation to the Partnerships by a fraction, the
numerator of which is the number of Shares issued to the Investors and the
denominator of which is the total number of Shares issued to the Investors
and the Corporate General Partner.
The foregoing table assumes no exercise of the Dealer Manager warrant for
35,000 Shares at $3.00 per Share. If such warrant is exercised, there would be
an immediate dilution of $0.13 per Share. See "THE CONSOLIDATION--Dealer
Manager."
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FEDERAL INCOME TAX CONSIDERATIONS
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The following discussion is the tax counsel's opinion as to the material
federal income tax consequences of the Consolidation, the operations of the
Company and the transactions related thereto which may affect Investors who are
individuals and citizens or residents of the United States. This discussion
was prepared by Graham & James LLP, counsel for the Company ("Counsel"), and is
based upon the Code, Treasury Regulations promulgated or proposed thereunder
and published rulings and court decisions, all of which are subject to changes
which could adversely affect the Investors. While the discussion encompasses
the material federal tax consequences of the Consolidation to Investors and the
Company, each Investor should consult his or her own tax advisor as to the
specific consequences of the proposed Consolidation, the receipt and ownership
of Shares by Participating Investors, the taxation of the Company and the
application and effect of federal, state and local income and other tax laws
and of any potential changes in the applicable law after the date hereof. No
ruling from the IRS, or from any other taxing authority, will be sought or
obtained as to any of the following tax issues, and, neither the IRS nor the
courts are bound by the summary below or the opinion of Counsel.
Subject to the limitations and qualifications described below and assuming
the Consolidation and the operations of the Company each are conducted
substantially as described in this Prospectus, Counsel is of the opinion that:
1. General Nonrecognition. Investors will not recognize gain or loss as a
result of the Consolidation and resulting conversion of their interest and the
Partnerships into Common Stock of the Company, except as set forth below.
2. Low-Basis Units. An Investor who has a tax basis in his or her
interest in the Partnership that is significantly less than the tax basis of
the original holder of that interest may recognize gain to the extent that the
tax basis in that Partnership interest is less than the pro rata share of
Partnership liabilities.
3. Basis. An Investor will have an aggregate tax basis in all Shares of
Common Stock of the Company received in the Consolidation equal to the
aggregate basis of that Investors' interests in the Partnerships, as adjusted
for operations through the Effective Time; such basis will be pro-rated among
all Shares of Common Stock received.
4. Holding Period. Based upon the assumption that the Partnerships hold
no ordinary income assets (such as appreciated inventory) that will be
transferred to the Company, the holding period of Common Stock received by an
Investor as a result of the Consolidation will include the period for which
that Investor held his interest in the Partnership.
5. Reporting Requirements. Each Investor who receives Common Stock in the
Company in the Consolidation will be required to file with his federal income
tax return a statement that provides details relating to the property
transferred, the stock received, and his or her share of any liabilities
assumed by the company in the Consolidation. The Company has represented that
it will provide stockholders with information to assist them in preparing such
a statement.
6. Dissenters. Any Investor subject to federal income tax who exercises
dissenter's rights and receives the appraised value of his interest in the
Partnership, will recognize gain (or loss) to the extent that the total amount
received exceeds (or in the case of loss, is less than) the tax basis in that
interest.
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7. Tax-Exempt Investors. The Consolidation will not result in the
recognition of substantial unrelated business taxable income by any Tax-Exempt
Investor which does not hold Units either as a "dealer" or subject to
acquisition indebtedness, and is not an organization described in Section
501(c)(7) (social clubs), 501(c)(9) (voluntary employees' beneficiary
associations), 501(c)(17) (supplemental unemployment benefit trusts) or
501(c)(20) (qualified group legal services plans) of the Code. In addition,
distributions with regard to Shares owned by certain tax-exempt persons should
not result in recognition of unrelated business taxable income, unless such
Shares are subject to acquisition indebtedness.
CONSOLIDATION AS NON-TAXABLE EVENT
The Consolidation is intended as a non-taxable transaction under Section
351 of the Code. At the Effective Time, the Investors will effectively
transfer their interest in the Partnerships to the Company solely in exchange
for Common Stock in the Company. This exchange effectively terminates the
Partnerships. The exchange generally has the tax consequences described in
paragraphs 1-7, above.
The above conclusions are based upon the assumption that, immediately after
the Effective Time, Investors in the Partnerships own at least 80% of the
Common Stock of the Company (which is the only outstanding class of the
Company). IF AN INSUFFICIENT NUMBER OF INVESTORS PARTICIPATE IN THE
CONSOLIDATION, OR THE CONSOLIDATION PROCEEDS WITH ONLY JETFLEET II, SO THAT
INVESTORS DO NOT OWN AT LEAST 80% OF THE COMPANY IMMEDIATELY AFTER THE
EFFECTIVE TIME, THEN THE CONSOLIDATION WILL BE A TAXABLE EVENT, AND INVESTORS
WILL RECOGNIZE GAIN (OR LOSS) TO THE EXTENT THAT THE FAIR MARKET VALUE OF THE
COMPANY'S STOCK RECEIVED EXCEEDS (OR IN THE CASE OF LOSS, IS LESS THAN) THE TAX
BASIS IN THAT INVESTOR'S INTEREST IN THE PARTNERSHIP.
In addition, the above conclusions are based upon the assumption that no
contracts have been or will be entered into prior to the Effective Time of the
Consolidation, pursuant to which Investors would sell stock in the Company to
bring the aggregate ownership of the Investors in the Company below 80% (the
"Control Assumption"). None of the Company, the Corporate General Partner, or
the individual General Partners is aware of any contracts that have been or
will be entered into prior to the Effective Time of the Consolidation which
would make the Control Assumptions incorrect. If the Control Assumption was
not correct, each Participating Investor would recognize gain or loss on the
conversion of interests in the Partnership for Company Stock as if the
Investors had sold the interest in the Partnership for an amount equal to the
value of the Company Stock received, plus his or her share of the Partnership's
nonrecourse liabilities assumed by the Company in the Consolidation. Each
Investor's basis in the Company's Common Stock received would be increased (or
reduced) by the gain (or loss) recognized, and each Investor's holding period
in the Company stock received would being the day after the Effective Time.
PRE-CONSOLIDATION OPERATIONS
The income and deductions of the Partnerships incurred during 1997 prior to
the Effective Time will be allocated among the Investors, and each Investor's
basis in his interest in the Partnerships will be adjusted by the allocations,
in essentially the same manner as they would have been allocated and adjusted
apart from the Consolidation. Each Investor will receive a Schedule K-1 for
1997 reflecting the income and deductions allocated to him during the period in
1997 the Investor owned an interest in the Partnership.
TAX CONSEQUENCES TO THE COMPANY
The Company will not recognize gain or loss as a result of the
Consolidation. The basis of the assets received by the Company from the
Partnerships will equal the aggregate tax basis of
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Participating Investors' interests in the Partnerships, plus any cash paid by
the Company on behalf of the Partnerships to Investors exercising dissenters'
rights, and the amount of liabilities of the Partnership assumed by the Company
in the Consolidation. The Company's basis in the properties may differ form the
Partnerships' basis in such properties, and the properties may be subject to
longer depreciable lives as a result of the Consolidation. These factors could
result in an overall decrease or increase in the depreciation deductions
attributable to the assets of the Partnership.
CERTAIN TAX DIFFERENCES BETWEEN THE OWNERSHIP OF UNITS AND SHARES
Unitholders are treated as limited partners of a partnership for federal
income tax purposes. As a partnership, each Partnership itself is not subject
to taxation, and instead each Investor is required to take into account his
share of the income or loss of such Partnership, regardless of whether any cash
is distributed to him. Upon consummation of the Consolidation with respect to
a Participating Partnership, the Participating Investors therein will receive
Shares in liquidation of such Partnership. See "COMPARISON OF LIMITED
PARTNERSHIP AND CORPORATE STRUCTURE."
In contrast to the treatment of partners, Stockholders of the Company will
be taxed based on the amount of distributions received from the Company. Each
Stockholder will receive a Form 1099-DIV reporting the amount of taxable and
nontaxable distributions, if any, paid to him during the preceding year. The
taxable portion of such distributions depends on the amount of the Company's
earnings and profits. In computing earnings and profits, the Company will have
earnings and profits with respect to amounts otherwise treated as a return of
principal if the Company acquires loans from a participating partnership at a
discount. In addition, the Company may be required to use a slower method of
depreciation than that used by certain Participating Partnerships with respect
to assets transferred to the Company. Accordingly, under certain
circumstances, even if the Company were to make the same level of distributions
as the Participating Partnerships, a larger portion of such distributions by
the Company could constitute taxable income as compared to the distributions of
such Partnerships. In addition, the character of this income to Stockholders
is not dependent on its character to the Company, and is generally ordinary
dividend income to the Stockholders and classified as portfolio income under
the passive loss rules, except with respect to capital gains dividends,
discussed below. Furthermore, should the Company incur a taxable loss, such
loss will not be passed through to the Stockholders.
STATE TAX CONSEQUENCES
The Company and its Stockholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its Stockholders may not conform to the federal income tax consequences
discussed above. The Company does not believe, however, that Participating
Investors will be required to file state tax returns, other than in their
respective states of residence, as a result of the ownership of Shares.
Consequently, prospective Stockholders should consult their own tax advisors
regarding the effect of state and local tax laws on an investment in the
Company.
A copy of such opinion is included as an Exhibit to the Registration
Statement of which this Prospectus is a part, and is available upon written
request to CMA Capital Group, Inc., General Partner, 1440 Chapin Avenue, Suite
310, Burlingame, California 94010.
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EXPERTS
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ACCOUNTANTS
The audited balance sheet of the Company and the audited financial
statements of the Partnerships included in this Prospectus have been audited
by Vocker Kristofferson and Co., independent public accountants, as indicated
in their reports with respect thereto, and are included herein in reliance upon
the authority of said firm as experts in giving said reports.
APPRAISER
The Appraisal of Aircraft Information Services, Inc. included as Appendix B
to this Prospectus has been so included in reliance on their authority as
experts in valuing aircraft equipment.
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LEGAL OPINIONS
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Graham & James LLP will deliver an opinion to the effect that the Shares
offered by this Prospectus will be validly issued, fully paid and
nonassessable. Graham & James LLP will also deliver opinions as to the
material federal income tax consequences of the Consolidation, including issues
under ERISA. Copies of such opinions are included as Exhibits to the
Registration Statement of which this Prospectus is a part, and are available
upon written request to CMA Capital Group, Inc., General Partner, 1440 Chapin
Avenue, Suite 310, Burlingame, California 94010.
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AVAILABLE INFORMATION
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The Partnerships are subject to the reporting requirements of the Exchange Act,
and in accordance therewith, must file reports and other information with the
Commission, 450 Fifth Street N.W., Washington D.C. 20549. In addition, the
Company has filed a Registration Statement on Form S-4 under the Securities Act
and the rules and regulations promulgated thereunder, with respect to the
Common Stock offered pursuant to this Prospectus. This Prospectus, which is
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement and the exhibits and financial schedules
thereto. For further information with respect to the Partnerships and the
Company, reference is made to the reports of the Partnerships filed under the
Exchange Act and the Company's Registration Statement and such exhibits and
schedules, copies of which may be examined without charge via the Internet at
the Commission's web site at http://www.sec.gov, or upon payment of prescribed
fees from, the Public Reference Section of the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such documents may
also be obtained from the Partnerships upon written request to Neal D. Crispin,
General Partner, 1440 Chapin Avenue, Suite 310, Burlingame, California 94010.
A separate supplement has been prepared for each Partnership and will be
delivered to each Investor in the Partnership covered thereby. Upon receipt of
a written request by an Investor or representative so designated in writing,
the General Partner will send to an Investor a copy of the Supplement for the
other Partnership without charge. All requests should be directed to CMA
Capital Group, Inc., General Partner, 1440 Chapin Avenue, Suite 310,
Burlingame, California 94010.
Statements contained in this Prospectus as to the contents of any contract
or other document which is filed as an exhibit to the Registration Statement
are not necessarily complete, and each such statement is qualified in its
entirety by reference to the full text of such contract or document.
Upon consummation of the Consolidation, the Company will be required to
file reports and other information with the Commission pursuant to the Exchange
Act. In addition to applicable legal or other regulatory requirements, if any,
holders of the Common Stock will receive annual reports containing audited
financial statements with a report thereon by the Company's independent public
accountants, and quarterly reports containing unaudited financial information
for each of the first three quarters of each fiscal year.
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GLOSSARY OF TERMS
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Certain capitalized terms used in this Prospectus shall have the
following meanings unless the context otherwise requires:
"ACF" means "AeroCentury IV, Inc.
"Adjusted Purchase Price" means the seller's purchase price of an
asset plus all Chargeable Acquisition Costs. Generally, the Company will not
acquire an asset if the Adjusted Purchase Price exceeds the fair market value
of the asset at the time of purchase as determined by an appraisal by an
independent appraiser.
"Affiliate" means, with respect to a Person, any other Person directly
or indirectly controlling, controlled by or under common control with such
Person, or any other person owning or controlling 10% or more of the
outstanding voting securities of such Person.
"Amendments" means the proposed amendments to the Partnership
Agreements to be adopted by the Investors of the Partnerships in connection
with the Consolidation.
"Anticipated Consummation Date" shall mean the date that the
Consolidation is anticipated to be consummated.
"Appraisal" means the appraisals of the assets of each of the
Partnerships prepared by Aircraft Information Services, Inc., to show the
fair market value of such assets as of February 4, 1997.
"Appraised Value" means, with respect to the assets of a Partnership,
the appraised value of such assets based upon the current market value
appraisal by Aircraft Information Services, Inc., prepared in connection with
the Consolidation, reduced, if applicable, by any adverse material events
occurring subsequent to the date of the Prospectus but prior to the Closing
Date in accordance with the guidelines described in the Prospectus.
"Appraiser" means Aircraft Information Services, Inc.
"Approval Date" means the date by which each Investor must inform the
General Partner as to whether the Investor wishes to vote in favor of or
against the Consolidation, and the date on which the vote of the Investors will
be tabulated by the Information Agent.
"Asset Value" means the original cost of the Company's assets less
depreciation, as calculated in accordance with generally accepted accounting
principles.
"Bylaws" means the Bylaws of the Company, as in effect from time to
time.
"California Partnership Act" means the California Revised Limited
Partnership Act, as may be amended from time to time.
"Certificate of Incorporation" means the Certificate of Incorporation
of the Company, as in effect from time to time.
"Certificate of Merger" means the Certificate of Merger to be filed
with the Delaware
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Secretary of State with respect to the merger of the Participating Partnerships
and the Company under the terms and conditions set forth in the Merger
Agreement.
"Chargeable Acquisition Costs" means acquisition expenses that are
incurred in connection with the selection and acquisition of assets and that
are to be paid by the Company. Chargeable Acquisition Expenses include, without
limitation, legal, accounting, brokerage expenses incurred in connection with
the acquisition of assets, appraisal costs, title insurance costs, acquisition
consultant expenses and any reimbursement that might be payable by the Company
to any third party for any out-of-pocket costs incurred in rendering
acquisition services for the Company and any other direct out-of-pocket costs
incurred in connection with the selection and purchase of assets.
"CK Holding" means Crispin Koehler Holding Corp.
"CKS" means Crispin Koehler Securities.
"Closing Date" means the date on which the Consolidation is to be
consummated.
"Code" means the Internal Revenue Code of 1986, as amended, including
successor statutes thereto.
"Common Stock" means the $.001 par value common stock of the Company.
"Company" means AeroCentury Corp., a Delaware corporation, a
newly-formed corporation and its successors and assigns.
"Consent Card" means the consent card accompanying the Prospectus
which includes a ballot on which the Investor may vote in favor of or against
his Partnership's participation in the Consolidation or abstain from voting
with respect thereto.
"Consolidation" means the merger of the Participating Partnerships
with and into the Company pursuant to the terms and conditions set forth in the
Merger Agreement, as more fully described in the Prospectus.
"Consolidation Properties" means assets owned by the Company after the
Consolidation which were previously owned by a Participating Partnership.
"Conversion Ratio" means the number of Shares issuable to an Investor
per Unit of Partnership Interest, and shall equal the quotient obtained by
dividing (a) the number of Shares to be issued to the Participating Investors
of the Partnership; by (b) the number of Units of limited partnership to be
exchanged for Shares in the Consolidation.
"Corporate General Partner" means CMA Capital Group, Inc. corporate
general partner of JetFleet I and JetFleet II.
"Counsel" means Graham & James LLP which has served as counsel to the
Company in the preparation of the Consolidation.
"Dealer Manager" means Crispin Koehler Securities.
"Delaware GCL" means the Delaware General Corporation Law, as may be
amended from time to time.
"Dissenting Investor" means an Investor of a Participating Partnership
who does not vote in favor of the Consolidation and complies with certain
procedures set forth in the California Partnership Act.
"Dissenting Units" means Units not voted in favor of the Consolidation
held by a Dissenting Investor.
97
107
"Effective Time" means the time at which the Participating
Partnerships will be merged with and into the Company in accordance with the
Merger Agreement.
"Equipment" means an item of aircraft equipment acquired by the
Company.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Plan" means an employee benefit plan subject to Title I of
ERISA.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and all rules and regulations promulgated thereunder.
"Exchange Value" means the value attributable to the Partnerships for
the purposes of the Consolidation.
"FAA" means the Federal Aviation Administration.
"General Partner" means collectively, Neal D. Crispin, Richard D.
Koehler, and CMA Capital Group.
"Independent Directors" means the directors of the Company who are not
Affiliated with the Company and do not perform any services for the Company,
other than as directors, and are not officers or employees of the Company or
any of its affiliates.
"Individual General Partners" mean Neal D. Crispin and Richard D.
Koehler, Jr. individual general partners of JetFleet I and JetFleet II.
"Information Agent" means D.F. King & Co., Inc., which will provide
information to Investors and tabulate consents in connection with the
Consolidation.
"Investor" means a holder of one or more Units of a Partnership as of
the Record Date.
"IRS" means the Internal Revenue Service.
"JetFleet I" means JetFleet Aircraft, L.P. (a California Limited
Partnership).
"JetFleet II" means JetFleet Aircraft II, L.P. (a California Limited
Partnership).
"JMC" means JetFleet Management Corp., a California corporation, the
sole stockholder of the Company.
"Letter of Instructions" means the letter of instructions to the
Investors accompanying the Consent Card and pertaining to the method of voting
with respect to the Consolidation and related issues.
"Management Agreement" means the Management Agreement between the
Company and JMC.
"Merger Agreement" means the Agreement and Plan of Merger among the
Participating Partnerships and the Company pursuant to which the Consolidation
of such entities is to be consummated.
"NASDAQ National Market System" means the National Association of
Securities Dealers Automated Quotations System National Market System.
98
108
"100% Partnership Participation" means the approval of and
participation in the Consolidation by both of the Partnerships.
"Organizational Documents" means the Certificate of Incorporation and
Bylaws of the Company, as amended.
"Participating Partnership" means a Partnership whose Investors
approve, by a majority of outstanding Units, the Partnership's participation in
the Consolidation pursuant to the terms and conditions of the Merger Agreement.
"Participating Investor" means an Investor of a Partnership which
participates in the Consolidation under the terms and conditions set forth in
the Merger Agreement.
"Partnership Agreements" means, collectively, the amended and restated
certificates and agreements of limited partnership of the Partnerships, the
provisions of which govern the rights and obligations of their respective
partners.
"Partnerships" means, collectively, JetFleet I and JetFleet II.
Reference to a "Partnership" shall be understood to refer to any one of them.
"Person" means an individual, partnership, corporation, trust or other
entity.
"Prospectus" means this Prospectus, together with the supplements and
appendices thereto, filed with the SEC as it may be further supplemented or
amended from time to time.
"Prospectus Supplement" means, with respect to each of the
Partnerships, the Supplement to this Prospectus prepared specifically for the
Investors of that Partnership.
"Qualified Plans" means the following plans: (i) any employee benefit
plan subject to Title I of ERISA, including any pension or profit sharing plan
that is qualified under Section 401(a) of the Code and exempt from federal
income taxation under Section 501(a) of the Code, and (ii) any plan described
in Section 4975(e)(1) of the Code, including any IRA.
"Record Date" means May 1, 1997.
"Registration Statement" means the Registration Statement on Form S-4
as filed with the SEC by the Company under the Securities Act to register the
offering and sale of Shares pursuant to the Consolidation as the same may be
amended or supplemented from time to time.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Shares" means shares of the Company's $.001 par value Common Stock
proposed to be exchanged for the Units in connection with the Consolidation.
"Solicitation/Communication Expenses" means the expenses associated
with the solicitation of consents from Investors, including such expenses as
telephone calls, broker dealer fact sheets, legal and other fees related to the
solicitation of consents, as well as reimbursement of expenses incurred by
brokers and banks in forwarding the Prospectus to Investors.
"State" means any state of the United States of America, and the
District of Columbia.
99
109
"Stockholder" means a holder of shares of Common Stock of the Company.
"Taxable Investor" means any Investor subject to federal income
taxation.
"Tax-Exempt Investor" means any Investor whose income is exempt from
federal income taxation.
"Transaction Costs" means, with respect to the Consolidation, the
costs of mailing and printing the Prospectus, any supplement thereto or other
documents related to the Consolidation, legal fees not related to the
solicitation of consents, financial advisory fees, investment fees, banking
appraisal fees, accounting fees, independent committee expenses, travel
expenses and all other fees related to the preparatory work of the
Consolidation, but not including costs that would have otherwise been incurred
by the Partnerships in the ordinary course of business or
Solicitation/Communication Expenses.
"UBTI" means unrelated business taxable income under the Code.
"Unit" means a beneficial ownership of limited partner interest in, or
limited partner assignment interest or limited partner depositary interest of,
a Partnership.
"Unitholder" means a holder of Units in a Partnership.
100
110
- --------------------------------------------------------------------------------
SELECTED FINANCIAL INFORMATION REGARDING
THE PARTNERSHIPS AND THE COMPANY
- --------------------------------------------------------------------------------
101
111
INDEX TO FINANCIAL INFORMATION
JetFleet Aircraft, L.P.
Report of Vocker Kristofferson and Co.,
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Balance Sheets as of December 31, 1995 and 1996 . . . . . . . . . . . . . . . . . . . . . F-2
Statements of Operations for the Fiscal Years Ended December 31, 1996
1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Statements of Partners' Capital for Fiscal Years Ended December 31, 1994,
1995 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Statements of Cash Flows for the Fiscal Years Ended December 31, 1996
1995, and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Management Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . F-14
Supplementary Financial Information (unaudited) . . . . . . . . . . . . . . . . . . . . . F-17
JetFleet Aircraft II, L.P.
Report of Vocker Kristofferson and Co., Independent Auditors . . . . . . . . . . . . . . F-18
Balance Sheets as of December 31, 1995 and 1996 . . . . . . . . . . . . . . . . . . . . . F-19
Statements of Operations for the Fiscal Years Ended December 31, 1996
1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-20
Statements of Partners' Capital for Fiscal Years Ended December 31, 1994,
1995 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-21
Statements of Cash Flows for the Fiscal Years Ended December 31, 1996
1995, and 1994. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-22
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-23
Management Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-35
Supplementary Financial Information (unaudited) . . . . . . . . . . . . . . . . . . . . . F-38
AeroCentury Corp.
Report of Vocker Kristofferson and Co., Independent Auditors . . . . . . . . . . . . . . . F-39
Balance Sheet at March 5, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-40
Notes to Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-41
Management Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-42
102
112
REPORT OF INDEPENDENT AUDITORS
The Partners
JetFleet(TM) Aircraft, L.P.
We have audited the accompanying balance sheets of JetFleet(TM) Aircraft, L.P.,
a California Limited Partnership, as of December 31, 1996 and December 31,
1995, and the related statements of operations, partners' capital and cash
flows for the years ended December 31, 1996, December 31, 1995 and December 31,
1994. 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 audits 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 JetFleet(TM) Aircraft, L.P.,
at December 31, 1996 and December 31, 1995, and the results of its operations
and its cash flows for the years ended December 31, 1996, December 31, 1995 and
December 31, 1994, in conformity with generally accepted accounting principles.
VOCKER KRISTOFFERSON AND CO.
February 6, 1997
San Mateo, California
F-1
113
JetFleet(TM) Aircraft, L.P.
Balance Sheets
ASSETS
December 31,
------------
1996 1995
---- ----
Current assets:
Cash $ 30,728 $ 96,184
Lease payments receivable 180,000 180,000
Reserves receivable from lessee 4,688 -
Receivable from affiliates - 45,856
---------- ----------
Total current assets 215,416 322,040
Aircraft under operating leases and aircraft
held for operating leases,
net of accumulated depreciation of
$4,055,292 in 1996 and $3,014,002 in 1995 2,328,345 3,369,635
Lease payments receivable - 165,000
Organization costs, net of accumulated
amortization of $66,615 in 1996 and
$64,966 in 1995 - 1,649
---------- ----------
$2,543,761 $3,858,324
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable $ 16,000 $ 28,109
Accrued maintenance costs 25,277 58,984
Payable to affiliates 743 45,000
Prepaid rents 8,890 -
Unearned interest income 14,674 45,417
---------- ----------
Total current liabilities 65,584 177,510
Unearned interest income - 14,674
---------- ----------
Total liabilities 65,584 192,184
Partners' capital
General partners (51,970) (40,091)
Limited partners (1,100,000 authorized
Units, 296,069 issued Units in 1996 and 1995) 2,530,147 3,706,231
---------- ----------
$2,543,761 $3,858,324
========== ==========
See accompanying notes.
F-2
114
JetFleet(TM) Aircraft, L.P.
Statements of Operations
Year Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
Revenues:
Rental income, net $ 578,602 $ 561,254 $1,026,322
Loss on sale of interest
in aircraft - - (219,885)
Interest income 45,705 73,827 16,356
--------- --------- ----------
624,307 635,081 822,793
Costs and expenses:
Amortization of organization costs 1,649 8,404 12,854
Professional fees 22,272 26,240 68,189
General and administrative 112,097 75,286 16,701
Maintenance costs 35,517 43,464 61,531
Depreciation of aircraft 1,041,290 1,041,292 657,088
---------- ---------- ----------
1,212,825 1,194,686 816,363
---------- ---------- ----------
Net (loss) income $ (588,518) $ (559,605) $ 6,430
========== ========== ==========
Allocation of net (loss) income:
General partners $ (5,885) $ (5,596) $ 64
Limited partners (582,633) (554,009) 6,366
---------- ---------- ----------
$ (588,518) $ (559,605) $ 6,430
========== ========== ==========
Per Limited Partnership Unit $ (1.97) $ (1.87) $ 0.02
========== ========== ==========
Limited Partnership Units outstanding 296,069 296,069 296,069
========== ========== ==========
See accompanying notes.
F-3
115
JetFleet(TM) Aircraft, L.P.
Statements of Partners' Capital
For the Years Ended December 31, 1994, 1995 and 1996
Limited
Partner Limited General
Units Partners Partners Total
------- -------- -------- -----
Balance, December 31, 1993 296,069 $5,688,190 $(20,090) $5,668,100
Distributions ($3.01 per
Limited Partner Unit) - (890,114) (8,972) (899,086)
Net income - 6,366 64 6,430
------- ---------- -------- ----------
Balance, December 31, 1994 296,069 4,804,442 (28,998) 4,775,444
Distributions ($1.84 per
Limited Partner Unit) - (544,202 (5,497 (549,699)
Net loss - (554,009) (5,596) (559,605)
------- ---------- -------- ----------
Balance, December 31, 1995 296,069 3,706,231 (40,091) 3,666,140
Distributions ($2.00 per
Limited Partner Unit) - (593,451) (5,994) (599,445)
Net loss - (582,633) (5,885) (588,518)
------- ---------- -------- ----------
Balance, December 31, 1996 296,069 $2,530,147 $(51,970) $2,478,177
======= ========== ======== ==========
See accompanying notes.
F-4
116
JetFleet(TM) Aircraft, L.P.
Statements of Cash Flows
Year Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
Operating activities:
Net <loss> income $ (588,518) $ (559,605) $ 6,430
Adjustments to reconcile net (loss)
income to net cash provided
by operating activities:
Depreciation of aircraft 1,041,290 1,041,292 657,088
Loss on sale of
interest in aircraft - - 219,885
Amortization of organization costs 1,649 8,404 12,854
Change in operating assets and liabilities:
Reserves receivable from lessee (4,688) - 18,035
Accounts payable (12,109) (12,591) 13,600
Accrued maintenance costs (33,707) (14,847) 73,831
Prepaid rents 8,890 - -
Unearned interest income (45,417) (70,019) (3,140)
Deferred income - - (40,823)
Receivable from affiliates 45,856 (45,856) -
Payable to affiliates (44,257) 32,078 (11,327)
---------- ---------- ----------
Net cash provided by operating activities 368,989 378,856 946,433
---------- ---------- ----------
Investing activities:
Sales of interests in aircraft - - 423,316
Purchase of interest in aircraft - - (406,750)
Payments received on capital lease 165,000 150,000 45,000
---------- ---------- ----------
Net cash provided by
investing activities 165,000 150,000 61,566
---------- ---------- ----------
Financing activities -
Distributions (599,445) (549,699) (899,086)
---------- ---------- ----------
Net (decrease) increase in cash (65,456) (20,843) 108,913
Cash, beginning of period 96,184 117,027 8,114
---------- ---------- ----------
Cash, end of period $ 30,728 $ 96, 184 $ 117,027
========== ========== ==========
Supplemental schedule of noncash investing and financing activities:
JetFleet(TM) entered into a capital lease for its interest in a DC-9 aircraft
during 1994. In conjunction with the lease, a liability for unearned interest
income was recorded at the beginning of the lease as follows:
Minimum lease payments receivable $540,000
Cost of interest of aircraft leased (406,750)
--------
Unearned interest income $133,250
========
See accompanying notes.
F-5
117
JetFleet(TM) Aircraft, L.P.
Notes to Financial Statements
1. Summary of Significant Accounting Policies
Basis of presentation
JetFleet(TM) Aircraft, L.P. ("JetFleet(TM)") is a California limited
partnership formed on February 16, 1989 for the purpose of acquiring, on a
world-wide cash basis, a portfolio of commercial aircraft which are already in
service pursuant to triple net leases. The corporate general partner of
JetFleet(TM) is CMA Capital Group ("Group"), a California corporation formed in
February 1989. The individual general partners, Neal D. Crispin and Richard D.
Koehler, are the founding principals of Group. Group is exclusively entitled
to manage and control JetFleet's(TM) business. Capital Management Associates
("CMA"), an affiliated California corporation owned by Mr. Crispin, provides
certain accounting and investor-related services for Group. JetFleet(TM)
Management Corp. ("JMC") an affiliated California corporation formed in January
1994, and owned by the individual general partners and an officer of CMA, has
been authorized to perform remarketing duties on behalf of JetFleet(TM). CKS
Securities, Incorporated, an affiliated California corporation owned by Messrs.
Crispin and Koehler, provides certain administrative and investor-related
services for Group. JetFleet(TM) owns interests in certain aircraft in which
JetFleet(TM) Aircaft II, L.P. ("JetFleet II(TM)"), an affiliated California
limited partnership, also owns interests. JetFleet(TM) has had significant
transactions with these affiliates as well as Range Systems Engineering,
Aviation Enterprises 1988, Inc. ("AEI"), Eclipse Airlines, Inc. ("Eclipse"), an
affiliate of AEI, The AGES Group, L.P., a Limited Partnership ("AGES"),
National Airline Commission of Papua New Guinea (trading as Air Niugini) ("Air
Niugini") and Air Tindi Limited ("Air Tindi").
Aircraft under operating leases and aircraft held for operating leases
The aircraft are recorded at cost. Depreciation is computed using the
straight line method over the estimated economic lives of the aircraft.
Beginning in 1995, the estimated economic life for the purpose of calculating
depreciation of deHavilland Dash-7 aircraft was lowered from 12 to 8 years to
reflect technological change. This change had the effect of increasing
depreciation by $506,592 and increasing the net loss by $506,592, or $1.71 per
Limited Partnership Unit outstanding in 1995.
Investment in capital lease
JetFleet's(TM) investment in the McDonnell Douglas DC-9-32 is recorded as
an investment in a capital lease. The gross investment is recorded as lease
payments receivable while the difference between the gross investment and the
acquisition cost of the DC-9-32 is recorded as unearned interest income (see
Note 4).
F-6
118
JetFleet(TM) Aircraft, L.P.
Notes to Financial Statements
1. Summary of Significant Accounting Policies (continued)
Organization and offering costs
Pursuant to the terms of the Partnership Agreement, a non-accountable
organizational and offering expense allowance, in an amount equal to 3% of
limited partner capital contributions, was paid to Group for reimbursement of
certain organizational and offering expenses incurred in connection with the
formation and offering of units in JetFleet(TM). A portion of the allowance
was capitalized as organization costs and is being amortized using the
straight-line method over 60 months.
The remaining amount, along with sales commissions, investment banking
fees, and due diligence reimbursements, has been reflected as a direct
reduction of partners' capital contributions.
Income taxes
Income taxes are the liability of the individual partners; accordingly,
the financial statements do not include any provision for income taxes. At
December 31, 1996, assets and liabilities on a tax basis were approximately
$1.5 million lower than on a book basis due to accelerated depreciation methods
used for tax purposes.
Cash balances
As of December 31, 1996, JetFleet(TM) maintained cash balances of $20,756
in a large open-end money fund, which is not federally insured.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
2. Allocation of Income, Losses and Distributions
Pursuant to the Partnership Agreement, all revenues and expenses and
income and losses are generally allocated 99% to the limited partners and 1% to
the general partners. Cash distributions from JetFleet's(TM) operations are
made 99% to the limited partners and 1% to the general partners.
F-7
119
JetFleet(TM) Aircraft, L.P.
Notes to Financial Statements
3. Aircraft Under Operating Leases and Aircraft Held for Operating Leases
Boeing 727-231 aircraft
In 1989 and 1990, JetFleet(TM) acquired a 100% interest in a Boeing
727-231 aircraft ("Boeing 727") for $6,090,000. Acquisition and legal fees
were capitalized to bring the total investment in the Boeing 727 to $6,185,408.
In 1991, JetFleet(TM) recorded a provision for impairment in value of the
Boeing 727 of $3,740,434 to reduce the recorded value at December 31, 1991 to
$1,500,000.
At the time the Boeing 727 was purchased, it was under an initial lease
(the "Initial Lease") to Trans World Airlines, Inc. ("TWA") through January
1994. In two amendments to the Initial Lease in March 1991 and March 1992,
JetFleet(TM) agreed to lower monthly rental amounts while maintaining the lease
expiration date at January 31, 1994.
A third amendment provided for rent equal to based on hourly usage, paid
monthly, and extended the lease expiration date to April 11, 1994. TWA paid a
total of $134,820 over the term of the third amendment.
On April 18, 1994, JetFleet(TM) sold the Boeing 727 for $445,000 to Amtec
Jet, Inc., incurring a loss of $219,885.
deHavilland aircraft
In 1991, JetFleet(TM) purchased undivided interests in a deHavilland
DHC-7-102 aircraft, serial number 57 ("S/N 57"), for $4,989,693 including
acquisition costs of $74,613. As a result of these purchases, JetFleet(TM)
held a 99.9% undivided interest in S/N 57, and the seller retained the
remaining .1% undivided interest at December 31, 1991. During 1992, an
affiliate of the seller purchased an additional undivided interest of 4.0% in
S/N 57 for $196,800, the same price for which it was originally sold to
JetFleet(TM). JetFleet(TM) recognized a gain of $15,488 in connection with
this transaction and reduced its investment in aircraft by $199,587, including
a proportionate share of the capitalized acquisition costs. On April 30, 1992,
JetFleet II(TM) purchased that 4.0% undivided interest in S/N 57 for $196,800,
the same price for which it was originally sold to JetFleet(TM).
F-8
120
JetFleet(TM) Aircraft, L.P.
Notes to Financial Statements
3. Aircraft Under Operating Leases and Aircraft Held for Operating Leases
(continued)
deHavilland aircraft (continued)
S/N 57 was subject to a triple net lease with Johnson Controls World
Services, Inc. ("JCWS") under an eight year contract, which commenced in 1986,
with the United States Army for use in the Marshall Islands at the site of the
Army's deep space research center where missile guidance systems are tested.
During 1994 the lease was extended, at reduced rent, through September 30,
1995. A new contract with the United States Army commenced on February 15,
1995 for a term of two years with three two-year renewal options. The contract
was awarded to Range Systems Engineering, a subsidiary of Raytheon Service
Company ("Raytheon"). During 1995 the lease was extended through September 30,
1996. During 1996 the lease was extended, at reduced rent, through September
30, 1998.
JetFleet(TM) purchased a 24.37% undivided interest in a deHavilland
DHC-7-103, serial number 72 ("S/N 72"), on November 15, 1991 for $1,558,320
including acquisition costs of $28,820. JetFleet(TM) purchased its undivided
interest from CMA at CMA's cost. CMA purchased a 100% undivided interest in
S/N 72 on November 15, 1991, at a cost of $6,277,006, for the purpose of
reselling undivided interests to JetFleet(TM) and JetFleet II(TM). JetFleet
II(TM) purchased CMA's undivided interests, as funds were raised in the
offering of limited partnership units in JetFleet II(TM). JetFleet II(TM) and
AEI own the remaining 75.53% and 0.10% undivided interests, respectively, at
December 31, 1996.
At the time the undivided interest in S/N 72 was purchased, S/N 72 was
subject to the same United States Army contract as S/N 57.
Under the terms of the sales agreements for S/N's 57 and 72, AEI, the
seller of both aircraft, receives 4% of monthly lease revenues during the first
eight years of the lease in return for providing remarketing and certain other
services in connection with the lease, release and resale of the aircraft.
Upon the return of S/N 72 by JCWS, discussed below, a collision-avoidance
radar system ("TCAS") was installed on the aircraft in order to comply with FAA
regulations regarding commercial airline operations. In connection with the
TCAS installation, JetFleet(TM) paid and capitalized $35,211 which represents
its pro rata share of the cost. This amount is being depreciated over the
remaining useful life of S/N 72.
In April 1993, JetFleet(TM) was notified that JCWS would not renew the
lease of one of the aircraft. As a result of subsequent negotiations,
JetFleet(TM), JetFleet II(TM) and AEI (collectively, the "Co-Owners") agreed to
terminate the initial lease on S/N 72 as of June 25, 1993, after the airplane
had been fully inspected to confirm that it had been returned in the condition
required under the lease.
F-9
121
JetFleet(TM) Aircraft, L.P.
Notes to Financial Statements
3. Aircraft Under Operating Leases and Aircraft Held for Operating Leases
(continued)
deHavilland aircraft (continued)
AEI was obligated for up to six months of rental payments for the early
termination of S/N 72, net of rent payments received on S/N 72 and economic
adjustments received during the period. JCWS agreed to pay an economic
adjustment totaling $242,893 to the Co-Owners of S/N 72. This payment was
based upon the difference between the condition of certain aircraft components
at the time of S/N 72's delivery to JCWS and the time of its return to the
Co-Owners. JetFleet(TM) received $12,376 from JCWS' payment of the economic
adjustment, as well as $9,243 of additional rent from AEI. JCWS paid the
economic adjustment during February 1994; AEI's obligation was fulfilled in
January 1994.
On August 13, 1993, S/N 72 was re-leased to Eclipse. The lease (the
"Eclipse Lease") was a triple net lease with a term of one year, except that it
could be canceled by any party on 30 days' notice. The rental amount, paid
monthly, was equal to $400 per hour of usage during the month.
On October 19, 1993, due to an event of default by Eclipse under the
Eclipse Lease, the Co-Owners terminated the Eclipse Lease and repossessed the
aircraft. Since Eclipse had no immediate need for S/N 72, Eclipse and the
Co-Owners agreed that the Co-Owners would enter into a short-term lease with
another party, at the expiration of which the Eclipse lease would be
reinstated. At the same time, Eclipse paid all overdue rent and reserve
charges. The Co-Owners and Eclipse mutually agreed in June 1994 not to
reinstate the Eclipse Lease.
On December 22, 1993 the Co-Owners entered into a lease (the "AGES Lease")
with AGES for a term not to exceed ninety days at a monthly rental rate of
$38,800. AGES had subleased S/N 72 to Alas Chiricanas S.A., a corporation
conducting business in the Republic of Panama. The lease was subsequently
extended until September 1, 1994. JetFleet(TM) collected a total of $78,351 in
rents from AGES during the term of the lease.
F-10
122
JetFleet(TM) Aircraft, L.P.
Notes to Financial Statements
3. Aircraft Under Operating Leases and Aircraft Held for Operating Leases
(continued)
deHavilland aircraft (continued)
S/N 72 was re-leased on March 22, 1995 to Air Niugini for a term of six
months. The lease was subsequently extended until October 31, 1995.
JetFleet(TM) collected a total of $53,060 in monthly lease payments from Air
Niugini during the term of the lease. In addition, Air Niugini paid
JetFleet(TM) its pro-rata share of maintenance costs of $31,710. Upon its
return by Air Niugini and at the direction of JetFleet(TM) management, S/N 72
again underwent certain scheduled maintenance and other repair work.
On April 25, 1996, S/N 72 was leased to Air Tindi for a term of thirty-six
months. Air Tindi has provided a letter of credit which serves as a security
deposit under the lease. In addition, Air Tindi pays JetFleet(TM) its pro-rata
share of maintenance costs per hour of usage, which amount is to be applied for
scheduled overhauls and inspections. Air Tindi is a regional airline
headquartered in Yellowknife, Northwest Territories, Canada and provides
charter and regularly scheduled flights throughout the Northwest Territories.
During 1996, JetFleet(TM) collected a total of $104,182 of rent from Air Tindi.
Future minimum rents
The following is a schedule of future minimum rental income by year under
the existing leases:
Year Amount
---- ------
1997 $ 581,967
1998 471,203
1999 34,727
----------
Total $1,087,897
==========
Detail of investment
The following schedule provides an analysis of JetFleet's(TM) investment
in aircraft under operating leases and aircraft held for operating leases as of
December 31, 1995, additions during 1996 and as of December 31, 1996:
December 31, December 31,
1995 Additions 1996
- ---------------- ----------- -------------------- ---------------------
S/N 57 $4,790,106 $ - $4,790,106
S/N 72 1,593,531 - 1,593,531
---------- ----------- ----------
6,383,637 - 6,383,637
Less accumulated
depreciation (3,014,002) (1,041,290) (4,055,292)
---------- ----------- ----------
$3,369,635 $(1,041,290) $2,328,345
========== =========== ==========
F-11
123
JetFleet(TM) Aircraft, L.P.
Notes to Financial Statements
3. Aircraft Under Operating Leases and Aircraft Held for Operating Leases
(continued)
Detail of investment
The following schedule provides an analysis of JetFleet's(TM) investment
in aircraft under operating leases and aircraft held for operating leases and
the related accumulated depreciation for the years ended December 31, 1994,
1995 and 1996:
Accumulated
Cost Depreciation Net
---- ------------ ---
Balance,
December 31, 1993 $8,828,611 $(3,117,395) $5,711,216
Additions 406,750 (a) (657,088) (250,338)
Sales (2,851,724)(b) 1,801,773 (1,049,951)
---------- ----------- ----------
Balance,
December 31, 1994 6,383,637 (1,972,710) 4,410,927
Additions - (1,041,292) (1,041,292)
---------- ----------- ----------
Balance,
December 31, 1995 6,383,637 (3,014,002) 3,369,635
Additions - (1,041,290) (1,041,290)
---------- ----------- ----------
Balance,
December 31, 1996 $6,383,637 $(4,055,292) $2,328,345
========== ========== ==========
(a) Reflects JetFleet's purchase of the DC-9 discussed in Note 4.
(b) Reflects JetFleet's disposal of the Boeing 727 during April 1994
($2,444,974) and the reclass of the purchase price of the DC-9 from an
investment in aircraft to a capital lease ($406,750).
4. Investment in Capital Lease
McDonnell Douglas DC-9-32
On December 16, 1994, JetFleet(TM) purchased a 50.00% undivided interest
in a McDonnell Douglas DC-9-32, serial number 47236 (the "DC-9"), for $400,000.
JetFleet II(TM) purchased the remaining 50.00% interest at the same time. The
DC-9 was leased back to the seller, Interglobal, Inc. for thirty-six months at
a monthly rate of $30,000, of which JetFleet(TM) is entitled to $15,000 (the
"DC-9 lease"). The DC-9 is currently sub-leased to and being operated by Aero
California S.A. de CV. As part of the sale and leaseback described above,
Interglobal, Inc. assigned its rights under the sublease to Aero California
S.A. de CV. As discussed in Note 1 above, JetFleet's(TM) investment in the
DC-9 is being accounted for as a capital lease. The investment is essentially
a financing in which JetFleet(TM) will recover its investment over the term of
the lease. Interglobal, Inc. has a purchase option for a nominal amount which
may be exercised upon expiration of the DC-9 lease. In 1996, JetFleet(TM)
recorded $45,417 of interest income attributable to the DC-9 lease.
F-12
124
JetFleet(TM) Aircraft, L.P.
Notes to Financial Statements
4. Investment in Capital Lease
Future minimum lease payments
The following is a schedule of maturities of lease payments receivable and
recognition of unearned interest income:
Collection Interest
on Income
Year Receivable Recognition
---- ---------- -----------
1997 $ 180,000 $ 14,674
5. Related Party Transactions
Group is entitled to receive base management, incentive management and
re-lease fees in any year in which the annualize rate of distributions is equal
to or greater than the Preferred Return. There was no accrual or payment of
the base management, incentive management or re-lease fees for 1994, 1995 and
1996 since the annualized rate of distributions in those years did not meet the
Preferred Return.
Group is also entitled to receive a subordinated resale fee with respect
to each Aircraft sold by JetFleet(TM). Group and BankAmerica agreed to forego
the re-lease and resale fees on the Boeing 727 aircraft for any re-leases or
sales of that aircraft subsequent to its return by TWA. Re-lease fees and
resale fees, however, were paid to a third party.
JetFleet(TM) pays for all direct, indirect, administrative and overhead
expenses incurred on its behalf by Group and its affiliates. In 1996, 1995 and
1994, $93,794, $63,826 and $53,807, respectively, was reimbursable by
JetFleet(TM) to Group or its affiliates in connection with the administration
and management of JetFleet(TM).
All of the above fees payable by JetFleet(TM) to Group were paid to Group
which in turn reimbursed CMA or its affiliates, which have incurred all costs
in connection with the organization and offering of units in, and the
administration and management of, JetFleet(TM).
F-13
125
JetFleet Aircraft, L.P.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Capital Resources and Liquidity
At the end of 1996, JetFleet(TM) had cash balances of $30,728.
This amount was held primarily for the distribution made to the Unitholders in
January 1997 and to pay accrued expenses.
During the year, JetFleet's(TM) primary sources of liquidity
were cash flows from leasing operations and capital lease payments.
JetFleet's(TM) liquidity will vary in the future, increasing to the extent cash
flows from operations exceed expenses, and decreasing as distributions are made
to the Unitholders and to the extent expenses exceed cash flows from leases.
JetFleet(TM) uses substantially all its operating cash flow to
make cash distributions to its Unitholders. Since JetFleet's(TM) leases are
triple net leases (the lessee pays operating and maintenance expenses,
insurance and taxes), JetFleet(TM) does not anticipate that it will incur
significant operating expenses in connection with ownership of its aircraft as
long as they remain on lease.
JetFleet(TM) currently has available adequate reserves to meet
is immediate cash requirements.
During 1996, JetFleet(TM) made distributions at an annualized
rate of 4%, as compared to 3% during January 1995 through April 1995 and 4%
during May 1995 through December 1995. The increase for 1996 is primarily
because of higher monthly rent received for S/N 72 during 1996 compared to the
rent received during 1995. Future distributions will depend on the amount of
lease revenue received by JetFleet(TM) for its assets.
If inflation in the general economy becomes significant, it
may affect JetFleet(TM) inasmuch as the residual values and rates on re-leases
of its aircraft may increase as the costs of similar assets increase. However,
JetFleet's(TM) revenues from existing leases would not increase, as such rates
are generally fixed for the terms of the leases without adjustment for
inflation. At the same time, any significant inflation in the general economy
may cause an increase in professional fees and general and administrative
expense reimbursements.
If interest rates increase significantly, the lease rates that
JetFleet(TM) can obtain on future leases would be expected to increase as the
cost of capital is a significant factor in the pricing of lease financing.
Leases already in place, for the most part, would not be affected by changes in
interest rates.
1996 versus 1995
Cash flows from operations decreased by $9,867 primarily due
an increase of approximately $32,000 in general and administrative expenses
which was only partially offset by an increase of approximately $17,000 in cash
flows from lease-related revenues. Certain other cash expenses increased in
1996 as discussed under "Results of Operations" below. The increased cash
flows from leases resulted from the increased rent received for S/N 72 during
1996.
Cash flows from investing activities increased $15,000 in 1996
because one less month of revenue from the DC-9 financing lease was received in
1995 as compared to 1996, the result of a prepayment of rent at the lease
inception in December 1994.
F-14
126
In 1996, there were no financing sources of cash. Cash
distributions to Unitholders increased by $49,249, or by $0.16 per weighted
average Limited Partnership Unit outstanding. The increased distributions to
Unitholders resulted from the increased monthly rent received for S/N 72.
1995 versus 1994
Cash flows from operations decreased by $567,577 primarily due
to a decrease of approximately $408,000 in cash flows from lease-related
revenues. Certain other cash expenses increased in 1995 as discussed under
"Results of Operations" below. The decreased cash flows from leases resulted
from reduced rents on S/N 57 as well as S/N 72's off- lease periods during
1995.
Cash flows from investing activities increased approximately
$88,000 in 1995 primarily because of the capital lease for the DC-9 entered
into in December, 1994.
In 1995, there were no financing sources of cash. Cash
distributions to Unitholders decreased by $345,912, or by $1.17 per weighted
average Limited Partnership Unit outstanding. The decreased distributions to
Unitholders resulted from reduced rents on S/N 57 as well as S/N 72's off-lease
periods during 1995 which were only partially offset by the cash received as a
result of the capital lease for the DC-9.
Results of Operations
JetFleet(TM) recorded net income of $6,430 and net losses of
($559,605) and ($588,518) in 1994, 1995 and 1996, respectively. The decrease
from 1994 to 1995 was primarily a result of the decrease in rent received for
the Dash-7s along with increased depreciation expense resulting from a change
in the estimated economic life of the Dash-7s. The decrease from 1995 to 1996
was primarily a result of an increase in general and administrative expenses
and a decrease in interest income realized from the DC-9 financing lease, which
changes were only partially offset by an increase in rental income from S/N 72
and decreased amortization and maintenance expenses.
1996 versus 1995
Rental income increased approximately $17,000. This was due
to the higher monthly rent received for S/N 72 during 1996.
There was no change in depreciation from 1995 to 1996.
There was no accrual or payment of the base management,
incentive management or re-lease fees for 1995 or 1996 as the annualized rate
of distributions in those years did not meet the Preferred Return as defined in
the Prospectus.
General and administrative expenses and professional fees
increased approximately $32,000 due to increased costs associated with the
ongoing management of JetFleet's(TM) portfolio as well as the increased costs
of administering investor-related inquiries. As mentioned above, the Corporate
General Partner has authorized JMC to perform remarketing duties on behalf of
JetFleet(TM). JMC and other third parties who perform such services receive
reimbursement for those services regardless of whether or not the base
management, incentive management or re-lease fees are paid. If base
management, incentive management or re-lease fees are payable within a given
year, such fees would be reduced to the extent that any payments are made_to
JMC or other third parties performing such remarketing duties.
F-15
127
1995 versus 1994
Rental income decreased approximately $465,000. This was due
to reduced rents on S/N 57 beginning in October 1994 as well as receiving no
rent in 1995 as a result of the sale of the Boeing 727_in April 1994. In
addition, the payments under the DC-9 financing lease, which was acquired in
December 1994 with the sales proceeds from the sale of the Boeing 727, are
treated as a return of capital with an imputed interest component, rather than
as rental income.
Depreciation increased approximately $384,000 primarily as a
result of JetFleet(TM) reducing its estimate of the useful life of certain
aircraft.
There was no accrual or payment of the base management,
incentive management or re-lease fees for 1994 or 1995 as the annualized rate
of distributions in those years did not meet the Preferred Return as defined in
the Prospectus.
General and administrative expenses and professional fees
increased approximately $16,000 due to increased costs associated with the
ongoing management of JetFleet's(TM) portfolio as well as the increased costs
of administering investor-related inquiries. See discussion above (1996 versus
1995) regarding the treatment of remarketing costs.
F-16
128
Supplemental Financial Information for JetFleet Aircraft L.P.
Required By Regulation SK, Items 301 and 302
(unaudited)
Balance, December 31, 1996 1995 1994 1993 1992
- --------------------- ---- ---- ---- ---- ----
Earnings to fixed charges(1)
Cash and cash equivalents 30,728 96,184 117,027 8,114 60,993
Aircraft and aircraft
engines under leases
or held for lease 2,328,345 3,369,635 4,410,927 5,711,216 6,575,774
Total assets -
book value 2,543,761 3,858,324 5,033,007 5,760,272 6,673,065
Total assets -
rollup value 2,014,587
Total liabilities 65,584 192,184 257,563 92,172 231,819
General partners' equity (51,970) (40,091) (28,998) (20,090) (11,468
Limited partners' equity 2,530,147 3,706,231 4,804,442 5,688,190 6,452,714
Per unit data:
Total assets -
book value 8.59 13.03 17.00 19.46 22.54
Total assets -
rollup value 6.80
Year ended December 31, 1996 1995 1994 1993 1992
- ----------------------- ---- ---- ---- ---- ----
Rental income 578,602 561,254 1,026,322 1,487,159 1,558,737
Gain/(loss) on sale of
aircraft (219,885) 15,488
Net increase/(decrease)
in cash (65,456) (20,843) 108,913 (52,879) (7,297)
Net cash from operations 368,989 378,856 946,433 1,186,644 1,400,826
Distributions 599,445 549,699 899,086 1,204,312 1,604,923
Per unit data:
Net income/(loss) (1.97) (1.87) 0.02 1.44 1.48
Distributions:
From income 0.00 0.00 0.02 1.44 1.48
Return of capital 2.00 1.84 2.99 2.59 3.89
Weighted average Limited
Partnership Units
outstanding 296,069 296,069 296,069 296,069 296,069
(1) JetFleet I has no fixed charges
F-17
129
REPORT OF INDEPENDENT AUDITORS
The Partners
JetFleet(TM) Aircraft II, L.P.
We have audited the accompanying balance sheets of JetFleet(TM) Aircraft II,
L.P., a California Limited Partnership, as of December 31, 1996 and December
31, 1995, and the related statements of operations, partners' capital and cash
flows for the years ended December 31, 1996, December 31, 1995 and December 31,
1994. 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 audits 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 JetFleet(TM) Aircraft II,
L.P., at December 31, 1996 and December 31, 1995, and the results of its
operations and its cash flows for the years ended December 31, 1996, December
31, 1995 and December 31, 1994 in conformity with generally accepted accounting
principles.
VOCKER KRISTOFFERSON AND CO.
February 6, 1997
San Mateo, California
F-18
130
JetFleet(TM) Aircraft II, L.P.
Balance Sheets
ASSETS
December 31,
-------------------------
1996 1995
----------- -----------
Current assets
Cash $ 1,191,914 $ 1,364,593
Receivable from affiliates - 45,000
Reserves receivable from lessees 29,781 -
Lease payments receivable 540,000 960,000
----------- -----------
Total current assets 1,761,695 2,369,593
Aircraft and aircraft engines under operating
leases and aircraft held for operating leases,
net of accumulated depreciation of
$10,425,030 in 1996 and $7,213,339 in 1995 14,435,613 17,520,291
Lease payments receivable 180,000 1,275,000
Organization and offering costs, net of
accumulated amortization of $123,141 in 1996
and $91,214 in 1995 32,895 64,822
----------- -----------
$16,410,203 $21,229,706
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable $ 112,519 $ 119,254
Accrued maintenance costs 501,072 410,702
Payable to affiliates 10,933 9,075
Security deposits 143,101 140,415
Unearned interest income 79,186 287,373
Prepaid rent receive 27,553 15,000
----------- -----------
Total current liabilities 874,364 1,021,819
Unearned interest income 8,793 174,032
----------- -----------
Total liabilities 883,157 1,195,851
Partners' capital
(Limited partners 1,100,000 authorized
Units, 693,505 issued Units in 1996 and 1995) 15,527,046 20,033,855
----------- -----------
$16,410,203 $21,229,706
=========== ===========
See accompanying notes
F-19
131
JetFleet(TM) Aircraft II, L.P.
Statements of Operations
Year Ended December 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
Revenues:
Rental income $ 2,658,450 $ 2,601,541 $ 3,796,913
Gain on sale of aircraft 94,081 - -
Gain / (Loss) on sale of
aircraft engines 34,860 (46,090) (6,868)
Interest income 265,359 236,631 33,514
----------- ----------- -----------
3,052,750 2,792,082 3,823,559
----------- ----------- -----------
Costs and expenses:
Management fees 113,657 102,440 190,137
Depreciation of aircraft
and aircraft engines 3,260,014 3,372,163 2,347,282
Amortization of organization
and offering costs 31,927 31,927 31,086
Professional fees 36,511 50,438 28,242
Maintenance costs 119,252 153,096 206,308
General and administrative 347,971 242,779 175,884
----------- ----------- -----------
3,909,332 3,952,843 2,978,939
----------- ----------- -----------
Net (loss) income $ (856,582) $(1,160,761) $ 844,620
=========== =========== ===========
Allocation of net (loss) income:
General partners $ 182,511 $ 167,240 $ 213,592
Limited partners (1,039,093) (1,328,001) 631,028
----------- ----------- -----------
$ (856,582) $(1,160,761) $ 844,620
=========== =========== ===========
Per Limited Partner Unit $ (1.50) $ (1.91) $ 0.93
=========== =========== ===========
Weighted average Limited
Partner Units outstanding 693,505 693,505 675,964
=========== =========== ===========
See accompanying notes.
F-20
132
JetFleet(TM) Aircraft II, L.P.
Statements of Partners' Capital
For the Years Ended December 31, 1994, 1995 and 1996
Limited
Partner Limited General
Units Partners Partners Total
------------ ------------ ------------ ------------
Balance, December 31, 1993 599,757 $ 23,890,926 $ - $ 23,890,926
Capital contributions 93,748 4,687,400 - 4,687,400
Offering costs (611,706) - (611,706)
Distributions ($6.00 per
weighted average Limited
Partner Unit) - (4,058,238) (213,592) (4,271,830)
Net income 631,028 213,592 844,620
------------ ------------ ------------ ------------
Balance, December 31, 1994 693,505 24,539,410 - 24,539,410
Distributions ($4.58 per
Limited Partner Unit) - (3,177,553) (167,240) (3,344,793)
Net loss (1,328,001) 167,240 (1,160,761)
------------ ------------ ------------ ------------
Balance, December 31, 1995 693,505 20,033,856 - 20,033,856
Distributions ($5.00 per
Limited Partner Unit) - (3,467,715) (182,511) (3,650,226)
Net loss (1,039,093) 182,511 (856,582)
------------ ------------ ------------ ------------
Balance, December 31, 1996 693,505 $ 15,527,046 $ - $ 15,527,046
============ ============ ============ ============
See accompanying notes.
F-21
133
JetFleet(TM) Aircraft II, L.P.
Statements of Cash Flows
For the Year Ended December 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
Operating activities:
Net (loss) income $ (856,582) $(1,160,761) $ 844,620
Adjustments to reconcile net (loss) income
to net cash provided by operating activities:
(Gain) / loss on sale of aircraft engines (34,860) 46,090 6,868
Gain on sale of aircraft (94,081) - -
Depreciation of aircraft
and aircraft engines 3,260,014 3,372,163 2,347,282
Amortization of organization
and offering costs 31,927 31,927 31,086
Change in operating assets
and liabilities:
Receivable from affiliates 45,000 (32,558) (12,442)
Rent receivable - 75,000 166,678
Reserves receivable from lessees (29,781) - -
Accounts payable (6,735) 78,572 (93,726)
Accrued maintenance costs 90,370 181,575 150,923
Unearned interest income (279,345) (185,430) (3,014)
Payable to affiliates (38,142) 37,500 (99,808)
Security deposits 2,686 66,800 -
Prepaid rent received 12,553 15,000 (139,153)
----------- ----------- -----------
Net cash provided by operating activities 2,103,024 2,525,878 3,199,314
----------- ----------- -----------
Investing activities:
Proceeds from sale of aircraft engines 211,000 5,089,344 190,000
Proceeds from sale of aircraft 735,000 - -
Purchase of interests in
aircraft and aircraft engines (351,477) (3,696,146) (4,222,146)
Payments received on capital lease 780,000 420,000 45,000
Net cash provided by (used in)
investing activities 1,374,523 1,813,198 (3,987,146)
----------- ----------- -----------
Financing activities:
Capital contributions - - 4,687,400
Distributions (3,650,226) (3,344,793) (4,271,830)
Offering costs - - (611,706)
Organization costs - - (21,093)
----------- ----------- -----------
Net cash used in
financing activities (3,650,226) (3,344,793) (217,229)
----------- ----------- -----------
Net (decrease) increase in cash (172,679) 994,283 (1,005,061)
Cash, beginning of period 1,364,593 370,310 1,375,371
----------- ----------- -----------
Cash, end of period $ 1,191,914 $ 1,364,593 $ 370,310
=========== =========== ===========
Supplemental schedule of noncash investing and financing activities:
JetFleet II(TM) entered into capital leases for its interests in one DC-9
aircraft during 1994 and two DC-9 aircraft during 1995. In conjunction with the
leases, a liability for unearned interest income was recorded at the beginning
of the lease as follows:
1994 1995
---------- -----------
Minimum lease payments receivable $ 540,000 $ 2,160,000
Cost of interest of aircraft leased (412,851) (1,637,300)
---------- -----------
Unearned interest income $ 127,149 $ 522,700
========== ===========
See accompanying notes.
F-22
134
JetFleet(TM) Aircraft II, L.P.
Notes to Financial Statements
1. Summary of Significant Accounting Policies
Basis of presentation
JetFleet(TM) Aircraft II, L.P. ("JetFleet II(TM)") is a California
limited partnership formed on June 24, 1991 for the purpose of acquiring, on a
world-wide basis, a portfolio of aircraft and aircraft engines, or interests
therein, which are subject to triple net leases. The corporate general partner
of JetFleet II(TM) (the "Corporate General Partner") is CMA Capital Group
("Group"), a California corporation formed in February 1989. The individual
general partners, Neal D. Crispin and Richard D. Koehler (the "Individual
General Partners"), are the founding principals of the Corporate General
Partner. Group is exclusively entitled to manage JetFleet II's(TM) business.
Capital Management Associates ("CMA"), a subsidiary of CMA Consolidated, Inc.,
an affiliated California corporation owned by Mr. Crispin, provides certain
accounting and investor-related services for Group. JetFleet(TM) Management
Corp. ("JMC") an affiliated California corporation formed in January 1994 owned
by the individual general partners and an officer of CMA has been authorized to
perform remarketing duties on behalf of JetFleet II(TM). Crispin Koehler
Securities, an affiliated California corporation owned by Messrs. Crispin and
Koehler, provides certain administrative and investor- related services for
Group. JetFleet II(TM) owns interests in certain aircraft in which JetFleet(TM)
Aircraft, L.P. ("JetFleet(TM)"), an affiliated California limited partnership,
also owns interests. JetFleet II(TM) has had significant transactions with
these affiliates as well as Range Systems Engineering, Aviation Enterprises
1988, Inc. ("AEI"), Eclipse Airlines, Inc. ("Eclipse"), an affiliate of AEI,
Airwork Corporation ("Airwork"), The AGES Group, L.P., a Limited Partnership
("AGES"), the National Airline Commission of Papua New Guinea (trading as Air
Niugini) ("Air Niugini") and Air Tindi Limited ("Air Tindi"). The Corporate
General Partner contributed $750 to the capital of JetFleet II(TM).
Aircraft and aircraft engines under operating leases and aircraft held
for operating leases
JetFleet II's(TM) interests in aircraft and aircraft engines are
recorded at cost, which includes acquisition costs and loan fees. JetFleet
II(TM) also pays and capitalizes an acquisition fee equal to 1.5% of the
adjusted purchase price of each asset. The capitalization of each asset is
discussed in detail in Note 3. Depreciation is computed using the straight-line
method over the aircraft's estimated economic life to a zero residual value.
Beginning in 1995, JetFleet II(TM) reduced the estimated economic life of the
Dash-7 aircraft from 12 to 8 years to reflect technological change. This change
had the effect of increasing depreciation by $1,068,972 and increasing the net
loss by $1,068,972, or $1.54 per Limited Partnership Unit outstanding in 1995.
At the same time, JetFleet II(TM) began using an 8-year estimated economic life
for depreciating any newly acquired aircraft.
F-23
135
JetFleet(TM) Aircraft II, L.P.
Notes to Financial Statements
1. Summary of Significant Accounting Policies (continued)
Organization and offering costs
Pursuant to the terms of the Partnership Agreement, a non-accountable
organizational and offering expense allowance, in an amount equal to 3% of
limited partner capital contributions, is paid to Group for reimbursement of
certain organizational and offering expenses incurred in connection with the
formation and offering of units in JetFleet II(TM). A portion of the allowance
is capitalized as organization and offering costs and is being amortized using
the straight-line method over 60 months. The remaining amount, along with sales
commissions, investment banking fees, and due diligence reimbursements, is
reflected as a direct reduction of partners' capital contributions.
Investments in capital leases
JetFleet II's(TM) investments in the three McDonnell Douglas DC-9
aircraft are recorded as investments in capital leases. The gross investment in
each is recorded as lease payments receivable while the difference between the
gross investment and the acquisition cost of each respective DC-9 is recorded
as unearned interest income (see Note 4).
Income taxes
Income taxes are the liability of the individual partners; accordingly,
the financial statements do not include any provision for income taxes. At
December 31, 1996, assets and liabilities on a tax basis were approximately $3
million lower than on a book basis due to accelerated depreciation used for tax
purposes.
Cash balances
As of December 31, 1996, JetFleet II(TM) maintained cash balances of
$655,039, $226,597, $188,025 and $64,413 in four large open-end money funds,
which are not federally insured. JetFleet II(TM) also maintained a cash balance
of $231,972 in a regional bank headquartered in San Francisco, $131,972 of
which is not federally insured. JetFleet II(TM) has accumulated cash in excess
of the federally insured amount as it searches for suitable investments using
proceeds from assets previously sold and in order to make quarterly
distributions. JetFleet II(TM) is also accumulating maintenance reserves
collected from various lessees which will be used to fund certain scheduled
maintenance and repairs required for certain aircraft.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
F-24
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JetFleet(TM) Aircraft II, L.P.
Notes to Financial Statements
2. Allocation of Income, Losses and Distributions
Pursuant to the Partnership Agreement, all revenues and expenses and
income and losses are generally allocated 95% to the limited partners and 5% to
the general partners. In accordance with the Partnership Agreement, during
1994, 1995 and 1996, additional revenues were specially allocated to the
general partners to bring their capital account to a zero balance. Cash
distributions from JetFleet II's(TM) operations are made 95% to the limited
partners and 5% to the general partners.
3. Aircraft and Aircraft Engines Under Operating Leases and Aircraft Held
for Operating Leases
Aircraft
deHavilland DHC-103, serial number 72 ("S/N 72")
CMA purchased a 100% undivided interest in S/N 72 on November 15, 1991,
at a cost of $6,277,006, for the purpose of reselling the undivided interests
to JetFleet II(TM) and JetFleet(TM).
JetFleet II(TM) agreed to purchase CMA's undivided interest in S/N 72
at a price equal to CMA's cost, including chargeable acquisition costs and loan
fees, in one or more installments as funds were raised in the JetFleet II(TM)
offering and became available for investment. As a result, JetFleet II(TM) held
an undivided interest of 75.53% at December 31, 1996. JetFleet(TM) and AEI own
the remaining 24.37% and 0.10% undivided interests, respectively, at December
31, 1996. The total cost of $5,223,047 paid to CMA for JetFleet II's(TM) 75.53%
undivided interest included reimbursement of chargeable acquisition and loan
fees, and acquisition fees totaling $481,817.
Upon the return of S/N 72 by Johnson Controls World Services, Inc.
("JCWS") in June 1993, discussed below, a collision-avoidance radar system
("TCAS") was installed on the aircraft in order to comply with FAA regulations
regarding commercial airline operations. In connection with the TCAS
installation, JetFleet II(TM) paid and capitalized $105,630 which represents
its pro rata share of the cost. This amount is being depreciated over the
remaining depreciable life of S/N 72.
deHavilland DHC-7-102, serial number 57 ("S/N 57")
During 1992, JetFleet II(TM) purchased a 4.00% undivided interest in
S/N 57 for $199,752, including an acquisition fee of $2,952. The remaining
undivided interests in S/N 57 are held 95.90% by JetFleet(TM) and 0.10% by AEI
at December 31, 1996.
F-25
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JetFleet(TM) Aircraft II, L.P.
Notes to Financial Statements
3. Aircraft and Aircraft Engines Under Operating Leases and Aircraft Held
for Operating Leases (continued)
Aircraft (continued)
deHavilland DHC-7-102, serial number 44 ("S/N 44")
During 1992, JetFleet II(TM) purchased undivided interests totaling
100.00% in S/N 44 for $5,208,656, in a series of monthly installments. The
total cost included reimbursement of chargeable acquisition costs and
acquisition fees totaling $126,656.
deHavilland DHC-7-103, serial number 11 ("S/N 11")
CMA purchased a 100% undivided interest in S/N 11 on October 30, 1992,
at a cost of $5,900,000, for the purpose of reselling the undivided interests
to JetFleet II(TM). JetFleet II(TM) purchased CMA's undivided interest in S/N
11 at a price equal to CMA's cost, plus chargeable acquisition costs, loan fees
and acquisition fees totaling $325,556, in installments as funds were raised in
the JetFleet II(TM) offering and became available for investment. As a result,
JetFleet II(TM) held an undivided interest of 100.00% at December 31, 1996.
deHavilland DHC-6-310, serial number 666 ("S/N 666")
JMC purchased a 100% undivided interest in S/N 666 on January 31, 1995,
at a cost of $850,000, for the purpose of reselling the undivided interest to
JetFleet II(TM). In April 1995, JetFleet II(TM) purchased JMC's undivided
interest in S/N 666 at a price equal to JMC's cost plus chargeable acquisition
costs, loan fees and acquisition fees totaling $40,923.
Fairchild Metro III SA-227-AC, serial number AC-576 ("S/N 576")
JetFleet II(TM) purchased a 100% undivided interest in S/N 576 on June
30, 1995, at a cost of $1,140,000. In connection with the purchase, JetFleet
II(TM) paid $25,750 in chargeable acquisition costs and acquisition fees.
Fairchild Metro II SA-226-TC, serial number TC-370 ("S/N 370")
On February 27, 1996, JetFleet II(TM) purchased a 50% undivided
interest in a Fairchild SA226-TC aircraft, serial number TC-370 ("S/N TC-370")
at a cost of $341,750. CMA Capital Management, Inc., a subsidiary of CMA
Consolidated, Inc., purchased the remaining 50% interest at the same time.
During 1996, JetFleet III(TM), an affiliate of JetFleet II(TM), purchased the
50% interest from CMA Capital Management, Inc. In connection with the
acquisition, JetFleet II(TM) paid a total of $9,727 to CMA Capital Group in
chargeable acquisition costs and acquisition fees.
F-26
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JetFleet(TM) Aircraft II, L.P.
Notes to Financial Statements
3. Aircraft and Aircraft Engines Under Operating Leases and Aircraft Held
for Operating Leases (continued)
Aircraft engines
In March 1993, JetFleet II(TM) agreed to purchase, in monthly
installments twenty-five used aircraft engines (the "Airwork Engines"). At
December 31, 1996 JetFleet II(TM) held 100.00% undivided interests in all of
the Airwork engines, comprised of four Pratt & Whitney PT6A-42 aircraft
engines, nine Pratt & Whitney PT6A-41 aircraft engines, five Pratt & Whitney
PT6A-41 aircraft engines, two Pratt & Whitney PT6A-28 aircraft engines, one
Pratt & Whitney PT6A-65 aircraft engine, one Pratt & Whitney PT6A-45 aircraft
engine, one Pratt & Whitney PT6A-65R aircraft engine, and two Allison
A-250-C30P aircraft engines.
The total acquisition cost of $5,498,993 included reimbursement for
chargeable acquisition costs and acquisition fees totaling $301,493. During
January 1996, Airwork notified JetFleet II(TM) of an event of loss concerning
one of the Airwork Engines (the "Lost Airwork Engine"). Rather than replace the
Lost Airwork Engine, Airwork chose to pay to JetFleet II(TM) the stipulated
loss value as stated in the lease agreement for the Airwork Engines ($211,000).
JetFleet II(TM) recognized a gain of $34,860 on the disposition of the Lost
Airwork Engine.
During December 1993, JetFleet II(TM) purchased two Pratt & Whitney
PT6A-50 aircraft engines (the "AEI Engines") for $433,608 which included
reimbursement of acquisition costs and acquisition fees totaling $13,608. On
December 1, 1994, JetFleet II(TM) sold one of the AEI Engines to deHavilland,
Inc. for $190,000. JetFleet II(TM) recognized a loss of $6,868 in connection
with this transaction.
In December 1993 and during the first quarter of 1994, JetFleet II(TM)
purchased three Pratt & Whitney JT8D-217A aircraft engines (the "AGES Engines")
from AGES. The total cost of the three engines including reimbursement of
acquisition costs and acquisition fees totaling $173,312 was $5,786,312. During
the first quarter of 1995, JetFleet II(TM) and AGES agreed to rescind the AGES
Engines purchase transaction. JetFleet II(TM) received a total of $5,089,344 in
proceeds from the rescission during the first and second quarters of 1995.
Pursuant to an agreement between JetFleet II and AGES, the recission amount was
equal to the original purchase price paid by JetFleet II, plus interest thereon
from the purchase date, less rent payments received by JetFleet II. There was
no gain or loss as a result of the recission.
The Dash-7 leases
At the time of purchase, all four Dash-7's were subject to triple net
leases with JCWS under an eight year contract, which commenced in 1986, with
the United States Army for use in the Marshall Islands at the site of the
Army's deep space research center where missile guidance systems are tested.
Under the terms of the sales agreements for the aircraft, AEI receives
4% of monthly lease revenues during the first eight years of the lease in
return for providing remarketing and certain other services in connection with
the lease, release and resale of the aircraft.
F-27
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JetFleet(TM) Aircraft II, L.P.
Notes to Financial Statements
3. Aircraft and Aircraft Engines Under Operating Leases and Aircraft Held
for Operating Leases (continued)
The Dash-7 leases (continued)
In April 1993, JetFleet II(TM) was notified that JCWS would not renew
the lease of one of the aircraft. As a result of subsequent negotiations,
JetFleet II(TM), JetFleet(TM) and AEI (collectively, the "Co-Owners") agreed to
terminate the initial lease on S/N 72 as soon as the airplane was fully
inspected to confirm that it had been returned in the condition required under
the lease. The Co-Owners accepted the return of S/N 72 on June 25, 1993.
AEI was obligated for up to six months of rental payments for the early
termination of S/N 72, net of rent payments received on S/N 72 and economic
adjustments received during the period. JCWS agreed to pay an economic
adjustment totaling $242,893 to the Co-Owners of S/N 72. This payment is based
upon the difference between the condition of certain aircraft components at the
time of S/N 72's delivery to JCWS and the time of its return to the Co-Owners.
JetFleet II(TM) received $230,517 from JCWS' payment of the economic
adjustment, as well as $29,281 of additional rent from AEI. JCWS paid the
economic adjustment during February 1994; AEI's obligation was fulfilled in
January 1994.
On August 13, 1993, S/N 72 was re-leased to Eclipse. The lease was a
triple net lease with a term of one year, except that it was cancelable by any
party on 30 days' notice. The rental amount, paid monthly, was equal to $400
per hour of usage during the month.
On October 19, 1993, due to an event of default by Eclipse under the
Eclipse Lease, the Co- Owners terminated the Eclipse Lease and repossessed the
aircraft. Since Eclipse had no immediate need for S/N 72, Eclipse and the
Co-Owners agreed that the Co-Owners would enter into a short-term lease with
another party, at the expiration of which the Eclipse lease would be
reinstated. At the same time, Eclipse also paid all overdue rent and reserve
charges. The Co-Owners and Eclipse mutually agreed in June 1994 not to
reinstate the Eclipse Lease.
On December 22, 1993 the Co-Owners entered into a lease (the "AGES
Lease") with AGES for a term not to exceed ninety days. AGES had subleased S/N
72 to Alas Chiricanas S.A., a corporation conducting business in the Republic
of Panama. The lease was subsequently extended until September 1, 1994.
JetFleet II(TM) collected a total of $246,390 in rents from AGES during the
term of the lease.
S/N 72 was re-leased on March 22, 1995 to Air Niugini for a term of six
months. The lease was subsequently extended to October 31, 1995. JetFleet
II(TM) collected a total of $189,581 in rents from Air Niugini. In addition,
Air Niugini paid JetFleet II(TM) its share of maintenance costs of $121,058.
Upon its return from Air Niugini and at the direction of JetFleet II(TM)
management, S/N 72 underwent certain scheduled maintenance and other repair
work.
F-28
140
JetFleet(TM) Aircraft II, L.P.
Notes to Financial Statements
3. Aircraft and Aircraft Engines Under Operating Leases and Aircraft Held
for Operating Leases (continued)
The Dash-7 leases (continued)
On April 25, 1996, S/N 72 was leased to Air Tindi Limited ("Air Tindi")
for a term of thirty-six months. Air Tindi has provided a letter of credit in
the amount of $142,000 which serves as a security deposit under the lease. In
addition, Air Tindi pays JetFleet II(TM) its pro-rata share of maintenance
costs of $265.00 per hour of usage, which amount is to be applied for scheduled
overhauls and inspections. Air Tindi is a regional airline headquartered in
Yellowknife, Northwest Territories, Canada and provides charter and regularly
scheduled flights throughout the Northwest Territories. JetFleet II(TM)
collected a total of $322,891 from Air Tindi during 1996.
During 1994 the current leases for S/N 57, S/N 44 and S/N 11 were
extended, at reduced rent, through September 30, 1995. A new contract with the
United States Army commenced on February 15, 1995 for a term of two years with
three two-year renewal options. During 1995, the leases for all three aircraft
were extended through September 30, 1996. During 1996, the current leases for
all three aircraft were extended, at reduced rent, through September 30, 1998.
Other aircraft leases
S/N 666 is leased to Loganair Limited, a British Airways franchisee
("Loganair"), for a term expiring on January 30, 1998 (the "Loganair Lease").
As part of the purchase of S/N 666 from JMC, JMC assigned the Loganair Lease to
JetFleet II. Loganair also pays, on a monthly basis, maintenance costs based on
usage. JetFleet II(TM) holds a security deposit from Loganair of $45,000 in an
interest-bearing account (which interest accrues for the benefit of Loganair).
Under the Loganair Lease, the lessee holds two extension options for up to an
additional 39 months.
S/N 576 is subject to a lease with Merlin Express, Inc., a subsidiary
of Fairchild Aircraft Incorporated ("Merlin"), for a term expiring on July 18,
1999 (the "Merlin Lease"). The Merlin Lease contains a guaranty by Fairchild
Aircraft Incorporated for the equivalent of six months of rent. As part of the
purchase of S/N 576, the seller assigned the Merlin Lease to JetFleet II(TM).
Merlin also pays, on a monthly basis, maintenance costs based on usage.
JetFleet II(TM) holds a security deposit from Merlin of $45,000 in an
interest-bearing account (which interest accrues for the benefit of Merlin).
F-29
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JetFleet(TM) Aircraft II, L.P.
Notes to Financial Statements
3. Aircraft and Aircraft Engines Under Operating Leases and Aircraft Held
for Operating Leases (continued)
The aircraft engine leases
S/N TC-370 is subject to a lease with Sunbird Air Services, Ltd. for a
term expiring September 30, 2000 (the "Sunbird Lease"). The Sunbird Lease
contains a guaranty by the seller for basic rent in an amount not to exceed a
total aggregate amount of $29,250 (which guaranty is shared equally by JetFleet
II(TM) and JetFleet III(TM)). As part of the purchase of S/N TC-370, the seller
assigned its interests and obligations under the Sunbird Lease to JetFleet
II(TM).
The Airwork Engines acquired by JetFleet II(TM) are leased back to
Airwork pursuant to a master lease (the "Airwork Lease") between Airwork and
JetFleet II(TM). The Airwork Lease is a triple net lease, has an initial
seven-year term (which expires on April 30, 2000), and Airwork has two two-year
renewal options. UNC Incorporated, the parent of Airwork, has guaranteed the
obligations of Airwork under the Airwork Lease. Upon the purchase of each
engine by JetFleet II(TM), Airwork was required to pay a security deposit equal
to one month of rent.
The remaining AEI Engine is currently off lease. JetFleet II(TM)
management is currently negotiating lease and/or sale arrangements for the
engine.
The AGES Engines were leased to GPA Group plc ("GPA") and subleased to
Aerovias de Mexico, S.A. de C.V. ("AeroMexico"). As mentioned above, JetFleet
II(TM) and AGES agreed during the first quarter of 1995 to rescind the AGES
Engines purchase by JetFleet II(TM). JetFleet II(TM) received a total of
$150,000 in rental payments during 1995 for the AGES Engines.
Future minimum rents
The following is a schedule of future minimum rental income by year
under the existing leases:
Year Amount
---- -----------
1997 $ 2,634,081
1998 2,219,521
1999 1,050,771
2000 542,686
-----------
$ 6,447,059
===========
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JetFleet(TM) Aircraft II, L.P.
Notes to Financial Statements
3. Aircraft and Aircraft Engines Under Operating Leases and Aircraft Held
for Operating Leases (continued)
Detail of investment
The following schedule provides an analysis of JetFleet II's(TM)
investment in aircraft under operating leases and aircraft held for operating
leases as of December 31, 1995, additions and disposals during 1996, and as of
December 31, 1996:
December 31, December 31,
1995 Additions Disposals 1996
------------ ------------ ------------ ------------
S/N 72 $ 5,328,677 $ - $ - $ 5,328,677
S/N 57 199,752 - 199,752
S/N 44 5,208,656 - 5,208,656
S/N 11 6,225,556 - 6,225,556
Airwork Engines 5,498,993 - (224,464) 5,274,529
AEI Engine 213,150 - 213,150
S/N 370 - 351,477 - 351,477
S/N 666 893,096 - 893,096
S/N 576 1,165,750 - - 1,165,750
------------ ------------ ------------ ------------
24,733,630 351,477 (224,464) 24,860,643
Less accumulated
depreciation (7,213,339) (3,260,014) 48,323 (10,425,030)
------------ ------------ ------------ ------------
$ 17,520,291 $ (2,908,537) $ (176,141) $ 14,435,613
============ ============ ============ ============
F-31
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JetFleet(TM) Aircraft II, L.P.
Notes to Financial Statements
3. Aircraft and Aircraft Engines Under Operating Leases and Aircraft Held
for Operating Leases (continued)
Detail of investment (continued)
The following schedule provides an analysis of JetFleet II's(TM)
investment in aircraft under operating leases and aircraft held for operating
leases and the related accumulated depreciation for the years ended December
31, 1994, 1995 and 1996:
Accumulated
Cost Depreciation Net
------------ ------------ ------------
Balance,
December 31, 1993 $ 24,872,259 $ (2,168,361) $ 22,703,898
Additions 4,222,146 (a) (2,347,282) 1,874,864
Disposals (626,001)(b) 16,282 (609,719)
------------ ------------ ------------
Balance,
December 31, 1994 28,468,404 (4,499,361) 23,969,043
Additions 3,696,146 (c) (3,372,163) 323,983
Disposals (7,430,920)(d) 658,185 (6,772,735)
------------ ------------ ------------
Balance,
December 31, 1995 $ 24,733,630 $ (7,213,339) $ 17,520,291
Additions 351,477 (e) (3,260,014) (2,908,537)
Disposals (224,464)(f) 48,323 (176,141)
------------ ------------ ------------
Balance,
December 31, 1996 $ 24,860,643 $(10,425,030) $ 14,435,613
============ ============ ============
(a) Reflects purchase of AGES Engines ($3,809,295) and the DC-9 ($412,851).
(b) Reflects the reclass of the purchase price of the DC-9 from an investment
in aircraft to a capital lease ($406,750) and the sale of one of the AEI
Engines ($213,150).
(c) Reflects the purchase of S/N 666 ($893,096), S/N 576 ($1,165,750), S/N
45702 ($818,450) and S/N 47553 ($818,850).
(d) Reflects the reclassification of the purchase price of S/N 45702
($818,450) and S/N 47553 ($818,850) from an investment in aircraft to
investment in capital leases, the AGES rescission discussed in Note 3
($5,786,312) and a deduction for acquisition costs associated with the AEI
Engine sold during December 1994 ($7,308).
(e) Reflects the purchase of S/N 370.
(f) Reflects the loss of and payment for the Lost Airwork Engine.
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JetFleet(TM) Aircraft II, L.P.
Notes to Financial Statements
4. Investments in Capital Leases
McDonnell Douglas DC-9-32, serial number 47236 ("First DC-9")
On December 16, 1994, JetFleet II(TM) purchased a 50% undivided
interest in the First DC-9 for $400,000 plus reimbursement of chargeable
acquisition costs and acquisition fees totaling $12,851. JetFleet(TM) purchased
the remaining 50% interest at the same time. The First DC-9 was leased back to
the seller, Interglobal, Inc. for thirty-six months at a monthly rate of
$30,000, of which JetFleet II(TM) is entitled to $15,000 (the "First DC-9
Lease"). The First DC-9 is currently sub-leased to and being operated by Aero
California S.A. de CV. As discussed in Note 1 above, JetFleet II's(TM)
investment in the First DC-9 is being accounted for as a capital lease. The
investment is essentially a financing in which JetFleet II(TM) will recover its
investment over the term of the lease. Interglobal, Inc. has a purchase option
for a nominal amount which may be exercised upon expiration of the First DC-9
Lease. In 1996, JetFleet II(TM) recorded $43,238 of interest income
attributable to the First DC-9 Lease.
McDonnell Douglas DC-9-14, serial number 45702 ("Second DC-9")
On July 10, 1995, JetFleet II(TM) purchased a 100% undivided interest
in the Second DC-9 for $800,000 plus reimbursement of chargeable acquisition
costs and acquisition fees totaling $18,850. The Second DC-9 is subject to
similar lease terms as the First DC-9 and is accounted for in the same manner.
In 1996, JetFleet II(TM) recorded $119,157 of interest income attributable to
the lease of the Second DC-9.
McDonnell Douglas DC-9-32, serial number 47553 ("Third DC-9")
On August 31, 1995, JetFleet II(TM) purchased a 100% undivided
interest in the Third DC-9 for $800,000 plus reimbursement of chargeable
acquisition costs and acquisition fees totaling $18,450. The Third DC-9 was
also subject to similar lease terms as the First DC-9 and was accounted for in
the same manner. During 1996, JetFleet II(TM) agreed to resell the Third DC-9
and reassign the sublease to the original seller, Interglobal, Inc. In 1996,
JetFleet II(TM) recorded $71,950 of interest income attributable to the lease
of the Third DC-9.
Future minimum lease payments
The following is a schedule of maturities of lease payments receivable
and recognition of unearned interest income:
Collection Interest
on Income
Year Receivable Recognition
---- ---------- -----------
1997 $ 540,000 $ 79,186
1998 180,000 8,793
---------- ----------
$ 720,000 $ 87,979
========== ==========
F-33
145
JetFleet(TM) Aircraft II, L.P.
Notes to Financial Statements
5. Related Party Transactions
In connection with the organization and offering of units in JetFleet
II(TM), Group received a non-accountable organizational and offering expense
allowance of $140,622 in 1994, for reimbursement of certain organizational and
offering expenses, as discussed in Note 1. In addition, CKS Securities,
Incorporated, a member of the National Association of Securities Dealers, Inc.
and an affiliate of the general partners, received sales commissions,
investment banking fees, and due diligence reimbursements of $492,177 in 1994,
portions of which were paid to third parties.
As discussed in Note 3, JetFleet II's(TM) investment in aircraft and
aircraft engines includes reimbursements to CMA and Group for chargeable
acquisition costs. These amounts, which totaled $4,533, $41,097 and $61,750 in
1996, 1995 and 1994, respectively, included legal and consulting costs in
connection with the acquisition of the aircraft, as well as appraisal and title
insurance costs. JetFleet II(TM) also reimbursed JMC for loan fees incurred of
$16,251 in 1995 and paid Group acquisition fees of $5,194, $54,376 and $62,396
in 1996, 1995 and 1994, respectively.
Group receives an equipment management fee ($43,249, $48,857 and
$93,920 in 1996, 1995 and 1994, respectively) equal to 3% of gross rentals
received by JetFleet II(TM) from operating leases and 2% of gross rentals from
full payout leases.
JetFleet II(TM) did not pay a resale fee (normally 3% of the contract
sales price of each asset sold) to Group or any third-party in connection with
the sale of the AEI Engine or the rescission of the AGES Engines purchase.
JetFleet II(TM) paid a resale fee of to Group in connection with the Third DC-9
transaction in the amount of $13,700 in 1995.
JetFleet II(TM) pays for all direct, indirect, administrative and
overhead expenses incurred on its behalf by Group and its affiliates. In 1996,
1995 and 1994, $301,407, $220,361, and $151,430, respectively, was reimbursable
by JetFleet II(TM) to Group or its affiliates in connection with the
administration and management of JetFleet II(TM).
All of the above fees payable by JetFleet II(TM) to Group were paid to
Group which in turn reimbursed CMA or its affiliates which had incurred costs
in connection with the organization and offering of units in, and the
administration and management of, JetFleet II(TM).
F-34
146
Jetfleet Aircraft II, L.P.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Capital Resources and Liquidity
At the end of 1996, JetFleet II(TM) had cash balances of
$1,191,914. This amount was held primarily for the distribution made to the
Unitholders in January 1997 and to pay for accrued expenses.
During the year, JetFleet II's(TM) primary sources of
liquidity were cash flows from leasing operations and capital lease payments.
JetFleet II's(TM) liquidity will vary in the future, increasing to the extent
cash flows from operations exceed expenses, and decreasing as distributions are
made to the Unitholders and to the extent expenses exceed cash flows from
leases.
JetFleet II(TM) uses substantially all its operating cash flow
to make cash distributions to its Unitholders. Since JetFleet II's(TM) leases
are triple net leases (the lessee pays operating and maintenance expenses,
insurance and taxes), JetFleet II(TM) does not anticipate that it will incur
significant operating expenses in connection with its ownership interest in the
Aircraft as long they remain on lease.
JetFleet II(TM) currently has available adequate reserves to
meet its immediate cash requirements.
From January 1995 through July 1995, JetFleet II(TM) made
distributions at an annualized rate of 10%. From August 1995 through December
1995, JetFleet II(TM) made distributions at an annualized rate of 8% primarily
because of the decreased monthly rents on S/N 57, S/N 44 and S/N 11, and
because S/N 72, which had come off lease in September 1995, had not been
re-leased. In addition, although JetFleet II(TM) has reinvested the net
proceeds received as a result of the AGES Engine rescission, it did so on a
staged basis which was not completed until early 1996. The level of monthly
rent received from these new assets did not equal the rent JetFleet II(TM) had
been receiving from the AGES Engines until late 1995. Since January 1996,
JetFleet II(TM) has made distributions at an annualized rate of 10% primarily
because the rent on the assets purchased using the AGES Engine rescission
proceeds is now higher than the rent received prior to the rescission. Future
distributions will depend on the amount of lease revenue received by
JetFleet(TM) for its assets.
If inflation in the general economy becomes significant, it
may affect JetFleet II(TM) inasmuch as the residual values and rates on
re-leases of its aircraft may increase as the costs of similar assets increase.
However, JetFleet II's(TM) revenues from existing leases would not increase, as
such rates are generally fixed for the terms of the leases without adjustment
for inflation. At the same time, any significant inflation in the general
economy may cause an increase in professional fees and general and
administrative expense reimbursements.
If interest rates increase significantly, the lease rates that
JetFleet II(TM) can obtain on future leases with be expected to increase as the
cost of capital is a significant factor in the pricing of lease financing.
Leases already in place, for the most part, would not be affected by changes in
interest rates.
1996 versus 1995
Cash flows from operations decreased approximately $423,000
primarily due to a decrease in unearned interest income as a result of the sale
of the Third DC-9 and a decrease in
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payables. These decreases were only partially offset by an increase in lease
related revenue resulting primarily from higher monthly rents for S/N 72 during
1996.
Cash flows from investing activities decreased approximately
$439,000 in 1996 primarily due to the AGES Engines rescission during 1995.
This was partially offset by the funds received from the sale of the Third DC-
9 during 1996 which had not been reinvested at December 31, 1996.
In 1996, there were no financing sources of cash. Cash
distributions to Unitholders increased approximately $305,000, or by $0.42 per
weighted average Limited Partnership Unit outstanding. The increased
distributions to Unitholders resulted from the additional rent received from
the reinvestment of the AGES rescission proceeds, as well as from the higher
monthly rent for S/N 72 during 1996. The increased rents were only partially
offset by reduced rents on S/N 57, S/N 44 and S/N 11.
1995 versus 1994
Cash flows from operations decreased approximately $673,000
primarily due to a decrease of approximately $1,195,000 in cash flows from
lease-related revenues. Certain other cash expenses increased in 1995 as
discussed under "Results of Operations" below. The decreased cash flows from
leases resulted from reduced rents on S/N 57, S/N 44 and S/N 11, S/N 72's
off-lease periods during 1995 and the loss of rent during the period that the
AGES Engines rescission proceeds were being reinvested.
Cash flows from investing activities increased approximately
$5,800,000 in 1995 primarily due to the AGES Engines rescission and staged
reinvestment in assets which was not completed until early 1996 and the
payments received from the capital leases on the DC-9s.
In 1995, there were no financing sources of cash. JetFleet
II(TM) raised $4,687,400 during 1994. In connection with these sales, JetFleet
II(TM) paid organization and offering costs in the amount of $632,799 to the
Corporate General Partner and CKS Securities, Incorporated. Cash distributions
to Unitholders decreased approximately $881,000, or by $1.27 per weighted
average Limited Partnership Unit outstanding. The decreased distributions to
Unitholders resulted from reduced rents on S/N 57, S/N 44 and S/N 11 as well as
S/N 72's off-lease periods during 1995 which were only partially offset by the
cash received as a result of the reinvestment of the AGES Engines rescission
proceeds.
Results of Operations
JetFleet II(TM) recorded net income of $844,620 and a net loss
of ($1,160,761) and ($856,582) in 1994, 1995 and 1996, respectively. The
decrease from 1994 to 1995 was due to the decrease in rents received for S/N
57, S/N 44 and S/N 11, S/N 72's off-lease periods during 1995 and the loss of
rent during the period that the AGES Engines rescission proceeds were being
reinvested. The increase from 1995 to 1996 was a result of the additional
interest income received from the reinvestment of the AGES rescission proceeds
in the DC-9 financing leases. There was no related increase in depreciation
because the DC-9 financing leases are capital leases.
1996 versus 1995
Rental income increased approximately $57,000. This was due
to the higher monthly rent for S/N 72 during 1996, which was only partially
offset by reduced rents on S/N 57, S/N 44 and S/N 11 beginning in October 1996.
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Depreciation decreased approximately $112,000 primarily due to
the reinvestment of the AGES rescission proceeds in aircraft subject to
financing leases which are not subject to depreciation.
Management fees increased approximately $11,000. This was
primarily due to the increased rents discussed above. JetFleet II(TM) pays 4%
to AEI in connection with the purchases of each of the above aircraft.
General and administrative expenses and professional fees
increased approximately $92,000 due to increased costs associated with the
ongoing management of JetFleet II's(TM) and extensive negotiations with
Raytheon regarding the monthly rents for S/N 57, S/N 44 and S/N 11. As
mentioned above, the Corporate General Partner has authorized JMC to perform
remarketing duties on behalf of JetFleet II(TM). If management fees are
payable within a given year, such fees are reduced to the extent that any
payments are made to JMC or other third parties performing such remarketing
duties.
1995 versus 1994
Rental income decreased approximately $1,195,000. This was
due to reduced rents on S/N 57, S/N 44 and S/N 11 beginning in October 1994,
S/N 72's off-lease periods during 1995 and the loss of rent during the period
that the AGES Engines rescission proceeds were being reinvested. In addition,
the payments under the DC-9 financing leases, which were acquired in December
1994, July 1995 and August 1995, are treated as a return of capital with an
imputed interest component, rather than rental income.
Depreciation increased approximately $1,025,000 primarily due
to the additional purchases of interests in aircraft and aircraft engines
during 1994 and 1995 and a reduction in the estimate of the useful life of
certain aircraft.
Management fees decreased approximately $88,000. This was
primarily due to the reduced rents discussed above. JetFleet II(TM) pays 4% to
AEI in connection with the purchases of each of the above aircraft. Also,
JetFleet II(TM) pays a lower rate of management fees on full payout leases such
as the leases to which the DC- 9s are subject.
General and administrative expenses and professional fees
increased approximately $89,000 due to increased costs associated with the
ongoing management of JetFleet II's(TM) portfolio, specifically the
maintenance, supervision and remarketing of S/N 72 and negotiation of the AGES
rescission. As mentioned above, the Corporate General Partner has authorized
JMC to perform remarketing duties on behalf of JetFleet II(TM). If management
fees are payable within a given year, such fees are reduced to the extent that
any payments are made to JMC or other third parties performing such remarketing
duties.
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Supplemental Financial Information for JetFleet Aircraft II L.P.
Required By Regulation SK, Items 301 and 302
(unaudited)
Balance, December 31, 1996 1995 1994 1993 1992
- --------------------- ---- ---- ---- ---- ----
Earnings to fixed charges(1)
Aircraft and aircraft
engines under leases
or held for lease 14,435,613 17,520,291 23,969,043 22,703,898 12,820,202
Cash and cash equivalents 1,191,914 1,364,593 370,310 1,375,371 162,423
Total assets - book value 16,410,203 21,229,706 25,018,544 24,427,689 13,045,412
Total assets - rollup
value 15,280,928
Total liabilities 883,157 1,195,851 479,134 536,763 53,116
General partners' equity 0 0 0 0 0
Limited partners' equity 15,527,046 20,033,855 24,539,410 23,890,926 12,992,296
Per unit data:
Total assets - book
value 23.66 30.61 36.08 35.22 18.81
Total assets - rollup
value 22.03
Year ended December 31, 1996 1995 1994 1993 1992
- ----------------------- ---- ---- ---- ---- ----
Rental income 2,658,450 2,601,541 3,796,913 3,260,910 1,291,680
Net increase/(decrease) in cash (172,679) 994,283 (1,005,061) 1,212,948 135,192
Net cash from operations 2,103,024 2,525,878 3,199,314 3,057,916 1,107,186
Distributions 3,650,226 3,344,793 4,271,830 2,756,237 1,098,775
Per unit data:
Net income/(loss) (1.50) (1.91) 0.93 2.52 2.51
Distributions:
From income 0.00 0.00 0.93 2.52 2.51
Return of capital 5.00 4.58 5.07 3.47 3.72
(1) JetFleet II has no fixed charges
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REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
of AeroCentury Corp.
We have audited the accompanying balance sheet of AeroCentury Corp., a
development stage Delaware corporation, as of March 5, 1997. This balance
sheet is the responsibility of the Company's management. Our responsibility is
to express an opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit 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 AeroCentury Corp. at March 5,
1997, in conformity with generally accepted accounting principles.
VOCKER KRISTOFFERSON AND CO.
March 6, 1997
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AEROCENTURY CORP.
(A Development Stage Delaware Corporation)
Balance Sheet
March 5, 1997
ASSETS
Cash $150,000
-------
Total Assets $150,000
========
SHAREHOLDER'S EQUITY
Common Stock, $.001 par value, 3,000,000 shares
authorized, 150,000 shares issued and outstanding $ 150
Paid in capital in excess of par 149,850
--------
Total Shareholder's Equity $150,000
========
See accompanying notes.
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AEROCENTURY CORP.
(A Development Stage Delaware Corporation)
Notes to Balance Sheet
March 5, 1997
1. Organization and Capitalization
AeroCentury Corp. (The "Company") was incorporated in the state of
Delaware on February 28, 1997. All of the Company's outstanding stock is owned
by JetFleet Management Corp. ("JMC"), a California corporation formed in
January 1994. JMC is an integrated aircraft management, marketing and
financing business and also manages, on behalf of their general partners and
shareholders, respectively, the aircraft assets of JetFleet Aircraft, L.P. And
JetFleet Aircraft II, L.P. (Collectively, the "Partnership"), and JetFleet III.
The Company was formed solely for the purpose of acquiring the
Partnerships in a statutory merger (the "Consolidation"). The Partnerships,
formed under California law, invest in leased aircraft equipment. Upon
completion of the Consolidation, the Company will continue in the aircraft
leasing business and plans to use leveraged financing to acquire additional
aircraft assets on lease.
At March 5, 1997, the Company did not have any significant operations.
The Company maintains its cash balance of $150,000 in a regional bank
headquartered in San Francisco. Of this amount, $50,000 is not federally
insured.
2. Related Party Transactions
Upon completion of the Consolidation, the Company's portfolio of
leased aircraft assets will be managed and administered under the terms of a
management agreement with JMC. Under this agreement, JMC will receive a
monthly management fee based on the net asset value of the assets under
management. In addition, JMC may receive a brokerage fee for locating assets
for the Company, provided that such fee is not more than the customary and
usual brokerage fee that would be paid to an unaffiliated party for such a
transaction, and provided further that the aggregate purchase price including
chargeable acquisition costs and any brokerage fee shall not exceed the fair
market value of the asset based on appraisal.
3. Subsequent Events
The Company was incorporated as AeroMax, Inc. On May 21, 1997, the
Company filed amended Articles of Incorporation to change its name to
AeroCentury Corp. Subsequent to March 5, 1997, the Company incurred and
reimbursed JMC $23,624 and incurred an additional $78,037 in Consolidation
costs.
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AeroCentury Corp.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The Company was formed on February 28, 1997 and has not yet had any significant
operations.
Results of Operations
The Company has yet to generate a profit due to the fact that the Company is
recently formed. The Company does not anticipate significant operating
activity, other than incurring merger costs in connection with the proposed
consolidation of JetFleet Aircraft, L.P. and JetFleet Aircraft II, L.P. with
and into the Company (the "Consolidation").
Liquidity and Capital Resources
The Company's cash and temporary investments were $150,000 at March 5, 1997.
The Company estimates that costs associated with the Consolidation will
approximate $250,000. It is anticipated that such offering costs in excess of
current cash balances will be financed through short-term payables and paid at
the time of the Consolidation. Should the Consolidation not occur, the
Company's sole shareholder, JetFleet Management Corp., has committed to pay such
costs.
Competition
Upon Consolidation, the Company will compete with aircraft manufacturers,
distributors, airlines and other operators, equipment managers, leasing
companies, equipment leasing programs, financial institutions and other parties
engaged in leasing, managing or remarketing aircraft, many of which have
significantly greater financial resources and more experience than the Company.
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APPENDICES
Appendix A -- Form of Merger Agreement
Appendix B -- Current Value Appraisal of Partnership's Assets
Appendix C -- California Partnership Act Dissenters' Rights Provisions
Appendix D -- Forms of Consent
155
APPENDIX A
FORM OF MERGER AGREEMENT
156
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") dated as of
________, 1997, by and among AeroCentury Corp., a Delaware corporation (the
"Company"), JetFleet Aircraft, L.P. ("JetFleet I"), a California limited
partnership, and JetFleet Aircraft II, L.P. ("JetFleet II"), a California
limited partnership, collectively, the "Partnerships" and individually, a
"Partnership").
WITNESSETH:
WHEREAS, the Company and the Partnerships desire that the Partnerships
merge with and into the Company, pursuant to Delaware law, with the Company
being the surviving entity (the "Merger"), as part of the merger by
consolidation of the Partnerships, and the Company (the "Consolidation") as set
forth in the Registration Statement of the Company on Form S-4, No. ________,
including all amendments thereto (the "Registration Statement"), filed with the
Securities and Exchange Commission (the "SEC") pursuant to the Securities Act
of 1933, as amended (the "Act"), of which the Prospectus/Consent Solicitation
Statement of the Company (the "Prospectus/Consent Solicitation Statement") is a
part; and
WHEREAS, Section 263 of the General Corporation Law of the State of
Delaware, 8 Del.C. Section 101, et seq. (the "DGCL") and Section 15678.7 of
the California Revised Limited Partnership Act (the "Partnership Act")
authorize the merger of a Delaware corporation and California limited
partnerships; and
WHEREAS, the Company's Certificate of Incorporation and Bylaws permit,
and resolutions adopted by the Company's Board of Directors authorize, this
Agreement and the consummation of the Merger.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties to this Agreement covenant and agree
as follows:
ARTICLE I
THE MERGER
1.01. The Merger; Surviving Corporation. Subject to the terms and
conditions set forth in this Agreement, at the Effective Time (as defined in
Section 1.02 below), the Partnerships shall each be merged with and into the
Company, pursuant to Section 15678.7 of the Partnership Act and Section 263 of
the DGCL, and the separate existence of each of the Partnerships shall cease.
The Company shall be the surviving entity (the "Surviving Corporation") and
shall continue to be governed by the DGCL.
1.02. Effective Time. In accordance with Section 15678.7 of the
Partnership Act and Sections 263, 251 and 103 of the DGCL, the Merger shall
become effective (the "Effective Time") upon the filing of a certificate of
merger (the "Certificate of Merger") with the Secretary of State of the State
of Delaware, or at such later time, not later than five business days
thereafter, as may be specified in the Certificate of Merger. All other
filings or recordings required by Delaware law in connection with the Merger
shall also be made.
1.03 Effect of the Merger. The Merger shall have the effects set
forth in Section 15678.6 of the Partnership Act and Section 263 of the DGCL.
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ARTICLE II
THE SURVIVING CORPORATION
2.01 Name. The name of the Surviving Corporation shall be AeroCentury
Corp.
2.02. Certificate of Incorporation and Bylaws. The Certificate of
Incorporation and Bylaws of the Company as in effect immediately prior to the
Effective Time shall be the Certificate of the Incorporation and Bylaws of the
Surviving Corporation unless and until amended in accordance with their terms
and applicable law.
2.03. Officers and Directors. The officers of the Company immediately
prior to the Effective Time shall continue as officers of the Surviving
Corporation and remain officers until their successors are duly appointed or
their prior resignation, removal or death. The directors of the Company
immediately prior to the Effective Time shall continue as directors of the
Surviving Corporation and shall remain directors until their successors are
duly elected and qualified or their prior resignation, removal or death.
ARTICLE III
CONVERSION OF PARTNERSHIP INTERESTS
3.01 Conversion of Limited Partner Interests.
At the Effective Time, each limited partner interest ("Unit") in each of
the Partnerships shall be converted into the number of shares of Company's
Common Stock, $.001 par value per share (the "Common Stock"), as follows:
(Conversion Rate)
Number of Shares of
Common Stock
Partnership Per Unit
----------- -------------------
JetFleet I ________
JetFleet II ________
To determine the the number of shares of Common Stock to be issued as a
result of the conversion of Units to a limited partner of the Partnerships
("Existing Investor"), the applicable Conversion Rate as defined on Appendix A
shall be multiplied by the number of Units held by the Existing Investor
rounding to the nearest whole shares. No fractional shares of Common Stock
will be issued. The Conversion Rate shall be calculated as set forth in
Schedule 3.0 hereto.
3.02 General Partner Interests. In connection with the Consolidation,
the General Partners shall receive shares of Common Stock, in consideration of
its general partner interests in the Partnerships as set forth on Schedule 3.04
and their general partner interests in the Partnerships shall be deemed
canceled.
3.03. Issuance of Shares.
(i) The Company shall designate an exchange agent (the "Exchange
Agent") to act as such in connection with the issuance of certificates
representing Common Stock pursuant to this Agreement.
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(ii) As soon as practicable after the Effective Time, the Company
shall cause the Exchange Agent to distribute to each Existing Investor who is
not a "dissenting limited partner" under the Partnership Act certificates
representing the number of shares of Common Stock to which such Existing
Investor is entitled pursuant to Section 3.01(i) of this Agreement.
3.03 Characterization of Merger. For federal income tax purposes, the
conversion of the Units in the Partnerships pursuant to this Article III shall
be deemed a distribution in liquidation of each of the Partnerships pursuant to
the terms of each respective Partnership Agreement (individually, a
"Partnership Agreement" and collectively, the "Partnership Agreements").
ARTICLE IV
TRANSFER AND CONVEYANCE OF ASSETS
AND ASSUMPTION OF LIABILITIES
4.01. Transfer, Conveyance and Assumption. At the Effective Time, the
Company shall continue in existence as the Surviving Corporation, and without
further action on the part of the Partnerships or the Company, transfer,
succeed to and possess all the rights, privileges and powers of the
Partnerships, and all the assets and property of whatever kind and character of
the Partnerships shall vest in the Company without further act or deed;
thereafter, the Company, as the Surviving Corporation, shall be liable for all
of the liabilities and obligations of the Partnerships, and any claim or
judgement against the Partnerships may be enforced against the Company, as the
Surviving Corporation, in accordance with Section 15678.6 of the Partnership
Act and Sections 263, 259 and 103 of the DGCL.
4.02. Further Assurances. If at any time the Company shall consider or
be advised that any further assignment, conveyance or assurance is necessary or
advisable to vest, perfect or confirm of record in the Surviving Corporation
the title to any property or right of the Partnerships, or otherwise to carry
out the provisions hereof, the General Partners of the Partnerships as of the
Effective Time shall execute and deliver any and all proper deeds, assignments
and assurances, and do all things necessary and proper to vest, perfect or
convey title to such property or right in the Surviving Corporation and
otherwise to carry out the provisions hereof.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PARTNERSHIPS
The Partnerships each severally represent and warrant the Company and to
each other (with respect only to the Partnership making the representation and
warranty) as follows:
5.01. Validity of Actions. Each Partnership (i) is a limited
partnership duly formed, validly existing and in good standing under the laws
of the State of California, (ii) has the authority to conduct its business as
currently conducted and to own and operate the properties which it now owns and
operates, (iii) is qualified to do business in all jurisdictions in which such
qualification is necessary, and (iv) has full power and authority to enter into
this Agreement and to carry out all acts contemplated by it. This Agreement
has been duly executed and delivered on behalf of the Partnership, and has
received all necessary authorization and is a legal, valid and binding
obligation of the Partnership, enforceable against the Partnership in
accordance with its terms. The execution and delivery of this Agreement and
consummation of the transactions contemplated by it will not violate any
provision of the Partnership Agreement nor violate, conflict with or result in
any breach of any of the terms, provisions or conditions of, or constitute a
default or cause acceleration of, any indebtedness under any agreement or
instrument to which any of the Partnerships are a party or by which they or
their assets may be bound, or cause a breach of any
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applicable federal or state law or governmental regulation, or any applicable
order, judgment, writ, award, injunction or decree of any court or governmental
instrumentality.
5.02. Partnerships' Financial Statements. The financial statements and
schedules of the Partnerships, together with related notes (the "Financial
Statements"), set forth in the Registration Statement of the Company, fairly
present, on the basis stated in the Registration Statement, the financial
position of the Partnerships at the date or for the periods specified in the
Registration Statement. The Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis ("GAAP"), except to the extent stated therein.
5.03. No Misstatements. The representations of the Partnerships
contained in this Agreement and the information supplied by the Partnerships
for inclusion in the Registration Statement and the Prospectus/Consent
Solicitation Statement do not contain any untrue statements of a material fact
or omit to state any fact necessary to make such representations or information
not materially misleading.
5.04. No Material Adverse Change. Since the respective dates as to
which information is given in the Registration Statement and the
Prospectus/Consent Solicitation Statement with respect to the Partnerships, and
except as described in the Registration Statement or the Prospectus/Consent
Solicitation Statement, there have been no changes in the business, operations,
properties, assets or the prospects or condition, financial or otherwise, of
the Partnerships which would, in the aggregate, have a material adverse effect
on the business, properties, prospects, profitability, assets or financial
condition of the Partnerships.
5.05. Title to Assets. Each Partnership has good and marketable title
to the assets reflected in the most recent balance sheet (the "Balance Sheet")
included in the Financial Statements with respect to such Partnership, and will
hold good and marketable title to such assets, and any assets acquired by the
Partnership prior to the Effective Time, as of the Effective Time, except for
assets disposed of in the ordinary course of business. Such assets, together
with the related goodwill and rights of each Partnership as a going concern,
tangible and intangible, are collectively referred to as the "Assets." Except
as otherwise disclosed in the Balance Sheet or related notes accompanying it,
all of the Assets are owned free and clear of any and all adverse claims,
security interests, charges or other encumbrances or restrictions of every
nature, except liens for current taxes not yet due and payable or landlords'
liens as provided for in the relevant leases or by applicable law.
5.06 Liabilities of the Partnerships. The Partnerships have no
material liabilities, contingent or otherwise, without limitation for state or
federal income, withholding or other taxes, except to the extent reflected,
reserved against, or provided for in the Balance Sheet, and except for any
material liabilities disclosed in the Prospectus/Consent Solicitation Statement
or any other obligations incurred after ________, 1997 in the ordinary course
of business which subsequently incurred obligations are of an amount and nature
as to be capable of being discharged from the operations of the Partnerships
without requiring additional equity or borrowing.
5.09 Taxes. Each Partnership has filed timely all federal, state and
local tax returns which it is required to file, has provided to its Existing
Investors all required Form K-1's and such other tax forms as may be required
by federal, state or local authorities, and has no outstanding liability for
any federal, state or local taxes or interest or penalties thereon, whether
disputed or not, except taxes not yet payable which have been provided for in
accordance with GAAP and are disclosed in the Financial Statements.
5.10. Actions Pending. Except as disclosed in the Prospectus/Consent
Solicitation Statement: (i) there are no actions, suits, proceedings or claims
pending or threatened against the Partnerships or the general partner of the
Partnerships which, if determined adversely to such Partnerships, could (A)
have a material adverse effect on the Partnerships, the Assets or the
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business of the Partnerships when taken as a whole, or (B) prevent or delay the
consummation of any of the transactions contemplated by this Agreement; (ii) no
Partnership, to the best of its knowledge, is the subject of any pending or
threatened investigation relating to any aspect of such Partnership's
operations by any federal, state or local governmental agency or authority; and
(iii) each Partnership, to the best of its knowledge, is not and has not been
the subject of any formal or informal complaint, investigation or inspection
under the Equal Employment Opportunity Act or the Occupational Safety and
Health Act (or their state or local counterparts) or by any other federal,
state or local authority.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Partnerships as follows:
6.01. Validity of Actions. The Company (i) is duly organized, validly
existing and in good standing under the laws of the State of Delaware, (ii) has
the authority to conduct its business as currently conducted, (iii) is
qualified to do business in all jurisdictions in which such qualification is
necessary, and (iv) has full power and authority to enter into this Agreement
and to carry out all acts contemplated by it. This Agreement has been duly
executed and delivered on behalf of the Company, has received all necessary
authorization and is a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms. The execution
and delivery of this Agreement and consummation of the transactions
contemplated by it will not violate any provision of the Certificate of
Incorporation or Bylaws of the Company nor violate, conflict with or result in
any breach of any of the terms, provisions or conditions of, or constitute a
default or cause acceleration of, any indebtedness under any agreement or
instrument to which the Company is a party or by which it or its assets may be
bound, or cause a breach of any applicable federal or state law or regulation,
or any applicable order, judgment, writ, award, injunction or decree of any
court or governmental instrumentality.
6.02. Capital Stock of the Company. The authorized capital stock of
the Company consists of 5,000,000 shares of Common Stock, and 2,000,000 of
Preferred Stock, of which 150,000 shares of common stock are issued and
outstanding as of the date of this Agreement. The shares of Common Stock of
the Company to be delivered to the General Partners and the Existing Investors
pursuant to this Agreement have been duly and validly authorized, and when
issued and delivered, will be fully paid and nonassessable.
6.03. Misstatements. The representations of the Company contained in
this Agreement and the information regarding the Company contained in the
Registration Statement and the Prospectus/Consent Solicitation Statement do not
contain any untrue statements of a material fact or omit to state any fact
necessary to make such representations or information not materially
misleading.
ARTICLE VII
COVENANTS OF THE PARTIES
7.01. Prohibited Acts. Pending consummation of the Merger or prior to
termination of this Agreement, the Partnerships agree that, without prior
written consent of the Company, given in a letter which specifically refers to
this Section of the Agreement, the Partnerships shall not:
(i) perform any act or omit to take any action that
would make any of their representations made above or any
information pertaining to them in the Registration Statement or
the Prospectus/Consent Solicitation Statement inaccurate or
materially misleading as of the Effective Time;
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161
(ii) enter into any commitment, contract or other
transaction in any way affecting any of the Partnership's
business, except to carry out its business in the ordinary
course, and as contemplated by this Agreement or in the
Prospectus/Consent Solicitation Statement;
(iii) make any loans or advances to, or investments in,
any other corporation, partnership or other legal entity or to
any other persons except in the ordinary course of business;
(iv) borrow money for any purpose or agree to become
contingently liable, by guaranty or otherwise, for the
obligations or indebtedness of any other person other than in the
ordinary course of business; or
(v) mortgage, pledge, encumber, sell, lease or transfer
any of the Assets other than in the ordinary course of business.
7.02. Notice. Pending the consummation of the Merger or prior to
termination of this Agreement, each party agrees that it will promptly advise
the other of the occurrence of any condition or event which would make any of
its representations, contained in this Agreement or the Prospectus/Consent
Solicitation Statement inaccurate, incorrect, or materially misleading.
7.03. Additional Documents. At the request of any party, each party
will execute and deliver any additional documents and perform in good faith
such acts as reasonably may be required in order to consummate the transactions
contemplated by this Agreement.
ARTICLE VIII
CONDITIONS TO THE MERGER
The obligation of the Company, on the one hand, and each of the
Partnerships on the other hand, to consummate the Merger shall be subject to
compliance with or satisfaction of the following conditions:
8.01. Bring Down. The representations and warranties set forth in this
Agreement shall be true and correct in all material respects at and as of the
Effective Time as if then made (except for those representations and warranties
made as of a given date, which shall continue to be true and correct as of such
given date), as evidenced by a certificate made by the General Partner of each
Partnership and the President of the Company, as of the Effective Time.
8.02. Compliance. The Company and each Partnership shall have complied
with all of the covenants and agreements in this Agreement on its part to be
complied with as of or prior to the Effective Time.
8.03. Partnership Approvals. The affirmative vote approving the
Consolidation of Existing Investors holding more than 50% of the outstanding
Units shall have been obtained; provided however, that at the Company's sole
discretion, the Consolidation may occur between JetFleet II and the Company if
only the required approval of JetFleet II Existing Investors is obtained.
8.04. Stock Exchange Listing. At or before the Effective Time, the
Common Stock to be issued in the Merger shall be approved for listing on the
American Stock Exchange, subject to official notice of issuance.
8.05. Consents Obtained. All necessary consents, waivers, approvals,
authorizations or
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162
orders required to be obtained, and the making of all filings required to be
made by any party to the Merger for the authorization, execution and delivery
of this Agreement, and the consummation of the transactions contemplated
thereby on or before (and remain in effect at) the Effective Time shall have
been obtained or made.
8.06. No Material Adverse Change. Since the respective dates as to
which information is given in the Registration Statement and the
Prospectus/Consent Solicitation Statement, there shall not have occurred or
been threatened any material adverse changes in the overall business or
prospects of the Partnerships, or in the tax or other regulatory provisions
applicable to the Partnerships or the Company, and the Company shall not have
become aware of any facts that, in the sole judgment of the Company and the
General Partner, have or may have a material effect, whether adverse or
otherwise, on the Partnerships, taken as a whole, the Consolidation, or the
value to the Company of the properties of the Partnerships, taken as a whole.
8.07. Opinions and Letters. The Company shall have received, on or
prior to the Effective Time, the following opinions and letters, which shall
not have been withdrawn as of the Effective Time:
(i) the opinion of counsel regarding the legality of
the issuance of the Shares;
(ii) the opinion of counsel confirming that in all
material respects, as of the Effective Time, the
discussion set forth in the Prospectus/Consent
Solicitation Statement under "Federal Income Tax
Considerations" including any opinions expressed
therein, is accurate; and
(iii) the opinion of counsel regarding the status of the
company's Common Stock under ERISA laws.
8.08. No Statute, Rule or Regulation Effecting. At the Effective Time,
there shall be no statute, rule or regulation enacted or issued by the United
States or any State, or by a court, which prohibits or challenges the
consummation of the Consolidation.
8.09. No Declarations. At the Effective Time, there shall be no
declaration of suspension of trading in, or limitation on prices for,
securities generally on the New York Stock Exchange, declaration of a banking
moratorium by federal or state authorities or any suspension of payments by
banks in the United States (whether mandatory or not) or of the extension of
credit by lending institutions in the United States, or commencement of war,
armed hostility, or other international or national calamity directly or
indirectly involving the United States, which war, hostility or calamity, in
the sole judgment of the Company, would have a material adverse effect on the
business objectives of the Company, or, in the case of any of the foregoing
existing on the date of the Prospectus/Consent Solicitation Statement, any
material acceleration or worsening thereof.
8.10. Effectiveness of Registration Statement. At or prior to the
Effective Time, the Registration Statement shall have been declared effective,
no stop order suspending the effectiveness of the Registration Statement shall
have been issued, no proceedings for such purpose shall have been initiated,
and all necessary approvals under state securities or blue sky laws shall have
been received.
8.11. Dissenters' Rights. No more than 10 % of the Units held
by limited partners of either Partnership shall be "dissenting interests" as
defined under Section 15679.2 of the Partnership Act.
8.12. Prospectus/Consent Solicitation Statement. All other
conditions to the Merger set forth in the Prospectus/Consent Solicitation
Statement shall have been satisfied.
7
163
ARTICLE IX
OTHER AGREEMENTS
9.01. Waiver by General Partners. Immediately prior to the Effective
Time, the General Partners of the Partnerships shall waive all rights to (i)
any fees not accrued to the Effective Time, and (ii) any proceeds from the sale
or liquidation of any property of a Partnership to which the General Partners
would have been entitled pursuant to the Partnership Agreement of such
Partnership.
9.02. Indemnification.
(i) To the fullest extent permitted by law, the
Partnerships, jointly and severally, agree to defend,
indemnify and hold harmless the Company and its directors,
officers, employees and agents from and against any
losses, claims, damages or liabilities (including, without
limitation, attorneys' fees and disbursements) to which
the Company may become subject under the Act, the
Securities Exchange Act of 1934, as amended, or otherwise,
insofar as such losses, claims, damages or liabilities (or
actions with respect thereof arise out of or are based
upon an untrue statement or an alleged untrue statement of
a material fact contained in the Registration Statement,
the Prospectus/Consent Solicitation Statement, or any
amendment or supplement to such documents, or arise out of
or are based upon the omission or alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, or to the extent that such losses, claims,
damages or liabilities (including, without limitation,
attorneys' fees and disbursements) result from a breach by
the Partnerships of the representations and warranties of
the Company contained in Article V of this Agreement. For
the purposes of this subsection (i), the word "Company"
shall be deemed to include the Company and its officers,
directors, employees and agents of the Company.
(ii) To the fullest extent permitted by law, the
Company, agrees to defend, indemnify and hold harmless
each of the Partnerships from and against any losses,
claims, damages or liabilities (including, without
limitation, attorneys' fees and disbursements) to which
the Partnership may become subject under the Act, the
Securities Exchange Act of 1934, as amended, or otherwise,
insofar as such losses, claims, damages or liabilities (or
actions with respect thereof arise out of or are based
upon an untrue statement or an alleged untrue statement of
a material fact contained in the Registration Statement,
the Prospectus/Consent Solicitation Statement, or any
amendment or supplement to such documents, or arise out of
or are based upon the omission or alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, or to the extent that such losses, claims,
damages or liabilities (including, without limitation,
attorneys' fees and disbursements) result from a breach by
the Company of the representations and warranties of the
Company contained in Article VI of this Agreement. For
the purposes of this subsection (i), the word
"Partnership" shall be deemed to include the Partnership,
its general partners and their respective officers,
directors, employees and agents.
(iii) A party entitled to indemnification
hereunder (an "Indemnifed Party") shall give (or cause to
be given) to the indemnifying party (the "Indemnifying
Party") notice of claim or matter for which indemnity is
(or will be) sought under this Section 9.02; such notice
shall be given promptly after the Indemnified Party
receive actual notice or knowledge of the claim or matter
that is subject to indemnification. With respect to any
claim asserted by a third party against any
8
164
Indemnified Party for which indemnity is sought, the
relevant Indemnifying Party shall have the right to employ
counsel reasonably acceptable to the relevant Indemnified
Party to defend against such assertion, and such
Indemnifying Party shall have the right to compromise or
otherwise settle any such action or claim only with the
prior written consent of the relevant Indemnified Party,
which shall not be unreasonably withheld.
(iv) This Section 9.02 shall survive the Merger
for a period of three (3) years from the Effective Time.
ARTICLE X
TERMINATION; AMENDMENT; WAIVER
10.01. Termination. This Agreement and the transactions contemplated
hereby may be terminated at any time prior to the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware, (i) by mutual
consent of the Board of Directors of the Company and the General Partner of the
Partnerships, (ii) by action of the Board of Directors of the Company in the
event of a failure of a condition to the obligations of the Company set forth
in Article VIII of this Agreement, (iii) by action of the General Partners of
the Partnerships in the event of a failure of a condition to the obligations of
the Partnerships set forth in Article VIII of this Agreement, or (iv) by action
of the Board of Directors of the Company or of the General Partners of the
Partnerships in the event that the Merger is not consummated prior to ________,
1997 or such later date as the parties shall mutually agree in writing.
10.02. Effect of Termination. If this Agreement is terminated pursuant
to Section 10.01, subject to the provisions of Section 9.02, this Agreement
shall become void and of no effect with no liability on the part of any party
hereto.
10.03. Amendment. The parties hereto may, by written agreement, amend
this Agreement at any time prior to the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware, such amendment to be
approved by the General Partner of each of the Partnerships agreeing to such
amendment with the Company; provided that, after the approval of the Merger by
the Existing Investors holding a majority of the Units of each Partnership or
the shareholders of the Company, no amendment shall be made which alters or
changes (i) the amount or kind of consideration which the Existing Investors of
each Partnership are entitled to receive upon conversion of the Units of each
Partnership, (ii) the Certificate of Incorporation of the Company, or (iii) the
terms and conditions of this Agreement if such alteration or change would have
an adverse effect on the Existing Investors of each Partnership or the
shareholders of the Company; provided further, that after the execution of this
Agreement the parties hereto may amend this Agreement without the necessity of
approval of the Existing Investors to make it internally consistent or
consistent with the terms set forth in the Prospectus/Consent Solicitation
Statement.
10.04. Waiver. At any time prior to the Effective Time, any party to
this Agreement may extend the time for the performance of any of the
obligations or other acts of any other party hereto, or waive compliance with
any of the agreements of any other party or with any condition to the
obligations hereunder, in each case only to the extent that such obligations,
agreements and conditions are intended for its benefit.
9
165
ARTICLE XI
MISCELLANEOUS
11.01. Expenses. If the Merger becomes effective, and all of the
Partnerships participate, all of the expenses incurred in connection with the
Merger shall be paid as specified in the Prospectus/Consent Solicitation
Statement.
11.02. Notices. All notices or other communications required or
permitted under the terms of this Agreement by any party shall be made in
writing and shall be delivered by first class mail or by personal delivery,
postage or fees prepaid, to the other parties at __________________, or to such
other address as any of the parties hereto may designate by notice to the
others.
11.03. Non-Assignability. This Agreement shall not be assignable by
any of the parties to this Agreement.
11.04. Entire Agreement. This Agreement contains the parties' entire
understanding and agreement with respect to its subject matter, and any and all
conflicting or inconsistent discussions, agreements, promises, representations
and statements, if any, between the parties or their representatives that are
not incorporated in this Agreement shall be null and void and are merged into
this Agreement.
11.05. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original, but all of which
together shall constitute a single agreement.
11.06. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without giving
effect to conflicts of law principles.
11.07. Headings. The various section headings are inserted for
purposes of reference only and shall not affect the meaning or interpretation
of this Agreement or any provision hereof.
11.08. Gender; Number. All references to gender or number in this
Agreement shall be deemed interchangeably to have a masculine, feminine,
neuter, singular or plural meaning, as the sense of the context requires.
11.09. Severability. The provisions of this Agreement shall be
severable, and any invalidity, unenforceability or illegality of any provision
or provisions of this Agreement shall not affect any other provision or
provisions of this Agreement, and each term and provision of this Agreement
shall be construed to be valid and enforceable to the full extent permitted by
law.
11.10. Authorization. The General Partner (a) shall be authorized, at
such time in its full discretion as they deem appropriate, to execute,
acknowledge, verify, deliver, file and record, for and in the name of the
Partnerships and, to the extent necessary, the General Partners and the
Existing Investors, any and all documents and instruments, and (b) shall do and
perform any and all acts required by applicable law or which the General
Partner deems necessary or advisable to effectuate the Merger.
10
166
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by an officer duly authorized to do so, all as of the day and year
first above written.
AEROCENTURY CORP.
By: __________________________________
Neal D. Crispin, President
JETFLEET AIRCRAFT, L. P.
By: CMA Capital Group, Inc.
Its: General Partner
By: _______________________
Its: _______________________
JETFLEET AIRCRAFT II, L. P.
By: CMA Capital Group, Inc.
Its: General Partner
By: ________________________
Its: ______________________
11
167
SCHEDULE 3.0
Method of Calculation of Conversion Ratio
Allocation between General and Limited Partners of the Partnerships
12
168
APPENDIX A
FORM OF PARTNERSHIP AMENDMENT
Prospectus/Consent Solicitation - JFI
169
APPENDIX B
CURRENT VALUE APPRAISAL OF PARTNERSHIP'S ASSETS
170
AIRCRAFT INFORMATION SERVICES, INC.
04 February 1997
Mr. Frank Duckstein
CMA Capital Group, Inc.
JetFleet Aircraft, L.P.
JetFleet Aircraft II, L.P.
1440 Chapin Avenue, Suite 310
Burlingame, CA 94010
Subject: AISI Report No. A7D008BVO
AISI Short Form Sight Unseen Base Value Appraisal
Fleet of Seven Selected Aircraft and Seven Engine Types
Reference: Jetfleet Fax Message, 14 January 1997
Dear Mr. Duckstein:
As requested, Aircraft Information Services, Inc. (AISI) is pleased to offer
Jetfleet Management Corporation our opinion of the sight unseen half-life
current market value of your seven aircraft and the 'zero time since
overhauled' current market value of your seven bare engine types as identified
in Table I of this report.
1. METHODOLOGY AND DEFINITIONS
The historical standard term of reference for commercial aircraft or engine
value has been 'half-life fair market value' of an 'average' aircraft or
engine. However, 'fair market value' could mean a fair value in the given
market or a value in a hypothetical 'fair' or balanced market, and the two
definitions are not equivalent. Recently, the term 'base value' has been
created to describe the theoretical balanced market condition and to avoid the
potentially misleading term 'fair market value' which has now become synonymous
with the term 'current market value' or a 'fair' value in the actual current
market. AISI value definitions are consistent with those of the International
Society of Transport Aircraft Trading (ISTAT) of 01 January 1994; AISI is a
member of that organization and employs an ISTAT Certified Senior Aircraft
Appraiser.
AISI defines a 'base value' as that of a transaction between equally willing
and informed buyer and seller, neither under compulsion to buy or sell, for a
single unit cash transaction with no hidden value or liability, and with supply
and demand of the sale item roughly in balance. Base values are typically
given for aircraft or engines in 'new' condition, 'average half-life'
condition, or in a specifically described condition unique to a single aircraft
or engine at a specific time. An 'average' aircraft or engine is an operable
airworthy aircraft or engine in average physical condition and with average
accumulated flight hours and cycles, with clear title and, for aircraft, a
standard unrestricted certificate of airworthiness and registered in an
authority which does not represent a penalty to aircraft value or liquidity;
with no damage history and with inventory configuration and level of
modification which is normal for the aircraft or engine's intended use and age.
AISI assumes average condition unless otherwise specified in this report.
'Half-life' condition assumes that every component or maintenance service which
has a prescribed interval that determines its service life, overhaul interval
or interval between maintenance services, is at a condition which is one- half
of the total interval. AISI defines engine 'zero time since overhaul'
condition to be that of an engine fresh from an engine heavy maintenance shop
visit which overhauled all engine modules or all engine compressor and
combustor/turbine stages as appropriate, with all life-limited components at
half-life.
171
AISI defines a 'current market value' or 'fair market value' as that value
which reflects the real market conditions, whether at, above or below the base
value conditions. Definitions of aircraft or engine condition, buyer/seller
qualifications and type of transaction remain unchanged from that of base
value. Current market value takes into consideration the status of the economy
in which the aircraft or engine is used, the status of supply and demand for
the particular aircraft or engine type, the value of recent transactions and
the opinions of informed buyers and sellers. Current market value assumes that
there is no short term time constraint to buy or sell.
AISI encourages the use of base values only to consider historical trends, as a
basis for long term future value considerations, or to consider how actual
market values vary from theoretical base values. Base values are inappropriate
to determine near term values. AISI encourages the use of current market
values to consider the probable near term value of an aircraft or engine.
AISI determines an 'adjusted market value' by determining the value of known
deviations from half-life condition, which may be better or worse than
half-life condition, and to account for better or worse than average physical
condition, and the inclusion of additional equipment, or absence of standard
equipment.
Given the relatively thin used engine market and the relatively broad range of
values for transactions for an engine type, the meaning of 'base value' for
used engines is open to broad interpretation. Normally base value is derived
from historical normalized current market values with manufacturer's list price
as a start point, while current market value is deduced directly from recent
transactions. For used engines there are seldom sufficient historical
transactions to permit the same derivation of engine base values as is possible
for aircraft base values. In our opinion the used engine market is currently a
relatively hard market, and base value will be close to current market values
for most engine types.
AISI defines a BARE ENGINE as an engine without accessories, but complete with
all air, hydraulic and electrical lines which are not directly part of
accessories. For turboprop engines, a bare engine includes the gas generator
and power or gearbox sections but not the propellor.
AISI defines a BASIC QEC engine as the bare engine plus all accessories,
connecting lines and engine mounts but not including engine inlet cowl, fan
cowl or thrust reverser.
AISI defines a FULL QEC engine as a basic QEC engine plus inlet cowl, fan cowl
and thrust reverser. There will be some variation in full QEC inventory from
engine type to type, and from position to position.
2. VALUATION
The aircraft half-life base values and bare engine zero time since overhaul
base values are presented below in Table I subject to the assumptions,
definitions and disclaimers herein.
172
Table I
================================================================================
AIRCRAFT/ S/N DATE OF CONFIGURATION AIRCRAFT ENGINE ZERO
ENGINE MANUFACTURE HALF LIFE TIME SINCE OVERHAUL
TYPE CURRENT CURRENT MARKET
MARKET VALUE
VALUE 1997 1997 MUSD
MUSD
- ------------------------------------------------------------------------------------------------------------
DHC-7-103 11 1979 Combi 1.86 -
- ------------------------------------------------------------------------------------------------------------
DHC-7-102 44 1981 Passenger 1.35 -
- ------------------------------------------------------------------------------------------------------------
DHC-7-102 57 1981 Passenger 1.35 -
- ------------------------------------------------------------------------------------------------------------
DHC-7-103 72 1982 Combi 1.92 -
- ------------------------------------------------------------------------------------------------------------
DHC-6-300 666 1980 Passenger 0.95 -
- ------------------------------------------------------------------------------------------------------------
Metro III AC576 1983 Passenger 0.83 -
- ------------------------------------------------------------------------------------------------------------
Metro II TC370 1980 Passenger 0.44 -
- ------------------------------------------------------------------------------------------------------------
PT6A-28 - - Bare - 0.20
- ------------------------------------------------------------------------------------------------------------
PT6A-41 - - Bare - 0.29
- ------------------------------------------------------------------------------------------------------------
PT6A-42 - - Bare - 0.30
- ------------------------------------------------------------------------------------------------------------
PT6A-45R - - Bare - 0.29
- ------------------------------------------------------------------------------------------------------------
PT6A-50 - - Bare - 0.33
- ------------------------------------------------------------------------------------------------------------
PT6A-65R - - Bare - 0.34
- ------------------------------------------------------------------------------------------------------------
A250-C30P - - Bare - 0.27
============================================================================================================
This report is offered as a fair and impartial assessment of subject aircraft
and engines based on data supplied by others, with no physical inspection or
verification by AISI. AISI has no past, present nor contemplated future
interest in subject aircraft and engines. This report is an opinion and is for
the sole use of the client/addressee and AISI shall not be liable to any party
for damages arising out of reliance or alleged reliance on it, or for any
parties action or failure to act as a result of reliance or alleged reliance on
this report.
Sincerely,
AIRCRAFT INFORMATION SERVICES, INC.
/s/ Fred E. Bearden
Fred E. Bearden
President
173
APPENDIX C
CALIFORNIA PARTNERSHIP ACT DISSENTERS' RIGHTS PROVISIONS
174
CALIFORNIA REVISED LIMITED PARTNERSHIP ACT
DISSENTERS' RIGHTS PROVISIONS
SECTION 15679.2. LIMITED PARTNERS' RIGHT TO REQUIRE PARTNERSHIPS TO PURCHASE
DISSENTING INTEREST.
(a) If the approval of outstanding limited partnership interests
is required for a limited partnership to participate in a reorganization,
pursuant to the limited partnership agreement of the partnership, or otherwise,
then each limited partner of the limited partnership holding those interests
may by complying with this article, require the limited partnership to purchase
for cash, at its fair market value, the interest owned by the limited partner
in the limited partnership, if the interest is a dissenting interest as defined
in subdivision (b). The fair market value shall be determined as of the day
before the first announcement of the terms of the proposed reorganization,
excluding any appreciation or depreciation in consequence of the proposed
reorganization.
(b) As used in this article, "dissenting interest" means the
interest of a limited partner that satisfies all of the following conditions:
(1) Either:
(A) The interest was not, immediately prior to the reorganization,
either (i) listed on any national securities exchange certified by the
Commissioner of Corporations under subdivision (o) of Section 25100, or (ii)
listed on the list of OTC margin stocks issued by the Board of Governors of the
Federal Reserve System, provided that in either of such instance, the limited
partnership whose outstanding interests are so listed provides, in its notice
to limited partners requesting their approval of the proposed reorganizations,
a summary of the provisions of this section and Sections 15679.3, 15679.4.,
15679.5, and 15679.6.
(B) Demands for payment are filed with respect to 5 percent or
more of the outstanding interests of any class of interests described in clause
(i) or (ii) of subparagraph (A).
(2) Which was outstanding on the date for the determination of
limited partners entitled to vote on the reorganization.
(3) (i) Which was not voted in favor of the reorganization, or
(ii) if the interest is described in clause (i) or (ii) of subparagraph (A) of
paragraph (1), was voted against the reorganization; provided, however, that
clause (i) rather than clause (ii) of this paragraph applies in any event where
the approval for the proposed reorganization is sought by written consent
rather than at a meeting.
(4) Which the limited partner has demanded that the limited
partnership purchase at its fair market value in accordance with Section
15679.3.
(5) Which the limited partner submits for endorsement, if
applicable, in accordance with Section 15679.4.
(c) As used in this article, "dissenting limited partner" means
the record holder of a dissenting interest, and includes an assignee of record
of such an interest.
SECTION 15679.3. PURCHASE OF DISSENTING INTERESTS -- NOTICE OF
REORGANIZATION.
(a) If limited partners have a right under Section 15679.2,
subject to compliance with paragraphs (4) and (5) of subdivision (b) thereof,
to require the limited partnership to purchase their limited partnership
interests for cash, such limited partnership shall mail to each such limited
175
partner a notice of the approval of the reorganization by the requisite vote or
consent of the limited partners, within 10 days after the date of such
approval, accompanied by a copy of this section and Sections 15679.2, 15679.4,
15679.5 and 15679.6, a statement of the price determined by the limited
partnership to represent the fair market value of its outstanding interests,
and a brief description of the procedure to be followed if the limited partner
desires to exercise the limited partner's rights under such sections. The
statement of price constitutes an offer by the limited partnership to purchase
at the price stated any dissenting limited partnership interests as defined in
subdivision (b) of Section 15679.2, unless they lose their status as dissenting
interests under Section 15679.11.
(b) Any limited partner who has a right to require the limited
partnership to purchase the limited partner's interest in cash under Section
15679.2, subject to compliance with paragraphs (4) and (5) of subdivision (b)
thereof, and who desires the limited partnership to purchase such interest,
shall make written demand upon the limited partnership for the purchase of such
interest and the payment to the limited partner in cash of its fair market
value. The demand is not effective for any purpose unless it is received by
the limited partnership or any transfer agent thereof (1) in the case of
interests described in clause (i) or (ii) of subparagraph (A) of paragraph (1)
or subdivision (b) of Section 15679.2, not later than the date of the limited
partners meeting to vote upon the reorganization, or (2) in any other case,
within 30 days after the date on which notice of approval of the reorganization
by the requisite vote or consent of the limed partners is mailed by the limited
partnership to the limited partners.
(c) The demand shall state the number or amount of the limited
partner's interest in the limited partnership and shall contain a statement of
what such limited partner claims to be the fair market value of that interest
on the day before the announcement of the proposed reorganization. The
statement of fair market value constitutes an offer by the limited partner to
sell the interest at such price.
SECTION 15679.4 PURCHASE OF DISSENTING INTERESTS -- SUBMISSION OF LIMITED
PARTNERSHIP INTEREST.
Within 30 days after the date on which notice of the approval of the
outstanding interests of the limited partnership is mailed to the limited
partner pursuant to subdivision (a) of Section 15679.3, the limited partner
shall submit to the limited partnership at its principal office or at the
office of any transfer agent thereof, (a) if the interest is evidenced by a
certificate, the limited partner's certificate representing the interest which
the limited partner demands that the limited partnership purchase, to be
stamped for endorsed with a statement that the interest is a dissenting
interest or to be exchanged for certificates of appropriate denominations so
stamped or endorsed, or (b) if the interest is not evidenced by a certificate,
written notice of the number or amount of interest which the limited partner
demands that the limited partnership purchase. Upon subsequent transfers of
the dissenting interest on the books of the limited partnership, the new
certificates or other written statement issued thereof shall bear a like
statement, together with the name of the original holder of the dissenting
interest.
SECTION 15679.5. AGREEMENT ON PURCHASE OF DISSENTING LIMITED PARTNERSHIP
INTEREST.
(a) If the limited partnership and the dissenting limited partner
agree that such limited partner's interest is a dissenting interest and agree
upon the price to be paid for he dissenting interest, the dissenting limited
partner is entitled to the agreed price with interest thereon at the legal rate
on judgments from the date of consummation of the reorganization. All
agreements fixing the fair market value of any dissenting limited partner's
interest as between the limited partnership and such limited partner shall be
in writing and filed in the records of the limited partnership.
176
(b) Subject to the provisions of Section 15679.8, payment of the
fair market value for a dissenting interest shall be made in writing 30 days
after the amount thereof has been agreed or within 30 days after any statutory
or contractual conditions to the reorganization are satisfied, whichever is
later, and in the case of dissenting interests evidenced by certificates of
interest, subject to surrender of such certificate of interest, unless provided
otherwise by agreement.
15679.6. DISAGREEMENT OF PURCHASE OF DISSENTING LIMITED PARTNERSHIP INTEREST
-- JUDICIAL RELIEF.
(a) If the limited partnership denies that a limited partnership
interest is a dissenting interest, or the limited partnership and a dissenting
limited partner fail to agree upon the fair market value of a dissenting
interest, then such limited partner or any interested limited partnership,
within six months after the date on which notice of the approval of the
reorganization by the requisite vote or consent of the limited partners was
mailed to the limited partner, but not thereafter, may file a complaint in the
superior court to determine whether the interest is a dissenting interest, or
the fair market value of the dissenting interest, or both, or may intervene in
any action pending on such a complaint.
(b) Two or more dissenting limited partners may join as plaintiffs
or be joined as defendants in any such action and two or more such actions may
be consolidated.
(c) On the trial of the action, the court shall determine the
issues. If the status of the limited partnership interest as a dissenting
interest is in issue, the court shall first determine that issue. If the fair
market value of the dissenting interest is in issue, the court shall determine,
or shall appoint one or more impartial appraisers to determine, the fair market
value of the dissenting interest.
177
APPENDIX D
FORMS OF CONSENT
178
JETFLEET AIRCRAFT, L.P.
SOLICITATION OF REVOCABLE CONSENT
The undersigned hereby votes his/her units as follows:
TO APPROVE THE CONSOLIDATION OF JETFLEET AIRCRAFT, L.P., A CALIFORNIA
LIMITED PARTNERSHIP, WITH AND INTO AEROCENTURY CORP., A NEWLY ORGANIZED
DELAWARE CORPORATION INCLUDING THE AGREEMENT AND PLAN OF MERGER DATED AS
OF _______________, 1997, AND THE RELATED AMENDMENTS TO THE JETFLEET
AIRCRAFT, L.P. PARTNERSHIP AGREEMENT AS SET FORTH IN THE PROSPECTUS
DATED __________, 1997.
YES [ ] NO [ ] ABSTAIN [ ]
(To be completed and signed on the reverse side)
================================================================================
(Continued from other side)
INVESTORS WHO SIGN AND RETURN THE CONSENT CARD WITHOUT INDICATING A VOTE
WILL BE DEEMED TO HAVE VOTED "YES" IN FAVOR OF THE PROPOSAL SET FORTH. Please
sign exactly as your name appears. When partnership units are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
provide full corporate name and name and capacity of the authorized officer
signing on behalf of such corporation. If a partnership, please provide
partnership name and name and capacity of the person signing on behalf of such
partnership.
Dated:__________________, 1997
____________________________
Signature (and Title, if applicable)
____________________________
Signature, if held jointly
THE GENERAL PARTNER REQUESTS THAT EACH INVESTOR COMPLETE AND SIGN THE ENCLOSED
CONSENT CARD.
179
AEROCENTURY CORP.
SUPPLEMENT
TO
PROSPECTUS/CONSENT SOLICITATION STATEMENT
DATED ________________, 1997
FOR
JETFLEET AIRCRAFT, L.P.
As described in detail in the Prospectus/Consent Solicitation
Statement (this "Prospectus") which this Supplement accompanies, CMA Capital
Group, L.P. (the "Corporate General Partner"), as corporate general partner,
and Neal D. Crispin and Richard D. Koehler, Jr., as individual general partners
(all three general partners collectively referred to herein as the "General
Partner") of JetFleet Aircraft, L.P. ("JetFleet I") and JetFleet Aircraft II,
L.P. ("JetFleet II") (collectively, the "Partnerships") are proposing a
consolidation by merger (the "Consolidation") of JetFleet I and JetFleet II,
with and into AeroCentury Corp., a newly organized Delaware corporation (the
"Company"). Upon completion of the Consolidation, JetFleet I will have been
merged with and into the Company and the limited partner investors
("Investors") of JetFleet I will receive Common Stock of the Company ("Common
Stock"). The number of Shares issuable to each Partnership shall be calculated
using an exchange value (the "Exchange Value") assigned to the Partnerships
based primarily upon an independent appraisal of JetFleet I's assets. The
Company has applied to have the Common Stock listed on the American Stock
Exchange ("Amex"), subject to official notice of issuance.
The General Partner believes the Consolidation will give JetFleet I
Investors the opportunity to own securities with potentially greater liquidity
than the limited partnership interests ("Units"") held by Investors and to
participate in a significantly larger company with a more diverse asset base,
potentially greater access to capital and a greater ability to respond to the
demand for equipment financing in the Partnerships' existing niche market, used
turboprop aircraft leased by the regional air carriers than the Partnerships.
Upon completion of the Consolidation, the Company will continue in the aircraft
leasing business and will use debt and equity financing to acquire additional
aircraft assets on lease.
A JetFleet I Investor who votes "YES" will receive Common Stock of the
Company, if the majority of JetFleet I Investors approve the Consolidation and
JetFleet I and the Company consummate the Consolidation. A "YES" vote will
also constitute approval of certain amendments to the JetFleet I's Partnership
Agreement necessary to effect the Consolidation on the terms set forth in the
form of Amendment attached as Appendix A to this Supplement. An Investor who
abstains from voting or votes "NO" will receive Shares of Common Stock if (i)
the majority of JetFleet I Investors approve the Consolidation and (ii) all
other conditions for the consummation of the Consolidation of JetFleet I and
the Company are satisfied, unless he or she exercises dissenters' rights. See
"DISSENTERS' RIGHTS". If the majority of JetFleet I Investors do not approve
the Consolidation, the Consolidation between the Company and JetFleet I will
not occur, and JetFleet I will continue its existence in its current form. If
the Investors of JetFleet II approve the Consolidation, but the Investors in
JetFleet I do not approve the Consolidation, the Consolidation may be
consummated between the Company and JetFleet II only. If, however, a majority
of JetFleet II Investors do not approve the Consolidation, the Consolidation
will not be consummated, regardless of the approval or non-approval of the
Consolidation by JetFleet I Investors.
This Supplement has been prepared to highlight for the Existing
Investors in JetFleet, the effects and fairness of the Consolidation with
respect to their Units and to provide information on
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the Partnership. A supplement has also been prepared for JetFleet II and will
be provided promptly without charge to each JetFleet I Investor upon written
request by such Existing Investor or by his or her representative who has been
so designated in writing. All such requests should be directed to CMA Capital
Group, Inc., General Partner, 1440 Chapin Ave., Suite 310, Burlingame,
California 94010.
Capitalized terms not defined herein shall have the meaning set forth
in the Prospectus/Consent Solicitation Statement.
RISK FACTORS
The Consolidation involves certain risks and other adverse factors
which are discussed in detail in the Prospectus dated __________, 1997, which
accompanies this Supplement. See "RISK FACTORS" in the Prospectus. Because
all of the risks and adverse factors described in the Prospectus apply to the
effect of the Consolidation on each of the Partnerships, Investors in JetFleet
I should carefully review the section entitled "RISK FACTORS" therein. There
are no material differences in the manner in which JetFleet I or any other
Partnership will be affected by any of the risks or adverse factors discussed
in such "RISK FACTORS" section.
JETFLEET I CONSIDERATIONS
JetFleet I currently owns approximately aircraft assets with an
appraised value as of February 4, 1997, of $1.9 million, consisting of
undivided interests in two Dash-7 aircraft and a 50% interest in a finance
lease on a DC-9 aircraft. Each of these assets is already co-owned with
JetFleet II. By combining with JetFleet II, which has aircraft assets with an
appraised value of approximately $14.5 million, into the Company, Investors
will become equity owners in a significantly larger business, with a broader
and more diverse group of assets. In addition, the Shares of the Company will
have potentially greater liquidity than the Units, as the Company has applied
to list the Common Stock of the Company on the American Stock Exchange. The
General Partner believes that the Consolidation will provide JetFleet I
Investors with an opportunity to diversify their asset holdings while at the
same time increasing the potential liquidity of their investment. THE GENERAL
PARTNER STRONGLY RECOMMENDS THAT ALL INVESTORS VOTE "YES" IN FAVOR OF THE
CONSOLIDATION.
DETERMINATION OF THE EXCHANGE VALUES AND ALLOCATION OF SHARES BETWEEN
PARTNERSHIPS
The number of shares to be issued to JetFleet I Investors in the
Consolidation will be based upon an exchange value assigned to JetFleet I. The
Exchange Value was determined based on the value of aircraft asset held by
JetFleet I, as determined by an independent appraisal as of February 4, 1997,
and the projected cash, other asset and liability positions of JetFleet I as of
July 1, 1997 (the anticipated date of consummation of the Consolidation). An
Exchange Value was similarly determined for JetFleet II. The Exchange Values
have been assigned solely to establish a consistent method of allocating Shares
for purposes of the Consolidation. The Exchange Values of the Partnerships do
not indicate the aggregate price at which Shares may be sold after the
Consolidation, nor does the number of Shares to be issued indicate the trading
price of the Common Stock. See "RISK FACTORS" in the Prospectus. The number
of Shares to be issued to JetFleet I upon consummation of the Consolidation
will equal the Exchange Value of the JetFleet I divided by $10, an arbitrary
amount chosen for the sole purpose of determining the number of Shares of
Common Stock to be issued to each Partnership. No fractional Shares will be
issued by the Company with respect to the Consolidation.
The Exchange Value for JetFleet I is an amount equal to the sum of (i)
the appraised market value of its aircraft assets as of February 4, 1997, (ii)
the present value of rental income owed to the Partnership on a full payout
finance lease for a DC-9 aircraft owned jointly by JetFleet I and
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JetFleet II and (iii) projected cash and other assets as of the anticipated
date of consummation of the Consolidation, July 1, 1997 (the "Anticipated
Consummation Date"), less (iv) projected total liabilities of each Partnership
as of the Anticipated Consummation Date.
Market Value Discounted Other Total Exchange No of.
of Assets(1) DC-9 Rent(2) Assets(3) Liabilities(4) Value Shares (5)
---------- --------- ------ ----------- ----- -------
JetFleet I $ 1,762,554 $ 144,543 $107,490 $651,080 $1,363,507 136,351
_________________________
(1) Based upon the market value of the assets as set forth in the Appraisal of
Aircraft Information Services, dated February 4, 1997, for each Partnership.
(2) JetFleet I holds a 50% interests in a DC-9 aircraft, on a full-payout
finance lease to AeroCalifornia. The other 50% interest is owned by JetFleet
II. The amount shown in this column represents the Partnership's portion of
the present value of the rent payable to the Partnership, discounted at an
annual rate of 10%, which reflects the Company's assessment of the cost of
funds which would be available to the Partnership for borrowing.
(3) Consists mainly of projected cash holdings and miscellaneous receivables.
(4) Consists primarily of deferred tax liabilities, accounts payable, accrued
maintenance costs and security deposits and prepaid rents.
(5) Exchange Value divided by $10.
If a material difference in any of the asset or liability positions of
either Partnership used to calculate the Exchange Value of the Partnership as
set forth above is discovered on or before the Effective Time of the
Consolidation, the General Partner and such difference exceeds 5% of the
Exchange Value, then the General Partner shall adjust the Exchange Value to
take such difference into account. The General Partner may, in its sole
discretion, adjust the Exchange Value of a Partnership to take into account the
cash-out of dissenting Investors in that Partnership. Any adjustment in excess
of 5% of the Partnership's Exchange Value will require the consent of the
Participating Investors who will be notified and given a reasonable time period
to revoke his or her approval of the Consolidation. If a Participating
Investor fails to indicate a change of vote in the allotted time period, and
his or her approval vote on the Consolidation will be unchanged.
ALLOCATION OF SHARES BETWEEN GENERAL PARTNER AND LIMITED PARTNER
The table below shows how the Shares to be distributed to JetFleet I
are to be allocated between the General Partner and the limited partner
Investors.
Total Shares No. of Shares No. Of Percent of Total
Allocated to Issued to Shares Issued Shares Issued
Partnership Partnership(1) Corporate General Partner(2)to Ltd. Partners to Ltd. Partner
- ----------- -------------- -------------------------- ---------------- ----------------
JetFleet I 136,351 1,364 134,987 99.0%
_________________________
(1) The number of Shares to be issued to JetFleet I upon consummation of the
Consolidation will equal the Exchange Value of JetFleet I (last column of the
previous table entitled "Determination of Allocation of Shares Between
Partnerships") divided by $10, an arbitrary amount chosen for the sole purpose
of allocating Shares and which is not intended to imply that the Shares will
trade at a price of $10 per Share.
(2) Represents the Corporate General Partner's 1% general partnership interest
in JetFleet I, for which the Corporate General Partner paid $750 in cash at the
organization of JetFleet I, according to the Partnership Agreement for JetFleet
I and JetFleet II respectively.
CONVERSION RATIO
At the consummation of the Consolidation, each Participating
Investor's limited partnership Units will be automatically converted into the
right to receive that number of Shares of Common
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Stock of the Company equal to the number of Units held by the Investor
multiplied by the Conversion Ratio, rounded to the nearest whole Share. The
Conversion Ratio shall equal the quotient obtained by dividing (a) the number
of Shares allocated to be issued to the Investors of the Partnership; by (b)
the total number of Units of limited partnership outstanding for the
Partnership held by Participating Investors. The Conversion Ratio for JetFleet
I shall be ____ Shares per Unit.
VOTING
Participation in the Consolidation by JetFleet I requires the approval
of Investors holding a majority of the outstanding Units of JetFleet I. The
Prospectus along with this Supplement constitutes the solicitation of the
approval of the JetFleet I Investors to the Consolidation, including all such
actions required by JetFleet I to consummate the Consolidation. Each Investor
is being asked by the General Partner to consider the following elections with
respect to the Consolidation:
"YES" I approve of my Partnership's participation in the
Consolidation; or
"NO" I do not approve of my Partnership's participation in the
Consolidation.
Investors may also abstain from voting. Upon completion of the
enclosed Consent Card, an Investor should send it to the General Partner at
____________________________.
AN INVESTOR WHO RETURNS A CONSENT CARD WITHOUT INDICATING A VOTE, HOWEVER,
WILL BE DEEMED TO HAVE VOTED "YES" IN FAVOR OF THE CONSOLIDATION AND RELATED
PROPOSALS AND WILL RECEIVE SHARES OF COMMON STOCK OF THE COMPANY IF THE
CONSOLIDATION IS CONSUMMATED BETWEEN THE COMPANY AND THE INVESTOR'S
PARTNERSHIP.
An Investor of a Partnership who votes "YES" will receive Common Stock
of the Company, if the majority of Investors in JetFleet I and JetFleet II
approve the Consolidation and the Partnerships and the Company consummate the
Consolidation. An Investor who abstains from voting or votes "NO" on the
Consolidation will receive Shares of Common Stock if the majority of Investors
in JetFleet I and JetFleet II approve the Consolidation and the Partnership and
the Company consummate the Consolidation, unless he or she exercises
dissenters' rights.See "Dissenters' Rights". If the majority of Investors of
JetFleet I do not approve the Consolidation, the Consolidation between the
Company and JetFleet I will not occur, and such Partnership will continue its
existence in its current form. Notwithstanding the nonapproval of the
Consolidation between JetFleet I and the Company, if the JetFleet II Investors
approve the Consolidation, then the Company may consummate the Consolidation
without JetFleet I. The Consolidation, however, will not be consummated
between the Company and JetFleet I without the participation of JetFleet II.
Investors holding Units of the Partnerships as of May 1, 1997 (the
"Record Date") have until June 30, 1997, 11:59 p.m. Pacific Standard Time,
unless extended (the "Approval Date") to vote in favor of or against the
consolidation. Investors may withdraw or revoke their consent at any time
prior to the Approval Date. See "VOTING--Voting Procedures--Revocability of
Consent."
AMENDMENTS TO PARTNERSHIP AGREEMENTS
The JetFleet I Partnership Agreement does not specifically address the
merger of the Partnerships or the conversion of equity securities for Units.
Therefore, the General Partner is requesting the consent of Investors to amend
the Partnership Agreements to include specific provisions regarding the
Consolidation. Because the JetFleet I Partnership Agreement also does
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not address dissenters' rights, the amendments memorialize the dissenters'
rights set forth in the Prospectus, which must be in compliance with the
California Partnership Act. The amendments also provide for a uniform
dissenters' rights procedures for both JetFleet I and JetFleet II Investors.
By voting "YES" in favor of the Consolidation, an Investor will also have
approved the proposed amendments to JetFleet I Partnership Agreement (the
"Amendment") attached in the form of Appendix A hereto.
DISSENTERS' RIGHTS
Any JetFleet I Investor that does not vote "YES" on the Consolidation,
will be entitled to exercise dissenters' or appraisal rights, if JetFleet I
participates in the Consolidation and the Investor follows specific procedures
set forth under the California Revised Limited Partnership Act ("California
Partnership Act"). See "DISSENTERS' RIGHTS" in the Prospectus.
APPENDICES
Appendix A - Form of Partnership Amendment.
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APPENDIX A
FORM OF PARTNERSHIP AMENDMENT
185
AMENDMENT TO
AMENDED AND RESTATED PARTNERSHIP AGREEMENT
This Amendment to Amended and Restated Partnership Agreement is
entered into as of __________, 1997, by and among CMA Capital Group, Inc., a
California corporation ("Managing General Partner"), Neal D. Crispin and
Richard D. Koehler as individual general partners (the Managing General
Partner and the individual general partners collectively, the "General
Partners"), and CMA Capital Group, Inc, as attorney-in-fact for the limited
partners listed on Appendix A, who constitute holders of a majority of the
outstanding Units, to amend that certain Amended and Restated Partnership
Agreement of JetFleet Aircraft, L.P. ("JetFleet I"), made and executed as of
May 19, 1989 between the parties hereto (the "Partnership Agreement").
Capitalized terms not otherwise defined herein, shall have the meaning as set
forth in the Partnership Agreement.
RECITALS
Pursuant to the Partnership Agreement, JetFleet I was organized under
California law in May 1989.
The General Partner has proposed a consolidation (the "Consolidation")
of JetFleet I and its affiliated partnership, JetFleet Aircraft II, L.P.
("JetFleet II") with and into a newly-formed successor Delaware corporation,
AeroMax, Inc., pursuant to the terms and conditions of a certain Merger
Agreement by and between AeroMax, JetFleet I and JetFleet II. The General
Partner has solicited the requisite approval of the limited partners of
JetFleet I to participate in the Consolidation as more fully described in that
certain Prospectus/Consent Solicitation Statement, dated _____, 1997 (the
"Prospectus"). As part of the approval, the limited partners approved
amendments to the Partnership Agreement to enable the Consolidation.
NOW, THEREFORE, the parties hereto agree as follows:
1. Approval of the Consolidation. Upon receipt of the approval
of holders of a majority of the outstanding Units of limited partnership
interest of JetFleet I, the General Partner is authorized to executed, deliver
and perform all obligations of the Partnership under the Merger Agreement and
all other documents and agreements required to be delivered by the Partnership
in connection therewith. Any inconsistent provisions of the Partnership
Agreement are hereby amended to permit the Consolidation to be consummated.
2. Dissenters' Rights. Notwithstanding anything to the contrary
contained in the Partnership Agreement, limited partners that did not vote in
favor of the Consolidation and follow certain procedures set forth in the
Prospectus shall have the dissenters' rights as set forth in the Prospectus,
which dissenters' rights shall comply with the requirements of the California
Partnership Act.
3. Termination of the Partnership. Upon the effectiveness of the
Consolidation, the separate existence of the JetFleet I shall cease, and the
limited partners of the Partnership shall have the right to receive Common
Stock of AeroMax, Inc., all as set forth in the Prospectus.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first-above written:
CMA CAPITAL GROUP, INC.
------------------------------
Neal D. Crispin
By:
------------------------------
Richard D. Koehler
------------------------------
Richard D. Koehler
186
LIMITED PARTNERS listed on
Appendix A
By: CMA Capital Group, Inc.
Attorney-in-fact
- ----------------------------------
Richard D. Koehler, President
187
APPENDIX A
List of Approving Limited Partners No. of Units Held
- ---------------------------------- -----------------
Total Units:
==========
188
AEROCENTURY CORP.
SUPPLEMENT
TO
PROSPECTUS/CONSENT SOLICITATION STATEMENT
DATED ________________, 1997
FOR
JETFLEET AIRCRAFT II, L.P.
As described in detail in the Prospectus/Consent Solicitation
Statement (this "Prospectus") which this Supplement accompanies, CMA Capital
Group, L.P. (the "Corporate General Partner"), as corporate general partner,
and Neal D. Crispin and Richard D. Koehler, Jr., as individual general partners
(all three general partners collectively referred to herein as the "General
Partner") of JetFleet Aircraft, L.P. ("JetFleet I") and JetFleet Aircraft II,
L.P. ("JetFleet II") (collectively, the "Partnerships") are proposing a
consolidation by merger (the "Consolidation") of JetFleet I and JetFleet II,
with and into Aerocentury Corp., a newly organized Delaware corporation (the
"Company"). Upon completion of the Consolidation, JetFleet II will have been
merged with and into the Company and the limited partner investors
("Investors") of JetFleet II will receive Common Stock of the Company ("Common
Stock"). The number of Shares issuable to each Partnership shall be calculated
using an exchange value (the "Exchange Value") assigned to the Partnerships
based primarily upon an independent appraisal of JetFleet II's assets. The
Company has applied to have the Common Stock listed on the American Stock
Exchange ("Amex"), subject to official notice of issuance.
The General Partner believes the Consolidation will give JetFleet II
Investors the opportunity to own securities with potentially greater liquidity
than the limited partnership interests ("Units"") held by Investors and to
participate in a company with a greater ability to respond to the demand for
equipment financing in the Partnerships' existing niche market, used turboprop
aircraft leased by the regional air carriers than the Partnerships. Upon
completion of the Consolidation, the Company will continue in the aircraft
leasing business and will use debt and equity financing to acquire additional
aircraft assets on lease.
A JetFleet II Investor who votes "YES" will receive Common Stock of
the Company, if the majority of JetFleet II Investors approve the Consolidation
and JetFleet II and the Company consummate the Consolidation. A "YES" vote
will also constitute approval of certain amendments to the JetFleet II's
Partnership Agreement necessary to effect the Consolidation on the terms set
forth in the form of Amendment attached as Appendix A to this Supplement. An
Investor who abstains from voting or votes "NO" will receive Shares of Common
Stock if (i) the majority of JetFleet II Investors approve the Consolidation
and (ii) all other conditions for the consummation of the Consolidation of
JetFleet II and the Company are satisfied, unless he or she exercises
dissenters' rights. See "DISSENTERS' RIGHTS".
If the JetFleet II Investors approve the Consolidation, but the
Investors in JetFleet I do not approve the Consolidation, the Consolidation may
be consummated between the Company and JetFleet II only. In determining
whether to proceed with a Consolidation with JetFleet II only, the Company will
determine whether the number of dissenting Investors, the number of
Participating Investors and the asset base of JetFleet II alone will provide a
sufficient basis for the Company to meet its objectives and satisfy all the
conditions for the Consolidation set forth in the Merger
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Agreement. If, however, a majority of JetFleet II Investors do not
approve the Consolidation, the Consolidation will not be consummated,
regardless of the approval or non-approval of the Consolidation by JetFleet I
Investors. JetFleet II Investors will not be able to condition their approval
of the Consolidation on the participation of JetFleet I.
This Supplement has been prepared to highlight for the Investors in
JetFleet the effects and fairness of the Consolidation with respect to their
Units and to provide information on the Partnership. A supplement has also
been prepared for JetFleet I and will be provided promptly without charge to
each JetFleet II Investor upon written request by such Existing Investor or by
his or her representative who has been so designated in writing. All such
requests should be directed to CMA Capital Group, Inc., General Partner, 1440
Chapin Ave., Suite 310, Burlingame, California 94010.
Capitalized terms not defined herein shall have the meaning set forth
in the Prospectus/Consent Solicitation Statement.
RISK FACTORS
The Consolidation involves certain risks and other adverse factors
which are discussed in detail in the Prospectus dated __________, 1997, which
accompanies this Supplement. See "RISK FACTORS" in the Prospectus. Because
all of the risks and adverse factors described in the Prospectus apply to the
effect of the Consolidation on each of the Partnerships, Investors in JetFleet
I should carefully review the section entitled "RISK FACTORS" therein. Except
as set forth herein, there are no material differences in the manner in which
JetFleet II or JetFleet I will be effected by any of the risks or adverse
factors discussed in such "RISK FACTORS" section.
JETFLEET II CONSIDERATIONS
JetFleet II currently owns approximately aircraft assets with an
appraised value as of February 4, 1997, of $14.5 million. Of those assets,
undivided interests in aircraft assets with an approximate appraised value of
$4.1 are co-owned with JetFleet I, including two Dash-7 Aircraft. By combining
with JetFleet I, which has aircraft assets with an appraised value of
approximately $1.9 million (consisting entirely of assets co-owned with
JetFleet II), into the Company, Investors will become equity owners in a
slightly larger business, which will have total control and ownership over all
of its assets. In addition, the Shares of the Company will have potentially
greater liquidity than the Units, as the Company has applied to list the Common
Stock of the Company on the American Stock Exchange. The General Partner
believes that the Consolidation will provide JetFleet II investors with an
opportunity to diversify and gain total control of its asset holdings while at
the same time increasing the potential liquidity of their investment in the
aircraft industry. THE GENERAL PARTNER STRONGLY RECOMMENDS THAT ALL INVESTORS
VOTE "YES" IN FAVOR OF THE CONSOLIDATION.
PRO FORMA FINANCIAL STATEMENTS FOR A JETFLEET II - ONLY CONSOLIDATION
The General Partner believes that the Consolidation would still
benefit JetFleet II Investors and be fair to JetFleet II and its Investors even
if JetFleet I does not participate. Attached as Appendix B to this Supplement
are Pro-forma financial statements showing the effect of a combination of
JetFleet II and the Company only.
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DETERMINATION OF THE EXCHANGE VALUES AND ALLOCATION OF SHARES BETWEEN
PARTNERSHIPS
The number of shares to be issued to JetFleet II Investors in the
Consolidation will be based upon an exchange value assigned to JetFleet II.
The Exchange Value was determined based on the value of aircraft asset held by
JetFleet II, as determined by an independent appraisal as of February 4, 1997,
and the projected cash, other asset and liability positions of JetFleet II as
of July 1, 1997 (the anticipated date of consummation of the Consolidation).
An Exchange Value was similarly determined for JetFleet II. The Exchange
Values have been assigned solely to establish a consistent method of allocating
Shares for purposes of the Consolidation. The Exchange Values of the
Partnerships do not indicate the aggregate price at which Shares may be sold
after the Consolidation, nor does the number of Shares to be issued indicate
the trading price of the Common Stock. See "RISK FACTORS" in the Prospectus.
The number of Shares to be issued to JetFleet II upon consummation of the
Consolidation will equal the Exchange Value of the JetFleet II divided by $10,
an arbitrary amount chosen for the sole purpose of determining the number of
Shares of Common Stock to be issued to each Partnership. No fractional Shares
will be issued by the Company with respect to the Consolidation.
The Exchange Value for JetFleet II is an amount equal to the sum of
(i) the appraised market value of its aircraft assets as of February 4, 1997,
(ii) the present value of rental income owed to the Partnership on a full
payout finance lease for two DC-9 aircraft, one owned jointly by JetFleet I and
JetFleet II and one owned entirely by JetFleet I and (iii) projected cash and
other assets as of the anticipated date of consummation of the Consolidation,
July 1, 1997 (the "Anticipated Consummation Date"), less (iv) projected total
liabilities of each Partnership as of the Anticipated Consummation Date.
Market Value Discounted Other Total Exchange No of.
of Assets(1) DC-9 Rent(2) Assets(3) Liabilities(4) Value Shares (5)
------------ --------- ------ ----------- ----- -------
JetFleet II $13,927,446 $622,178 $731,304 $1,994,932 $13,285,996 1,328,600
_________________________
(1) Based upon the market value of the assets as set forth in the Appraisal of
Aircraft Information Services, dated February 4, 1997, for each Partnership.
(2) JetFleet II holds one DC-9 aircraft and a 50% interests in another DC-9
aircraft, on a full-payout finance lease to AeroCalifornia. The other 50%
interest in the second aircraft is owned by JetFleet II. The amount shown in
this column represents the Partnership's portion of the present value of the
rent payable to the Partnership, discounted at an annual rate of 10%. The 10%
discount rate reflects the Company's assessment of the cost of funds which
would be available to the Partnership for borrowing.
(3) Consists mainly of projected cash holdings and miscellaneous receivables.
(4) Consists primarily of deferred tax liabilities, accounts payable, accrued
maintenance costs and security deposits and prepaid rents.
(5) Exchange Value divided by $10.
If a material difference in any of the asset or liability positions of
either Partnership used to calculate the Exchange Value of the Partnership as
set forth above is discovered on or before the Effective Time of the
Consolidation, the General Partner and such difference exceeds 5% of the
Exchange Value, then the General Partner shall adjust the Exchange Value to
take such difference into account. The General Partner may, in its sole
discretion, adjust the Exchange Value of a Partnership to take into account the
cash-out of dissenting Investors in that Partnership. Any adjustment in excess
of 5% of the Partnership's Exchange Value will require the consent of the
Participating Investors who will be notified and given a reasonable time period
to revoke his or her
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approval of the Consolidation. If a Participating Investor fails to indicate
a change of vote in the allotted time period, and his or her approval vote on
the Consolidation will be unchanged.
ALLOCATION OF SHARES BETWEEN GENERAL PARTNER AND LIMITED PARTNER
The table below shows how the Shares to be distributed to JetFleet I
are to be allocated between the Corporate General Partner and the limited
partner Investors.
Total Shares No. Of Shares No. Of Percent of Total
Allocated to Issued to Shares Issued Shares Issued
Partnership Partnership(1) Corporate General Partner(2)to Ltd. Partners to Ltd. Partner
- ----------- -------------- -------------------------- ---------------- ----------------
JetFleet II 1,328,600 66,429 1,262,171 95.0%
- -------------------------
(1) The number of Shares to be issued to JetFleet II upon consummation of the
Consolidation will equal the Exchange Value of JetFleet II (last column of the
previous table entitled "Determination of Allocation of Shares Between
Partnerships") divided by $10, an arbitrary amount chosen for the sole purpose
of allocating Shares and which is not intended to imply that the Shares will
trade at a price of $10 per Share.
Represents the Corporate General Partner's 5% general partnership interest
in JetFleet I, for which the Corporate General Partner paid $750 in cash at the
organization of JetFleet II, according to the Partnership Agreement for
JetFleet II respectively. In addition to its 5% interest in any distributions
made by JetFleet II, the Corporate General Partner of JetFleet II is also
entitled to a subordinated disposition fee equal to one half of the industry
standard commission ordinarily paid in such transactions, up to a maximum of 3%
of the gross sales price of any assets disposed by JetFleet II. The Corporate
General Partner will waive this fee in connection with the Consolidation.
CONVERSION RATIO
At the consummation of the Consolidation, each Participating
Investor's limited partnership Units will be automatically converted into the
right to receive that number of Shares of Common Stock of the Company equal to
the number of Units held by the Investor multiplied by the Conversion Ratio,
rounded to the nearest whole Share. The Conversion Ratio shall equal the
quotient obtained by dividing (a) the number of Shares allocated to be issued
to the Investors of the Partnership; by (b) the total number of Units of
limited partnership outstanding for the Partnership held by Participating
Investors. Assuming 100% participation for all Investors in the Consolidation,
the Conversion Ratio for JetFleet II shall be ____ Shares per Unit.
VOTING
Participation in the Consolidation by JetFleet II requires the
approval of Investors holding a majority of the outstanding Units of JetFleet
II. The Prospectus along with this Supplement constitutes the solicitation of
the approval of the JetFleet II Investors to the Consolidation, including all
such actions required by JetFleet I to consummate the Consolidation. Each
Investor is being asked by the General Partner to consider the following
elections with respect to the Consolidation:
"YES" I approve of my Partnership's participation in the
Consolidation; or
"NO" I do not approve of my Partnership's participation in the
Consolidation.
Investors may also abstain from voting. Upon completion of the
enclosed Consent Card, an Investor should send it to the General Partner at
____________________________.
4
192
AN INVESTOR WHO RETURNS A CONSENT CARD WITHOUT INDICATING A VOTE, HOWEVER, WILL
BE DEEMED TO HAVE VOTED "YES" IN FAVOR OF THE CONSOLIDATION AND RELATED
PROPOSALS AND WILL RECEIVE SHARES OF COMMON STOCK OF THE COMPANY IF THE
CONSOLIDATION IS CONSUMMATED BETWEEN THE COMPANY AND THE INVESTOR'S PARTNERSHIP.
An Investor of a Partnership who votes "YES" will receive Common Stock
of the Company, if the majority of Investors in JetFleet I and JetFleet II
approve the Consolidation and the Partnerships and the Company consummate the
Consolidation. An Investor who abstains from voting or votes "NO" on the
Consolidation will receive Shares of Common Stock if the majority of Investors
in JetFleet I and JetFleet II approve the Consolidation and the Partnership and
the Company consummate the Consolidation, unless he or she exercises
dissenters' rights. If the majority of Investors of JetFleet II do not approve
the Consolidation, the Consolidation between the Company and JetFleet II will
not occur, and JetFleet II will continue its existence in its current form.
Notwithstanding the nonapproval of the Consolidation between JetFleet I and the
Company, if the JetFleet II Investors approve the Consolidation, then the
Company may consummate the Consolidation without JetFleet I. The
Consolidation, however, will not be consummated between the Company and
JetFleet I without the participation of JetFleet II.
AMENDMENTS TO PARTNERSHIP AGREEMENT
The JetFleet II Partnership Agreement does not specifically address
the merger of the Partnerships or the conversion of equity securities for
Units. Therefore, the General Partner is requesting the consent of Investors
to amend the Partnership Agreements to include specific provisions regarding
the Consolidation. The amendments also provide for a uniform dissenters'
rights procedures for both JetFleet I and JetFleet II Investors. By voting
"YES" in favor of the Consolidation, an Investor will also have approved the
proposed amendments to JetFleet II Partnership Agreement (the "Amendment")
attached in the form of Appendix A hereto.
The Amendment changes certain amendments to the Partnership Agreement
made by the General Partner in 1993 in response to certain blue sky regulatory
requirements ("Rollup Provisions"). The Amendment amends the rollup provisions
of the Partnership Agreement to make their dissenters' rights provisions
consistent with the statutory dissenters' rights provisions under the
California Partnership Act (to which JetFleet I investors will be subject).
The Partnership Agreement provides that any person who votes "NO" on the
Consolidation is entitled to dissenters' rights. To make the dissenters'
rights provisions consistent with California law, dissenters' rights will be
available to any Investor that does not vote "YES" on the Consolidation.
DISSENTERS' RIGHTS
Any JetFleet II Investor that does not vote "YES" on the
Consolidation, will be entitled to exercise dissenters' or appraisal rights, if
JetFleet II participates in the Consolidation and the Investor follows specific
procedures set forth under the California Revised Limited Partnership Act
("California Partnership Act"). See "DISSENTERS' RIGHTS" in the Prospectus"
and "Amendment to Partnership Agreement," above.
APPENDICES
Appendix A -- Form of Partnership Amendment
Appendix B -- Pro Forma Financial Information
5
193
APPENDIX A
FORM OF PARTNERSHIP AMENDMENT
194
AMENDMENT TO
LIMITED PARTNERSHIP AGREEMENT
This Amendment to Limited Partnership Agreement is entered into as of
__________, 1997, by and among CMA Capital Group, Inc., a California
corporation ("Managing General Partner"), Neal D. Crispin and Richard D.
Koehler as individual general partners (the Managing General Partner and the
individual general partners collectively, the "General Partners"), and CMA
Capital Group, Inc, as attorney-in-fact for the limited partners listed on
Appendix A, who constitute holders of a majority of the outstanding Units, to
amend that certain Amended and Restated Partnership Agreement of JetFleet
Aircraft II, L.P. ("JetFleet II"), made and executed as of June 21, 1991,
between the parties hereto (the "Partnership Agreement"). Capitalized terms
not otherwise defined herein, shall have the meaning as set forth in the
Partnership Agreement.
RECITALS
Pursuant to the Partnership Agreement, JetFleet I was organized under
California law in May 1989.
The General Partner has proposed a consolidation (the "Consolidation")
of JetFleet II and its affiliated partnership, JetFleet Aircraft, L.P.
("JetFleet I") with and into a newly-formed successor Delaware corporation,
AeroMax, Inc., pursuant to the terms and conditions of a certain Merger
Agreement by and between AeroMax, JetFleet I and JetFleet II. The General
Partner has solicited the requisite approval of the limited partners of
JetFleet I to participate in the Consolidation as more fully described in that
certain Prospectus/Consent Solicitation Statement, dated _____, 1997 (the
"Prospectus"). As part of the approval, the limited partners approved
amendments to the Partnership Agreement to enable the Consolidation.
NOW, THEREFORE, the parties hereto agree as follows:
1. Approval of the Consolidation. Upon receipt of the approval
of holders of a majority of the outstanding Units of limited partnership
interest of JetFleet II, the General Partner is authorized to executed, deliver
and perform all obligations of the Partnership under the Merger Agreement and
all other documents and agreements required to be delivered by the Partnership
in connection therewith. Any inconsistent provisions of the Partnership
Agreement are hereby amended to permit the Consolidation to be consummated.
2. Dissenters' Rights. Notwithstanding anything to the contrary
contained in the Partnership Agreement, limited partners that did not vote in
favor of the Consolidation and follow certain procedures set forth in the
Prospectus shall have the dissenters' rights as set forth in the Prospectus,
which dissenters' rights shall comply with the requirements of the California
Partnership Act. Section 13.9 of the Partnership Agreement is hereby deleted
in its entirety.
3. Waiver of Resale Fee. General Partner hereby waives the fee
set forth in 5.6(f)ith respect to the Consolidation transactions.
4. Termination of the Partnership. Upon the effectiveness of the
Consolidation, the separate existence of the JetFleet II shall cease, and the
limited partners of the Partnership shall have the right to receive Common
Stock of AeroMax, Inc., all as set forth in the Prospectus.
195
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first-above written:
CMA CAPITAL GROUP, INC. -------------------------------
Neal D. Crispin
By:
------------------------------------- -------------------------------
Richard D. Koehler Richard D. Koehler
LIMITED PARTNERS listed on
Appendix A
By: CMA Capital Group, Inc.
Attorney-in-fact
- ----------------------------------------
Richard D. Koehler, President
196
APPENDIX A
List of Approving Limited Partners No. of Units Held
- ---------------------------------- -----------------
Total Units:
------------ -----------------
197
APPENDIX B
PRO FORMA FINANCIAL INFORMATION
Prospectus/Consent Solicitation - Jet II
198
AEROCENTURY CORP.
UNAUDITED PRO FORMA COMBINING BALANCE SHEETS
DECEMBER 31, 1996
(Assuming Only JetFleet II Participation)
(Amounts rounded to nearest one-hundred)
AEROCENTURY JETFLEET
CORP. AIRCRAFT II, L.P. ADJUSTMENTS PRO FORMA
----------- ----------------- ------------ -----------
ASSETS
Current assets:
Cash $140,000 $1,191,900 $ $
Lease payments receivable 540,000
Other assets 229,800
-------- ----------- ------------ -----------
Total current assets 140,000 1,761,700
Aircraft and aircraft engines
under/held for operating leases, net 14,435,600
Lease payments receivable 180,000
Organization costs, net 10,000 32,900 (32,900)(a) 10,000
-------- ----------- ------------ -----------
$150,000 $16,410,200 $ (32,900) $16,527,300
======== =========== ============ ===========
LIABILITIES AND PARTNERS' CAPITAL/
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,800 $ 112,500 $ 250,000 (b) $ 365,300
Deferred taxes 1,200,000 (c) 1,200,000
Accrued maintenance costs 501,100 501,100
Security deposits 143,100 143,100
Prepaid rents 27,600 27,600
Unearned interest income 79,200 79,200
Other accrued liabilities 10,900 10,900
-------- ----------- ------------ -----------
Total current liabilities 2,800 874,400 1,450,000 2,327,200
Unearned interest income 8,800 8,800
-------- ----------- ------------ -----------
Total liabilities 2,800 883,200 1,450,000 2,336,000
-------- ----------- ------------ -----------
Partners' capital/Shareholders' equity
Partners' capital 15,527,000 (15,527,000)(d)
Common stock 150,000 13,391,000 (d) 13,541,000
Paid-in capital: 2,136,000 (d) 653,100
(32,900)(a)
(1,450,000)(b,c)
Accumulated deficit (2,800) (2,800)
-------- ----------- ------------ -----------
Total partners'capital/shareholders' equity 147,200 15,527,000 (1,482,900) 14,191,300
-------- ----------- ------------ -----------
$150,000 $16,410,200 $ (32,900) $16,527,300
======== =========== ============ ===========
See accompanying notes.
199
AEROCENTURY CORP.
UNAUDITED PRO FORMA COMBINING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(ASSUMING ONLY JETFLEET II PARTICIPATION)
(AMOUNTS ROUNDED TO NEAREST ONE-HUNDRED)
AEROCENTURY JETFLEET
CORP. AIRCRAFT II, L.P. ADJUSTMENTS PRO FORMA
----------- ----------------- ------------ ----------
Revenues:
Rental income $ $2,658,500 $ $2,628,500
Other income 394,300 394,300
---------- ---------- ------------ ----------
0 3,052,800 3,052,800
Costs and expenses:
Management fees 113,700 314,700 (aa) 428,400
Depreciation 3,260,000 (2,690,500)(bb) 569,500
Professional fees and general
and administrative 384,500 (266,400)(aa) 118,100
Maintenance 119,300 119,300
Amortization 2,000 31,900 (31,900)(cc) 2,000
---------- ---------- ------------ ----------
2,000 3,909,400 (2,674,100) 1,237,300
---------- ---------- ------------ ----------
Income before taxes and consolidation costs (2,000) (856,600) 2,674,100 1,815,500
Provision for income taxes 800 726,200 (dd) 727,000
---------- ---------- ------------ ----------
Income before consolidation costs (2,800) (856,600) 1,947,900 1,088,500
Consolidation costs 294,000 (ee) 297,000
---------- ---------- ------------ ----------
Net income $ (2,800) $ (856,600) $ 1,650,900 $ 791,500
========== ========== ============ ==========
Earnings per share
Net income $ 0.63
Number of common shares
outstanding 1,262,171
Ratio of earnings to fixed charges (*)
(*) AeroCentury Corp. has no fixed charges.
See accompanying notes.
200
AeroCentury Corp.
Notes to Unaudited Pro Forma Financial Statements
1. Basis of presentation
AeroCentury Corp. ("AeroCentury"), a Delaware corporation, was formed
on February 28, 1997. JetFleet Management Corp. ("JMC"), a California
corporation formed in 1994, owns all of AeroCentury's 150,000 shares of common
stock. CMA Capital Group (the "General Partner") is proposing a consolidation
by merger (the "Consolidation") of JetFleet Aircraft, L.P. ("JetFleet I") and
JetFleet Aircraft II, L.P. ("JetFleet II") with and into AeroCentury. JetFleet
I and JetFleet II are each California limited partnerships formed in 1989 and
1991, respectively, to invest in leased aircraft equipment. Upon completion of
the Consolidation, the Company will continue in the aircraft leasing business
and intends to use leveraged financing to acquire additional aircraft assets on
lease.
The unaudited pro forma balance sheet and statement of operations have
been prepared on the basis that only JetFleet II participates in the
Consolidation. Upon Consolidation, the General Partner and the limited
partners (collectively, the "Partners") will receive stock in AeroCentury in
return for their partnership interests in JetFleet II. The Consolidation will
be accounted for as a pooling of interests and, therefore, no adjustment to the
historical carrying amount of assets and liabilities will be made. Historical
information for AeroCentury and JetFleet II are based on audited financial
statements which are included elsewhere herein. JetFleet II participation
results in 1,328,601 additional shares of common stock being issued to the
Partners. Warrants to purchase 35,000 shares of common stock at $3.00 per
share will be issued to Crispin Koehler Securities in consideration for
investment banking services rendered in connection with the Consolidation.
The unaudited pro forma balance sheet as of December 31, 1996 has been
prepared as if the transactions contemplated by the Consolidation had occurred
on December 31, 1996, and the accompanying unaudited pro forma statement of
operations has been prepared as if the Consolidation had occurred on January 1,
1996.
The unaudited pro forma financial statements have been prepared by
making certain adjustments (as explained in Note 2 below) to the historical
financial information of JetFleet II. The pro forma information presented is
not necessarily indicative of the result that would have occurred had the
Consolidation occurred and AeroCentury operated as a single entity during the
period presented, or of the future operations of the Partnership.
2. Pro forma adjustments
The pro forma balance sheet includes the following adjustments:
(a) Elimination of unamortized organization costs at December 31,
1996.
(b) Offering costs, estimated to be $250,000, have been charged
directly to 1996 operations. It is anticipated that the
offering costs will be short-term payables, paid from cash on
hand at the time of the Consolidation.
(c) A deferred tax liability has been recognized for the
difference of $3 million between the book value of the assets
and liabilities of JetFleet II at December 31, 1996 and the
tax basis due to accelerated depreciation used for tax
purposes.
1
201
(d) Reflects the issuance of common stock of AeroCentury in
exchange for the Partners' interests in JetFleet II as well as
the estimated cost of $245,000 of issuing warrants to purchase
35,000 shares of common stock at $3 per share.
The pro forma statement of operations includes the following adjustments:
(aa) Upon Consolidation, AeroCentury will sign a management
agreement with JMC under which JMC will manage AeroCentury's
assets. Under this agreement, AeroCentury will pay JMC
monthly in arrears 3% per annum of the net asset value of the
assets under management. Such fees have been increased to
reflect the terms of this agreement. Professional fees and
general and administrative have been decreased to reflect
anticipated savings.
(bb) JetFleet II computed depreciation using the straight-line
method over the aircraft's estimated economic life, eight
years for the deHavilland DHC-7 aircraft (the "Dash-7's") and
twelve years for all other aircraft, to a zero residual value.
In contemplation of the Consolidation, AeroCentury obtained a
future appraisal of its aircraft assets (Exhibit 99.01) which
demonstrated that the current method of depreciation was ultra
conservative and that the aircraft market had changed
recently, increasing the future value and estimated useful
life of used aircraft equipment. In addition, the lessee has
recently spent an aggregate of $3.1 million on three of the
Dash-7's for an inspection and repair as necessary program
("IRAN") not mandated under the leases. The IRAN program has
enhanced both the life and value of these aircraft.
Accordingly, AeroCentury intends to depreciate each asset on a
straight-line basis over its estimated useful life, generally
twelve years, to its estimated residual value at that time.
Assuming the Consolidation is effective mid-1997, under this
method, annual depreciation on the existing assets would
approximate $400,000.
(cc) Amortization of JetFleet II organization costs has been
eliminated.
(dd) Corporate taxes at the estimated federal and state combined
rate of 40% have been provided.
(ee) Offering costs of the Consolidation, estimated to be $250,000,
have been expensed. In addition, $245,000 in estimated costs
of issuing warrants to purchase 35,000 shares of common stock
(see Note 1 above) has been expensed. AeroCentury intends to
amortize these costs over fifteen years for tax purposes and a
tax benefit of $297,000 has been reflected.
3. Calculation of number of common shares outstanding
The number of shares outstanding for the year ended December 31, 1996
used in computing pro forma net income is based on the number of shares and
warrants which would be outstanding as a result of the Consolidation assuming
JetFleet II acceptance on January 1, 1996.
2
202
AeroCentury Corp.
Management's Discussion and Analysis of Pro Forma
Financial Condition and Results of Operations
The pro forma financial statements contained herein assume that the
Consolidation takes place with only JetFleet II participation.
Pro forma adjustments reflect the cost of a management contract with JMC (which
is partially offset by anticipated savings for professional fees and general
and administrative costs) and an adjustment in depreciation expense to reflect
individual asset straight-line depreciation to estimated residual value over
estimated useful life. (See Notes to Unaudited Pro Forma Financial
Statements.)
Pro Forma Results of Operations
The Company reported pro forma earnings per share of $0.75 per share. Rental
income from assets under operating leases accounted for 88% of revenues, with
interest income from full financing leases comprising 12% of revenues.
The Company's single largest expense is depreciation of its aircraft assets.
The Company will pay management fees pursuant to a newly entered contract with
JMC at the rate of 3% per annum of the net asset value of the assets under
management. The cost of the Consolidation approximates $250,000 in offering
costs and $245,000 in estimated expenses associated with the issuance of 35,000
of warrants. Taxes of approximately $756,600 reflect an effective tax rate of
40% on earnings as if the Company were in existence as of January 1, 1996.
See Management's Discussion and Analysis of Financial Condition and Results of
Operations of AeroCentury, JetFleet I, and JetFleet II elsewhere herein.
Pro Forma Liquidity and Financial Condition
At December 31, 1996, cash totalled $1,331,900 before payment of offering costs
approximating $250,000.
See Management's Discussion and Analysis of Financial Condition and Results of
Operations of AeroCentury and JetFleet II elsewhere herein.
203
- --------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS/CONSENT
SOLICITATION STATEMENT
- --------------------------------------------------------------------------------
Item 20. Indemnification of Directors and Officers
The General Corporation Law of the State of Delaware permits a
Delaware corporation to indemnify its officers or directors under
certain circumstances. Such statue provides that, in actions which
the corporation is not a party, a corporation may indemnify its
officers or directors for losses incurred by them if the officer or
director acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation. In
actions in which the corporation is a party, the statue provides the
same standard but prohibits indemnification if the director or officer
is adjudged liable to the corporation.
The Company has implemented such indemnification provisions in
its Certificate of Incorporation which provides that officers and
directors shall be entitled to be indemnified by the corporation to
the fullest extent permitted by law against expenses (including
attorney's fees), judgements, fines and amounts paid in settlement
incurred in connection with any action, suit or proceeding by reason
of the fact that he is or was an officer or director of the Company.
Item 21. Exhibits and Financial Statement Schedules
(a) The following is a complete list of exhibits filed as
part of the Registration Statement. Exhibit numbers correspond to the numbers
in the Exhibit Table of Item 601 of Regulation S-K.
Exhibit No. Description
1.01* Form of Dealer Manager Agreement to be
entered into by and between the Company and
Crispin Koehler Securities.
2.01 Form of Agreement and Plan of Merger to be
entered into between and among the Company
and each of the Participating Partnerships is
incorporated by reference to Appendix A to
the Prospectus/Consent Solicitation
Statement.
3.01* Certificate of Incorporation of the Company.
3.02* Form of Bylaws of the Company
3.03* Limited Partnership Agreement of JetFleet
Aircraft, L.P. ("JetFleet I")
S-4 Part II 1
204
3.04* Form of Amendment to Partnership Agreement of
JetFleet I
3.05* Limited Partnership Agreement of JetFleet
Aircraft II, L.P. ("JetFleet II")
3.06* Form of Amendment to Partnership Agreement of
JetFleet II
3.07 Form of Certificate of Amendment of
Certificate of Incorporation of the Company
effecting name change
5.01 Opinion of Graham & James LLP as to the
Legality of the Shares of Common Stock.
8.01 Opinion of Graham & James LLP as to certain
tax matters.
10.01* Form of Stock Purchase Agreement between
Registrant and Jetfleet Management Corp
("JMC")
10.02* Form of Management Agreement between
Registrant and JMC.
10.03* Form of Indemnity Agreement
23.01 Consent of Graham & James LLP
23.02 Consent of Vocker Kristofferson & Co.
23.03 Consent of Aircraft Information Services, Inc.
99.01 Appraisal reports of Aircraft Information
Services, Inc.
- -------------
* Incorporated herein by reference to the original S-4 Registration
Statement filed with the Commission on April 8, 1997.
Item 22. Undertakings
A. The Company hereby undertakes the following:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(a) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(b) To reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement; and
(c) To include any material information with respect to
the plan of distribution
S-4 Part II 2
205
not previously disclosed in the Registration Statement or any
material change to such information in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
B. (1) The undersigned Registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this Registration Statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The undersigned Registrant undertakes that every prospectus
(i) that is filed pursuant to paragraph (1) immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Securities Act of
1933 and is used in connection with an offering of securities subject to Rule
415, will be filed as part of an amendment to the registration statement and
will not be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
C. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefor, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
D. The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the Prospectus/Consent
Solicitation Statement pursuant to Items 4, 10(b), 11 or 13 of this Form,
within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of this Registration Statement through the date of responding to the
Request.
E. The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
S-4 Part II 3
206
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the city
of Burlingame, state of California on June 5, 1997.
AEROCENTURY CORP.
By: /s/ Neal D. Crispin
-----------------------------------
Neal D. Crispin, President
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ Neal D. Crispin President, Chairman of the Board June 5, 1997
- ---------------------------
Neal D. Crispin
/s/ Marc J. Anderson Chief Operating Officer, Director June 5, 1997
- ---------------------------
Marc J. Anderson
/s/ Toni M. Perazzo Vice President-Finance, Secretary June 5, 1997
- --------------------------- Director
Toni M. Perazzo
/s/ Frank Duckstein Vice President June 5, 1997
- ---------------------------
Frank Duckstein
S-4 Part II 4
207
INDEX TO EXHIBIT
Exhibits Sequential Page Number
- -------- ----------------------
1.01* Form of Dealer-Manager Agreement
2.01 Form of Agreement and Plan of Merger
(incorporated by reference to Appendix A to
Prospectus)
3.01* Form of Amended and Restated Certificate
of Incorporation
3.02* Form of Bylaws of the Registrant
3.03* JetFleet I Limited Partnership Agreement
3.04* JetFleet I Partnership Agreement Amendment
3.05* JetFleet II Parnership Agreement
3.06* JetFleet II Parnership Agreement Amendment
3.07 Form of Certificate of Amendment of Certificate
of Incorporation effecting name change
5.01 Opinion of Graham & James LLP Regarding
Legality
8.01 Opinion of Graham & James LLP Regarding
Certain Tax Matters
10.01* Form of JMC Stock Purchase Agreement
10.02* Form of Management Agreement
10.03* Form of Indemnity Agreement
23.01 Consent of Graham & James LLP
23.02 Consent of Vocker Kristofferson & Co.
23.03 Consent of Aircraft Information Services, Inc.
99.01 Appraisals of Aircraft Information Services, Inc.
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* Incorporated herein by reference to the original S-4 Registration
Statement filed with the Commission on April 8, 1997.