10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission File Number:  001-13387

AeroCentury Corp.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	94-3263974
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

1440 Chapin Avenue, Suite 310

Burlingame, California 94010

(Address of Principal Executive Offices)

(650) 340-1888

(Registrant’s Telephone Number Including Area Code)

None

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes xNo  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required submit and post such files).  

Yes  oNo  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer  oAccelerated filer  o

Non-accelerated filer  oSmaller reporting company  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  oNo  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  As of August 13, 2014 the issuer had 1,606,557shares of common stock, par value $0.001 per share, issued, of which 63,300 are held as treasury stock.

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PART I

FINANCIAL INFORMATION

Forward-Looking Statements

This Quarterly Report on Form 10-Q includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (“the Exchange Act”). All statements in this Report other than statements of historical fact are "forward-looking statements" for purposes of these provisions, including any statements of plans and objectives for future operations and any statements of assumptions underlying any of the foregoing. Statements that include the use of terminology such as "may," "will," "expects," "plans," "anticipates," "estimates," "potential," or "continue," or the negative thereof, or other comparable terminology are forward-looking statements. Forward-looking statements include these statements: (i) in Part 1, Item 1, “Notes to Financial Statements,” that the Company expects to deliver four aircraft for lease in the third quarter of 2014; that it expects to deliver an aircraft for sale in the third quarter of 2014; and that the Company may be out of compliance with a profitability covenant at calculation dates subsequent to June 30, 2014, in the absence of an amendment to the profitability covenant; (ii) in Part 1, Item 2,  “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Credit Facility” that the Company may be out of compliance with a profitability covenant at calculation dates subsequent to June 30, 2014, in the absence of an amendment to the profitability covenant; that the Credit Facility banks will agree to an amendment to cure such noncompliance during the third quarter of 2014; (iii) in Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Cash Flow,” that the Company will have adequate cash flow to meet its ongoing operational needs; (iv) in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations –– Outlook,” that there is an increased possibility that the Company’s current lessees will choose to return leased assets at lease expiration rather than renew the existing leases; and that the Company is likely to experience lower on-lease utilization rates and longer lead times for remarketing of returned assets as well as lower rental rates for remarketed assets through 2014 and that such trend is expected to continue to affect the Company’s operating results through 2014; that four of the Company’s assets that have leases that will be expiring in the remainder of 2014 will be returned to the Company; that the Credit Facility banks will agree to an amendment to the profitability covenant in the third quarter of 2014; and that available borrowings under the Credit Facility will be sufficient to meet the Company’s continuing obligations and to fund anticipated acquisitions; (v) in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Factors that May Affect Future Results,” that the Company believes that during the third quarter of 2014, the Credit Facility banks will agree to an amendment to cure the profitability covenant during the third quarter of 2014; that the Company will continue to be in compliance with all of the Credit Facility covenants through the term of the Credit Facility (assuming the profitability covenant is amended as expected); that the Company intends to continue to focus on its customer base of regional air carriers; that the Company will have sufficient cash funds to make any required principal repayment that arise due to borrowing base limitations; that most of the Company’s growth will be outside the United States; that the overall industry experience of JMC’s personnel and its technical resources should permit the Company to effectively manage new aircraft types and engines; that effective mitigating factors exist against undue compensation-incented risk-taking by JMC; that it is contemplated that the burden and cost of complying with regulatory requirements will fall primarily upon lessees of equipment or the Company as owner of the equipment; that the costs of complying with environmental regulations will not have a material adverse effect on the Company; that the Company has sufficient cyber-security measures in place; and that sufficient replacement mechanisms exist in the event of an interruption in its internet communications ability that there would not be a material adverse financial impact on the Company’s business.  

These forward-looking statements involve risks and uncertainties, and it is important to note that the Company's actual results could differ materially from those projected or assumed in such forward-looking statements. Among the factors that could cause actual results to differ materially are the factors detailed under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations –– Factors That May Affect Future Results," including the lack of any unexpected lessee defaults or insolvency; compliance by the Company's lessees with obligations under their respective leases; no sudden current economic downturn or unanticipated future financial crises; the continued availability of financing for acquisitions under the Credit Facility; the Company’s success in finding appropriate assets to acquire with such financing; deviations from the assumption that future major maintenance expenses will be relatively evenly spaced over the entire portfolio; and future trends and results which cannot be predicted with certainty. The cautionary statements made in this Report should be read as being applicable to all related forward-looking statements wherever they appear herein. All forward-looking statements and risk factors included in this document are made as of the date hereof, based on information available to the Company as of the date hereof, and the Company assumes no obligation to update any forward-looking statement or risk factor. You should consult the risk factors listed from time to time in the Company's filings with the Securities and Exchange Commission.

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Item 1.Financial Statements.

AeroCentury Corp.

Balance Sheets

(Unaudited)

ASSETS
	June 30,			December 31,
	2014			2013
Assets:
Cash and cash equivalents	$	5,909,600		$	2,112,700
Accounts receivable, including deferred rent of $54,800 and $217,200 at      June 30, 2014 and December 31, 2013, respectively		2,797,800			3,303,800
Finance leases receivable		945,400			1,895,200
Aircraft and aircraft engines held for lease, net of accumulated    depreciation of $53,047,600 and $50,679,300 at      June 30, 2014 and December 31, 2013, respectively		166,922,000			152,954,600
Assets held for sale		509,200			735,000
Prepaid expenses and other		5,005,800			3,633,000
Total assets	$	182,089,800		$	164,634,300
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Accounts payable and accrued expenses	$	2,130,700		$	1,202,700
Notes payable and accrued interest		101,457,500			77,527,300
Maintenance reserves		14,221,800			16,671,800
Accrued maintenance costs		709,000			1,612,100
Security deposits		6,286,700			6,265,000
Unearned revenues		2,042,200			646,700
Deferred income taxes		12,498,600			14,573,800
Taxes payable		159,200			-
Total liabilities		139,505,700			118,499,400
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value, 2,000,000 shares    authorized, no shares issued and outstanding		-			-
Common stock, $0.001 par value, 10,000,000 shares    authorized, 1,606,557 shares issued and outstanding		1,600			1,600
Paid-in capital		14,780,100			14,780,100
Retained earnings		28,306,500			31,857,300
		43,088,200			46,639,000
Treasury stock at cost, 63,300 shares		(504,100	)		(504,100	)
Total stockholders’ equity		42,584,100			46,134,900
Total liabilities and stockholders’ equity	$	182,089,800		$	164,634,300

The accompanying notes are an integral part of these statements.

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AeroCentury Corp.

Statements of Operations

(Unaudited)

	For the Six Months Ended June 30,					For the Three Months Ended June 30,
	2014			2013		2014			2013
Revenues and other income:
Operating lease revenue, net	$	11,183,100		$	9,573,100	$	5,332,300		$	4,672,800
Maintenance reserves revenue, net		3,393,600			7,720,000		1,717,800			1,191,500
Net gain on disposal of assets		1,154,400			2,162,500		762,500			1,944,300
Other income		151,100			606,700		66,700			56,800
		15,882,200			20,062,300		7,879,300			7,865,400
Expenses:
Provision for impairment in value of aircraft		6,800,000			-		6,800,000			-
Depreciation		3,878,400			3,573,000		2,012,600			1,815,800
Maintenance		3,646,600			3,469,800		1,302,300			1,330,400
Management fees		2,659,900			2,172,600		1,332,600			1,076,700
Interest		2,568,100			2,068,100		1,261,200			1,002,500
Professional fees, general and    administrative and other		1,127,500			624,300		822,900			297,500
Insurance		620,600			552,000		313,300			298,000
Other taxes		45,100			45,100		22,500			22,500
		21,346,200			12,504,900		13,867,400			5,843,400
(Loss)/income before income tax provision		(5,464,000	)		7,557,400		(5,988,100	)		2,022,000
Income tax (benefit)/provision		(1,913,200	)		2,403,100		(2,067,700	)		685,600
Net (loss)/income	$	(3,550,800	)	$	5,154,300	$	(3,920,400	)	$	1,336,400
(Loss)/earnings per share:
Basic	$	(2.30	)	$	3.34	$	(2.54	)	$	0.87
Diluted	$	(2.30	)	$	3.25	$	(2.54	)	$	0.84
Weighted average shares used in   (loss)/earnings per share computations:
Basic		1,543,257			1,543,257		1,543,257			1,543,257
Diluted		1,543,257			1,585,666		1,543,257			1,588,331

The accompanying notes are an integral part of these statements.

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AeroCentury Corp.

Statements of Cash Flows

(Unaudited)

	For the Six Months Ended June 30,
	2014			2013
Net cash provided by operating activities	$	5,032,200		$	5,403,700
Investing activities:
Proceeds from sale of aircraft and aircraft engines held for lease,    net of re-sale fees		9,316,400			4,882,800
Proceeds from sale of assets held for sale, net of re-sale fees		225,800			207,700
Purchases of aircraft and aircraft engines		(32,234,000	)		(4,089,000	)
Net cash (used in)/provided by investing activities		(22,691,800	)		1,001,500
Financing activities:
Borrowings under Credit Facility		32,100,000			2,000,000
Repayments of Credit Facility		(8,200,000	)		(300,000	)
Debt issuance costs		(2,443,500	)		(2,055,000	)
Net cash provided by/(used in) financing activities		21,456,500			(355,000	)
Net increase in cash and cash equivalents		3,796,900			6,050,200
Cash and cash equivalents, beginning of period		2,112,700			1,596,800
Cash and cash equivalents, end of period	$	5,909,600		$	7,647,000

During the six months ended June 30, 2014 and 2013, the Company paid interest totaling $2,092,700 and $1,424,300, respectively.  The Company paid income taxes of $800 and $800 during the six months ended June 30, 2014 and 2013, respectively.

The accompanying notes are an integral part of these statements.

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AeroCentury Corp.

Notes to Financial Statements (Unaudited)

June 30, 2014

1.Organization and Summary of Significant Accounting Policies

(a)The Company and Basis of Presentation

AeroCentury Corp., a Delaware corporation incorporated in 1997, acquires used regional aircraft and engines for lease to foreign and domestic regional carriers.

The condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  Operating results for the three-month and six-month periods ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.

As discussed in Note 2, the Company has adopted an alternate method of accounting for non-refundable maintenance reserves and certain lessor maintenance obligations.  The Company has applied this change in accounting principle retrospectively in accordance with ASC 250, Accounting Changes and Error Corrections (“ASC 250”).

For further information, refer to the financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2013.

(b)Use of Estimates

The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).  The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable for making judgments that are not readily apparent from other sources.

The most significant estimates with regard to these financial statements are the residual values and useful lives of the assets, the amount and timing of cash flows associated with each asset that are used to evaluate whether assets are impaired, accrued maintenance costs, accounting for income taxes, and the amounts recorded as allowances for doubtful accounts.

(c)Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs, to the extent possible. The fair value hierarchy under GAAP is based on three levels of inputs.

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

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AeroCentury Corp.

Notes to Financial Statements (Unaudited)

June 30, 2014

1.Organization and Summary of Significant Accounting Policies (continued)

(c)Fair Value Measurements (continued)

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis

The following table shows by level, within the fair value hierarchy, the fair value of the Company’s assets that are measured and recorded at fair value on a recurring basis:

	June 30, 2014								December 31, 2013
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Money market funds included in cash and cash equivalents	$	5,543,100	$	5,543,100	$	-	$	-	$	1,842,000	$	1,842,000	$	-	$	-
Total	$	5,543,100	$	5,543,100	$	-	$	-	$	1,842,000	$	1,842,000	$	-	$	-

As of June 30, 2014 and December 31, 2013, there were no liabilities that were required to be measured and recorded at fair value on a recurring basis.

Assets Measured and Recorded at Fair Value on a Nonrecurring Basis

The Company determines fair value of long-lived assets held and used, such as aircraft and aircraft engines held for lease and held for sale, by reference to independent appraisals, quoted market prices (e.g., offers to purchase) and other factors. An impairment charge is recorded when the Company believes that the carrying value of an asset will not be recovered through future net cash flows and that the carrying value exceeds its fair value.  At June 30, 2014, the Company determined that the carrying values of five of its Fokker 100 aircraft were not recoverable and consequently recorded an impairment charge of $6,800,000 based on the appraised values of those aircraft.

Fair Value of Other Financial Instruments

The Company’s financial instruments, other than cash and cash equivalents, consist principally of finance leases receivable and amounts borrowed under its credit facility (the “Credit Facility,” as defined in Note 5).  The fair value of accounts receivable, finance leases receivable, accounts payable and the Company’s maintenance reserves and accrued maintenance costs approximates the carrying value of these financial instruments.

Borrowings under the Company’s Credit Facility bear floating rates of interest that reset periodically to a market benchmark rate plus a credit margin.  The Company believes the effective interest rate of this debt agreement approximates current market rates for such indebtedness at the balance sheet date, and therefore that the carrying amount of its floating rate debt at the balance sheet dates approximates its fair value.  The fair value of the Company’s outstanding balance of its Credit Facility would be categorized as Level 3 under the GAAP fair value hierarchy.

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AeroCentury Corp.

Notes to Financial Statements (Unaudited)

June 30, 2014

1.Organization and Summary of Significant Accounting Policies (continued)

(d)Finance Leases

The lease for one of the Company’s aircraft contains a lessee purchase option at a price substantially below the assets’ estimated residual values at the exercise date for the option.  Consequently, the Company considers the purchase option to be a “bargain purchase option” and has classified the lease as a finance lease for financial accounting purposes.  The Company does not include the value, purchase price or accumulated depreciation of finance lease assets on its balance sheet.  Instead, the discounted present value of (i) future minimum lease payments (including the bargain purchase option) and (ii) any residual value not subject to a bargain purchase option are reported as a finance lease receivable.  Rental revenue and depreciation expense are not recognized on finance leases.  Rather, the Company accrues interest on the balance of the finance lease receivable based on the interest rate inherent in the applicable lease.  

Two engines that were previously subject to finance leases were returned to the Company during the second quarter of 2014 and the finance lease receivable balances were reclassified to aircraft and aircraft engines held for lease on the Company’s balance sheet.

The Company recognized interest earned on finance leases as “other income” in the amount of $66,200 and $34,600 in the quarters ended June 30, 2014 and 2013, respectively, and $150,000 and $65,000 in the six months ended June 30, 2014 and 2013, respectively.

(e)Recent Accounting Pronouncements

On May 28, 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2014-09 (the "ASU") that created the new Topic 606 in the Accounting Standards Codification ("ASC").  The ASU also included numerous conforming additions and amendments to other Topics within the ASC.  Topic 606 establishes new rules that affect the amount and timing of revenue recognition for contracts with customers, but does not affect lease accounting and reporting.  As such, adoption of these provisions will not affect the Company's lease revenues but may affect the reporting of other of the Company's revenues.  The provisions included in the ASU are effective for years commencing after December 15, 2016, cannot be adopted early, and may be reflected using either a full retrospective method or a simplified method that does not recast prior periods but does disclose the effect of the adoption on the current period financial statements.  The Company has not determined either the potential impact on its financial statements nor the method it will elect to use in connection with the adoption of the changes included in the ASU.

2.Adjustment of Previously Reported Financial Information

The Company adopted the direct expensing method under Financial Accounting Standards Board (“FASB”) Staff Position AUG AIR-1, Accounting for Planned Major Maintenance Activities (“FSP AUG AIR-1”) on January 1, 2007.  Under FSP AUG AIR-1, non-refundable maintenance reserves were recorded as maintenance reserves revenue (assuming cash was received or collections was reasonably assured), and associated maintenance work was recorded as maintenance expense when the work was performed.The Company has evaluated its method of accounting for maintenance reserves and lessor maintenance obligations and has elected to change its method of accounting, effective January 1, 2014, to:

(i)  Recognize non-refundable maintenance reserves as liabilities for deposits against future maintenance reimbursements of maintenance reserves received in the normal course of ongoing leases;

(ii)  Recognize reimbursements from such collected reserves as disbursements against the liability when claims are submitted for payment against previously collected maintenance reserves;

(iii)  Reflect as liabilities non-refundable reserves received by the prior lessor upon acquisition of an aircraft which are claimable by the lessee when maintenance is performed;

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AeroCentury Corp.

Notes to Financial Statements (Unaudited)

June 30, 2014

2.Adjustment of Previously Reported Financial Information (continued)

(iv)  Recognize as income non-refundable reserves not refunded to lessees upon termination of the lease and return of the aircraft to the Company in accordance with all lease return requirements; and

(v)  Record lessor maintenance obligations as liabilities upon acquisition of an aircraft subject to a lease under which the Company assumes the prior lessor’s obligation to pay a portion of a first-time maintenance event.

In management’s judgment, the change to this accounting method is preferable in that it will provide the user of the Company’s financial statements a better understanding of the underlying business termsof the Company’s leasing transactions and provide additional clarity with respect to the Company’s sources of income, its non-refundable reserve obligations, and its lessor maintenance obligations.  The change in accounting method resulted in a cumulative net decrease of $8,088,200 in stockholders’ equity as of January 1, 2013.

The effects on the Company’s December 31, 2013 balance sheet as a result of the retroactive application of the change in accounting principle in accordance with ASC 250 were as follows:

	December 31, 2013
	As reported previously			As adjusted			Effect of change
Cash and cash equivalents	$	2,112,700		$	2,112,700		$	-
Accounts receivable, net		3,313,700			3,303,800			(9,900	)
Finance leases receivable		1,895,200			1,895,200			-
Aircraft and aircraft engines held for lease, net		152,375,200			152,954,600			579,400
Assets held for sale		735,000			735,000			-
Prepaid expenses and other		3,633,000			3,633,000			-
Total assets	$	164,064,800		$	164,634,300		$	569,500
Accounts payable and accrued expenses	$	1,175,300		$	1,202,700		$	27,400
Notes payable and accrued interest		77,527,300			77,527,300			-
Maintenance reserves and accrued maintenance costs		13,254,100			18,283,900			5,029,800
Security deposits		6,265,000			6,265,000			-
Unearned revenues		646,700			646,700			-
Deferred income taxes		16,099,700			14,573,800			(1,525,900	)
Total liabilities		114,968,100			118,499,400			3,531,300
Preferred stock		-			-			-
Common stock		1,600			1,600			-
Paid-in capital		14,780,100			14,780,100			-
Retained earnings		34,819,100			31,857,300			(2,961,800	)
Treasury stock		(504,100	)		(504,100	)		-
Total stockholders’ equity		49,096,700			46,134,900			(2,961,800	)
Total liabilities and stockholders’ equity	$	164,064,800		$	164,634,300		$	569,500

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AeroCentury Corp.

Notes to Financial Statements (Unaudited)

June 30, 2014

2.Adjustment of Previously Reported Financial Information (continued)

The effects on the Company’s statements of operations for the six months and three months ended June 30, 2013 as a result of the retroactive application of the change in accounting principle in accordance with ASC 250 were as follows:

	For the Six Months Ended  June 30, 2013							For the Three Months Ended  June 30, 2013
	As reported previously		As adjusted		Effect of change			As reported previously		As adjusted		Effect of change
Operating lease revenue, net	$	9,573,100	$	9,573,100	$	-		$	4,672,800	$	4,672,800	$	-
Maintenance reserves    income, net		7,703,600		7,720,000		16,400			569,300		1,191,500		622,200
Gain on disposal of assets and    other income		2,769,200		2,769,200		-			2,001,100		2,001,100		-
		20,045,900		20,062,300		16,400			7,243,200		7,865,400		622,200
Maintenance		3,788,700		3,469,800		(318,900	)		1,383,600		1,330,400		(53,200	)
Depreciation		3,549,400		3,573,000		23,600			1,803,400		1,815,800		12,400
Management fees		2,164,500		2,172,600		8,100			1,072,400		1,076,700		4,300
Interest		2,068,100		2,068,100		-			1,002,500		1,002,500		-
Professional fees, general and    administrative and other		669,400		669,400		-			320,000		320,000		-
Insurance		552,000		552,000		-			298,000		298,000		-
		12,792,100		12,504,900		(287,200	)		5,879,900		5,843,400		(36,500	)
Income before taxes		7,253,800		7,557,400		303,600			1,363,300		2,022,000		658,700
Tax provision		2,299,800		2,403,100		103,300			461,600		685,600		224,000
Net income	$	4,954,000	$	5,154,300	$	200,300		$	901,700	$	1,336,400	$	434,700
Earnings per share:
Basic	$	3.21	$	3.34	$	0.13		$	0.58	$	0.87	$	0.29
Diluted	$	3.12	$	3.25	$	0.13		$	0.57	$	0.84	$	0.27

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AeroCentury Corp.

Notes to Financial Statements (Unaudited)

June 30, 2014

3.Aircraft and Aircraft Engines Held for Lease or Sale

(a)Assets Held for Lease

At June 30, 2014 and December 31, 2013, the Company’s aircraft and aircraft engines, which were on lease or held for lease, consisted of the following:   

	June 30, 2014					December 31, 2013
	Number		% of net			Number		% of net
Model	owned		book value			owned		book value
Bombardier Dash-8-300		9		21	%		9		23	%
Bombardier CRJ-700		3		18	%		-		-
Fokker 100		7		13	%		7		19	%
Bombardier Dash-8-Q400		3		15	%		3		17	%
Bombardier CRJ-705		1		10	%		1		12	%
Saab 340B Plus		6		8	%		6		8	%
Fokker 50		9		8	%		10		10	%
General Electric CF34-8E5 engine		2		4	%		3		6	%
Saab 340B		1		1	%		4		4	%
Tay 650-15 engine		1		1	%		1		1	%
General Electric CT7-9B engine		2		1	%		2		-
Saab 340A		1		-			1		-

Net book value at June 30, 2014 and December 31, 2013 excludes the Company’s Saab 340A aircraft, which is subject to a finance lease.  Net book value at December 31, 2013 also excludes the Company’s two General Electric CT7-9B engines, which were subject to finance leases at that time.

As described in Note 1, the Company recorded a $6,800,000 impairment charge on five of its Fokker 100 aircraft on June 30, 2014, which has been reflected in the carrying value of the aircraft on that date.

During the second quarter of 2014, the Company used cash of $9,000 for acquisitions related to aircraft purchased during the first quarter.  During the second quarter of 2013, the Company used cash of $2,323,000 for the purchase and capital improvement of aircraft and engines.

During the second quarter of 2014, the Company recorded a net gain of $762,500 related to the sale of three Saab 340B aircraft and a General Electric CF34-8E5 Engine.  During the second quarter of 2013, the Company recorded gains of $1,871,000 upon the sale of a Dash-8-100 aircraft and $73,300 related to the finance lease of a General Electric CB7-9B engine.

During the second quarter of 2014, the Company extended the leases for five of its assets.   During the same period, six Saab 340B Plus aircraft and two General Electric CT7-9B engines were returned by a customer when it ceased operations.

At June 30, 2014, twenty-one of the Company’s assets, comprised of six Fokker 100 aircraft, six Saab 340B Plus aircraft, three Fokker 50 aircraft, one Dash-8-300 aircraft, two General Electric CF34-8E5 engines, two General Electric CT7-9B engines and one Tay 650-15 engine, which represented 31% of the net book value of the Company’s aircraft and engines, were off lease.

- 11 -

AeroCentury Corp.

Notes to Financial Statements (Unaudited)

June 30, 2014

3.Aircraft and Aircraft Engines Held for Lease or Sale (continued)

(a)Assets Held for Lease (continued)

As discussed in Note 8, the Company sold a Fokker 50 aircraft in July 2014.  The Company has a signed letter of intent for the lease of two Saab 340B Plus aircraft and a deposit for one of the aircraft.  The Company also has a signed lease and deposit for the lease of a Fokker 100 aircraft, as well as a signed letter of intent and deposit for the lease of a second Fokker 100 aircraft to the same customer.  The Company expects to deliver all four aircraft during the third quarter of 2014.  The Company also has a signed purchase agreement and non-refundable deposit for the sale of a Fokker 50 aircraft and expects to deliver the aircraft during the third quarter of 2014.  The Company is seeking re-lease opportunities for the other off-lease assets, other than the Tay 650-15 engine that is being held as a spare and used in connection with required maintenance on the Company’s Fokker 100 aircraft.

(b)Assets Held for Sale

Assets held for sale include two airframes.  During the three months ended June 30, 2014 and 2013, the Company received $10,500 and $171,700, respectively, from the sale of parts belonging to the two airframes.  No adjustments to the carrying value of the Company’s assets held for sale were recorded during the three months or six months ended June 30, 2014 and 2013.

4.Maintenance Reserves and Accrued Maintenance Costs

Maintenance costs under the Company’s triple net leases are generally the responsibility of the lessees.  Most of the Company’s leases require payment of maintenance reserves, which are based upon lessee-reported usage and billed monthly, and are intended to accumulate and be applied by the Company toward reimbursement of most or all of the cost of the lessees’ performance of certain maintenance obligations under the leases. Maintenance reserves are characterized as either refundable or non-refundable depending on their disposition at lease end.  Non-refundable maintenance reserves are retained by the Company at lease end, even if the lessee has met all of its obligations under the lease, including any return conditions applicable to the leased asset, while refundable reserves are returned to the lessee under such circumstances.

Maintenance reserves in the accompanying balance sheets include refundable and non-refundable maintenance reserves payments billed to lessees, which are paid out as related maintenance is performed and, in the case of refundable reserves, at the end of the lease.  Accrued maintenance costs include (i) maintenance for work performed for off-lease aircraft, which is not related to the release of reserves received from lessees and (ii) lessor maintenance obligations assumed upon acquisition of aircraft subject to a lease with such provisions.

Maintenance reserves received by the Company are accounted for as a liability, which is reduced when maintenance work is performed during the lease and reimbursement to the lessee is paid.  Any reserves retained by the Company at lease end are recorded as revenue at that time.

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AeroCentury Corp.

Notes to Financial Statements (Unaudited)

June 30, 2014

5.Notes Payable and Accrued Interest

At June 30, 2014 and December 31, 2013, the Company’s notes payable and accrued interest consisted of the following:

	June 30, 2014		December 31, 2013
Credit Facility principal	$	101,400,000	$	77,500,000
Credit Facility accrued interest		57,500		27,300
	$	101,457,500	$	77,527,300

During May 2014, the Company’s $130 million Credit Facility (the “Credit Facility”), which is provided by a syndicate of banks, was increased to $180 million and extended through May 31, 2019.  The Credit Facility is secured by all of the assets of the Company, including its aircraft and engine portfolio.

In November 2013, the Company obtained a waiver of compliance with a customer concentration covenant at the September 30, 2013 and December 31, 2013 calculation dates.  The Company was in compliance with all covenants other than the waived covenant under the Credit Facility agreement at December 31, 2013.  

As of June 30, 2014, the Company was out of compliance with a profitability covenant.  The non-compliance resulted primarily from the Company recognizing aircraft impairment charges totaling $6,800,000 at June 30, 2014.   Based on its current projections, the Company believes that it may be out of compliance with this covenant, which is calculated on a trailing 12 months basis, at subsequent calculation dates.  The Company is in discussions with the agent bank to amend the credit facility agreement to exclude impairment charges from the profitability covenant calculation, and retroactively cure the covenant default on June 30, 2014 and subsequent calculation dates.  There is, however, no assurance that such an amendment agreement will eventually be entered into between the Company and the Credit Facility banks.   

The Company was in compliance with all other covenants at June 30, 2014.

The unused amount of the Credit Facility was $78,600,000 and $52,500,000 as of June 30, 2014 and December 31, 2013, respectively.

The weighted average interest rate on the Credit Facility was 3.69% and 3.94% at June 30, 2014 and December 31, 2013, respectively.

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AeroCentury Corp.

Notes to Financial Statements (Unaudited)

June 30, 2014

6.Computation of Earnings Per Share

Basic and diluted earnings per share are calculated as follows:

	For the Six Months Ended June 30,					For the Three Months Ended June 30,
	2014			2013		2014			2013
Net (loss)/income	$	(3,550,800	)	$	5,154,300	$	(3,920,400	)	$	1,336,400
Weighted average shares outstanding for the period		1,543,257			1,543,257		1,543,257			1,543,257
Dilutive effect of warrants		-			42,409		-			45,074
Weighted average diluted shares used in calculation    of diluted (loss)/earnings per share		1,543,257			1,585,666		1,543,257			1,588,331
Basic (loss)/earnings per share	$	(2.30	)	$	3.34	$	(2.54	)	$	0.87
Diluted (loss)/earnings per share	$	(2.30	)	$	3.25	$	(2.54	)	$	0.84

Basic earnings per common share is computed using net income and the weighted average number of common shares outstanding during the period.  Diluted earnings per common share are computed using net income and the weighted average number of common shares outstanding, assuming dilution.  Weighted average common shares outstanding, assuming dilution, include potentially dilutive common shares outstanding during the period. Potentially dilutive common shares include the assumed exercise of warrants using the treasury stock method.  For the three months and six months ended June 30, 2014, the dilutive effect of outstanding warrants was 39,393 and 39,589 potentially outstanding shares issuable upon the assumed exercise of all outstanding warrants.  However, the effect of these potentially outstanding shares was not included in the calculation of diluted loss per share for the applicable period because the effect would have been anti-dilutive.

7.Related Party Transactions

The Company’s portfolio of leased aircraft assets is managed and administered under the terms of a management agreement with JetFleet Management Corp. (“JMC”), which is an integrated aircraft management, marketing and financing business and a subsidiary of JetFleet Holding Corp. ("JHC").  Certain officers of the Company are also officers of JHC and JMC and hold significant ownership positions in both JHC and the Company.

Under the management agreement, JMC receives a monthly management fee based on the net asset value of the assets under management. JMC also receives an acquisition fee for locating assets for the Company.  Acquisition fees are included in the cost basis of the asset purchased.  JMC may receive a remarketing fee in connection with the re-lease or sale of the Company’s assets. Remarketing fees are amortized over the applicable lease term or included in the gain or loss on sale recognized upon sale of the applicable asset.

Fees incurred during the three months and six months ended June 30, 2014 and 2013 were as follows:

	For the Six Months Ended June 30,				For the Three Months Ended June 30,
	2014		2013		2014		2013
Management fees	$	2,659,900	$	2,172,600	$	1,332,600	$	1,076,700
Acquisition fees		980,000		148,000		980,000		88,000
Remarketing fees		64,000		241,000		64,000		173,000

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AeroCentury Corp.

Notes to Financial Statements (Unaudited)

June 30, 2014

8.Subsequent Events

In July 2014, the Company sold a Fokker 50 aircraft and recorded a gain of approximately $332,000.

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with the Company’s Form 10-K for the year ended December 31, 2013 and the unaudited financial statements and related notes that appear elsewhere in this report.

Critical Accounting Policies, Judgments and Estimates

The Company’s discussion and analysis of its financial condition and results of operations are based upon the financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.  The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities at the date of the financial statements.  In the event that actual results differ from these estimates or the Company adjusts these estimates in future periods, the Company’s operating results and financial position could be materially affected.  For a discussion of Critical Accounting Policies, Judgments and Estimates, refer to Note 1 to the Company’s financial statements in Item 1 of this Quarterly Report on Form 10-Q.

For a discussion of the Company’s accounting policies regarding maintenance reserves, refer to Note 4 to the Company’s financial statements in Item 1 of this Quarterly Report on Form 10-Q.  For a discussion of the Company's change in method of accounting for certain maintenance reserves and lessor maintenance obligations and its application to prior periods, refer to Note 2 to the Company's financial statements in Item 1 of this Quarterly Report on Form 10-Q.

Results of Operations

Quarter ended June 30, 2014 compared to the quarter ended June 30, 2013

The Company recorded a net loss of $3.9 million in the quarter ended June 30, 2014 compared to net income of $1.3 million in the same period of 2013.  

Quarterly operating lease revenue increased 14% from $4.7 million in the quarter ended June 30, 2013 to $5.3 million in the second quarter of 2014, primarily as a result of increases in operating lease revenue from assets purchased during 2013 and 2014.  These increases were partially offset by the effect of:  (i) assets on lease in the 2013 period but off lease in the 2014 period; (ii) asset sales during 2013; and (iii) lower revenue received from those lessees from which the Company records revenue only on cash receipt as a result of substantial uncertainty of collectability.

Maintenance reserves revenue increased 44% from $1.2 million in the quarter ended June 30, 2013 to $1.7 million in the quarter ended June 30, 2014.  The amount recorded in the 2013 period represents maintenance reserves retained at lease end for one aircraft.  The amount recorded in the 2014 period represents maintenance reserves retained at lease end when six aircraft were returned to the Company.

The average net book value of assets held for lease during the second quarters of 2014 and 2013 was approximately $173.7 million and $141.7 million, respectively, representing an increase of 22%.  The average portfolio utilization during the quarters ended June 30, 2014 and 2013 was 77% and 75%, respectively.

During the second quarter of 2014, the Company recorded a net gain of $0.8 million related to the sale of two aircraft and an aircraft engine.   During the second quarter of 2013, the Company recorded a gain of $1.9 million related to the sale of one aircraft and the finance lease of an engine.

During the second quarter of 2014, the Company recorded impairment charges totaling $6.8 million for five of its Fokker 100 aircraft, based on the appraised values of those aircraft.  There were no recorded impairment charges of long-lived assets during the second quarter of 2013.

During the second quarters of 2014 and 2013, the Company added equipment to the lease portfolio of approximately $1.8 million and $2.4 million, respectively.  The 2014 amount was comprised of capital equipment added to aircraft and the reclassification of two aircraft engines from finance lease receivables to aircraft and aircraft engines held for lease.  The Company sold equipment with a book value of approximately $5.3 million and $2.1 millionduring the second quarters of 2014 and 2013, respectively.  Depreciation and management fees in the second quarter of 2014 increased by 11% and 24%, respectively, over the previous year, primarily as a result of acquisitions and changes in residual assumptions from year to year.

The Company’s interest expense increased by 26% from $1.0 million in the second quarter of 2013 to $1.3 million in the second quarter of 2014, primarily as a result of a higher average Credit Facility balance.

The Company’s professional fees, general and administrative and other expenses increased by 177% from $0.3 million in the second quarter of 2013 to $0.8 million in the second quarter of 2014, primarily as a result of pilot, fuel, insurance and other expenses incurred in connection with the return of six aircraft and two General Electric CT7-9B engines by one of the Company’s customers when it ceased operations in the 2014 period.

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Six months ended June 30, 2014 compared to the six months ended June 30, 2013

The Company recorded a net loss of $3.6 million in the six months ended June 30, 2014 compared to net income of $5.2 million in the same period of 2013.  

Quarterly operating lease revenue increased 17% from $9.6 million in the first half of 2013 to $11.2 million in the first half of 2014, primarily as a result of increases in operating lease revenue from assets purchased during 2013 and 2014.  The effect of these increases was partially offset by the effect of: (i) assets that were on lease in the 2013 period but off lease in the 2014 period, (ii) asset sales during 2013 and (iii) lower revenue received from those lessees from which the Company records revenue only on cash receipt as a result of substantial uncertainty of collectability.

Maintenance reserves revenue decreased 56% from $7.7 million in the first half of 2013 to $3.4 million in the first half of 2014.  The amount recorded in the 2013 period was received from the prior lessee of two of the Company’s aircraft when the leases were assigned to a new lessee in 2012 and recognized as maintenance reserves revenue upon termination of those leases in the first quarter of 2013, and from maintenance reserves retained at lease end for another aircraft.  The amount recorded in the 2014 period represents maintenance reserves retained at lease end when seven aircraft were returned to the Company

The average net book value of assets held for lease during the six months ended June 30, 2014 and 2013 was approximately $177.9 million and $142.8 million, respectively, representing an increase of 25%.  The average portfolio utilization during the six months ended June 30, 2014 and 2013 was 79% and 76%, respectively.

During the first half of 2014, the Company recorded net gains totaling $1.2 million related to the sale of four aircraft and an aircraft engine.   During the six months ended June 30, 2013, the Company recorded net gains of $2.2 million related to the sale of two aircraft and the finance lease of an engine.

During the first half of 2014, the Company recorded impairments totaling $6.8 million for five of its Fokker 100 aircraft, based on appraisal.  There were no recorded impairments of long-lived assets during the first half of 2013.

During the six months ended June 30, 2014 and 2013, the Company added equipment to the lease portfolio of approximately $33.0 million and $4.3 million, respectively.  The Company sold equipment with a book value of approximately $7.9 million and $4.4 millionduring the six months ended June 30, 2014 and 2013, respectively.  Depreciation and management fees in the first six months of 2014 increased by 9% and 22%, respectively, over the previous year, primarily as a result of acquisitions and changes in residual assumptions from year to year.

The Company’s interest expense increased by 24% from $2.1 million in the first six months of 2013 to $2.6 million in the same period of 2014, primarily as a result of a higher average Credit Facility balance.

The Company’s professional fees, general and administrative and other expenses increased by 81% from $0.6 million in the first half of 2013 to $1.1 million in the first half of 2014, primarily as a result of pilot, fuel, insurance and other expenses incurred in connection with the return of six aircraft and two General Electric CT7-9B engines by one of the Company’s customers when it ceased operations in the 2014 period.

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Liquidity and Capital Resources

The Company is currently financing its assets primarily through debt financing and excess cash flows.  

(a)Credit Facility

During May 2014, the Company’s $130 million Credit Facility (the “Credit Facility”), which is provided by a syndicate of banks, was increased to $180 million and extended through May 31, 2019.  The Credit Facility is secured by all of the assets of the Company, including its aircraft and engine portfolio.

In November 2013, the Company obtained a waiver of compliance with a lessee concentration covenant under its Credit Facility agreement at the September 30, 2013 and December 31, 2013 calculation dates.The Company was in compliance with all covenants other than the waived covenant under the Credit Facility agreement at December 31, 2013.  

As of June 30, 2014, the Company was out of compliance with a profitability covenant.  The non-compliance resulted primarily from the Company recognizing aircraft impairment charges totaling $6.8 million at June 30, 2014.   Based on its current projections, the Company believes that it may be out of compliance with this covenant, which is calculated on a trailing 12 months basis, at subsequent calculation dates.  The Company is in discussions with the agent bank to amend the credit facility agreement to exclude impairment charges from the profitability covenant calculation, and retroactively cure the covenant default on June 30, 2014 and subsequent calculation dates.  The Company believes that the Credit Facility banks will agree to such an amendment during the third quarter of 2014; there is, however, no assurance that such an amendment agreement will eventually be entered into between the Company and the Credit Facility banks.  Furthermore, if such an amendment is agreed to, the Credit Facility banks could require terms and conditions that increase the cost of the Credit Facility to the Company and/or that are less favorable to the Company than the current agreement.  The Company was in compliance with all other covenants at June 30, 2014.

For additional information regarding the Company’s credit facility, refer to Note 5 to the Company’s financial statements in Item 1 of this Quarterly Report on Form 10-Q.

(b)Cash flow

The Company’s primary sources of cash are (i) rent payments due under the Company’s operating and finance leases and (ii) maintenance reserves billed monthly to lessees based on asset usage.

The Company’s primary uses of cash are for purchase of aircraft and engines, maintenance expense and reimbursement to lessees from collected maintenance reserves, management fees, professional fees, insurance, and Credit Facility interest and principal payments.  The amount of interest paid by the Company depends on the outstanding balance of its Credit Facility, which carries a floating interest rate as well as an interest rate margin, and is therefore also dependent on changes in prevailing interest rates.

The timing and amount of the Company’s payments for maintenance vary, depending on the timing of lessee-performed maintenance that is eligible for reimbursement, the aggregate amount of such claims and the timing and amount of maintenance incurred in connection with preparation of off-lease assets for re-lease to new customers.  The Company’s maintenance payments typically constitute a large portion of its cash needs, and the Company may from time to time borrow additional funds under the Credit Facility to provide funding for such payments.

Management believes that the Company will have adequate cash flow to meet its ongoing operational needs, including any required repayments under the Credit Facility due to borrowing base limitations, based upon its estimates of future revenues and expenditures, which include assumptions regarding (i) revenues for assets to be re-leased, (ii) required debt payments, (iii) interest rates, (iv) the cost and anticipated timing of maintenance to be performed and (v) timely use of proceeds of unused debt capacity toward additional acquisitions of income producing assets.

Although the Company believes that the assumptions it has made in forecasting its cash flow are reasonable in light of experience, actual results could deviate from such assumptions.  Among the more significant factors that could have an impact on the accuracy of cash flow assumptions are (i) lessee non-compliance with lease obligations, (ii) inability to locate new lessees for returned equipment within a reasonable remarketing period, or at a rent level consistent with projected rates for the asset, (iii) lessee performance of maintenance, and payment of related maintenance claims, earlier than anticipated, (iv) inability to locate and acquire a sufficient volume of additional assets at prices that will produce acceptable net returns, (v) increases in interest rates, (vi) inability to timely dispose of off-lease assets at prices commensurate with their market value,  and (vii) any one or a combination of the above factors that causes the Company to violate covenants under the Credit Facility agreement, which may in turn require repayment of some or all of the amounts outstanding.

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(i)Operating activities

The Company’s cash flow from operations was approximately the same in the first six months of 2014 compared to the same period in 2013.  As discussed below, the change in cash flow was primarily a result of increases in payments received for operating lease revenue and security deposits as well as a decrease in payments for aircraft insurance, the effects of which were partially offset by increases in payments for maintenance, interest and management fees.

Payments for operating lease revenue and maintenance reserves

Payments received from lessees for rent increased by $2.8 million in the first half of 2014 compared to the first half of 2013, primarily due to rent from assets purchased during late 2013 and early 2014.  Payments received for maintenance reserves decreased by $1.1 million in the first half of 2014 compared to the same period in 2013, primarily as a result of payment delinquencies and lower utilization of some assets for which the Company collects maintenance reserves.

The Company is receiving no lease revenue for its assets that are currently off lease, which assets are comprised of six Fokker 100 aircraft, six Saab 340B Plus aircraft, two Fokker 50 aircraft, one Dash-8-311 aircraft, two General Electric CF34-8E5 engines, two General Electric CT7-9B engines and one Tay 650-15 engine.  The Tay 650-15 engine, which was acquired during the first quarter of 2013, is being held as a spare and used in connection with required maintenance on the Company’s Fokker 100 aircraft.

Payments for security deposits

Payments for security deposits increased by $0.6 million in the first half of 2014 compared to the first half of 2013 primarily as a result of a 100% deposit received in the 2014 period for the sale of an aircraft in July 2014.

Payments for maintenance

Payments for maintenance increased by $1.4 million in the first half of 2014 compared to the first half of 2013, primarily as a result of an increase in maintenance costs for off-lease aircraft.  The amount of payments for maintenance in future periods will depend on the amount and timing of maintenance paid as reimbursement to lessees for maintenance reserves claims, which are dependent upon utilization and required maintenance intervals, and maintenance paid for off-lease assets.

Payment for interest and management fees

Payments for interest and management fees increased by $0.7 million and $0.9 million, respectively, in the first half of 2014 compared to the same period of 2013 as a result of a higher Credit Facility balance and asset purchases.

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Payment for professional fees, general and administrative and other expenses

Payments for professional fees, general and administrative and other expenses increased by $0.5 million in the first half of 2014 compared to the same period in 2013 primarily as a result of pilot, fuel, insurance and other expenses incurred in connection with the return of six aircraft and two engines by one of the Company’s customers in the 2014 period when it ceased operations.

(ii)Investing activities

During the six months ended June 30, 2014 and 2013, the Company received cash of $9.5 million and $5.1 million, respectively, from the sale of assets.  During the same time periods, the Company used cash of $32.2 million and $4.1 million, respectively, for purchases and capital improvement of aircraft.

(iii)Financing activities

The Company borrowed $32.1 million and $2.0 million under the Credit Facility during the first six months of 2014 and 2013, respectively.  In these same time periods, the Company repaid $8.2 million and $0.3 million, respectively, of its total outstanding debt under the Credit Facility.  Such repayments were funded by excess cash flow.  During the first six months of 2014 and 2013, the Company paid $2.4 million and $2.1 million of fees related to the extension and administration of the Company’s Credit Facility.  Such fees are amortized over the term of the Credit Facility.

Outlook  

(a)General

While certain areas of the world air carrier industry are now beginning to experience growth after a period of contraction following the global downturn of recent years, other areas of the world continue to experience slow recovery and shakeouts of weaker air carrier competitors that were unable to survive the aftermath of the global downturn.  Overall, the Company continues to experience a reduction in the number of aircraft and aircraft engines needed for operation by carriers in nearly all geographic areas, especially in Western Europe, as compared to periods before the global downturn.  The overall low-growth environment, combined with the unanticipated cessation of operations by a regional Thai carrier and return to the Company of six leased aircraft and two aircraft engines, and continuing delays in re-leasing certain of the Company’s older off-lease aircraft will present an ongoing and challenging environment for the Company in four respects:

•  Lessees who are located in low- or no- growth areas of the world carry heightened risk of an unanticipated lessee default.  A lessee’s default and the unscheduled return of an asset to the Company for remarketing could result not only in reduced operating lease revenue but also in unanticipated, unrecoverable expenses arising from the lessee’s default on its maintenance and return condition obligations.  The Company monitors the performance of all of its customers and has noted that several of the Company’s customers continue to experience weakened operating results and have not yet achieved financial stability.

•  The current environment heightens the possibility that the Company’s existing lessees will choose to return leased assets at lease expiration rather than renew the existing leases, notwithstanding that any such lessee may incur significant expenses to satisfy return conditions.  Due to the flat demand for aircraft capacity, it is likely that the Company will experience lower on-lease utilization rates and longer lead times for remarketing of returned assets, as well as lower rental rates for remarketed assets, as was the case with several lease extensions and re-leases since 2011. This trend is expected to continue to affect the Company’s operating revenue through 2014.

•  The lack of significant growth in the pool of customers requiring aircraft for lease creates a challenge for the Company in maintaining a high utilization rate for its aircraft portfolio.  It could also cause the Company’s overall credit risk profile to increase as the Company considers leasing its off-lease assets to start-up air carriers that have higher credit risk profiles than the Company’s current lessees.    Failure to bring new lessees into the portfolio could increase the Company’s reliance on a small number of lessees, which increases the Company’s risk of financial covenant compliance (see “Factors That May Affect Future Results – Concentration of Lessees and Aircraft Type,” below).  

•  The inability to timely remarket the Company’s off-lease aircraft could affect the Company’s collateral base and impact its ability to access acquisition funds, and, if it continues over the medium term, could affect the Company’s compliance with its collateral base financial covenants.

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(b)Operating Segments

The Company operates in one business segment, the leasing of regional aircraft to foreign and domestic regional airlines, and therefore does not present separate segment information for lines of business.

At July 31, 2014, the dominant types of aircraft in the Company’s portfolio were as follows:

Model	Number owned		% of net book value
Bombardier Dash-8-300		9		21	%
Bombardier CRJ-700		3		18	%
Bombardier Dash-8-Q400		3		15	%
Fokker 100		7		13	%
Bombardier CRJ-705		1		11	%

For the month ended July 31, 2014, the Company’s sources of operating lease revenue were from the following regions:

Region	Number of lessees		% of operating lease revenue
North America		2		34	%
Africa		2		28	%
Caribbean		1		15	%
Europe		2		11	%
Asia		3		10	%
South America		1		2	%

(c)Remarketing Efforts

In July 2014, the Company sold a Fokker 50 aircraft.  The Company has a signed letter of intent for the lease of two Saab 340B Plus aircraft and a deposit for one of the aircraft.   The Company expects to deliver the aircraft during the third quarter of 2014.  The Company also has a signed purchase agreement and non-refundable deposit for the sale of a Fokker 50 aircraft.

The Company is seeking remarketing opportunities for four Saab 340B Plus aircraft, a Fokker 50 aircraft, two General Electric CF34-8E5 engines and two General Electric CT7-9B engines.

Six of the Company’s Fokker 100 aircraft are off lease.  The Company also has a signed lease and deposit for the lease of a Fokker 100 aircraft, as well as a signed letter of intent and deposit for the lease of a second Fokker 100 aircraft to the same customer.  The Company expects to deliver both aircraft during the third quarter of 2014.  The Company is seeking remarketing opportunities for its other off-lease Fokker 100 aircraft.

Leases for four of the Company’s assets will expire during the remainder of 2014 and the Company believes that is likely that they will be returned at lease end.

The Company is considering selling some or all of its off-lease aircraft.  The Company is analyzing the amount and timing of maintenance required to remarket the aircraft, the amount of which may differ significantly if the aircraft are sold rather than re-leased.

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(d)Credit Facility

As of June 30, 2014, the Company was out of compliance with a profitability covenant.  The non-compliance resulted primarily from the Company recognizing aircraft impairment charges totaling $6.8 million at June 30, 2014.   Based on its current projections, the Company believes that it may be out of compliance with this covenant, which is calculated on a trailing 12 months basis, at subsequent calculation dates.  The Company is in discussions with the agent bank to amend the credit facility agreement to exclude impairment charges from the profitability covenant calculation, effective as of the June 30, 2014 and subsequent calculation dates.  The Company believes that the Credit Facility banks will agree to such an amendment during the third quarter of 2014; however, there is no assurance that such agreement will eventually be reached.  Furthermore, if such an amendment is agreed to, it could result in an increase in cost of the Credit Facility and/or a change in terms of the Credit Facility less favorable to the Company than the current agreement.

The Company was in compliance with all other covenants at June 30, 2014.  

The Company believes that available borrowings under the Credit Facility, considering possible lessee arrearages or off-lease periods, will be sufficient to meet its continuing obligations and to fund anticipated acquisitions.  However, there can be no assurance the Company's beliefs will prove to be correct and that the Company will have sufficient cash to make any required Credit Facility repayments.  

Factors that May Affect Future Results

Noncompliance with Credit Facility Financial Covenant.  The Company’s use of debt as the primary form of acquisition financing subjects the Company to increased risks associated with leveraging.  In addition to payment obligations, the Credit Facility agreement includes financial covenants, including some requiring the Company to have positive earnings, meet minimum net worth standards and be in compliance with certain other financial ratios.  

As discussed above in “Outlook – Credit Facility,” as of June 30, 2014, the Company was out of compliance with a profitability covenant.  The Company is in discussions with the agent bank to amend the covenant to exclude impairment charges from the profitability covenant calculation and retroactively cure the covenant default on the June 30, 2014 and subsequent calculation dates.  The Company believes that the Credit Facility banks will agree to such an amendment during the third quarter of 2014; however, there is no assurance that the Company and the Credit Facility banks will reach an agreement to such an amendment.  Furthermore, if such an amendment is agreed to, the Credit Facility banks could require terms and conditions that increase the cost of the Credit Facility to the Company and/or that are less favorable to the Company than the current agreement.  If the Company and the Credit Facility banks cannot agree to such an amendment, the Credit Facility banks would have the right to declare a default under the Credit Facility based on the noncompliance and exercise their default remedies, including, declaring the Credit Facility immediately due and payable. The Company’s assets secure its debt financing, and any default in payment obligations or other covenants under the Credit Facility could result in foreclosure upon any or all of the assets of the Company.

Although the Company believes it will continue to be in compliance with all of the Credit Facility covenants through the term of the Credit Facility (assuming the profitability covenant is amended as expected), there can be no assurance of such compliance, and in the event of any non-compliance, the Company will need to seek further waivers or amendment of applicable covenants from its lenders if such compliance failure is not timely cured.  Any default under the Credit Facility, if not cured in the time permitted under the facility or waived by the lenders, could result in foreclosure upon any or all of the assets of the Company. 

Ownership Risks.  The Company’s leases are typically less than the entire anticipated remaining useful life of the leased assets.  The Company’s ability to recover its investment in an asset subject to such a lease is dependent upon the Company’s ability to profitably re-lease or sell the asset after the expiration of the lease term.  The Company’s ability to re-lease or sell the asset is dependent on worldwide economic conditions, general aircraft market conditions, regulatory changes that may make an asset’s use more expensive or preclude use due to the age of the aircraft or unless the asset is modified, changes in the supply or cost of aircraft equipment and technological developments that cause the asset to become obsolete. If the Company is unable to remarket its assets on favorable terms when the leases for such assets expire, the Company’s financial condition, cash flow, ability to service debt and results of operations could be adversely affected.  

The Company acquires used aircraft equipment.  The market for used aircraft equipment has been cyclical, and generally reflects economic conditions and the strength of the travel and transportation industry.  The demand for and value of many types of used aircraft in the recent past has been depressed by such factors as airline financial difficulties, the number of new aircraft on order and the number of aircraft coming off lease, as well as introduction of new aircraft models and types that may be more technologically advanced, more fuel efficient and/or less costly to maintain and operate.  Values may also increase for certain aircraft types that become desirable based on market conditions and changing airline capacity.

In addition, a successful investment in an asset subject to a lease depends in part upon having the asset returned by the lessee in the condition as required under the lease.  Each lease typically obligates a customer to return an asset to the Company in a specified condition, which generally requires it be returned in equal or better condition than at delivery to the lessee.  If the lessee becomes insolvent during the term of its lease and the Company has to repossess the asset, it is unlikely that the lessee will have the financial ability to meet these return obligations and it is likely that the Company would be required to expend funds in excess of any maintenance reserves collected to return the asset to a remarketable condition.  If the lessee files for bankruptcy and rejects the aircraft lease, although the lessee is required to return the aircraft, the lessee is relieved from all further obligations under the lease, including the obligation to return the aircraft in the condition required under the lease.  In that case, it is also likely that the Company would be required to expend funds in excess of any maintenance reserves collected to return the asset to a remarketable condition.

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Several of the Company’s leases do not require payment of monthly maintenance reserves, which serve as the lessee’s advance payment for its future repair and maintenance obligations.  If repossession due to lessee default or bankruptcy occurs under such a lease, the Company will be left with the costs of unperformed repair and maintenance under the applicable lease and the Company may incur an unanticipated expense in order to re-lease or sell the asset.

Furthermore, the occurrence of unexpected adverse changes that impact the Company’s estimates of expected cash flows generated from an asset may result in an asset impairment charge against the Company’s earnings. The Company periodically reviews long-term assets for impairment, in particular, when events or changes in circumstances indicate the carrying value of an asset may not be recoverable. An impairment loss is recognized when the carrying amount of an asset is estimated to be not recoverable and exceeds its fair value. The Company recognized impairment charges for five of its Fokker 100 aircraft at June 30, 2014 and may be required to recognize asset impairment charges in the future as a result of a prolonged weak economic environment, challenging market conditions in the airline industry or events related to particular lessees, assets or asset types.

Lessee Credit Risk. The Company carefully evaluates the credit risk of each customer and attempts to obtain a third party guaranty, letters of credit or other credit enhancements, if it deems them necessary in addition to customary security deposits.  There can be no assurance, however, that such enhancements will be available, or that, if obtained, will fully protect the Company from losses resulting from a lessee default or bankruptcy.

If a lessee that is a certified U.S. airline were in default under a lease and sought protection under Chapter 11 of the United States Bankruptcy Code, Section 1110 of the Bankruptcy Code would automatically prevent the Company from exercising any remedies against such lessee for a period of 60 days.  After the 60-day period had passed, the lessee would have to agree to perform the lease obligations and cure any defaults, or the Company would have the right to repossess the equipment.  However, this procedure under the Bankruptcy Code has been subject to significant litigation, and it is possible that the Company’s enforcement rights may be further adversely affected by a bankruptcy filing by a defaulting lessee.

Several of the Company’s customers have experienced significant financial difficulties, become insolvent, or have been declared or have filed for bankruptcy.  Such an insolvency or bankruptcy usually discharges all unpaid obligations of the customer existing at the time of the filing, resulting in a total loss of those receivables.  The Company closely monitors the performance of all of its lessees and its risk exposure to any lessee that may be facing financial difficulties, in order to guide decisions with respect to such lessee that would mitigate losses in the event the lessee is unable to meet or rejects its lease obligations.  There can be no assurance that additional customers will not become insolvent or file for bankruptcy or that the Company will be able to mitigate any of the resultant losses.

Risks Related to Regional Air Carriers.  The Company’s continued focus on its customer base of regional air carriers subjects the Company to additional risks.  Some of the lessees in the regional air carrier market are companies that are start-up, low-capital, and/or low-margin operators.  Often, the success of such carriers depends on contractual arrangements with major trunk carriers or franchises from governmental agencies that provide subsidies for operating essential air routes, both of which may be subject to termination or cancellation on short notice.  Regional carriers, even if financially strong, that are owned by, or are a sister corporation of, an established major carrier can also be swept into bankruptcy if the major carrier files for bankruptcy or becomes insolvent.  Four of the Company's regional air carrier customers filed for bankruptcy in 2012-2013, and in May 2014, a Thai regional carrier that leased six aircraft and two engines from the Company ceased operations.

Credit Facility Debt Limitations. Under the Credit Facility, the amount available to be borrowed is limited to the total amount of asset-specific advance rates.  Lessee arrearages or asset off-lease periods may reduce the advance rate for the related assets and, therefore, the permitted borrowing under the facility.  Amounts subject to deferral agreements also reduce the borrowing base.  The Company believes it will have sufficient cash funds to make any required principal repayment that arises due to any such borrowing base limitations.

Availability of Financing. The Company’s continued growth will depend on its ability to continue to obtain capital, either through debt or equity financings. The financial markets have experienced significant setbacks that have continued to make access to capital and asset-based debt financing more costly and difficult to obtain. There can be no assurance that the Company’s belief regarding the availability of financing under the current Credit Facility will prove to be correct, or that the Company will succeed in finding additional funding, and if such financing is found, it may be on terms less favorable than the Company’s current debt financings.

General Economic Conditions and Lowered Demand for Travel. The Company’s business is dependent upon general economic conditions and the strength of the travel and transportation industry.  The industry is continuing to experience financial difficulty due to the slow recovery in the global economy. Passenger volume has fallen significantly for many carriers, and the loss of revenue has affected their financial condition.  The current lending environment has made it difficult or impossible for many regional carriers to find the additional debt financing on which they have traditionally relied.  The confluence of these economic factors increases the likelihood of failures among the Company’s customers.  The spread of a disease epidemic, the threat or execution of a terrorist attack against aviation, a worsening financial/bank crisis in Europe, a natural event that interrupts air traffic, political crises or other events that cause a prolonged spike in fuel prices, or other like events could exacerbate an already weakened condition and lead to widespread failures in the air carrier industry.  If lessees experience financial difficulties and are unable to meet lease obligations, this will, in turn, negatively affect the Company’s financial performance.  

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Airline reductions in capacity in response to lower passenger loads have resulted in reduced demand for aircraft and aircraft engines and a corresponding decrease in market lease rental rates and aircraft values for many aircraft types.  This reduced market value could affect the Company’s results if the market value of an asset or assets in the Company’s portfolio falls below carrying value, and the Company determines that a write-down of the value on its balance sheet is appropriate. Furthermore, if older, expiring leases are replaced with leases at decreased lease rates, the lease revenue from the Company’s existing portfolio is likely to decline, with the magnitude of the decline dependent on the length of the downturn and the depth of the decline in market rents.  

Economic downturns can affect certain regions of the world more than others.  As the Company’s portfolio is not entirely globally diversified, a localized downturn in one of the key regions in which the Company leases assets could have a significant adverse impact on the Company.  The Company’s significant sources of operating lease revenue by region are summarized in “Outlook - Operating Segments,” above.

Over the last few years, several of the Company’s customers have experienced financial difficulties arising from a combination of the weakened air carrier market and their own unique financial circumstances and have requested and been granted deferral of certain overdue and/or future rental or reserve payment obligations.  It is possible that the Company may enter into additional deferral agreements if the current weakened air carrier environment continues. When a customer requests a deferral of lease obligations, the Company evaluates the lessee’s financial plan, the likelihood that the lessee can remain a viable carrier, and whether the deferral will be repaid according to the agreed schedule.  The Company may elect to record the deferred rent and reserve payments from the lessee on a cash basis, which could have a material effect on the Company’s financial results in the applicable periods.

International Risks.  The Company leases assets primarily in overseas markets.  Leases with foreign lessees, however, may present different risks than those with domestic lessees.  Most of the Company’s expected growth is outside of the United States.

A lease with a foreign lessee is subject to risks related to the economy of the country or region in which such lessee is located, which may be weaker than the U.S. economy.  An economic downturn in a particular country or region may impact a foreign lessee’s ability to make lease payments, even if the U.S. and other foreign economies remain stable.

Foreign lessees are subject to risks related to currency conversion fluctuations.  Although the Company’s current leases are all payable in U.S. dollars, the Company may agree in the future to leases that permit payment in foreign currency, which would subject such lease revenue to monetary risk due to currency fluctuations.  In addition, if the Company undertakes certain obligations under a lease to contribute to a repair or improvement and if the work is performed in a foreign jurisdiction and paid for in foreign currency, currency fluctuations resulting in a weaker dollar between the time such agreement is made and the time payment for the work is made may result in an unanticipated increase in U.S. dollar-denominated cost for the Company.

Even with U.S. dollar-denominated lease payment provisions, the Company could still be affected by a devaluation of the lessee’s local currency that would make it more difficult for a lessee to meet its U.S. dollar-denominated payments, increasing the risk of default of that lessee, particularly if its revenue is primarily derived in the local currency.

Foreign lessees that operate internationally may also face restrictions on repatriating foreign revenue to their home country.  This could create a cash flow crisis for an otherwise profitable carrier, affecting its ability to meet its lease obligations.

Non-U.S. lessees are not subject to U.S. bankruptcy laws, although there may be debtor protection similar to U.S. bankruptcy laws available in some jurisdictions.  Certain countries do not have a central registration or recording system with which to locally establish the Company’s interest in equipment and related leases.  This could make it more difficult for the Company to recover an aircraft in the event of a default by a foreign lessee.  In any event, collection and enforcement may be more difficult and complicated in foreign countries.

Finally, ownership of a leased asset operating in a foreign country and/or by a foreign carrier may subject the Company to additional tax liabilities that are not present with aircraft operated in the United States.  Depending on the jurisdiction, laws governing such tax liabilities may be complex, not well formed or not uniformly enforced. In such jurisdictions, the Company may decide to take an uncertain tax position based on the best advice of the local tax experts it engages, which position may be challenged by the taxing authority.  If the taxing authority later assesses a liability, the Company may be required to pay penalties and interest on the assessed amount, which penalties and interest would not give rise to a corresponding foreign tax credit on the Company’s U.S. tax return.

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Concentration of Lessees and Aircraft Type. For the month ended July 31, 2014, based on monthly operating lease revenue and interest income from finance leases, the Company’s five largest customers accounted for a total of approximately 83% of the Company’s monthly lease revenue.  A lease default by or collection problem with one or a combination of any of these significantcustomers could have a disproportionate negative impact on the Company’s financial results and borrowing base under the Credit Facility, and, therefore, the Company’s operating results are especially sensitive to any negative developments with respect to these customers in terms of lease compliance or collection.  In addition, if the Company’s revenues become overly concentrated in a small number of lessees, the Company could fail to comply with certain financial covenants in its Credit Facility related to customer concentration.  In the event of any such failure to be in compliance, the Company will need to seek waivers or amendment of the applicable covenants from its lenders if such compliance failure is not timely cured.  Any default under the Credit Facility, if not cured in the time permitted under the Credit Facility or waived by the lenders, could result in foreclosure upon any or all of the assets of the Company.

The dominant types of aircraft in the Company’s portfolio are summarized in “Outlook - Operating Segments,” above.A change in the desirability and availability of any of these types of aircraft, which would in turn affect valuations of such aircraft, would have a disproportionately significant impact on the Company’s portfolio value. Such aircraft type concentration would diminish if the Company acquires additional assets of other types. Conversely, acquisition of these types of aircraft will increase the Company’s risks related to its concentration of those aircraft types.

Investment in New Aircraft Types and Engines.  The Company intends to continue to focus solely on regional aircraft and engines. Although the Company has traditionally invested in a limited number of types of turboprop aircraft and engines, the Company has also acquired several types of regional jet aircraft, as well as regional jet aircraft engines, and may continue to seek acquisition opportunities for new types and models of aircraft and engines used in the Company’s targeted customer base of regional air carriers. Acquisition of aircraft types and engines not previously acquired by the Company entails greater ownership risk due to the Company's lack of experience managing those assets. The Company believes, however, that the overall industry experience of JMC’s personnel and its technical resources should permit the Company to effectively manage such new aircraft types and engines.  Further, the broadening of the asset types in the aircraft portfolio may have a benefit of diversifying the Company’s portfolio (see “Factors That May Affect Future Results – Concentration of Lessees and Aircraft Type,” above).

Engine Leasing Risk.  The Company currently has five engines in its portfolio, making up 5% of the Company’s total net book value of aircraft and aircraft engines held for lease. The Company may from time to time lease one or more of these engines under industry standard short-term engine leases, which place the risk of an engine failure not caused by lessee negligence or foreign object damage upon the lessor.  It is not economically practicable for an engine lessor to insure against that risk.  If an engine failure occurs and is not covered by a manufacturer’s warranty or is not otherwise caused by circumstances that the lessee is required to cover, the Company’s investment in the engine could be a significant loss or the Company might incur a significant maintenance expense.

Interest Rate Risk.  The Credit Facility carries a floating interest rate based upon short-term interest rate indices. Lease rates typically, but not always, move over time with interest rates, but market demand and numerous other asset-specific factors also affect lease rates. Because the Company’s typical lease rates are fixed at lease origination, interest rate changes during the lease term have no effect on existing lease rental payments.  Therefore, if interest rates rise significantly and there is relatively little lease origination by the Company following such rate increases, the Company could experience decreased net income as additional interest expense outpaces revenue growth.  Further, even if significant lease origination occurs following such rate increases, other contemporaneous aircraft market forces may result in lower or flat rental rates, thereby decreasing net income.

Reliance on JMC.  All management of the Company is performed by JMC under the twenty-year Management Agreement between the Company and JMC that expires in April of 2018 and provides for an asset-based management fee.  JMC is not a fiduciary of the Company or its stockholders. The Company’s Board of Directors (the “Board”) has ultimate control and supervisory responsibility over all aspects of the Company and owes fiduciary duties to the Company and its stockholders. The Board has no control over the internal operations of JMC, but the Board does have the ability and responsibility to manage the Company’s relationship with JMC and the performance of JMC's obligations to the Company under the Management Agreement, as it would have for any third party service provider to the Company.  While JMC may not owe any fiduciary duties to the Company by virtue of the Management Agreement, all of the officers of JMC are also officers of the Company, and in that capacity owe fiduciary duties to the Company and its stockholders.  In addition, certain officers of the Company hold significant ownership positions in the Company and JHC, the parent company of JMC.

The Management Agreement may be terminated if JMC defaults on its obligations to the Company.  However, the agreement provides for liquidated damages in the event of its wrongful termination by the Company.  Certain directors of the Company are also directors of JMC and, as discussed above, the officers of the Company are also officers of JMC and certain officers hold significant ownership positions in both the Company and JHC, the holding company for JMC.  Consequently, the directors and officers of JMC may have a conflict of interest in the event of a dispute between the Company and JMC.  Although the Company has taken steps to prevent conflicts of interest arising from such dual roles, such conflicts may still occur.

Management Fee Structure. All decisions regarding acquisitions and disposal of aircraft from the Company’s portfolio are made by JMC.  JMC is paid a management fee based on the net asset value of the Company’s portfolio.  It may also receive a one-time asset acquisition fee upon purchase of an asset by the Company, and a one-time remarketing fee in connection with the sale or re-lease of an asset.  Optimization of the results of the Company depends on timing of the acquisition, lease yield on the acquired assets, and re-lease or sale of its portfolio assets.  Under the current management fee structure, a larger volume of acquisitions generates acquisition fees and also increases the periodic management fee by increasing the size of the aircraft portfolio.  Since the Company’s current business strategy involves continued growth of its portfolio and a “buy and hold” strategy, a compensation structure that results in greater compensation with an increased portfolio size is consistent with that strategy.  The compensation structure does, nonetheless, create a situation where a decision by JMC for the Company to forego an asset transaction deemed to be an unacceptable business risk due to the lessee or the aircraft type is in conflict with JMC’s own pecuniary interest.  As a result, the compensation structure could act to incent greater risk-taking by JMC in asset acquisition decision-making.  The Company has established objective target guidelines for yields on acquired assets.  Further, the Company’s Board, including a majority of the outside independent directors, must approve any acquisition that involves a new asset type.  While the Company currently believes the foregoing are effective mitigating factors against undue compensation-incented risk-taking by JMC, there is no assurance that such mechanisms can entirely and effectively eliminate such risk.

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Government Regulation.  There are a number of areas in which government regulation may result in costs to the Company.  These include aircraft registration safety requirements, required equipment modifications, maximum aircraft age, and aircraft noise requirements.  Although it is contemplated that the burden and cost of complying with such requirements will fall primarily upon lessees of equipment, there can be no assurance that the cost will not fall on the Company.  Furthermore, future government regulations could cause the value of any non-complying equipment owned by the Company to decline substantially.

Competition.  The aircraft leasing industry is highly competitive.  The Company competes with aircraft manufacturers, distributors, airlines and aircraft 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.  Nevertheless, the Company believes that it is competitive because of JMC’s experience and operational efficiency in identifying and obtaining financing for the transaction types desired by regional air carriers.  This market segment, which is characterized by transaction sizes of less than $10 million and in many cases customers that are private companies without well-established third party credit ratings, is not well served by the Company’s larger competitors.  JMC has developed a reputation as a global participant in this segment of the market, and the Company believes that JMC’s reputation benefits the Company.  There is, however, no assurance that competition from larger aircraft leasing companies will not increase significantly or that JMC’s reputation will continue to be strong in this market segment.

Casualties, Insurance Coverage.  The Company, as owner of transportation equipment, may be named in a suit claiming damages for injuries or damage to property caused by its assets.  As a triple-net lessor, the Company is generally protected against such claims, since the lessee would be responsible for, insure against and indemnify the Company for such claims.  A “triple net lease” is a lease under which, in addition to monthly rental payments, the lessee is generally responsible for the taxes, insurance and maintenance and repair of the aircraft arising from the use and operation of the aircraft during the term of the lease.  Although the United States Aviation Act may provide some protection with respect to the Company’s aircraft assets, it is unclear to what extent such statutory protection would be available to the Company with respect to most of the Company’s assets, which are operated in foreign countries where such provisions of the United States Aviation Act may not apply.   

The Company’s leases generally require a lessee to insure against likely risks of loss or damage to the leased asset, and liability to passengers and third parties pursuant to industry standard insurance policies and require lessees to provide insurance certificates documenting the policy periods and coverage amounts.  The Company tracks receipt of the certificates and calendars their expiration dates.  Prior to the expiration of an insurance certificate, if a replacement certificate has not been received, the Company reminds the lessee of its obligation to provide current insurance certificates to avoid a default under the lease.

Despite these requirements and procedures, there may be certain cases where the loss is not entirely covered by the lessee or its insurance.  The possibility of such an event is remote, but any such uninsured loss with respect to the equipment or insured loss for which insurance proceeds are inadequate might result in a loss of invested capital in and any profits anticipated from, such equipment, as well as a potential claim directly against the Company.

Compliance with Future Environmental Regulations.  Compliance with future environmental regulationsmay harm the Company’s business. Many aspects of aircraft operations are subject to increasingly stringent environmental regulations, and growing concerns about climate change may result in the imposition by the U.S and foreign governments of additional regulation of carbon emissions, aimed at either requiring adoption of technology to reduce the amount of carbon emissions or putting in place a fee or tax system on carbon emitters. It is likely that any such regulation will be directed at the Company’s customers, as operators of aircraft, or at the Company, as owners of aircraft.  Under the Company’s triple-net lease arrangements, the Company would likely shift responsibility for compliance to its lessees, but there might be some costs of regulation that the Company could not shift and would itself have to bear. Although it is not expected that the costs of complying with current environmental regulations will have a material adverse effect on the Company’s financial position, results of operations, or cash flows, no assurance can be given that the costs of complying with environmental regulations adopted in the future will not have such an effect.

Cyber-Security Risks.  The Company believes that it has sufficient cyber-security measures in place commensurate with the risks to the Company of a successful cyber-attack or breach of security.  The Company’s main vulnerability to a cyber-attack would be interruption of the Company’s email communications internally and with third parties, and loss of document sharing between the Company’s offices and remote workers.  Such an attack could temporarily impede the efficiency of the Company’s operations; however, the Company believes that sufficient replacement mechanisms exist in the event of such an interruption that there would not be a material adverse financial impact on the Company’s business.  

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Warrants.  As part of a subordinated debt financing, which was fully repaid in December of 2011, the Company issued warrants to purchase up to 81,224 shares of the Company’s common stock that are currently exercisable (and expire on December 31, 2015) and represent approximately 5% of the post-exercise fully diluted capitalization of the Company.  The exercise price of the warrants is $8.75 per share.  If the warrants to purchase shares are exercised at a time when the exercise price is less than the market price of the Company’s common stock, there will be dilution to the existing holders of common stock.  This dilution of the Company’s common stock could depress its trading price.

Possible Volatility of Stock Price.  The market price of the Company’s common stock may be subject to fluctuations following developments relating to the Company’s operating results, changes in general conditions in the economy, the financial markets, the airline industry, changes in accounting principles or tax laws applicable to the Company or its lessees, or other developments affecting the Company, its customers or its competitors, or arising from other investor sentiment unknown to the Company.  Because the Company has a relatively small capitalization of approximately 1.5 million shares outstanding, there is a correspondingly limited amount of trading and float of the Company’s shares.  Consequently, the Company’s stock price is more sensitive to a single large trade or a small number of simultaneous trades along the same trend than a company with larger capitalization and higher trading volume and float.

Item 3.Quantitative and Qualitative Disclosures About Market Risk.

This report does not include information described under Item 305 of Regulation S-K pursuant to the rules of the Securities and Exchange Commission that permit “smaller reporting companies” to omit such information.

Item 4.Controls and Procedures.

CEO and CFO Certifications. Attached as exhibits to this Quarterly Report on Form 10-Q (the “Report”) are certifications of the Company’s Chief Executive Officer (the “CEO”) and the Company’s Chief Financial Officer (the “CFO”), which are required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (the “Section 302 Certifications”). This section of the Report includes information concerning the evaluation of disclosure controls and procedures referred to in the Section 302 Certifications and this should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.

Evaluation of the Company’s Disclosure Controls and Procedures. Disclosure controls and procedures (“Disclosure Controls”) are controls and other procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed under the Securities Exchange Act of 1934, such as this Report, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

The Company’s management, with the participation of the CEO and CFO, evaluated the effectiveness of the design and operation of the Company’s Disclosure Controls and concluded that the Company’s Disclosure Controls were effective as of June 30, 2014.

Changes in Internal Control Over Financial Reporting.  No change in the Company’s internal control over financial reporting occurred during the fiscal quarter ended June 30, 2014 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II

OTHER INFORMATION

Item 6.Exhibits

Exhibit Number	Description
10.19	Form of Second Amended and Restated Credit Agreement, dated May 30, 2014, between the Company and Union Bank, N.A., California Bank and Trust, U.S. Bank National Association, Umpqua Bank, First Bank, and Cathay Bank (portions of this exhibit have been omitted pursuant to a request for confidential treatment).
31.1	Certification of Neal D. Crispin, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Toni M. Perazzo, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Neal D. Crispin, Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification of Toni M. Perazzo, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Schema Document
101.CAL	XBRL Calculation Linkbase Document
101.LAB	XBRL Label Linkbase Document
101.PRE	XBRL Presentation Linkbase Document
101.DEF	XBRL Definition Linkbase Document

* These certificates are furnished to, but shall not be deemed to be filed with, the Securities and Exchange Commission.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	AEROCENTURY CORP.
Date: August 13, 2014	By:	/s/ Toni M. Perazzo
		Name: Toni M. Perazzo
		Title: Senior Vice President-Finance and
		Chief Financial Officer

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EX-10.19

SECOND AMENDED AND RESTATED

LOAN AND SECURITY AGREEMENT

THIS SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT ("Agreement"), is entered into as of May 30, 2014, between AEROCENTURY CORP., a Delaware corporation ("Borrower"), UNION BANK, N.A., together with any other Lender hereunder from time to time (collectively, the "Lenders" and individually, a "Lender") and UNION BANK, N.A., as Agent ("Agent") and Swing Line Lender (“Swing Line Lender”), effective as of the Closing Date, with reference to the following facts:

RECITALS

A.           Borrower is in the business of purchasing and leasing aircraft and aircraft engines and equipment.

B.           Pursuant to that certain Loan and Security Agreement dated as of April 28, 2010, (as amended, the “Original Agreement”), the financial institutions as lender parties thereto (collectively, the “Original Lenders”) and Union Bank, N.A., as administrative agent for the Original Lenders, agreed to make available to Borrower a revolving credit facility (the “Original Loan”), to be used for the purpose of refinancing existing revolving debt, acquiring aircraft and aircraft engines, and supporting Borrower's working capital needs and general corporate purposes.

C.           Pursuant to that certain Amended and Restated Loan and Security Agreement dated as of March 13, 2013 (the “Amended and Restated Agreement”), the financial institutions as lender parties thereto (collectively, the “A&R Lenders”) and Union Bank, N.A., as administrative agent for the A&R Lenders, agreed to provide Borrower with an amended revolving line of credit to replace the Original Loan (the “A&R Loan”).

D.           Borrower has requested that Lenders provide Borrower with an increased revolving line of credit in an amount equal to the Revolving Commitment, which includes a swing line of credit to be provided by Swing Line Lender, to be used by Borrower for among other things, refinancing the A&R Loan, acquiring aircraft and aircraft engines owned and held for lease, and supporting Borrower’s working capital needs and general corporate purposes.

E.           Lenders are willing to extend such a revolving line of credit to Borrower, subject to the terms and conditions set forth herein.

F.           Borrower has requested and the parties hereto hereby agree that the A&R Agreement shall be amended and restated in its entirety as set forth herein.

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:

1.   DEFINITIONS AND ACCOUNTING TERMS

1.1Defined Terms

.  As used in this Agreement, the following terms shall have the respective meanings set forth below:

"Account Debtor" means any Person who is obligated under an Account.

"Accounts" means all "accounts," as such term is defined in the UCC, now owned or hereafter acquired by Borrower, including (a) all accounts receivable, payments and pre-payments under Leases, other receivables, book debts and other forms of obligations (other than forms of obligations evidenced by chattel paper, documents or instruments), whether arising out of goods sold or services rendered by it or from any other transaction (including any such obligations that may be characterized as an account or contract right under the UCC), (b) all purchase orders or receipts for goods or services, (c) all rights to any goods represented by any of the foregoing (including unpaid sellers' rights of rescission, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods), (d) all monies due or to become due to Borrower under all purchase orders and contracts for the sale of goods or the performance of services or both by Borrower or in connection with any other transaction (whether or not yet earned by performance on the part of Borrower) now or hereafter in existence, including the right to receive the proceeds of said purchase orders and contracts, and (e) all collateral security and guaranties of any kind, now or hereafter in existence, given by any Person with respect to any of the foregoing.

"Acquisition" means any transaction, or any series of related transactions, consummated after the Closing Date, by which Borrower and/or any of its Subsidiariesdirectly or indirectly (a) acquires any ongoing business or all or substantially all of the assets of any Person engaged in any ongoing business, whether through purchase of assets, merger or otherwise, (b) acquires control of securities of a Person engaged in an ongoing business representing more than 50% of the ordinary voting power for the election of directors or other governing position if the business affairs of such Person are managed by a board of directors or other governing body or (c) acquires control of more than 50% of the ownership interest in any partnership, joint venture, limited liability company, business trust or other Person engaged in an ongoing business that is not managed by a board of directors or other governing body.

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“Advance Rate” means:

(a)           seventy-five percent (75%) of the Appraised Value of Bombardier Aircraft, Embraer Aircraft and ATR Aircraft, provided, however, that the rate for such Bombardier Aircraft, Embraer Aircraft and ATR Aircraft that are not subject to an Eligible Lease for more than two hundred seventy (270) days will be reduced to forty percent (40%);

(b)           seventy percent (70%) of the Appraised Value of Leased Spare Engines, provided, however, that the rate for such Leased Spare Engines that are not subject to an Eligible Lease for more than one hundred eighty (180) days shall be reduced to thirty-five percent (35%);

(c)           sixty-five percent (65%) of the Net Book Value for Saab 340B Plus Aircraft, provided, however, that the rate for such Saab manufactured Aircraft that are not subject to an Eligible Lease for more than one hundred eighty (180) days shall be reduced to zero percent (0%);

(d)           sixty percent (60%) of the Net Book Value of all Other Saab Aircraft, provided, however, that the rate for such Other Saab Aircraft that are not subject to an Eligible Lease for more than one hundred eighty (180) days shall be reduced to zero percent (0%);

(e)           fifty percent (50%) of the Appraised Value of Fokker 50 Aircraft, provided, however, that the rate for such Fokker 50 Aircraft that are not subject to an Eligible Lease for more than one hundred eighty (180) days shall be reduced to zero percent (0%); and

(f)           thirty percent (30%) of the Appraised Value of Fokker 100 Aircraft, provided, however, that the rate for such Fokker 100 Aircraft that are not subject to an Eligible Lease for any period of time shall be reduced to zero percent (0%).

"Affiliate" means, with respect to any Person, another Person that, directly or indirectly, Controls, or is Controlled by or is under common Control with such other Person.  For the purpose of this definition, "Control" or "Controlled" means the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise.

"Agent" means Union Bank, N.A. when acting in its capacity as Agent under any of the Loan Documents, or any successor Agent.

"Agreement" means this Second Amended and Restated Loan and Security Agreement, as the same may, from time to time, be amended, supplemented, modified or restated.

"Aircraft" means each aircraft purchased by Borrower described in a Mortgage, together with any and all Parts (including Engines) which are either incorporated or installed in or attached to such aircraft’s airframe or required to be subject to the lien and security interest of such Mortgage.

"Alternative Dispute Resolution Agreement" means one or more Alternative Dispute Resolution Agreement(s) executed by Agent, each Lender, and Borrower in connection with this Agreement, the A&R Loan Agreement and the Original Agreement, as applicable.

"Applicable Base Rate" means the percentage as calculated in Section 2.2.1(a).

"Applicable Base Rate Margin" means the percentage determined by reference to Table 1 in Section 2.2.1(c) of this Agreement.

"Applicable Law" means, in respect of any Person, all provisions of constitutions, statutes, rules, regulations and orders of governmental bodies or regulatory agencies applicable to such Person, and all orders and decrees of all courts and arbitrators in proceedings or actions to which the Person in question is a party or by which it or its properties are bound.

"Applicable LIBOR Margin" means the percentage determined by reference to Table 1 in Section 2.2.1(c) of this Agreement.

"Applicable LIBOR Rate" means the percentage as calculated in Section 2.2.1(b).

"Applicable Unused Line Fee Percentage" means one half of one percent (0.50%).

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"Appraisal" means a "desktop appraisal" (i.e., an appraisal without a physical inspection of such Equipment), or, if a Default exists, such other type of appraisal (e.g., extended desktop, visual inspection) as shall be required by Agent, of an item of Equipment to determine the Appraised Value of such Equipment, performed by an Appraiser retained by Agent on behalf of the Lenders.

"Appraised Value" means, with respect to an item of Equipment, an amount as determined by the Appraiser to be the fair market value as set forth in the most recent Appraisal pursuant to Section 8.1.6 or, with respect to an item of Equipment being added to the Borrowing Base after submission of an annual Appraisal, an individual Appraisal of such item of Equipment.

"Appraiser" means (i) ASCEND – Flight Global Advisory Service, (ii) any other independent appraiser acceptable to Agent that is a member of the International Society of Transport Aircraft Trading ("ISTAT") (or if ISTAT ceases to exist, any similar professional aircraft appraiser organization that is acceptable to Agent).

"APU" means, whether or not installed on an airframe, the auxiliary power unit of the manufacture and model described in any Mortgage, together with any and all modules and Parts which are either incorporated or installed from time to time in or attached to such APU.

"Assets" means all of Borrower's assets and property, whether now existing or owned or hereafter created or acquired, and wherever located, including, but not limited to:

(a)           all accounts, chattel paper (including tangible and electronic chattel paper), contract rights, deposit accounts, documents (including negotiable documents), equipment (including the Equipment and all accessions and additions thereto, including at any time all Propellers, APUs and Landing Gear, and all parts, components, equipment, instruments, appliances, avionics, radio and radar devices, cargo handling systems and loose equipment that are at such time incorporated or installed in or attached thereto or to an Aircraft or Engine), general intangibles (including payment intangibles and software), goods (including fixtures), instruments (including promissory notes), inventory (including all goods held for sale or lease or to be furnished under a contract of service, and including returns and repossessions), investment property (including securities and securities entitlements), leases, letter of credit rights, money, and all of Borrower's books and records with respect to any of the foregoing, and the computers and equipment containing said books and records;

(b)           all common law and statutory copyrights and copyright registrations, applications for registration, now existing or hereafter arising, in the United States of America or in any foreign jurisdiction, obtained or to be obtained on or in connection with any of the forgoing, or any parts thereof or any underlying or component elements of any of the forgoing, together with the right to copyright and all rights to renew or extend such copyrights and the right (but not the obligation) of Agent to sue in its own name and/or in the name of the Borrower for past, present and future infringements of copyright;

(c)           all trademarks, service marks, trade names and service names and the goodwill associated therewith, together with the right to trademark and all rights to renew or extend such trademarks and the right (but not the obligation) of Agent to sue in its own name and/or in the name of the Borrower for past, present and future infringements of trademark;

(d)           all (i) patents and patent applications filed in the United States Patent and Trademark Office or any similar office of any foreign jurisdiction, and interests under patent license agreements, including, without limitation, the inventions and improvements described and claimed therein, (ii) licenses pertaining to any patent whether Borrower is licensor or licensee, (iii) income, royalties, damages, payments, accounts and accounts receivable now or hereafter due and/or payable under and with respect thereto, including, without limitation, damages and payments for past, present or future infringements thereof, (iv) right (but not the obligation) to sue in the name of Borrower and/or in the name of Agent for past, present and future infringements thereof, (v) rights corresponding thereto throughout the world in all jurisdictions in which such patents have been issued or applied for, and (vi) reissues, divisions, continuations, renewals, extensions and continuations-in-part with respect to any of the foregoing; and

(e)           any and all cash proceeds and/or noncash proceeds of any of the foregoing, including, without limitation, insurance proceeds, and all supporting obligations and the security therefor or for any right to payment. All terms above have the meanings given to them in the California Uniform Commercial Code, as amended or supplemented from time to time, including revised Division 9 of the Uniform Commercial Code-Secured Transactions, added by Stats. 1999, c.991 (S.B. 45), Section 35, operative July 1, 2001.

“ATR Aircraft” means the ATR 42 series and ATR 72 series aircraft manufactured by Aerei da Trasporto Regionale.

"Authorized Party" means each Person identified in Section 2.14.

"Authorized Signatory" means (i) with respect to any Compliance Certificates delivered to Agent hereunder, (a) the chief executive officer, (b) the president, or (c) the chief financial officer or deputy financial officer, in each case of Borrower, and (ii) with respect to all other documents required to be executed by Borrower and delivered to Agent and/or Lenders hereunder, each of the foregoing persons or such other senior personnel of Borrower as may be duly authorized and designated in writing by Borrower to execute documents, agreements, and instruments on behalf of Borrower and to pledge Borrower's real and personal property.

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"Aviation Authority" means the FAA, the Joint Airworthiness Authorities of the European Union /European Aviation Safety Agency and/or any other governmental authority which, from time to time, has control or supervision of civil aviation or has jurisdiction over the airworthiness, operation and/or maintenance of an item of Equipment.

"Bankruptcy Code" means the Bankruptcy Code (11 U.S.C. Sections 101 etseq.).

"Base Rate" shall have the meaning ascribed thereto in Section 2.2.1(a).

"Base Rate Loans" means a Revolving Loan which Borrower requests to be made as a Base Rate Loan or a Revolving Loan which is reborrowed as, or converted to, a Base Rate Loan, in accordance with the provisions of Sections 2.1.2 and 2.1.4(b).

"Beneficial Interest" means a beneficial interest in a trust which owns one or more items of Equipment.

"Beneficial Interest Pledge Agreement" means a Beneficial Interest Pledge Agreement, to be entered into among Borrower, Owner Trustee, and Agent, whereby Borrower pledges to Agent, as security for certain obligations under this Agreement, all of the beneficial interest of Borrower, as beneficial owner under a particular Trust Agreement.

"Books and Records" means all books, records, board minutes, contracts, licenses, insurance policies, environmental audits, business plans, files, accounting books and records, financial statements (actual and pro forma), and filings with Governmental Authorities.

“Bombardier Aircraft” means the deHavilland Dash - 6 and Dash-8 series aircraft, and Canadair Regional Jets Series 700, 705, 900 and 1000 series aircraft manufactured by Bombardier Aerospace.

"Borrowing Availability" means, at any time, the lesser of (a) the Maximum Amount, or (b) the Borrowing Base Availability.

"Borrowing Base" means, at any time, an amount equal to the sum of the Advance Rate as applied to each item of Equipment included in Eligible Collateral.

"Borrowing Base Availability" means, at any time, an amount equal to (a) the Borrowing Base shown on the Borrowing Base Certificate most recently delivered by Borrower to Agent and on other information available to Agent less (b) the sum of (i) the amount then outstanding under the Credit Facility plus (ii) the total amount of any deferred rent and maintenance reserves due to the Borrower from any Lessee or former Lessee plus (iii) the lesser of (y) five million dollars ($5,000,000.00) or (z) the amount reflected on the Company's balance sheet as "Maintenance Reserves and Accrued Costs" as of the date of measurement.

"Borrowing Base Certificate" means a certificate in the form attached hereto as Exhibit A.

"Borrowing Base Deficiency" means, at any time, the amount, if any, by which the aggregate amount of any Loans then outstanding exceeds the Borrowing Base Availability.

"Borrowing Notice" means a written request for a Loan substantially in the form of Exhibit B signed by an Authorized Signatory of Borrower and properly completed to provide all information required to be included therein.

"Business Day" means any day that is not a Saturday, Sunday, or other day on which banks in the State of California are authorized or required to close, and in reference to LIBOR Loans means a Business Day that is also a day on which banks in the city of London are open for interbank or foreign exchange transactions.

"Cape Town Convention" means the official English language texts of the "Convention on International Interests in Mobile Equipment" and the "Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment", both of which were signed in Cape Town, South Africa on November 16, 2001, and including the Regulations for the International Registry and the Procedures for the International Registry, as promulgated thereunder.

"Cape Town Eligible Lease" means those certain Leases which create International Interests under the Cape Town Convention.

"Capital Lease Obligations" means all monetary obligations of a Person under any leasing or similar arrangement which, in accordance with GAAP, is classified as a capital lease.

"Cash" means, when used in connection with any Person, all monetary and non-monetary items owned by that Person that are treated as cash in accordance with GAAP, consistently applied.

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"Cash Equivalents" means, when used in connection with any Person, that Person's Investments in:

(a)           Government Securities due within one year after the date of the making of the Investment;

(b)           readily marketable direct obligations of any State of the United States of America or any political subdivision of any such State or any public agency or instrumentality thereof given on the date of such Investment a credit rating of at least AA by Moody's Investors Service, Inc. or AA by Standard & Poor's Rating Group (a division of McGraw Hill, Inc.), in each case due within one year from the making of the Investment;

(c)           certificates of deposit issued by, bank deposits in, Eurodollar deposits through, bankers' acceptances of, and repurchase agreements covering Government Securities executed by Lender or any bank incorporated under the Applicable Law of the United States of America, any State thereof or the District of Columbia and having on the date of such Investment combined capital, surplus and undivided profits of at least $250,000,000, or total assets of at least $5,000,000,000, in each case due within one year after the date of the making of the Investment;

(d)           certificates of deposit issued by, bank deposits in, Eurodollar deposits through, bankers' acceptances of, and repurchase agreements covering Government Securities executed by Lender or any branch or office located in the United States of America of a bank incorporated under the Applicable Law of any jurisdiction outside the United States of America having on the date of such Investment combined capital, surplus and undivided profits of at least $500,000,000, or total assets of at least $15,000,000,000, in each case due within one year after the date of the making of the Investment;

(e)           repurchase agreements covering Government Securities executed by a broker or dealer registered under Section 15(b) of the Securities Exchange Act of 1934, as amended, having on the date of the Investment capital of at least $50,000,000, due within ninety (90) days after the date of the making of the Investment; provided that the maker of the Investment receives written confirmation of the transfer to it of record ownership of the Government Securities on the books of a "primary dealer" in such Government Securities or on the books of such registered broker or dealer, as soon as practicable after the making of the Investment;

(f)           readily marketable commercial paper or other debt securities issued by corporations doing business in and incorporated under the Applicable Law of the United States of America or any State thereof or of any corporation that is the holding company for a bank described in clause (c) or (d) above given on the date of such Investment a credit rating of at least P 1 by Moody's Investors Service, Inc. or A 1 by Standard & Poor's Rating Group (a division of McGraw Hill, Inc.), in each case due within one year after the date of the making of the Investment;

(g)           "money market preferred stock" issued by a corporation incorporated under the Applicable Law of the United States of America or any State thereof (i) given on the date of such Investment a credit rating of at least AA by Moody's Investors Service, Inc. and AA by Standard & Poor's Rating Group (a division of McGraw Hill, Inc.), in each case having an investment period not exceeding fifty (50) days or (ii) to the extent that investors therein have the benefit of a standby letter of credit issued by Lender or a bank described in clauses (c) or (d) above; provided that (y) the amount of all such Investments issued by the same issuer does not exceed $5,000,000 and (z) the aggregate amount of all such Investments does not exceed $15,000,000;

(h)           a readily redeemable "money market mutual fund" sponsored by a bank described in clause (c) or (d) hereof, or a registered broker or dealer described in clause (e) hereof, that has and maintains an investment policy limiting its investments primarily to instruments of the types described in clauses (a) through (g) hereof and given on the date of such Investment a credit rating of at least AA by Moody's Investors Service, Inc. and AA by Standard & Poor's Rating Group (a division of McGraw Hill, Inc.); and

(i)           corporate notes or bonds having an original term to maturity of not more than one year issued by a corporation incorporated under the Applicable Law of the United States of America, or a participation interest therein; provided that (i) commercial paper issued by such corporation is given on the date of such Investment a credit rating of at least AA by Moody's Investors Service, Inc. and AA by Standard & Poor's Rating Group (a division of McGraw Hill, Inc.), (ii) the amount of all such Investments issued by the same issuer does not exceed $5,000,000 and (iii) the aggregate amount of all such Investments does not exceed $15,000,000.

"Change in Control" means (a) any transaction or series of related transactions in which any Unrelated Person or two or more Unrelated Persons acting in concert acquire beneficial ownership (within the meaning of Rule 13d 3(a)(1) under the Securities Exchange Act of 1934, as amended), directly or indirectly, of 20% or more of the ownership interests in Borrower, (b) Borrower consolidates with or merges into another Person or conveys, transfers or leases its properties and assets substantially as an entirety to any Person or any Person consolidates with or merges into Borrower, in either event pursuant to a transaction in which the ownership interests in Borrower are changed into or exchanged for cash, securities or other property, with the effect that any Unrelated Person becomes the beneficial owner, directly or indirectly, of 20% or more of ownership interests in Borrower or that the Persons who were the holders of ownership interests in Borrower immediately prior to the transaction hold less than 80% of the interests of the surviving entity after the transaction, (c) any change in an executive officer of Borrower (provided no change in control shall occur upon the death or incapacitation of an executive officer), (d) Borrower ceases to be managed by JMC pursuant to the JMC Management Agreement, or (e) a "change in control" as defined in any document governing Indebtedness of Borrower which gives the holders of such Indebtedness the right to accelerate or otherwise require payment of such Indebtedness prior to the maturity date thereof.  For purposes of the foregoing, the term "Unrelated Person" means any Person other than (i) any Affiliate of any thereof and members of the immediate family of any thereof,  (ii) a Subsidiary of Borrower or (iii) an employee stock ownership plan or other employee benefit plan covering the employees of Borrower and its Subsidiaries.

"Charges" means all Federal, state, county, city, municipal, local, foreign or other governmental taxes (including taxes owed to PBGC at the time due and payable), levies, assessments, charges, liens, and all additional charges, interest, penalties, expenses, claims or encumbrances upon or relating to (a) the Collateral, (b) the Obligations, (c) the employees, payroll, income or gross receipts of Borrower, (d) the ownership or use of any assets by Borrower, or (e) any other aspect of Borrower's business.

"Chattel Paper" means all "chattel paper," as such term is defined in the UCC, now owned or hereafter acquired by any Person, wherever located, but excluding Leases.

"Claim" means any and all suits, actions, or proceedings in any court or forum, at law, in equity or otherwise; costs, fines, deficiencies, or penalties; asserted claims or demands by any Person; arbitration demands, proceedings or awards; damages, losses, liabilities and expenses (including reasonable attorneys' fees and disbursements and other costs of collection, defense or appeal); enforcement of rights and remedies; or criminal, civil or regulatory investigations.

"Closing Date" means the time and Business Day on which the conditions set forth in Section 4.1are satisfied or waived.

"Collateral" means all of the collateral covered by the Collateral Documents.

"Collateral Documents" means, collectively, all of those documents set forth in Section 3.1, including without limitation the following and any agreements, documents, and instruments executed, filed or registered in connection therewith:  this Agreement, to the extent it constitutes a security agreement, the Mortgage, the Owner Trustee Mortgage, UCC financing statements, a Beneficial Interest Pledge Agreement (if any), an Owner Trustee Guaranty (if any), and such other agreements, pledges and security instruments, and all amendments thereto, instruments and documents as Agent may reasonably require pursuant to this Agreement.

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"Commitment Assignment and Acceptance" means a commitment assignment and acceptance substantially in the form of Exhibit C.

"Compliance Certificate" means a Compliance Certificate in the form attached hereto as Exhibit D signed by an Authorized Signatory.

"Contract" means, individually and collectively, all contracts, leases, undertakings, and agreements (other than rights evidenced by Chattel Paper, Documents or Instruments) in or under which any Person may now or hereafter have any right, title or interest, including any agreement relating to the terms of payment or the terms of performance of any Account.

"Contracting State" shall have the meaning given to such term under Article 4 of the Cape Town Convention.

"Contractual Obligation" means, as to any Person, any provision of any outstanding security issued by that Person or of any material agreement, instrument or undertaking to which that Person is a party or by which it or any of its property is bound.

"Credit Facility" means the revolving credit facility provided hereunder in respect of the Revolving Loans and the Swing Line Loans.

"Custodial Agreement" means an agreement pursuant to which a Person is acting as custodian for Borrower with respect to original "chattel paper" or such other documents as may be addressed under such agreement.

"Custodian" means any custodian under the Custodial Agreement.

"Debt Service Coverage Ratio" shall have the meaning given such term in Section 6.15.3.

"Default" means any event which, with the passage of time or notice or both, would, unless cured or waived, become an Event of Default.

"Default Rate" means (i) for all then outstanding and any future Base Rate Loans, a per annum default rate equal to the Applicable Base Rate plus two percent (2.0%), and (ii) for all then outstanding LIBOR Loans, a per annum default rate equal to the Applicable LIBOR Rate plus two percent (2.0%), which Default Rate with respect to any LIBOR Loans shall be in effect until the end of the LIBOR Loan Period, at which time (provided an Event of Default is then continuing) any such LIBOR Loan(s) shall automatically convert to Base Rate Loan(s) and accrue interest at the Default Rate set forth herein for Base Rate Loans.

"Distribution" means, with respect to any shares of capital stock or membership interests or any warrant or option to purchase an equity security or other equity security issued by a Person, (a) the retirement, redemption, purchase or other acquisition for Cash or for Property by such Person of any such security, (b) the declaration or (without duplication) payment by such Person of any dividend in Cash or in Property on or with respect to any such security, (c) any Investment by such Person in the holder of 5% or more of any such security if a purpose of such Investment is to avoid characterization of the transaction as a Distribution and (d) any other payment in Cash or Property by such Person constituting a distribution under Applicable Law with respect to such security.

"Documents" means all "documents," as such term is defined in the UCC, now owned or hereafter acquired by any Person, wherever located, including all bills of lading, dock warrants, dock receipts, warehouse receipts, and other documents of title, whether negotiable or non-negotiable.

"Dollars" means lawful currency of the United States.

"EBITDA" means Net Income (Loss), plus (a) Interest Expense, (b) depreciation, (c) tax expense, (d) amortization, and (e) Permitted Aircraft Disposition Charges (if any), calculated based on the trailing consecutive twelve (12) month period.

"Eligible Asset" means, at any time, an item of Equipment that meets the following criteria:

(a)           the purchase price of which has been paid in full and it is not subject to any other financing;

(b)           as to which an Equipment Owner or Lessor has good and marketable title, and on which Agent has a fully perfected first priority Lien and which is not subject to any other Lien other than Permitted Liens;

(c)           as to which, if owned by Owner Trustee, the Borrower shall have executed and delivered to Agent a Beneficial Interest Pledge Agreement covering, among other things, the Borrower's Beneficial Interest in the owner trust which owns such item(s) of Equipment and/or Lease, and as to which the Owner Trustee shall have executed and delivered to Agent an (x) Owner Trustee Mortgage covering, among other things, such  items of Equipment and/or Lease, (y) a Trust Agreement and (z) an Owner Trustee Guaranty;

(d)           as to which the Equipment Owner or Lessor shall have executed and delivered to Agent and/or filed (i) a Mortgage covering, among other things, such items of Equipment and/or Lease and (ii) the other documentation required in respect of Equipment;

(e)           with respect to items of Equipment, it has not suffered an Event of Loss, it is being used solely for lawful purposes and in the ordinary course of business of the Equipment Owner; and

(f)           in the case of Equipment subject to Lease, it is insured against loss by either the Equipment Owner or the Lessee in accordance with this Agreement and industry practice.

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"Eligible Assignee" means (a) another Lender, (b) with respect to any Lender, any Affiliate of that Lender, (c) any commercial bank having total assets of $1,000,000,000 or more, (d) any (i) savings bank, savings and loan association or similar financial institution or (ii) insurance company engaged in the business of writing insurance which, in either case (A) has total assets of $1,000,000,000 or more, (B) is engaged in the business of lending money and extending credit under Credit Facility substantially similar to those extended under this Agreement and (C) is operationally and procedurally able to meet the obligations of a Lender hereunder to the same degree as a commercial bank and (e) any other financial institution (including a mutual fund or other fund) having total assets of $1,000,000,000 or more which meets the requirements set forth in subclauses (B) and (C) of clause (d) above; provided that each Eligible Assignee must either (aa) be organized under the laws of the United States of America, any State thereof or the District of Columbia or (bb) be organized under the laws of the Cayman Islands or any country which is a member of the Organization for Economic Cooperation and Development, or a political subdivision of such a country, and (i) act hereunder through a branch, agency or funding office located in the United States of America and (ii) be exempt from withholding of tax on interest and deliver the documents related thereto pursuant to Section 12.17.

"Eligible Collateral" means (i) Equipment included in the Collateral which is subject to an Eligible Lease or (ii) Equipment included in the Collateral which is an Eligible Asset not subject to a lease.  In order to be Eligible Collateral, Agent shall possess a first priority security interest in said Collateral to secure the payment, promptly when due, and the punctual performance of all of the liabilities in connection therewith that is (a) electronically recorded on the International Registry (Cape Town Convention), (b) filed with the FAA in the case of (1) any Aircraft that are registered with the FAA and (2) all Engines, whether attached to an Aircraft or a Leased Spare Engine and (c) thereafter, promptly, to the satisfaction of Agent, and as soon as practical and in any event within one hundred and eighty (180) days following registration with the International Registry, perfected through all additional required local foreign jurisdiction security conventions (if any), to secure the payment, promptly when due.

"Eligible Lease" shall mean a lease for Equipment to an unaffiliated Person in which:

(a)           Borrower is the lessor of the Equipment;

(b)           the lease arose in the ordinary course of business of Borrower;

(c)           the Equipment has been delivered to the Lessee and is currently subject to the lease;

(d)           neither the lease nor the Equipment is subject to any currently outstanding assignment, claim, lien, security interest or other limitation on the absolute title of Borrower;

(e)           the lease payments and maintenance reserves are not more than ninety (90) days past due with respect to any payment required thereby;

(f)           the lease is freely assignable by the Lessor (with any notices or consents required in connection therewith having been previously obtained, and subject to any lease requirements concerning the net worth of the assignee) and prohibits assignment in whole or in part by the Lessee thereof without the prior written consent of Lessor;

(g)           the lease and the Equipment being leased constitute Collateral;

(h)           the remaining lease term at the time of  entry into the pool of Eligible Collateral is for a period of ten years or less;

(i)           it is a triple net contract and with respect to which the Lessee thereunder is responsible for all payments in connection therewith, including, but not limited to, payment of all taxes (including sales and use taxes), insurance and maintenance expenses (or payment of maintenance reserves in lieu thereof) and all other expenses pertaining to the assets subject thereto;

(j)           it is a non-cancelable lease and provides that the Lessee's obligations thereunder are absolute and unconditional and which obligations are not, either pursuant to the terms of such Lease or otherwise, subject to contingencies, defense, deduction, set-off, reduction, claim or counterclaim of any kind whatsoever and as to which no defenses, deductions, set offs, reductions, claims or counterclaims exist or have been asserted by the Lessee or anyone on its behalf and the Borrower has no obligations thereunder, including, without limitation, any service or maintenance of the related Equipment, other than the obligation to sell, lease or finance the Equipment and grant a covenant of quiet enjoyment to such Lessee; provided, however, that (i) in the case of leases with terms of less than twelve months in which Borrower may be responsible for maintenance and (ii) Borrower may assume the obligation to pay some or all of the cost of engine overhaul, airworthiness directives or manufacturer or government ordered modifications required during the term of the Lease, so long as the Lease states that such obligation is solely that of Borrower and imposes no obligation on the Lenders, in their capacity as lenders to Borrower, and Lessee's only remedy for breach of the obligation is an independent action against Borrower as Lessor, and Lessee waives any and all right to offset such obligation against lease payments owed Borrower;

(k)           the Lessee is not a resident of, and the Equipment will not be subject to the laws of any, foreign jurisdiction in which, in the sole determination of Agent, the ability of Agent to perfect a first priority security interest in the Equipment is unsatisfactory or the ability of Agent to foreclose upon the Equipment and receive possession to or sell said Equipment is unsatisfactory;

(l)           with respect to which the Borrower's books and records are accurate, complete and genuine;

(m)           it requires the Lessee to comply with all maintenance, return, alteration, replacement, pooling and sublease conditions as typically found in leases for similar types of aircraft, engines or equipment and as necessary to maintain at all times the airworthiness certification and serviceability status of the related Equipment pursuant to all applicable governmental and regulatory requirements;

(n)           it requires the Lessee to provide liability insurance, all risk ground and flight coverage for damage or loss of the related Equipment, and war risk insurance (if applicable), and with respect to which Agent is named as loss payee;

(o)           it requires the Lessee to provide confiscation and expropriation insurance, with deductibles that are acceptable to Agent, for Equipment operated (x) on routes with respect to which it is customary for air carriers flying comparable routes to carry such insurance or (y) in any area designated by companies providing such coverage as a recognized or threatened war zone or area of hostilities or an area where there is a substantial risk of confiscation or expropriation, unless Agent has confirmed in writing to the Borrower that, based on Agent’s assessment of the credit quality of the Lessee and Lessee’s ability to self-insure against such risk and Agent’s assessment of the magnitude of the risk of such loss based on its conclusion regarding the government having jurisdiction over the collateral, such insurance is not necessary;

(p)           the Lessee is not based in, and the Lease requires that the related Equipment not be operated in, unless appropriate insurance as determined by Agent is obtained, any country or any jurisdiction, that would not be covered by or would void any insurance coverage required hereunder, or any country which is subject to any United States, the European Union or United Nations sanctions or the lease to which would violate United States law, rule or regulation or other restrictions;

(q)           the sole original of which is in the possession of Agent or Custodian, or,  with respect to chattel paper, if there shall be more than one original, then the sole counterpart which shall constitute "chattel paper" for purposes of perfection by possession under the UCC shall be in the possession of Agent;and

(r)           the Lessee under which is not a Subsidiary, employee, agent or other Affiliate of the Borrower;

provided, that all of the leases set forth on Schedule 1.1a as of the Closing Date are Eligible Leases.

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"Embraer Aircraft" means Embraer 175, 190 and 195 series aircraft manufactured by Embraer S.A.

"Environmental Liabilities and Costs" means all liabilities, obligations, responsibilities, remedial actions, removal costs, losses, damages, costs and expenses that relate to any health or safety condition regulated under any Environmental Law or in connection with any other environmental matter or Release, threatened Release, or the presence of any Hazardous Material.

"Engine" means each engine described in any Mortgage (each of which has 550 or more rated takeoff horsepower or the equivalent of such horsepower), together with any and all Parts which are either incorporated or installed in or attached to such engine or required to be subject to the lien and security interest of such Mortgage.

"Equipment" means new and used regional Aircraft, including the attached Engines thereto and new and used Leased Spare Engines.  The Aircraft or the Engine, as applicable, shall have been manufactured within twenty eight (28) years immediately preceding the date in question, shall be in good working order immediately or within a reasonable period of time, as determined by Agent, and shall be usable for commercial flight purposes immediately or within a reasonable period of time, as determined by Agent; provided the Aircraft and Engines set forth in Schedule 1.1b shall be included in the definition of "Equipment".

"Equipment Owner" means the Borrower or Owner Trustee.

"ERISA" means the Employee Retirement Income Security Act of 1974 and the regulations thereunder.

"ERISA Affiliate" means any trade or business (whether or not incorporated) which is a member of a "controlled group of corporations," a group of trades or businesses under "common control," or an "affiliated service group," which includes Borrower within the meaning of Sections 414(b), (c), (m) or (o) of the Internal Revenue Code of 1986.

"Event of Default" means any of the events specified in Section 9.1.

"Event of Loss" means:

(a)           if an item of Equipment is not subject to a Lease, any of the following events:

(i)           the actual or constructive total loss of such item of Equipment or the agreed or compromised total loss of such item of Equipment;

(ii)           its destruction, damage beyond economic repair or being rendered permanently unfit for normal use for any reason whatsoever; and

(iii)           any capture, condemnation, confiscation, requisition, purchase, seizure or forfeiture of, or any taking for use or of title to, such item of Equipment, in each case, that shall have resulted in the loss of possession or title of such item of Equipment by the Lessor (other than a requisition for use for not more than one hundred eighty (180) days by the United States Government) or

(b)           if an item of Equipment is subject to a Lease, any events defined as an "Event of Loss," "Casualty Occurrence" or similar term in such Lease.

(c)           For purposes of this Agreement, the date that an Event of Loss is deemed to have occurred shall be as follows:

(i)           if an item of Equipment is not subject to a Lease,

(x) in the event of an actual loss of such item of Equipment, on the date of such loss;

(y) in the event of damage which results in a constructive or compromised or arranged total loss of such item of Equipment, on the date of the event giving rise to such damage;

(z) in the case of an Event of Loss referred to in clause (a)(ii) above, on the date of the occurrence of such event, or

(ii)           if an item of Equipment is subject to a Lease, at such times as are set forth in such Lease of such item of Equipment for the foregoing events.

In no event will the Event of Loss date be later than the earlier to occur of (i) the Borrower’s or Agent’s (as applicable) receipt of insurance proceeds in respect of such Equipment or (ii) the date that is ninety (90) days after the date of such loss, damage or destruction.

"FAA" means the Federal Aviation Administration or any Governmental Authority succeeding to the functions thereof.

"Federal Funds Rate" means, as of any date of determination, the rate set forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Federal Reserve Board (including any such successor, "H.15(519)") for such date opposite the caption "Federal Funds (Effective)".  If for any relevant date such rate is not yet published in H.15(519), the rate for such date will be the rate set forth in the daily statistical release designated as the Composite 3:30 p.m. Quotations for U.S. Government Securities, or any successor publication, published by the Federal Reserve Bank of New York (including any such successor, the "Composite 3:30 p.m. Quotation") for such date under the caption "Federal Funds Effective Rate".  If on any relevant date the appropriate rate for such date is not yet published in either H.15(519) or the Composite 3:30 p.m. Quotations, the rate for such date will be the arithmetic mean of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on that date by each of three leading brokers of Federal funds transactions in New York City selected by Agent.  For purposes of this Agreement, any change in the Base Rate due to a change in the Federal Funds Rate shall be effective as of the opening of business on the effective date of such change.

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"Field Examination" means an inspection and/or audit of the Borrower, which Field Examination may be conducted at Agent's direction by Agent and any of its officers, employees, and agents.   The Field Examination may include, without limitation, the review, audit, Appraisal, physical verification, and such other reviews of the Equipment and Borrower's books and records in connection therewith as shall be deemed appropriate by Agent in its sole discretion.

"Financial Statements" means the income statement, balance sheet and statement of cash flows of Borrower and its Subsidiaries and of JMC, internally prepared for each Fiscal Quarter and, with respect to JMC, internally prepared for each Fiscal Year, and, with respect to Borrower and its Subsidiaries, audited for each Fiscal Year, in each case prepared in accordance with GAAP including the notes and schedules thereto.

"Fiscal Quarter" means any of the quarterly accounting periods of Borrower or JMC, specifically ending March 31, June 30, September 30, and December 31 of each year.

"Fiscal Year" means the twelve (12) month fiscal period of Borrower or JMC ending December 31 of each year.  Subsequent changes of the Fiscal Year of Borrower and/or JMC shall not change the term "Fiscal Year" unless Agent shall consent in writing to such change.

“Fokker 50” means the fifty passenger turboprop aircraft manufactured by Fokker Aircraft.

“Fokker 100” means the one hundred seat jet aircraft manufactured by Fokker Aircraft.

"Funded Debt" shall mean, as of the last day of any Fiscal Quarter, all indebtedness, liabilities, and obligations, now existing or hereafter arising, for money borrowed by Borrower whether or not evidenced by any note, indenture, or agreement (including, without limitation, the Notes and any indebtedness for money borrowed from an Affiliate), as determined in accordance with GAAP, consistently applied.

"GAAP" means generally accepted accounting principles as in effect from time to time in the United States, consistently applied.

"Governmental Authority" means (a) any international, foreign, federal, state, county or municipal government, or political subdivision thereof, (b) any governmental or quasi governmental agency, authority, board, bureau, commission, department, instrumentality or public body, including any Aviation Authority, or (c) any court or administrative tribunal of competent jurisdiction.

"Government Securities" means readily marketable (a) direct full faith and credit obligations of the United States of America or obligations guaranteed by the full faith and credit of the United States of America and (b) obligations of an agency or instrumentality of, or corporation owned, controlled or sponsored by, the United States of America that are generally considered in the securities industry to be implicit obligations of the United States of America.

"Guaranteed Indebtedness" means, with respect to any Person, any obligation of such Person guaranteeing any indebtedness, lease, dividend, or other obligation ("primary obligations") of any other Person (the "primary obligor") in any manner, including any obligation or arrangement of such Person (a) to purchase or repurchase any such primary obligation, (b) to advance or supply funds (1) for the purchase or payment of any such primary obligation, or (2) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet condition of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (d) to indemnify the owner of such primary obligation against loss in respect thereof.  The amount of any "Guaranteed Indebtedness" at any time shall be deemed to be an amount equal to the lesser at such time of (x) the stated or determinable amount of the primary obligation in respect of which such Guaranteed Indebtedness is made, and (y) the maximum amount for which such Person may be liable pursuant to the terms of the instrument embodying such Guaranteed Indebtedness; or, if not stated or determinable, the maximum reasonably anticipated liability (assuming full performance) in respect thereof.

"Hazardous Material" means any substance, material or waste, the generation, handling, storage, treatment or disposal of which is regulated by any Governmental Authority, or forms the bases of liability now or hereafter under, any Environmental Law in any jurisdiction in which Borrower has owned, leased, or operated real property or disposed of hazardous materials.

"Indebtedness" means:  (a) with respect to Borrower, the Obligations; (b) all indebtedness of Borrower for borrowed money or for the deferred purchase price of property or services (including reimbursement and all other obligations with respect to surety bonds, letters of credit and bankers' acceptances, whether or not matured); (c) all obligations evidenced by notes, bonds, debentures or similar instruments; (d) all indebtedness created or arising under any conditional sale or other title retention agreements with respect to property acquired by Borrower (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property); (e) all Capital Lease Obligations; (f) all Guaranteed Indebtedness; (g) all Indebtedness referred to in clauses (b), (c), (d), (e) or (f) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness; (h) all liabilities under Title IV of ERISA; (i) the net present value of the non-cancelable payments owed by Borrower as lessee under any lease which is qualified as an operating lease in accordance with GAAP for engines, aircraft and engine parts, using a 10% discount rate; (j) all obligations under Interest Rate Protection Agreements, and (k) all obligations with respect to deposits or maintenance reserves to the extent not supported by cash reserved specifically therefor; provided, however, that the term Indebtedness shall not include trade accounts payable within ninety (90) days of the date the respective goods are delivered or the respective services are rendered.

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"Indemnified Person" means Agent, Swing Line Lender and each Lender and each of the foregoing parties' respective Affiliates and their officers, directors, employees, agents and advisors.

"Instruments" means all "instruments," as such term is defined in the UCC, now owned or hereafter acquired by Borrower, wherever located, including all certificated securities and all notes and other evidences of indebtedness, other than instruments that constitute, or are a part of a group of writings that constitute, Chattel Paper.

"Intellectual Property" means all of the following now owned or hereafter acquired by Borrower:  (a) patents, trademarks, trade dress, trade names, service marks, copyrights, trade secrets and all other intellectual property or Licenses thereof; and (b) all Proceeds of the foregoing.

"Interest Coverage Ratio" shall have the meaning given such term in Section 6.15.2.

"Interest Expense" means, with respect to any fiscal period, the consolidated interest expense of Borrower and its Subsidiaries for that period, determined in accordance with GAAP, consistently applied, as reported in Borrower's financial statements filed with the SEC (but excluding gains and losses from fair value of derivative charges, whether or not included in other comprehensive income or net income).

"Interest Rate Protection Agreement" means a written agreement between Borrower and one or more of the Lenders providing for "swap", "cap", "collar" or other interest rate protection with respect to any Indebtedness.

"International Interest" shall have the meaning given to such term in the Cape Town Convention.

"International Registry" shall have the meaning given to such term in the Cape Town Convention.

"Investment" means, when used in connection with any Person, any investment by or of that Person, whether by means of purchase or other acquisition of stock or other securities of any other Person or by means of a loan, advance creating a debt, capital contribution, guaranty or other debt or equity participation or interest in any other Person, including any partnership and joint venture interests of such Person.  The amount of any Investment shall be the amount actually invested (minus any return of capital with respect to such Investment which has actually been received in Cash or has been converted into Cash), without adjustment for subsequent increases or decreases in the value of such Investment.

"JMC" means JetFleet Management Corp., a California corporation.

"JMC Management Agreement" means that certain Amended and Restated Management Agreement (the "Management Agreement") between Borrower and JMC entered into as of April 23, 1998, as amended, or any successor agreement thereto.

"Landing Gear" means, whether or not installed on an airframe, each landing gear, (nose gear and main gear), together with any and all modules and Parts which are either incorporated or installed from time to time in or attached to such Landing Gear.

"Lease" means, with respect to an item of Equipment, any written lease agreement, general terms agreement other similar arrangement, as may be in effect between a Lessor, including an Equipment Owner, and a Lessee, as such agreement or arrangement may be amended, modified, extended, supplemented, assigned or novated from time to time in accordance with the terms thereof and the Loan Documents.

"Leased Spare Engine" means an Engine that is not attached to an airframe and leased by Lessor to  Lessee as a standalone engine for installation on an airframe or as a spare.

"Lender" means each Lender named in Schedule 2.1 and each other party that may be named a "Lender" under this Agreement.

"Lender Commitment Amount" means the amount of funds a Lender has committed to advance to Borrower pursuant to the terms hereof, such amount calculated at any time by taking the product of such Lender's Pro Rata Share and the Revolving Commitment.

"Lessee" means the lessee of Equipment subject to a Lease.

"Lessor" means any Equipment Owner party to a Lease as lessor.

"LIBOR" means, for any LIBOR Loan Period, the rate determined by Agent to be the per annum rate (rounded upward to the nearest one-hundredth of one percent (1/100%)) at which deposits in immediately available funds and in lawful money of the United States would be offered to Agent by reference to the British Bankers' Association Interest Settlement Rates for deposits in dollars (as set forth by any service selected by Agent that has been nominated by the British Banker's Association as an authorized information vendor for the purpose of displaying such rates) at approximately 11:00 a.m. (London time) two (2) Business Days before the first day of such LIBOR Loan Period, in an amount equal to the principal amount of, and for a length of time equal to the LIBOR Loan Period for, the LIBOR Loan sought by Borrower.

"LIBOR Basis" means a per annum interest rate equal to the quotient of (a) LIBOR divided by (b) one minus the LIBOR Reserve Percentage, stated as a decimal.  The LIBOR Basis shall be rounded upward to the nearest one-sixteenth of one percent (1/16%) and, once determined, shall remain unchanged during the applicable LIBOR Loan Period, except for changes to reflect adjustments in the LIBOR Reserve Percentage.

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"LIBOR Loan" means a Revolving Loan that Borrower requests to be made as a LIBOR Loan or that is reborrowed as, or converted to, a LIBOR Loan, in each case in accordance with the provisions of Section 2.1.4.

"LIBOR Loan Period" means, for each LIBOR Loan, each one (1), two (2), three (3) or six (6) month period (or such other longer or shorter period as approved by Lenders), as selected by Borrower pursuant to Section 2.1.4, during which LIBOR applicable to such LIBOR Loan shall remain unchanged; provided, that (a) any applicable LIBOR Loan Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day, unless such Business Day falls in another calendar month, in which case such LIBOR Loan Period shall end on the immediately preceding Business Day, (b) any applicable LIBOR Loan Period which begins on a day for which there is no numerically corresponding day in the calendar month during which such LIBOR Loan Period is to end shall (subject to clause (a) above) end on the last day of such calendar month, and (c) no LIBOR Loan Period shall extend beyond the Maturity Date.

"LIBOR Reserve Percentage" means the percentage in effect from time to time under Regulation D of the Board of Governors of the Federal Reserve System as the maximum reserve requirement applicable with respect to Eurocurrency Liabilities (as that term is defined in Regulation D), whether or not any Lender has any Eurocurrency Liabilities subject to such reserve requirement at that time.  The LIBOR Basis for any LIBOR Loan shall be adjusted as of the effective date of any change in the LIBOR Reserve Percentage.

"License" means any license under any written agreement now owned or hereafter acquired by Borrower granting the right to use any Intellectual Property or other license of rights or interests now held or hereafter acquired by Borrower.

"Lien" means, with respect to any property, any security deed, mortgage, deed to secure debt, deed of trust, lien, pledge, assignment, charge, security interest, title retention agreement, negative pledge, levy, execution, seizure, attachment, garnishment, or other encumbrance of any kind in respect of such property, whether or not choate, vested, or perfected.

"Loan Documents" means collectively, this Agreement, the Notes, the Collateral Documents, and any and all other agreements, documents, or instruments (including financing statements) entered into in connection with the transactions contemplated by this Agreement, together with all alterations, amendments, changes, extensions, modifications, refinancings, refundings, renewals, replacements, restatements, or supplements, of or to any of the foregoing.

"Loans" means all loans and advances made by Lenders to or for the benefit of Borrower under this Agreement or under any of the Loan Documents.

"Maintenance Expense" means all expenses related to maintenance of the Collateral performed by the Borrower which is unrelated to maintenance reserve accounting.

"Material Adverse Effect" means a material adverse effect on (a) the business, property, assets, operations or condition (financial or otherwise) of Borrower, (b) the ability of Borrower to pay or perform in accordance with the terms of any of the Loan Documents taken as a whole, or (c) the rights and remedies of Agent or any Lender under any of the Loan Documents.

"Material Contracts" means those instruments, agreements and contracts set forth on Schedule 1.1c hereto, as such schedule shall be updated by the Borrower from time to time.

"Maturity Date" means the earliest of (a) May 31, 2019 or (b) the date of prepayment in full by Borrower of the Obligations in accordance with the provisions of Section 2.8.

"Maximum Amount" means One Hundred Eighty Million and 00/100 Dollars ($180,000,000.00), or such other decreased or increased amount as provided for under Sections 2.8and Section 2.18, respectively,of this Agreement.

"Maximum Leverage Ratio" means the ratio set forth in Section 6.15.1.

"Minimum Tangible Net Worth" shall have the meaning given such term in Section 6.15.4.

"Mortgage" means each Mortgage and Security Agreement and any mortgage supplement thereto or each such other security instrument required by Applicable Law, made by Borrower in favor of Agent as security for certain obligations under this Agreement.

"Negative Pledge" means a Contractual Obligation which contains a covenant binding on Borrower or any of its Subsidiaries that prohibits Liens on any of its Property, other than (a) any such covenant contained in a Contractual Obligation granting or relating to a particular Lien which affects only the Property that is the subject of such Lien; (b) any such covenant that does not apply to Liens securing the Obligations; and (c) customary permitted junior Liens to be agreed upon by Borrower and Lender.

"Net Book Value" means with respect to an item of Equipment, the book value of such item of Equipment determined in accordance with GAAP as set forth on Borrower’s and its Subsidiaries’ financial statements (which shall be the cost of such Equipment if such calculation is being determined at the time of acquisition of such Equipment), utilizing depreciation methods consistent with current practice and GAAP.

"Net Income" means, with respect to any fiscal period, the consolidated net income (or loss) of Borrower and its Subsidiaries for that period, determined in accordance with GAAP, consistently applied.

"Note" means any note, including any Revolving Note or Swing Line Note, executed and delivered by Borrower to any Lender or Swing Line Lender, as applicable, under this Agreement, and “Notes” means collectively all such notes executed and delivered by Borrower to each Lender and Swing Line Lender under this Agreement.

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"Obligations" means all loans, advances, debts, expenses reimbursements, fees, liabilities and obligations, for the performance of covenants, tasks or duties or for payment of monetary amounts (whether or not such performance is then required or contingent, or amounts are liquidated or determinable) owing by Borrower to any Lender and Swing Line Lender of any kind or nature, present or future, whether or not evidenced by any note, agreement or other instrument, arising under this Agreement or in connection with any of the other Loan Documents (including an Interest Rate Protection Agreement entered into in connection with this Agreement), and all covenants and duties regarding such amounts.  This term includes all principal, interest (including interest which accrues after the commencement of any case or proceeding in bankruptcy, or for the reorganization of Borrower), fees, Charges, expenses, reasonable attorneys' fees and any other sum chargeable to Borrower under this Agreement or any of the other Loan Documents, and all principal and interest due in respect of the Loans.

“Other Saab Aircraft” means Saab 340A and 340B series aircraft manufactured by Saab Group.

"Overadvance" means a Base Rate Loan or LIBOR Loan which, on the date such Loan is made, causes the aggregate amount of all Loans then outstanding to exceed the lesser of the (i) Maximum Amount or (ii) Borrowing Base Availability.

"Owner Trustee" means  bank or trust company reasonably satisfactory to Agent acting as trustee of an aircraft owner trust under a Trust Agreement with Borrower as the beneficiary.

"Owner Trustee Guaranty" means an Owner Trustee Guaranty made by Owner Trustee in favor of Agent, as security for certain obligations under this Agreement, and guaranteeing Owner Trustee's performance of the obligations under the respective Owner Trustee Mortgage.

"Owner Trustee Mortgage" means a Mortgage and Security Agreement made by Owner Trustee in favor of Agent with respect to a Trust Agreement (in connection with certain Equipment), as security for certain obligations under this Agreement.

"Parts" means, at any time, all parts, components, equipment, instruments, appliances, avionics, radio and radar devices, cargo handling systems and loose equipment that are at such time incorporated or installed in or attached to an airframe, Engine, Propeller, APU or Landing Gear.

"Payment Date" means the last day of each LIBOR Loan Period for a LIBOR Loan.

"PBGC" means the Pension Benefit Guaranty Corporation or any successor thereto.

“Permitted Aircraft Disposition Charges” means the non-cash impairment charges (if any) and losses (if any) on the sale of Aircraft other than Bombardier Aircraft or Aircraft acquired by Borrower from and after July 2008, up to a total aggregate amount of Seven Million Five Hundred Thousand and No/100 Dollars ($7,500,000.00) incurred after the date of this Agreement, used in calculating Tangible Net Worth, EBITDA, and the financial covenants under Section 6.15.1 (Maximum Leverage Ratio), and under section 6.15.2 (Interest Coverage Ratio).

"Permitted Indebtedness" means, as applied to Borrower, (a) Indebtedness of Borrower under this Agreement and the Notes, (b) Indebtedness incurred in the ordinary course of Borrower's business which is unsecured and does not constitute Funded Debt, and (c) Indebtedness existing as of the Closing Date and included on Schedule 1.1d hereto.

"Permitted Liens" means, as applied to Borrower:  (a) Liens securing taxes, assessments, and other governmental charges or levies (excluding any Lien imposed pursuant to any of the provisions of ERISA) or the claims of materialmen, mechanics, carriers, repairmen, warehousemen, or landlords or other like Liens, but which (1) have been bonded, or (2) which are being contested in good faith by appropriate proceedings and for which Borrower shall have set aside on its books adequate reserves with respect thereto in accordance with GAAP; (b) Liens consisting of deposits or pledges made in the ordinary course of business in connection with, or to secure payment of, obligations under worker's compensation, unemployment insurance, or similar legislation; (c) Liens constituting encumbrances in the nature of zoning restrictions, easements, and rights of way or restrictions of record on use of real property which, in the reasonable judgment of Agent, do not materially detract from the value of such property or impair the use thereof in the business of Borrower; (d) Liens of record set forth in Schedule 1.1e; (e) Liens created under the Loan Documents; (f) the rights of any Lessee or sublessee under any Lease to utilize an any Collateral pursuant to the terms of a Lease; (g) Liens arising in connection with legal or equitable proceedings against Borrower, which Borrower is contesting with diligence and good faith and which Liens do not have a Material Adverse Effect; (h) liens in respect of personal property leases that do not affect any assets included in the Borrowing Base, which, in the aggregate, are not substantial in amount and do not materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of the Borrower so as to cause a Material Adverse Effect; (i) any Lien on any asset not included in the Borrowing Base to secure Indebtedness permitted hereunder; (j) Liens securing Indebtedness that has since been repaid in full, which filings Borrower cannot independently terminate; (k) Liens arising out of judgments that do not constitute an Event of Default under this Agreement; (l) any Lien arising by virtue of any statutory or common law provision relating to banker's liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a creditor depository institution in the ordinary course of business; (m) Liens securing Capital Lease Obligations on assets subject to such leases provided that such capitalized leases are otherwise permitted under this Agreement; (n) Liens arising from the following types of liabilities of a lessee or any other operator of an item of Equipment, so long as such liabilities are either not yet due or are being contested in good faith through appropriate proceedings that do not give rise to any reasonable likelihood of the sale, forfeiture or other loss of such item of Equipment, title thereto or Agent's security interest therein or of criminal or unindemnified civil liability on the part of the Borrower, any Lender or any Agent and with respect to which the lessee maintains adequate reserves (in the reasonable judgment of the Borrower):  (A) fees or charges of any airport or air navigation authority, (B) judgments, or (C) salvage or other rights of insurers; (o) Liens on assets not included in the Borrowing Base evidenced by UCC financing statements which are expressly permitted under the terms of the Loan Documents; provided that none of the foregoing Liens would have priority over the security interest in favor of Agent under the Loan Documents; and (p) Liens on the assets securing Permitted Special Purpose Financings.

"Permitted Rights of Others" means those Right of Others consisting of (a) an interest (other than a legal or equitable co ownership interest, an option or right to acquire a legal or equitable co ownership interest and any interest of a ground lessor under a ground lease), that does not materially impair the fair market value or use of Property for the purposes for which it is or may reasonably be expected to be held, (b) an option or right to acquire a Lien that would be a Permitted Lien, (c) the subordination of a lease or sublease in favor of a financing entity and (d) a license, or similar right, of or to Intellectual Property granted in the ordinary course of business.

"Person" means any individual or entity, including a trustee, sole proprietorship, partnership, limited partnership, limited liability partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, entity or government (whether Federal, state, county, city, municipal or otherwise, including any instrumentality, division, agency, body or department thereof).

"Phantom Amortization" shall be equal to ten percent (10%) of Funded Debt.

"Plan" means, with respect to Borrower or any of its Affiliates, at any time, an employee benefit plan, as defined in Section 3(3) of ERISA, which Borrower or any of its Affiliates maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by any of them.

“Pro Forma EBITDA” means a pro forma EBITDA amount used in calculating the financial covenant in Section 6.15.3 of the Debt Service Leverage Ratio, for a given period, calculated as agreed to by Agent, attributable to Eligible Collateral acquired by Borrower during such period but for which at the time there is not a full four quarters of operating history on which to base the EBITDA calculation.

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"Proceeds" means "proceeds," as such term is defined in the UCC and, in any event, shall include:  (a) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to Borrower from time to time with respect to any Collateral; (b) any and all payments (in any form whatsoever) made or due and payable to Borrower from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of any Collateral by any governmental body, authority, bureau or agency (or any person acting under color of Governmental Authority); (c) any claim of Borrower against third parties for past, present or future infringement or dilution of any Intellectual Property or for injury to the goodwill associated with any Intellectual Property; (d) any recoveries by Borrower against third parties with respect to any litigation or dispute concerning any Collateral; and (e) any and all other amounts from time to time paid or payable under or in connection with any Collateral, upon disposition or otherwise.

"Propeller" means each propeller described in a Mortgage.

"Property" means any real property, personal property, or Intellectual Property owned, leased or operated by Borrower, Owner Trustee or any Subsidiary.

"Pro Rata Share" means, with respect to each Lender, the percentage of the Revolving Commitment set forth opposite the name of that Lender on Schedule 2.1, as such percentage may be increased or decreased pursuant to a Commitment Assignment and Acceptance executed in accordance with Section 12.7.2.

"Prospective International Interest" shall have the meaning given to such term in the Cape Town Convention.

"Quarterly Payment Date" means each March 31, June 30, September 30, and December 31.

"Reference Rate" means the variable per annum rate of interest most recently announced by Agent at its corporate headquarters as the "Union Bank, N.A. Reference Rate," with the understanding that the "Union Bank, N.A. Reference Rate" is one of Agent's index rates and merely serves as a basis upon which effective rates of interest are calculated for loans making reference thereto and may not be the lowest or best rate at which Agent calculates interest or extends credit.  The Reference Rate shall be adjusted on the last Business Day of the calendar month of any change in the "Union Bank, N.A. Reference Rate."  The Reference Rate, as adjusted, shall constitute the Reference Rate on the date when such adjustment is made and shall continue as the applicable Reference Rate until further adjustment.

"Release" means, as to Borrower, any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, dumping, leaching or migration of Hazardous Materials in the indoor or outdoor environment by Borrower, including the movement of Hazardous Materials through or in the air, soil, surface water, ground water or property.

"Requisite Lenders" means (a) all Lenders, with respect to those decisions requiring unanimous consent of all Lenders as set forth in Section 12.16.1 through and including 12.16.8 and (b) those Lenders holding Notes evidencing in the aggregate 66.67% or more of the aggregate Indebtedness then evidenced by the Notes, with respect to all other decisions required of the Lenders hereunder.

"Revolving Commitment" means, subject to Sections 2.8 and 2.18, One Hundred Eighty Million and 00/100 Dollars ($180,000,000.00).  The respective Pro Rata Shares of the Lenders with respect to the Revolving Commitment are set forth in Schedule 2.1.

"Revolving Loan" means a loan(s) made by the Lenders to Borrower pursuant to Section 2.1.

"Revolving Note" means each and collectively those certain promissory notes executed and delivered by Borrower to each Lender in accordance with its Pro Rata Share of the Revolving Commitment, dated as of the Closing Date, in the original aggregate principal amount of the Revolving Commitment, together with any other notes executed and delivered by Borrower to any Lender evidencing at any time any portion of the Loans.

"Right of Others" means, as to any Property in which a Person has an interest, any legal or equitable right, title or other interest (other than a Lien) held by any other Person in that Property, and any option or right held by any other Person to acquire any such right, title or other interest in that Property, including any option or right to acquire a Lien; provided, however, that (a) no covenant restricting the use or disposition of Property of such Person contained in any Contractual Obligation of such Person and (b) no provision contained in a contract creating a right of payment or performance in favor of a Person that conditions, limits, restricts, diminishes, transfers or terminates such right shall be deemed to constitute a Right of Others.

“Saab 340B Plus” means the Saab 340B Plus aircraft, manufactured by Saab Group.

"Schedule of Documents" means the schedule, including all appendices, exhibits or schedules thereto, listing certain documents and information to be delivered in connection with this Agreement and the other Loan Documents and the transactions contemplated hereunder and thereunder, substantially in the form of Schedule 1.1f.

"SEC" means the United States Securities Exchange Commission.

"Special Eurodollar Circumstance" means the application or adoption after the Closing Date of any Law or interpretation, or any change therein or thereof, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable authority charged with the interpretation or administration thereof, or compliance by Lender or its LIBOR lending office with any request or directive (whether or not having the force of Law) of any such Governmental Authority, central bank or comparable authority.

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"Stock" means all certificated and uncertificated shares, options, warrants, general or limited partnership interests, participation or other equivalents (regardless of how designated) of or in a corporation, partnership, limited liability company or equivalent entity whether voting or nonvoting, including common stock, preferred stock, or any other "equity security" (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934).

"Subsidiary" means, as of any date of determination and with respect to any Person, any corporation, limited liability company or partnership (whether or not, in any case, characterized as such or as a "joint venture"), whether now existing or hereafter organized or acquired:  (a) in the case of a corporation or limited liability company, of which a majority of the securities having ordinary voting power for the election of directors or other governing body (other than securities having such power only by reason of the happening of a contingency) are at the time beneficially owned by such Person and/or one or more Subsidiaries of such Person, or (b) in the case of a partnership, of which a majority of the partnership or other ownership interests are at the time beneficially owned by such Person and/or one or more of its Subsidiaries.

"Subsidiary Guaranty" means a guaranty made by a Subsidiary in favor of Agent, whereby such Subsidiary guaranties performance of the Obligations under the Loan Documents.

"Swing Line" means the commitment of Swing Line Lender to make Swing Line Loans up to a maximum aggregate principal amount of Ten Million and No/100 Dollars ($10,000,000.00) at any one time outstanding, pursuant to Section 2.17 of this Agreement.

"Swing Line Lender" means Union Bank, N.A., in its capacity as provider of Swing Line Loans, or any successor swing line lender hereunder.

"Swing Line Loans" means loans made by Swing Line Lender to Borrower pursuant to Section 2.17.

"Swing Line Note" means the Swing Line Note executed and delivered by Borrower to Swing Line Lender, dated as of the Closing Date, in the original aggregate principal amount of the Swing Line, together with any other notes executed and delivered by Borrower to any Lender evidencing at any time any portion of the Swing Line Loans.

"Tangible Net Worth" means on any date of determination, the following with respect to Borrower and its Subsidiaries on a consolidated basis:  (a) the sum of the total assets less the total liabilities minus (b) intangibles (excluding gains and losses from fair value of derivatives charges whether or not included in other comprehensive income or net income) on such date, plus (c) Permitted Aircraft Disposition Charges (if any), all as determined in accordance with GAAP, consistently applied.

"Termination Date" means the date on which the Loans and all other Obligations under this Agreement and the other Loan Documents are indefeasibly paid in full, in cash, and Borrower shall have no further right to borrow any moneys or obtain other credit extensions or financial accommodations under this Agreement.

"Total Debt Service" means the sum of (i) Phantom Amortization, (ii) Interest Expense, and (iii) Maintenance Expense, subject to adjustment by both positive and negative pro forma EBITDA for major acquisitions and divestitures.

"Trust Agreement" means a Trust Agreement between Owner Trustee, as owner trustee, and Borrower, as the sole beneficiary, as amended, supplemented or otherwise modified from time to time, whereby the parties agreed, among other things, that Owner Trustee shall act as trustee with respect to the "Equipment" and "Lease Agreement" as defined therein.

"UCC" means the Uniform Commercial Code as the same may, from time to time, be enacted and in effect in the State of California; provided, that in the event by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of Agent's Lien on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of California, the term "UCC" means the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions hereof relating to such attachment, perfection or priority and for purposes of definitions related to such provisions.

"Unused Line Fee" shall have the meaning ascribed thereto in Section 2.4.1.

"Utilization Rate" shall have the meaning given such term in Section 6.15.6.

"Wholly-Owned Subsidiary" means a Subsidiary of Borrower, 100% of the capital stock or other equity interest of which is owned, directly or indirectly, by Borrower, except for director's qualifying shares required by Applicable Law.

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1.2Accounting Terms

.  All accounting terms used, but not specifically defined, in this Agreement shall be construed and defined in accordance with GAAP.

1.3UCC

.  Any terms that are defined in the UCC and used, but not specifically defined, in this Agreement shall be construed and defined in accordance with the UCC.

1.4Construction

.  For purposes of this Agreement and the other Loan Documents, the following rules of construction shall apply, unless specifically indicated to the contrary:  (a) wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter; (b) the term "or" is not exclusive; (c) the term "including" (or any form thereof) shall not be limiting or exclusive; (d) all references to statutes and related regulations shall include any amendments thereof and any successor statutes and regulations; (e) the words "herein," "hereof" and "hereunder" or other words of similar import refer to this Agreement as a whole, including the exhibits and schedules hereto, as the same may from time to time be amended, modified or supplemented, and not to any particular section, subsection or clause contained in this Agreement; (f) all references in this Agreement or in the schedules to this Agreement to sections, schedules, disclosure schedules, exhibits, and attachments shall refer to the corresponding sections, schedules, disclosure schedules, exhibits, and attachments of or to this Agreement; and (g) all references to any instruments or agreements, including references to any of the Loan Documents, shall include any and all modifications or amendments thereto and any and all extensions or renewals thereof.

1.5USA Patriot Act Notice

.  Each Lender is subject to the USA Patriot Act and hereby notifies Borrower that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (as amended and supplemented from time to time, the "Patriot Act"), each Lender is required to obtain, verify and record information that identifies Borrower, which information includes the name and address of Borrower and other information that will allow each Lender to identify Borrower in accordance with the Patriot Act.

2.   REVOLVING COMMITMENT

2.1Revolving Loans

.  Subject to the terms and conditions of this Agreement, Lenders shall, pro rata according to that Lender's Pro Rata Share of the Revolving Commitment, extend Revolving Loans to Borrower from time to time until the Maturity Date.  The aggregate amount of Loans outstanding shall not exceed at any time the Borrowing Availability.  Prior to the Maturity Date, Borrower may repay at any time any outstanding Loans and any amounts so repaid may be reborrowed, up to Borrowing Availability.  Loans shall be evidenced by and repayable in accordance with the terms of the Notes and this Agreement.

2.1.1Choice of Interest Rate

.  Any Revolving Loan shall, at the option of Borrower, be made either as a Base Rate Loan or as a LIBOR Loan; provided, that if a Default or Event of Default has occurred and is continuing, all Loans shall be made as Base Rate Loans.  If Borrower fails to give notice to Agent specifying whether any LIBOR Loan is to be repaid or reborrowed on a Payment Date, such LIBOR Loan shall be repaid and then reborrowed as a Base Rate Loan on the Payment Date.  Each request for a Revolving Loan shall, among other things, specify (1) the date of the proposed Revolving Loan, which shall be a Business Day, (2) the amount of the Revolving Loan, (3) whether it is to be a Base Rate Loan or a LIBOR Loan, and (4) the LIBOR Loan Period, if applicable.

2.1.2Request for Base Rate Loan

.  Borrower shall give to Agent, irrevocable notice of a request for a Base Rate Loan by delivering to Agent a Borrowing Notice for such Base Rate Loan not later than 11:00 a.m. (California time) on the date of the proposed Base Rate Loan.  Each Base Rate Loan shall be in a principal amount of not less than Two Hundred Fifty Thousand and 00/100 Dollars ($250,000.00) and in an integral multiple of $25,000.00.

2.1.3Tranches

.  At no time shall there be more than five (5) tranches collectively of Base Rate and LIBOR Loans outstanding.

2.1.4LIBOR Loans

.  Borrower shall give to Agent irrevocable notice of a request for a LIBOR Loan by delivering to Agent a Borrowing Notice for such LIBOR Loan not later than two (2) Business Days prior to the date of the proposed LIBOR Loan.  Agent shall determine the applicable LIBOR Basis as of the Business Day prior to the date of the requested LIBOR Loan.  Each determination by Agent of a LIBOR Basis shall, absent manifest error, be deemed final, binding and conclusive upon Borrower.  The LIBOR Loan Period for each LIBOR Loan shall be fixed at one (1), two (2), three (3) or six (6) months.

(a)(i) Each LIBOR Loan shall be in a principal amount of not less than Five Million and 0/100 Dollars ($5,000,000.00) and in an integral multiple of $100,000.00, and (ii) the total aggregate principal amount of all LIBOR Loans and Base Rate Loans outstanding at any one time shall not exceed Borrowing Availability.

(b)At least two (2) Business Days prior to each Payment Date for a LIBOR Loan, Borrower shall give irrevocable written notice to Lender specifying whether all or a portion of such LIBOR Loan outstanding on the Payment Date (i) is to be repaid and then reborrowed in whole or in part as a new LIBOR Loan, in which case such notice shall also specify the LIBOR Loan Period that Borrower shall have selected for such new LIBOR Loan; provided, that if a Default or Event of Default has occurred and is continuing, Borrower shall not have the option to repay and then reborrow such LIBOR Loan as a new LIBOR Loan, (ii) is to be repaid and then reborrowed in whole or in part as a Base Rate Loan, or (iii) is to be repaid and not reborrowed; provided, that any such reborrowings described in clauses (i) and (ii) above shall be in a principal amount of not less than $5,000,000.00 and in an integral multiple of$100,000.  Upon such Payment Date such LIBOR Loan will, subject to the provisions of this Agreement, be so repaid and, as applicable, reborrowed.

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2.1.5Request and Disbursement

.  Any notice in connection with a requested Revolving Loan under this Agreement that is received by Agent after 11:00 a.m. (California time) on any Business Day, or at any time on a day that is not a Business Day, shall be deemed received by Agent on the next Business Day.  Agent shall, upon the reasonable request of Borrower from time to time, provide to Borrower such information with regard to the LIBOR Basis as Borrower may request.  Promptly following receipt of a request for a Loan, Agent shall notify each Lender by telephone or telecopier (and if by telephone, promptly confirmed by telecopier) of the date and type of Loan, the applicable LIBOR Loan Period, and that Lender's Pro Rata Share of the Loan.  Not later than 10:00 a.m., California time, on the date specified for any Loan (which must be a Business Day), each Lender shall make its Pro Rata Share of the Loan in immediately available funds available to Agent at Agent's office.  Prior to 3:00 p.m. (California time) on the date of a Revolving Loan, Agent shall, subject to the satisfaction of the conditions set forth in Section 4.2, disburse the amount of the requested Revolving Loan by wire transfer pursuant to Borrower's written instructions.

2.1.6Pre-Purchase Draw Exception.  In the event that Borrower requests a draw to be used to finance the purchase of identified Equipment, which draw would cause an Overadvance under the Borrowing Base, but would not be an Overadvance if the identified Equipment were treated at the time of the draw as an Eligible Asset subject to an Eligible Lease, Agent shall permit such a draw, notwithstanding any provisions of this Agreement to the contrary, provided, however, that the following conditions are satisfied:

(a)Borrower and seller of the Equipment have executed a purchase agreement for Equipment, and the Equipment, once purchased, would qualify as an Eligible Asset,

(b)Borrower and lessee of the Equipment have executed a Lease therefor, which once the Aircraft is delivered to Lessee, would qualify as an Eligible Lease;

(c)Borrower has received a commercially reasonable deposit from such Lessee under such Lease;

(d)Borrower has provided to Agent a pro-forma Borrowing Base Certificate demonstrating there is sufficient Borrowing Base Availability after giving effect to the requested draw and the deemed treatment of the Equipment as an Eligible Asset subject to an Eligible Lease as of the date of the draw pursuant to the terms hereunder; and

(e)Within three (3) days following the purchase of such identified Equipment, (i) such Equipment shall be an Eligible Asset and (ii) with respect to such Equipment, Borrower shall satisfy the requirements set forth in Section 4.2.10, with the exception of Section 4.2.10(e) which shall be satisfied no later than one-hundred and eighty (180) days after such purchase.

For the avoidance of doubt, for purposes of this Section, the Advance Rate applicable to such Equipment when making the calculations set forth in (d) above shall be that which would be applicable to such Equipment on the date of commencement of the Lease therefor, assuming the Equipment is an Eligible Asset subject to an Eligible Lease.

2.2Payment of Interest; Interest Rate

.

2.2.1Loans

.  Interest on Revolving Loans shall be payable as follows:

(a)Base Rate Loans

.  Interest on each outstanding Base Rate Loan shall be computed for the actual number of days elapsed on the basis of a year of 360 days and shall be payable to Agent for the ratable benefit of Lenders, in arrears (i) on the first Business Day of each month, (ii) on the Maturity Date, and (iii) if any interest accrues or remains payable after the Maturity Date or during the continuance of an Event of Default, upon demand by Agent.  Interest shall accrue and be payable on each Base Rate Loan at a per annum interest rate equal to the Base Rate plus the Applicable Base Rate Margin ("Applicable Base Rate").  The Base Rate shall be equal to the highest of (i) the rate of interest most recently announced by Agent as to its U.S. dollar "Reference Rate", (ii) the Federal Funds Rate plus one-half of one percent (0.50%) or (iii) one month LIBOR plus one and one half percent (1.50%).

(b)LIBOR Loans

.  Interest on each outstanding LIBOR Loan shall be computed for the actual number of days elapsed on the basis of a year of 360 days and shall be payable to Agent, for the ratable benefit of Lenders, in arrears (i) on the Payment Date if a LIBOR Loan Period of one, two or three months, (ii) on the 90th day and the last day of the applicable LIBOR Loan Period in the case of any LIBOR Loan with a LIBOR Loan Period of six months, (iii) on the Maturity Date, and (iv) if any interest accrues or remains payable after the Maturity Date or during the continuance of an Event of Default, upon demand by Agent.  Interest shall accrue and be payable on each LIBOR Loan at a per annum interest rate equal to the LIBOR Basis applicable to such LIBOR Loan plus the Applicable LIBOR Margin ("Applicable LIBOR Rate").

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(c)Applicable Margins

.  The Applicable Base Rate Margin and the Applicable LIBOR Margin shall be determined based on the Maximum Leverage Ratio as reported in the most recent Compliance Certificate (delivered to Agent pursuant to Section 8) by reference to Table 1 below.

TABLE 1
Level		Maximum Leverage Ratio	Applicable LIBOR Margin			Applicable Base Rate Margin
	I	< or = to 3.25x		3.50	%		2.50	%
II		> than 3.25x		3.75	%		2.75	%

2.2.2Default Rate

.  Upon the occurrence and during the continuance of an Event of Default, interest on all outstanding Obligations shall, upon the election of Agent, confirmed by written notice from Agent to Borrower, accrue and be payable at the Default Rate. Interest accruing at the Default Rate shall be payable to Agent, for the ratable benefit of Lenders, on demand and in any event on the Maturity Date.  Agent shall not be required to (1) accelerate the maturity of the Loans or (2) exercise any other rights or remedies under the Loan Documents, in order to charge the Default Rate.  Upon the occurrence and during the continuance of an Event of Default specified in Sections 9.1.5, 9.1.6, or9.1.7, the interest rate shall be increased automatically to the Default Rate without the necessity of any action by Agent.

2.3Maximum Rate of Interest

.  In no event shall the aggregate of all interest on the Obligations charged or collected pursuant to the terms of this Agreement or pursuant to the Notes exceed the highest rate permissible under any law that a court of competent jurisdiction shall, in a final determination, deem applicable.  In the event that such a court determines that a Lender has charged or received interest under this Agreement or the Notes in excess of the highest applicable rate, the rate in effect under this Agreement and the Notes shall automatically be reduced to the maximum rate permitted by Applicable Law and Lender shall promptly apply such excess to reduce the principal balance of the Obligations, or if the principal balance of the Obligations owing have been paid in full, Lender shall promptly apply such excess to reduce any other Obligations, and if all Obligations have been paid in full, then Lender shall refund to Borrower any interest received by Lender in excess of the maximum lawful rate; provided, that if at any time thereafter the rate of interest payable hereunder is less than the highest applicable rate, Borrower shall continue to pay interest hereunder at the highest applicable rate, until such time as the total interest received by Lender from the making of Loans hereunder is equal to the total interest that Lender would have received had the interest rate payable hereunder been (but for the operation of this Section 2.3) the interest rate payable since the Closing Date as otherwise provided in this Agreement.  It is the intent of this Agreement that Borrower not pay or contract to pay, and that Lender not receive or contract to receive, directly or indirectly, interest in excess of that which may be paid by Borrower under Applicable Law.

2.4Fees

.  Borrower shall pay to Agent:

2.4.1Unused Line Fee

.  A fee for the ratable benefit of Lenders (the "Unused Line Fee") commencing as of the Closing Date, payable quarterly in arrears, on each Quarterly Payment Date, commencing on May 31, 2014, and ending on the Termination Date.  The Unused Line Fee shall be, for each day after the Closing Date through the Maturity Date, an amount equal to (a) the difference between (1) the Maximum Amount, and (2) the closing balance of the Loans for such day, multiplied by (b) the Applicable Unused Line Fee Percentage, the product of which is then divided by (c) 360.

2.4.2Fees to Agent

.  On the Closing Date and on each other date upon which a fee is payable or costs are reimbursable, Borrower shall pay to Agent such fees or cost reimbursements as heretofore agreed upon by letter agreement dated as of March 19, 2014, between Borrower and Union Bank, N.A., as Agent, which fees and cost reimbursements shall be solely for its own account and are nonrefundable.

2.5Late Payments

.  If any installment of principal or interest or any fee or cost or other amount payable under any Loan Document to any Lender or Swing Line Lender is not paid when due, it shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate, to the fullest extent permitted by Applicable Law.  Accrued and unpaid interest on past due amounts (including, without limitation, interest on past due interest) shall be compounded monthly, on the last day of each calendar month, to the fullest extent permitted by Applicable Law.

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2.6Repayment and Prepayment

.

2.6.1Repayment and Voluntary Prepayment

.  Borrower shall pay the principal balance of the Loans and all other Obligations in full on the Maturity Date.  The principal amount of any Base Rate Loan may be prepaid prior to the Maturity Date at any time; provided, that any such prepayments shall be in an amount equal to or greater than $100,000.00.  The principal amount of any LIBOR Loan together with all accrued and unpaid interest thereon may be prepaid prior to the applicable Payment Date, together with any breakage fees as set forth in Section 2.6.5, upon three (3) Business Days' prior notice to Lender.  Each notice of prepayment shall be irrevocable.

2.6.2Overadvances

.  Borrower shall immediately repay to Agent, for the ratable benefit of Lenders, any amount of a Base Rate Loan or LIBOR Loan which causes an Overadvance.  Overadvances constitute Obligations that are evidenced by the Notes, secured by the Collateral, and entitled to all of the benefits of the Loan Documents.

2.6.3Mandatory Prepayment

.  No later than ninety (90) days after the occurrence of any Borrowing Base Deficiency, Borrower shall repay all or such portion of the Loans in an amount equal to such deficiency, together with any breakage fees as set forth in Section 2.6.5.  Upon (i) the sale of any asset for a sale price that exceeds $2,500,000.00 and is outside the ordinary course of business or (ii) the receipt of proceeds in excess of $2,500,000.00 from any recovery under any applicable insurance policies (or otherwise) in connection with an Event of Loss, Borrower shall repay immediately all or such portion of the Loans in an amount equal to the proceeds from such sale or recovery.

2.6.4Mandatory Repayment

.  Upon the occurrence of a Change in Control, the Revolving Commitment (or any part thereof, as elected by the Requisite Lenders) shall be terminated, and all outstanding Loans (or any part thereof, as elected by the Requisite Lenders) shall be repaid in full, together with all accrued interest thereon and any breakage fees as set forth in Section 2.6.5.

2.6.5Breakage Fees

.  Upon payment or prepayment of any LIBOR Loan (other than as the result of a conversion required under Section 14.1.3 on a day other than the last day in the applicable LIBOR Loan Period (whether voluntarily, involuntarily, by reason of acceleration, or otherwise), or upon the failure of Borrower (for a reason other than the breach by a Lender of its obligation to make a LIBOR Loan pursuant to this Agreement) to borrow on the date or in the amount specified for a LIBOR Loan in any Notice of Borrowing, Borrower shall pay to Lender within five (5) Business Days after demand a prepayment fee or failure to borrow fee, as the case may be (determined as though 100% of the LIBOR Loan had been funded in the London Eurodollar Market (the "Designated Eurodollar Market")) equal to the sum of:

(a)$250 payable to Agent only;

    plus

(b)the amount, if any, by which (i) the additional interest would have accrued on the amount prepaid or not borrowed at the LIBOR Basis (not including the Applicable LIBOR Margin) if that amount had remained or been outstanding through the last day of the applicable LIBOR Loan Period exceeds (ii) the interest Lenders could recover by placing such amount on deposit in the Designated Eurodollar Market for a period beginning on the date of the prepayment or failure to borrow and ending on the last day of the applicable LIBOR Loan Period (or, if no deposit rate quotation is available for such period, for the most comparable period for which a deposit rate quotation may be obtained).

Each Lender's determination of the amount of any prepayment fee payable under this Section shall be conclusive in the absence of manifest error.

2.7Term

.  The Credit Facility shall be in effect until the Maturity Date.The Credit Facility and all other Obligations related thereto shall be automatically due and payable in full on the Maturity Date, unless earlier due and payable or terminated as provided in this Agreement.

2.8Early Termination

.  The Credit Facility may be terminated, in whole or in increments of $100,000.00, by Borrower prior to the Maturity Date upon five (5) Business Days' prior written notice to Agent; provided, that at such time Borrower shall (a) prepay all amounts outstanding under the Credit Facility which exceed the reduced Revolving Commitment amount elected by Borrower, (b) pay all accrued interest thereon and fees and charges incurred in connection therewith, and (c) reimburse Lenders for any loss or out-of-pocket expenses incurred by Lenders in connection with such prepayment and termination, including those breakage fees set forth in Section 2.6.5.

2.9Note and Accounting

.  Agent shall provide a quarterly accounting to Borrower of the Loans and other transactions under this Agreement, including Agent's calculation of principal and interest.  Each and every such accounting shall, absent manifest error, be deemed final, binding and conclusive upon Borrower, unless Borrower, within thirty (30) days after the date any such accounting is rendered, provides Agent with written notice of any objection which Borrower may have to any item in such accounting, describing the basis for such objection with specificity.  In that event, only those items expressly objected to in such notice shall be deemed to be disputed by Borrower, and in the event the parties cannot resolve their dispute, such dispute shall be resolved in accordance with the terms and conditions of the Alternative Dispute Resolution Agreement.

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2.10Manner of Payment

.

2.10.1When Payments Due

.

(a)Except as expressly set forth in this Agreement, each payment (including any prepayment) by Borrower on account of the principal of or interest on the Loans and any other amount owed to Lenders on account of the Obligations shall be made not later than 11:00 a.m. (California time) on the date specified for payment under this Agreement to Agent in lawful money of the United States and in immediately available funds.  Any payment received by Agent on a day that is not a Business Day or after 11:00 a.m. (California time) on a Business Day, shall be deemed received on the next Business Day.  The amount of all payments received by Agent for the account of each Lender shall be immediately paid by Agent to the applicable Lender in immediately available funds and, if such payment was received by Agent by 11:00 a.m., California time, on a Business Day and not so made available to the account of a Lender on that Business Day, Agent shall reimburse that Lender for the cost to such Lender of funding the amount of such payment at the Federal Funds Rate.  All payments shall be made in lawful money of the United States of America.

(b)If any payment on any Obligation is specified to be made upon a day that is not a Business Day, it shall (subject to the provisions of the LIBOR Loan Period which may require payment by one (1) earlier Business Day) be deemed to be specified to be made on the next succeeding day that is a Business Day, and such extension of time shall in such case be included in computing interest and fees, if any, in connection with such payment.

2.10.2No Deductions

.  Borrower shall pay principal, interest, fees, and all other amounts due on the Obligations without set-off or counterclaim or any deduction whatsoever.

2.10.3Inadequate Payments

.  If, on the date on which any amount (including any payment of principal, interest or other costs and expenses) shall be due and payable by Borrower to Lenders, the amount received by any such Lenders from Borrower shall not be adequate to pay the entire amount then due and payable, then Agent shall be authorized, but shall not be obligated, to make a Base Rate Loan to Borrower in the amount of the deficiency.

2.11Application of Payments

.  Borrower irrevocably waives the right to direct the application of any and all payments received at any time by any Lender from or on behalf of Borrower and specifically waives the provisions of California Civil Code Sections 1479 and 2822 or similar provisions under any other Applicable Law giving Borrower the right to designate application of payments.  All amounts received by Agent for application to the Obligations shall be applied by Agent in the following order of priority:  (i) to the payment of any fees then due and payable, (ii) to the payments of all other amounts not otherwise referred to in this Section 2.11then due and payable hereunder or under the other Loan Documents (including any costs and expenses incurred by Agent as a result of a Default or an Event of Default), (iii) pro rata to the payment of interest then due and payable on the Loans, and (iv) pro rata to the payment of principal then due and payable on the Loans.  Notwithstanding the foregoing, Borrower irrevocably agrees that, during the occurrence of an Event of Default, Lenders shall have the continuing exclusive right to determine the order and method of the application of payments against the then due and payable Obligations of Borrower in Lenders' sole discretion and to revise such application prospectively or retroactively in Lenders' sole discretion.

2.12Use of Proceeds

.  The proceeds of the Loans shall be used by Borrower to refinance existing revolving debt, to acquire aircraft and engines, and to support Borrower's working capital needs and general corporate purposes.  Borrower will not, directly or indirectly, use any part of any Loan proceeds for the purpose of purchasing or carrying any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System or to extend credit to any Person for the purpose of purchasing or carrying any such margin stock, or for any purpose which violates, or is inconsistent with, Regulation X of such Board of Governors.

2.13All Obligations to Constitute One Obligation

.  All Obligations related to the Credit Facility constitute one general obligation of Borrower and shall be secured by Agent's Liens upon all of the Collateral, and by all other Liens previously, now or at any time in the future granted by Borrower to Agent or any Lender to the extent provided in the Collateral Documents and permitted by this Agreement.

2.14Authorization to Make Loans

.  Agent, Swing Line Lender and each Lender (each, an "Authorized Party") are authorized to make the Loans based on telephonic or other oral or written instructions received from any Person that an Authorized Party believes in good faith to be an authorized representative of Borrower, or at the discretion of such Authorized Party, if such Loans are necessary to satisfy any of the Obligations.  Borrower consents to the recordation of any telephonic or other communications between an Authorized Party and Borrower for the purpose of maintaining such party's business records of such transactions.

2.15Authorization to Debit Accounts

.  Borrower authorizes each Authorized Party, upon prior notice to Borrower, to debit any of Borrower's bank accounts with such party for the purpose of Borrower's payment of principal, interest or other costs and expenses due and payable by Borrower to Lenders under this Agreement.

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2.16Agent's Right to Assume Funds Available for Revolving Loans

.  Unless Agent shall have been notified by any Lender no later than 10:00 a.m. on the Business Day of the proposed funding by Agent of any Revolving Loan that such Lender does not intend to make available to Agent such Lender's portion of the total amount of such Revolving Loan, Agent may assume that such Lender has made such amount available to Agent on the date of the Revolving Loan and Agent may, in reliance upon such assumption, make available to Borrower a corresponding amount.  If Agent has made funds available to Borrower based on such assumption and such corresponding amount is not in fact made available to Agent by such Lender, Agent shall be entitled to recover such corresponding amount on demand from such Lender.  If such Lender does not pay such corresponding amount forthwith upon Agent's demand therefor, Agent promptly shall notify Borrower and Borrower shall pay such corresponding amount to Agent.  Agent also shall be entitled to recover from such Lender interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by Agent to Borrower to the date such corresponding amount is recovered by Agent, at a rate per annum equal to the daily Federal Funds Rate.  Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its share of the Revolving Commitment or to prejudice any rights which Agent or Borrower may have against any Lender as a result of any default by such Lender hereunder.

2.17Swing Line

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2.17.1Swing Line Loans

.  Swing Line Lender shall from time to time from the Closing Date through the day prior to the Maturity Date make Swing Line Loans to Borrower in such amounts as Borrower may request, up to an aggregate principal amount not to exceed the Swing Line (each, a “Swing Line Loan”), provided that (a) if after giving effect to such Swing Line Loan, the sum of the aggregate principal amount of all then outstanding Loans does not exceed the Borrowing Availability at such time; and (b) without the consent of all of the Lenders, no Swing Line Loan may be made during the continuation of an Event of Default, provided written notice of such Event of Default shall have been provided to Swing Line Lender by Agent or a Lender sufficiently in advance of the making of such Swing Line Loan.

2.17.2Request for Swing Line Loan

.  Borrower may borrow, repay and reborrow under the Swing Line, subject to the remaining availability under the Swing Line and to availability under the Revolving Commitment, upon a request for borrowing pursuant to a Borrowing Notice delivered by Borrower to Agent not later than 1:00 p.m., California time, on the Business Day of the requested borrowing.  Promptly after receipt of such a request for borrowing, Agent shall provide telephonic verification to Swing Line Lender that, after giving effect to such request, availability under the Swing Line and the Revolving Commitment will exist (and such verification shall be promptly confirmed in writing by telecopier or electronic mail).  Borrower shall notify Swing Line Lender of its intention to make a repayment of a Swing Line Loan not later than 1:00 p.m. California time on the date of repayment.  If Borrower instructs Swing Line Lender to debit its Demand Deposit Account in the amount of any payment with respect to a Swing Line Loan, or Swing Line Lender otherwise receives repayment, after 3:00 p.m., California time, on a Business Day, such payment shall be deemed received on the next Business Day.  Swing Line Lender shall promptly notify Agent of the Swing Line Loan outstanding each time there is a change therein.

2.17.3Swing Line Interest Rate

.  Swing Line Loans shall bear interest at an all-in rate as quoted by Swing Line Lender to Borrower at the time a Swing Line Loan is requested by Borrower.  Interest shall be payable monthly on such dates as may be specified by the Swing Line Lender and in any event on the Maturity Date.  The Swing Line Lender shall be responsible for invoicing Borrower for such interest.  The interest payable on Swing Line Loans is solely for the account of the Swing Line Lender (subject to Section 2.17.5 below).

2.17.4Swing Line Maturity Date

.  Subject to Section 2.17.6 below, the principal amount of all Swing Line Loans shall be due and payable on the earlier of (i) the maturity date agreed to by the Swing Line Lender and Borrower with respect to such loan or (ii) the Maturity Date.

2.17.5Swing Line Participation

.  Upon the making of a Swing Line Loan, each Lender shall be deemed to have purchased from the Swing Line Lender a participation therein in an amount equal to that Lender’s Pro Rata Share times the amount of the Swing Line Loan.  Upon demand made by Swing Line Lender to Lenders, which shall occur not more than once per week, each Lender shall, according to its Pro Rata Share, promptly provide to Swing Line Lender its purchase price therefor in an amount equal to its participation therein.  The obligation of each Lender to so provide its purchase price to Swing Line Lender shall be absolute and unconditional (except for modifications or demand made by Swing Line Lender) and shall not be affected by the existence of an uncured Event of Default; provided that no Lender shall be obligated to purchase its Pro Rata Share of (i) Swing Line Loans to the extent that, after giving effect to such Swing Line Loan, advances under the Revolving Commitment exceed the Borrowing Availability, (ii) Swing Line Loans to the extent that, after giving effect to such Swing Line Loan, the aggregate amount of Swing Line Loans outstanding exceed $10,000,000.00, or (iii) any Swing Line Loan made (absent the consent of all of the Lenders) during the continuation of an Event of Default if written notice of such Event of Default shall have been provided to Swing Line Lender by Agent or a Lender sufficiently in advance of the making of such Swing Line Loan.  Each Lender that has provided to Swing Line Lender the purchase price due for its participation in Swing Line Loans shall thereupon acquire a pro rata participation, to the extent of such payment, in the claim of Swing Line Lender against Borrower for principal and interest and shall share, in accordance with that pro rata participation, in any principal payment made by Borrower with respect to such claim and in any interest payment made by Borrower (but only with respect to periods subsequent to the date such Lender paid Swing Line Lender its purchase price) with respect to such claim.

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2.17.6Swing Line Repayment; Revolving Loans

.  Swing Line Lender may, at any time, in its sole discretion, upon not less than two Business Days’ prior written notice to Borrower, Agent and Lenders, demand repayment of the full amount or any portion of the outstanding amount of Swing Line Loans by Borrower through a Revolving Loan advance made to Borrower and applied toward the demanded Swing Line Loan repayment.  In each case, Agent shall automatically provide the advances made by each Lender to Swing Line Lender (which Swing Line Lender shall then apply to the outstanding amount of the Swing Line Loans).  In the event that Borrower fails to request a Revolving Loan within the time specified by this Section 2.17.6 on any such date, Agent may, but is not required to, without notice to or the consent of Borrower, cause Base Rate Loans to be made by the Lenders under the Revolving Commitment in amounts which are sufficient to reduce the outstanding amount of the Swing Line Loans as required above.  The proceeds of such advances shall be paid directly to Swing Line Lender for application to the outstanding amount of the Swing Line Loans.

2.18Optional Increase to the Revolving Commitment.

2.18.1Provided that no Default or Event of Default then exists, Borrower may request, from time to time, on or after the Closing Date, in writing, that the then effective Revolving Commitment be increased up to an aggregate amount not in excess of Two Hundred Million and 00/100 Dollars ($200,000,000.00).  Any request under this Section 2.18, which request shall be in minimum increments of Five Million and 00/100 Dollars ($5,000,000.00), shall be submitted by Borrower to Lenders through Agent not less than thirty (30) days prior to the proposed increase, specify the proposed effective date and amount of such increase, and be accompanied by (i) a certificate signed by an Authorized Signatory, stating that no Default or Event of Default exists as of the date of the request or will result from the requested increase and (ii) an updated Appraisal of the Collateral satisfactory to Agent, in its sole and absolute discretion.  Any such request shall be approved by Agent if Borrower provides the foregoing items and Agent receives sufficient commitments from Lenders pursuant to Sections 2.18.2 through 2.18.4 to fund the requested increase.

2.18.2Borrower shall be solely responsible for requesting a commitment from each Lender to assume a portion of the proposed increase to the Revolving Commitment, and Borrower shall copy Agent on all such requests.  Each Lender may approve or reject such request in its sole and absolute discretion, and any Lender who fails to send an affirmative written response to Borrower, with a copy to Agent, within ten (10) Business Days after receipt of such request, shall be deemed to have rejected Borrower's request.

2.18.3In responding to a request under this Section, each Lender that is willing to assume a portion of the proposed increase to the Revolving Commitment shall specify the amount of the proposed increase that it is willing to assume.  Each consenting Lender shall be entitled to participate ratably (based on its Pro Rata Share of the Revolving Commitment before such increase) in any resulting increase in the Revolving Commitment, subject to the right of Agent to adjust allocations of the increased Revolving Commitment so as to result in the amounts of the Pro Rata Shares of the Lenders being in integral multiples of $100,000.00.

2.18.4If the aggregate principal amount offered to be assumed by the consenting Lenders is less than the amount requested, Borrower may (i) reject the proposed increase in its entirety, (ii) accept the offered amounts, or (iii) designate new lenders who qualify as Eligible Assignees and which are reasonably acceptable to Agent as additional Lenders hereunder in accordance with this Agreement (each, a "New Lender"), which New Lenders may assume the amount of the increase in the Revolving Commitment that has not been assumed by the consenting Lenders.

2.18.5After completion of the foregoing, Agent shall give written notification to the Lenders and any New Lenders of the increase to the Revolving Commitment which shall thereupon become effective, and in connection with such notification, Agent will distribute to the Borrower and the Lenders a revised Schedule 2.18 reflecting the then applicable Pro Rata Shares of the Lenders.

2.18.6Each New Lender shall become an additional party hereto as a Lender concurrently with the effectiveness of the proposed increase in the Revolving Commitment upon its execution of an instrument of joinder to this Agreement, which is in form and substance reasonably acceptable to Agent and which, in any event, contains the representations, warranties, indemnities and other protections afforded to Agent and the other Lenders which would be granted or made by an Eligible Assignee by means of the execution of a Commitment Assignment and Acceptance.

2.18.7Subject to the foregoing, any increase to the Revolving Commitment requested under this Section shall be effective upon the date agreed to by Agent and Borrower and shall be in the principal amount equal to (i) the amount which consenting Lenders are willing to assume as increases to their respective Revolving Commitment plus (ii) the amount assumed by New Lenders.  Upon the effectiveness of any such increase, each Revolving Loan outstanding shall be refinanced with new Loans reflecting the adjusted Pro Rata Share of each Lender in the Revolving Commitment if there is any change thereto and Borrower shall:

(a)issue a replacement Revolving Note to each affected Lender and a new Revolving Note to each New Lender, and the Pro Rata Share of each Lender will be adjusted, as applicable, to give effect to the increase in the Revolving Commitment;

(b)execute and deliver to Agent such amendments to the Loan Documents as Agent may reasonably request relating to such increase to, among other things, assure the continued priority and perfection the Lien granted by Borrower to Agent, for the ratable benefit of Lenders and Non-Lenders, upon all of Borrower's right, title and interest in the Collateral; and

(c)pay to the existing Lenders any breakage costs as set forth in Section 2.6.5, which are payable in connection with the refinancing of any LIBOR Loans.

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3.   SECURITY

3.1Grant of Security Interest

.  To secure the prompt payment and performance of all Obligations for the ratable benefit of Lenders,

3.1.1Borrower has granted and pledged, and hereby reaffirms such grant and pledge, to Agent a continuing security interest in all presently existing and hereafter acquired or arising Assets, including all Assets that immediately prior to the Closing Date constituted Collateral securing any part of the A&R Loan, in order to secure prompt repayment of any and all Obligations and in order to secure prompt performance by Borrower of each of its covenants and duties under the Loan Documents.  Such security interest constitutes a valid, first priority security interest in the presently existing Assets, and will constitute a valid first priority security interest in Assets acquired after the date hereof;

3.1.2Borrower shall cause each Subsidiary to (i) grant to Agent a perfected security interest and Lien on and (ii) assign to Agent, all right, title and interest of it in and to all of its Assets, whether now existing or owned or hereafter acquired;

3.1.3Borrower shall grant to Agent a first priority perfected, secured Lien on, and assign to  Agent, all right, title and interest of the Borrower in and to all "Collateral" (as such term is defined in the Mortgage) whether now existing or owned or hereafter acquired, by the delivery to Agent of a fully executed Mortgage and Security Agreement in the form of Exhibit E hereto (as amended, modified or supplemented from time to time, the "Mortgage");

3.1.4Borrower shall cause the Owner Trustee, if any, to pledge to Agent all of the Borrower's right, title and interest in a Beneficial Interest under a Trust Agreement by the delivery to Agent a fully executed Beneficial Interest Pledge Agreement, each in the form of Exhibit F hereto (each, as amended, modified or supplemented from time to time, a "Beneficial Interest Pledge Agreement");

3.1.5Borrower shall cause the Owner Trustee, if any, to execute and deliver to Agent an Owner Trustee Mortgage and Security Agreement in favor of Agent in the form of Exhibit G hereto (as amended, modified or supplemented from time to time, an "Owner Trustee Mortgage");

3.1.6Borrower shall cause the Owner Trustee, if any, to execute and deliver to Agent an Owner Trustee Guaranty in the form of Exhibit H, guarantying the performance of the Obligations (as amended, modified or supplemented from time to time, an "Owner Trustee Guaranty");

3.1.7Borrower shall make or cause any Person to make such filings, registrations, or otherwise with the FAA, International Registry, the U.S. Patents and Trademarks Office and otherwise under the UCC and all other Applicable Law as shall be required to perfect the Lien of Agent with respect to all Collateral under the Collateral Documents or any other Loan Documents, including but not limited to the following:

(a)UCC financing statements, naming Agent as secured party and Agent for the benefit of Lenders in order to perfect and preserve Agent's first priority Lien on the Collateral shall have been filed in such states in the United States of America as required, in the judgment of Agent, to perfect the Lien of Agent in all UCC Collateral;

(b)the Lien and International Interest (or Prospective International Interest), and any and all assignments and prospective assignments, as applicable, thereof, of the Mortgage and an Owner Trustee Mortgage, if any, with respect to the Equipment and Cape Town Eligible Leases with respect thereto owned by the Borrower and each Subsidiary as of the date of this Agreement shall have been registered with the International Registry and, with respect to all Engines and U.S. registered aircraft, the FAA; provided that if the International Registry does not then provide as a "drop down" registration category the serial number of any item of Equipment to be registered, then the Borrower shall register the same by "free text" notation in the International Registry and shall subsequently register such item of Equipment in its serial number category as soon as such registration category is available on the International Registry;

(c)without limiting the generality of the foregoing, all filings with the United States Patent and Trademark Office necessary or desirable to perfect Agent's Lien on all patents and trademarks of the Borrower; and

(d)the Lien as applicable, of the Mortgage and Owner Trustee Mortgage, if any, with respect to the Equipment and Leases owned by the Borrower and each Subsidiary as of the date of this Agreement and not located in a Contracting State shall have been registered with the appropriate authorities pursuant to Applicable Law.

3.2Priority of Agent's Security Interest

.  Borrower represents, warrants and agrees as follows:  (1) upon the execution of this Agreement by the parties hereto and all other documents contemplated hereby (as referenced in Section 3.1above) and as a result of the filing by Agent of appropriate financing statements in the appropriate jurisdictions and appropriate documentation with the FAA, Agent's Liens in the Collateral are and will be fully perfected Liens on all Collateral, which Liens are and will, until the Termination Date, be enforceable as first priority, fully perfected Liens as against all other creditors of, and purchasers from, Borrower; (2) all actions necessary or desirable to protect and perfect such Liens in favor of Agent in all of the Collateral has been duly taken; (3) Borrower or Owner Trustee, as applicable, are and will be the sole owner of each such item of the Collateral, and have and will have good and marketable title to such Collateral free and clear of any and all Liens except for Permitted Liens; and (4) no effective security agreement, mortgage, deed of trust, financing statement, equivalent security or Lien instrument or continuation statement covering all or any part of the Collateral is or will be on file or of record in any public office, except those filed by Borrower in favor of Agent pursuant to the Loan Documents, and those relating to other Permitted Liens.  Borrower shall defend the right, title and interest of Agent in and to the Collateral against the claims and demands of all Persons whomsoever, and shall take such actions, including (i) the prompt delivery of all original Instruments, Chattel Paper and certificated Stock owned by Borrower to Agent, (ii) notification of Agent's interest in Collateral at Agent's request, and (iii) the institution of litigation against third parties as shall be prudent in order to protect and preserve Borrower's and Agent's respective and several interests in the Collateral.  All Chattel Paper shall be marked with the following legend:

"THIS WRITING AND THE OBLIGATIONS EVIDENCED OR SECURED HEREBY ARE SUBJECT TO THE LIEN OF UNION BANK, N.A."

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3.3Agent's Rights

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3.3.1In addition to any and all rights under the Collateral Documents, at any time after the occurrence and continuance of an Event of Default, Agent may, at any time in Agent's own name or in the name of Borrower, (1) communicate with Account Debtors, parties to Contracts and Leases, and obligors in respect of Instruments, Chattel Paper or other Collateral to verify to Agent's satisfaction the existence, amount and terms of any such Accounts, Contracts, Instruments, Chattel Paper, Leases or other Collateral, and (2) without prior notice to Borrower, notify Account Debtors, parties to Contracts, parties to Leases, and obligors in respect of Chattel Paper, Instruments, or other Collateral that such Collateral has been assigned to Agent and that payments shall be made directly to Agent.  Upon the request of Agent, Borrower shall so notify such Account Debtors, parties to Contracts, parties to Leases, and obligors in respect of Instruments, Chattel Paper, Leases or other Collateral.

3.3.2It is expressly agreed by Borrower and Owner Trustee that Borrower and Owner Trustee, as applicable, shall remain liable under each Contract, License and Lease to observe and perform all the conditions and obligations to be observed and performed by it thereunder, and Agent shall have no obligation or liability whatsoever to any Person under any Contract, License or Lease (between Borrower, Owner Trustee and any Person other than Agent) by reason of or arising out of the execution, delivery or performance of this Agreement, and Agent shall not be required or obligated in any manner (1) to perform or fulfill any of the obligations of Borrower thereunder, (2) to make any payment or inquiry, or (3) to take any action of any kind to collect or enforce any performance or the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times under or pursuant to any Contract, License or Lease.

3.3.3For the purposes of allowing Agent to conduct a Field Examination, Borrower shall, with respect to each owned, leased, or controlled property or facility, during normal business hours and upon reasonable prior notice (unless a Default or Event of Default has occurred and is continuing, in which event no notice shall be required and Agent shall have access at any and all times):  (1) provide access to such facility or property to Agent and any of its officers, employees and Agent, as frequently as Agent determines to be appropriate; (2) permit Agent and any of its officers, employees and Agent to inspect, audit and make extracts from all of Borrower's books and records; and (3) subject to the Lessee's rights under any Lease, permit Agent to inspect, review, evaluate and make physical verifications and appraisals of any Equipment and other Collateral in any manner and through any medium that Agent considers advisable, and Borrower shall provide to Agent, at Borrower's cost and expense, such clerical and other assistance as may be reasonably requested with regard thereto.  Borrower shall make available to Agent and its counsel, as quickly as practicable under the circumstances, originals or copies of all of Borrower's books and records and any other instruments and documents which Agent may reasonably request.  Borrower shall deliver any document or instrument reasonably necessary for Agent, as it may from time to time request, to obtain records from any service bureau or other Person that maintains records for Borrower.  Borrower's obligation to reimburse Agent for the costs of such Field Examinations shall not exceed $10,000 per year.

3.3.4Upon the occurrence and during the continuance of an Event of Default, Borrower, at its own expense, shall cause its independent certified public accountants to prepare and deliver to Agent at any time and from time to time, promptly upon Agent's request:  (1) a reconciliation of all Accounts; (2) an aging of all Accounts; (3) trial balances; and (4) test verifications of such Accounts as Agent may request.  Borrower, at its own expense, shall cause its independent certified public accountants to deliver to Agent the results of (i) any physical verifications of all or any portion of the Collateral made or observed by such accountants, and (ii) any verifications of Borrower's Accounts, in each case when and if any such verifications are conducted.  Agent shall be permitted to observe and consult with Borrower and Borrower's certified public accountants in the performance of these tasks.

3.4Power of Attorney

.  To the extent permitted by Applicable Law, Borrower hereby irrevocably makes, constitutes, and appoints Agent (and any of Agent's officers, employees or Agent designated by Agent) as Borrower's true and lawful attorney-in-fact, with power to:  (a) sign the name of Borrower on any document to be executed, recorded or filed in order to perfect or continue perfected Agent's Lien upon the Collateral if Borrower fails to do so promptly after request therefor by Agent, including filing any financing or continuation statement without the signature of Borrower to the extent permitted by applicable law; (b) at any time after the occurrence and continuance of an Event of Default, sign Borrower's name on any invoice or bill of lading relating to any Account, drafts against Account Debtors, schedules and assignments of Accounts, verifications of Accounts and notices to Account Debtors; (c) at any time after the occurrence and continuance of an Event of Default, send requests for verification of Accounts; (d) at any time after the occurrence and continuance of an Event of Default, endorse Borrower's name on any checks, notices, acceptances, money orders, drafts, or other forms of payment or security that may come into Agent's possession; and (e) at any time that a Default or Event of Default has occurred and is continuing, (1) notify the post office authorities to change the address for delivery of Borrower's mail to an address designated by Agent, to receive and open all mail addressed to Borrower, and to retain all mail relating to the Collateral and forward all other mail to Borrower, (2) make, settle, and adjust all claims under Borrower's policies of insurance and make all determinations and decisions with respect to such policies of insurance, and (3) settle and adjust disputes and claims respecting the Accounts directly with Account Debtors, for amounts and upon terms which Agent determines to be reasonable, and Agent may cause to be executed and delivered any documents and releases which Agent determines to be necessary.  The appointment of Agent as Borrower's attorney-in-fact, and each and every one of Agent's rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully repaid and performed and Agent's obligation to provide Loans hereunder is terminated.  NEITHER LENDERS NOR ANY OF THEIR OFFICERS, DIRECTORS, EMPLOYEES, LENDERS OR REPRESENTATIVES SHALL BE RESPONSIBLE TO BORROWER FOR ANY ACT OR FAILURE TO ACT PURSUANT TO THE POWERS GRANTED UNDER THE POWER OF ATTORNEY HEREIN OR OTHERWISE, EXCEPT FOR ITS OR THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, NOR FOR ANY PUNITIVE, EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES.

3.5Grant of License to Use Intellectual Property Collateral

.  For the purpose of enabling Agent to exercise its rights and remedies under the Loan Documents, Borrower hereby grants to Agent an irrevocable, non-exclusive license (exercisable only upon the occurrence and continuance of an Event of Default and without payment of royalty or other compensation to Borrower) to use, transfer, license or sublicense any Intellectual Property now owned, licensed to, or hereafter acquired by Borrower, and wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer and automatic machinery software and programs used for the compilation or printout thereof, and Borrower represents, warrants and agrees that any such license or sublicense is not and will not be in conflict with the contractual or commercial rights of any other Person; provided, that such license will terminate on the Termination Date.

3.6Reinstatement

.  The provisions of this Section 3 shall to the extent permitted by Applicable Law remain in full force and effect and continue to be effective even if:  (a) any petition is filed by or against Borrower or Owner Trustee for liquidation or reorganization; (b) Borrower or Owner Trustee becomes insolvent or makes an assignment for the benefit of creditors; (c) a receiver or trustee is appointed for all or any significant part of Borrower's or Owner Trustee's assets; or (d) at any time payment and performance of the Obligations, or any part thereof, is, pursuant to Applicable Law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Obligations, whether as a "voidable preference," "fraudulent transfer" or otherwise, all as though such payment or performance had not been made.  In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Obligations and Agent's Liens in the Collateral shall be reinstated and deemed reduced only by any amount paid and not so rescinded, reduced, restored or returned.

3.7Release of Security Interest

.  Provided no Default or Event of Default exists and no Overadvance would result, Agent shall from time to time execute partial releases of Collateral sold by Borrower in the ordinary course of its business in accordance with this Agreement from the security interests under the Loan Documents which partial releases shall be in form reasonably satisfactory to Agent.

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4.   CONDITIONS PRECEDENT

4.1Conditions Precedent to Closing

.  Lenders shall not be obligated to make any Loan, or to take, fulfill, or perform any other action under this Agreement, until the following conditions have been satisfied to each Lender's reasonable satisfaction or waived in writing by each Lender:

4.1.1Agent shall have received:

(a)originals of the documents set forth on Schedule 1.1f (Schedule of Documents), each duly executed by the appropriate parties, together with such other assurances, certificates, documents or consents related to the foregoing as Agent and/or Lenders reasonably may require, all in form and substance satisfactory to Agent and Lenders;

(b)such documentation as Agent may reasonably require to establish the due organization, valid existence and good standing of Borrower, its qualification to engage in business in each material jurisdiction in which it is engaged in business or required to be so qualified, its authority to execute, deliver and perform the Loan Documents to which it is a party, the identity, authority and capacity of each Authorized Signatory thereof authorized to act on its behalf, including certified copies of articles of organization and amendments thereto, bylaws and operating agreements and amendments thereto, certificates of good standing and/or qualification to engage in business, tax clearance certificates, certificates of corporate resolutions, incumbency certificates, certificates of Authorized Signatory, and the like;

(c)a list of all of Borrower's Material Contracts and a copy of such Material Contracts requested by Agent;

(d)a copy of all insurance certificates or other evidence of insurance for the Collateral;

(e)originals of favorable written opinions, dated as of the date hereof, of independent and internal counsel to the Borrower, addressed to Agent and Lenders (and their respective participants and assigns) and otherwise in form and substance satisfactory to Agent as to such matters as Agent shall determine;

(f)copies of all consents and authorizations of, permits from or filings with, any Governmental Authority or other Person required in connection with the execution, delivery, performance or enforceability of the Loan Documents or any provision thereof and no material changes in governmental regulations affecting the Borrower, Agent or the Lenders shall have occurred;

(g)(i) a certified lien search for the State of Delaware and the State of California with respect to the Borrower and each of its Subsidiaries, (ii) an International Registry search with respect to each applicable item of Equipment; (iii) an FAA search with respect to each applicable item of Equipment, (iv) a Federal tax lien search with respect to the Borrower and each of its Subsidiaries, and any other searches as may be required by Agent; and

(h)the "chattel paper" original of each Lease, which thereafter shall be held by Agent until the Termination Date; provided Agent shall not be liable in the event of any damage, loss or destruction of any of such documents or instruments.

4.1.2All of the financing statements and other documentation described in Section 3.1.7shall have been filed with the appropriate Governmental Agencies, and Agent shall hold a first priority perfected Lien in the Collateral, for the ratable benefit of Lenders, subject only to Permitted Liens.

4.1.3With respect to all Equipment, the following statements shall be true, and Agent shall have received evidence reasonably satisfactory to it (including, with respect to each item of Equipment which is eligible for registration with the International Registry, a printout of the "priority search certificate" from the International Registry showing the Equipment Owner's ownership interest with respect to such Equipment under a contract of sale) with respect to each item of Equipment and any related Lease included in the Borrowing Base to the effect that:

(a)the Borrower is in compliance with the applicable requirements of the Mortgage and Applicable Law;

(b)the applicable Equipment Owner has good title under Applicable Law to such item of Equipment, free and clear of Liens other than (i) Permitted Liens and (ii) the Lien of Agent;

(c)the Borrower has completed all registrations and filings required by any Aviation Authority in such jurisdiction and Agent shall hold a first priority Lien on each item of Equipment under Applicable Law (or with respect to Assets for which a pre-filing has been made, Agent shall be the beneficiary of a second priority Lien on such Equipment, and documentation sufficient to terminate any first priority lien on such Equipment shall have been delivered to Agent or to an escrow with such documentation to be filed upon payoff of such lien through Revolving Loan proceeds) and has provided, or is in a position to provide, all opinions of independent counsel as required by Agent; and

(d)Agent shall have received evidence reasonably satisfactory to it (including, with respect to each Cape Town Eligible Lease, a printout of the "priority search certificate" (as defined in the Regulations for the International Registry) from the International Registry relating to the Lessor's interest in and International Interest with respect to such item of Equipment under such Lease and including, with respect to all Leases that are not Cape Town Eligible, an original, favorable written opinion of independent counsel addressed to Agent and Lenders (and their respective participants and assigns) with respect to Agent's Lien on such item of Equipment;

4.1.4Payment by Borrower to Agent of all fees, costs, and expenses of closing (including reasonable fees of legal counsel to Agent presented as of the Closing Date);

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4.1.5No action, proceeding, investigation, regulation or legislation shall have been instituted, threatened or proposed before any court, Governmental Authority or legislative body to enjoin, restrain or prohibit, or to obtain damages in respect of, or which is related to or arises out of, this Agreement or any other Loan Document or the consummation of the transactions contemplated hereby or thereby and which, in any Lender's sole judgment, would make it inadvisable to consummate the transactions contemplated by this Agreement or any other Loan Document;

4.1.6Payment by Borrower to each Lender of any of the fees due to each Lender;

4.1.7No circumstance or event shall have occurred, including but not limited to any litigation, actions, suits, proceedings or investigations pending as to Borrower, that constitutes a Material Adverse Effect as of the Closing Date;

4.1.8All of the representations and warranties of Borrower under this Agreement shall be true and correct as of the Closing Date;

4.1.9Borrower shall be in compliance with all the terms and provisions of the Loan Documents, and no Default or Event of Default shall have occurred and be continuing;

4.1.10Agent shall have completed its independent business and legal due diligence, including but not limited to financial, legal and insurance reviews, with results satisfactory to Agent;

4.1.11Each Lender and Agent each shall have obtained satisfactory credit or other required internal approval(s) in connection with the transactions contemplated by this Agreement and the Loan Documents;

4.1.12The Closing Date shall occur on or before May 31, 2014;

4.1.13Borrower shall have established a non-interest bearing account with Agent;

4.1.14All legal matters relating to the Loan Documents shall be satisfactory to Sheppard, Mullin, Richter & Hampton LLP, legal counsel to Union Bank, N.A., in all of its capacities hereunder.

If any other term of any Loan Document should conflict, or appear to conflict, with this Section 4.1, the terms of this Section 4.1 shall control, and Borrower shall have no rights under this Agreement or any other Loan Document until each of the conditions of this Section 4.1 has been complied with to Agent's and Lenders' satisfaction or specifically waived in a writing by Lenders.

4.2Conditions to All Loans

.  It shall be a condition to the funding of any Loan that the following statements be true on the date of each such funding or advance:

4.2.1Agent shall have timely received a Borrowing Notice or telephonic request, as applicable, together with an Borrowing Base Certificate dated as of the date of such Borrowing Notice;

4.2.2Agent shall determine that, after giving effect to the requested Revolving Loan, no Overadvance will occur;

4.2.3all of the representations and warranties of Borrower under this Agreement and the other Loan Documents shall be true and correct at such date, except to the extent any such representations and warranties relate to an earlier date, both before and after giving effect to the funding or issuance of such Loan, and Agent shall have received, if it so elects, a certification to that effect signed by an Authorized Signatory;

4.2.4Borrower shall be in compliance with all the terms and provisions of the Loan Documents, and no Default or Event of Default shall have occurred and be continuing;

4.2.5no circumstance or event shall have occurred since the Closing Date, or would result from the funding, advance or incurrence of any Loan, that constitutes a Material Adverse Effect;

4.2.6other than matters described in Schedule 5.10 or not required as of the Closing Date to be therein described, there shall not then be pending or threatened any action, suit, proceeding or investigation against or affecting Borrower or any of its Subsidiaries or any Property of any of them before any Governmental Authority that constitutes a Material Adverse Effect;

4.2.7Agent shall have received, in form and substance satisfactory to Agent, such other assurances, certificates, documents or consents related to the foregoing as Agent may reasonably require;

4.2.8Agent shall hold a perfected, first priority Lien on all Collateral, for the ratable benefit of Lenders, subject only to Permitted Liens and those liens referenced in clause (b) of Section 4.2.10;

4.2.9With respect to an item of Equipment that is owned by an Owner Trustee, or with respect to each Lease to a Lessee domiciled or whose chief executive office is located in a non-U.S. jurisdiction, which is or is to be included in the Borrowing Base on such Borrowing Date, Agent shall have received the documentation set forth in the definition of "Eligible Lease," (including, without limitation, the Owner Trustee Guaranty(ies), Owner Trustee Mortgage(s), Trust Agreement(s), and Beneficial Interest Pledge Agreement(s));

4.2.10With respect to all Equipment, the following statements shall be true, and Agent shall have received evidence reasonably satisfactory to it with respect to each item of Equipment and any related Lease included in the Borrowing Base to the effect that:

(a)the Borrower is in compliance with the applicable requirements of the Mortgage and Applicable Law;

(b)the applicable Equipment Owner has good title under Applicable Law to such item of Equipment, free and clear of Liens other than (i) Permitted Liens and (ii) the Lien of Agent;

(c)the Borrower has completed all registrations and filings required by any Aviation Authority in such jurisdiction and Agent shall hold a first priority Lien on each item of Equipment under Applicable Law and has provided, or is in a position to provide, all opinions of independent counsel as required by Agent;

(d)with respect to each Cape Town Eligible Lease, Agent shall have received evidence reasonably satisfactory to it (including, a printout of the "priority search certificate" as defined in the Regulations for the International Registry) from the International Registry relating to the Lessor's interest in and International Interest with respect to such item of Equipment under such Lease;

(e)with respect to all Leases that are not Cape Town Eligible, Agent shall have received an original, favorable written opinion of independent counsel addressed to Agent and Lenders (and their respective participants and assigns) with respect to Agent's Lien on such item of Equipment;

(f)with respect to each item of Equipment which is eligible for registration with the International Registry, Agent shall have received a printout of the "priority search certificate" from the International Registry showing the Equipment Owner's ownership interest with respect to such Equipment under a contract of sale; and

(g)with respect to such item of Equipment and any related Lease, the Borrower is in compliance with the applicable provisions of this Agreement, the Mortgage and all other Loan Documents.

Notwithstanding the foregoing, but subject to clause (b) of this Section 4.2.10, if the Mortgage or Owner Trustee Mortgage and/or Lease for any item of Equipment is not available on any Borrowing Date, but provided, in the case of a Lease of any item of Equipment, the parties hereto agree nevertheless to close on the financing of such item of Equipment so long as a (x)  a Prospective International Interest or International Interest in such Equipment and such Mortgage or Owner Trustee Mortgage (and Lease if it is a Cape Town Eligible Lease) has been duly registered in favor of Agent at the International Registry; (y)  no prior International Interest in such item of Equipment has been filed, and such Lease shall have been registered at the International Registry prior to the registration of such Prospective International Interest or International Interest in favor of Agent; and (z)  the Borrower shall cause the Mortgage or Owner Trustee Mortgage, as applicable (and Lease if the aircraft in a U.S. registered aircraft) to be filed with the FAA within three (3) days of such registration of Prospective International Interest or International Interest.

The request and acceptance by Borrower of the proceeds of the Loan shall be deemed to constitute, as of the date of such Loan, (1) a representation and warranty by Borrower that the conditions in this Section 4.2 have been satisfied, and (2) a confirmation by Borrower of the granting and continuance of Agent's Liens pursuant to the Collateral Documents.

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5.   REPRESENTATIONS AND WARRANTIES

Borrower represents, warrants and agrees that from and after the Closing Date and until the Termination Date:

5.1Corporate Existence; Compliance with Law

.  Borrower is a corporation duly formed, validly existing and in good standing under the Applicable Law of Delaware.  Borrower is duly qualified or registered to transact business and is in good standing in Delaware and California and in each other jurisdiction in which the conduct of its business or the ownership or leasing of its Property makes such qualification or registration necessary and in which the failure to be so qualified or registered could have a Material Adverse Effect.  Borrower has all requisite power and authority to conduct its business, to own, pledge, mortgage or otherwise encumber and operate its Property, to lease the Property it operates under lease, to conduct its business as now or proposed to be conducted, to execute and deliver each Loan Document to which it is a party and to perform its Obligations. Borrower is in compliance with all Applicable Law and other legal requirements applicable to its business, has obtained all authorizations, consents, approvals, orders, licenses and permits from, and has accomplished all filings, registrations and qualifications with, or obtained exemptions from any of the foregoing from, any Governmental Authority that are necessary for the transaction of its business.

5.2Executive Offices; Corporate or Other Names; Conduct of Business

.  The locations of Borrower's executive offices, principal place of business, corporate offices, warehouses, other locations of Collateral and locations where all of Borrower's records with respect to Collateral are kept are as set forth in Schedule 5.2 and, except as set forth in such schedule, such locations have not changed during the preceding twelve (12) months.  Borrower shall not change its (a) name, (b) chief executive office, (c) principal place of business or jurisdiction of formation, or (d) location of its records concerning the Collateral, without, in each instance, giving thirty (30) days' prior written notice thereof to Agent and taking all actions deemed necessary or appropriate by Agent to protect and perfect Agent's Liens continuously upon the Collateral.

5.3Authority; Compliance with Other Agreements and Instruments and Government Regulations

.  The execution, delivery and performance by Borrower, any Owner Trustee, and any Subsidiary of the Loan Documents to which each is a party have been duly authorized by all necessary corporate action, and do not and will not:

5.3.1Require any consent or approval not heretofore obtained of any member, partner, director, stockholder, security holder or creditor of such party;

5.3.2Violate or conflict with any provision of such party's operating agreement, charter, articles of incorporation or bylaws, as applicable;

5.3.3Result in or require the creation or imposition of any Lien (other than pursuant to the Loan Documents) or Right of Others upon or with respect to any Property now owned or leased or hereafter acquired or leased by such party;

5.3.4Violate any Applicable Law applicable to such party; or

5.3.5Result in a breach of or constitute a default under, or cause or permit the acceleration of any obligation owed under, any indenture or loan or credit agreement or any other Contractual Obligation to which such party is a party or by which such party or any of its property is bound or affected; and such party is not in violation of, or default under, any Applicable Law or Contractual Obligation, or any indenture, loan or credit agreement, in any respect.

5.4No Governmental Approvals Required

.  Except as previously obtained or made, no authorization, consent, approval, order, license or permit from, or filing, registration or qualification with, any Governmental Authority is or will be required to authorize or permit under Applicable Law the execution, delivery and performance by Borrower, Owner Trustee and any Subsidiary of the Loan Documents to which it is a party.

5.5Subsidiaries

.  Borrower has no Subsidiaries as of the Closing Date.

5.6Financial Statements

.  Borrower has furnished to Lender the audited financial statements of Borrower as of the Fiscal Year ending December 31, 2013 (including balance sheets and income statements) and the unaudited financial statements of Borrower as of the Fiscal Quarter ending March 31, 2014.  The financial information contained therein fairly presents in all material respects the financial condition, results of operations and changes in financial position of Borrower as of such dates and for such periods.

5.7No Other Liabilities; No Material Adverse Changes

.  Borrower and its Subsidiaries do not have any material liability or material contingent liability required under GAAP to be reflected or disclosed, and not reflected or disclosed, in the balance sheets described in Section 5.6 other than liabilities and contingent liabilities arising in the ordinary course of business since the date of such financial statements.  Except as set forth on Schedule 5.7, as of the Closing Date, no circumstance or event has occurred that constitutes a Material Adverse Effect.

5.8Title To and Location of Property

.  Borrower and its Subsidiaries have valid title to the Property, including all Equipment, as reflected in the balance sheet described in Section 5.6, other than items of Property or exceptions to title which are in each case immaterial and Property subsequently sold or disposed of in the ordinary course of business.  Such Property is free and clear of all Liens and Rights of Others, other than those described in Schedule 5.7 and Permitted Liens and Permitted Rights of Others.

5.9Intellectual Property

.  Borrower and its Subsidiaries own, or possess, the right to use to the extent necessary in their respective businesses, all Intellectual Property, and no such Intellectual Property conflicts with the valid Intellectual Property of any other Person.  Except as set forth in Schedule 5.9, Borrower has not used any trade name, trade style or "dba" during the five year period ending on the Closing Date.

5.10Litigation

.  Except for matters set forth in Schedule 5.10, there are no actions, suits, proceedings or investigations pending as to which Borrower or any of its Subsidiaries have been served or have received notice or, to the best knowledge of Borrower, threatened against or affecting Borrower or any of its Subsidiaries or any Property of any of them, the Collateral, or any other transactions contemplated by this Agreement.

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5.11Binding Obligations

.  Each of the Loan Documents to which Borrower, Owner Trustee, and any Subsidiary is a party will, when executed and delivered by such party, constitute the legal, valid and binding obligation of such party, enforceable against such party in accordance with its terms.

5.12No Default

.  No event has occurred and is continuing that is a Default or Event of Default.

5.13ERISA

.  Neither Borrower nor any of its Subsidiaries has any Pension Plans.  Neither Borrower nor any of its Subsidiaries has incurred or expects to incur any withdrawal liability to any Multiemployer Plan (as defined herein).  As used herein, "Pension Plan" means any "employee pension benefit plan" (as such term is defined in Section 3(2) of ERISA) and "Multiemployer Plan" means any employee benefit plan of the type described in Section 001(a)(3) of ERISA to which Borrower or any of its ERISA affiliates contributes or is obligated to contribute.

5.14Regulation U; Investment Company Act

.  No part of the proceeds of any Loan hereunder will be used to purchase or carry, or to extend credit to others for the purpose of purchasing or carrying, any margin stock in violation of Regulation U.  Neither Borrower nor any of its Subsidiaries is or is required to be registered as an "investment company" under the Investment Company Act of 1940.

5.15Disclosure

.  No written statement made by a Authorized Signatory to Lender in connection with this Agreement, or in connection with any Loan, as of the date thereof contained any untrue statement of a material fact or omitted a material fact necessary to make the statement made not misleading in light of all the circumstances existing at the date the statement was made.

5.16Tax Liability

.  Borrower and its Subsidiaries have filed all tax returns which are required to be filed, and have paid, or made provision for the payment of, all taxes with respect to the periods, Property or transactions covered by said returns, or pursuant to any assessment received by Borrower or any of its Subsidiaries, except such taxes, if any, as are being contested in good faith by appropriate proceedings and as to which adequate reserves have been established and maintained.

5.17Hazardous Materials

.  Except as described in Schedule 5.17, as of the Closing Date (a)  neither Borrower nor any of its Subsidiaries at any time has disposed of, discharged, released or threatened the release of any Hazardous Materials in violation of any Hazardous Materials Law, (b) to the best knowledge of Borrower, no condition exists that violates any Hazardous Material Law affecting any real property owned by Borrower or any of its Subsidiaries, (c) no real property or any portion thereof is or has been utilized by Borrower or any of its Subsidiaries as a site for the manufacture of any Hazardous Materials and (d) to the extent that any Hazardous Materials are used, generated or stored by Borrower or any of its Subsidiaries on any real property, or transported to or from such real property by Borrower or any of its Subsidiaries, such use, generation, storage and transportation are in compliance with all Hazardous Materials Laws.

5.18Security Interests

.  Upon the execution and delivery of all of this Agreement and the Collateral Documents and the completion of all actions to perfect the security interests so created, as set forth in Section 3.1.7, Agent will hold a valid first priority security interest in the Collateral described therein securing the Obligations.

5.19Insurance

.  Schedule 5.19 lists all current insurance of any nature maintained by Borrower, as well as a summary of the terms of such insurance provided Schedule 5.19 shall list insurance for Equipment leased pursuant to an Eligible Lease.  Borrower shall deliver to Agent endorsements to all of its (a) "All Risk" and business interruption insurance policies naming Agent as loss payee, and (b) general liability and other liability policies naming Agent as an additional insured.  All policies of insurance on real and personal property will include an endorsement, in form and substance acceptable to Agent, showing loss payable to Agent (Form 438 BFU or equivalent) and extra expense and business interruption endorsements.  Such endorsement, or an independent instrument furnished to Agent, will provide that the insurer will endeavor to give at least thirty (30) days' prior written notice to Agent before any such policy or policies of insurance shall be canceled.  Upon the occurrence and continuation of a Default or Event of Default, Borrower hereby directs all present and future insurers under its and its Subsidiaries’ "All Risk" policies of insurance to pay all proceeds payable thereunder directly to Agent for the ratable benefit of Lenders.  Agent reserves the right at any time, upon review of Borrower's risk profile, to require additional forms and limits of insurance to adequately protect Lenders' interests in accordance with Agent's normal practices for similarly situated borrowers, and if the circumstances are unusual, in Agent's sole opinion.

5.20Leases and Equipment

.  Each of the following is true and correct with respect to each Lease for an item of Equipment included in the Borrowing Base:

5.20.1The amounts of rent and other amounts due under each Lease, as shown on the Borrower's books and records and on any statement or schedule delivered to Agent in connection therewith, are the true and correct amounts actually owed to the Borrower and the other Lessors;

5.20.2The Borrower has not and will not enter into any agreement with a Lessee of any Equipment which provides, directly or indirectly, for the crediting of any obligation or liability of the Borrower to such Lessee against future rentals accruing under the Lease, other than as provided therein;

5.20.3The Lessor delivered to Agent an original counterpart of such Lease;

5.20.4The documents and information delivered to Agent pursuant to Section 4 with respect to such Equipment and Leases have been so delivered; and

5.20.5All rentals, fees, costs, expenses and charges paid or payable by the Lessee under any Lease, including without limitation, any brokerage and other fees paid to the Borrower do not violate any Applicable Law relating to the maximum fees, costs, expenses or charges that can be charged in any jurisdiction in which any Equipment is located or in which the corresponding Lessee is located, or in which a transaction was consummated, or in any other jurisdiction which may have jurisdiction with respect to any such Equipment, Lease or Lessee.

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5.21Cape Town Convention

.

5.21.1The Borrower is (a) a "Transactional User Entity" (as such term is defined in the Regulations for the International Registry); (b) "situated", for the purposes of the Cape Town Convention, in the United States; and (c) has the "power to dispose" (as such term is used in the Cape Town Convention) of the Equipment;

5.21.2The Equipment are "aircraft objects" (as such term is defined in the Cape Town Convention);

5.21.3The Borrower has identified any and all Cape Town Eligible Leases, and has notified Agent of such Leases, in writing;

5.21.4The payment of principal of and interest on the Notes, and the performance by the Borrower of the Obligations, are "associated rights" (as such term is defined in the Cape Town Convention) with respect to the Equipment.

5.22Depreciation Policies

.  The Borrower's depreciation policies with respect to the Equipment are as set forth on Schedule 5.22.  These policies have been in effect substantially without change since January 1, 1998.

5.23Interest Rate Protection Agreements

.  There are no Interest Rate Protection Agreements in effect as of the Closing Date.

5.24Eligible Leases

.  A list of all items of Eligible Assets subject to a Lease in effect as of the Closing Date is set forth in Schedule 1.1a.

5.25Preservation of International Interests and Liens

.  Borrower shall or shall cause any other Person, as applicable, to (i) register with the FAA and/or International Registry and/or create a Lien in favor of Agent under Applicable Law, and thereafter maintain, such Lien and, as applicable, the International Interest of each Mortgage and Owner Trustee Mortgage, if any, and the International Interest of each Lease with a Lessee domiciled or with its chief executive office in a Contracting State; and (ii) maintain the rights and International Interests of the Equipment Owner in the Equipment, as against any third parties under Applicable Law and as against all third parties, whether in any Contracting State under the Cape Town Convention or otherwise.

5.26Solvency

.  Borrower is, and after giving effect to the transactions contemplated hereby, will be, Solvent.  "Solvent" for purposes of this Agreement means, with respect to any Person, that the aggregate present fair saleable value of such Person's assets is in excess of the total amount of its probable liabilities on its existing debts as they become absolute and matured, such Person has not incurred debts beyond its foreseeable ability to pay such debts as they mature, and such Person has capital adequate to conduct the business it is presently engaged in or is about to engage in.

6.   AFFIRMATIVE COVENANTS (OTHER THAN INFORMATION AND REPORTING REQUIREMENTS)

So long as any portion of the Loan remains in force and/or any Obligation remains unpaid, Borrower shall, and shall cause its Subsidiaries to, unless Requisite Lenders otherwise consent:

6.1Payment of Taxes and Other Potential Liens

.  Pay and discharge promptly all taxes, assessments and governmental charges or levies imposed upon any of them, upon its respective Property or any part thereof and upon its respective income or profits or any part thereof, except that Borrower and its Subsidiaries shall not be required to pay or cause to be paid any tax, assessment, charge or levy that is not yet past due, or is being contested in good faith by appropriate proceedings so long as the relevant entity has established and maintains adequate reserves for the payment of the same.

6.2Preservation of Existence

.  Preserve and maintain its respective existences in the jurisdiction of its formation and all material authorizations, rights, franchises, privileges, consents, approvals, orders, licenses, permits, or registrations from any Governmental Authority that are necessary for the transaction of its respective business and qualify and remain qualified to transact business in each jurisdiction in which such qualification is necessary in view of its respective business or the ownership or leasing of its respective Property.

6.3Maintenance of Property

.  Maintain, or, with respect to Property subject to Leases, require the Lessees to maintain, in good working order and condition, consistent with industry practice and standards (taking into consideration normal wear and tear), all of its Property and not permit any waste thereof, and, in the ordinary course of business, make all needful and proper repairs, replacements, additions and improvements thereto as are necessary for the conduct of its business, except that the failure to maintain, preserve and protect a particular item of Property that is at the end of its useful life or that is not of significant value, either intrinsically or to the operations of Borrower, shall not constitute a violation of this covenant.

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6.4Maintenance of Insurance

.  Maintain or cause Lessee(s), as applicable, liability, casualty and other insurance (subject to customary deductibles and retentions) on all Property with responsible insurance companies in such amounts and against such risks as is carried by responsible companies engaged in similar businesses and owning similar assets in the general areas in which Borrower and its Subsidiaries operate and shall furnish to Lenders statements of its insurance coverage and shall promptly, upon Agent's request, furnish other or additional insurance deemed necessary by Agent to the extent that such insurance may be available.  Borrower shall take all actions required to maintain the foregoing insurance and/or to comply with all requirements of such insurance coverage.  Prior to any Loan disbursement, Agent shall be named as additional insureds on all liability insurance, all risk ground and flight coverage for damage or loss of the related Equipment, and war risk insurance (if applicable)and Agent shall be named as a loss payee under all hull insurance policies insuring the Collateral.  Borrower shall deliver to Agent endorsements to all of its (a) "All Risk" and business interruption insurance policies naming Agent as loss payee, and (b) general liability and other liability policies naming Agent as an additional insured.  All policies of insurance on real and personal property will include an endorsement, in form and substance acceptable to Agent, showing loss payable to Agent (Form 438 BFU or equivalent) and extra expense and business interruption endorsements.  Such endorsement, or an independent instrument furnished to Agent, will provide that the insurer will give at least thirty (30) days' prior written notice to Agent before any such policy or policies of insurance shall be canceled.  Upon the occurrence and continuation of a Default or Event of Default, Borrower hereby directs all present and future insurers under its and its Subsidiaries’ "All Risk" policies of insurance to pay all proceeds payable thereunder directly to Agent for the ratable benefit of Lenders.  Agent reserves the right at any time, upon review of Borrower's risk profile, to require additional forms and limits of insurance to adequately protect Lenders' interests in accordance with Agent's normal practices for similarly situated borrowers, and if the circumstances are unusual, in Agent's sole opinion.

6.5Compliance with Applicable Law

.  Comply with all Applicable Law, except that Borrower and its Subsidiaries need not comply with an Applicable Law then being contested by any of them in good faith by appropriate proceedings.

6.6Inspection Rights

.  Upon reasonable notice, at any time during regular business hours and as often as reasonably requested (but not so as to materially interfere with the business of Borrower or any of its Subsidiaries) permit Agent, or any authorized employee or representative thereof, to examine, audit and make copies and abstracts from the records and books of account of, and to visit and inspect the Property of, Borrower and its Subsidiaries and to discuss the affairs, finances and accounts of Borrower and its Subsidiaries with any of its officers, key employees or accountants.  In addition, Agent shall cause a Field Examination to be completed annually commencing with the Fiscal Year ending December 31, 2013.  If no Event of Default or Potential Default shall be in existence, Borrower shall reimburse Agent for the reasonable expense of such annual Field Examination whether the examination is performed by Agent or a third party approved by Agent. If any Field Examination shall be made during the continuance of a Potential Default or an Event of Default, Borrower shall reimburse Agent for the reasonable expense of such Field Examination without limit. At all times, it is understood and agreed by Borrower that all expenses in connection with any such Field Examination which may be incurred by Borrower, any officers and employees thereof and the attorneys and independent certified public accountants therefor shall be expenses payable by Borrower and shall not be expenses of Agent or Lenders.  Agent shall complete a Field Examination within 90 days of the Closing Date, with the scope of such Field Examination to be determined by Agent.

6.7Keeping of Records and Books of Account

.  Keep adequate records and books of account reflecting all financial transactions in conformity with GAAP, consistently applied, and in material conformity with all applicable requirements of any Governmental Authority having regulatory jurisdiction over Borrower and its Subsidiaries.

6.8Compliance with Agreements

.  Promptly and fully comply with all Contractual Obligations to which any one or more of them is a party, except for any such Contractual Obligations (a) the performance of which would cause a Default or (b) then being contested by any of them in good faith by appropriate proceedings.

6.9Use of Proceeds

.  Use the proceeds of the Loans only for the purposes set forth in this Agreement.

6.10Hazardous Materials Laws

.  Keep and maintain all real property used and/or owned by Borrower and any of its Subsidiaries and each portion thereof in compliance in all material respects with all applicable Hazardous Materials Laws and promptly notify Lender in writing (attaching a copy of any pertinent written material) of (a) any and all material enforcement, cleanup, removal or other governmental or regulatory actions instituted, completed or threatened in writing by a Governmental Authority pursuant to any applicable Hazardous Materials Laws, (b) any and all material claims made or threatened in writing by any Person against Borrower relating to damage, contribution, cost recovery, compensation, loss or injury resulting from any Hazardous Materials and (c) discovery by any senior officer of any of Borrower of any material occurrence or condition on any real property adjoining or in the vicinity of such real property that could reasonably be expected to cause such real property or any part thereof to be subject to any restrictions on the ownership, occupancy, transferability or use of such real property under any applicable Hazardous Materials Laws.

6.11Future Subsidiaries

.  Borrower shall not create nor allow to exist any Subsidiary.

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6.12Payment of Obligations

.  (a) Pay and discharge or cause to be paid and discharged all Obligations in a timely manner; (b) pay and discharge, or cause to be paid and discharged, its Indebtedness in the ordinary course of business prior to an Event of Default; (c) pay and discharge, or cause to be paid and discharged promptly, all Charges; and (d) pay all lawful claims for labor, materials, supplies and services or otherwise, before any thereof shall become in default.

6.13Conduct of Business

.  (a) Conduct its business substantially as now conducted or as otherwise permitted hereunder; and (b) at all times maintain, preserve and protect all of the Collateral and keep the same in good repair, working order and condition consistent with industry practices and standards (taking into consideration ordinary wear and tear and excluding inventory and parts which by their nature may not be in good repair, working order or condition) and from time to time make, or cause to be made, all necessary or appropriate repairs, replacements and improvements thereto consistent with industry practices and standards.

6.14Further Assurances; Schedule Supplements

.  At any time and from time to time, upon the written request of Agent and at the sole expense of Borrower, promptly and duly execute and deliver any and all such further instruments and documents and take such further action as such Agent may reasonably request to obtain the full benefits of this Agreement and to protect, preserve and maintain all respective parties' rights in the Collateral and under this Agreement.  Upon the occurrence and continuation of a Default or Event of Default and as often as Agent may thereafter require, Borrower will supplement each Schedule to this Agreement with respect to any matter hereafter arising that, if existing or occurring as of the Closing Date, would have been required to be set forth or described in such Schedule; provided, that such supplement shall not be deemed to be an amendment thereof unless expressly consented to in writing by Agent.

6.15Financial Covenants

.  Maintain the following financial covenants on a consolidated basis, each of which shall be calculated in accordance with GAAP consistently applied as of the end of each Fiscal Quarter, and, where indicated, on a twelve (12) month trailing basis:

6.15.1Maximum Leverage Ratio

.  A ratio of Funded Debt to Tangible Net Worth (taking into account Permitted Aircraft Disposition Charges (if any)) of not more than 3.75 : 1.00 ("Maximum Leverage Ratio"), measured at the end of each Fiscal Quarter.

6.15.2Interest Coverage Ratio

.  An Interest Coverage Ratio of at least 2.75 to 1.00.  For purposes of this Section 6.15.2, "Interest Coverage Ratio" means the ratio calculated as follows (calculated on a twelve (12) month trailing basis): EBITDA, divided by Interest Expense.

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6.15.3Debt Service Coverage Ratio

.  From the date of this Agreement, a Debt Service Coverage Ratio of at least 1.05: 1.00, calculated on a twelve (12) month trailing basis.  "Debt Service Coverage Ratio" means the ratio of (a) the sum of (i) EBITDA less (ii) taxes paid in cash during the prior consecutive twelve (12) month period plus (iii) Maintenance Expense for such period to (b) Total Debt Service for such period.  For purposes of this Section 6.15.3, EBITDA shall include an amount, if any, constituting Pro Forma EBITDA.

6.15.4Minimum Tangible Net Worth Covenant

.  "Minimum Tangible Net Worth" shall be an amount equal to or greater than the sum of the following:  (i) eighty five percent (85%) of Tangible Net Worth as of December 31, 2013, (ii) fifty percent (50%) of Net Income reported in each successive Fiscal Quarter with no deduction for operating losses reported for such Fiscal Quarter, (iii) one hundred percent (100%) of the net proceeds from any additional equity offering in excess of Five Million and 00/100 Dollars ($5,000,000.00), and (iv) fifty percent (50%) of any incremental additive equity associated with any Acquisition.

6.15.5No Net Loss

.  Borrower shall not suffer a consolidated net loss, as calculated according to GAAP, as of the end of any Fiscal Quarter, calculated on a twelve (12) month trailing basis.  For the avoidance of doubt, net loss will be calculated without any adjustment for Permitted Aircraft Disposition Charges (if any) incurred during the calculation period.

6.15.6Utilization Covenant

.  The Utilization Rate shall be at least seventy-five percent (75%) calculated on a twelve (12) month trailing basis and weighted by the Appraised Value of each item of Equipment.  "Utilization Rate" means the sum of (i) the number of days each item of Equipment is subject to an Eligible Lease during the measurement period multiplied by its Appraised Value divided by the sum of (ii) the number of days each item of Equipment is owned multiplied by its Appraised Value.

6.15.7Revenue Concentration Limit

.  Borrower shall have (i) no more than twenty-five percent (25%) of Borrower’s annual operating lease revenue (excluding maintenance reserves) from any one (1) Lessee nor (ii) more than forty percent (40%) of Borrower’s annual operating lease revenue (excluding maintenance reserves) from any two (2) Lessees, each calculated on a twelve (12) month trailing basis.

6.16Subordination of Third Party Fees

.  Borrower shall provide a subordination, on terms satisfactory to Agent, of any fees paid to any Subsidiaries or Affiliates of Borrower pursuant to ongoing contractual arrangements for services provided to Borrower, including without limitation, licensing, management and marketing fees, including without limitation, those fees payable under the JMC Management Agreement.

6.17Maintenance of Borrowing Base

.  Maintain the value of the Borrowing Base at all times such that no Borrowing Base Deficiency occurs.

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6.18Placards

.  Affix and maintain or use its best efforts to cause each Lessee under a Lease to affix to and maintain on all item(s) of Eligible Assets a placard bearing an inscription substantially in the form attached hereto as Exhibit I or such other inscription as Agent from time to time may reasonably request.  The Borrower shall, on a quarterly basis, provide to Agent a list of all Eligible Assets subject to a Lease indicating, to the best knowledge of the Borrower, which items of Equipment have placards affixed and on which no such placard is affixed.

6.19Maintenance of Current Depreciation Policies

.  Maintain its method of depreciating its assets substantially consistent with past practices as set forth in Schedule 5.22 and promptly notify Lender of any deviation from such practices.

6.20Preservation of International Interests and Liens

.  At its expense, cause (i) the registration with the International Registry of the International Interests with respect to the Mortgage and each Lease with a Lessee domiciled or with its chief executive office in a Contracting State or otherwise create a Lien in favor of Agent under Applicable Law, and (ii) maintain the rights and International Interests of the Equipment Owner in the Equipment or otherwise maintain such Lien, as against any third parties under Applicable Law and as against all third parties, whether in any Contracting State under the Cape Town Convention or otherwise. The Borrower agrees to furnish Agent with copies of all documents relating to the foregoing and with recording and registration data as promptly as practicable following the issuance of the same by the FAA, the International Registry, or such other Person under Applicable Law.

6.21Maintenance of JMC Management Agreement

.  Maintain substantially consistent with past practices and not terminate the JMC Management Agreement or otherwise transfer Borrower's interest thereunder and promptly notify Agent of any deviation from such practices.

6.22Interest Rate Protection Agreements

. Promptly upon the incurrence of such obligation after the Closing Date and until the Termination Date, Borrower shall provide to Agent prompt written notice of such event and a copy of such Interest Rate Protection Agreement.

6.23Maintenance of Eligible Collateral

.  Agent shall possess a first priority security interest in any Equipment included in the Collateral which shall be (i) electronically recorded on the International Registry (Cape Town Convention), (ii) filed with the FAA in the case of (A) any Aircraft that are registered with the FAA and (B) all Engines and (iii) promptly, to the satisfaction of Agent, and as soon as practical and in any event within one hundred and eighty (180) days following registration with the International Registry, perfected through all additional required local foreign jurisdiction security conventions (if any) to secure the payment, promptly when due.

6.24Maintenance of Records

.  Borrower shall cause all lessees of Equipment to maintain adequate maintenance and usage records in English in accordance with applicable aviation regulations.

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7.   NEGATIVE COVENANTS

Borrower covenants and agrees that, without Requisite Lenders' prior written consent, from the Closing Date until the Termination Date, Borrower and its Subsidiaries shall not, directly or indirectly, by operation of law or otherwise:

7.1Modification of Formation Documents

.  Amend its certificate of incorporation or formation documents that could have or reasonably be expected to have a Material Adverse Effect.

7.2Failure to Act/Duty to Act

.  Take any action or omit to take any action, which act or omission would constitute a material default or a material event of default pursuant to, or noncompliance with, any contract, lease (including any Leases), mortgage, deed of trust or instrument to which it is a party or by which it or any of its property is bound, or any document creating a Lien and which would have a Material Adverse Effect on Borrower's business.

7.3Modification of Debt

.  Cancel or modify any debt owing to it, except for reasonable consideration in the ordinary course of its business or which would not have a Material Adverse Effect on Borrower's financial condition.

7.4Intentionally deleted

.

7.5Disposition of Property

.  Make any sale, transfer or other disposition in any single transaction or series of related transactions of any asset or group of related assets of Borrower or any of its Subsidiaries, whether now owned or hereafter acquired ("Disposition"), except a Disposition by Borrower to a Wholly-Owned Subsidiary.

7.6Mergers

.  Merge or consolidate with or into any Person, except (a) mergers and consolidations of a Subsidiary of Borrower into Borrower or a Wholly-Owned Subsidiary or of Subsidiaries with each other and (b) a merger or consolidation of a Person into Borrower or with or into a Wholly-Owned Subsidiary of Borrower that is not prohibited by Section 7.7; provided that (i) Borrower is the surviving entity, (ii) no Change in Control results therefrom, (iii) no Default or Event of Default then exists or would result therefrom, (iv) Borrower executes such amendments to the Loan Documents as Agent may reasonably determine are appropriate as a result of such merger and/or Borrower shall cause any Subsidiary to execute such amendments to the Loan Documents or additional Loan Documents, including but not limited to a Subsidiary Guaranty, as Agent may reasonably determine are appropriate as a result of such merger, (v) the aggregate consideration paid or to be paid (whether cash, notes, stock, or assumption of debt or otherwise) by the Borrower and/or its Subsidiaries in any one such merger or consolidation does not exceed $10,000,000.00, and (vi) such aggregate consideration with respect to all such mergers or consolidations shall not exceed $15,000,000.00 in any Fiscal Year. Without limitation, no such merger or consolidation shall result in a violation of the terms of Section 6.2 or Section 6.13. The Borrower shall promptly notify the Agent of any merger or consolidation involving the Borrower.

7.7Hostile Acquisitions

.  Directly or indirectly use the proceeds of any Loan in connection with the Acquisition of part or all of a voting interest of five percent (5%) or more in any corporation or other business entity if such Acquisition is opposed by the board of directors of such corporation or business entity.

7.8Distributions

.  Make any Distribution, whether from capital, income or otherwise,  whether in Cash or other Property; provided, Borrower may declare or pay a dividend if no Default or Event of Default exists prior to or after giving effect to such declaration, payment or reserve for payment.

7.9ERISA

.  Create or maintain any Pension Plans or incur any withdrawal liability to any Multiemployer Plan (as defined herein).

7.10Change in Nature of Business; Change in Control

.  Make any material change in the nature of the business of Borrower and its Subsidiaries, taken as a whole, or at any time, permit any Change in Control to occur.

7.11Change in JMC Management Agreement

.  Make any material change in the nature or terms of the JMC Management Agreement.

7.12Liens and Negative Pledges

.  Create, incur, assume or suffer to exist any Lien or Negative Pledge of any nature upon or with respect to any of its respective Property or any Collateral or engage in any sale and leaseback transaction with respect to any of its respective Property or any Collateral, whether now owned or hereafter acquired, except:

7.12.1Liens and Negative Pledges under the Loan Documents;

7.12.2Permitted Liens;

7.12.3Liens on Property acquired by Borrower or any of its Subsidiaries that were in existence at the time of the acquisition of such Property and were not created in contemplation of such acquisition; or

7.12.4Liens securing purchase money Indebtedness permitted by Section 7.13.3 on and limited to the capital assets acquired, constructed or financed with the proceeds of such Indebtedness or with the proceeds of any Indebtedness directly or indirectly refinanced by such Indebtedness.

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7.13Indebtedness and Guaranteed Indebtedness

.  Create, incur or assume any Indebtedness or guaranty obligation except:

7.13.1Indebtedness and Guaranteed Indebtedness existing on the Closing Date and disclosed in Schedule 7.13, and refinancings, renewals, extensions or amendments that do not increase the amount thereof;

7.13.2Indebtedness and Guaranteed Indebtedness under the Loan Documents;

7.13.3Indebtedness and Guaranteed Indebtedness owed to Borrower or any of its Subsidiaries;

7.13.4Indebtedness consisting of Capital Lease Obligations, or otherwise incurred to finance the purchase or construction of capital assets (which shall be deemed to exist if the Indebtedness is incurred at or within ninety (90) days before or after the purchase or construction of the capital asset), or to refinance any such Indebtedness;

7.13.5Indebtedness consisting of Interest Rate Protection Agreements;

7.13.6Guaranteed Indebtedness in support of the obligations of a Wholly-Owned Subsidiary, provided that such obligations are not prohibited by this Agreement; and

7.13.7Permitted Indebtedness.

7.14Transactions with Affiliates

.  Make, or suffer to exist, any loan or advance or extend any credit to any Person, including, without limitation, any Affiliate of the Borrower other than:

7.14.1advances to Affiliates in the ordinary course of business not to exceed $250,000.00 in the aggregate outstanding at any time;

7.14.2trade credit advanced in the ordinary course of business;

7.14.3transactions between or among Borrower and its Subsidiaries; and

7.14.4transactions on overall terms at least as favorable to Borrower or its Subsidiaries as would be the case in an arm's length transaction between unrelated parties of equal bargaining power.

7.15Subsidiary Indebtedness

.  Permit (whether or not otherwise permitted under Section 7.13) any Subsidiary to create, incur, assume or suffer to exist any Indebtedness or guaranty obligation, except (a) Indebtedness and Guaranteed Indebtedness in existence on the Closing Date, (b) Indebtedness owed to Borrower or another Subsidiary of Borrower, and (c) Capital Lease Obligations and purchase money obligations of a Subsidiary in respect of Property used or leased by that Subsidiary.

7.16Intentionally deleted

.

7.17New Shareholders

.  Issue or otherwise grant shares of stock to any new shareholders unless (i) Agent has confirmed that such transaction would not cause a violation of the Patriot Act and (ii) such new shareholder(s) has executed a stock pledge agreement and stock power in favor of Agent for the ratable benefit of Lenders, in form and substance satisfactory to Agent.

7.18Redemptions; Dividends

.  Purchase, redeem, retire or otherwise acquire, directly or indirectly, or make any sinking fund payments with respect to, any shares of its Stock now or hereafter outstanding or set apart any sum for any such purpose; provided, however, that the Borrower may repurchase its issued and outstanding shares of Stock provided the sum of all dividends and stock repurchases in any Fiscal Year shall not exceed fifty percent (50%) of the Net Income for the prior four Fiscal Quarters.

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7.19Investments

.  Make or suffer to exist any Investment, other than:

7.19.1Investments in existence on the Closing Date and disclosed on Schedule 7.19;

7.19.2Investments consisting of Cash Equivalents;

7.19.3Investments in a Person that is the subject of an Acquisition not prohibited by Section 7.7;

7.19.4Investments consisting of advances to officers, directors and employees of Borrower and its Subsidiaries for travel, entertainment, relocation, anticipated bonus and analogous ordinary business purposes;

7.19.5Investments in a Subsidiary that is a Wholly-Owned Subsidiary; provided that Borrower shall not (a) create or allow to exist any Subsidiary (unless with respect to Subsidiaries the same shall have executed and delivered to the Agent a guaranty and a security agreement each in form acceptable to the Agent creating in favor of the Agent a first priority perfected Lien on its assets, or Borrower shall have delivered to Agent a pledge of 100% of the stock of such Subsidiary in form and substance satisfactory to Agent), or (b) purchase or otherwise acquire (unless no Default exists or would exist immediately thereafter) including, without limitation, by way of share exchange, any part or amount of the capital stock or assets of, or make any Investments in any other Person, except for stock, obligations or securities received in settlement of debts owing to it created in the ordinary course of business and Investments otherwise expressly permitted under this Agreement.

7.19.6Investments consisting of the extension of credit to customers or suppliers of Borrower and its Subsidiaries in the ordinary course of business and any Investments received in satisfaction or partial satisfaction thereof;

7.19.7Investments received in connection with the settlement of a bona fide dispute with another Person;

7.19.8Investments representing all or a portion of the sales price of Property sold or services provided to another Person; or

7.19.9Investment consisting of acquisition of all of the outstanding capital stock or assets of JetFleet Holding Corp., a California corporation, under substantially the terms and conditions set forth in the JMC Management Agreement.

7.20Additional Bank Accounts

.  Directly or indirectly, open, maintain or otherwise have any checking, savings or other accounts where money is or may be deposited or maintained outside the United States of America, except as may be required for the receipt of Lease payments from a Lessee located in a non-U.S. jurisdiction.

8.   INFORMATION AND REPORTING REQUIREMENTS

8.1Reports and Notices

.  Borrower represents, warrants and agrees that, from and after the Closing Date until the Termination Date, Borrower shall deliver, or cause to be delivered, to Agent:

8.1.1within sixty (60) days following the end of each of the first three Fiscal Quarters for each Fiscal Year

(a)(unless an extension is approved by the SEC), SEC Form 10-Q of Borrower for such Fiscal Quarter; provided that the timely EDGAR SEC filing of such Form 10-Q, along with delivery of a hard or .pdf copy to Agent of such Form 10-Q, shall satisfy this requirement; provided further that if any such Form 10-Q is not filed with the SEC within such sixty (60) day time period, then Borrower shall instead deliver, or cause to be delivered, to Agent internally prepared financial statements of Borrower and its Subsidiaries (including income statement, balance sheet, and statement of cash flows) on or before the end of the sixty (60) day period;

(b)internally prepared financial statements for such Fiscal Quarter of JMC and its Subsidiaries, if applicable, (including income statement, balance sheet, and statement of cash flows);

8.1.2within sixty (60) days following the end of each of the first three Fiscal Quarters, a certification from Borrower, in the form of a Compliance Certificate;

8.1.3within ninety (90) days following the end of each Fiscal Year

(a)(unless an extension is approved by the SEC) or, in any event, within fifteen (15) days of a timely filing with the SEC, (a) the Financial Statements of Borrower for such Fiscal Year certified by an Authorized Signatory; (b) an unqualified report and opinion by an independent certified public accounting firm acceptable to Agent with respect to such Financial Statements, (c) any management letters of such public accounting firm addressed to Borrower, and (d) a Compliance Certificate; provided that the timely EDGAR SEC filing of a Form 10-K, along with delivery of a hard or .pdf copy to Agent of such Form 10-K, shall satisfy the requirements of subsections 8.13(a) and (b); provided further, that if such Form 10-K is not filed with the SEC within such ninety (90) day time period, then the Borrower shall instead deliver, or cause to be delivered, to Agent internally prepared Financial Statements of Borrower and its Subsidiaries and of JMC, if applicable, (including income statement, balance sheet, and statement of cash flows) on or before the end of the period ending one hundred five (105) days after the end of the Fiscal Year;

(b)internally prepared financial statements for such Fiscal Year of JMC and its Subsidiaries, if applicable, (including income statement, balance sheet, and statement of cash flows);

8.1.4as soon as practicable and in any event within 15 days after the end of each calendar month, a report listing the Leases of Equipment in the Borrowing Base (in form and substance reasonably satisfactory to the Agent);

8.1.5as soon as available, but in any event within fifteen (15) days after the end of the immediately preceding calendar month, a Borrowing Base Certificate of the Borrower showing, as of the end of such calendar month setting forth, among other things, (i) a list of the Eligible Assets that are subject to an Eligible Lease; (ii) a list of all Equipment acquired and all Equipment sold by the Borrower since the date of the last Borrowing Base Certificate delivered to Agent; (iii) and a lease receivables aging report, which covers both Leases under which the Lessees are current and Leases under which the Lessees are delinquent (all of the foregoing in form and substances reasonably satisfactory to Agent);

8.1.6as soon as available, but in any event within fifteen (15) days after the end of each Fiscal Year, an Appraisal performed by an Appraiser acceptable to Agent and at Borrower’s expense, with respect to all Eligible Assets.  In addition, upon the request of any Lender, Borrower shall permit Agent to retain an Appraiser to conduct additional Appraisals, which shall be performed at Borrower’s expense once per Fiscal Year with subsequent additional Appraisals at the requesting Lender’s expense;

8.1.7within twenty (20) days following the receipt by Agent of the Borrowing Base Certificate covering the last month of a Fiscal Quarter, an Appraisal with respect to Eligible Assets added to the Borrowing Base during the Fiscal Quarter just ended;

8.1.8promptly upon their becoming available, copies of any (a) correspondence or notices received by the Borrower or any Subsidiary from any Governmental Authority which regulates the operations of the Borrower or any Subsidiary, including as to environmental matters and Hazardous Material, relating to an actual or threatened change or development which would have, or would reasonably be expected to have, a Material Adverse Effect on the Borrower or any Subsidiary; (b) written reports submitted to the Borrower by its independent accountants in connection with any annual or interim audit of the books of the Borrower made by such accountants; and (c) any appraisals received by the Borrower or any Subsidiary with respect to its Assets;

8.1.9promptly, notice in writing of (i) any litigation, legal proceeding or dispute, other than disputes in the ordinary course of business or, whether or not in the ordinary course of business, involving amounts, individually or in the aggregate, in excess of $200,000.00, affecting the Borrower or any Subsidiary as a defendant, whether or not fully covered by insurance, and regardless of the subject matter thereof, or, if no monetary amounts are claimed in connection therewith, which proceeding or dispute, if determined or resolved against the Borrower or any Subsidiary is reasonably likely to have a Material Adverse Effect on the Borrower or any Subsidiary, (ii) any cancellation or threatened cancellation by any insurance carrier of any insurance policy or policies carried by the Borrower or by any of its Subsidiaries on the assets and properties of the Borrower or any Subsidiary or (iii) any resignation or termination of any director or executive or senior officer of the Borrower;

8.1.10promptly, and in any event within one (1) Business Day of when the Borrower becomes aware or, in the exercise of reasonable due diligence should have become aware of the same, notice in writing in the event that at any time the outstanding principal amount of the Loans to the Borrower shall exceed the amount of the Borrowing Base, and promptly, and in any event within five (5) Business Days, notify in writing the Agent of any material damage to or other Event of Loss with respect to any Eligible Assets;

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8.1.11promptly upon the earlier of the date on which the Borrower becomes aware or, in the exercise of reasonable due diligence should have become aware of the same, notify the Agent (or, in the case of (f) below, the Agent) by telephone (to be confirmed within three calendar days in writing from the Borrower to each Bank) of the occurrence of any of the following:

(a)any Default;

(b)any default or event of default under any contract or contracts and the default or event of default involves payments by the Borrower in an aggregate amount equal to or in excess of $200,000.00;

(c)a default or event of default under or as defined in any evidence of or agreements for any Indebtedness for borrowed money under which the Borrower's liability is equal to or in excess of $200,000.00, individually or in the aggregate, whether or not an event of default thereunder has been declared by any party to such agreement or any event which, upon the lapse of time or the giving of notice or both, would become an event of default under any such agreement or instrument or would permit any party to any such instrument or agreement to terminate or suspend any commitment to lend to the Borrower or to declare or to cause any such indebtedness to be accelerated or payable before it would otherwise be due;

(d)any change in any Applicable Law, including, without limitation, changes in tax laws and regulations, which would have a Material Adverse Effect on the Borrower or any Subsidiary;

(e)any litigation, administrative proceeding, investigation, business development, or change in financial condition which could reasonably have a Material Adverse Effect on the Borrower or any Subsidiary;

(f)any instance in which Equipment are operated (x) on routes with respect to which it is customary for air carriers flying comparable routes to carry confiscation or expropriation insurance or (y) in any area designated by companies providing such coverage as a recognized or threatened war zone or area of hostilities or an area where there is a substantial risk of confiscation or expropriation;

8.1.12promptly upon receipt thereof or concurrently with delivery thereof by the Borrower, as the case may be, copies of any correspondence, requests, reports, statements, claims, consents, notices or other documents of any kind received or sent by the Borrower under or with respect to any Material Contract which evidence or relate to an event or circumstance which would have, or would reasonably be expected to have, a Material Adverse Effect on the Borrower or any Subsidiary;

8.1.13promptly upon the filing thereof with the SEC one copy of each financial statement, report, notice or proxy statement sent by the Borrower to stockholders generally, and, a copy of each regular or periodic report, and any registration statement, or prospectus in respect thereof, filed by the Borrower with any securities exchange or with federal or state securities and exchange commissions or any successor agency; and

8.1.14subject to the prohibitions set forth in Section 7.1 hereof, promptly deliver to the Agent copies of any material amendments, modifications or supplements to (i) certificate of incorporation or by-laws, (ii) any Material Contract and (iii) the JMC Management Agreement, certified, with respect to the certificate of incorporation, by the appropriate state officials, and, with respect to the other foregoing documents, by the secretary or assistant secretary of the Borrower.

8.2Budgets

.  within ninety (90) days following the end of each Fiscal Year Borrower shall deliver to Agentits annual budget for the next Fiscal Year (such budget to include forecasted balance sheet, income statement and cash flow statement of Borrower).

8.3Other Reports

.  Borrower shall notify Agent promptly of any occurrence causing a material loss or decline in value of any Collateral and the estimated (or actual, if available) amount of such loss or decline.  Borrower shall, upon the request of any Lender or Agent, furnish to Agent such other reports in connection with the affairs, business, financial condition, operations, prospects or management of Borrower or the Collateral, all in reasonable detail, and Borrower shall advise Agent promptly, in reasonable detail, of:  (a) any Lien, other than Permitted Liens, attaching to or asserted against any of the Collateral; (b) any material change in the composition of the Collateral; and (c) the occurrence of any other event which could reasonably be expected to have a Material Adverse Effect.

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9.   EVENTS OF DEFAULT; RIGHTS AND REMEDIES

9.1Events of Default

.  The occurrence of any one or more of the following events (regardless of the reason therefor) shall constitute an "Event of Default" under this Agreement:

9.1.1Borrower shall fail to make any regularly scheduled payment of principal or interest in respect of any Obligations within three (3) Business Days after the same shall become due and payable or is declared due and payable (provided that no grace period shall apply to nonpayment of the Obligations on the Maturity Date); or

9.1.2Borrower or Owner Trustee, as applicable, shall fail or neglect to perform, keep or observe any of the covenants, promises, agreements, requirements, conditions or other terms, Obligations (other than under Section 9.1.1) or provisions contained in this Agreement or any of the other Loan Documents and such default shall have continued for a period of thirty (30) days after Agent's or any Lender's notice to Borrower and/or Owner Trustee, as applicable, of such default hereunder; provided, there shall be no grace period for Borrower's failure to perform, keep or observe any of the covenants, promises, agreements, requirements, conditions or other terms or provisions contained in Section 6.15 and Section 7 (except for Section 7.12); or

9.1.3an event of default shall occur under any Indebtedness to which Borrower is a party, or by which any such Person or its property is bound, and such event of default (1) involves the failure to make any payment, whether of principal, interest or otherwise, and whether due by scheduled maturity, required prepayment, acceleration, demand or otherwise, in respect of any Indebtedness (other than the Obligations) of such Person in an aggregate amount exceeding $250,000, or (2) causes (or permits any holder of such Indebtedness or a trustee to cause) such Indebtedness, or a portion thereof, in an aggregate amount exceeding $250,000 to become due prior to its stated maturity or prior to its regularly scheduled dates of payment; or

9.1.4any representation or warranty in this Agreement or any other Loan Document, or in any written statement, report or certificate pursuant hereto or thereto, shall be untrue or incorrect in any material respect as of the date when made or deemed to be made by the Borrower or any Subsidiaries; or

9.1.5any of the assets of Borrower or any Subsidiary having a value of $1,000,000 or more shall be attached, seized, levied upon or subjected to a writ or distress warrant or come within the possession of any receiver, trustee, custodian or assignee for the benefit of creditors of such Person, and any of the foregoing shall remain unstayed or undismissed for sixty (60) consecutive days; or any Person other than Borrower or any Subsidiary shall apply for the appointment of a receiver, trustee or custodian for the assets of Borrower or any Subsidiary and the order appointing such receiver, trustee or custodian shall remain unstayed or undismissed for sixty (60) consecutive days; or Borrower or any Subsidiary shall have concealed, removed or permitted to be concealed or removed, any part of its Property with intent to hinder, delay or defraud its creditors or any of them or made or suffered a transfer of any of its property or the incurring of an obligation which may be fraudulent under any bankruptcy, fraudulent transfer or other similar law; or

9.1.6a case or proceeding shall have been commenced involuntarily against Borrower or any Subsidiary in a court having competent jurisdiction seeking a decree or order:  (1) under the Bankruptcy Code or any other applicable Federal, state or foreign Bankruptcy or other similar law, and seeking either (i) the appointment of a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) of such Person or of any substantial part of its properties, or (ii) the reorganization or winding up or liquidation of the affairs of any such Person and such case or proceeding shall remain undismissed or unstayed for sixty (60) consecutive days or such court shall enter a decree or order granting the relief sought in such case or proceeding; or (2) invalidating or denying (i) any Person's right, power, or competence to enter into or perform any of its obligations under any Loan Document, or (ii) the validity or enforceability of this Agreement or any other Loan Document or any action taken hereunder or thereunder; or

9.1.7Borrower or any Subsidiary shall (1) file a petition under the Bankruptcy Code or any other applicable Federal, state or foreign bankruptcy or other similar law, (2) consent to the institution of proceedings thereunder or to the filing of any such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) of any such Person or of any substantial part of its properties, (3) fail generally to pay (or admit in writing its inability to pay) its debts as such debts become due, or (4) take any corporate action in furtherance of any such action; or

9.1.8final judgment or judgments (after the expiration of all times to appeal therefrom) for the payment of money in excess of $1,000,000 in the aggregate shall be rendered against Borrower or any Subsidiary, unless the same shall be (i) fully covered by insurance (subject to any contractual deductibles) and the issuer(s) of the applicable policies shall have acknowledged substantial coverage in writing within fifteen (15) days of judgment, or (ii) vacated, stayed, bonded, paid or discharged within a period of fifteen (15) days from the date of such judgment; or

9.1.9Borrower or any Subsidiary voluntarily or involuntarily dissolves or is dissolved, terminates or is terminated; or

9.1.10Borrower or any Subsidiary is enjoined, restrained, or in any way prevented by the order of any court or other Governmental Authority, the effect of which order restricts such Person from conducting all or any material part of its business; or

9.1.11the loss, suspension, revocation or failure to renew any License or permit now held or hereafter acquired by Borrower or any Subsidiary, which loss, suspension, revocation or failure to renew could reasonably be expected to have a Material Adverse Effect; or

9.1.12any Lien or any provision of any Loan Document shall for any reason cease to be valid, binding and enforceable in accordance with its terms, or any Lien granted, or intended by the Loan Documents to be granted, to Agent shall cease to be a valid and perfected Lien having the first priority (or a lesser priority if expressly permitted in the Loan Documents) in any of the Collateral covered or purported to be covered thereby; or

9.1.13any Change of Control of Borrower shall have occurred; or

9.1.14The occurrence of any event of default or the equivalent thereof under any other Debt Instrument (as defined below), in each case following any applicable grace period, under any term, condition or covenant of any bond, note, debenture, guaranty, trust agreement, mortgage or similar instrument to which the Borrower or any Subsidiary is a party or by which it is bound, or by which any of its properties or assets may be affected (a "Debt Instrument") if the outstanding Indebtedness or obligations of the Borrower or such Subsidiary under such Debt Instrument exceeds $1,000,000.00 in aggregate principal amount and (x) may be declared to be due and payable by reason of such default or event of default prior to the date on which such indebtedness or obligations would otherwise become due and payable, with or without the giving of notice or the passage of time or both, or to terminate or suspend any commitment to make advances or lend monies or to accelerate the rate of payment of unpaid Indebtedness or to terminate the Borrower or such Subsidiary as a servicer or manager of such Indebtedness or the assets secured thereby, (y) is due and payable and unpaid, or (z) shall be indebtedness under any Interest Rate Protection Agreement; or

9.1.15Borrower is no longer managed by JMC under the JMC Management Agreement under substantially the same terms and conditions that exist as of the Closing Date; or

9.1.16A circumstance or event has occurred that constitutes a Material Adverse Effect.

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9.2Remedies

.

9.2.1If any Default or Event of Default has occurred and is continuing, then Agent may, with the prior written approval of Requisite Lenders, exercise one or more of the following remedies:  (1) upon notice to Borrower from Agent, increase the rate of interest applicable to the Loans to the Default Rate effective as of the date of the initial Default; or (2) terminate or suspend Lenders' obligation to make further Loans.  In addition, if any Event of Default shall have occurred and be continuing, Agent may (upon prior written approval of Requisite Lenders), without notice, take any one or more of the following actions:  (i) declare all or any portion of the Obligations to be forthwith due and payable, whereupon such Obligations shall become and be due and payable; or (ii) exercise any rights and remedies provided to Agent under the Loan Documents or at law or equity, including all remedies provided under the UCC; provided, that upon the occurrence of an Event of Default specified in Sections 9.1.5, 9.1.4or9.1.7, the Obligations shall become immediately due and payable (and any obligation of Lenders to make further Loans, if not previously terminated, shall immediately be terminated) without declaration, notice or demand by Agent.

9.2.2In addition to all other rights and remedies of Agent or Lenders under this Agreement (except to the extent any such Collateral is subject to a lease (including any Lease) which provides for the quiet use and enjoyment of such Collateral by the Lessee thereunder), Borrower expressly agrees that, upon the occurrence of any Event of Default and prior written approval of Requisite Lenders, Agent may collect, receive, assemble, process, appropriate and realize upon the Collateral, or any part thereof, and may forthwith sell, lease, assign, give an option or options to purchase or otherwise dispose of and deliver said Collateral (or contract to do so), or any part thereof, in one or more parcels at public or private sale or sales, at any exchange at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk.  Agent shall have the right upon any such public sale or sales and, to the extent permitted by law, upon any such private sale or sales, to purchase for the benefit of such Agent by credit bid the whole or any part of said Collateral so sold, free of any right or equity of redemption, which equity of redemption Borrower hereby releases.  Such sales may be adjourned, or continued from time to time with or without notice.

9.2.3Borrower further agrees, upon the occurrence of an Event of Default and at Agent's request (except to the extent any such Collateral is subject to a Lease which provides for the quiet use and enjoyment of such Collateral by the Lessee thereunder), to assemble the Collateral and make it available to Agent at places which Agent shall reasonably select.  Until Agent is able to effect a sale, lease, or other disposition of the Collateral and except to the extent any such Collateral is subject to a Lease which provides for the quiet use and enjoyment of such Collateral by the Lessee thereunder, Agent shall have the right to complete, assemble, use or operate the Collateral or any part thereof, to the extent that Agent deems appropriate, for the purpose of preserving such Collateral or its value or for any other purpose. Agent shall have no obligation to Borrower to maintain or preserve the rights of Borrower as against third parties with respect to any Collateral while such Collateral is in the possession of Agent.  Agent may, if it so elects, seek the appointment of a receiver or keeper to take possession of any Collateral and to enforce any of Agent's remedies with respect to such appointment without prior notice or hearing.  To the maximum extent permitted by Applicable Law, Borrower waives all claims, damages, and demands against Agent, its Affiliates, Agent, and the officers and employees of any of them arising out of the repossession, retention or sale of any Collateral except such as are determined in a final judgment by a court of competent jurisdiction to have arisen out of the gross negligence or willful misconduct of such Person.  Borrower agrees that ten (10) days' prior notice by Agent to Borrower of the time and place of any public sale or of the time after which a private sale may take place is reasonable notification of such matters.  Borrower shall remain liable for any deficiency if the proceeds of any sale or disposition of the Collateral are insufficient to pay all amounts to which Agent is entitled.

9.2.4Each Lender's rights and remedies under this Agreement shall be cumulative and nonexclusive of any other rights and remedies which Lenders may have under any Loan Document or at law or in equity.  Recourse to the Collateral shall not be required. All rights, remedies and powers provided in this Agreement may be exercised only to the extent that the exercise thereof does not violate any Applicable Law, and all provisions of this Agreement are intended to be subject to any Applicable Law that may be controlling and to be limited, to the extent necessary, so that they do not render this Agreement invalid, unenforceable, in whole or in part.

9.3Waivers by Borrower

.  Except as otherwise provided for in this Agreement and to the fullest extent permitted by Applicable Law, Borrower waives:  (a) presentment, demand and protest, and notice of presentment, dishonor, intent to accelerate, acceleration, protest, default, nonpayment, maturity, release, compromise, settlement, extension or renewal of any or all Loan Documents, the Notes or any other notes, commercial paper, Accounts, Contracts, Documents, Instruments, Chattel Paper and guaranties at any time held by Lender on which Borrower may in any way be liable, and hereby ratifies and confirms whatever Lender may do in this regard; (b) all rights to notice and a hearing prior to Lender's taking possession or control of, or to Lender's replevin, attachment or levy upon, any Collateral or any bond or security which might be required by any court prior to allowing Lender to exercise any of its remedies; and (c) the benefit of all valuation, appraisal and exemption laws.  Borrower acknowledges that it has been advised by counsel with respect to this Agreement, the other Loan Documents and the transactions evidenced hereby and thereby.

9.4Proceeds

.  The Proceeds of any sale, disposition or other realization upon any Collateral shall be applied by any Lender upon receipt as set forth in Section 2.11.

10.   SUCCESSORS AND ASSIGNS

Each Loan Document shall be binding on and shall inure to the benefit of Borrower, Lenders, Agent and their respective successors and assigns, except as otherwise provided herein or therein.  Borrower shall not assign, transfer, hypothecate or otherwise convey its rights, benefits, obligations or duties under any Loan Document without the prior written consent of all of the Lenders, and any such purported assignment, transfer, hypothecation or other conveyance by Borrower without the prior express written consent of the Requisite Lenders shall be void.  The terms and provisions of this Agreement and the other Loan Documents are for the purpose of defining the relative rights and obligations of Borrower and Lenders with respect to the transactions contemplated hereby and thereby, and there shall be no third party beneficiaries of any of the terms and provisions of any of the Loan Documents.  Subject to Section 12.8.5 of this Agreement, each Lender reserves the right at any time to create and sell a participation in any portion of the Loans and the Loan Documents and to sell, transfer or assign any or all of its rights in the Loans and under the Loan Documents.

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11.   DISPUTE RESOLUTION

11.1Alternative Dispute Resolution Agreement

.  Any controversy or claim between or among the parties, their agents and employees, arising under or in connection with (1) this Agreement or any of the other Loan Documents, (2) any negotiations, correspondence or communications relating to this Agreement or any of the other Loan Documents, whether or not incorporated herein or therein, or any indebtedness evidenced hereby or thereby, (3) the administration or management of this Agreement or any of the other Loan Documents or any indebtedness evidenced hereby or thereby, or (4) any alleged agreements, promises, representations or transactions in connection herewith or therewith, including any claim or controversy which arises out of or is based upon an alleged tort, shall be subject to and resolved in accordance with the Alternative Dispute Resolution Agreement.

11.2No Limitation on Remedies

.  No provision of, or the exercise of any rights under, Section 11.1 shall limit the right of any party to the Alternative Dispute Resolution Agreement to exercise self-help remedies such as set-off, to foreclose against any Collateral, or to obtain provisional or ancillary remedies such as injunctive relief or the appointment of a receiver from a court having jurisdiction before, during or after the pendency of any mediation or arbitration.

11.3Inconsistency

.  To the extent any provision of the Alternative Dispute Resolution Agreement is inconsistent with the other terms of this Agreement, the terms of the Alternative Dispute Resolution Agreement shall prevail.

12.   MISCELLANEOUS

12.1Complete Agreement; Modification of Agreement

.  This Agreement and the other Loan Documents constitute the complete agreement among the parties with respect to the subject matter hereof and thereof, supersede all prior agreements, commitments, understandings or inducements (oral or written, expressed or implied), and may not be modified, altered or amended except by a written agreement signed by Agent, Lenders, Borrower and each other Person executing this Agreement or any other Loan Document, as applicable.

12.2Reimbursement and Expenses

.  Borrower will promptly pay:

12.2.1without regard for whether any Loans are made, all reasonable out-of-pocket expenses of Agent in connection with the preparation, negotiation, execution, and delivery of this Agreement, the Notes and the other Loan Documents, including all due diligence, all post-closing matters, syndication, and the transactions contemplated hereunder and thereunder and the making of the Loans, including, recording and filing fees, and the reasonable attorneys' fees and disbursements of counsel for Agent;

12.2.2all reasonable out-of-pocket expenses of Agent in connection with the administration or monitoring of the Loans, the Collateral, this Agreement and the other Loan Documents in accordance with the provisions thereof, the restructuring and refinancing of the transaction herein contemplated, and in connection with the preparation, negotiation, execution, and delivery of any waiver, amendment, or consent by Agent relating to this Agreement or the other Loan Documents, including, auditing costs and expenses with respect to the Collateral and the reasonable attorneys' fees and expenses of counsel;

12.2.3all of Agent' out-of-pocket costs and expenses of obtaining performance under this Agreement or the other Loan Documents, of collection of the Obligations, in any arbitration, mediation, legal action or proceeding (including any case under the Bankruptcy Code or similar laws), which, in each case, shall include reasonable fees and expenses of counsel for Agent and each Lender;

12.2.4all Charges levied on, or assessed, placed or made against any Collateral, the Notes or the other Loan Documents or the Obligations; and

12.2.5whenever Agent or any Lender sustains or incurs any losses or out-of-pocket expenses in connection with (1) the failure by Borrower to borrow or reborrow any LIBOR Loan, or reborrow any Revolving Loan as a LIBOR Loan, in each case, after having given notice of its intention to borrow in accordance with Section 2.1.5 (whether by the election of Borrower not to proceed or the failure to satisfy of any of the conditions set forth in Section 4), or (2) prepayment of any LIBOR Loan in whole or in part, Borrower shall pay to Agent and each Lender, upon the earlier of Agent's and/or each Lender's demand or the Maturity Date an amount sufficient to compensate Agent and each Lender for all such losses and out-of-pocket expenses.  Agent's and each Lender's good faith determination of the amount of such losses and out-of-pocket expenses, shall, absent manifest error, be deemed final, binding and conclusive upon Borrower.  Losses subject to reimbursement under this Agreement shall include expenses incurred by any Lender or any participant of any Lender permitted under this Agreement in connection with the re-employment of funds prepaid, repaid, not borrowed, or paid, as the case may be, and any lost profit of any Lender or any participant of any Lender over the remainder of the LIBOR Loan Period for such prepaid LIBOR Loan.

12.3Indemnity

.

12.3.1Borrower shall indemnify and hold each Indemnified Person harmless from and against any Claim which may be instituted or asserted against or incurred by any such Indemnified Person as the result of credit having been extended or not extended under this Agreement and the other Loan Documents or otherwise in connection with or arising out of the transactions contemplated hereunder or thereunder, including any Claim for Environmental Liabilities and Costs and legal costs and expenses of disputes between the parties to this Agreement; provided, that Borrower shall not be liable for indemnification of an Indemnified Person to the extent that (a) such Claim is brought by any Indemnified Person against Borrower and Borrower is the prevailing party thereunder or (b) any such Claim is finally determined by a court of competent jurisdiction to have resulted from such Indemnified Person's gross negligence or willful misconduct.  NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER PARTY TO ANY LOAN DOCUMENT, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED OR NOT EXTENDED UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER.

12.3.2In any suit, proceeding or action brought by Agent or any Lender relating to any item of Collateral or any amount owing hereunder, or to enforce any provision of any item of Collateral, Borrower shall save, indemnify and keep Agent and each Lender harmless from and against all expense, loss or damage suffered by reason of such action or any defense, setoff, or counterclaim asserted for any reason by the other party or parties to such litigation and however arising unless (a) such suit, proceeding or action is brought by Agent or any Lender against Borrower and Borrower is the prevailing party thereunder, or (b) any such suit, proceeding or action is finally determined by a court of competent jurisdiction to have resulted from Agent's or any Lender's gross negligence or willful misconduct.  All obligations of Borrower with respect to any item of Collateral shall be and remain enforceable against, and only against, Borrower and shall not be enforceable against Agent or any Lender.  This Section 12.3.2 shall survive the Termination Date.

12.4No Waiver

.  Neither Agent's nor any Lender's failure, at any time or times, to require strict performance by Borrower of any provision of any Loan Document, nor Agent's or any Lender's failure to exercise, nor any delay in exercising, any right, power or privilege under this Agreement, (a) shall waive, affect or diminish any right of such Agent or any Lender thereafter to demand strict compliance and performance therewith, or (b) shall operate as a waiver thereof.  Any suspension or waiver of a Default, Event of Default, or other provision under the Loan Documents must be in writing signed by an authorized employee of Agent or any Lender to be effective and shall not suspend, waive or affect any other Default or Event of Default, whether the same is prior or subsequent thereto and whether of the same or of a different type, and shall not be construed as a bar to any right or remedy which Agent or any Lender would otherwise have had on any future occasion.

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12.5Severability; Drafting

.  Wherever possible, each provision of the Loan Documents shall be interpreted in such manner as to be effective and valid under Applicable Law, but if any provision of any Loan Document shall be prohibited by or invalid under Applicable Law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of such Loan Document.  Except as otherwise expressly provided herein or in any other Loan Document, all undertakings, agreements, covenants, warranties and representations of or binding upon Borrower and all rights of Agent and Lender, all as contained in the Loan Documents, shall not terminate or expire, but rather shall survive such termination or cancellation and shall continue in full force and effect until the Termination Date; provided, that the reimbursement and expense provisions of Section 12.2, the indemnity provisions of Section 12.2.5, the governing law and venue provisions of Section 12.14 and the Alternative Dispute Resolution Agreement referred in Sections 11 and12.15 shall all survive the Termination Date.  In the event of a dispute between any of the parties hereto over the meaning of this Agreement, all parties shall be deemed to have been the drafter hereof, and any Applicable Law that states that contracts are construed against the drafter shall not apply.

12.6Conflict of Terms

.  Except as otherwise provided in any Loan Document by specific reference to the applicable provisions of this Agreement, if any provision contained in this Agreement is in conflict with, or inconsistent with, any provision in any other Loan Document, the provision contained in this Agreement shall govern and control.

12.7Notices

.

12.7.1All notices and other communications under this Agreement and the other Loan Documents shall be in writing and shall be deemed to have been given three (3) days after deposit in the mail, first class mail, postage prepaid, or one (1) day after being entrusted to a reputable commercial overnight delivery service, or when sent out by facsimile transmission addressed to the party to which such notice is directed at its address determined as provided in this Section 12.7.1.  All notices and other communications under this Agreement shall be given to the parties hereto at the following addresses:

(a)If to Borrower:

AeroCentury Corp.

1440 Chapin Avenue, Suite 310

Burlingame, CA 94010-4011

Telephone No.:  (650) 340-1888

Facsimile No.:  (650) 696-3929

(b)If to Agent:

Union Bank, N.A.

Transportation, Aerospace and Defense Group

400 California Street, 8th Floor

San Francisco, CA 94104

with a copy to:

Union Bank, N.A.

Attn:  Shane Johnson

   Vice President

445 South Figueroa Street 13th Floor

Angeles, CA 90071

Telephone No.:  (213) 236-5622

Facsimile No.:  (213) 236-7209

and:

Sheppard Mullin Richter & Hampton LLP

Four Embarcadero Center, 17th Floor

San Francisco, CA 94111-4106

Attn:  Juliette M. Ebert, Esq.

Telephone No.:  (415) 434-9100

Facsimile No.:  (415) 434-3947

12.7.2Any party to this Agreement may change the address to which notices shall be directed under this Section 12.7.2 by giving ten (10) days' written notice of such change to the other parties.

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12.8Binding Effect; Assignment

.

12.8.1This Agreement and the other Loan Documents to which Borrower is a party will be binding upon and inure to the benefit of Borrower, Agent, each of Lenders, and their respective successors and assigns, except that Borrower may not assign its rights hereunder or thereunder or any interest herein or therein without the prior written consent of all Lenders.  Each Lender represents that it is not acquiring its Note with a view to the distribution thereof within the meaning of the Securities Act of 1933, as amended (subject to any requirement that disposition of such Note must be within the control of such Lender).  Any Lender may at any time pledge its Note or any other instrument evidencing its rights as a lender under this Agreement to a Federal Reserve Bank, but no such pledge shall release that lender from its obligations hereunder or grant to such Federal Reserve Bank the rights of a Lender hereunder absent foreclosure of such pledge.

12.8.2From time to time following the Closing Date, each Lender may assign to one or more Eligible Assignees all or any portion of its Pro Rata Share of the Revolving Commitment; provided that (i) such Eligible Assignee, if not then a Lender or an Affiliate of the assigning Lender, shall be approved by Agent and, provided no Default or Event of Default then exists, Borrower, which approval(s) shall not be unreasonably withheld, conditioned or delayed; (ii) such assignment shall be evidenced by a Commitment Assignment and Acceptance, a copy of which shall be furnished to Agent as provided below; (iii) except in the case of an assignment (a) to an Affiliate of the assigning Lender or to another Lender or (b) of the entire remaining Revolving Commitment of the assigning Lender, the assignment shall not assign a Pro Rata Share of the Revolving Commitment that is equivalent to less than $5,000,000.00; (iv) the effective date of any such assignment shall be as specified in the Commitment Assignment and Acceptance, but not earlier than the date which is five (5) Business Days after the date Agent has received the Commitment Assignment and Acceptance; and (v) such Eligible Assignee shall execute an Alternative Dispute Resolution Agreement, in form and substance satisfactory to Agent.  Upon the effective date of such Commitment Assignment and Acceptance, the Eligible Assignee named therein shall be a Lender for all purposes of this Agreement, with the Pro Rata Share of the Revolving Commitment therein set forth and, to the extent of such Pro Rata Share, the assigning Lender shall be released from its further obligations under this Agreement.  Borrower agrees that it shall execute and deliver (against delivery by the assigning Lender to Borrower of its Note(s)) to such assignee Lender, Note(s) evidencing that assignee Lender's Pro Rata Share of the Revolving Commitment, and to the assigning Lender, Note(s) evidencing the Pro Rata Share retained by the assigning Lender.

12.8.3By executing and delivering a Commitment Assignment and Acceptance, the Eligible Assignee thereunder acknowledges and agrees that:  (i) other than the representation and warranty that it is the legal and beneficial owner of the Pro Rata Share of the Revolving Commitment being assigned thereby free and clear of any adverse claim, the assigning Lender has made no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness or sufficiency of this Agreement or any other Loan Document; (ii) the assigning Lender has made no representation or warranty and assumes no responsibility with respect to the financial condition of Borrower or the performance by Borrower of the Obligations; (iii) it has received a copy of this Agreement, together with copies of the most recent financial statements delivered pursuant to Section 8 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Commitment Assignment and Acceptance; (iv) it will, independently and without reliance upon Agent or any Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) it appoints and authorizes Agent to take such action and to exercise such powers under this Agreement as are delegated to Agent by this Agreement; and (vi) it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender.

12.8.4Agent shall maintain at Agent's Office a copy of each Commitment Assignment and Acceptance delivered to it and a register (the "Register") of the names and address of each of the Lenders and the Pro Rata Share of the Commitments held by each Lender, giving effect to each Commitment Assignment and Acceptance.  The Register shall be available during normal business hours for inspection by Borrower or any Lender upon reasonable prior notice to Agent.  After receipt of a completed Commitment Assignment and Acceptance executed by any Lender and an Eligible Assignee, and receipt of a non-refundable assignment fee of Three Thousand Five Hundred Dollars ($3,500.00) from such Lender or Eligible Assignee, Agent shall, promptly following the effective date thereof, provide to Borrower and the Lenders a revised Schedule 2.1 giving effect thereto.  Borrower, Agent and the Lenders shall deem and treat the Persons listed as Lenders in the Register as the holders and owners of the Pro Rata Share of the Revolving Commitment listed therein for all purposes hereof, and no assignment or transfer of any such Pro Rata Share of the Revolving Commitment shall be effective, in each case unless and until a Commitment Assignment and Acceptance effecting the assignment or transfer thereof shall have been accepted by Agent and recorded in the Register as provided above.  Prior to such recordation, all amounts owed with respect to the applicable Pro Rata Share of the Revolving Commitment shall be owed to the Lender listed in the Register as the owner thereof, and any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is listed in the Register as a Lender shall be conclusive and binding on any subsequent holder, assignee or transferee of the corresponding Pro Rata Share of the Revolving Commitment.

12.8.5Each Lender may from time to time grant participations to one or more banks or other financial institutions in a portion of its Pro Rata Share of the Revolving Commitment; provided, however, that (i) such Lender's obligations under this Agreement shall remain unchanged; (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations; (iii) the participating banks or other financial institutions shall not be a Lender hereunder for any purpose except, if the participation agreement so provides, for the purposes of Section 12.2.5 but only to the extent that the cost of such benefits to Borrower does not exceed the cost which Borrower would have incurred in respect of such Lender absent the participation; (iv) Borrower, Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement; (v) the participation interest shall be expressed as a percentage of the granting Lender's Pro Rata Share of the Revolving Commitment as it then exists or in the granting Lender's Pro Rata Share of the Revolving Commitment, so long as the amount of the participation interest is not affected thereby; and (vi) the consent of the holder of such participation interest shall not be required for amendments or waivers of provisions of the Loan Documents other than those which (A) extend the Maturity Date or any other date upon which any payment of money is due to the Lenders, (B) reduce the rate of interest on the Notes, any fee or any other monetary amount payable to the Lenders, (C) reduce the amount of any installment of principal due under the Notes, or (D) release any material Collateral from the Lien of the Collateral Documents, except if such release of material Collateral occurs in connection with a disposition permitted under this Agreement in which case such release shall not require the consent of any of the Lenders or of any holder of a participation interest in the Revolving Commitment.

12.9Right of Setoff

.  If an Event of Default has occurred and is continuing, Agent or any Lender (but in each case only with the consent of the Requisite Lenders) may exercise its rights under Article 9 of the Uniform Commercial Code and other Applicable Law and, to the extent permitted by Applicable Law, apply any funds in any deposit account maintained with it by Borrower and/or any Property of Borrower in its possession against the Obligations.

12.10Sharing of Setoffs

.  Each Lender severally agrees that if it, through the exercise of any right of setoff, banker's lien or counterclaim against Borrower, or otherwise, receives payment of the Obligations held by it that is ratably more than any other Lender, through any means, receives in payment of the Obligations held by that Lender, then, subject to Applicable Law:  (a) the Lender exercising the right of setoff, banker's lien or counterclaim or otherwise receiving such payment shall purchase, and shall be deemed to have simultaneously purchased, from each of the other Lenders a participation in the Obligations held by the other Lenders and shall pay to the other Lenders a purchase price in an amount so that the share of the Obligations held by each Lender after the exercise of the right of setoff, banker's lien or counterclaim or receipt of payment shall be in the same proportion that existed prior to the exercise of the right of setoff, banker's lien or counterclaim or receipt of payment; and (b) such other adjustments and purchases of participations shall be made from time to time as shall be equitable to ensure that all of the Lenders share any payment obtained in respect of the Obligations ratably in accordance with each Lender's share of the Obligations immediately prior to, and without taking into account, the payment; provided that, if all or any portion of a disproportionate payment obtained as a result of the exercise of the right of setoff, banker's lien, counterclaim or otherwise is thereafter recovered from the purchasing Lender by Borrower or any Person claiming through or succeeding to the rights of Borrower, the purchase of a participation shall be rescinded and the purchase price thereof shall be restored to the extent of the recovery, but without interest.  Each Lender that purchases a participation in the Obligations pursuant to this Section 12.10shall from and after the purchase have the right to give all notices, requests, demands, directions and other communications under this Agreement with respect to the portion of the Obligations purchased to the same extent as though the purchasing Lender were the original owner of the Obligations purchased.  Borrower expressly consents to the foregoing arrangements and agrees that any Lender holding a participation in an Obligation so purchased pursuant to this Section 12.10may exercise any and all rights of setoff, banker's lien or counterclaim with respect to the participation as fully as if the Lender were the original owner of the Obligation purchased.

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12.11Section Titles

.  The Section titles and Table of Contents contained in this Agreement and any other Loan Document are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto.

12.12Counterparts

.  Each Loan Document may be executed in any number of identical counterparts, which shall constitute an original and collectively and separately constitute a single instrument or agreement.

12.13Time of the Essence

.  Time is of the essence for payment and performance of the Obligations.

12.14GOVERNING LAW; VENUE

.  EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE OBLIGATIONS ARISING HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICTS OF LAWS, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.  BORROWER HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN SAN FRANCISCO, CALIFORNIA SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND ANY LENDER PERTAINING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS; PROVIDED, THAT LENDERS AND BORROWER ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF SAN FRANCISCO, CALIFORNIA; AND FURTHER PROVIDED, THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE AGENT OR ANY LENDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF SUCH AGENT OR LENDER. BORROWER EXPRESSLY SUBMITS AND CONSENTS TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT.  BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH IN SECTION 12.7.1 AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE BORROWER'S ACTUAL RECEIPT THEREOF.

12.15WAIVER OF JURY TRIAL

.  AS SET FORTH IN THE ALTERNATIVE DISPUTE RESOLUTION AGREEMENT, BORROWER, AGENT AND EACH LENDER WAIVE ITS RIGHT TO A TRIAL BY JURY AND AGREES TO HAVE ANY DISPUTE BETWEEN OR AMONG ANY OTHER PARTY(IES)  RESOLVED PURSUANT TO THE TERMS OF THE ALTERNATIVE DISPUTE RESOLUTION AGREEMENT.

12.16Amendments; Consents

.  No amendment, modification, supplement, extension, termination or waiver of any provision of this Agreement or any other Loan Document, no approval or consent thereunder, and no consent to any departure by Borrower or any other party therefrom, may in any event be effective unless in writing signed by Agent with the written approval of the Requisite Lenders (and, in the case of any amendment, modification or supplement of or to any Loan Document to which Borrower is a party, signed by Borrower, and, in the case of any amendment, modification or supplement to Section 13, signed by Agent, respectively), and then only in the specific instance and for the specific purpose given; and, without the approval in writing of all the Lenders, no amendment, modification, supplement, termination, waiver or consent may be effective:

12.16.1To amend or modify the principal of, or the amount of principal (other than in accordance with Sections 2.8 or 2.18), principal prepayments or the rate of interest payable on, any Note, or the amount of the Revolving Commitment or the Pro Rata Share of any Lender or the amount of any commitment fee payable to any Lender, or any other fee or amount payable to any Lender under the Loan Documents or to waive an Event of Default consisting of the failure of Borrower to pay when due principal, interest or any fee;

12.16.2To postpone any date fixed for any payment of principal of, prepayment of principal of or any installment of interest on, any Note or any installment of any fee, or to extend the term of the Revolving Commitment;

12.16.3To amend the provisions of the definition of the following:  "Borrowing Base", "Eligible Collateral", "Eligible Lease", "Equipment", "Maturity Date", and "Requisite Lenders";

12.16.4To release any material Collateral from the Lien of the Collateral Documents;

12.16.5To amend or waive Section 4 or this Section 12.16or any part thereof;

12.16.6To amend any of the covenants in Section 6.15, 6.19, or to modify any of the definition of the terms contained therein, or to waive any violation of any such covenants or to modify any cure periods in connection therewith;

12.16.7To amend any provision of this Agreement that expressly requires the consent or approval of all or a specified portion of the Lenders or

12.16.8To amend or modify the depreciation policy as set forth in Schedule 5.22.

Any amendment, modification, supplement, termination, waiver or consent pursuant to this Section 12.16 shall apply equally to, and shall be binding upon, all the Lenders and Agent.

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12.17Foreign Lenders and Participants

.  Each Lender that is incorporated or otherwise organized under the Applicable Law of a jurisdiction other than the United States of America or any State thereof or the District of Columbia shall deliver to Borrower (with a copy to Agent), on or before the Closing Date (or on or before accepting an assignment or receiving a participation interest herein pursuant to Section 12.7.2, if applicable) two duly completed copies, signed by an authorized officer, of either Form 1001 (relating to such Lender and entitling it to a complete exemption from withholding on all payments to be made to such Lender by Borrower pursuant to this Agreement) or Form W-8BEN (relating to all payments to be made to such Lender by the Borrower pursuant to this Agreement) of the United States Internal Revenue Service or such other evidence (including, if reasonably necessary, Form W-9) satisfactory to Borrower and Agent that no withholding under the federal income tax laws is required with respect to such Lender.  Thereafter and from time to time, each such Lender shall (a) promptly submit to Borrower (with a copy to Agent), such additional duly completed and signed copies of one of such forms (or such successor forms as shall be adopted from time to time by the relevant United States taxing authorities) as may then be available under then current United States laws and regulations to avoid, or such evidence as is satisfactory to Borrower and Agent of any available exemption from, United States withholding taxes in respect of all payments to be made to such Lender by Borrower pursuant to this Agreement and (b) take such steps as shall not be materially disadvantageous to it, in the reasonable judgment of such Lender, and as may be reasonably necessary (including the re designation of its LIBOR lending office, if any) to avoid any requirement of Applicable Law that Borrower make any deduction or withholding for taxes from amounts payable to such Lender.  In the event that Borrower or Agent become aware that a participation has been granted pursuant to Section 12.8.5 to a financial institution that is incorporated or otherwise organized under the laws of a jurisdiction other than the United States of America, any State thereof or the District of Columbia, then, upon request made by Borrower or Agent to the Lender which granted such participation, such Lender shall cause such participant financial institution to deliver the same documents and information to Borrower and Agent as would be required under this Section if such financial institution were a Lender.

13.   AGENT

13.1Appointment and Authorization

.  Subject to Section 12.7.28, each Lender hereby irrevocably appoints and authorizes Agent to take such action as agent on its behalf and to exercise such powers under the Loan Documents as are delegated to Agent by the terms thereof or are reasonably incidental, as determined by Agent, thereto.  This appointment and authorization is intended solely for the purpose of facilitating the servicing of the Loans and does not constitute appointment of Agent as trustee for any Lender or as representative of any Lender for any other purpose and, except as specifically set forth in the Loan Documents to the contrary, Agent shall take such action and exercise such powers only in an administrative and ministerial capacity.

13.2Lenders' Credit Decisions

.  Each Lender agrees that it has, independently and without reliance upon Agent, any other Lender or the directors, officers, Agent, employees or attorneys of the foregoing parties, and instead in reliance upon information supplied to it by or on behalf of Borrower and upon such other information as it has deemed appropriate, made its own independent credit analysis and decision to enter into this Agreement.  Each Lender also agrees that it shall, independently and without reliance upon Agent, any other Lender or the directors, officers, Agent, employees or attorneys of the foregoing parties, continue to make its own independent credit analyses and decisions in acting or not acting under the Loan Documents.

13.3Agent and Affiliates

.  Union Bank, N.A. (and each successor Agent) has the same rights and powers under the Loan Documents as any other Lender and may exercise the same as though it were not Agent, and the term "Lender" or "Lenders" includes Union Bank, N.A. in its individual capacity.  Union Bank, N.A. (and each successor Agent) and its Affiliates may accept deposits from, lend money to and generally engage in any kind of banking, trust or other business with Borrower or any Affiliate of Borrower, as if it were not Agent and without any duty to account therefor to Lenders.  Union Bank, N.A. (and each successor Agent) need not account to any other Lender for any monies received by it in its capacity as a Lender hereunder.  Agent shall not be deemed to hold a fiduciary relationship with any Lender and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against Agent.

13.4Proportionate Interest in any Collateral

.  Agent, on behalf of Lenders, shall hold in accordance with the Loan Documents all items of any Collateral or interests therein to be received or held by Agent.  Subject to Agent's and Lenders' rights to reimbursement for their costs and expenses hereunder (including reasonable attorneys' fees and disbursements and other professional services and the reasonably allocated costs of attorneys employed by Agent or a Lender) and subject to the application of payments in accordance with Section 9.4, each Lender shall have an interest in such collateral or interests therein in the same proportion that the aggregate obligations owed such Lender, under the Loan Documents and/or any Interest Rate Protection Agreement, as applicable, bears to the aggregate obligations owed under the Loan Documents and all Interest Rate Protection Agreements, without priority or preference among Lenders.

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13.5Action by Agent

.

13.5.1Absent actual knowledge of Agent of the existence of a Default, Agent may assume that no Default has occurred and is continuing, unless Agent (or the Lender that is then Agent) has received notice from Borrower stating the nature of the Default or has received notice from a Lender stating the nature of the Default and that such Lender considers the Default to have occurred and to be continuing.

13.5.2Agent has only those obligations under the Loan Documents as are expressly set forth therein.

13.5.3Except for any obligation expressly set forth in the Loan Documents and as long as Agent may assume that no Event of Default has occurred and is continuing, Agent may, but shall not be required to, exercise its discretion to act or not act, except that Agent shall be required to act or not act upon the instructions of the Requisite Lenders (or of all the Lenders, to the extent required by Section 12.16) and those instructions shall be binding upon Agent and all Lenders, provided that Agent shall not be required to act or not act if to do so would be contrary to any Loan Document or to Applicable Law or would result, in the reasonable judgment of Agent, in substantial risk of liability to Agent.

13.5.4If Agent has received a notice specified in Section 13.5.1, Agent shall immediately give notice thereof to Lenders and shall act or not act upon the instructions of the Requisite Lenders (or of all the Lenders, to the extent required by Section 12.16), provided that Agent shall not be required to act or not act if to do so would be contrary to any Loan Document or to Applicable Law or would result, in the reasonable judgment of Agent, in substantial risk of liability to Agent, and except that if the Requisite Lenders fail, for five (5) Business Days after the receipt of notice from Agent, to instruct Agent, then Agent, in its sole discretion, may act or not act as it deems advisable for the protection of the interests of Lenders.

13.5.5Agent shall have no liability to any Lender for acting, or not acting, as instructed by the Requisite Lenders, notwithstanding any other provision hereof.

13.6Liability of Agent

.  Neither Agent nor any of its directors, officers, Agent, employees or attorneys shall be liable for any action taken or not taken by them under or in connection with the Loan Documents, except for their own gross negligence or willful misconduct.  Without limitation on the foregoing, Agent and its directors, officers, Agent, employees and attorneys:

13.6.1May treat the payee of any Note as the holder thereof until Agent receives notice of the assignment or transfer thereof, signed by the payee, and may treat each Lender as the owner of that Lender's interest in the Obligations for all purposes of this Agreement until Agent receives notice of the assignment or transfer thereof, signed by that Lender;

13.6.2May consult with legal counsel (including in-house legal counsel), accountants (including in-house accountants) and other professionals or experts selected by it, or with legal counsel, accountants or other professionals or experts for Borrower or Lenders, and shall not be liable for any action taken or not taken by it in good faith in accordance with any advice of such legal counsel, accountants or other professionals or experts selected by it with reasonable care;

13.6.3Shall not be responsible to any Lender for any statement, warranty or representation made in any of the Loan Documents or in any notice, certificate, report, request or other statement (written or oral) given or made in connection with any of the Loan Documents except for those expressly made by it;

13.6.4Except to the extent expressly set forth in the Loan Documents, shall have no duty to ask or inquire as to the performance or observance by Borrower of any of the terms, conditions or covenants of any of the Loan Documents or to inspect any collateral or any Property, books or records of Borrower;

13.6.5Will not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, effectiveness, sufficiency or value of any Loan Document, any other instrument or writing furnished pursuant thereto or in connection therewith, or any collateral; and

13.6.6Will not incur any liability by acting or not acting in reliance upon any Loan Document, notice, consent, certificate, statement, request or other instrument or writing reasonably believed by it to be genuine and signed or sent by the proper party or parties.

13.7Indemnification

.  Each Lender shall, ratably in accordance with its proportion of the aggregate Indebtedness then evidenced by the Notes, indemnify and hold Agent and its directors, officers, Agent, employees and attorneys harmless against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (including reasonable attorneys' fees and disbursements and allocated costs of attorneys employed by Agent) that may be imposed on, incurred by or asserted against it or them in any way relating to or arising out of the Loan Documents (other than losses incurred by reason of the failure of Borrower to pay the Indebtedness represented by the Notes) or any action taken or not taken by it as Agent thereunder, except such as result from its own gross negligence or willful misconduct.  Without limitation on the foregoing, each Lender shall reimburse Agent upon demand for that Lender's Pro Rata Share of any out of pocket cost or expense incurred by Agent in connection with the negotiation, preparation, execution, delivery, amendment, waiver, restructuring, reorganization (including a bankruptcy reorganization), enforcement or attempted enforcement of the Loan Documents, to the extent that Borrower or any other party is required by Section 12.2 to pay that cost or expense but fails to do so upon demand.  Nothing in this Section 13.7 shall entitle Agent or any indemnitee referred to above to recover any amount from Lenders if and to the extent that such amount has theretofore been recovered from Borrower.  To the extent that Agent or any indemnitee referred to above is later reimbursed such amount by Borrower, it shall return the amounts paid to it by Lenders in respect of such amount.

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13.8Successor Agent

.  Agent may, and at the request of the Requisite Lenders shall, resign as Agent upon reasonable notice to Lenders and Borrower effective upon acceptance of appointment by a successor Agent.  If Agent shall resign as Agent under this Agreement, the Requisite Lenders shall appoint from among Lenders a successor Agent for Lenders, which successor Agent shall be approved by Borrower (and such approval shall not be unreasonably withheld or delayed).  If no successor Agent is appointed prior to the effective date of the resignation of Agent, Agent may appoint, after consulting with Lenders and Borrower, a successor Agent from among Lenders.  Upon the acceptance of its appointment as successor Agent hereunder, such successor Agent shall succeed to all the rights, powers and duties of the retiring Agent and the term "Agent" shall mean such successor Agent and the retiring Agent's appointment, powers and duties as Agent shall be terminated.  After any retiring Agent's resignation hereunder as Agent, the provisions of this Section 13, and Section 12.2.5, shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement.  Notwithstanding the foregoing, if (a) Agent has not been paid those fees referenced in Section 2.4.2 or has not been reimbursed for any expense reimbursable to it under Sections 12.2 or 12.2.5, in either case for a period of at least one (1) year and (b) no successor Agent has accepted appointment as Agent by the date which is thirty (30) days following a retiring Agent's notice of resignation, the retiring Agent's resignation shall nevertheless thereupon become effective and Lenders shall perform all of the duties of Agent hereunder until such time, if any, as the Requisite Lenders appoint a successor Agent as provided for above.

13.9No Obligations of Borrower

.  Nothing contained in this Section 13 shall be deemed to impose upon Borrower any obligation in respect of the due and punctual performance by Agent of its obligations to Lenders under any provision of this Agreement, and Borrower shall have no liability to Agent or any of Lenders in respect of any failure by Agent or any Lender to perform any of its obligations to Agent or Lenders under this Agreement.

14.   COMMITMENT COSTS AND RELATED MATTERS.

14.1Eurodollar Costs and Related Matters

.

14.1.1In the event that any Governmental Authority imposes on any Lender any reserve or comparable requirement (including any emergency, supplemental or other reserve) with respect to the Eurodollar liabilities (as defined in Regulation D or any comparable regulation of any Governmental Authority having jurisdiction over any Lender) of any Lender, Borrower shall pay such lender within five (5) Business Days after demand all amounts necessary to compensate such Lender (determined as though such lender's LIBOR lending office had funded 100% of its LIBOR Loan in the Designated Eurodollar Market) in respect of the imposition of such reserve requirements (provided, that Borrower shall not be obligated to pay any such amount which arose prior to the date which is ninety (90) days preceding the date of such demand or is attributable to periods prior to the date which is ninety (90) days preceding the date of such demand).  Such Lender's determination of such amount shall be conclusive in the absence of manifest error.

14.1.2If, after the date hereof, the existence or occurrence of any Special Eurodollar Circumstance:

(a)shall subject any Lender or its LIBOR lending office to any tax, duty or other charge or cost with respect to any LIBOR Loan, its Note evidencing such LIBOR Loan(s) or its obligation to make LIBOR Loans, or shall change the basis of taxation of payments to any Lender attributable to the principal of or interest on any LIBOR Loan or any other amounts due under this Agreement in respect of any LIBOR Loan, its Note evidencing such LIBOR Loan(s) or its obligation to make LIBOR Loans, excluding taxes imposed on or measured in whole or in part by its overall net income by (A) any jurisdiction (or political subdivision thereof) in which it is organized or maintains its principal office or LIBOR lending office or (B) any jurisdiction (or political subdivision thereof) in which it is "doing business";

(b)shall impose, modify or deem applicable any reserve not applicable or deemed applicable on the date hereof (including any reserve imposed by the Board of Governors of the Federal Reserve System, special deposit, capital or similar requirements against assets of, deposits with or for the account of, or credit extended by, any Lender or its LIBOR lending office); or

(c)shall impose on any Lender or its LIBOR lending office or the Designated Eurodollar Market any other condition affecting any LIBOR Loan, its Note evidencing such LIBOR Loan(s), its obligation to make LIBOR Loans or this Agreement, or shall otherwise affect any of the same;

and the result of any of the foregoing, as determined in good faith by any Lender, increases the cost to any Lender or its LIBOR lending office of making or maintaining any LIBOR Loan or in respect of any LIBOR Loan, any Note evidencing LIBOR Loans or its obligation to make LIBOR Loans or reduces the amount of any sum received or receivable by any Lender or its LIBOR lending office with respect to any LIBOR Loan, its Note evidencing such LIBOR Loan(s) or its obligation to make LIBOR Loans (assuming such Lender's LIBOR lending office had funded 100% of its LIBOR Loan in the Designated Eurodollar Market), then, within five (5) Business Days after demand by such lender (with a copy to Agent), Borrower shall pay to such Lender such additional amount or amounts as will compensate such lender for such increased cost or reduction (determined as though such Lender's LIBOR lending office had funded 100% of its LIBOR Loan in the Designated Eurodollar Market); provided, that Borrower shall not be obligated to pay any such amount which arose prior to the date which is ninety (90) days preceding the date of such demand or is attributable to periods prior to the date which is ninety (90) days preceding the date of such demand.  A statement of Lender claiming compensation under this subsection shall be conclusive in the absence of manifest error.

14.1.3If, after the date hereof, the existence or occurrence of any Special Eurodollar Circumstance shall, in the good faith opinion of Lender, make it unlawful or impossible for Lender or its LIBOR lending office to make, maintain or fund its portion of any LIBOR Loan, or materially restrict the authority of Lender to purchase or sell, or to take deposits of, Dollars in the Designated Eurodollar Market, or to determine or charge interest rates based upon the LIBOR Basis, and Lender shall so notify Agent, then such Lender's obligation to make LIBOR Loans shall be suspended for the duration of such illegality or impossibility and Lender forthwith shall give notice thereof to the other Lenders and Borrower.  Upon receipt of such notice, the outstanding principal amount of such Lender's LIBOR Loans, together with accrued interest thereon, automatically shall be converted to Base Rate Loans on either (1) the last day of the LIBOR Loan Period(s) applicable to such LIBOR Loans if such lender may lawfully continue to maintain and fund such LIBOR Loans to such day(s) or (2) immediately if such lender may not lawfully continue to fund and maintain such LIBOR Loans to such day(s), provided that in such event the conversion shall not be subject to payment of a prepayment fee under Section 2.6.5.  Lenders agrees to endeavor promptly to notify Borrower of any event of which it has actual knowledge, occurring after the Closing Date, which will cause any Lender to notify Agent under this Section, and agrees to designate a different LIBOR lending office if such designation will avoid the need for such notice and will not, in the good faith judgment of such lender, otherwise be materially disadvantageous to such lender.  In the event that any Lender is unable, for the reasons set forth above, to make, maintain or fund its portion of any LIBOR Loan, such Lender shall fund such amount as a Base Rate Loan for the same period of time, and such amount shall be treated in all respects as a Base Rate Loan.  Any Lender whose obligation to make LIBOR Loans has been suspended under this Section shall promptly notify Agent and Borrower of the cessation of the Special Eurodollar Circumstance which gave rise to such suspension. Borrower shall have the right to terminate the Revolving Commitment of any Lender for which the funding of LIBOR Loans becomes unlawful or impossible, as set forth above, and to substitute a new Lender into this Agreement subject to the provisions of Section 12.7.28 of this Agreement.

14.1.4If, with respect to any proposed LIBOR Loan, any Lender:

(a)reasonably determines that, by reason of circumstances affecting the Designated Eurodollar Market generally that are beyond the reasonable control of such lender, deposits in Dollars (in the applicable amounts) are not being offered to lender in the Designated Eurodollar Market for the applicable LIBOR Loan Period; or

(b)LIBOR Basis as determined by such lender (i) does not represent the effective pricing to lender for deposits in Dollars in the Designated Eurodollar Market in the relevant amount for the applicable LIBOR Loan Period, or (ii) will not adequately and fairly reflect the cost to such lender of making the applicable LIBOR Loans;

then lender forthwith shall give notice thereof to Borrower and Agent, whereupon until such lender notifies Borrower that the circumstances giving rise to such suspension no longer exist, the obligation of Lender to make any future LIBOR Loans shall be suspended.

14.1.5Each Lender agrees to endeavor promptly to notify Borrower of any event of which it has actual knowledge, occurring after the Closing Date, which will entitle any Lender to compensation pursuant to this Section, and agrees to designate a different LIBOR lending office if such designation will avoid the need for or reduce the amount of such compensation and will not, in the good faith judgment of such lender, otherwise be materially disadvantageous to lender.  Any request for compensation by any Lender under this Section shall set forth the basis upon which it has been determined that such an amount is due from Borrower, a calculation of the amount due, and a certification that the corresponding costs have been incurred by such lender.

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14.2Capital Adequacy

.  If, after the date hereof, any Lender (or any Affiliate of any Lender) shall have reasonably determined that the adoption of any Applicable Law, governmental rule, regulation or order regarding the capital adequacy of banks or bank holding companies, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or any Affiliate of any Lender) with any request or directive regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the capital of Lender (or any Affiliate of Lender) as a consequence of any of such Lender's obligations hereunder to a level below that which it could have achieved but for such adoption, change or compliance (taking into consideration the policies of any Lender (or Affiliate of any Lender) with respect to capital adequacy immediately before such adoption, change or compliance and assuming that the capital of such Lender (or Affiliate of such Lender) was fully utilized prior to such adoption, change or compliance), then, upon demand by such Lender, Borrower shall immediately pay to such lender such additional amounts as shall be sufficient to compensate such lender for any such reduction actually suffered; provided, that there shall be no duplication of amounts paid to any Lender pursuant to this sentence and Section 14.1.  For purposes of this Section 14.2, a change in Applicable Law, governmental rule, regulation or order shall include, without limitation, (x) any change made or which becomes effective on the basis of a law, treaty, rule, regulation, interpretation administration or implementation then in force, the effective date of which change is delayed by the terms of such law, treaty, rule, regulation, interpretation, administration or implementation, (y) the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. 111-203, H.R. 4173) and all requests, rules, regulations, guidelines, interpretations or directives promulgated thereunder or issued in connection therewith, regardless of the date enacted, adopted, issued or promulgated, whether before or after the Closing Date and (z) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States regulatory authorities, in each case pursuant to Basel III.  Such Lender's determination of the amount to be paid to such lender by Borrower as a result of any event referred to in this Section 14.2shall, absent manifest error, be deemed final, binding and conclusive upon Borrower.

14.3Federal Reserve System/Wire Transfers

.  The obligation of any Lender to make any loan by wire transfer to Borrower or any other Person shall be subject to all Applicable Law, including the policy of the Board of Governors of the Federal Reserve System on Reduction of Payments System Risk as in effect from time to time.  Borrower acknowledges that such laws, regulations and policy may delay the transmission of any funds to Borrower.

14.4Assignment of Commitments Under Certain Circumstances; Duty to Mitigate

.  In the event (i) any Lender requests compensation pursuant to Section 14.1 or 14.2, above, (ii) any Lender delivers a notice described in Section 14.1 or 14.2, above, (iii) any Lender refuses to consent to any amendment, waiver or other modification of any Loan Document requested by any Borrower and which amendment, waiver or other modification is required under this Agreement for such amendment, waiver or other modification, or (iv) any Lender defaults in its obligations to make Loans or other extensions of credit hereunder, Borrower may, at its sole expense and effort (including with respect to the assignment fee referred to in Section 12.7.2), upon notice to such Lender and Agent, require such Lender to transfer and assign, without recourse (in accordance with and subject to the restrictions contained in Section 12.7.2), all of its interests, rights and obligations under this Agreement to an Eligible Assignee that shall assume such assigned obligations (which Eligible Assignee may be another Lender, if a Lender accepts such assignment); provided that (x) such assignment shall not conflict with any law, rule or regulation or order of any court or other Governmental Authority having jurisdiction, (y) Borrower shall have received the prior written consent of Agent, which consent shall not unreasonably be withheld or delayed, and (z) the Borrower or such assignee shall have paid to the affected Lender in immediately available funds an amount equal to the sum of the principal of and interest accrued to the date of such payment on the outstanding Loans of such Lender, respectively, affected by such assignment plus all fees and other amounts accrued for the account of such Lender hereunder; provided further that, if prior to any such transfer and assignment the circumstances or event that resulted in such Lender's claim for compensation or notice, as referred to above in (i) and (ii) of this Section 14.4, as the case may be, cease to cause such Lender to suffer increased costs or reductions in amounts received or receivable or reduction in return on capital, or cease to have the consequences specified in Section 14.1 or 14.2, above, or cease to result in amounts being payable under Section 14.1 or 14.2, as the case may be, or if such Lender shall waive its right to claim or notice under Section 14.1 or 14.2, as applicable in respect of such circumstances or event or shall consent to the proposed amendment, waiver, consent or other modification, as the case may be, then such Lender shall not thereafter be required to make any such transfer and assignment hereunder.  Each Lender hereby grants to Agent an irrevocable power of attorney (which power is coupled with an interest) to execute and deliver, on behalf of such Lender as assignor, any Commitment Assignment and Acceptance necessary to effectuate any assignment of such Lender's interests hereunder in the circumstances contemplated by this paragraph.  The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such filing or assignment, delegation and transfer.

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IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first written above.

BORROWER:

AEROCENTURY CORP.,

a Delaware corporation

By:             _________________________

Name:             _________________________

Title:             _________________________

AGENT, LENDER AND SWING LINE LENDER:

UNION BANK, N.A.

By:               _________________________

Name:               Kevin Sullivan

Title:               Senior Vice President

LENDER:

CALIFORNIA BANK AND TRUST

By:               _________________________

Name:               _________________________

Title:               _________________________

LENDER:

FIRST BANK

By:               _________________________

Name:               _________________________

Title:               _________________________

LENDER:

U.S. BANK NATIONAL ASSOCIATION

By:               _________________________

Name:               _________________________

Title:               _________________________

LENDER:

UMPQUA BANK

By:               _________________________

Name:               _________________________

Title:               _________________________

LENDER:

CATHAY BANK

By:               _________________________

Name:               _________________________

Title:               _________________________

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EXHIBIT A

Form of Borrowing Base Certificate

BORROWING BASE CERTIFICATE

To:           UNION BANK, as Agent

This Borrowing Base Certificate ("Certificate") is executed and delivered by AeroCentury Corp., a Delaware corporation ("Borrower"), to Union Bank, N.A. ("Agent") pursuant to that certain Second Amended and Restated Loan and Security Agreement dated as of May 30, 2014, among Union Bank, N.A., together with any other Lender thereunder from time to time (collectively, the "Lenders") and Union Bank, N.A., as Agent and Swing Line Lender (as amended, extended, renewed, supplemented or otherwise modified from time to time, the "Loan Agreement").  Any terms used herein and not defined herein shall have the meanings set forth for such terms in the Loan Agreement.  This Certificate covers the calendar month ending ___________, 20___ (the "Determination Date"), and is delivered to Agent pursuant to Section 8.1.5 of the Loan Agreement.

As of the Determination Date, all Equipment subject to an Eligible Lease are listed on Schedule 1 attached hereto.  Attached hereto as Schedule 2 is a list of all Equipment acquired and all Equipment sold by the Borrower since the date of the last Borrowing Base Certificate delivered to Agent.  Attached hereto as Schedule 3 is Borrower's leasing receivables aging report as of the Determination Date, which covers both Leases under which the Lessees are current and Leases under which the Lessees are delinquent, in either case as of such date.

The following calculations determine the Borrowing Base and the Borrowing Base Availability as of the Determination Date under the Revolving Commitment described in the Loan Agreement and related Loan Documents.  Such calculations are derived from the Books and Records of Borrower in accordance with the relevant definitions of financial terms set forth in the Loan Agreement:

I.BORROWING BASE
Borrower's Borrowing Base as of the Determination Date is $___________, calculated as:
1.Bombardier Aircraft, Embraer Aircraft and ATR Aircraft
(i) the aggregate Appraised Value of Bombardier Aircraft, Embraer Aircraft and ATR Aircraft subject to an Eligible Lease or not subject to an Eligible Lease for 270 days or less	$
(ii) times 75%	×               .75
(a) Advance Rate of Bombardier Aircraft, Embraer Aircraft and ATR Aircraft subject to Eligible Lease [(i) × (ii)]	$
(iii) the aggregate Appraised Value of Bombardier Aircraft, Embraer Aircraft and ATR Aircraft not subject to an Eligible Lease for more than 270 days	$
(iv) times 40%	×               .40
(b) Advance Rate of Bombardier Aircraft, EmbraerAircraft and ATR Aircraft not subject to Eligible Lease [(iii) × (iv)]	$
Total Borrowing Base Amount for Bombardier Aircraft, Embraer Aircraft and ATR Aircraft [(a) + (b)]	$
2.Engines
(i) the aggregate Appraised Value of Leased Spare Engines subject to an Eligible Lease or not subject to an Eligible Lease for 180 days or less	$
(ii) times 70%	×               .70
(a) Advance Rate of Leased Spare Engines subject to Eligible Lease [(i) × (ii)]	$
(iii) the aggregate Appraised Value of Leased Spare Engines not subject to an Eligible Lease for more than 180 days	$
(iv) times 35%	×               .35
(b) Advance Rate of Leased Spare Engines not subject to Eligible Lease [(iii) × (iv)]	$
Total Borrowing Base Amount for Leased Spare Engines [(a) + (b)]	$
3.Saab 340B Plus Aircraft
(i) the aggregate Net Book Value of Saab 340B Plus Aircraft subject to an Eligible Lease or not subject to an Eligible Lease for 180 days or less	$
(ii) times 65%	×               .65
Total Borrowing Base Amount for Saab 340B PlusAircraft [(i) x (ii)]	$
4.All Other Saab Aircraft
(i) the aggregate Net Book Value of Other Saab Aircraft subject to an Eligible Lease or not subject to an Eligible Lease for 180 days or less	$
(ii) times 60%	×               .60
Total Borrowing Base Amount for Other Saab Aircraft [(i) x (ii)]	$
5.Fokker 50 Aircraft
(i) the aggregate Appraised Value of Fokker 50 Aircraft subject to an Eligible Lease or not subject to an Eligible Lease for 180 days or less	$
(ii) times 50%	×               .50
Total Borrowing Base Amount for Fokker 50 Aircraft [(i) x (ii)]	$
6.Fokker 100 Aircraft
(i) the aggregate Appraised Value of Fokker 100 Aircraft subject to an Eligible Lease	$
(ii) times 30%	×               .30
Total Borrowing Base Amount for Fokker 100 Aircraft [(i) x (ii)]	$
BORROWING BASE:  [1+2+3+4+5+6]:	$
II.BORROWING AVAILABILITY
Borrower's Borrowing Availability under the Revolving Commitment as of the Determination Date is $___________, calculated as the lesser of the following (1 or 2):
1.Maximum Amount ($180,000,000.00 subject to Sections 2.8 and 2.18 of the Loan Agreement)	$
or
2.Borrowing Base Availability
(i) Borrowing Base (above)	$
(ii) less amount outstanding as of the Determination Date under the Credit Facility	-    $
(iii) less the total amount of deferred rent and maintenance reserves due to the Borrower from any Lessee or former Lessee	-    $
(iv) less the lesser of (a) $5,000,000 or (b) the amount reflected on Borrower’s balance sheet as “Maintenance Reserves and Accrued Costs”	-    $
BORROWING BASE AVAILABILITY	$
BORROWING AVAILABILITY [Lesser of 1 or 2 above]:	$

This Certificate is executed on __________, 20__, by the _____________of Borrower, an Authorized Signatory.  The undersigned hereby further certifies that each and every matter contained herein is derived from the Books and Records of Borrowers and is true and correct in all material respects.

AEROCENTURY CORP.,

a Delaware corporation

[Printed name]

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SCHEDULE 1

TO BORROWING BASE CERTIFICATE

Eligible Equipment subject to an Eligible Lease

SMRH:420426074.4	-	Form of Borrowing Base Certificate
		0A22-152811

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SCHEDULE 2

TO BORROWING BASE CERTIFICATE

Part 1

Equipment Acquired

SMRH:420426074.4	A-	Form of Borrowing Base Certificate
		0A22-152811

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SCHEDULE 2

TO BORROWING BASE CERTIFICATE

Part 2

Equipment Sold

[TO BE APPENDED]

SMRH:420426074.4	A-	Form of Borrowing Base Certificate
		0A22-152811

- 51 -

SCHEDULE 3

TO BORROWING BASE CERTIFICATE

Leasing Receivables Aging Report

[TO BE APPENDED]

- 52 -

SMRH:420426074.4	A-	Form of Borrowing Base Certificate
		0A22-152811

- 53 -

EXHIBIT B

Form of Borrowing Notice

BORROWING NOTICE

1.This BORROWING NOTICE is executed and delivered by AeroCentury Corp., a Delaware corporation ("Borrower"), to Union Bank, N.A. ("Agent") pursuant to that certain Second Amended and Restated Loan and Security Agreement dated as of  May 30, 2014, among Union Bank, N.A., together with any other Lender thereunder from time to time (collectively, the "Lenders") and Union Bank, N.A., as Agent and Swing Line Lender (as amended, extended, renewed, supplemented or otherwise modified from time to time, the "Loan Agreement").  Any terms used herein and not defined herein shall have the meanings set forth for such terms in the Loan Agreement.

2.Borrower hereby requests a Loan pursuant to the Loan Agreement as follows:

(a)AMOUNT OF REQUESTED LOAN:1  $______________

(b)DATE OF REQUESTED LOAN:  ___________________

(c)TYPE OF REQUESTED LOAN (Check one box):

BASE RATE LOAN

LIBOR RATE LOAN, FOR A LIBOR LOAN PERIOD OF ________ MONTHS2

3.In connection with this request, Borrower certifies that:

(a)After giving effect to such Loan, no Overadvance shall have occurred (the aggregate amount of all Loans then outstanding shall not exceed the lesser of the (i) Maximum Amount or (ii) the Borrowing Base Availability).

(b)Now and as of the date of the requested Loan, except (i) for representations and warranties which expressly relate to a particular date or which are no longer true and correct as a result of a change permitted by the Loan Agreement or the other Loan Documents, or (ii) as disclosed by Borrower and approved in writing by Agent, each representation and warranty made by Borrower in Section 5 of the Loan Agreement will be true and correct in all material respects, both immediately before and after giving effect to such Loan, as though such representations and warranties were made on and as of that date;

(c)No circumstance or event has occurred that constitutes a Material Adverse Effect since the Closing Date;

(d)Other than matters described in Schedule 5.10 (Litigation) to the Loan Agreement or not required as of the Closing Date to be described therein or disclosed by Borrower and approved in writing by the Lender, there is no action, suit, proceeding or investigation pending or, to the best knowledge of Borrower (on behalf of Borrower and its Subsidiaries, if any), threatened against or affecting Borrower or any Subsidiary or any Property of any of them before any Governmental Authority; and

(e)No Default or Event of Default presently exists or will have occurred and be continuing as a result of the Borrowing requested hereunder.

4.This Borrowing Notice is executed on _____________, 20__, by an Authorized Signatory of Borrower.  The undersigned, in such capacity, hereby certifies, on behalf of Borrower, each and every matter contained herein to be true and correct.

AEROCENTURY CORP.,

a Delaware corporation

By:                                                      

Name:                                                                

Title:                                                      

 

1  Each LIBOR Loan must be in a principal amount of at least $5,000,000.00 and in an integral multiple of $100,000.   Each Base Rate loan must be in a principal amount of at least $250,000.00 and in an integral multiple of $25,000.  A maximum of 5 tranches of Base Rate Loans and LIBOR Loans collectively may be outstanding at once.

 

2  Specify whether 1, 2, 3 or 6-month Libor Loan Period.

SMRH:420426074.4	B-	AeroCentury – Second Amended and Restated Loan and Security Agreement
		0A22-152811

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Exhibit C

Form of Commitment Assignment and Acceptance

COMMITMENT ASSIGNMENT AND ACCEPTANCE AGREEMENT

This COMMITMENT ASSIGNMENT AND ACCEPTANCE AGREEMENT (this "Assignment and Acceptance") dated as of _______________, 20__ is made between _______________________ (the "Assignor") and _______________________ (the "Assignee").

RECITALS

WHEREAS, the Assignor is party to that certain Second Amended and Restated Loan and Security Agreement dated as of May 30, 2014 (as amended, restated, modified or supplemented from time to time, the "Loan Agreement"), among Borrower, Union Bank, N.A., together with any other Lenders from time to time (collectively, the "Lenders") and Union Bank, N.A., as Agent and Swing Line Lender.  All capitalized terms used herein and not otherwise defined shall have the respective meanings ascribed to them in the Loan Agreement.

WHEREAS, as provided under the Loan Agreement, the Assignor has committed to making Revolving Loans (the "Committed Loans") to the Borrower for Assignor's Pro Rata Share of the Revolving Commitment in an aggregate amount not to exceed $___________ (the "Commitment").

WHEREAS, [the Assignor has made Committed Loans in the aggregate principal amount of $_____________ to the Borrower] [no Committed Loans are outstanding under the Loan Agreement].

WHEREAS, the Assignor wishes to assign to the Assignee [part of the] [all] rights and obligations of the Assignor under the Loan Agreement in respect of its Commitment, in an amount equal to $____________ (the "Assigned Amount") on the terms and subject to the conditions set forth herein and the Assignee wishes to accept assignment of such rights and to assume such obligations from the Assignor on such terms and subject to such conditions.

NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows:

1.           Assignment and Acceptance.

(a)           Subject to the terms and conditions of this Assignment and Acceptance, (i) the Assignor hereby sells, transfers and assigns to the Assignee, and (ii) the Assignee hereby purchases, assumes and undertakes from the Assignor, without recourse and without representation or warranty (except as provided in this Assignment and Acceptance) ___% (the "Assignee's Percentage Share") of (A) the Commitment of the Assignor, and (B) all related rights, benefits, security interest, obligations, liabilities and indemnities of the Assignor under and in connection with the Loan Agreement and the Loan Documents.  This Assignment shall not constitute a novation of any of the rights and obligations under the Loan Agreement.

(b)           With effect on and after the Effective Date (as defined in Section 5 hereof), the Assignee shall be a party to the Loan Agreement and succeed to all of the rights and the benefits (including the benefit of any security interest) and be obligated to perform all of the obligations of a Lender under the Loan Agreement, with a Commitment in an amount equal to the Assigned Amount.  The Assignee agrees that it will perform in accordance with their terms all of the obligations which it is required to perform as a Lender under the Loan Agreement.  It is the intent of the parties hereto that the Commitment of the Assignor shall, as of the Effective Date, be reduced by an amount equal to the Assigned Amount and the Assignor shall relinquish its rights and be released from its obligations under the Loan Agreement to the extent such obligations have been assumed by the Assignee; provided, however, the Assignor shall not relinquish its rights under Sections 12.2 (Reimbursement and Expenses) and 12.3 (Indemnity) of the Loan Agreement to the extent such rights relate to the time prior to the Effective Date.

(c)           After giving effect to the assignment and acceptance set forth herein, on the Effective Date the Assignor's Commitment will be $__________ (an amount equal to ____% of the Revolving Commitment).

(d)           After giving effect to the assignment and acceptance set forth herein, on the Effective Date the Assignee's Commitment will be $__________(an amount equal to ____% of the Revolving Commitment).

2.           Payments.

(a)           As consideration for the sale, assignment and transfer contemplated in Section 1 hereof, the Assignee shall pay to the Assignor on the Effective Date in immediately available funds an amount equal to $__________, representing the Assignee's Percentage Share of the Principal amount of all Committed Loans.

(b)           The [Assignor] [Assignee] further agrees to pay to Agent an administrative fee in the amount specified in Section 12.8.4 of the Loan Agreement.

(c)           Agent shall retain all additional amounts paid by the Borrower as a commitment fee or as interest on the Committed Loans outstanding to the Borrower with respect to the Assignee's Commitment.

3.           Reallocation of Payments.  Any interest, fees and other payments accrued to the Effective Date with respect to the Commitment shall be for the account of the Assignor.  Any interest, fees and other payments accrued on and after the Effective Date with respect to the Assigned Amount shall be for the account of the Assignee.  Each of the Assignor and the Assignee agrees that it will hold in trust for the other party any interest, fees and other amounts which it may receive to which the other party is entitled pursuant to the preceding sentence and pay to the other party any such amounts which it may receive promptly upon receipt.

4.           Independent Credit Decision.  The Assignee (a) acknowledges that it has received a copy of the Loan Agreement and the Schedules and Exhibits thereto, together with copies of the most recent financial statements referred to in the Loan Agreement, and such other documents and information as it has deemed appropriate to make its own credit and legal analysis and decision to enter into this Assignment and Acceptance; and (b) agrees that it will, independently and without reliance upon the Assignor, Agents or any Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit and legal decisions in taking or not taking action under the Loan Agreement.

5.           Effective Date; Notices.

(a)           As between the Assignor and the Assignee, the effective date for this Assignment and Acceptance shall be __________, 20__ (the "Effective Date"); provided that the following conditions precedent have been satisfied on or before the Effective Date:

(i)        this Assignment and Acceptance shall be executed and delivered by the Assignor and the Assignee and a copy shall have been delivered to Agent;

(ii)       the consent of Agent and Borrower (as applicable) required for an effective assignment of the Assigned Amount by the Assignor to the Assignee under the Loan Agreement shall have been duly obtained and shall be in full force and effect as of the Effective Date;

(iii)           the Assignee shall pay to the Assignor all amounts due to the Assignor under this Assignment and Acceptance;

(iv)           the Assignee shall have complied with all terms and conditions for such assignment and otherwise as set forth in the Loan Agreement;

(v)           the administrative fee referred to in Section 12.8.4 of the Loan Agreement shall have been paid to Agent; and

(vi)           the Assignor shall have assigned and the Assignee shall have assumed a percentage equal to the Assignee's Pro Rata Share of the rights and obligations of the Assignor under the Loan Agreement.

(b)           Notwithstanding the foregoing, the Effective Date of this Assignment and Acceptance shall not be earlier than five (5) Business Days after the date on which Agent receives a copy of the Assignment and Acceptance as set forth above.

[6.           Agent.  [INCLUDE ONLY IF THE ASSIGNOR IS AGENT]

(a)           The Assignee hereby appoints and authorizes the Assignor to take such action as agent on its behalf and to exercise such powers under the Loan Agreement as are delegated to Agent by the Lenders pursuant to the terms of the Loan Agreement.

(b)           The Assignee shall assume no duties or obligations held by the Assignor in its capacity as Agent under the Loan Agreement.]

7.           Withholding Tax.  The Assignee (a) represents and warrants to the Lenders, Agent and the Borrower that under applicable law and treaties no tax will be required to be withheld by the Lenders with respect to any payments to be made to the Assignee hereunder, (b) agrees to furnish (if it is organized under the laws of any jurisdiction other than the United States or any state thereof) to Agent and the Borrower prior to the time that Agent or the Borrower is required to make any payment of principal, interest or fees hereunder, duplicate executed originals of either U.S. Internal Revenue Service Form W-8BEN or U.S. Internal Revenue Service Form 1001 (wherein the Assignee claims entitlement to the benefits of a tax treaty that provides for a complete exemption from U.S. federal income withholding tax an all payments hereunder) and agrees to provide new Forms W-8BEN or 1001 upon the expiration of any previously delivered form or comparable statements in accordance with applicable U.S. law and regulations and amendments thereto, duly executed and completed by the Assignee, and (c) agrees to comply with all applicable U.S. laws and regulations with regard to such withholding tax exemption.

8.           Representations and Warranties.

(a)           The Assignor represents and warrants to the Assignee that (i) it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any Lien or other adverse claim; (ii) it is duly organized and existing and it has the full power and authority to take, and has taken, all action necessary to execute and deliver this Assignment and Acceptance and any other documents required or permitted to be executed or delivered by it in connection with this Assignment and Acceptance and to fulfill its obligations hereunder; (iii) no notices to, or consents, authorizations or approvals of, any Person are required (other than any already given or obtained) for its due execution, delivery and performance of this Assignment and Acceptance, and apart from any agreements or undertakings or filings required by the Loan Agreement, no further action by, or notice to, or filing with, any Person is required of it for such execution, delivery or performance; and (iv) this Assignment and Acceptance has been duly executed and delivered by it and constitutes the legal, valid and binding obligation of the Assignor, enforceable against the Assignor in accordance with the terms hereof, subject, as to enforcement, to bankruptcy, insolvency, moratorium, reorganization and other laws of general application relating to or affecting creditors' rights and to general equitable principles.

(b)           The Assignor makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Loan Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Agreement or any other instrument or document furnished pursuant thereto.  The Assignor makes no representation or warranty in connection with, and assumes no responsibility with respect to, the solvency, financial condition or statements of the Borrower, or the performance or observance by the Borrower, of any of its respective obligations under the Loan Agreement or any other instrument or document furnished in connection therewith.

(c)           The Assignee represents and warrants to the Assignor that (i) it is duly organized and existing and it has full power and authority to take, and has taken, all action necessary to execute and deliver this Assignment and Acceptance and any other documents required or permitted to be executed or delivered by it in connection with this Assignment and Acceptance, and to fulfill its obligations hereunder; (ii) no notices to, or consents, authorizations or approvals of, any Person are required (other than any already given or obtained) for its due execution, delivery and performance of this Assignment and Acceptance; and apart from any agreements or undertakings or filings required by the Loan Agreement, no further action by, or notice to, or filing with, any Person is required of it for such execution, delivery or performance; (iii) this Assignment and Acceptance has been duly executed and delivered by it and constitutes the legal, valid and binding obligation of the Assignee, enforceable against the Assignee in accordance with the terms hereof, subject, as to enforcement, to bankruptcy, insolvency, moratorium, reorganization and other laws of general application relating to or affecting creditors' rights and to general equitable principles; and (iv) it is an Eligible Assignee.

9.           Further Assurances.  The Assignor and the Assignee each hereby agree to execute and deliver such other instruments, and to take such other action, as either party may reasonably request in connection with the transactions contemplated by this Assignment and Acceptance, including the delivery of any notices or other documents or instruments to the Borrower or Agent, which may be required in connection with the assignment and acceptance contemplated hereby.

10.           Miscellaneous.

(a)           Any amendment or waiver of any provision of this Assignment and Acceptance shall be in writing and signed by the parties hereto.  No failure or delay by either party hereto in exercising any right, power or privilege hereunder shall operate as a waiver thereof and any waiver of any breach of the provisions of this Assignment and Acceptance shall be without prejudice to any rights with respect to any other or further breach thereof.

(b)           All payments made hereunder shall be made without any set-off or counterclaim.

(c)           The Assignor and the Assignee shall each pay its own costs and expenses incurred in connection with the negotiation, preparation, execution and performance of this Assignment and Acceptance.

(d)           This Assignment and Acceptance may be executed in any number of counterparts, and all of such counterparts taken together shall be deemed to constitute one and the same instrument.

(e)           THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.  The Assignor and the Assignee each irrevocably submit to the non-exclusive jurisdiction of any State or Federal court sitting in California over any suit, action or proceeding arising out of or relating to this Assignment and Acceptance and irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such California State or Federal court.  Each party to this Assignment and Acceptance hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding.

(f)           THE ASSIGNOR AND THE ASSIGNEE EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS ASSIGNMENT AND ACCEPTANCE, THE CREDIT AGREEMENT, ANY RELATED DOCUMENTS AND AGREEMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALING OR STATEMENTS (WHETHER ORAL OR WRITTEN).

IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Assignment and Acceptance to be executed and delivered by their duly authorized officers as of the date first above written.

[ASSIGNOR]

By:           _______________________________________

Title:           _______________________________________

By:           _______________________________________

Title:           _______________________________________

Address:

[ASSIGNEE]

By:           _______________________________________

Title:           _______________________________________

By:           _______________________________________

Title:           _______________________________________

Address:

SMRH:420426074.4	C-	Form of Commitment Acceptance & Assignment
		0A22-152811

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EXHIBIT D

COMPLIANCE CERTIFICATE

To:           UNION BANK, N.A., AGENT

This Compliance Certificate (this "Certificate") is executed and delivered by AeroCentury Corp., a Delaware corporation ("Borrower"), to Union Bank, N.A. ("Agent") pursuant to that certain Second Amended and Restated Loan and Security Agreement dated as of May 30, 2014, among Union Bank, N.A., together with any other Lender thereunder from time to time (collectively, the "Lenders") and Union Bank, N.A., as Agent and Swing Line Lender (as amended, extended, renewed, supplemented or otherwise modified from time to time, the "Loan Agreement").  Any terms used herein and not defined herein shall have the meanings set forth for such terms in the Loan Agreement.

This Certificate is delivered in accordance with Section 8.1 of the Loan Agreement by an Authorized Signatory of Borrower.  This Certificate is delivered with respect to the Fiscal [Quarter/Year] ended _________________, 20__ ("Determination Date").  Computations and other information indicating compliance with respect to the covenants contained in Sections 6.15.1, 6.15.2, 6.15.3, 6.15.4, 6.15.5, 6.15.6 and 6.15.7 of the Loan Agreement are set forth below:

1.  Section 6.15.1:  Maximum Leverage Ratio
	A ratio of Recourse Funded Debt to Adjusted Tangible Net Worth of not more than 3.75:1.00 ("Maximum Leverage Ratio") as of Determination Date
	Funded Debt means all indebtedness, liabilities, and obligations, now existing or hereafter arising, for money borrowed by Borrower whether or not evidenced by any note, indenture, or agreement (including, without limitation, the Notes and any indebtedness for money borrowed from an Affiliate), as determined in accordance with GAAP, consistently applied		$
	Tangible Net Worth means the following with respect to Borrower and its Subsidiaries (takinginto account Permitted Aircraft Disposition Charges):
	(a) total assets	$
	(b) less total liabilities	$
	(c) less intangibles (excluding gains and losses from fair value of derivatives charges whether or not included in other comprehensive income or net income)	$
	(d)plus Permitted Aircraft Disposition Charges (if any)
	Tangible Net Worth		$
	Ratio of Total Recourse Debt to Tangible Net Worth

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2.  Section 6.15.2:  Interest Coverage Ratio
	As of the Determination Date an Interest Coverage Ratio of at least 2.75 to 1.00 means the sum of the following:
	EBITDA equal to the sum of the following (calculated on a twelve month trailing basis) (taking into account Permitted Aircraft Disposition Charges):
	(a)Net income (loss)	$
	(b)plus Interest Expense equal to the sum of:
	(i) Interest expense
	(ii) plus the gain (or less the loss) from the fair value of derivatives charges whether or not included in other comprehensive income or net income
	Total Interest Expense	$
	(ii)plus taxes	$
	(iii)plus depreciation	$
	(iv)plus amortization	$
	(v) plus Permitted Aircraft Disposition Charges (if any)
	EBITDA		$
	Divided by Total Interest Expense (as calculated above)		$
	Ratio of EBITDA to Interest Expense

3.  Section 6.15.3:  Debt Service Coverage Ratio
		A Debt Service Coverage Ratio of at least 1.05 to 1.00
		(calculated on a twelve month trailing basis)
		Adjusted EBITDA equal to the sum of the following (calculated on a twelve month trailing basis):
		(i)EBITDA  (as calculated for Section 6.15.2 above)		$
		(ii)less taxes paid in cash
		(iii)plus Maintenance Expense
		(iv)plus Pro Forma EBITDA*
		EBITDA as adjusted				$
		Total Debt Service equal to the sum of:
		(i)Phantom amortization equal to ten percent (10%) of Funded Debt		$
		(ii) plus Interest Expense (as calculated for Section 6.15.2)		$
		(iii)plus Maintenance Expense		$
		Total Debt Service				$
		Ratio of EBITDA as adjusted to Total Debt Service
		* Pro Forma EBITDA relates to the following Aircraft:
	4.  Section 6.15.4:  Minimum Tangible Net Worth
			Tangible Net Worth as calculated in Section 6.15.1				$
			Minimum Tangible Net Worth equal to the sum of:
			(i)   85% of Tangible Net Worth at December 31, 2013		$
			(ii)  plus 50% of Net Income reported in each successive Fiscal Quarter with no deduction for any losses		$
			(iii) plus 100% of net proceeds from any additional equity offering in excess of $5,000,000		$
			(iv)  plus 50% of any incremental additive equity associated with any Acquisition		$
			Total Minimum Tangible Net Worth				$
			Excess (deficient) Tangible Net Worth Compared to Total Minimum Tangible Net Worth				$
	5.  Section 6.15.5:  No Net Loss
			No net loss as of the end of any Fiscal Quarter
			Net income calculated according to GAAP on a twelve (12) month trailing basis.*				$
			*No adjustment for Permitted Aircraft Disposition Charges are to be included in this amount

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6.  Section 6.15.6:  Utilization
	Utilization Rate shall be at least 75% calculated on a twelve month trailing basis.
	Utilization Rate equals:
	(i)Number of days each item of Equipment is subject to an Eligible Lease during the measuring period multiplied by such Equipment’s Appraised Value
	(ii)divided by the number of days such item of Equipment is owned multiplied by such Equipment’s Appraised Value
	Utilization Rate

7.  Section 6.15.7:  Revenue Concentration Limit
	No more than 25% of Borrower’s annual operating lease revenue may be from any one Lessee nor may more than 40% of Borrower’s annual operating lease revenue be from any two Lessees, calculated on a twelve month trailing basis**
	Revenue Concentration from One Lessee equals:
	(i)Borrower’s annual operating lease revenue (excluding maintenance reserves) from largest grossing Lessee	$
	(ii)divided by total annual operating lease revenue (excluding maintenance reserves)	$
	Revenue Concentration from One Lessee
	Revenue Concentration from Two Lessees equals:
	(i)Borrower’s annual operating lease revenue (excluding maintenance reserves) from two largest grossing Lessees	$
	(ii)divided by total annual operating lease revenue (excluding maintenance reserves)	$
	Revenue Concentration from Two Lessees
	** Enclosed herewith is the revenue concentration calculation for each Lessee

8.           A review of the activities of Borrower during the fiscal period covered by this Certificate has been made under the supervision of the undersigned with a view to determining whether during such fiscal period Borrower performed and observed all of its Obligations.  To the best knowledge of the undersigned, during the fiscal period covered by this Certificate, all covenants and conditions have been so performed and observed and no Default or Event of Default has occurred and is continuing, with the exceptions set forth below in response to which Borrower has taken or proposes to take the following actions (if none, so state).

9.           The undersigned a Senior Officer of Borrower certifies that the calculations made and the information contained herein are derived from the books and records of Borrower, as applicable, and that each and every matter contained herein correctly reflects those books and records.

10.           To the best knowledge of the undersigned no event or circumstance has occurred that constitutes a Material Adverse Effect since the date the most recent Compliance Certificate was executed and delivered, with the exceptions set forth below (if none, so state).

Dated: ____________________ Printed Name and Title of Senior Officer of AeroCentury Corp.

SMRH:420426074.4	D-	AeroCentury – Second Amended and Restated Loan and Security Agreement
		0A22-152811

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Exhibit E

Form of Mortgage

[TO BE APPENDED]

SMRH:420426074.4	E-	AeroCentury – Second Amended and Restated Loan and Security Agreement
		0A22-152811

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Exhibit F

Form of Beneficial Interest Pledge Agreement

[TO BE APPENDED]

SMRH:420426074.4	F-	AeroCentury – Second Amended and Restated Loan and Security Agreement
		0A22-152811

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Exhibit G

Form of Owner Trustee Mortgage

[TO BE APPENDED]

SMRH:420426074.4	G-	AeroCentury – Second Amended and Restated Loan and Security Agreement
		0A22-152811

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Exhibit H

Form of  Owner Trustee Guaranty

[TO BE APPENDED]

SMRH:420426074.4	H-	AeroCentury – Second Amended and Restated Loan and Security Agreement
		0A22-152811

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Exhibit I

Form of Placard

Placard to be used for items of Equipment owned by Owner Trustee:

THIS AIRCRAFT/ENGINE IS OWNED BY AND LEASED FROM ________________, AS OWNER TRUSTEE, AND IS SUBJECT TO A FIRST PRIORITY SECURITY INTEREST IN FAVOR OF ONE OR MORE FINANCIAL INSTITUTIONS.

AeroCentury Corp.

1440 Chapin Avenue, Suite 310

Burlingame, CA 94010-4011

Placard to be used for items of Equipment owned by Borrower:

THIS AIRCRAFT/ENGINE IS OWNED BY AEROCENTURY CORPORATION, OR AN AFFILIATE, AND IS SUBJECT TO A FIRST PRIORITY SECURITY INTEREST IN FAVOR OF ONE OR MORE FINANCIAL INSTITUTIONS.

AeroCentury Corp.

1440 Chapin Avenue, Suite 310

Burlingame, CA 94010-4011

SMRH:420426074.4	I-	AeroCentury – Second Amended and Restated Loan and Security Agreement
		0A22-152811

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Schedule 1.1a

Eligible Leases

Serial
number	Model	Lessee
012	Saab 340A	[****]
236	Bombardier Dash-8-311	[****]
238	Bombardier Dash-8-311	[****]
310	Saab 340B	[****]
325	Bombardier Dash-8-311	[****]
404	Bombardier Dash-8-311	[****]
406	Bombardier Dash-8-Q311	[****]
407	Bombardier Dash-8-Q311	[****]
410	Bombardier Dash-8-311	[****]
422	Saab 340B Plus	[****]
423	Saab 340B Plus	[****]
426`	Saab 340B Plus	[****]
453	Saab S340B Plus	[****]
454	Saab S340B Plus	[****]
449	Saab 340B Plus	[****]
546	Bombardier Dash-8-Q315**	[****]
4019	Bombardier Dash-8-Q402	[****]
4020	Bombardier Dash-8-Q402	[****]
4021	Bombardier Dash-8-Q402	[****]
20122  (*)	Fokker 50	[****]
10165	Bombardier CRJ700	[****]
10171	Bombardier CRJ700	[****]
10178	Bombardier CRJ700	[****]
11313 (*)	Fokker 100	[****]
15055	Bombardier CRJ 705	[****]
20177  (*)	Fokker 50	[****]
20192  (*)	Fokker 50	[****]
20202  (*)	Fokker 50	[****]
20261	Fokker 50	[****]
20282	Fokker 50	[****]
193115	GE CF34-8E engine	[****]
785291	CT7-9B engine	[****]
785287	CT7-9B engine	[****]

 (*) Not subject to an Eligible Lease as a result of past due lease payments, but included in Borrowing Base at reduced Advance Rate

(**) was upgraded to -315 model type after lease commencement

Confidential treatment requested. Omitted portions are marked with [****] and have been filed separately with the SEC.

SMRH:420426074.4	Schedule 1.1a — Page	AeroCentury – Second Amended and Restated Loan and Security Agreement
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Schedule 1.1b

Equipment

Manufacturer	Model	Serial number		Engine 1		Engine 2
Bombardier	Dash 8-Q311		406	PCE-123161		AE0065
Bombardier	Dash 8-300		546	AW0008		AW0007
Bombardier	Dash 8-Q402		4019	FA0137		FA0123
Bombardier	Dash 8-Q402		4020	FA0041		FA0064
Bombardier	Dash 8-Q402		4021	FA0071		FA0138
Bombardier	Dash 8-311		250	PCE123306		PCE123114
Bombardier	Dash 8-311		325	PCE 123206		PCE123207
Bombardier	Dash 8-311		404	PCE 123276		PCE123272
Bombardier	Dash 8-311		410	PCE123292		AW0173
Bombardier	Dash 8-311		238	PCE 123085		PCE123098
Bombardier	Dash 8-311		236	PCE 123111		PCE123086
Bombardier	Dash 8-Q311		407	PCE123296		PCE123250
Bombardier	CRJ 705		15055		194345		194346
Bombardier	CRJ 700		10165	GE-E965565		GE-E965566
Bombardier	CRJ 700		10171	GE-E965579		GE-E965580
Bombardier	CRJ 700		10178	GE-E965575		GE-E965568
Fokker	Fokker 50		20261	PCE 125200		PCE124061
Fokker	Fokker 50		20282	PCE 124099		PCE 125109
Fokker	Fokker 50		20122	PCE 125042		PCE 124125
Fokker	Fokker 50		20177	PCE 124005		PCE 125201
Fokker	Fokker 50		20192	PCE 124021		PCE 125032
Fokker	Fokker 50		20202	PC-E124337		PC-E124204
Fokker	Fokker 50		20112	PC-E124034		PC-E124087
Fokker	Fokker 50		20116	PC-E124029		PC-E124017
Fokker	Fokker 100		11310		17264		17269
Fokker	Fokker 100		11331		17346		17206
Fokker	Fokker 100		11337		17315		17339
Fokker	Fokker 100		11303		17211		17266
Fokker	Fokker 100		11308		17442		17246
Fokker	Fokker 100		11313		17240		17261
Fokker	Fokker 100		11333		17252		17404
General Electric Engine	CF34-8E		193117
General Electric Engine	CF34-8E		193208
General Electric Engine	CF34-8E		193115
General Electric Engine	CT7-9B		785291
General Electric Engine	CT7-9B		785287
General Electric Engine	CT7-5A2		367195
General Electric Engine	CT7-5A2		367193
Saab	340B		310	GE-E-785271		GE-E-785507
Saab	340B Plus		426	GE-E-785721		GE-E-785724
Saab	340B Plus		422	GE-E-785713		GE-E-785297
Saab	340B Plus		423	GE-E-785714		GE-E-785715
Saab	340B Plus		449	GE-E-785772		GE-E-785737
Saab	340B Plus		453	GE-E-785775		GE-E-785780*
Saab	340B Plus		454	GE-E-785784		GE-E-785783
Tay Engine	650 -15 Engine		17617

* Engine swap in progress

SMRH:420426074.4	Schedule 1.1b — Page	AeroCentury – Second Amended and Restated Loan and Security Agreement
		0A22-152811

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Schedule 1.1c

Material Contracts

Amended and Restated Management Agreement, dated April 23, 1998, between the Company and JetFleet Management Corp.

Amended and Restated Loan and Security Agreement dated as of March 13, 2013,  between, Company, Agent and Lenders.

Securities Purchase Agreement between Satellite Fund II, LP, Satellite Fund IV, LP, The Apogee Group LLC, and Satellite Fund V, LLC (collectively the "Subordinated Lenders”), dated April 17, 2007, as amended by the Amendment to Securities Purchase Agreement between the Subordinated Lenders and the Company, dated June 19, 2008, and the Second Amendment to Securities Purchase Agreement between the Subordinated Lenders and the Company dated July 21, 2008

Investors Rights Agreement between the Company and the Subordinated Lenders, dated April 17, 2007

 Rights Agreement by and between the Company and Continental Stock Transfer & Trust Company dated December 1, 2009

Eligible Leases as listed on Schedule 1.1a

SMRH:420426074.4	Schedule 1.1c — Page	AeroCentury – Second Amended and Restated Loan and Security Agreement
		0A22-152811

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Schedule 1.1d

Permitted Indebtedness

See Schedule 7.13

SMRH:420426074.4	Schedule 1.1d — Page	AeroCentury – Second Amended and Restated Loan and Security Agreement
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Schedule 1.1e

Liens of Record

None.

SMRH:420426074.4	Schedule 1.1e — Page	AeroCentury – Second Amended and Restated Loan and Security Agreement
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Schedule 1.1f

Schedule of Documents

Second Amended Loan and Security Agreement

Second Amended and Restated Mortgage and Security Agreement

Borrowing Base Certificate

Compliance Certificate

Second Amended and Restated Revolving Note for:

Union Bank, N.A.

California Bank & Trust

U.S. Bank National Association

Umpqua Bank

First Bank

Swing Line Note for:

Union Bank, N.A.

Revolving Note for:

Cathay Bank

Alternative Dispute Resolution, executed by Cathay Bank

SMRH:420426074.4	Schedule 1.1f — Page	AeroCentury – Second Amended and Restated Loan and Security Agreement
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Schedule 2.1

Revolving Commitment

Commitment		Lender	Pro Rata Share
$	65,000,000.00	Union Bank, N.A.		36.111111111	%
$	30,000,000.00	California Bank & Trust		16.666666667	%
$	30,000,000.00	U.S. Bank National Association		16.666666667	%
$	25,000,000.00	Umpqua Bank		13.888888889	%
$	20,000,000.00	First Bank		11.111111111	%
$	10,000,000.00	Cathay Bank		5.555555556	%

SMRH:420426074.4	Schedule 2.1 — Page	AeroCentury – Second Amended and Restated Loan and Security Agreement
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Schedule 5.2

Executive Offices; Corporate or Other Names; Conduct of Business

Executive Officers:

Neal D. Crispin, President, & CEO

Toni M. Perazzo, Sr. Vice President – Finance, Secty. & CFO

Corporate Headquarters, Principal Office and Location of Records re: Collateral

1440 Chapin Avenue, Suite 310, Burlingame, CA 94010

SMRH:420426074.4	Schedule 5.2 — Page	AeroCentury – Second Amended and Restated Loan and Security Agreement
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Schedule 5.7

No Other Liabilities; No Material Adverse Changes

None.

SMRH:420426074.4	Schedule 5.7 — Page	AeroCentury – Second Amended and Restated Loan and Security Agreement
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Schedule 5.9

Trade Names

None.

SMRH:420426074.4	Schedule 5.9 — Page	AeroCentury – Second Amended and Restated Loan and Security Agreement
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Schedule 5.10

Litigation

Mechanic’s Lien Action by Embraer Aircraft Maintenance Services

In April 2012, the Company received notice of a statutory mechanic’s lien being placed upon its Saab 340B, MSN 242, Registration No N242CJ under Tennessee state law.  The lien arises from unpaid overhaul work performed by Embraer Aircraft Maintenance Services (“Embraer”) and completed on January 25, 2012 under a contract with Colgan Air.  Colgan Air was a lessee of the aircraft from the Company, which filed for bankruptcy in April 2012. Embraer’s claim is for approximately $351,000. On January 25, 2013, Embraer filed suit against the Company to enforce the mechanics lien in Tennessee state court.  The Company has engaged Tennessee local counsel and has contested the basis for the Company’s liability for the amount claimed, as well as the validity of claimed amount of the lien. [****].

Confidential treatment requested. Omitted portions are marked with [****] and have been filed separately with the SEC.

SMRH:420426074.4	Schedule 5.10 — Page	AeroCentury – Second Amended and Restated Loan and Security Agreement
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Schedule 5.17

Hazardous Materials

None.

SMRH:420426074.4	Schedule 5.17 — Page	AeroCentury – Second Amended and Restated Loan and Security Agreement
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Schedule 5.19

Insurances

	Name of Lessee	Insurer	Type of Insurance
012, 310	[****]	Howden	Hull/ All Risks Liability War Risk
236, 238	[****]	Marsh	Hull/ All Risks Liability War Risk
325, 404, 410	[****]	Willis	Hull/ All Risks Liability War Risk
406	[****]	Fred Black Insurance Brokers, Ltd	Hull/ All Risks Liability War Risk
407	[****]	Marsh	Hull/ All Risks Liability War Risk
422, 423, 426, 449, 453, 454	[****]	Marsh	Hull/ All Risks Liability War Risk
546	[****]	Aon	Hull/ All Risks Liability War Risk
4019, 4020, 4021	[****]	Marsh	Hull/ All Risks Liability War Risk
10165, 10171, 10178	[****]	Willis	Hull/ All Risks Liability War Risk
11313	[****]	Crystal & Company	Hull/ All Risks Liability War Risk
Confidential treatment requested. Omitted portions are marked with [****] and have been filed separately with the SEC. 15055	[****]	Marsh	Hull/ All Risks Liability War Risk
20122, 20177, 20192, 20202	[****]	Aon	Hull/ All Risks Liability War Risk
20261, 20282	[****]	Willis	Hull/ All Risks Liability War Risk
193115	[****]	Albatros	Hull/ All Risks Liability War Risk
GE-E785291, GE-E785297	[****]	Marsh	Hull/ All Risks Liability War Risk
ACY Off-lease Assets	JetFleet Management Corp and AeroCentury Corp	Crystal and Company	Possessed, Spares and Equipment Hull/ Liability
ACY Company Policy	JetFleet Management Corp and AeroCentury Corp	Crystal and Company	Premises and Products Liability
ACY Company Policy	AeroCentury Corp.	National FireInsurance Company of Pittsburg and Hudson Insurance Company	Directors’ and Officers’ Liability Insurance

Confidential treatment requested. Omitted portions are marked with [****] and have been filed separately with the SEC.

SMRH:420426074.4	Schedule 5.19 — Page	AeroCentury – Second Amended and Restated Loan and Security Agreement
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Schedule 5.22

Depreciation Policies

The Company’s interests in aircraft and aircraft engines are recorded at cost, which includes acquisition costs.  Since inception, the Company has purchased only used aircraft and aircraft engines.  It is the Company’s policy to hold aircraft for approximately twelve years unless market conditions dictate otherwise.  Therefore, depreciation of aircraft is initially computed using the straight-line method over the twelve-year period to an estimated residual value based on appraisal.  For an aircraft engine held for lease as a spare, the Company estimates the length of time that it will hold the aircraft engine based upon estimated usage, repair costs and other factors, and depreciates it to the appraised residual value over such period using the straight-line method.

The Company periodically reviews plans for lease or sale of its aircraft and aircraft engines and changes, as appropriate, the remaining expected holding period for such assets.  Estimated residual values are reviewed and adjusted periodically, based upon updated estimates obtained from an independent appraiser.  Decreases in the fair value of aircraft could affect not only the current value but also the estimated residual value.

SMRH:420426074.4	Schedule 5.22 — Page	AeroCentury – Second Amended and Restated Loan and Security Agreement
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Schedule 6.4

Insurance as of the Closing Date

See Schedule 5.19

SMRH:420426074.4	Schedule 6.4 — Page	AeroCentury – Second Amended and Restated Loan and Security Agreement
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Schedule 7.13

Indebtedness and Guaranteed Indebtedness existing on the Closing Date

·   Other Miscellaneous payables:

As of March 31, 2014
Accounts payable and accrued expenses	$	1,043,900
Maintenance reserves and accrued costs		16,494,100
Security deposits		7,379,200
Unearned revenues		1,950,000
Deferred taxes		14,727,600
Taxes payable		800

SMRH:420426074.4	Schedule 7.13 — Page	AeroCentury – Second Amended and Restated Loan and Security Agreement
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Schedule 7.19

Investments Existing as of the Closing Date

None.

SMRH:420426074.4	Schedule 7.19 — Page	AeroCentury – Second Amended and Restated Loan and Security Agreement
		0A22-152811

EX-31.1

EXHIBIT 31.1

I, Neal D. Crispin, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of AeroCentury Corp.;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)  Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 13, 2014	/s/ Neal D. Crispin
	Neal D. Crispin
	President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Toni M. Perazzo, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of AeroCentury Corp.;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)  Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:   August 13, 2014	/s/ Toni M. Perazzo
	Toni M. Perazzo
	Chief Financial Officer

EX-32.1

Exhibit 32.1

AEROCENTURY CORP.

CERTIFICATION

In connection with this quarterly report of AeroCentury Corp. (the “Company”) on Form 10-Q for the period ended June 30, 2014, as filed with the Securities and Exchange Commission (the “Report”), I, Neal D. Crispin, Chief Executive Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.

Date: August 13, 2014	/s/ Neal D. Crispin
	Neal D. Crispin
	President and Chief Executive Officer

EX-32.2

EXHIBIT 32.2

AEROCENTURY CORP.

CERTIFICATION

In connection with this quarterly report of AeroCentury Corp. (the “Company”) on Form 10-Q for the period ended June 30, 2014, as filed with the Securities and Exchange Commission (the “Report”), I, Toni M. Perazzo, Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.

Date: August 13, 2014	/s/ Toni M. Perazzo
	Toni M. Perazzo
	Chief Financial Officer

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Notes Payable and Accrued Interest (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013
Notes Payable and Accrued Interest [Abstract]
Notes payable and accrued interest	$ 101,457,500		$ 101,457,500		$ 77,527,300
Credit Facility [Abstract]
Impairment charges	6,800,000	0	6,800,000	0
Credit Facility [Member]
Notes Payable and Accrued Interest [Abstract]
Credit Facility principal	101,400,000		101,400,000		77,500,000
Credit Facility accrued interest	57,500		57,500		27,300
Notes payable and accrued interest	101,457,500		101,457,500		77,527,300
Credit Facility [Abstract]
Credit facility, borrowing capacity replaced	130,000,000		130,000,000
Credit facility maximum borrowing capacity	180,000,000		180,000,000
Trailing period to calculate profitability covenant			12 months
Expiration date			May 31, 2019
Unused amount of the credit facility	$ 78,600,000		$ 78,600,000		$ 52,500,000
Weighted average interest rate on credit facility (in hundredths)	3.69%		3.69%		3.94%

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Aircraft and Aircraft Engines Held for Lease or Sale

6 Months Ended

Jun. 30, 2014

Aircraft and Aircraft Engines Held for Lease or Sale [Abstract]

Aircraft and Aircraft Engines Held for Lease or Sale

3.Aircraft and Aircraft Engines Held for Lease or Sale

(a)Assets Held for Lease

At June 30, 2014 and December 31, 2013, the Company’s aircraft and aircraft engines, which were on lease or held for lease, consisted of the following:   

	June 30, 2014					December 31, 2013
	Number		% of net			Number		% of net
Model	owned		book value			owned		book value
Bombardier Dash-8-300		9		21	%		9		23	%
Bombardier CRJ-700		3		18	%		-		-
Fokker 100		7		13	%		7		19	%
Bombardier Dash-8-Q400		3		15	%		3		17	%
Bombardier CRJ-705		1		10	%		1		12	%
Saab 340B Plus		6		8	%		6		8	%
Fokker 50		9		8	%		10		10	%
General Electric CF34-8E5 engine		2		4	%		3		6	%
Saab 340B		1		1	%		4		4	%
Tay 650-15 engine		1		1	%		1		1	%
General Electric CT7-9B engine		2		1	%		2		-
Saab 340A		1		-			1		-

Net book value at June 30, 2014 and December 31, 2013 excludes the Company’s Saab 340A aircraft, which is subject to a finance lease.  Net book value at December 31, 2013 also excludes the Company’s two General Electric CT7-9B engines, which were subject to finance leases at that time.

As described in Note 1, the Company recorded a $6,800,000 impairment charge on five of its Fokker 100 aircraft on June 30, 2014, which has been reflected in the carrying value of the aircraft on that date.

During the second quarter of 2014, the Company used cash of $9,000 for acquisitions related to aircraft purchased during the first quarter.  During the second quarter of 2013, the Company used cash of $2,323,000 for the purchase and capital improvement of aircraft and engines.

During the second quarter of 2014, the Company recorded a net gain of $762,500 related to the sale of three Saab 340B aircraft and a General Electric CF34-8E5 Engine.  During the second quarter of 2013, the Company recorded gains of $1,871,000 upon the sale of a Dash-8-100 aircraft and $73,300 related to the finance lease of a General Electric CB7-9B engine.

During the second quarter of 2014, the Company extended the leases for five of its assets.   During the same period, six Saab 340B Plus aircraft and two General Electric CT7-9B engines were returned by a customer when it ceased operations.

At June 30, 2014, twenty-one of the Company’s assets, comprised of six Fokker 100 aircraft, six Saab 340B Plus aircraft, three Fokker 50 aircraft, one Dash-8-300 aircraft, two General Electric CF34-8E5 engines, two General Electric CT7-9B engines and one Tay 650-15 engine, which represented 31% of the net book value of the Company’s aircraft and engines, were off lease.

As discussed in Note 8, the Company sold a Fokker 50 aircraft in July 2014.  The Company has a signed letter of intent for the lease of two Saab 340B Plus aircraft and a deposit for one of the aircraft.  The Company also has a signed lease and deposit for the lease of a Fokker 100 aircraft, as well as a signed letter of intent and deposit for the lease of a second Fokker 100 aircraft to the same customer.  The Company expects to deliver all four aircraft during the third quarter of 2014.  The Company also has a signed purchase agreement and non-refundable deposit for the sale of a Fokker 50 aircraft and expects to deliver the aircraft during the third quarter of 2014.  The Company is seeking re-lease opportunities for the other off-lease assets, other than the Tay 650-15 engine that is being held as a spare and used in connection with required maintenance on the Company’s Fokker 100 aircraft.

(b)Assets Held for Sale

Assets held for sale include two airframes.  During the three months ended June 30, 2014 and 2013, the Company received $10,500 and $171,700, respectively, from the sale of parts belonging to the two airframes.  No adjustments to the carrying value of the Company’s assets held for sale were recorded during the three months or six months ended June 30, 2014 and 2013.

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Subsequent Events (Details) (Subsequent Event [Member], Fokker 50 [Member], USD $)	1 Months Ended
	Jul. 31, 2014
Subsequent Event [Member] | Fokker 50 [Member]
Subsequent Event [Line Items]
Gain on sale of asset	$ 332,000

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Adjustment of Previously Reported Financial Information

6 Months Ended

Jun. 30, 2014

Adjustment of Previously Reported Financial Information [Abstract]

Adjustment of Previously Reported Financial Information

2.Adjustment of Previously Reported Financial Information

The Company adopted the direct expensing method under Financial Accounting Standards Board (“FASB”) Staff Position AUG AIR-1, Accounting for Planned Major Maintenance Activities (“FSP AUG AIR-1”) on January 1, 2007.  Under FSP AUG AIR-1, non-refundable maintenance reserves were recorded as maintenance reserves revenue (assuming cash was received or collections was reasonably assured), and associated maintenance work was recorded as maintenance expense when the work was performed.The Company has evaluated its method of accounting for maintenance reserves and lessor maintenance obligations and has elected to change its method of accounting, effective January 1, 2014, to:

(i)  Recognize non-refundable maintenance reserves as liabilities for deposits against future maintenance reimbursements of maintenance reserves received in the normal course of ongoing leases;

(ii)  Recognize reimbursements from such collected reserves as disbursements against the liability when claims are submitted for payment against previously collected maintenance reserves;

(iii)  Reflect as liabilities non-refundable reserves received by the prior lessor upon acquisition of an aircraft which are claimable by the lessee when maintenance is performed;

(iv)  Recognize as income non-refundable reserves not refunded to lessees upon termination of the lease and return of the aircraft to the Company in accordance with all lease return requirements; and

(v)  Record lessor maintenance obligations as liabilities upon acquisition of an aircraft subject to a lease under which the Company assumes the prior lessor’s obligation to pay a portion of a first-time maintenance event.

In management’s judgment, the change to this accounting method is preferable in that it will provide the user of the Company’s financial statements a better understanding of the underlying business termsof the Company’s leasing transactions and provide additional clarity with respect to the Company’s sources of income, its non-refundable reserve obligations, and its lessor maintenance obligations.  The change in accounting method resulted in a cumulative net decrease of $8,088,200 in stockholders’ equity as of January 1, 2013.

The effects on the Company’s December 31, 2013 balance sheet as a result of the retroactive application of the change in accounting principle in accordance with ASC 250 were as follows:

	December 31, 2013
	As reported previously			As adjusted			Effect of change
Cash and cash equivalents	$	2,112,700		$	2,112,700		$	-
Accounts receivable, net		3,313,700			3,303,800			(9,900	)
Finance leases receivable		1,895,200			1,895,200			-
Aircraft and aircraft engines held for lease, net		152,375,200			152,954,600			579,400
Assets held for sale		735,000			735,000			-
Prepaid expenses and other		3,633,000			3,633,000			-
Total assets	$	164,064,800		$	164,634,300		$	569,500
Accounts payable and accrued expenses	$	1,175,300		$	1,202,700		$	27,400
Notes payable and accrued interest		77,527,300			77,527,300			-
Maintenance reserves and accrued maintenance costs		13,254,100			18,283,900			5,029,800
Security deposits		6,265,000			6,265,000			-
Unearned revenues		646,700			646,700			-
Deferred income taxes		16,099,700			14,573,800			(1,525,900	)
Total liabilities		114,968,100			118,499,400			3,531,300
Preferred stock		-			-			-
Common stock		1,600			1,600			-
Paid-in capital		14,780,100			14,780,100			-
Retained earnings		34,819,100			31,857,300			(2,961,800	)
Treasury stock		(504,100	)		(504,100	)		-
Total stockholders’ equity		49,096,700			46,134,900			(2,961,800	)
Total liabilities and stockholders’ equity	$	164,064,800		$	164,634,300		$	569,500

The effects on the Company’s statements of operations for the six months and three months ended June 30, 2013 as a result of the retroactive application of the change in accounting principle in accordance with ASC 250 were as follows:

	For the Six Months Ended  June 30, 2013							For the Three Months Ended  June 30, 2013
	As reported previously		As adjusted		Effect of change			As reported previously		As adjusted		Effect of change
Operating lease revenue, net	$	9,573,100	$	9,573,100	$	-		$	4,672,800	$	4,672,800	$	-
Maintenance reserves income, net		7,703,600		7,720,000		16,400			569,300		1,191,500		622,200
Gain on disposal of assets and other income		2,769,200		2,769,200		-			2,001,100		2,001,100		-
		20,045,900		20,062,300		16,400			7,243,200		7,865,400		622,200
Maintenance		3,788,700		3,469,800		(318,900	)		1,383,600		1,330,400		(53,200	)
Depreciation		3,549,400		3,573,000		23,600			1,803,400		1,815,800		12,400
Management fees		2,164,500		2,172,600		8,100			1,072,400		1,076,700		4,300
Interest		2,068,100		2,068,100		-			1,002,500		1,002,500		-
Professional fees, general and administrative and other		669,400		669,400		-			320,000		320,000		-
Insurance		552,000		552,000		-			298,000		298,000		-
		12,792,100		12,504,900		(287,200	)		5,879,900		5,843,400		(36,500	)
Income before taxes		7,253,800		7,557,400		303,600			1,363,300		2,022,000		658,700
Tax provision		2,299,800		2,403,100		103,300			461,600		685,600		224,000
Net income	$	4,954,000	$	5,154,300	$	200,300		$	901,700	$	1,336,400	$	434,700
Earnings per share:
Basic	$	3.21	$	3.34	$	0.13		$	0.58	$	0.87	$	0.29
Diluted	$	3.12	$	3.25	$	0.13		$	0.57	$	0.84	$	0.27

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Balance Sheets (Unaudited) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Assets:
Cash and cash equivalents	$ 5,909,600	$ 2,112,700
Accounts receivable, including deferred rent of $54,800 and $217,200 at June 30, 2014 and December 31, 2013, respectively	2,797,800	3,303,800
Finance leases receivable	945,400	1,895,200
Aircraft and aircraft engines held for lease, net of accumulated depreciation of $53,047,600 and $50,679,300 at June 30, 2014 and December 31, 2013, respectively	166,922,000	152,954,600
Assets held for sale	509,200	735,000
Prepaid expenses and other	5,005,800	3,633,000
Total assets	182,089,800	164,634,300
Liabilities:
Accounts payable and accrued expenses	2,130,700	1,202,700
Notes payable and accrued interest	101,457,500	77,527,300
Maintenance reserves	14,221,800	16,671,800
Accrued maintenance costs	709,000	1,612,100
Security deposits	6,286,700	6,265,000
Unearned revenues	2,042,200	646,700
Deferred income taxes	12,498,600	14,573,800
Taxes payable	159,200	0
Total liabilities	139,505,700	118,499,400
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value, 2,000,000 shares authorized, no shares issued and outstanding	0	0
Common stock, $0.001 par value, 10,000,000 shares authorized, 1,606,557 shares issued and outstanding	1,600	1,600
Paid-in capital	14,780,100	14,780,100
Retained earnings	28,306,500	31,857,300
Shareholders equity before treasury stock	43,088,200	46,639,000
Treasury stock at cost, 63,300 shares	(504,100)	(504,100)
Total stockholders' equity	42,584,100	46,134,900
Total liabilities and stockholders' equity	$ 182,089,800	$ 164,634,300

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Statements of Cash Flows (Unaudited) (Parenthetical) (USD $)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Statements of Cash Flows (Unaudited) [Abstract]
Interest paid	$ 2,092,700	$ 1,424,300
Income taxes paid	$ 800	$ 800

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Organization and Summary of Significant Accounting Policies (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014 Recurring [Member]	Dec. 31, 2013 Recurring [Member]	Jun. 30, 2014 Level 1 [Member] Recurring [Member]	Dec. 31, 2013 Level 1 [Member] Recurring [Member]	Jun. 30, 2014 Level 2 [Member] Recurring [Member]	Dec. 31, 2013 Level 2 [Member] Recurring [Member]	Jun. 30, 2014 Level 3 [Member] Recurring [Member]	Dec. 31, 2013 Level 3 [Member] Recurring [Member]
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis [Abstract]
Money market funds included in cash and cash equivalents					$ 5,543,100	$ 1,842,000	$ 5,543,100	$ 1,842,000	$ 0	$ 0	$ 0	$ 0
Total					5,543,100	1,842,000	5,543,100	1,842,000	0	0	0	0
Finance Leases [Abstract]
Interest earned on finance lease	66,200	34,600	150,000	65,000
Impairment charge	$ 6,800,000	$ 0	$ 6,800,000	$ 0

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Aircraft and Aircraft Engines Held for Lease or Sale (Details) (USD $)	3 Months Ended		6 Months Ended		3 Months Ended						6 Months Ended						3 Months Ended	6 Months Ended										3 Months Ended	12 Months Ended			3 Months Ended
	Jun. 30, 2014 Asset Aircraft	Jun. 30, 2013	Jun. 30, 2014 Aircraft	Jun. 30, 2013	Jun. 30, 2014 Held-for-sale [Member]	Jun. 30, 2013 Held-for-sale [Member]	Jun. 30, 2014 Bombardier Dash-8-300 [Member] Aircraft	Dec. 31, 2013 Bombardier Dash-8-300 [Member] Aircraft	Jun. 30, 2014 Bombardier CRJ-700 [Member] Aircraft	Dec. 31, 2013 Bombardier CRJ-700 [Member] Aircraft	Jun. 30, 2014 Fokker 100 [Member] Aircraft	Dec. 31, 2013 Fokker 100 [Member] Aircraft	Jun. 30, 2014 Bombardier Dash-8-Q400 [Member] Aircraft	Dec. 31, 2013 Bombardier Dash-8-Q400 [Member] Aircraft	Jun. 30, 2014 Bombardier CRJ-705 [Member] Aircraft	Dec. 31, 2013 Bombardier CRJ-705 [Member] Aircraft	Jun. 30, 2014 Saab 340B Plus [Member] Asset Aircraft	Jun. 30, 2014 Saab 340B Plus [Member] Aircraft	Dec. 31, 2013 Saab 340B Plus [Member] Aircraft	Jun. 30, 2014 Fokker 50 [Member] Aircraft	Dec. 31, 2013 Fokker 50 [Member] Aircraft	Jun. 30, 2014 General Electric CF34-8E5 engine [Member] Aircraft	Dec. 31, 2013 General Electric CF34-8E5 engine [Member] Aircraft	Jun. 30, 2014 Saab 340B [Member] Aircraft	Dec. 31, 2013 Saab 340B [Member] Aircraft	Jun. 30, 2014 Tay 650-15 engine [Member] Aircraft	Dec. 31, 2013 Tay 650-15 engine [Member] Aircraft	Jun. 30, 2014 General Electric CT7-9B engine [Member] Asset Aircraft	Dec. 31, 2013 General Electric CT7-9B engine [Member] Aircraft	Jun. 30, 2014 Saab 340 A [Member] Aircraft	Dec. 31, 2013 Saab 340 A [Member] Aircraft	Jun. 30, 2014 Saab 340B and General Electric CF34-8E5 [Member] Aircraft	Jun. 30, 2013 Dash-8-100 [Member]	Jun. 30, 2014 Dash-8-100 [Member] Aircraft	Jun. 30, 2013 General Electric CF7-9B engine [Member]
Aircraft and aircraft engines held for lease or sale [Abstract]
Number owned							9	9	3	0	7	7	3	3	1	1	6	6	6	9	10	2	3	1	4	1	1	2	2	1	1
Percentage of net book value (in hundredths)							21.00%	23.00%	18.00%	0.00%	13.00%	19.00%	15.00%	17.00%	10.00%	12.00%	8.00%	8.00%	8.00%	8.00%	10.00%	4.00%	6.00%	1.00%	4.00%	1.00%	1.00%	1.00%	0.00%	0.00%	0.00%
Number of aircraft or engines subject to lease																													2
Impairment charges	$ 6,800,000	$ 0	$ 6,800,000	$ 0							$ 6,800,000
Number of aircraft on impairment recorded											5
Payment for equipment and acquisition costs related to aircraft purchased	9,000	2,323,000
Gain on sale of aircraft and parts from an engine																																762,500	1,871,000
Number of aircraft sold																																3
Gain on financial lease																																			73,300
Number of assets lease term extended	5
Number of aircraft and engines returned by customers																	6											2
Number of entity aircraft off lease	21		21								6						6	6		3		2				1		2						1
Re-lease opportunities for the off-lease aircraft (in hundredths)	31.00%		31.00%
Number of aircrafts letter of intent for lease signed																		2
Number of aircrafts deposit for lease signed																		1
Expected numbers of aircraft to deliver			4
Proceeds from the sale of airframe parts			$ 225,800	$ 207,700	$ 10,500	$ 171,000

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Organization and Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2014

Organization and Summary of Significant Accounting Policies [Abstract]

Organization and Summary of Significant Accounting Policies

1.Organization and Summary of Significant Accounting Policies

(a)The Company and Basis of Presentation

AeroCentury Corp., a Delaware corporation incorporated in 1997, acquires used regional aircraft and engines for lease to foreign and domestic regional carriers.

The condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  Operating results for the three-month and six-month periods ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.

As discussed in Note 2, the Company has adopted an alternate method of accounting for non-refundable maintenance reserves and certain lessor maintenance obligations.  The Company has applied this change in accounting principle retrospectively in accordance with ASC 250, Accounting Changes and Error Corrections (“ASC 250”).

For further information, refer to the financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2013.

(b)Use of Estimates

The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).  The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable for making judgments that are not readily apparent from other sources.

The most significant estimates with regard to these financial statements are the residual values and useful lives of the assets, the amount and timing of cash flows associated with each asset that are used to evaluate whether assets are impaired, accrued maintenance costs, accounting for income taxes, and the amounts recorded as allowances for doubtful accounts.

(c)Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs, to the extent possible. The fair value hierarchy under GAAP is based on three levels of inputs.

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis

The following table shows by level, within the fair value hierarchy, the fair value of the Company’s assets that are measured and recorded at fair value on a recurring basis:

	June 30, 2014								December 31, 2013
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Money market funds included in cash and cash equivalents	$	5,543,100	$	5,543,100	$	-	$	-	$	1,842,000	$	1,842,000	$	-	$	-
Total	$	5,543,100	$	5,543,100	$	-	$	-	$	1,842,000	$	1,842,000	$	-	$	-

As of June 30, 2014 and December 31, 2013, there were no liabilities that were required to be measured and recorded at fair value on a recurring basis.

Assets Measured and Recorded at Fair Value on a Nonrecurring Basis

The Company determines fair value of long-lived assets held and used, such as aircraft and aircraft engines held for lease and held for sale, by reference to independent appraisals, quoted market prices (e.g., offers to purchase) and other factors. An impairment charge is recorded when the Company believes that the carrying value of an asset will not be recovered through future net cash flows and that the carrying value exceeds its fair value.  At June 30, 2014, the Company determined that the carrying values of five of its Fokker 100 aircraft were not recoverable and consequently recorded an impairment charge of $6,800,000 based on the appraised values of those aircraft.

Fair Value of Other Financial Instruments

The Company’s financial instruments, other than cash and cash equivalents, consist principally of finance leases receivable and amounts borrowed under its credit facility (the “Credit Facility,” as defined in Note 5).  The fair value of accounts receivable, finance leases receivable, accounts payable and the Company’s maintenance reserves and accrued maintenance costs approximates the carrying value of these financial instruments.

Borrowings under the Company’s Credit Facility bear floating rates of interest that reset periodically to a market benchmark rate plus a credit margin.  The Company believes the effective interest rate of this debt agreement approximates current market rates for such indebtedness at the balance sheet date, and therefore that the carrying amount of its floating rate debt at the balance sheet dates approximates its fair value.  The fair value of the Company’s outstanding balance of its Credit Facility would be categorized as Level 3 under the GAAP fair value hierarchy.

(d)Finance Leases

The lease for one of the Company’s aircraft contains a lessee purchase option at a price substantially below the assets’ estimated residual values at the exercise date for the option.  Consequently, the Company considers the purchase option to be a “bargain purchase option” and has classified the lease as a finance lease for financial accounting purposes.  The Company does not include the value, purchase price or accumulated depreciation of finance lease assets on its balance sheet.  Instead, the discounted present value of (i) future minimum lease payments (including the bargain purchase option) and (ii) any residual value not subject to a bargain purchase option are reported as a finance lease receivable.  Rental revenue and depreciation expense are not recognized on finance leases.  Rather, the Company accrues interest on the balance of the finance lease receivable based on the interest rate inherent in the applicable lease.  

Two engines that were previously subject to finance leases were returned to the Company during the second quarter of 2014 and the finance lease receivable balances were reclassified to aircraft and aircraft engines held for lease on the Company’s balance sheet.

The Company recognized interest earned on finance leases as “other income” in the amount of $66,200 and $34,600 in the quarters ended June 30, 2014 and 2013, respectively, and $150,000 and $65,000 in the six months ended June 30, 2014 and 2013, respectively.

(e)Recent Accounting Pronouncements

On May 28, 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2014-09 (the "ASU") that created the new Topic 606 in the Accounting Standards Codification ("ASC").  The ASU also included numerous conforming additions and amendments to other Topics within the ASC.  Topic 606 establishes new rules that affect the amount and timing of revenue recognition for contracts with customers, but does not affect lease accounting and reporting.  As such, adoption of these provisions will not affect the Company's lease revenues but may affect the reporting of other of the Company's revenues.  The provisions included in the ASU are effective for years commencing after December 15, 2016, cannot be adopted early, and may be reflected using either a full retrospective method or a simplified method that does not recast prior periods but does disclose the effect of the adoption on the current period financial statements.  The Company has not determined either the potential impact on its financial statements nor the method it will elect to use in connection with the adoption of the changes included in the ASU.

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Balance Sheets (Unaudited) (Parenthetical) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Assets:
Accounts receivable, deferred rent	$ 54,800	$ 217,200
Aircraft and aircraft engines held for lease, accumulated depreciation	$ 53,047,600	$ 50,679,300
Stockholders' equity:
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, authorized (in shares)	2,000,000	2,000,000
Preferred stock, issued (in shares)	0	0
Preferred stock, outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, authorized (in shares)	10,000,000	10,000,000
Common stock, issued (in shares)	1,606,557	1,606,557
Common stock, outstanding (in shares)	1,606,557	1,606,557
Treasury stock (in shares)	63,300	63,300

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Adjustment of Previously Reported Financial Information (Tables)

6 Months Ended

Jun. 30, 2014

Adjustment of Previously Reported Financial Information [Abstract]

Schedule of Error Corrections and Prior Period Adjustments

The effects on the Company’s December 31, 2013 balance sheet as a result of the retroactive application of the change in accounting principle in accordance with ASC 250 were as follows:

	December 31, 2013
	As reported previously			As adjusted			Effect of change
Cash and cash equivalents	$	2,112,700		$	2,112,700		$	-
Accounts receivable, net		3,313,700			3,303,800			(9,900	)
Finance leases receivable		1,895,200			1,895,200			-
Aircraft and aircraft engines held for lease, net		152,375,200			152,954,600			579,400
Assets held for sale		735,000			735,000			-
Prepaid expenses and other		3,633,000			3,633,000			-
Total assets	$	164,064,800		$	164,634,300		$	569,500
Accounts payable and accrued expenses	$	1,175,300		$	1,202,700		$	27,400
Notes payable and accrued interest		77,527,300			77,527,300			-
Maintenance reserves and accrued maintenance costs		13,254,100			18,283,900			5,029,800
Security deposits		6,265,000			6,265,000			-
Unearned revenues		646,700			646,700			-
Deferred income taxes		16,099,700			14,573,800			(1,525,900	)
Total liabilities		114,968,100			118,499,400			3,531,300
Preferred stock		-			-			-
Common stock		1,600			1,600			-
Paid-in capital		14,780,100			14,780,100			-
Retained earnings		34,819,100			31,857,300			(2,961,800	)
Treasury stock		(504,100	)		(504,100	)		-
Total stockholders’ equity		49,096,700			46,134,900			(2,961,800	)
Total liabilities and stockholders’ equity	$	164,064,800		$	164,634,300		$	569,500

The effects on the Company’s statements of operations for the six months and three months ended June 30, 2013 as a result of the retroactive application of the change in accounting principle in accordance with ASC 250 were as follows:

	For the Six Months Ended  June 30, 2013							For the Three Months Ended  June 30, 2013
	As reported previously		As adjusted		Effect of change			As reported previously		As adjusted		Effect of change
Operating lease revenue, net	$	9,573,100	$	9,573,100	$	-		$	4,672,800	$	4,672,800	$	-
Maintenance reserves income, net		7,703,600		7,720,000		16,400			569,300		1,191,500		622,200
Gain on disposal of assets and other income		2,769,200		2,769,200		-			2,001,100		2,001,100		-
		20,045,900		20,062,300		16,400			7,243,200		7,865,400		622,200
Maintenance		3,788,700		3,469,800		(318,900	)		1,383,600		1,330,400		(53,200	)
Depreciation		3,549,400		3,573,000		23,600			1,803,400		1,815,800		12,400
Management fees		2,164,500		2,172,600		8,100			1,072,400		1,076,700		4,300
Interest		2,068,100		2,068,100		-			1,002,500		1,002,500		-
Professional fees, general and administrative and other		669,400		669,400		-			320,000		320,000		-
Insurance		552,000		552,000		-			298,000		298,000		-
		12,792,100		12,504,900		(287,200	)		5,879,900		5,843,400		(36,500	)
Income before taxes		7,253,800		7,557,400		303,600			1,363,300		2,022,000		658,700
Tax provision		2,299,800		2,403,100		103,300			461,600		685,600		224,000
Net income	$	4,954,000	$	5,154,300	$	200,300		$	901,700	$	1,336,400	$	434,700
Earnings per share:
Basic	$	3.21	$	3.34	$	0.13		$	0.58	$	0.87	$	0.29
Diluted	$	3.12	$	3.25	$	0.13		$	0.57	$	0.84	$	0.27

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Document and Entity Information	6 Months Ended
	Jun. 30, 2014	Aug. 13, 2014
Document and Entity Information [Abstract]
Entity Registrant Name	AEROCENTURY CORP
Entity Central Index Key	0001036848
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		1,606,557
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q2
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2014

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Aircraft and Aircraft Engines Held for Lease or Sale (Tables)

6 Months Ended

Jun. 30, 2014

Aircraft and Aircraft Engines Held for Lease or Sale [Abstract]

Aircraft and aircraft engines held for lease

At June 30, 2014 and December 31, 2013, the Company’s aircraft and aircraft engines, which were on lease or held for lease, consisted of the following:   

	June 30, 2014					December 31, 2013
	Number		% of net			Number		% of net
Model	owned		book value			owned		book value
Bombardier Dash-8-300		9		21	%		9		23	%
Bombardier CRJ-700		3		18	%		-		-
Fokker 100		7		13	%		7		19	%
Bombardier Dash-8-Q400		3		15	%		3		17	%
Bombardier CRJ-705		1		10	%		1		12	%
Saab 340B Plus		6		8	%		6		8	%
Fokker 50		9		8	%		10		10	%
General Electric CF34-8E5 engine		2		4	%		3		6	%
Saab 340B		1		1	%		4		4	%
Tay 650-15 engine		1		1	%		1		1	%
General Electric CT7-9B engine		2		1	%		2		-
Saab 340A		1		-			1		-

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Statements of Operations (Unaudited) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Revenues and other income:
Operating lease revenue, net	$ 5,332,300	$ 4,672,800	$ 11,183,100	$ 9,573,100
Maintenance reserves revenue, net	1,717,800	1,191,500	3,393,600	7,720,000
Net gain on disposal of assets	762,500	1,944,300	1,154,400	2,162,500
Other income	66,700	56,800	151,100	606,700
Total Income	7,879,300	7,865,400	15,882,200	20,062,300
Expenses:
Provision for impairment in value of aircraft	6,800,000	0	6,800,000	0
Depreciation	2,012,600	1,815,800	3,878,400	3,573,000
Maintenance	1,302,300	1,330,400	3,646,600	3,469,800
Management fees	1,332,600	1,076,700	2,659,900	2,172,600
Interest	1,261,200	1,002,500	2,568,100	2,068,100
Professional fees, general and administrative and other	822,900	297,500	1,127,500	624,300
Insurance	313,300	298,000	620,600	552,000
Other taxes	22,500	22,500	45,100	45,100
Total expenses	13,867,400	5,843,400	21,346,200	12,504,900
(Loss)/income before income tax provision	(5,988,100)	2,022,000	(5,464,000)	7,557,400
Income tax (benefit)/provision	(2,067,700)	685,600	(1,913,200)	2,403,100
Net (loss)/income	$ (3,920,400)	$ 1,336,400	$ (3,550,800)	$ 5,154,300
(Loss)/earnings per share:
Basic (in dollars per share)	$ (2.54)	$ 0.87	$ (2.30)	$ 3.34
Diluted (in dollars per share)	$ (2.54)	$ 0.84	$ (2.30)	$ 3.25
Weighted average shares used in (loss)/earnings per share computations:
Basic (in shares)	1,543,257	1,543,257	1,543,257	1,543,257
Diluted (in shares)	1,543,257	1,588,331	1,543,257	1,585,666

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Computation of Earnings Per Share

6 Months Ended

Jun. 30, 2014

Computation of Earnings Per Share [Abstract]

Computation of Earnings Per Share

6.Computation of Earnings Per Share

Basic and diluted earnings per share are calculated as follows:

	For the Six Months Ended June 30,					For the Three Months Ended June 30,
	2014			2013		2014			2013
Net (loss)/income	$	(3,550,800	)	$	5,154,300	$	(3,920,400	)	$	1,336,400
Weighted average shares outstanding for the period		1,543,257			1,543,257		1,543,257			1,543,257
Dilutive effect of warrants		-			42,409		-			45,074
Weighted average diluted shares used in calculation of diluted (loss)/earnings per share		1,543,257			1,585,666		1,543,257			1,588,331
Basic (loss)/earnings per share	$	(2.30	)	$	3.34	$	(2.54	)	$	0.87
Diluted (loss)/earnings per share	$	(2.30	)	$	3.25	$	(2.54	)	$	0.84

Basic earnings per common share is computed using net income and the weighted average number of common shares outstanding during the period.  Diluted earnings per common share are computed using net income and the weighted average number of common shares outstanding, assuming dilution.  Weighted average common shares outstanding, assuming dilution, include potentially dilutive common shares outstanding during the period. Potentially dilutive common shares include the assumed exercise of warrants using the treasury stock method.  For the three months and six months ended June 30, 2014, the dilutive effect of outstanding warrants was 39,393 and 39,589 potentially outstanding shares issuable upon the assumed exercise of all outstanding warrants.  However, the effect of these potentially outstanding shares was not included in the calculation of diluted loss per share for the applicable period because the effect would have been anti-dilutive.

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Notes Payable and Accrued Interest

6 Months Ended

Jun. 30, 2014

Notes Payable and Accrued Interest [Abstract]

Notes Payable and Accrued Interest

5.Notes Payable and Accrued Interest

At June 30, 2014 and December 31, 2013, the Company’s notes payable and accrued interest consisted of the following:

	June 30, 2014		December 31, 2013
Credit Facility principal	$	101,400,000	$	77,500,000
Credit Facility accrued interest		57,500		27,300
	$	101,457,500	$	77,527,300

During May 2014, the Company’s $130 million Credit Facility (the “Credit Facility”), which is provided by a syndicate of banks, was increased to $180 million and extended through May 31, 2019.  The Credit Facility is secured by all of the assets of the Company, including its aircraft and engine portfolio.

In November 2013, the Company obtained a waiver of compliance with a customer concentration covenant at the September 30, 2013 and December 31, 2013 calculation dates.  The Company was in compliance with all covenants other than the waived covenant under the Credit Facility agreement at December 31, 2013.  

As of June 30, 2014, the Company was out of compliance with a profitability covenant.  The non-compliance resulted primarily from the Company recognizing aircraft impairment charges totaling $6,800,000 at June 30, 2014.   Based on its current projections, the Company believes that it may be out of compliance with this covenant, which is calculated on a trailing 12 months basis, at subsequent calculation dates.  The Company is in discussions with the agent bank to amend the credit facility agreement to exclude impairment charges from the profitability covenant calculation, and retroactively cure the covenant default on June 30, 2014 and subsequent calculation dates.  There is, however, no assurance that such an amendment agreement will eventually be entered into between the Company and the Credit Facility banks.   

The Company was in compliance with all other covenants at June 30, 2014.

The unused amount of the Credit Facility was $78,600,000 and $52,500,000 as of June 30, 2014 and December 31, 2013, respectively.

The weighted average interest rate on the Credit Facility was 3.69% and 3.94% at June 30, 2014 and December 31, 2013, respectively.

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Adjustment of Previously Reported Financial Information (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013	Jan. 31, 2013	Dec. 31, 2012
Balance Sheets [Abstract]
Cash and cash equivalents	$ 5,909,600	$ 7,647,000	$ 5,909,600	$ 7,647,000	$ 2,112,700		$ 1,596,800
Accounts receivable, net	2,797,800		2,797,800		3,303,800
Finance leases receivable	945,400		945,400		1,895,200
Aircraft and aircraft engines held for lease, net	166,922,000		166,922,000		152,954,600
Assets held for sale	509,200		509,200		735,000
Prepaid expenses and other	5,005,800		5,005,800		3,633,000
Total assets	182,089,800		182,089,800		164,634,300
Accounts payable and accrued expenses	2,130,700		2,130,700		1,202,700
Notes payable and accrued interest	101,457,500		101,457,500		77,527,300
Security deposits	6,286,700		6,286,700		6,265,000
Unearned revenues	2,042,200		2,042,200		646,700
Deferred income taxes	12,498,600		12,498,600		14,573,800
Total liabilities	139,505,700		139,505,700		118,499,400
Preferred stock	0		0		0
Common stock	1,600		1,600		1,600
Paid-in capital	14,780,100		14,780,100		14,780,100
Retained earnings	28,306,500		28,306,500		31,857,300
Treasury stock	(504,100)		(504,100)		(504,100)
Total stockholders' equity	42,584,100		42,584,100		46,134,900
Total liabilities and stockholders' equity	182,089,800		182,089,800		164,634,300
Statement of Operations [Abstract]
Operating lease revenue, net	5,332,300	4,672,800	11,183,100	9,573,100
Maintenance reserves income, net	1,717,800	1,191,500	3,393,600	7,720,000
Gain on disposal of assets and other income	762,500	1,944,300	1,154,400	2,162,500
Total Income	7,879,300	7,865,400	15,882,200	20,062,300
Maintenance	1,302,300	1,330,400	3,646,600	3,469,800
Depreciation	2,012,600	1,815,800	3,878,400	3,573,000
Management fees	1,332,600	1,076,700	2,659,900	2,172,600
Interest	1,261,200	1,002,500	2,568,100	2,068,100
Professional fees, general and administrative and other	822,900	297,500	1,127,500	624,300
Insurance	313,300	298,000	620,600	552,000
Total expenses	13,867,400	5,843,400	21,346,200	12,504,900
Income before taxes	(5,988,100)	2,022,000	(5,464,000)	7,557,400
Tax provision	(2,067,700)	685,600	(1,913,200)	2,403,100
Net (loss)/income	(3,920,400)	1,336,400	(3,550,800)	5,154,300
(Loss)/earnings per share:
Basic (in dollars per share)	$ (2.54)	$ 0.87	$ (2.30)	$ 3.34
Diluted (in dollars per share)	$ (2.54)	$ 0.84	$ (2.30)	$ 3.25
Cumulative net decrease of in stockholders' equity						8,088,200
As Reported Previously [Member]
Balance Sheets [Abstract]
Cash and cash equivalents					2,112,700
Accounts receivable, net					3,313,700
Finance leases receivable					1,895,200
Aircraft and aircraft engines held for lease, net					152,375,200
Assets held for sale					735,000
Prepaid expenses and other					3,633,000
Total assets					164,064,800
Accounts payable and accrued expenses					1,175,300
Notes payable and accrued interest					77,527,300
Maintenance reserves and accrued maintenance costs					13,254,100
Security deposits					6,265,000
Unearned revenues					646,700
Deferred income taxes					16,099,700
Total liabilities					114,968,100
Preferred stock					0
Common stock					1,600
Paid-in capital					14,780,100
Retained earnings					34,819,100
Treasury stock					(504,100)
Total stockholders' equity					49,096,700
Total liabilities and stockholders' equity					164,064,800
Statement of Operations [Abstract]
Operating lease revenue, net		4,672,800		9,573,100
Maintenance reserves income, net		569,300		7,703,600
Gain on disposal of assets and other income		2,001,100		2,769,200
Total Income		7,243,200		20,045,900
Maintenance		1,383,600		3,788,700
Depreciation		1,803,400		3,549,400
Management fees		1,072,400		2,164,500
Interest		1,002,500		2,068,100
Professional fees, general and administrative and other		320,000		669,400
Insurance		298,000		552,000
Total expenses		5,879,900		12,792,100
Income before taxes		1,363,300		7,253,800
Tax provision		461,600		2,299,800
Net (loss)/income		901,700		4,954,000
(Loss)/earnings per share:
Basic (in dollars per share)		$ 0.58		$ 3.21
Diluted (in dollars per share)		$ 0.57		$ 3.12
As Adjusted [Member]
Balance Sheets [Abstract]
Cash and cash equivalents					2,112,700
Accounts receivable, net					3,303,800
Finance leases receivable					1,895,200
Aircraft and aircraft engines held for lease, net					152,954,600
Assets held for sale					735,000
Prepaid expenses and other					3,633,000
Total assets					164,634,300
Accounts payable and accrued expenses					1,202,700
Notes payable and accrued interest					77,527,300
Maintenance reserves and accrued maintenance costs					18,283,900
Security deposits					6,265,000
Unearned revenues					646,700
Deferred income taxes					14,573,800
Total liabilities					118,499,400
Preferred stock					0
Common stock					1,600
Paid-in capital					14,780,100
Retained earnings					31,857,300
Treasury stock					(504,100)
Total stockholders' equity					46,134,900
Total liabilities and stockholders' equity					164,634,300
Statement of Operations [Abstract]
Operating lease revenue, net		4,672,800		9,573,100
Maintenance reserves income, net		1,191,500		7,720,000
Gain on disposal of assets and other income		2,001,100		2,769,200
Total Income		7,865,400		20,062,300
Maintenance		1,330,400		3,469,800
Depreciation		1,815,800		3,573,000
Management fees		1,076,700		2,172,600
Interest		1,002,500		2,068,100
Professional fees, general and administrative and other		320,000		669,400
Insurance		298,000		552,000
Total expenses		5,843,400		12,504,900
Income before taxes		2,022,000		7,557,400
Tax provision		685,600		2,403,100
Net (loss)/income		1,336,400		5,154,300
(Loss)/earnings per share:
Basic (in dollars per share)		$ 0.87		$ 3.34
Diluted (in dollars per share)		$ 0.84		$ 3.25
Effect of Change [Member]
Balance Sheets [Abstract]
Cash and cash equivalents					0
Accounts receivable, net					(9,900)
Finance leases receivable					0
Aircraft and aircraft engines held for lease, net					579,400
Assets held for sale					0
Prepaid expenses and other					0
Total assets					569,500
Accounts payable and accrued expenses					27,400
Notes payable and accrued interest					0
Maintenance reserves and accrued maintenance costs					5,029,800
Security deposits					0
Unearned revenues					0
Deferred income taxes					(1,525,900)
Total liabilities					3,531,300
Preferred stock					0
Common stock					0
Paid-in capital					0
Retained earnings					(2,961,800)
Treasury stock					0
Total stockholders' equity					(2,961,800)
Total liabilities and stockholders' equity					569,500
Statement of Operations [Abstract]
Operating lease revenue, net		0		0
Maintenance reserves income, net		622,200		16,400
Gain on disposal of assets and other income		0		0
Total Income		622,200		16,400
Maintenance		(53,200)		(318,900)
Depreciation		12,400		23,600
Management fees		4,300		8,100
Interest		0		0
Professional fees, general and administrative and other		0		0
Insurance		0		0
Total expenses		(36,500)		(287,200)
Income before taxes		658,700		303,600
Tax provision		224,000		103,300
Net (loss)/income		$ 434,700		$ 200,300
(Loss)/earnings per share:
Basic (in dollars per share)		$ 0.29		$ 0.13
Diluted (in dollars per share)		$ 0.27		$ 0.13

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Notes Payable and Accrued Interest (Tables)

6 Months Ended

Jun. 30, 2014

Notes Payable and Accrued Interest [Abstract]

Notes payable and accrued interest

At June 30, 2014 and December 31, 2013, the Company’s notes payable and accrued interest consisted of the following:

	June 30, 2014		December 31, 2013
Credit Facility principal	$	101,400,000	$	77,500,000
Credit Facility accrued interest		57,500		27,300
	$	101,457,500	$	77,527,300

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Organization and Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2014

Organization and Summary of Significant Accounting Policies [Abstract]

The Company and Basis of Presentation

(a)The Company and Basis of Presentation

AeroCentury Corp., a Delaware corporation incorporated in 1997, acquires used regional aircraft and engines for lease to foreign and domestic regional carriers.

The condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  Operating results for the three-month and six-month periods ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.

As discussed in Note 2, the Company has adopted an alternate method of accounting for non-refundable maintenance reserves and certain lessor maintenance obligations.  The Company has applied this change in accounting principle retrospectively in accordance with ASC 250, Accounting Changes and Error Corrections (“ASC 250”).

For further information, refer to the financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2013.

Use of Estimates

(b)Use of Estimates

The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).  The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable for making judgments that are not readily apparent from other sources.

The most significant estimates with regard to these financial statements are the residual values and useful lives of the assets, the amount and timing of cash flows associated with each asset that are used to evaluate whether assets are impaired, accrued maintenance costs, accounting for income taxes, and the amounts recorded as allowances for doubtful accounts.

Fair Value Measurements

(c)Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs, to the extent possible. The fair value hierarchy under GAAP is based on three levels of inputs.

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis

The following table shows by level, within the fair value hierarchy, the fair value of the Company’s assets that are measured and recorded at fair value on a recurring basis:

	June 30, 2014								December 31, 2013
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Money market funds included in cash and cash equivalents	$	5,543,100	$	5,543,100	$	-	$	-	$	1,842,000	$	1,842,000	$	-	$	-
Total	$	5,543,100	$	5,543,100	$	-	$	-	$	1,842,000	$	1,842,000	$	-	$	-

As of June 30, 2014 and December 31, 2013, there were no liabilities that were required to be measured and recorded at fair value on a recurring basis.

Assets Measured and Recorded at Fair Value on a Nonrecurring Basis

The Company determines fair value of long-lived assets held and used, such as aircraft and aircraft engines held for lease and held for sale, by reference to independent appraisals, quoted market prices (e.g., offers to purchase) and other factors. An impairment charge is recorded when the Company believes that the carrying value of an asset will not be recovered through future net cash flows and that the carrying value exceeds its fair value.  At June 30, 2014, the Company determined that the carrying values of five of its Fokker 100 aircraft were not recoverable and consequently recorded an impairment charge of $6,800,000 based on the appraised values of those aircraft.

Fair Value of Other Financial Instruments

The Company’s financial instruments, other than cash and cash equivalents, consist principally of finance leases receivable and amounts borrowed under its credit facility (the “Credit Facility,” as defined in Note 5).  The fair value of accounts receivable, finance leases receivable, accounts payable and the Company’s maintenance reserves and accrued maintenance costs approximates the carrying value of these financial instruments.

Borrowings under the Company’s Credit Facility bear floating rates of interest that reset periodically to a market benchmark rate plus a credit margin.  The Company believes the effective interest rate of this debt agreement approximates current market rates for such indebtedness at the balance sheet date, and therefore that the carrying amount of its floating rate debt at the balance sheet dates approximates its fair value.  The fair value of the Company’s outstanding balance of its Credit Facility would be categorized as Level 3 under the GAAP fair value hierarchy.

Finance Leases

(d)Finance Leases

The lease for one of the Company’s aircraft contains a lessee purchase option at a price substantially below the assets’ estimated residual values at the exercise date for the option.  Consequently, the Company considers the purchase option to be a “bargain purchase option” and has classified the lease as a finance lease for financial accounting purposes.  The Company does not include the value, purchase price or accumulated depreciation of finance lease assets on its balance sheet.  Instead, the discounted present value of (i) future minimum lease payments (including the bargain purchase option) and (ii) any residual value not subject to a bargain purchase option are reported as a finance lease receivable.  Rental revenue and depreciation expense are not recognized on finance leases.  Rather, the Company accrues interest on the balance of the finance lease receivable based on the interest rate inherent in the applicable lease.  

Two engines that were previously subject to finance leases were returned to the Company during the second quarter of 2014 and the finance lease receivable balances were reclassified to aircraft and aircraft engines held for lease on the Company’s balance sheet.

The Company recognized interest earned on finance leases as “other income” in the amount of $66,200 and $34,600 in the quarters ended June 30, 2014 and 2013, respectively, and $150,000 and $65,000 in the six months ended June 30, 2014 and 2013, respectively.

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Related Party Transactions

6 Months Ended

Jun. 30, 2014

Related Party Transactions [Abstract]

Related Party Transactions

7.Related Party Transactions

The Company’s portfolio of leased aircraft assets is managed and administered under the terms of a management agreement with JetFleet Management Corp. (“JMC”), which is an integrated aircraft management, marketing and financing business and a subsidiary of JetFleet Holding Corp. ("JHC").  Certain officers of the Company are also officers of JHC and JMC and hold significant ownership positions in both JHC and the Company.

Under the management agreement, JMC receives a monthly management fee based on the net asset value of the assets under management. JMC also receives an acquisition fee for locating assets for the Company.  Acquisition fees are included in the cost basis of the asset purchased.  JMC may receive a remarketing fee in connection with the re-lease or sale of the Company’s assets. Remarketing fees are amortized over the applicable lease term or included in the gain or loss on sale recognized upon sale of the applicable asset.

Fees incurred during the three months and six months ended June 30, 2014 and 2013 were as follows:

	For the Six Months Ended June 30,				For the Three Months Ended June 30,
	2014		2013		2014		2013
Management fees	$	2,659,900	$	2,172,600	$	1,332,600	$	1,076,700
Acquisition fees		980,000		148,000		980,000		88,000
Remarketing fees		64,000		241,000		64,000		173,000

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Subsequent Events

6 Months Ended

Jun. 30, 2014

Subsequent Events [Abstract]

Subsequent Events

8.Subsequent Events

In July 2014, the Company sold a Fokker 50 aircraft and recorded a gain of approximately $332,000.

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Organization and Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2014

Organization and Summary of Significant Accounting Policies [Abstract]

Assets measured at fair value on recurring basis

The following table shows by level, within the fair value hierarchy, the fair value of the Company’s assets that are measured and recorded at fair value on a recurring basis:

	June 30, 2014								December 31, 2013
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Money market funds included in cash and cash equivalents	$	5,543,100	$	5,543,100	$	-	$	-	$	1,842,000	$	1,842,000	$	-	$	-
Total	$	5,543,100	$	5,543,100	$	-	$	-	$	1,842,000	$	1,842,000	$	-	$	-

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Related Party Transactions (Tables)

6 Months Ended

Jun. 30, 2014

Related Party Transactions [Abstract]

Related Party Fees

Fees incurred during the three months and six months ended June 30, 2014 and 2013 were as follows:

	For the Six Months Ended June 30,				For the Three Months Ended June 30,
	2014		2013		2014		2013
Management fees	$	2,659,900	$	2,172,600	$	1,332,600	$	1,076,700
Acquisition fees		980,000		148,000		980,000		88,000
Remarketing fees		64,000		241,000		64,000		173,000

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Computation of Earnings Per Share (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Basic and diluted earning/loss per share [Abstract]
Net (loss)/income	$ (3,920,400)	$ 1,336,400	$ (3,550,800)	$ 5,154,300
Weighted average shares outstanding for the period (in shares)	1,543,257	1,543,257	1,543,257	1,543,257
Dilutive effect of warrants (in shares)	0	45,074	0	42,409
Weighted average diluted shares used in calculation of diluted (loss)/earnings per share	1,543,257	1,588,331	1,543,257	1,585,666
Basic (loss)/earnings per share	$ (2.54)	$ 0.87	$ (2.30)	$ 3.34
Diluted (loss)/earnings per share	$ (2.54)	$ 0.84	$ (2.30)	$ 3.25
Warrant [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Potentially outstanding shares was not included in the calculation of diluted loss per share (in shares)	39,393		39,589

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Statements of Cash Flows (Unaudited) (USD $)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Statements of Cash Flows (Unaudited) [Abstract]
Net cash provided by operating activities	$ 5,032,200	$ 5,403,700
Investing activities:
Proceeds from sale of aircraft and aircraft engines held for lease, net of re-sale fees	9,316,400	4,882,800
Proceeds from sale of assets held for sale, net of re-sale fees	225,800	207,700
Purchases of aircraft and aircraft engines	(32,234,000)	(4,089,000)
Net cash (used in)/provided by investing activities	(22,691,800)	1,001,500
Financing activities:
Borrowings under Credit Facility	32,100,000	2,000,000
Repayments of Credit Facility	(8,200,000)	(300,000)
Debt issuance costs	(2,443,500)	(2,055,000)
Net cash provided by/(used in) financing activities	21,456,500	(355,000)
Net increase in cash and cash equivalents	3,796,900	6,050,200
Cash and cash equivalents, beginning of period	2,112,700	1,596,800
Cash and cash equivalents, end of period	$ 5,909,600	$ 7,647,000

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Maintenance Reserves and Accrued Maintenance Costs

6 Months Ended

Jun. 30, 2014

Maintenance Reserves and Accrued Maintenance Costs [Abstract]

Maintenance Reserves and Accrued Maintenance Costs

4.Maintenance Reserves and Accrued Maintenance Costs

Maintenance costs under the Company’s triple net leases are generally the responsibility of the lessees.  Most of the Company’s leases require payment of maintenance reserves, which are based upon lessee-reported usage and billed monthly, and are intended to accumulate and be applied by the Company toward reimbursement of most or all of the cost of the lessees’ performance of certain maintenance obligations under the leases. Maintenance reserves are characterized as either refundable or non-refundable depending on their disposition at lease end.  Non-refundable maintenance reserves are retained by the Company at lease end, even if the lessee has met all of its obligations under the lease, including any return conditions applicable to the leased asset, while refundable reserves are returned to the lessee under such circumstances.

Maintenance reserves in the accompanying balance sheets include refundable and non-refundable maintenance reserves payments billed to lessees, which are paid out as related maintenance is performed and, in the case of refundable reserves, at the end of the lease.  Accrued maintenance costs include (i) maintenance for work performed for off-lease aircraft, which is not related to the release of reserves received from lessees and (ii) lessor maintenance obligations assumed upon acquisition of aircraft subject to a lease with such provisions.

Maintenance reserves received by the Company are accounted for as a liability, which is reduced when maintenance work is performed during the lease and reimbursement to the lessee is paid.  Any reserves retained by the Company at lease end are recorded as revenue at that time.

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Related Party Transactions (Details) (Jet Fleet Management Corp. [Member], USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Jet Fleet Management Corp. [Member]
Related Party Transaction [Line Items]
Management fees	$ 1,332,600	$ 1,076,700	$ 2,659,900	$ 2,172,600
Acquisition fees	980,000	88,000	980,000	148,000
Remarketing fees	$ 64,000	$ 173,000	$ 64,000	$ 241,000

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Computation of Earnings Per Share (Tables)

6 Months Ended

Jun. 30, 2014

Computation of Earnings Per Share [Abstract]

Computation of earnings per share

Basic and diluted earnings per share are calculated as follows:

	For the Six Months Ended June 30,					For the Three Months Ended June 30,
	2014			2013		2014			2013
Net (loss)/income	$	(3,550,800	)	$	5,154,300	$	(3,920,400	)	$	1,336,400
Weighted average shares outstanding for the period		1,543,257			1,543,257		1,543,257			1,543,257
Dilutive effect of warrants		-			42,409		-			45,074
Weighted average diluted shares used in calculation of diluted (loss)/earnings per share		1,543,257			1,585,666		1,543,257			1,588,331
Basic (loss)/earnings per share	$	(2.30	)	$	3.34	$	(2.54	)	$	0.87
Diluted (loss)/earnings per share	$	(2.30	)	$	3.25	$	(2.54	)	$	0.84